The Best Bits from Leaders for Humanity with Ed Freeman
The Tipping Point: Can Stakeholder Theory Save Our Planet?
In our webcast series “Leaders for Humanity” we engage with distinguished thought leaders who are passionate about human-centric change, bridge theory and practice in their work, and are willing to provide guidance and personal wisdom to our #GoodOrganisations Inquiry. In “Socratic Dialogues” we examine three critical questions together: a) what is good? b) how can we craft good organisations? c) how can we as leaders or individuals become good and contribute?
For the full transcript and additional resources: https://goodorganisations.com/leadersforhumanity
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To note: We work on the basis of a semi-automatic transcript. Please forgive orthographic errors and inaccuracies. Sometimes the script might be missing context — it is best “consumed” as a complement to the full webcast.
Ed is an American philosopher and Elis and Signe Olsson Professor of Business Administration at UVA Darden School of Business. He is best known for his work on stakeholder theory. Besides his six honorary doctorates, he has received Lifetime Achievement Awards from the World Resources Institute and Aspen Institute, the Humboldt University Conference on Corporate Social Responsibility, the Academy of Management and the Society for Business Ethics. Ed is a prolific writer and his books, such as “Strategic management — a stakeholder approach”, “Managing for Stakeholders” and “Stakeholder Theory” are seminal works, and his articles are frequently cited.
Besides his passions for writing, making music and martial arts, teaching is close to his heart. The ability to enable students to think critically and take different perspectives earned him several awards throughout his career. Moreover, Ed suggests that “we are only as good as the stories we tell” — he has worked with many executives and companies around the world to enable new narratives and help to make business and ultimately the world a little better.
In our interview, we examine both theoretical bases and practical implications of a pragmatic “stakeholder approach” to business ethics, in contrast to CSR and other models. We examine the need to develop a better narrative for business and discuss how a new purpose and strategy can be effectively operationalised. We also discuss the development of ethical leadership and the role of business schools. What resultated was a truly brilliant and vibrant conversation.
What is good?
Changing the narrative of business
- When I say dominant narrative, it’s the way we often unconsciously frame things. The dominant narrative in business is that business is about money and making profits for shareholders. (…) In that dominant narrative, you could replace shareholders with any group. It would be the same kind of partial narrative. Businesses always have and will create value for customers, suppliers, employees, communities, and the people with the money. So, it’s an “and”, not an “or”. And those interests are interconnected. If we begin to understand that, we can improve the hell out of it. If we don’t understand it, if we think it’s just for shareholders, labour, or customers, we’re going to miss some of those interconnections. We’re going to miss the opportunity to improve how that value creation goes. (…) If we tell a better story and frame business in this way, we can make it a lot better, a lot more effective.
- What happens here is you get a lot of false dichotomies. You get stakeholders versus shareholders. I’ve never known what to do with that because shareholders are stakeholders. (…) Journalists ask me all the time: Professor, what should businesses focus on, ethics or profits? That’s a lot like asking me, do I want a heart or do I want a lung? I’m pretty much in favour of having both of those things.
- When I say change the narrative, I’m not just talking about changing how we talk. I’m talking about changing the way we see things and act towards them and opening up new possibilities. A pragmatist would say that we can invent vocabularies to help us solve our problems. And then we’re able to cooperate, to use those vocabularies in this cooperative way.
- It’s a dichotomy of saying its purpose OR profits. That’s the problem. It’s purpose, but also that businesses have to make money. We have a saying in the music business. “Everybody gotta get paid.” (…) So you have to make money. Otherwise you can’t exist. It’s just like I need to make red blood cells to live. It doesn’t follow from that, that making red blood cells is the purpose of my life.
- I find it completely disrespectful to say that human beings are one-dimensional, self-interested maximisers. That’s bullshit. We can be self-interested and other-regarding at the same time because we’re complex beings.
Pragmatism, Pluralism and Stakeholder Theory
- The idea that there’s a “fact-value” distinction between normative and descriptive is problematic. It’s easy to illustrate in stakeholder theory, because when I call somebody a “stakeholder”, I’ve made a normative claim. I’ve said they have a stake, and therefore there are certain things they deserve or owed, et cetera. So the very idea of stakeholder theory mixes up normative and descriptive.
- The vocabularies we use orient what we pay attention to. A pragmatist would say that theory, data and interpretation are all intertwined. What we should do, is try to find the ones that help us solve problems.
- We have this idea from Plato, that there is only one way to define the good. I think that’s a fool’s errand. There are multiple ways to define it. And then there is a conflict. That’s where we need a conversation. Now, who’s a part of the conversation? You’re trying to solve the problem of two competing ideas of the good, we need to work out the points of conflict. And then my answer is, who’s affected? They would be the stakeholders, you know, in a practical sense. It is not relativism at all. I’m just trying to solve a problem.
- I think people often mistake pluralism for relativism. Relativism is the view that because you believe something, or because a culture believes something, that makes it right. That’s not a very interesting idea. It would say there’s no need to have any moral talk. Relativism is different from pluralism. Pluralism says there might be multiple ways of living an ethical life or having a good organisation. What we need to do, is see what problems a variety of narratives solve.
- We can all have private conceptions based on whatever. You might be an evangelical Christian, I might be a Darwinian. If we have a conversation about ethics, and I give you evolutionary reasons for something, you’re not going to be moved. And if you give me evangelical Christian reasons, I’m not going to be moved. What we have to do is to find reasons in the civic space that we both can agree on. And we are losing the ability to do that. We’re just shouting our private conceptions louder across each other instead. We have to be able to find reasons that lots of people can agree on.
- If you ask people all over the world to write down their top three values, everybody writes down the same thing. They write down respect, responsibility, love and care, integrity, those kinds of things. And showing respect in Indonesia is different from showing respect in Zurich. But those are cultural differences. We have a lot in common, but we’re often culturally inept at trying to translate those values into conversation.
- The problem with looking at the whole system is you’re almost always seduced into managing the system. And managing the system, in my reading of history, almost always turns into totalitarianism. And, you know, the title of Richard Rorty’s last book is “Pragmatism is anti-authoritarianism”. And there is an anti-authoritarian flavour to what I’ve tried to write about stakeholder theory.
- This is about responsibility. (…) just from the standpoint of trying to be a good libertarian, you should believe in stakeholders. Now, of course, Libertarians hate me, because they don’t want to talk about responsibility. But if freedom makes any sense at all, it’s not that “teenage boy” freedom, that “I can do whatever I want”. It’s a freedom that is bounded by our sense of being responsible to each other. And that was the point of that. Am I a libertarian? I don’t say that anymore. I would have said it at some point in the past. I don’t say anymore because I don’t know what a libertarian is anymore because so many of them don’t believe in being responsible. So many of them don’t believe in the self that’s connected to others.
- We have a saying in the music business. If you write a good melody and keep playing the record over and over, eventually people start humming the tune. And again, I get way too much credit. Lots of people are humming the stakeholder tune now. And I think there’s a point at which there’s no going back to shareholder primacy. So it’s up to us to figure out how to make our business institutions places for our children to live in. And that’s the way I like to think about it. So thank you very much for giving me this opportunity to play the record one more time.
CSR vs Stakeholder Capitalism
- In the old book, I tried to argue that if you took the stakeholder idea seriously, you don’t need CSR. The way I would say that now is different. (…) It might be that CSR is just about how you deal with the community. But it might be that there are bigger issues in society that you want to deal with that are not necessarily community issues. (…) If you use CSR as a way to think about what’s my obligation beyond communities, then it’s important.
- I’m much friendlier to the idea now than I used to be. Because with the old story, CSR played a different role. It played the role of people “in the mafia killing people during the week and then going to church on Sunday”. You know, business sucks, it’s a bad thing, but I’ll give some money to the opera or the community, and that’ll make up for it. And that seemed to me to be not a very interesting idea.
Obligation to Society
- I’m not opposed to saying you have obligations to society. But I do want to focus on one thing here, and that is the focus on obligation and what philosophers would call “the right”. I think we could fulfil our obligations and might still have a pretty nasty society. What we really want to think about is not only the right but what’s good. You know, and trying to understand how the right and the good can work together.
- Philosophers would take the big four of ethical theory: rights, consequences, virtue and care - and they’d have a centuries-long argument as to which one is the best. So, there are four lenses. Some of them help you solve some problems and not solve others. And the point about using our judgement is to be able to figure that out. And we might fail, so we need some humility in the mix to do that. I’m not thinking about obligation as many business ethicists want to do. As in: what are your obligations to stakeholders? I ask: how can this business build something that’s actually good? And clearly, you don’t want to violate any basic human obligations. But trying to load up ethics in obligation, I’d rather keep that to a pretty minimal idea because I think freedom and responsibility are so important to a good society.
How to become a good organisation
Relationship and measuring the good
- If you want to measure the total value created, you can measure the total value created for each stakeholder. But there’s going to be some interaction effects that might be missing.
- Every company I know operationalizes how it deals with its customers, supply chains et cetera. (…) So how you measure this stuff was never much of a question. It might be a question for academics, but not for real managers. They know how to do this and do it all the time. What they miss, and what I think is a harder question, is how how our interactions with customers affect our interactions with employees? (…) Companies are rediscovering that they need to treat employees a lot better. They need to figure out how to revitalise this relationship.
- You’re right. We need some new measures too. But the criticism is that profits are the only thing you can measure. I think that’s just wrong. There are lots of measures that people do. The balanced scorecard aims at the profit and doesn’t go far enough. And oftentimes these measures are internally focused. They’re not focused on what stakeholders the value is actually created for.
Strategy and purpose
- The most important thing would be to say, that purpose doesn’t live in the purpose statement. Purpose lives in the systems and processes. (…) Many companies today are doing the purpose rethink to get a great-sounding purpose statement. So not many of them are going far enough to do a kind of systems audit. Let’s see what the systems are in terms of how we deal with employees or how we deal with customers. And let’s figure out where we can improve those things.
- If you have a purpose statement, and you don’t allow people to push back and tell you where you’re not living it, you don’t really have a meaningful purpose statement. (…) I see strategy as some intermediate step between purpose and values and actual systems and processes. And if you do it without the systems and processes or without the purpose, I don’t think it’s very effective. So I see strategy itself as less effective or less important than it used to be.
What is Leadership?
- So there’s an idea of leadership about getting stuff done, which I think dominates. And there’s an idea about personality, which is the charismatic stuff, which dominates. We need a certain kind of leadership. It’s not this charismatic stuff. It’s people who have a high degree of humility and are fiercely determined around purpose and things.
- I thought about somebody who I would say was a leader, who I know personally. And I thought about my grandmother. (…) I learned a lot from her. I saw her as the leader, the family’s matriarch.
- Plato had six or seven models of leadership. But there are a couple of things about Plato that we’ve forgotten. The first is that Plato didn’t have an idea of ethical leadership. This is because Plato contrasted leaders with tyrants. When you call somebody a leader, you automatically are expressing some approval. And we shouldn’t express the approval of tyrants. I think today we’ve separated that out. We call people leaders, but they are just tyrants. They’re just telling people what to do and using their power to force them on what to do. So that’s not leadership.
Personal development at Business schools
- We do spend time doing experiential things because that’s how you have to learn it. I think too many universities don’t do any experiential learning. They kind of miss the key of it. Are we doing enough? Probably not.
- I see myself very much as the jester, the trickster. Some of my favourite characters in literature are the tricksters. Now, I happen to think that hope comes from sowing doubt. If I can examine what I believe and not have the wool pulled over my eyes, I can create real hope about what’s possible and what’s not. So I would just say, typical pragmatist answer, those things go together.
- In terms of business schools, I’m of two minds about this. I think there’s one part of me that says I’m the luckiest guy in the world. I have a job at a school that has taken ethics seriously long before anybody else did. (…) We’ve managed to turn the ethics courses into a suite of courses in the humanities, from theatre, and literature to music, all around making people more fully human leaders. (…) I think there’s a danger of business schools becoming irrelevant. The reason is not necessarily the lack of embracing stakeholder theory. The reason is the being in the grip of this positivism. Look, you don’t sit and wonder what those management people discovered today? No, there’s not a soul out there who ever thinks about that.
- I think a lot of the people you’re interviewing care a lot about business. And we do too. That’s one of the reasons I’m at Darden. Because I really love thinking about business. And that’s why I’ve always thought stakeholder theory was about the business model. Well, it’s about other stuff, but it’s primarily about trying to figure out how people can create better businesses. And that’s what professional schools should do.
For our full Leaders fo Humanity interview with Ed Freeman see: https://youtu.be/77vOy4US0s4
Transcript, Materials and Notes: https://goodorganisations.com/leadersforhumanity_S2/#EDFREEMAN
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