Purpose & Meaning Archives

September 28, 2016

Finding Meaning in Business

[This is reposted from HuffPo. The quick takeaway:
- Business schools and academics are talking about meaning and purpose a lot now
- I've seen more companies also talking purpose. The leaders seem to go back to the origins of their company and explore what the founders believed about their purpose.
]

Last month, 10,000 academics attended the annual Academy of Management meeting in California. These b-school educators came from all over the world to explore the state of business. The theme this year was fascinating: "making organizations meaningful."

A colleague asked me for my thoughts on the theme from my perspective as a sustainability consultant and writer. In short, I'd say thank goodness. The world needs business people with new skills to tackle big, thorny environmental and social challenges. Focusing on meaning seems like a solid way to introduce students to new ways of doing business.

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Some quick background: I'm not an academic, though I have played one on TV (or at least in streaming video). But as someone very interested in the role of business in society, I do keep some tabs on what the next generation of business employees and leaders is learning.

I also look back on my b-school education to get a sense of where we've come from. A couple years after I graduated in 1999, my career took a right turn. I had worked in traditional jobs in strategy, marketing and business development. But I followed my values to focus on helping business navigate environmental and social issues. It struck me then that during b-school, I had not once heard the words sustainability, climate, or carbon. I was taught, like almost all MBAs, that the focus of business is profit maximization and efficiency. The curriculum focused on traditional areas like strategy, marketing, accounting, and operations. And these were fundamentally sitting in separate silos of knowledge.

But today, in a world facing mega-challenges like climate change, resource pressures, and inequality, that traditional education is inadequate (or as another post in this series put it, being a good business school is "no longer good enough"). Our future innovators and business leaders need to understand systems, not just functional areas. For example, many organizations -- particularly energy and agriculture companies -- realize our stressed food, energy, and water systems are deeply entwined. Tackling this so-called "nexus" of issues requires different thinking. Students need training in how to approach wicked, interconnected problems.

Students also need new financial tools. Over the last 40 years, the percentage of a company's market value that is directly measurable (as quantifiable assets on the books) has plummeted. The hard-to-measure, like employee passion and knowledge, customer loyalty, resilience, and license to operate, can now dominate the value of a business. Studying accounting and not discussing at length the challenges and opportunities of valuing the intangibles would be absurd.

On top of all these new approaches to strategy, operations, and finance, students will need new people skills as well. Our understanding of people is changing. Out with the old economic view of utility-maximizing individuals, in with behavioral economics and psychology. Business leaders have to understand customers and their motivations and work collaboratively with a diverse group of people. So I envision ever-more focus on compassion, empathy, and ethics.

In total, all these skills will help ensure that businesses, organizations, and the people in them are more connected to the world around them (and more mindful in general). It's about making organizations, yes, more meaningful.

But a big question for me, and one that I suspect AOM academics are wrestling with, is this: meaningful to whom? For 40 years, the answer to that has been mainly shareholders. Business is just a source of good financial returns (mostly in the short run). And I would argue that operating in the way I'm envisioning -- with a deeper connection to environmental issues -- actually does create shareholder value.

But that said, I'm guessing that the Academy of Management is making a point that companies need to be meaningful to many more stakeholders. Just imagine designing an organization to produce meaning for employees, customers, or communities.

It might seem like a focus on meaning to multiple stakeholders is a new-fangled fad, led by wanna-be hippies or idealistic Millennials. But actually it's old-school. Having a broader view on why a business exists, going beyond shareholder profit, is not new at all. Robert Wood Johnson, founder of Johnson & Johnson, laid out a view of the company's purpose some 73 years ago. His "Credo" lays out five groups that matter to the business, starting with doctors, nurses and patients. After that, the focus is on mothers and fathers, then customers, then employees, and then communities. And only then, does he say that the "final responsibility is to stockholders" who will earn "a fair return."

These old-fashioned ideas are coming back. Consider Unilever, the most proactive of the big companies seeking to make sustainability core to business. In a search for some meaning, the company's executives started by digging into company archives. The founders, they discovered, began with a mission to foster health and cleanliness. Well over a century later, the company continues that purpose with campaigns to teach at-risk kids in the developing world to wash hands and avoid deadly diseases. As reminder, this is all great for business also: the company's purpose-driven brands - like GE's ecomagination offerings and Target's "Made to Matter" products - are all growing faster than the rest of the business..

I heard a similar story when I spoke recently to the dynamic CEO of Krug champagne (an LVMH company). Maggie Henriquez tells a compelling tale of how the company found itself again after a rough patch during the last global recession. She says they lost the thread on "why we exist," so they went back to the beginning. They located and read the founder's notebook from 1848. He wrote about the extraordinary importance of the land they relied on to make their wine, and how critical it was to connect with growers. Henriquez and her team adopted the founder's uncompromising philosophy and applied it to everything they do, from supply chain to operations to customer care. That was the way forward for the brand. Doesn't that sound like an organization that's found some meaning?

The bottom line is that the purpose of a business, if nothing else, is to solve a problem or fill a need for someone (to "create and keep a customer" in the words of the great Peter Drucker. Oh, and of course get paid "a fair return" to do it.

Making someone's life better by giving them something they need or want - a life-saving medicine, a movie, a shirt, a sandwich, a home, some legal advice, a bank loan...or a million other things - is what gives any organization meaning.

With the right training and a new mindset, taught by schools focused on meaning, the entrepreneurs and executives of the future will help build a more purposeful, thriving world.

This post is part of a series produced by The Huffington Post and LEAP!, the United Nations PRME Working Group on the Sustainability Mindset. The series aims to feature perspectives and insights from the 76th Annual Meeting of the Academy of Management Conference, Anaheim 2016. For more information about the Conference, visit www.aom.org.

February 8, 2017

Is it Time to Add Morality to the Business Case for Sustainability?

(I'm really interested in everyone's opinion on the below. I started this conversation on Sustainable Brands site last week and there are some good comments. But I always re-post here for my subscribers. Please share with the sustainability community and send me your thoughts (or post them here). Thanks.)

Every manager (or consultant) who has pitched an initiative under the banner of “sustainability” has faced the same question nearly every time: what’s the business case?

On the surface, there’s nothing wrong with the question. Business is all about allocating some form of capital, be it financial, human, or organizational. So it’s not unfair to wonder what the return on the investment might be. But usually, when executives pose the question about sustainability initiatives, they’re asking about the business case in the narrowest sense: Does this thing pay back, in cash, within some short payback period (1 or 2 years)?

In response, we’ve all put a lot of effort into making the case in financial terms. And given the common assumption that sustainability somehow equates with philanthropy and saving the polar bears, it’s generally smart to make it all about money. Certainly, that’s a big part of the case I’ve made for a long time. But maybe I’ve been missing something.

Maybe, in trying to answer the business case question narrowly, we’re overlook something critical about what motivates the decision maker. Or we miss how much the world is changing. Perhaps it’s time to inject the moral case into the discussion and say, boldly, “This is the right thing to do.”

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Let’s face it: given the constant attack on our rights and democratic ideals happening right now, companies – some of society’s largest institutions – are finding themselves in uncomfortable territory. The moral position of a company and its leaders individually are facing more scrutiny. The conversation in executive meeting rooms is not just about shareholder value anymore. Will we defend LGBT rights or protect immigrant employees? Will we continue to tackle climate change, the human and planetary crisis of our time? These are not idle questions anymore.

I will write much more about the macro-level question of the role of business in society over the coming months and years. But for this discussion I want to rethink the specific question about how sustainability professionals and managers make the case for social and environmental action.

So, back to the nitty gritty. Do we have the right arguments for why we should invest in sustainability projects? Let’s consider four broad buckets of initiatives – three that create value for the business and one that’s more about value for society – and explore how (and when) they create value:

(1) short-term financial wins that meet all hurdle rates;

(2) clear financial wins, but with longer paybacks;

(3) investments that have less certain paybacks in cash, but create indirect (yet real) and internalized value, such as improved employee engagement, increased customer loyalty, greater license to operate, brand building, or risk reduction;

(4) projects that create externalized value for stakeholders and improve the shared commons

Of course these categories are not mutually exclusive – any of the first three will create externalized value as well. But for most projects there’s a core bucket of value. A simple lighting retrofit would fall mainly in group 1, for example, while employee volunteering, or providing water infrastructure for the community around a factory, would be mainly group 4 activities. Something like auditing and raising environmental or social standards in the supply chain, or investing in circular models, could hit all four areas, but would hit bucket 3 hard.

For each bucket, the business case we make should vary.

Category 1 is trivial, and the cash benefits of, say, eco-efficiency projects are now broadly accepted. Of course there’s always competition for capital, even between projects with quick paybacks, but it’s not hard to make the case that these things save money.

Category 2 requires more finesse. You can make the case for bending the rules on the hurdle rate for strategic reasons at times. Or, more frequently with sustainability projects, we get these through the system by shifting the conversation to category 3 value and point out that, by the way, it will also save cash, but later.

So category 3 is where so much of the effort lies. I’ve sacrificed many trees (and digital bits) writing about the importance of recognizing internalized value, even if comes in ways we can’t measure it perfectly. We all make the case that environmental and social initiatives can reduce risk, drive innovation, create employee engagement and loyalty, build the brand, and much more. That case is strong. Most large companies have realized that just considering the attraction, retention, and engagement of talent (especially socially-minded Millennials) can justify many investments in social and environmental progress.

But let’s look at category 4, the “save the world” value bucket that I’ve mostly avoided during my career. A new, challenging political environment is making me even more philosophical about why business should act, or even why a business exists.

Here’s the nub of it. Consider the following benefits a company might create: employee happiness, being a good member of the community, solving a customer need (the original, and some would say only, reason a company exists), and, yes, making sure the polar bears survive. Aren’t these things good in their own right, regardless of how or when they create business value? Maybe this kind of query falls in value bucket three-and-a-half, between the cracks because it begs the question of what value is.

My mini existential question was partly spurred by an interesting article I read recently in the Guardian. Focused on “why time management is ruining our lives,” the essay laments our obsession with personal productivity and talks about creating life balance and having more free time. In the article, John de Graaf, a founder of a group called “Take Back Your Time” challenges what I would describe as the business case for life balance: “People argue that more time off might be good for the economy, but why should we have to justify life in terms of the economy?”

It’s a great point. And it’s a good question to ask about all our efforts to improve employee engagement, connect to purpose and meaning at work, or drive sustainability in business. Why should everything that supports general well-being for people touched by a company – its employees, customers, supply chain workers, community members, future generations, and so on – have to be put only in economic terms?

The time may be ripe to broaden how we talk about sustainability and bring in a moral dimension. Consider one of my favorite sustainable business stories from 2016. After North Carolina passed the absurd “bathroom bill,” some big company CEOs sent an open letter to the Governor saying the law didn’t reflect their values. Companies are increasingly standing up for LGBT rights, and in the last week, for immigrants (bravo Starbucks for pledging to hire 10,000 refugees). A somewhat cynical interpretation would say that companies just want to stay in the good graces of a segment of their customer base. True, so there is some business logic. But it’s also clear that many of these companies and their executives just felt it was the moral thing to do.

I’ve talked to senior executives for many years about why they care about sustainability. And very often it stems from a personal journey. They went to the rain forest, or their children asked them about their work and their legacy.

So am I saying we should abandon the normal business case and stop focusing on how much value sustainability creates for business? Of course not. We should absolutely talk about the cash payback and all the indirect and hard-to-measure internalized value. But perhaps we (or at least I) have gone too far to counteract the “green equals polar bears” view of the world. Depending on the audience or particular executive, it may be time to throw in an element of “hey, this really is the right thing to do and your kids will be proud.”

Yes, the traditional business case will still be critical, particularly in public companies. But it might play the role of justifying something a leader wants to do in her heart anyway. Given what behavioral psychology tells us about the “confirmation bias,” this is how many decisions are made anyway.

My bottom line is this: how we make the case for sustainability needs to vary depending on the category of initiative (from slam dunk in cash terms to indirect value to “other” and societal value), the situation (a CFO presentation meeting vs. drinks with your boss), and a reading of the people involved.

But more and more, I’m wondering if a combined logic of “good for business” and “good for the soul” will work best. I welcome your thoughts.

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(Photo credit: Flickr, Joel Duggan)