Here is an excerpt from an article written by Mary Johnstone-Louis and Charmian Love for Harvard Business Review’s The Big Idea Series / Getting Serious About Stakeholder Capitalism and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
Credit: Brian Stauffer
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To serve all stakeholders, companies need systems change, not just one committed leader. The ousting of Danone’s chief executive shows why.
In March 2021, Emmanuel Faber was removed as Danone’s CEO and chairman. Some view this ousting as primarily led by an activist investor who acquired shares in the company in late 2020, just a few months after Faber oversaw a shareholder vote in favor of becoming a purpose-led business via the “Entreprise à Mission” French legal framework. Coverage of Faber’s fall has billed it as “a case study in the pitfalls of purpose,” a “fall from favor for a purpose-driven chief,” and a “battle for the soul of capitalism.”
At the time of Faber’s removal, Danone’s financial performance lagged that of its peers. Even so, his efforts to shift the company’s culture and legal framework made him, to many, an emblem of purpose-driven business. It’s easy to view the events leading up to his removal as a clash between stakeholder capitalism (where Faber is a heroic leader who took on Milton Friedman) and activist investing (where Faber’s removal heralds the failure of stakeholder capitalism and the triumph of shareholder value maximization). One might imagine ears ringing with the clatter of what Faber himself called the toppling of the statue of Friedman, only for the economist to emerge unscathed and perhaps more imposing than before.
Such narratives are evocative, but they don’t tell the full story. Danone offers a much more important lesson: In the quest to design a corporate ecosystem that reliably — and profitably — meets the needs of people and the planet, there can be leaders. There can be luminaries. There can be innovators and iconoclasts. But there can be no singular heroes. Addressing the interconnected emergencies facing our societies and planet will require systems change, and transformations of that scale are a team sport.
Systems change is premised on a deep understanding of the relationships between entities and causes, like the ones among educational and childcare systems, cultural norms, and industry forces that negatively impacted women’s labor force participation during the pandemic. Leadership that’s focused on systems change is not a “nice to have,” nor is it just about those at the top. Anyone who leads, works for, buys from, or invests in a business that has made a commitment to purpose should be watching what’s unfolding at Danone closely, and through a systems-change lens.
Simply put, what happened at Danone will repeat unless — and until — policy makers and business leaders agree that even the most ambitious, skilled, and dedicated CEOs cannot deliver systems change alone. Executives are increasingly beginning to understand this. The world’s 3,900-plus B Corporations, for example, think of themselves as a community and a movement that can drive changes in their sectors that a sole company cannot.
The story of Faber’s unseating points to four core principles of this type of systems change. The principles provide guidance for businesses deciding how to navigate the growing call to focus on stakeholders, not just shareholders. We took our inspiration from the Better Business Act, a campaign launched by our organization, B Lab UK, that would make it mandatory for businesses to consider shareholders and stakeholders equally in their decision-making. Leadership driven by these principles allows companies to deliver on their ambitions, regardless of who’s CEO.
[ Principle 1 ]
Understand that systems leadership relies on culture.
Faber clearly knows this; he signaled it in a tweet following his announcement that he was stepping down as CEO: “Yesterday, as a board, we chose to act as one. As our Chair, I chose to play the collective. The project will always be larger than any individual person. #CollectiveIntelligence, serving a unique project for @Danone, now and tomorrow. Proud of Danone. #EntrepriseàMission.” And in a recent Financial Times article on his departure, he shared his belief that “entreprise à mission will stay…I’m absolutely convinced about it.” Through his words and actions, Faber highlighted the importance of embedding purpose in the organization’s culture so that it becomes more than a slogan on a boardroom wall. As the adage goes, culture means doing the right thing when no one is looking. It’s culture that ultimately shapes behavior and the decisions people make. Aligning the interests of both shareholders and stakeholders creates the conditions to harness this collective power as a force for good.
Put products to the purpose test.
Company purpose means articulating why your firm exists and what role it plays in the world. In short, think about what you do and who is better off because you do it. Equally (or more) important, who is worse off because you do it? Current ESG (environmental, social, and governance) regimes are largely product-agnostic; fossil fuel companies and the world’s largest plastic polluters, for example, can score well on the ESG front. This shows the rules are missing a component. Systems change requires companies and industries to reflect, innovate, and transparently assess how their core products (Danone’s single-serve dairy products included) meet the needs of shareholders and stakeholders.
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Here is a direct link to the complete article.