EXECUTIVE IMPACT

The New Rules of Business: Is Stakeholder Capitalism Here to Stay?

Photo Credit: Haobin Ye

By Chief

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Transcript:

Carolyn Childers:

Hi, and welcome to The New Rules of Business by Chief, I’m Carolyn Childers.

Lindsay Kaplan:

I’m Lindsay Kaplan, and we are the co-founders of Chief, the network of the most powerful women in business.

Carolyn:

Each episode, we take on a complex, even divisive question that leaders are debating. And today we’re focusing on what’s arguably the biggest sea change for running a business in the last decade — corporate social responsibility.

Lindsay:

There’s been an increased demand for the private sector to take a stand on social and political issues. A 2021 Edelman survey found that 86% of people want their CEOs to publicly speak out on social issues that impact them outside of the workplace.

Carolyn:

That same study also found that 68% want their CEOs to step in when the government doesn’t.

Lindsay:

And while this mounting pressure is coming from consumers, employees, and shareholders alike, it's very understandable why some CEOs may be hesitant to speak up. We know, every decision won’t please everyone and one wrong statement can easily tank your reputation as a leader and impact your company’s bottom line.

Carolyn:

So today, we’re talking with Alan Murray, the CEO of Fortune Media and author of the book “Tomorrow’s Capitalist: My Search for the Soul of Business.” As a lifelong journalist reporting on business and politics, Alan has interviewed practically every, Fortune 500 CEO.

Lindsay:

We’re so excited for him to share from his vantage point how much business has changed in the last few decades, what the true job of a CEO is today, and how executives can navigate the demands for corporate activism.

Lindsay:

All right. Well, Alan, thank you for joining us. We are thrilled to talk about your book.

Lindsay:

So I'm going to start with the easiest question. Why write a book about capitalism now?

Alan Murray:

Well, I am CEO of Fortune Media, but I'm really a lifelong journalist. Have been covering the intersection of business and society for almost four decades now. And over the course of the last decade, I just started hearing something very different from the CEOs I was talking to. I have the opportunity in my job to talk to lots of CEOs. I get to ask them questions. I get to listen to how they're talking about their jobs. And all of that just changed fairly dramatically over the course of the last decade. Their obligations to society, the way that they felt they had to respond to broader social trends and issues. And it became so clear to me that it was a fundamental change in the way business leaders were operating that I thought somebody needed to write a book about it.

Lindsay:

Was there a specific moment that resonated with you or something that caused this sea change over the last decade?

Alan Murray:

I can go through a long list of things that really traces back to the great recession. There was a speech that Bill Gates gave at Davos in 2009, when he was stepping down as CEO of Microsoft. And remember the great recession sort of shook all of our faith in markets. Said, well, this really isn't working the way it's supposed to. And Gates who was like the ultimate capitalist at the time gave the speech talking about how we need a more creative capitalism. Not long after that. Michael Porter at the Harvard Business School started talking about shared value capitalism. John Mackey at Whole Foods was talking about conscious capitalism. Mark Benioff was talking about compassionate capitalism, inclusive capitalism. All of a sudden, everybody needed to put a modifier in front of capitalism.

Lindsay:

Dramatic capitalism. Fun capitalism. Garbage capitalism.

Alan Murray:

We have to do it better than we're doing it right now. But your question was, was there a moment when I said, wow, this is solid and I really have to write about it. I thought the business Roundtable statement in August 2019 was pretty important, but I think what really convinced me at the time had come to write something was when the pandemic hit, and my first reaction was, I've seen this movie before. I know what happens in a recession. These "stakeholder concerns" get put on the back burner because everybody's bottom line is deteriorated and they have to focus on the bottom line. And I was really kind of surprised and shocked to find in March and April and May of 2020, that didn't happen. That in fact, the opposite happened. That the amount of time that CEOs were spending thinking about, talking about stakeholder concerns actually increased.

Alan Murray:

In part because the crisis was itself, a stakeholder crisis. Employees, customers, they were all in danger. And then that led to an acceleration of environmental commitments as well.

Alan Murray:

So it was at that point that I said this is not a fad. This is not a passing trend. This is a fundamental change in the way business operates and somebody needs to capture it in a book.

Carolyn:

So who are the people that you think have just done a great job of navigating the shift as leaders?

Alan Murray:

Well, look, this is a work in progress. And so I don't think anybody has figured it out completely yet, but some of the people I admire, if you look at what Dan Shelman did at PayPal, where he totally reinvented the way they set wages for their lowest paid employees, the call center employees. He said, we're not going to rely on the market anymore. We're not just going to look at what the prevailing market is and give them a markup over that. We're going to figure out what it actually takes for them to live.

Alan Murray:

Mark Benioff was a big leader. And particularly in the part that's about speaking out on social issues. If you remember back in 2014 or '15, when Indiana passed a religious liberties law that was seen as discriminatory towards the LGBTQ community. It was Mark Benioff, who first said, Uh-uh (negative) you do this, Salesforce isn't going to do business in Indiana. That was a big thing, and it started a trend of similar actions.

Alan Murray:

Bank of America opposing the North Carolina state action to limit transgender access to public bathrooms, Delta Airlines saying we're not going to carry people to the NRA conference at discount anymore.

Alan Murray:

I mean, starting around then 2015, 2016, you've had a whole explosion of companies taking public stands on these social issues leading to most recently, in some ways the most remarkable example, the war in Ukraine, that hundreds of companies within two weeks time had made the decision to shut down their business in Ukraine. Not because there were government sanctions telling them they had to, but because they felt it was the right thing to do. That had never happened before

Lindsay:

I think it's easier for companies when everybody kind of coalesces around one shared mission that is widely popular. And I think in practice, it's really difficult when we're seeing more diversive topics. So when I look at what's happening with Disney, and how Disney is handling the political issues in Florida, how should leaders weigh in on these short term hits when they know that long term it is the stronger, better, greater, good way to approach these topics.

Alan Murray:

The Disney example in Florida is such a great example because I can't tell you how many conversations I've had with CEOs where they say on the one hand, we have to have values. We have to have things we stand for as a company. That's part of this whole new trend. Several CEOs have said to me, companies are human organizations, companies have a soul, companies have to have things we stand for. But at the same time, almost every CEO says, but please don't get me in the middle of a political... Can I use the word pissing match on your show? I don't know. You probably have better-

Lindsay:

You sure can.

Carolyn:

You just did. So we're going with it.

Alan Murray:

Please don't get me a dog fighter, whatever you want to call it.

Alan Murray:

I want to have values and I want to stand up for my values, and that's been a real problem.

Alan Murray:

So I think this has been very difficult and Chapek is the premiere example. What he did initially was say, this is really difficult. The LGBTQ community is really important to us, and we've always been very supportive of them, but Florida is also very important to us. Our business depends on the support of the Florida government, and my preference is to keep my mouth shut.

Alan Murray:

Now, 10 years ago, every CEO, and I'm not exaggerating. Almost without exception, every CEO would've done the same thing. This is a controversy, I'm going to keep my mouth shut. But the world has changed. And his employees revolted, truly revolted and were protesting, and after a couple of weeks of it, he couldn't take it any longer. And he said, I have to speak up because my employees are demanding it. And I run the risk in this very tight labor market of losing some of my most creative people if I don't say something. So he spoke out, opposed the bill, and then Ron DeSantis said, fine, you're going to do that, we'll take away your tax breaks and your special regulatory status.

Alan Murray:

Nobody said the stakeholder capitalism stuff was easy. I mean, I guess what I would say about that situation is if you realize that you have to operate in a stakeholder world, and your employees are stakeholders and the government of Florida is a stakeholder, you're going to devote more time to building relationships with those people before the crisis hits.

Lindsay:

It's interesting, you mentioned that 10 years ago you wouldn't have seen this and the rise of these values built into capitalism, how much of this do you think has to do with the corporate personhood that has emerged from Citizens United, Burwell versus Hobby Lobby and giving corporations more speech, more power and more rights?

Alan Murray:

I actually don't think it has that much to do with those legal changes. I think the causes are actually for the most part, not political. And let me mention a couple of those, because I think this is important and this is where the whole movement gets misunderstood. Many of my colleagues in the press interpret this as some sort of political play, political posturing or appeasement or whatever. I don't think that's what's going on. Let me start with a fact about how business has changed over the last 50 years.

Alan Murray:

There was a study done not too long ago, that looked at the balance sheets of the fortune 500 companies in the 1970s. And what it found was more than 80% of the value of fortune 500 companies on their balance sheets was physical stuff. It was plants, it was equipment, it was oil in the ground, it was inventory on the shelves, all stuff, by the way, that has to be supported by financial capital, which is why there was so much focus on returns to financial capital, because that's where the value was. You accumulated lots of plants and lots of oil in the ground and so forth.

Alan Murray:

Then if you do the same exercise today, what you find is more than 85% of the value of fortune 500 companies is not stuff, it's intangibles, it's intellectual property, it's brand value, it's software. It's things that are not tied to physical capital, but tied to human beings. Tied to your employees, tied to your relationship with your consumers. And so there has been just this huge shift over the course of those 50 years, that is forcing companies to become much more talent centric and much more human-centric.

Alan Murray:

And I think that in and of itself is the biggest driver of the change. Your success as a company, depends on your ability to engage your talented employees.

Alan Murray:

That was the problem with Disney, their most talented creative people were saying, we're out of here if you don't do this, and that was really driving it. And then the second thing that I don't think should be underestimated is the generational change. I think of my father and my children. My father was a child of the depression. When he went to work, I know he went to work to make money. That was his goal.

Alan Murray:

If he wanted to do good in the world, he would go to his church, he would go to his rotary club, someplace else, but he went to work to make money. When I look at my kids they're of a generation that doesn't belong to organized religion, nearly as much as previous generations did, they don't belong to a rotary club or anything like that. Their employer has become their most important formal connection to society and all those hopes and dreams and expectations of making the world a better place are put on the employer. So I think the generational pressures are also driving this.

Alan Murray:

And then the third piece side is just the role of social media, because everything is happening under this hot spotlight. Everything is transparent. You can't hide. I talked about people in the Bob Chapek situation, 10 years ago, would've hid under their desk until it was over. You can't hide under your desk anymore. Social media finds you and forces you out.

Carolyn:

So you talk a lot about this stakeholder model and there's often conflicts across the different stakeholders that are a part of these decisions, but what happens when you have to pick one when they are in such conflict? And how do you choose between your customers, your employees, your investors. It's a really hard thing to navigate.

Alan Murray:

It's hard, and that's what's so interesting about this movement, and that's why I talk about my search for the soul of business. It requires corporate soul searching. If you look at Chip Bergh who runs Levi Strauss, they make America's most iconic blue jeans. And he reached the point after one of the shootings, where he said, we have to take action, this is too core to our values. The fact that the country can't seem to put any restrictions on these weapons of mass destruction that were being used in some of these shootings. And if you think about who wears Levi's, I mean, there was a significant portion of his customer base that was members of the NRA, but he said, this is core to us. This is what core to what we believe at Levi's. And we're going to take the hit.

Alan Murray:

Larry Merlo at CVS who made the decision to stop selling cigarettes. It was like a two or $3 billion business for CVS. And he said, I'm not going to do it because this is not what we value. We're here to help people get healthy. And these things don't make them healthy. And in the end, it turned out to be over a three or four year period, a great thing for their business. But initially he just shut down a couple billion dollars in revenue. So you see there are trade offs and you see people making them all the time.

Alan Murray:

Let me just say one other thing though. The CEOs that I talk to prefer win-win solutions. They like to say there's no conflict that they can do what's right for their shareholders in the long term, and what's right for stakeholders. It's not always true, but what's nice is there's so many opportunities where it is true. And in fact, at the end of the day, the CVS decision was an example of that, because over a five to 10 year horizon, everyone at CVS will tell you that was a good thing for their business.

Carolyn:

Yeah. It's I think anchoring first in what is truly the values of your company, I think is such a key first step, especially because literally every day, every week, there's another issue that comes up, that you could spend all of your time needing to address some of the conflicts that are coming up. And so having that definition of like, which are the areas that you are going to proactively wade into is just a such needed first step.

Alan Murray:

It's really important.

Lindsay:

So for their own teams, for their own cultures, what are some of the best things that you are seeing leaders doing to support their workforce? What is driving the most impact to make sure that those employees do feel like there is meaning and that they're taken care of?

Alan Murray:

It's a great question, Lindsay. And the thing I'm hearing from a broader array of companies is all this fits in with what's happened to our workplaces, right? And what I've realized is that for many companies, the office was a significant driver of culture. It provided the glue that kept the company together.

Alan Murray:

And what every CEO is now thinking about is, geez, if we're not all going to be in the same office, or at least not nearly as frequently as we were in the past, where does that glue come from? And increasingly the answer that they are turning to, and I've heard this from, dozens of CEOs over the course of the last year, is purpose.

Alan Murray:

It's like, okay, if the glue is not going to come from physical proximity, it needs to come from a common purpose. And we need to double down on our articulation of our purpose and through truly living our purpose.

Carolyn:

So from your vantage point as CEO of Fortune, what do you think are the qualities or the traits that you think are just essential in a leader that have stood this test of time, or have they completely changed?

Alan Murray:

So many of the best CEOs I talked to say that what their people are craving is authenticity, empathy, listening, and even displaying some degree of vulnerability.

Alan Murray:

There was an incredible Twitter video that came out at the height of the pandemic when Marriott, the hotel company, discovered, hey, our hotels are empty and we're going to have to put most of our people on furlough because we have no business here. We've gone to like 2% occupancy and Arne Sorenson who was then the CEO of Marriott did a short Twitter video that you could search and see, informing his employees of this decision. And he happened to be undergoing treatment for cancer himself at the same time. And it was cancer that subsequently killed him, but it was such an incredibly moving video because of the vulnerability he showed and the empathy he showed towards the people that he was basically having to say, I can't employ you for the next six months or the next year.

Alan Murray:

This was not "Chainsaw Al" Dunlap, this was something very, very different

Alan Murray:

so I think that's the change. I mean, what's consistent? I feel like transparency, candor have always been there. And I feel like a bias for action. The CEOs I talk to are mostly big companies CEOs and big companies inevitably start to become bureaucratic. And there's a whole set of internal forces and bureaucracies that just slow you down and stop you. And so every successful CEO, either in the past or now has to lean against that inertia. Has to say, we will only be successful if we move and move faster than you feel like you want to. And so some of those things are timeless.

Alan Murray:

But I think what's different now is that the consequences of not being purpose driven are so much greater and so much more immediate than they ever have been in the past. That it's not just a good thing to have. It's a necessity to survive.

Carolyn:

Yeah. I mean, so many of the traits that you were just talking about and listing, the need for them, even if they were the consistent ones from decades ago to now, but the need for them is so much greater. Like a bias towards action, business is moving faster than it ever has. Like you have to be able to move quickly. Transparency, like if you are not transparent, it is way too easy to find that lack of genuineness and in all the social media and everything else that exists, that it almost feels like they may be consistent, but they're becoming even more important to nail them.

Alan Murray:

That's where the social media piece comes in. I mean, think about United Airlines when that doctor got pulled off of, was it in Chicago? The doctor got pulled off the plane roughly by a couple of security people. And within 24 hours, people in China on the other side of the world were canceling flights because of the mistreatment of this doctor and Oscar Munoz was the CEO of United at the time. And he was in a tough labor negotiation with his employees. And he knew that the two people who pulled the doctor off the plane, weren't his employees, they were security guards from the airport. And so his initial message was a message towards his employees, which was kind of, Hey I'm so proud of my people and you didn't do this, which may have been a good message for his employees, but it was exactly the wrong message for the marketplace. It sounded tinnier. It sounded like he didn't care that Dr. Dow gotten pulled off the plane.

Alan Murray:

So it was a great lesson in how while 10 or 20 years ago, you might have been able to use different messages for different markets. And so you could be a little less authentic, I guess, if you play for your audience, but today that's just not an option. Social media will find you out. You'll be sniffed out in a minute if you try to play that game.

Lindsay:

Well, it sounds like the needs of a CEO have changed. But when I look at who is leading these fortune 100 companies, we're still not seeing a lot of women, people of color at the helms. And so would love your take on what will ultimately drive change in the C-suite and bring more women into power in these much bigger organizations that you have seen historically lead the way.

Alan Murray:

Yeah, it's a really interesting question. The job of the CEO today is so different than it was 50 years ago. I mean, in a way these big corporations that were built in the 20th century were kind of information hierarchies, where you have people out in the field doing the work, and they would gather information and the information would be passed up to the top and they'd sit in the C-suite and come up with a strategy. And then once the strategy was done, the orders would fall back down the hierarchy, and you'd tell everybody what to do., that doesn't work today. Things are moving way too fast. First of all, information, doesn't travel in straight lines like that. And second, if you wait for somebody up at the top to tell you what to do, you've lost, you're already behind the curve.

Alan Murray:

And so you have to push the power out to the field and empower the people in the field to make more decisions. And so what does that leave for the person at the top? The CEO's job becomes much less about telling people what to do and much more about setting inspiration, setting the north star, setting guardrails, talking about the purpose.

Alan Murray:

I get uneasy getting into these stereotypes, but some people would argue that when we talk about a job that requires empathy and less over direction, that perhaps those are qualities that women have more than men. I can certainly think of some exceptional. I think what Mary Barra is doing at GM is just phenomenal. I think what Julie Sweet is doing at Accenture is phenomenal. So you do see great women leaders out there.

Alan Murray:

At the end of the day, the way I look at this is it just doesn't make sense that, when you're talking about women, more than half the workforce is not rising to the top, there has to be something wrong along the way to make that happen.

Alan Murray:

The numbers are growing, but as you all know, I mean, the percentage of fortune 500 CEOs who are women is still less than 10%. And I think they're four maybe now who are black. So something does have to happen to change that. I think there is a degree of seriousness in the corporations that I work with that hasn't existed ever before. I think George Floyd did cause some real change. You see people doing things a lot of times in the past, it was just sort of competing for the same small pool of talent. And what you see companies doing now is figuring out how they open up new pathways into powerful positions, which is great. And so I think there is progress, but I agree with you it's way too slow.

Carolyn:

You talked a little bit about at the beginning of the pandemic, in some ways you thought, okay, now people are going to maybe revert back to old ways where they have to be very conscious about bottom line, but it actually went to the opposite where people actually leaned into this even more. So what is your perspective of like, yes, we're kind of at this great pinnacle, but do you think it's going to last and sustain? Do you see any risks of kind of going back to a more singular stakeholder perspective?

Alan Murray:

I think it's going to last, and that's really the fundamental argument of the book. I think it's going to last because the changes, are fundamental to the nature of business. The changes in business I've already told you about where it's much more human centered than physical capital centered and where leadership has to be much more purpose driven than simply directive. Those things are not going to change. Those are fundamental in the structure of our economy. So I don't think those things can go back. I think it will probably continue, but it won't be a straight line.

Alan Murray:

Some response to the Bob Chapek experience in Florida and CEOs are saying, well, maybe the old way was really better if I just keep my mouth shut. I'm not sure their employees are going to let them do that, but you're seeing some of that sentiment.

Alan Murray:

So I think it'll probably take some time, but let me mention one other reason why it won't be linear, the direction is pretty clear. Let's use climate as in some ways the clearest example. So in the last two, three years, you've seen an explosion of companies making net zero commitments. It's now a majority of fortune 500 companies. Have either made them or intend to make them, that's a big change. But what you're also seeing is the downstream effects of that.

Alan Murray:

We did an interview with Søren Skou. Who's the CEO of Moller-Maersk, the big shipping company. And they made a massive investment to build wind farms in the North Sea that would be used to create hydrogen fuel. It's a very risky investment. It's a very expensive investment. It's not at all clear that hydrogen fuel will be cost effective in the foreseeable future. So I said, why are you doing that? And what he said was I'm doing it because my customers are making me do it. I get a call a week from a customer who says, Hey, I just made this net zero 2030 commitment that says, I'm going to get all the carbon emissions out of my shipping by 2030, and you got to do that for me. I can't keep shipping on your ships if you don't figure out how to do it. So you're starting to see that kind of downstream effect.

Alan Murray:

Look at Walmart. I mean, Walmart hasn't required it yet, but Walmart is working with all its suppliers to reduce their carbon footprint. If I were supplying Walmart right now, I think it would be pretty clear to me where this is going. The day will come when Walmart says, if you don't meet these standards, we're not going to keep carrying your products. So it's forcing it down to smaller businesses in that way.

Alan Murray:

So you're really seeing an acceleration and a momentum in this. That is going to be very, very hard to reverse.

Alan Murray:

One more example, I already talked about Mary Barra. You know, Mary Barra said last year that all GM cars would be electric vehicles, new cars by 2035. Now you can have a very robust debate about whether the market is moving that fast, but if you're at GM right now, those are marching orders. It takes, I don't know how many years to build a new auto factory. They're having to make decisions today against that commitment in 2035. So it's not just an empty promise about what the future is going to look like, it's driving the investment decisions that GM is making today.

Carolyn:

Ah. Yeah. So you've had some just iconic leaders that have graced the cover of your magazine there at Fortune. Is there anything specific that you look for when you think this person should be on our cover? And I'm asking for a friend, just want to know what-

Lindsay:

She's angling for the cover.

Alan Murray:

You see the one behind me is CZ, the crypto king. He's on it because he's worth $74 billion. That works.

Carolyn:

Oh, right. I got ways to go.

Alan Murray:

So you can tell your friend if she or he tops $74 billion, they will be on the cover.

Alan Murray:

Let's see.

Carolyn:

We're going to need a lot more chief members.

Alan Murray:

But here's another, the one behind that is Katie Han who also-

Carolyn:

Ladies, sign up now.

Alan Murray:

For what she's doing to encourage new businesses. I don't think there's any simple answer. You change the world and we'll put you there.

Carolyn:

Sounds good.

Lindsay:

Honestly, I think it's easier for Carolyn to change the world than to hit $75 billion worth of crypto value. So that's easy.

Carolyn:

Well, thank you so much for joining us for this conversation. It was really fun, really great candid conversation.

Alan Murray:

Great. Thank you.

Lindsay:

That was Alan Murray, the CEO of Fortune Media and author of the book “Tomorrow’s Capitalist: My Search for the Soul of Business.” For a topic that may seem daunting to many CEOs, he made it super clear why execs need to take a stance on issues beyond the scope of their business.

Carolyn:

I hadn’t thought about the fact that part of this change is driven by the idea that companies are so much more reliant on human capital — we are no longer producing just stuff anymore and the real IP of a company is its people. Which puts even more pressure to keep them happy.

Lindsay:

Right — it's not just a good idea for companies to respond to stakeholder issues — but in our current climate, it’s actually a necessity…. Especially now, with the immediate judgment that social media brings on both on action and inaction. The key is how you wade into the socio-political issues that the stakeholders care about the most — and why.

Carolyn:

Yep – even though I’m not personally on social media, we’re in a digital age where everyone has their eyes on you, and they can tell when you’re BS-ing. So, to avoid performative ‘action’, Answering the “why” is critical. Before the pandemic, companies used to see the office space as the “glue,” or that “miracle solution” that drove culture, but with everybody working remotely, that “glue” now has to be common purpose.

Lindsay:

So the CEO’s job is less about giving orders, but more setting vision and the north star. And the north star can’t just be “growth.” You need to establish your foundation before you decide to build anything on top of it.

Carolyn:

If you don’t define it now, you will end up saying everything and nothing. So if you haven’t already, go solidify the values behind your business. 

Carolyn:

That’s all for this episode of The New Rules of Business, by Chief.

Lindsay:

Don’t miss out on all of our Chief content. You can get more podcast episodes by following this show on your favorite podcast app. And if you’re more of a social media person, find us and join the conversation on LinkedIn. But, if you are ready to up the ante and you’re thinking about becoming a member of the Chief network, head to our website - chief dot com - where you can apply.

Carolyn:

As a member, you will be connected with the most powerful network of executive women across the country.

Lindsay:

Thanks Sharon Yi, Courtney Connley, Katrina Conanan-Riel, Blaine Edens, at Chief, and to our production team, Pod People: Rachel King, Matt Sav, Aimee Machado, Mary Dooe, Gina Moravec, Hannah Pedersen, Madison Lusby, and Jason Mack. Our music is by Colin Hatch. I’m Lindsay Kaplan.

Carolyn:

And I’m Carolyn Childers. Thanks for listening.