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tv   Ed Freeman The Power of And  CSPAN  November 12, 2020 8:29pm-9:27pm EST

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c-span2. every weekend with the latest nonfiction books and authors. c-span2, created by america's cable television company as a public service and brought to today by your television provider. >> sunday night on q&a diversity of texas at austin sociology professor sarah brain talks about the use of big data, new surveillance technologies by law enforcement. >> as you said the police have long been collecting their own data and information but that is on people they have contact with and what is happening now in the digital age is that the beliefs are in please collecting information on those who don't have direct criminal justice contact and part of that has to do with this variety component of the three visa big data and they are increasingly purchasing information from privately corrected companies and using tools like automatic license plate readers where you don't have to get pulled over by the
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police in order for your data to be put into their system or example and that information is also being used. >> sarah brain sunday night at 8:00 p.m. eastern on c-span's q&a. >> it is great to be back for the kick off for the fall season and our inaugural speaker is ed freeman and he is the professor of business administration at the dart school at uva and today ed has come to discuss his latest book which is so relevant given the current discourse going on in our nation. he calls the word and the most powerful world in our language so let's find out why in "the power of and" responsible business without trade-offs. ed. >> thank you for having me. it's a real treat to be back even if only virtually at
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fordham. many years ago in a fit of useful idealism i got a phd in philosophy and that was great and my father was always terrific and said well, you will never have to worry about a job because i just opened a bunch of philosophy factories by the interstate and you will be fine. i got very lucky to get a post- doctorate at morton and of always taught at business schools but i want to recapture today, if i can, that sense of optimism and idealism in the shadows of this awful pandemic and the really devastation that has occurred in the world and in
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many communities. i still remain incredibly optimistic that we are going to find her way out of it that we will find our way to racial justice and that we will build a better world which is what all of us, i think, would like to do. i want to focus on the debate which exists about ethics and capitalism. there is an old story about business deeply rooted in all over the world and not just in the u.s. and you know the old story, business is about the money and about profit and last week was the 50th anniversary of the very famous paper by milton freedman, the only task of managers is to make as much
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money as possible for shareholders. that old story may have been useful at some point, i don't want to know, but it's not very useful and not very useful anymore. the idea that making money and profits is all that matters in the idea of shield holders is all that matters in the idea that business is about greedy old pastors out trying to do each other and people only worry about their short-term economic short interest and when i tell someone to teach business at six people make jokes and try not to laugh and it's an oxymoron in like jumbo shrimp or must be short course and i did not know business had any or theoretical subjects and if you've got new ones put them in the chat so i can, so i can use them.
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ever since the global financial crisis we have seen an increase in the sort of clarion call for can we think about business or capitalism different. i will use those two terms interchangeably and i'm kind of a modern day adam smith fan, smith never used the word capitalism and he did write a lot about ethics the most people don't reed. the aftermath of the global financial crisis saw an increase in the calls for reform. i want to juxtapose the packets of our problems are there and first problem i would call the 70% problem. 70% problem comes from the study that looked at engagement and how much our people engaged in their work?
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the 70% number was done on the u.s. and is higher in many places in the world and lower in a few places like singapore and others and 70% of people are unengaged and i love this, or actively unengaged in their jobs. if you are unengaged you just don't care. if you are actively unengaged i guess you would show up every day and take the place down. that's a real problem, i think, a real practical problem. i've asked many ceos what are those numbers in their organization and they all like to think it's better but some will say well, we got to work on that. there is a standard issue about that has been there a long time about trust in business and trust in business and business executives is fairly low and you
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seen studies around 2% and people trust business less than they trust doctors and less than they trust lawyers which hurts for some of us in the only group business beats in terms of trust is politicians and i will let you decide whether that's a victory or not. it seems not to me. we are still dealing with the aftermath of the global financial crisis. along comes the covid pandemic and along comes the movement catalyzed by black lives matter and search for racial justice. business is not immune to any of these things and as a part to play in all of them but we are not going to solve these problems with more of the wrong
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thing. we will not solve these problems trying harder to maximize shareholder value. we are not going to solve these problems by seeing business as just a bunch of men trying to do each other in and out competing each other always acting in their short-term so interest and what we need is a new narrative and a new story of business and a new way to speak about this. we need a new conceptualization of business. now, the good news is as i painted a fairly dark beginning the good news is this is happening in the world and it's easy to forget about it. think about the incredible interest and it started in the 60s but we see incredible renewal of interest in corporate response ability and sustainability and we've seen
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social entrepreneurship come to the fore in organizations like just capital like inclusive capitalism like richard brand whose name i always forget and like the gri and impact investing in conscious capitalism and social responsible investing in stakeholder capitalism and all of these movements and they are all founded on real companies out doing business in a different way. i was at a meeting in the white house in the waning days of the obama administration and the point of the meeting was to try to figure out what is the right brand and what good luck in government in particular department of labor with tom ferris, what could they do to encourage this movement, right? but what is the right brand and how does this get branded?
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wouldn't it be better if we all sort of pull together under one brand and i began to think that maybe it is the wrong question or a different question. maybe a better question is to think about what are the four or five absolutely necessary things that whatever the brand turns out to be this new story of business, this new story of capitalism has to deal with and we decided to write an bobby in one of my colleagues at darden and kirsten martin who said professor at notre dame we decided to write "the power of and" responsible business without trade-offs and suggest that the key principles five key ideas and maybe they are six or seven and we focused on these
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five and they are connected. they give us a way out of thinking about business in the stories but they do require a fair amount of imagination. i want to just briefly talk about these five and we can in the q&a focus on any that you want to and the first one says we need to think about, the old story gets the idea of purpose wrong. it says purpose of business is to make as much money as you can. now look, i need red blood cells to live. but it doesn't follow that the purpose of my life is to make red blood cells. even when i might have to focus on making red blood cells i had a fun weekend a few years ago
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and got my hips replaced. that's a actually not a fun week but i had to focus on making red blood cells and it wasn't the purpose of my life even though that is what i had to do. business must have problems and the idea that profits are evil or bad is the same, it's like red blood cells are evil. you've got to have one to live and i'm a little bit of a musician and we have a saying that everyone has to get paid and doesn't whether your for-profit or not-for-profit you got to get paid and invest in the future so profits are necessary but that's not the purpose of a business and that is why entrepreneurs do business. i have students who say i will start something so i can make a lot of money and i say you better get a job because you got a better chance to make money getting a job then you do starting a company.
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entrepreneurs start a business because they have a purpose and vision and want to bring something into being. purpose is what activates business ideas and profits follow from purpose and they are not themselves the purpose of business but they are in outcome. it's a little bit like some of you may know people who spend a lot of their time focusing on being happy. everything they do is about being happy and you got to be happy et cetera and they are the most miserable people on the planet because they don't understand that happiness is an outcome and it's an outcome of what your relationships are, what you do in life, what your purposes et cetera. profits are the same way. it's simply an outcome of how you make your purpose real and
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what are the ways that you create value for your stakeholders so we need purpose and profit not just profit. the second point is no surprise to any of you that are familiar with anything i've done and since the late 70s everything about this idea of stakeholders and how i thought that's just the way business worked. look, even on a dirt farm in georgia we knew you had to deal with the folks who could effect you in that you could affect and that is just complete common sense to me always has and i never understood why people thought that was a radical idea or quite honestly even an interesting idea and i thought there were some interesting ideas in this old book i wrote called strategic management stakeholder approach but i did not think the stakeholder idea it was interesting one. i didn't realize how embedded
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the old story was in our mind and how much and what might would say we are in the grip of that old story and it's a grip that we need to break. look, any business has always and will always create and sometimes destroy value for customers supplies employees and communities and the people with money. building and leading a business means getting these things going in the same direction even if you're the most staunch freedman night in the world and all you care about shareholder value so how will you do that? integrate products for customers, have suppliers who want to make you better and you will have employees who are engaged and will have communities who want to there and if you do that and you're
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lucky you you might make some money. seen stakeholders versus shareholders is a complete mistake. these are interdependent and you can't look at them as one versus another. the second thing to notice here is that thinking about stakeholders is a fundamentally different way than most people want to think about big business because you have to think about them in relation and you have to think about stakeholder relationships. relationship is very different than a transaction. transactions are one-off things that might be repeated but relationships endure over time. you expect them to continue. at least in our personal relationships we kind of keep score. my wife and i have been married for 43 years and she is the
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reason i went to wharton in the first place and that's where she went to grad school and i followed her along. i know if i went next door to another room in her house and i said you know, honey, i've been keeping score and i think you only three. i'm not very certain of what the outcome of that would be since she's a second degree black belt in tae kwon do. i don't think it would be good for me. relationships you don't have to keep score. push comes to shove, you help each other. that's how business works. it is not just this transactional thing. there are some parts of business that are like that but for the most part to build a great company you build a set of relationships. its purpose and profit to stakeholders and shareholders.
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business doesn't exist in this world imagined by economists and that's a pretty good story where there is perfect competition and only market forces all information is contained in the price et cetera et cetera and we know how that story goes. business in the real world is connected with other societal institutions and we are as actors with big businesses we are at once consumers and sometimes employees, citizens, parents, partners, patients and it's very hard to separate out
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one institution from another. we need to see business as connected in society with these other institutions and to try and understand how business can partner with them, if you would like, to improve our society. it is also true if we think about we call this the business embeddedness principle and businesses embedded in the physical world. i mean, one of the things we know is we can't forget about, not only are intangible resources but are tangible resources. thinking about what sustainability means and how business can be connected to lots of other societal institutions is the problem. if the problem especially today and it's a problem especially today in the u.s. and other places in the world because of crony capitalism.
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because of some businesses in cahoots with people in government to make special deals for themselves. here the case is not letting markets work enough and not seen business as a part of society. look, i'm doing this to make as much money as i can. we need, if we are going to solve problems like global warming, we really need people to start as this is and use their creative imagination. the fourth principle is human complexity and the idea behind the complexity principle is that we are not one-dimensional maximizers of our short term health management. there are people like that and we call them sociopaths and for
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the most part you know, we elect them to political office. i just want to say i'm a completely nonpartisan statement coming for me. human beings, you know, what are human beings? we can be selfish, of course. can be incredibly other regarding. anybody who is ever been in love or anyone who's ever had a child knows that this idea of focusing on our rational self is just a logical statement but not what human beings are. i've often thought what it human being is could be illustrated by this iphone i have here. you know, think of the vocabulary that we had to literally invent to get to iphone. we literally had to invent the
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terms and the problems and the issues. had to invent a vocabulary about glass and invent the physics that went on the inside and what a human being is is a set of a creature who came in. [audio difficulties] to solve problems and work together to realize those solutions but that is what business does. it is time we recognize that. business works because we can work together to create something that no one of us can create alone. it is not the urge to compete. [audio difficulties] it is the urge to create and to be a part of themselves and to work together in relationships with others. that is what makes capitalism work and it is high time that we
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recognize that. there are lots of examples of companies that are doing this and that is, don't take this as a wish list of the way i wish the world should be but it is rather what i'm trying to argue is this is happening in the world but was such the grip of the old story that sometimes we don't see it. final issue is you got to put business and ethics together. most people tell the truth and keep their promises and businesses can work if they didn't we have a crisis in society that we can't talk about the stuff anymore because can't talk about race or gender or you can't talk about religion these things are too sensitive et cetera and that honestly is the
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deathknell of a democratic society. if we can't figure out how to talk critically about the things that affect all of us that democratic society i think is not here for very long. let me just summarize and say five things. purpose and profits, stakeholders and shareholders, business as a societal institution and a market institution and people with full humanity and economic interests and ethics in business and if we put those five things together i think we will get a very different view of business in a different view of the world. we need more leadership. we need people who lead critical
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conversations, not righteous ones, no lectures on morality and we have to take people where there are and lead them to where they need to be. this requires, i believe, incredible emotional intelligence and requires humility and i think it is best done with a good dose of humor. if we can address our own values and our own authenticity and contribute to others we will have a early good future but let me end by saying two things. what is the take away? one take away is you know, are you willing to see the results of your conversations in the newspaper and people always say "the new york times", you know,
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washington post. as great as those papers are they never say charlottesville daily progress. if they did the test would be at least five factual errors in the caption under the picture is a correct and this vague idea that you reed this before somewhere else so the new does not work in tiny lidded little charlottesville. we have to invent a new task and it's something i would call ben, emma and molly test and can i go home at the end of the day and say to then, emma and molly let me tell you what i did today that i'm proud of and that i want you to learn from and because if we are not making our organizations and our companies and synagogues and mosques and community centers and educational institutions if we are not making them places for children to live in we've got
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the bar too low and the second thing is coming from one of my favorite musicians qatar player by the name of warren hayes, warren haynes is a great blues guitarist and the leader of government [inaudible] and played with the [inaudible] and i'm trying to play slide qatar by listening to his video. plain slide qatar sounds like you're basically killing a cat and that you are doing it to cause the cat is most pain as possible. that is the way it sounds. i'm struggling with this and all of a sudden warren haynes stops and says look, when you play the blues it doesn't really matter how many notes you play but you don't have to mean the notes you play. my challenge to all of you is to
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figure out what are the notes you need to play because in today's world there is a lot coming at you and there is an awful lot that we don't know so listening to someone like warren or bb king play that one note pull off in which there is more humanity in that one note then in the hundred others that people can play and it's a think a rule that would do as well. let me stop there and turn it back over to dana. >> thank you. that was great. we are 50 copies of your book and, you know, and your book you give a number of concrete examples of companies plain great notes to play your analogy so could you share with us a couple examples and why you chose some of the companies that you chose?
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>> well, sure. there are lots of them and of course there are some that get a lot of press like whole foods and we've also done led by jenny and bobby a film called fishing with dynamite and fishing with dynamite is about a 70 minute film on the shoulder stakeholder idea with lots of people that comment on it, including bob and michael and others and we picked out three companies, the container store as a medium-size retailer and the start of company that is fully sustainable back to fishing in maine and eastman chemical in tennessee and those are pretty interesting companies and we looked at new york life which is
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been in business for very long time and they basically embody these principles. we look at carmax which is revolutionized the used car industry which used to be carmax used to be or rather the used cars salesman used to be the icon of unethical behavior and there are lots of others. it is important to note we are not trying to argue that any of these companies get it right all the time. the old story tells us look, you've got to think about this like saints and sinners and you know, most businesses are sinners and just in it for the money. there might be a few that are
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safe and then when those saints make a mistake they are just in it for the money. saints and sinners are the hallmark of the old story hasn't changed. oscar wilde told us how to do it. oscar wilde, the great playwright, set every saint has a pass and every sinner has a future. you know? i don't many sinners but there are sinners all the time. i certainly don't know any saints. as human beings we will do stuff wrong and if every time we get something wrong, you know, i have to go straight to hell and not passed go business will not be very interesting. ...
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what can we do to get finance faculty and textbook authors to wake up? >> i think we will see them waking up in the near future for several reasons. one, the shareholder values doesn't help very much. we need a broad idea about the stakeholders and number two, the principles of responsible investing, which there's $9 trillion under management that have signed.
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textbooks tell us the technologies of how to do stuff and they are important, they just don't help you solve problems like how do i build a great business. i've often asked students how certain they are of that 20 year prediction when they are doing their charge flows and present values and i can't even imagine people do that anymore. i am more optimistic about this you are the author of one that doesn't do that, talking about shareholder wealth and i think that is a great idea. i think we are going to see more of that.
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we encourage everybody to take a look at it. would there be less skepticism regarding responsible business practices if they reviewed it as a part of a menu of the corporate governance options to support enterprise risk management and shareholder value rather than as a new model and he's citing a study asserting the disconnect between the business roundtable signatures, aspirations and what they are actually doing and implementing. >> i tried to cover the
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corporate governance literature and follow it in the law. they are trying to say there is a distance between the roundtable and how much they implement. of course there is. they issued the statement last summer that it's a little soon to be trashing it. if you look at the capital they have a website in which what they do is track what the companies have done by stakeholders with respect to covid so they are trying to see the companies that signed the roundtables are putting their money where their mouth is. it's going to take time. we've got to avoid this
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thinking. it's argued persuasively to me that the idea shareholder value is the only objective affirmed and is not the law. shareholders don't own compani companies. there's an awful lot around that. it's interesting but i'm not sure we understand shareholders are what count and we are not quite sure about the stakeholder governance and what that's like. it happens at many different
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levels. we need to understand that as well. so, it's interesting but i am not hopeful of the governance literature as i currently understand. i'm certainly behind in that as well talking about the history of teaching business and what you've seen over the years some
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philosophers started thinking about this the founding mother of the academic started the journal and it raised it to a first rate academic journal. i'm clearly a member of the
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strategy discipline they were in the grip of michael porter. people who care for this a group of people who did social issues and management or business ethics in the school of 89. we've had a module before then and maybe some other people and maybe there's something else i
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don't know about. after the scandals of inside training it became pretty easy to raise money for the business ethics. there was a crazy idea about the teach business ethics about the standalone course or do you do it throughout the curriculum. every business decision has finance in it. so we don't need to teach a finance course. we need to teach finance across the curriculum. forget about the course and its
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history and the discipline and the technology. let's just integrate it into all the other courses. it's ironic they had a good deal finishing up a good book with the philosopher dominic scott in which plato has often more insight about the leadership than many of much of the curre current. that led to the courses where they claimed credit they were doing something that worked. on ethics a day most people get it right.
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so, it is tricky and thinking about how to design a course that's not just avoid disasters don't do that. that's not. run your business so you don't kill people or communities. that isn't a hard problem. trying to figure out how you program autonomous vehicles and trying to figure out that is a hard problem. trying to figure out what you do about a misuse and about a
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sonogram machine that can lead to abortion of female fetuses. there are also problems that are i would say we know the right thing to do. it's hard to stand up and we certainly see that played out in our political life now where people know the right thing to do, but they don't have the courage or they don't have the knowledge how to stand up and say those. one of our colleagues was invented something and we spend a lot of time on trying to figure out what to do and in situations where you don't know
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and where we spend a lot of time with them trying to figure out how to get practice. both of those are important in today's world. about your claim that there are no trade-offs that the trade-offs are just illusions and he goes on to say that for some illnesses, curing a small number of people is better than curing a large number of people and giving the example of a
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cold. he's asking what is your intuition about how the public policies seem to be primarily about the trade-offs between health and the economy. do you think those trade-offs are also [inaudible] but it's possible if we use our imagination to avoid the trade-offs to try to figure out how to have both sides. i've gotten calls from the press all the time that say do we need
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profits or ethics. we want to keep people as healthy as possible and jobs in a thriving economy. if you go back to what i said human beings are, we invest vocabularies to solve our problems and invent vocabularies out of the trade-off. i don't live in another world. sometimes you have to make trade-offs. sometimes you just cannot figure it out. but that's the failure of
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imagination. how many business schools spend time and effort helping their students build their creative imagination. i don't just mean courses in creativity. i mean, spending a lot of time studying and practicing the creative arts. you build creative imagination. unfortunately, not through cases. but you do it through music and art and literature. if we don't start doing that in business schools, i don't think there will be more left to do some friends of mine say that once you start not looking for
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trade-offs and looking to avoid the trade-offs, you get better at it. and it's a matter of how you frame the problem. i would only add to that one of the most ingenious no trade-offs companies was in iraq. they figured out a way of trade-offs. they were either incredibly downright illegal so there's no guarantee that no trade-off gives you the best world. but if you don't frame it, if you frame it as looking for trade-offs, i am certain that that is what you will find. and i'm just suggesting there is more value to be created it's
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increasingly important given several of the new social trends. and then i would just add that when he talked about the ceo i'm curious how you feel about that. >> there's a lot of ways to run the business. sometimes they are the least important i think it's hard to make a call.
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no one can do that the stakeholder groups are intertwined in their interests have to be coordinated. i would use the metaphor of we have to keep them in harmony. they sounded good together. so the trick is to get the interests not aligned because you will never get everybody absolutely aligned. but in music when somebody plays a note it's called a passing
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tone it just means the wrong note. you have opportunities to create value. so thinking about harmonizing the stakeholder interest gets them in the same direction over time. i'm not talking about just for the long term. i've had 40 years of people telling me the stakeholders found it makes sense in the long term. here's the short term where it doesn't make sense. the minute we move the short-term, we mov moved the log term. it never seems to catch up. if it makes sense, there comes a point ithe point it better makee in the short term, do that now. i've become an increasing skeptic of the short-term and
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long-term distinctions. you know, the financiers said to us we didn't mean shareholder value in the near term, we meand long-term shareholder value. i'm not much of a positive to believe in this stuff, but a lot of them are and the shareholder value can only be measured in the short-term. wshort term.we live life in the. we have to figure out how to do this and do it now to keep it up. that's more of a rand than you needed. i apologize. >> i'm going to ask the last question, and of course it is about ethical standards globally. and that they are different around the world. what would you recommend to someone who wants to create a start up in a different country, for example in china. how would you know when to make
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the business ceo or when to stand your ethical ground? >> well again, i wouldn't make the distinction between the business deal and the ethical ground. i would try to see what it is. people said when in rome, do what the romans do or do what we do in charlottesville. the first one doesn't respect do as we do in charlottesville and doesn't respect the romans. you have defined, you have to have a conversation about how we are going to do business here. a lot of people jump in and they jump in without knowing very much. in my experience i've asked people from all over the world.
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there is a remarkable similarity all over the world to that. it is respect. it's love, compassion, responsibility. it's working hard. and it differs around the world. now, what it means to show someone respect is different than it means in new york city. there are cultural differences. but, i think the moral differences are relatively smaller than we think about. so, i would say you have to really understand the culture.
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the cultures you are dealing with and try to come to terms with whether you could live in that culture or not, including could you explain being there to your children, to your closest friends. i don't know any more magic than that. ethics needs to be about a conversation. it's a conversation about our hopes and dreams. it's a conversation about what the meaning of our lives is going to be for ourselves and others. and it's a conversation that we need to be engaged in pretty much all the time i think both in schools and in our businesses. >> this is a very easy
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conversation.
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