S1-1 Business in Society: Course Overview

0:01
[SOUND] Welcome to New Models of Business and Society. Its a really exciting time to be involved in business
today. There's lots of change going on all around the world. More and more people are becoming
entrepreneurs. More and more people are becoming involved in business, and inventing lots of ways to make a
business successful, from small businesses to very large businesses. And, I believe at least, that you can make
a difference. We're going to explore some of these new models of business in this course. I've got the best job in
the world. I have a great team here at Darden, and we've spent a lot of years trying to understand how business
works in society. I've been able to travel all over the world and see businesses, again, large and small, and I
want to share with you the experiences that I've had. We're going to talk about why the current way we
understand business, which I'm going to call the current story, or the current narrative, is mistaken, and how it
can be improved. And, best of all, we're going to explore how you can begin to figure out a new business idea
that both makes money, and makes the world a better place. And if you don't want to start a business, if
that's not your thing, we'll help you figure out how you can make a difference as an individual, as a customer, as
an employee, as an investor, or a community member.

1:39
So, the overview of the course roughly goes like this, in this first week we're going to talk about what the problem
is with the current story of business, and why it's no longer appropriate in the 21st century.

1:54
In week two, we're going to talk about some new models of business in society that are partial solutions, models
like corporate social responsibility, and corporate philanthropy, and shared value, how those don't quite go all the
way, but how they're still, good ways to think about business. We're going to talk about the environment as
a driver of a new way to think about business. In week three, we're going to develop a more comprehensive idea
about the role of business in society. We're going to think about stakeholder theory and conscious
capitalism. And in week four, we're going to focus on how to develop a business idea that makes money, makes
the world better, and to summarize where we've been.

2:40
There are lots of ways to learn something in this course, and I'd like to challenge you to learn on four levels.

2:48
The first level is just to watch the videos. My team and I have tried to put together some information, which I'll
do my best to convey to you, that will help you think differently about business.

3:01
The second level is not only to watch the videos but to participate along. I'll ask lots of questions which I want
you to think about. Sometimes we might ask you to do a survey at the end that, gives us your answers. If you
participate in that, you'll learn more.

3:20
Third, we've organized discussion forums. And there'll be lots of what I'm going to call engagement questions,
questions to talk about in the discussion forums. My team and I will be participating in these forums, and the
more you participate, the more you'll make this experience better for everyone, including us.

3:41
And fourth, you can do some of the suggested readings. There aren't any mandatory readings, for the course,
but there'll be lots of suggested readings, and I want to encourage you to do as much of that as you have
time. The more you participate, the more you engage, the more you'll get out of this.

4:01
Okay, enough of all this. Let's have some fun, starting with the next video. [BLANK_AUDIO]
S1-2 The Dominant Story of Business
0:00
We can be the generation that makes business better. I really believe this. But we need a revolution. Now, don't
worry, this revolution isn't about guns or anything like that, but we need a conscious conceptual revolution. A
revolution about ideas. We need nothing less than a different way, or different ways to think about business we need
a way to think about business that enables us to be at our best. The overall argument here is that the standard story
about business that's, that's dominant in cultures across the world, frankly isn't very useful anymore. In the world of
the 21st century. There are at least four flaws in this current approach. I'm going to talk about these flaws in the next
video. I'm going to suggest we go in a different direction because the good news is there are lots of alternatives to
this standard story that are emerging. But first, I need to do two things. I need to tell you what a narrative or standard
story is, and I need to tell you what I think the standard story about business is. First, what is this idea of a
standard story and underlining narrative, a dominant narrative. And why are they important. I want you to think, just a
minute, not about business. I want you to think about sort of the old narrative if you like about the role of women in
US society, I'll use US society but it's a standard story in lots of societies around the world.

1:34
And you know how that story used to go, it used to go well, you know, women should stay at home they're emotional
creatures, their role is really in the home, and child raising, etcetera. And for instance they shouldn't be allowed to
vote, they shouldn't be allowed to operate in the public sphere. they can't be trusted to make important decisions, like,
the ones that have to be made in politics. And you know what happened. People began to question this narrative and
gradually over time the narrative changed. It reached maybe a tipping point in the, in the 20th century in the U.S.
when women began to vote and perhaps another with the technology of birth control in the 1950s. The 20th century
in many ways in the U.S. was partially a century of the liberation, growth and development of women. The dominant
story, the underlying narrative changed and with it what we are able to accomplish changed and got better. Now
changing the dominant narrative takes time. It takes repetition, and it takes the willingness on the part of many people
to continuously challenge the old narrative to find a better way.

2:57
So, what about the old narrative of business? What's the standard story that we need to change? Well, there are six
key assumptions. In this old narrative of business. The first one is that business is primarily about economics. It's
about making money and profits and it's not about being connected to other institutions in society. Business sort of
stands alone in, in, in something like free market land,uh, wherever that ha ha that happens to be. And when you
think about business, you think about money and profits.

3:38
The second key assumption, and the old narrative, is that. The only constituency that really matters are
shareholders. Why? Because they're the ones who care about money and profits. We don't care so much about
others who are affected by business. It's shareholders that matter.

4:00
The third assumption is that we live in a world of mostly un, of limitless, unlimited physical resources. So we don't
need to pay much attention to our impact on the environment. You can see this as this view of business as exploiting
what natural resources are there. The fourth assumption is that capitalism works because people are kind
of completely self-interested, only in it for themselves. If you want them to act for others, for instance if you want
managers to act for shareholders they've gotta have the proper incentive and these incentives around money and
pay and profits are what drive them to act.

4:49
The fifth assumption and this is one that I find particularly problematic is that given the opportunity business people
will cheat, cut corners, lie, cheat and steal more than the average. This assumption about who we are as
moral beings, when we put on a suit or go to business, it's almost assumed that we're non-moral, we're amoral. We
don't care about the effects of our action on others. And finally, the sixth assumption is that business works because
people are basically competitive, or greedy, and then somehow just by an invisible hand, the greatest good
emerges. And usually one passage is quoted out of Adam Smith and we forget much of Adam Smith. Read the
papers, listen to the news,

5:44
you'll here this story. One of the things I'd like you to think about is to see if you can find examples of these
assumptions in your daily life. On the news, in the newspaper, on T.V whatever you read in conversations with your
friends. I'd like you to talk about on the discussion forums the following question. What do you see as wrong with
this standard story? With these six assumptions? What's right with it? What changes in business have you
seen from your point of view? Wherever you are in the world. [BLANK_AUDIO] .
S0103 Four Flaws in the Dominant Story
0:00
The standard story of business has at least four flaws. I'm going to talk about three of them in this video and
save the fourth one for the next one. The first flaw is that business is not just about economics and the money.
Business is not just about profits.

0:24
This gets dressed up sometimes as, the purpose of any business is to maximize profits for shareholders. The
purpose of any business is to maximize profits for shareholders. The best example I can give you of this is to
say, well. You know, I need to make red blood cells to live. I, I think I'm on pretty safe scientific ground there.
But making red blood cells isn't the purpose of life. Every business has to make money. It, it doesn't matter if
you're for profit or not for profit, you've gotta pay the bills. You gotta have some way to generate cash.

1:00
But it doesn't follow from that, that that's the purpose of the business.

1:06
And furthermore business is part of society. It's not some isolated activity that's just about money and profit.

1:16
I've known a lot of entrepenurs in my life. I've had a lot of students that have started business's, some of whom I
hope you will meet. Most entrepreneurs I know don't start a business just because they want to make money
and profits. Yeah there are a few. Most entrepreneurs start a business because they're absolutely on fire about
something. And it doesn't matter whether you're Bill Gates and Steve Jobs, on fire about this personal
computer. Revolution or a friend of mine who starts a car radio business who's on fire about being able to bring
really good music to people when their in their car. Their trying to make their lives and the people they know,
their trying to make their lives better. That's where business get its purpose. Its not just about money and
profit. Don't misunderstand money and profits are important but purpose is something else and I think we forgot
that real story certainly is. The second flaw goes all a bit like this. You know If I tell somebody I teach business
ethics, which I do. they, they have to manage not to laugh. Or they say things like, yeah. Business ethics, a
oxymoron. Two words that are contradictory, like, jumbo shrimp. Or, or, or, or they tell you some joke. I think I've
heard them all. I didn't know business had ethics. It must be a short course. Must be a theoretical
subject. There's this idea in the dominant story that business on the one hand, ethics on the other and they
don't mix. My experience is really very different.

3:06
Most business people I know actually want to and actually do act ethically and act with integrity. They want to do
the right thing. They're no different than you or I. They don't automatically walk in the door of their businesses.
And become, you know, g, sort of greedy, and only care about money. So this idea that business and ethics
are separate is a deeply problematic idea in the old story.

3:37
Well, so it's more than about money and profits. Business and ethics need to be connected and the third
flaw. The third flaw is this idea that people are simple, they're motivated by money and self interested. One of
my favorite management theorists was a guy name Harry Levinson. He was kind of a crusty old guy, used
to hang out at the Harvard Business School a lot. And he would ask executives, whats the way most people are
assumed to be motivated in most companies? And they would say, you know rewards and punishments are
carrots and sticks. And he would go and draw a picture that looked like this. Only hopefully a little bit better
than this. I have a daughter who is an artist who got absolutely none of her ability from me. Which I'm proving.
Okay, so, just so you know, this is the carrot on this side and this is the stick over here. And Levinson would
say, okay, what animal is in the middle of that?

4:39
And people would say, as they still do, a jackass.

4:44
And Levinson would say, maybe human beings are slightly more complicated than jackass's. And it's a little
worse. When you start treating people this way, as if rewards and punishment are the only thing that matters.
They start nosing for the carrot and trying to avoid getting hit with the stick. In short you turn them into
jackasses. Human beings are complicated. We're complex creatures. Money's more than about profits. It's
about purpose. Business and ethics have to be connected, and human beings are complicated. We need to use
those ideas to build a new story of business and there's one more about globalization, which I'll talk about in
the next video. I want you to think about the organizations you're involved with, maybe they're business schools
or religious organizations business's or schools or civic groups or governments. What's their purpose? Do they
act on that purpose most of the time? Is that purpose ever misunderstood?

6:00
Let's have a conversation about purpose and its important role.

S0104-The Fourth Flaw

0:00
So there are at least three flaws in the story of business. Business is just about economics and the money,
wrong. Business and ethics don't mix, wrong. And people are simple economic maximizers, wrong. The fourth
flaw I want to talk about. Is the idea that frankly the world has changed. Globalization is part of this, but with
globalization has come some new political realities. With those have been often driven by the information
technology. And combined, these have shifted the normal relationships that we think about in business. What it
means to be a customer, what it means to be a supplier, an employee, a community member et cetera. Now
globalization isn't new. One CEO from India I know really put it the best. He said "what's new really is borders
and passports for the last couple a hundred years. Human beings have always traded around the world from
ancient times". So we all remember the story of Marco Polo and how in a very different world no, no air planes
Marco Polo opened up a whole part of the world to the West. And opened up the West to a whole part of the
East. Nonetheless today globalization is simply undeniable. as an American who often we don't get a lot of
credit for being very global than the rest of the world. When I explain this to people when I travel I say you know,
even Americans understand globalization in today's world. National Geographic has has given a really good
example of this. And I've got a small, demonstration here. They, they, they, they, they say look at a pencil. You
know, the graphite might be from Brazil and Mexico, the soft wood might be from Sweden, or South Africa. the
rubber, might be from Thailand or Malaysia. and the metal could be from China or Mozambique. And pencils
can be manufactured pretty much anywhere in the world, fairly inexpensively. Ideas travel around the world
quickly. Supply chains get globalized. And businesses can no longer pretend that what happens in one society
is irrelevant in another. A couple of examples, the value of trade goods as a percentage of the world
gross domestic product has increased from 42% in 1980 to 62% in 2007, you can see the acceleration of trade.
And if you look at something called the stock of international claims which is a fancy word for bank loans and
those kind of things. That's increased from 10% in 1980 to 48% in 2006. Again showing the increase in the
way business moves around the world. Today's companies like Toyota operate in moldable countries. And they
have to have a strategy that makes as much sense in Tokyo as it does in Tennessee and Mumbai, and
Rio. And they have to operate in a way so that their philosophy, their process's, how they treat people are tied
together all over the world. At Toyota they have a very famous philosophy called the Toyota way invented many
years ago. But the companies had to globalize that philosphy so that it makes sense in places outside of
Japan.

3:36
Another good example of globalization is the, is the increase in awareness about state-owned enterprise. a way
to think about business in society that's prevalent in China and, some other places. 35% of all the business
activity, in China is represented by over 145, 000 state-owned companies. Controlling a really substantial part
of business assets in China. And these state-owned enterprises are connected to important family and
government officials at all levels. And simply, you can't understand how to do business in China with the
standard story. You've got to understand that these businesses are set in a social and societal context. If you
don't do that you won't do very well in China and other parts of the world. So, the standard story of business
as this purely economic institution, frankly just won't do.

4:41
With globalization, has come a set of new, political realities.

4:47
We've seen actually, a dramatic increase in the number of countries in the world. In 1980 there were 154
members of the UN, by 2011 there are 193 members. the American Central Intelligence Agency says they're
267 world entities. I'll tell you a personal story when my son was born. Is our first child and every when
[UNKNOWN] your fir, first child everything is a learning opportunity for, for, for them. So we bought a shower
curtain. that was a map of the world. That was 1985. And it's really interesting to look at that shower curtain,
which is still there, and look at how many countries are simply, have simply changed. The world has changed in
terms of its political realities. With the break up of the Soviet Union taking down the iron curtain. The
emergence and liberalization of economies in China and India and Brazil. growth economies in the so called
BRICS nations and fast emerging economies in Africa. Has meant an added pressure, but an incredible
increase in opportunity for every business, and opportunities to start new businesses. In 1990 there were
roughly 69 democracies in the world, 2010 there were 116.

6:19
Global companies have to pay attention to how they're regulated in countries with very different systems. What
happens in a Bangladesh garment factory is news in Berlin, in Jakarta and Los Angeles and it's news
almost instantaneously. Now most of this change has been driven in part by radical advances in information
technology. As the pioneer Gordon Moore predicted, computing powers are exponential path of increase. If a
typical worker wanted to purchase a computer with the power of let's an the iPad. In 1982, now some of you in
your 30s you remember 1982. So you want to purchase a computer with a power of an iPad. It would have
taken you 360 years of wages to make such a purchase. We're connected to each other or at least connectable
more so than at any time in history. Think about the changes brought by things like the Arab Spring, the ability
of masses of people to self-organize politically. This new information technology requires a whole new way of
thinking about business. Globalization, new political realities, changes in, the information technology has meant
a change in the way we think about traditional business relationships. We buy things online. We get
recommendations from our friends. We rate our transactions with companies. there are sites like Glass Door
that give us insights into how employees see their companies as a place to work. Even product design can be
crowd sourced now. Take a look, if you have time, at Quirky, quirky.com and you'll see a, a site that uses crowd
sourcing really to improve product ideas. So let's go back to the standard story. You can't hold a company
together by focusing on the money. You need something more like purpose. Ethics issues are front and center
all over the world. When there's a fire in a supplier factory due to poor working conditions, today's customers
and politicians want, demand accountability. Not everyone's the same around the world. Some people may in
fact be motivated only by money. But most of what we know is that issues around purpose and having
autonomy, autonomy and mastery, issues of values like family and compassion. Or we get most of us out of bed
in the morning. And wanting to do better for ourselves and our fam, and our families and our society are what
keep us going. We have to understand business as set firmly in society. So the old story, frankly just has to go,
and good riddance to it.

9:30
I'd like you to talk about, in the discussion forum. How have changes in information technology changed your
own life? What changes do you foresee in the future? And, how are these changes affect
business. [BLANK_AUDIO]

S0105-The Global Financial Crisis

0:00
Because in part, we're saddled with this old story, this old narrative of business. I believe this is part of the
reason that in 2007, 2008, the world was plunged into what we call the GFC. The Global Financial Crisis. Now,
there are many hypotheses about why this occurred. And what the causes were. For instance, some people
argued that we moved to rewarding short-term gains in a kind of radical, extreme way. one CEO, that I know of
in investment company, says what happens is we moved big financial payoffs to the very top of what we
thought motivated people. And that's just wrong.

0:46
Some people argued that this happened because there were questionable practices in the financial services
industry. These questionable practices became widespread and normal. Who was responsible when loans
were bundles sold off and companies routinely bet against the people they were selling the loans to? Some
people argue that there was just too much high risk lending, there was too much leverage and there were
inflated credit ratings. The rating agencies didn't do their jobs. And some people argue that they were just bad
apples. And lots of folks, maybe you and I with our retirement plans or bank accounts who are just that greedy.
Now, I think all of these issues probably have some truth to them. And all of them are connected to flaws in the
underlying story. The problem is the consequences were big. Total losses have been estimated at something
like $15 to $20 trillion. And that's really only an estimate, it doesn't count for the human consequences. The
loss of millions of jobs. The breakdown of institutions, indeed the fabric of society in places like Iceland and
Ireland and Greece and others. And it doesn't account for perhaps the most tragedy of all, the lost of hope
by many people in our system. Consequently there's been a lowering of public trust in business. In the US only
21% of people have quite allot or great deal of trust in banks and big businesses. Small businesses still are
okay but at 66% of trust. With banks and big businesses, the bulk of the economy. have 79% of people who
have very little trust in them. And there's a growing gap between the institutions, trusting the institutions,and
trusting the leaders. Only 21% of people in the US think business executives are honest. In France only 10% of
people trust business leaders to tell the truth and the number globally is 19%. That means 81% of people
around the world think that business people, for the most part dishonest. Think back to business and ethics
don't mix. There's a problem. So what? The current story isn't working and we need a new one. The problem is
regulators often regulate based on that old story. We'll, we've gotta, we've gotta reinforce the separation
between business and ethics. We've gotta make it more about money and profits. Make business more
efficient. And they're likely to push through reforms which will only reinforce the old story.

3:49
Often, what happens is, you have a scandal, you have reforms. You have another scandal. And the news
scandal is based on the old reforms. And this cycle of scandal reform doesn't work. We need to try something
different.

4:08
I had the pleasure of having lunch with the CEO of a, of a bank who really have a different way to think about
the global financial crisis. In particular the sub prime mortgage part of that. That really devistated a lot of the
banking industry. He said, you know, we weren't hurt much by that sub prime mortgage thing. We just didnt see
how lending money to our customers. They couldn't really afford to pay back, did anybody any good.

4:40
He's saying there's something about business that comes before the money. It's trying to figure out what's really
in the interest of our customers and others. And that's part of the key to developing new models of business in
society. I like you to talk about the following questions in the discussion forums. What if in the main effects of the
global financial crisis in your country. What about the effects on you and your family? What do you thinks been
the cause?

5:18
What do you think have been the lessons that we've learned from this?

S0106-The Global Financial Crisis

0:00
Because in part, we're saddled with this old story, this old narrative of business. I believe this is part of the
reason that in 2007, 2008, the world was plunged into what we call the GFC. The Global Financial Crisis. Now,
there are many hypotheses about why this occurred. And what the causes were. For instance, some people
argued that we moved to rewarding short-term gains in a kind of radical, extreme way. one CEO, that I know of
in investment company, says what happens is we moved big financial payoffs to the very top of what we
thought motivated people. And that's just wrong.

0:46
Some people argued that this happened because there were questionable practices in the financial services
industry. These questionable practices became widespread and normal. Who was responsible when loans
were bundles sold off and companies routinely bet against the people they were selling the loans to? Some
people argue that there was just too much high risk lending, there was too much leverage and there were
inflated credit ratings. The rating agencies didn't do their jobs. And some people argue that they were just bad
apples. And lots of folks, maybe you and I with our retirement plans or bank accounts who are just that greedy.
Now, I think all of these issues probably have some truth to them. And all of them are connected to flaws in the
underlying story. The problem is the consequences were big. Total losses have been estimated at something
like $15 to $20 trillion. And that's really only an estimate, it doesn't count for the human consequences. The
loss of millions of jobs. The breakdown of institutions, indeed the fabric of society in places like Iceland and
Ireland and Greece and others. And it doesn't account for perhaps the most tragedy of all, the lost of hope
by many people in our system. Consequently there's been a lowering of public trust in business. In the US only
21% of people have quite allot or great deal of trust in banks and big businesses. Small businesses still are
okay but at 66% of trust. With banks and big businesses, the bulk of the economy. have 79% of people who
have very little trust in them. And there's a growing gap between the institutions, trusting the institutions,and
trusting the leaders. Only 21% of people in the US think business executives are honest. In France only 10% of
people trust business leaders to tell the truth and the number globally is 19%. That means 81% of people
around the world think that business people, for the most part dishonest. Think back to business and ethics
don't mix. There's a problem. So what? The current story isn't working and we need a new one. The problem is
regulators often regulate based on that old story. We'll, we've gotta, we've gotta reinforce the separation
between business and ethics. We've gotta make it more about money and profits. Make business more
efficient. And they're likely to push through reforms which will only reinforce the old story.

3:49
Often, what happens is, you have a scandal, you have reforms. You have another scandal. And the news
scandal is based on the old reforms. And this cycle of scandal reform doesn't work. We need to try something
different.

4:08
I had the pleasure of having lunch with the CEO of a, of a bank who really have a different way to think about
the global financial crisis. In particular the sub prime mortgage part of that. That really devistated a lot of the
banking industry. He said, you know, we weren't hurt much by that sub prime mortgage thing. We just didnt see
how lending money to our customers. They couldn't really afford to pay back, did anybody any good.

4:40
He's saying there's something about business that comes before the money. It's trying to figure out what's really
in the interest of our customers and others. And that's part of the key to developing new models of business in
society. I like you to talk about the following questions in the discussion forums. What if in the main effects of the
global financial crisis in your country. What about the effects on you and your family? What do you thinks been
the cause?

5:18
What do you think have been the lessons that we've learned from this?

S0201-Corporate Philanthropy History

0:07
[MUSIC]. The first thing I'd like to do is talk about a model different from the standard one, that's based on the
idea of corporate philanthropy. So as the first alternative to the standard story about business. The first new
model of business in society. I'm going to call it the corporate philanthropy model. And the idea here, really, it
goes back to Andrew Carnegie's two principles of wealth and this tradition of noblesse oblige. Those who have
in society I give and take care of those who have not. Current these two principles of wealth were as follows.
The first, the principle of charity. The principle of charity requires the more fortunate members of society
to assist the less fortunate. That sounds like a pretty good idea if you have, if you have a lot of stuff help those
who don't. It's there in almost every religious tradition, and Carnegie articulated this as a way for business
executives to think about it. The second principle he called the stewardship principle and he took this from the
Christian Bible, but it's in other places as well. And this requires business and wealthy individuals to view
themselves as stewards or caretakers of their property. They hold money in trust, they hold property in trust for
the rest of society and they use it for purposes that society deems legitimate. Now this sounds pretty good but
I'm not so sure that Carnegie's motives were so pure because he thought that really most people couldn't really
be trusted to do what was best for society. He thought that business people actually knew better than anyone
else how to do, what's best for society. And sometimes, today, if you listen to some business executives talk.
they talked as if they really know best how to solve, some of these problems. Carnagie was a pretty complicated
fellow who built a great companies and left behind philanthropic organization that's still there today. According
to my friend Kip Tendall who you'll meet later on, the CEO of the container store. Carnagie articulated his
business philosophy this way. If you fill the other guys basket to the brim in business, you'll never want
for profit. Fill the other guys basket to the brim and you won't be sorry. You won't want for profit. So even
Carnegie understood the mutually of business relationships. And he understood the connection between
business and society as a whole. But it wasn't just Andrew Carnegie or Andrew Mellon of the same era in the
U.S. Donated enough art to start the National Gallery of Art which we still enjoy today. John Rockefeller gave
$60 million to restore Colonial Williamsburg and has been the single greatest funder of medical research.
Henry Ford Created Henry Ford Health System in 1915 and the Ford Foundation was started by his son in
1936, to improve the well being of society. It's now the third biggest charity in the US. And Milton Hershey of the
Hershey chocolate company founded the Milton Hershey School Trust in 1909. He endowed it with 60 million
dollars, and 486 acres, and the Milton Hershey foundation with 5,000 shares of the Hershey company. Which
have been incredibly valuable over the years. That tradition of thinking of business in society set through its
philanthropic anti-, activities is still alive today. It should cause us to question this idea about business being
only for shareholders. has it ever really been followed or is that just the rhetoric to the old model?

4:21
What I'd like you to think about in discussion forums. What do you, what do you think of Andrew Carnegie's idea
that those more fortunate need to take care of those who are less fortunate? How does that work in your
society? How does it work really?
S0202- Corporate Philanthropy Current Issues
0:00
I don't want you to have the idea that corporate philanthropy is somehow a new model of business and society
way back in the robber baron era. Corporate philanthropy is alive and well today.

0:12
According to a survey by the corporate giving standard, the sum of all contributions in 2011 was more than
$19.9 billion in cash, and product giving. And according to the Foundation Center, there are over 108,000
foundations, corporate donors and grant-making charities.

0:35
If you think about the Bill and Melinda Gates Foundation, Bill Gates obviously the founder of Microsoft, who
believed that every person developed a chance at a healthy and productive life. Or the IVP patient assistence
foundation helping those who don't have insurance have access to medecine. Or the Pfizer patient assistant
foundation or Glaxo-Smith-Kline patient access programs or Genotech. these are all foundations done
by pharmaceutical com-companies to help people who can't afford it get access to their medecines. In 2011,
companies gave money to health and social services, to education, primarily K through 12, to community
and economic development, to higher education as well. To civic and public affairs and culture and arts groups,
to disaster relief, etc. The Gates Foundation, as an example, has 36 billion dollars in assets. 25 billion dollars
have been paid out in grants. to things like, the [INAUDIBLE] Alliance for Childhood Immunization. To the
United Negro College Fund. For the Malaria va, Vaccine Initiative. To Rotary International, to Save the
Children. To a, an alliance for financial inclusion. And Warren Buffet the investor from Omaha, has made a
promise to use his assets to have the Gates Found, Foundation help give them away as well. Bill Gates and
Warren Buffet have led the idea, really from Andrew Carnegie, that wealthy business people pledge a great deal
of their assets to improve society. The Carnegie tradition is really being carried on today. Since 2001 the
Conference Board has suggested that corporate giving has reached more than 100 billion dollars. And there
have been some outstanding philanthropy programs for businesses trying to make society better and these are
only a couple of examples. ING has a program called For Something Better. It's donated 25 million Euro for
better education helping over 600,000 children in partnership with UNICEF and in addition, employers have
volunteered thousands of hours to help with that process. Amgen has contributed 180 million to non-profits. In
2011, it contributed 20 million to compliment their dedication to impacting lives in, in innovative ways their
their purpose. There's a new model of business in society, its that businesses connected to society through
philanthropy and its philanthropic activities. But there are some issues here.

3:49
In a very famous paper or article in the New York Times magazine, Nobel economist Milton Friedman argued
that the only responsibility of a business is to earn profits, back to the old model. He argued against the idea of
corporate philanthropy, said that, well this was the role of government, or it was the role of private investors.
And private investors could take the profits from their investments and give it away however they wanted. Well,
this led in part to the, the popular idea that we've talked about that business is only about money and profits.
But I think it should be clear, there's a long history of business seeing it's role as contributing to making society
better through its philanthropy. Now we're going to argue later there's, you can make society better through the
very stuff that you do, through the products and services that you do. But the corporate philanthropy model
says business can make society better by donating money, and having partnerships with organizations like
NGOs and others. They're trying to make society better, and that's really different than the standard model in
business. In the discussion forum, I'd like you to think about Milton Friedman's argument. Can philanthropy be
consistent with the interest of shareholders, or should shareholders themselves decide if when and where, to
donate money to charity.

S0203- Corporate Social Responsibility

0:00
A second way to connect business in society that's emerged has been called, corporate social responsibility or
corporate social responsiveness or sometimes just CSR. Well, there's some question about how far back CSR
goes. most people, who think about this, date the origin to, in the US at least to Howard Bowen in 1953 in a
book that he wrote. And he says, you know, the business person produces two categories of products. The first
consist of commercial goods and services. The second is the conditions under which these goods and services
are produced.

0:39
And Bowen saw these conditions as social products of a business. And he's making the distinction between the
economic products, the goods and services, and the social products, the conditions under which this products
are made. And this gives really rise to the origins of CSR in the American context. In the 1960s and 70s again
in the US, people began to take this idea very seriously. large firms especially began to make what became
known as the, the business case for social responsibility. And the business case went something like this,
[INAUDIBLE] being a good citizen, paying attention to the social affects of your business you can gain important
support from customers and communities. You can avoid regulation or, at least, hope to constrain the
regulation. And look, CSR's just good business. Now, this emerges in the US at a time when you know, you're
saying, well, there's the business part, there's the ethics part. Business and ethics are separate. In other
societies around the world, this separation of business and ethics didn't go as far. For instance, in the
Scandinavian countries and Denmark, Sweden, and Norway there was never the big separation between
business and the rest of society. And we'll talk about that later. By focusing on the business case, however,
business leaders could counter Milton Friedman's argument that CSR was a waste of shareholder resources
and a usurping of shareholders' prerogative and government's prerogative. Now, most of the work on CSR was
done by issue or by social issue. A company would take on an issue like racial discrimination or pollution
or consumerism. And try to do better with respect to its products and services. Not just through its
philanthropic contribution, though that was sometimes added on.

2:49
Many companies have fought these ideas all the way, since they were committed to the dominate story about,
look, this is a waste of money, it's only about money and [INAUDIBLE] profits. People began to talk about not
just about social responsibility, but corporate social performance and the connection between social
performance and financial performance. For instance, is good social performance simply a matter of being
financially well off enough so that you can afford it? Or, does good social performance lead to good financial
performance? These questions have spawned hundreds of research project and today, I think it's fair to say,
that they remain open questions. I'm going to argue a little bit later there, open questions, because the way we
ask the question. But I'll save that for now. Many people have argued that CSR, if it's to have an impact, has to
be institutionalized through a set of principles. This really came about in the 1960s with something called the
Sullivan [INAUDIBLE] Principles, articulated by Reverend Leon Sullivan who was a board member of General
Motors around the issue of should companies do business in South Africa under apartheid. Well this idea of
articulating the set of principles has really grown over the years. For instance, now there's a set of principles
called the UN Global Compact that the United Nations ask [INAUDIBLE] companies to sign. And these are
principles in four areas, all of which make some sense. First of all in human rights, businesses should figure out
where they're not or at least they should make sure they're not complicit in human rights violations, around
labor. Business's should work on the elimination of all forms of force labor or child labor. Around the
environment, business's should promote greater environmental responsibility, and around anti-corruption.
Business should work against corruption, extortion, and bribery. And these principals made sense. Notice that
they question, they question the idea in the old story that business and, business and society are separate,
business and ethics are [INAUDIBLE] separate. And there are some great examples of CSR [INAUDIBLE]
programs. I'm going to give you a couple but there are lots of others. And again, when I give you an example
and I use a company name, don't assume everything that company does is either always right or always
wrong. Oscar Wilde once said, the problem with thinking about saints and sinners, is that every saint has a past
and every sinner has a future. and we shouldn't expect more of companies than we expect of ourselves. I'll give
you an example of a CSR program. SAP, the [INAUDIBLE] the computer company. In Latin America, SAP helps
girls gain the life skills they need to craft their own futures. In Europe, they help young entrepreneurs build
what's called social businesses that we'll talk about later, in, in the course. In Asia, it provides computer access
to help people compete for jobs. And in Africa, they focus on helping children attend school. Or think about
Procter and Gamble and their program they call live, or rather, learn, live, and thrive, to improve the lives of over
400 million children. They have a vaccination program associated with young babies and their Pampers
product. They have a partnership in China uh,with PNG Hope schools in very rural, poverty-stricken areas.

6:46
And they've supported programs like Feeding America, oriented towards children's basic needs. Contributing
more than 3.2 million pounds of, of, of products. This second new model, in addition to philanthropy, is that
businesses connected with society by its corporate social responsibilities, activities. And maybe by it's corporate
social responsibility and it's philanthropic activities. And that's a very different idea about business as
connection with society than the dominant story. What I'd like you to think about in the discussion forum, talk
about, is this question of does good social performance lead to good financial performance? Or does good
financial performance allow companies to have good social performance? What do you think about this?

S0204- Corporate Philanthropy and Corporate Social Responsibility: Next

Steps
0:00
Many companies around the world have great corporate philanthropy and corporate social responsibility
programs. They do a lotta good in the world. And this kind of makes a mockery out of this dominate model of
business as disconnected from society. Yet some people argue that they're doing this really just because
there's a link to profits. And the, this so-called business case is what's really driving things. I'm not sure how
much this matters in the real world, as long as people are doing some good. It might matter to economic
theorists but I'm more concerned about the good that gets done in the real world. But there is something
missing here. Often times these programs are done as add ons to the business model without having too much
overlap. It's almost as if, if you think capitalism and business are, sort of, morally questionable, you've got to do
something to make up for it.

1:03
And oftentimes to do something to make up for the bad is what corporate philanthropy and corporate social
responsibility are aimed at. Or it seems that way sometimes. So, if we can think about how do we build these
activities in to the very purpose of a business.

1:24
We might get a more robust way of understanding business in society. Of course, peoples hearts are in the right
place here.

1:33
but sometimes we do have this idea that we're making up for some bad stuff.

1:39
One European CEO of a big multinational said to me, look, corporate responsibility is the most important issue
of this century. The winners are going to be those companies who act responsibly and are perceived to act
responsibly. It's about being responsible and being perceived to be responsible. But should companies get a
pass on the ill effects of their business, business practices, on the bad effects of some of their business
practices. Because they have a terrific corporate responsibility program or philanthropy program?

2:12
By the way, Lehman Brothers now are bankrupt, with bankruptcy being one of the causal factors in the global
financial crisis, crisis. Had a great CSR program as well. And these programs do a lot of good. Goldman Sachs
has been one of the most vilified banks in the Global Financial Crisis. Yet, you might be surprised to learn
that Goldman Sachs has a state of the art corporate philanthropy, culture social responsibility program and it's
had one for some time.

2:42
they have a program they call 10,000 wo, 10,000 women. It's a five year $100 million global initiative to help
grow local economies and bring about more shared prosperity by proving 10,000 underserved
women entrapaneuers. with business and management education access to mentors' networks helps in
starting and getting into businesses.

3:06
Now, a program called 10,000 small businesses in a similar way.

3:11
And Goldman Sachs gives as a donor advise fund from, which current and former Goldman Sachs executives
can partner and recommend grants. Their Community Teamworks program is a global volunteer initiative that
allows Goldman Sachs employees to take a day out of the office and volunteer with not-for-profits. The problem
is corporate philanthropy and corporate social responsibility really don't stray very far from the dominant story.
It's still pretty much shareholders and owners that really count. Even a recent idea by Harvard
Professor Michael Porter called Shared Value. That does the same thing because Porter argues that it's not
just economic value. It's economic value and social value. And you have to think about a business as creating
both of those kinds of value. And that's right. However, the very distinction itself between economic and social
commits something I want to call The Separation Fallacy. The Separation Fallacy says hey, it makes sense to
talk about business on the one hand. And ethics and values and society on the other. And I don't really think
that does make sense. I want to give you an example. If I hire you, have I done something with economic
consequences? Hu, I think so. You have money to pay your bills, et cetera. But have I done something that has
social consequence?

4:42
Well, yes, I mean it puts you on a track to move up in the world it may give you pride and autonomy, a sense of
mastery over what you've done. It can't be measured in purely economic terms. So I've done something that's
social and economical.
4:57
If I sell you a computer. Have I done something that's economic? Well, sure. Maybe you can earn your living
with that comp, computer. But I've done something social as well. You can connect to other pe, people. You
can, figure out how to follow your your, your favorite teams. there's a lot you can do with that. And so, divi,
dividing it up as, this part's economics, this part's social is in my view a kind of a fools errand. Business creates
value and it creates value for customers, for suppliers, for employees, for communities and the people with the
money. And thinking about how it creates value is more interesting than thinking about whether it's, eco, what,
what part of that values economic? What part of that value is social?

5:49
The problem with these first two models, of business in society, corporate philanthropy and corporate social
responsibility could be illustrated by the following conversation. [INAUDIBLE] . Someone says to me. Well, I
know your business, really, produces great products and services. People want those products and
services. your employees really like working there. It's, you treat them with dignity and respect and, and they're
great jobs. Suppliers like to do business with you because you make them better. They make you better. You're
a good citizen in the community. And there are lots of ways to do that. But you figured out your way. And you're
making money hand over fist. What I want to know is, are you socially responsible?

6:32
If you're doing all that stuff right, it's hard to understand what social responsibility adds here. Now, corporate
philanthropy and corporate social responsibility are two ways of connecting business in society. There's a lot of
good that's done with both of those, and I don't think it goes far enough. What I'd like you to think about in
the discussion forums is what are some companies you consider socially responsible. Why do you think you're
socially responsible? What's the underlying business model and how's that connected to social responsibility?

S0205- The Environmental Crisis Argument

0:00
So far we've seen at least two new models of business in society that counts against this old idea that it's just
about profits and the money.

0:11
The first one says, business is set in society through its philanthropic activity. And the second one says,
business is set in society through its fulfillment of its social responsibilities. Now I want to focus on a third
model. And the third idea here is that environmentalism, taking care of the environment, paying attention to the
environment can help us see and situate business in society. So is there an environmental crisis. Or not. That's
often how the question gets framed.

0:47
Is climate change something to worry about? Is melting of the Arctic and the Antarctic ice polarizing debate in
your country as much as it is the U.S.? What about pollution? What air, water, land pollution? What about
hazardous waste? What about over population? Where people have argued as over consumption. What about
biodiversity? The idea that life itself means, there must be a certain amount of diversity of species where life
itself to exist. Well, one way to think about this, Is to think, you know, we have to wait for the facts. Science will
tell us whether or not there's an environmental crisis, and we just have to wait for more studies.

1:35
Now the problem with this idea is that it, it turns on thinking about science. As if its value free, as if it's just the
facts and that's all science tells us. But we know that science itself, the questions that we ask and the way we
frame these questions; even the methods we use, have values built into them This was demonstrated to me by a
professor of mine named Richard Rudner, now a long passed away. He wrote a paper called The Scientist Qua
Scientist. The scientist as scientist makes value judgments and he talked about in the 1940's Enrico Fermi a
physicist. Was involved in the Manhattan Project for the first nuclear bomb, and they were doing what was
essentially the first nuclear chain reaction. And a, as I told the story, they all knew that the probability, of, this
nuclear reaction happening and turning the entire atmosphere into sand Was very small. I mean very small, but
also non zero. And the scientists had to decide that doing this experiment,

2:56
the possible benefits outweighed the very, very tiny risk. An, and we know that the atmosphere didn't turn to
sand because we're all here. But nonetheless, the scientists have to make value judgments. And this is true in
the environment, too. So this idea that the scientists will tell us the facts and then we get on with it is not, it
doesn't exactly work. That's not to say the scientific studies aren't relevant. But using judgment to sort out Which
are relevant, what they tell us and then trying to make wise policy decisions. It's a very complicated
process. Other people argue, you know, we've got to act now, we've got to save the planet. And I always thought
that I didn't have much

3:44
You know, interest in this argument because I've always thought the planet was going to be fine. I mean we may
not be here but I'm pretty sure the planet will be.

3:54
The third argument here is that we've really already lost so many species that the biodiversity can't really support
life. Again, I'm not sure if this is right. I am sure that if it is right, we better take some time and try to find another
place to live. And we better take some time and figure out how to increase the diversity of species. The subtext
of these arguments in environmentalism. Is that it its really the dominant story of business in the background.

4:28
Business is often assumed to be the problem. Not the solution and I'd like to turn the tables on that partially.

4:40
One way I've thought about this is to think about something that I've called our children's future.

4:47
Blaise Pascal was a French philosopher in I think the 18th century, maybe it was the 17th it was a long time
ago. And Pascal formulated an argument, he was a famous mathematician philosopher, he formulated an
argument that said, you know, suppose all these people talking about Christianity are right, he was not a
Christian. Suppose they're right? Suppose there really is a hell? Well, you know, hell is hot and eternity's a
long time and living a Christian life is not too bad. So, maybe we should do that just in case. But what if all these
environmentalists are right?

5:27
Well, our children have the same prospects For a future that we do.

5:33
I believe that we have to take this seriously.

5:37
Can business leaders act as if there's an environmental crisis, regardless of how the facts, if there are any, turn
out. Can we continue to create value and trade with each other? Can we continue to improve the well being of
our stake holders? In other words rather than is there an environmental crisis? I want to turn the tables to say is
there a green capitalism? Can we think about capitalism from the stand point of How we make the world cleaner,
safer, better for our children, and how our companies can make our societies better. Improve the standard of
living for its stakeholders and make money. I think the answer to that's yes. And we're seeing the emergence
of. Of many different kinds of business models, which help to address these environmental issues.

6:33
What I'd like you to think about in the discussion forums is: what obligations do we owe to our children?

6:41
What obligations might we owe to future generations?

6:45
Can business be a part of the solution to our environmental issues. And I want you to think of and discuss two or
three companies whose businesses Are built on addressing environmental issues. [BLANK_AUDIO]

S0206- The Shades of Green Argument

0:00
With all this talk about environmentalism, remember what we're trying to do.

0:05
We're trying to discover and build new models of business and society, new models that are not just theoretical
models, but new models where they're real companies actually doing this. And environmentalism is a great
place to look for some of these new models. There are some assumptions, some presuppositions here, that I
want to be sure we keep in mind. Business, if we're going to solve the environmental problems we have, I think
business has to be a part of the solution. We have to be a little bit humble.

0:37
There's uncertainty. We don't know everything. And furthermore. We have what economists often call the
bounded rationalities, we're not able to know everything perfectly.

0:50
The principle I've discovered from reading a lot of the science here, is also important and it's a principle from
biology, that variation is good. If we have lots of ideas, lots of people trying different things. Some of those are
going to work. Some of those are going to work big time. Other won't work. Some might even do harm. But on
balance variations going to be good.

1:16
Order often emerges out of lots of experiments. It's very hard to plan. The right thing to do here, where there's so
much uncertainty. And there are multiple sets of green value, there are lots of ways to think about green
capitalism. Sometime it's easy to say I'm greener than you are, I'm more environmentally sensitive than you are,
I don't think that leads anywhere, that's very interesting. Nobody's perfect, go back to what we said last week
about Saints. In centers. Not everything is green washing. Yeah sometimes companies say they're doing
things and they don't and that's green washing. Some things are green washing but I think its a mistake to
believe that everything is.

2:05
We can think about four kinds of green values really and that will give us four different models. Of how business
can be set in society on environmentalism, the first one is very straight forward; it's about efficiency and the duty
to obey the law.

2:23
The second one is to think about customer service, and a purpose aimed at what's best for
customers. Customers have green value.

2:32
A third is to think about harmonizing the interests of stakeholders. We're going to talk more on this next week.

2:39
But it's generalizing the customer service value to other stakeholders. Making companies more sustainable if
you like for stakeholders. And the fourth set of values is living in harmony with nature. Making companies more
sustainable with the planet. And I want to argue that even if you think it's only efficiency and obeying the law that
counts that sets business in society in a way that's important. So there are four shades of green that I'd like to
talk about as I call it. Four shades if you like of building the environment into the way we think about our
companies.

3:19
The first shade Legal Green, it is based on the idea of efficiency, the duty to obey the law.

3:27
Legal Green says you can craft a green company around the idea of simply obeying the law. And using the law
to be more efficient and effective. Harvard professor many years ago, demonstrated, that countries that
have fairly strict environmental regulation actually have more innovative companies in them. The regulation if
you like, forces you to be innovative. So, rather then seeing it as a cost, you can also see it as an opportunity for
innovation. Think about a company like UPS who washed their planes so that there is less drag on the planes so
they are again, fuel efficient, if you like.

4:14
The second shade of green I want to call customer green.

4:20
Customer green says, I can craft a green company by responding to maybe even anticipating the green values
of our customers.

4:31
And a really good example of this would be something like the development of the Prius car at Toyota. People
want to drive a car that they perceive as more environmentally friendly, as more fuel efficient as doing less
emitting less green house gas.

4:50
Left based on carbon fuels, and Toyota designed a product to do this.

4:57
perhaps, you, you may not have heard of this, it can, [UNKNOWN] called coast wide laboratories. Coast Wide
laboratories manufactures, sustainable Earth, and that's a brand of Earth friendly industrial cleaners. After
purchase buy your Staples. An office product company. To establish itself as a provider of green cleaning
chemicals. Something that almost doesn't sound like it's possible. But the idea here is we see this in
company after company after company saying Our customers want a cleaner product. They want products that
make the environment better or don't harm it. We've gotta, we've gotta perform. We've gotta have products and
services that do that. And that's how customer green comes about. A third shade, we could call stakeholder
green.

5:46
And Ian we'll talk more about the stakeholder model next, next week. But the basic idea here is you craft a green
company, by responding to and anticipating again, the green values of your stakeholders. For instance, Nike
needs to have a sustainable growth business plan, and in the process of creating Sustainable business, what
they call ecosystems, they involve all their suppliers and stakeholders. Or Starbucks, who operates their
business with the belief that businesses can and should have a positive impact on the communities they
serve. they engage their stakeholders In thinking about what their overall strategy for the enterprise should be.

6:30
There's a fourth shade of green here, and it's one I've, I've called Dark Green. And the idea is craft a green
company by orienting the value creation equation. How we create value for our stakeholders. To living in
harmony with the earth. Now that's a little bit vague, but there are lots of ways to do this. There's a company
called New Belgium Brewing com, company that's alternatively powered, that's 100% employee owned brewery
they have a commitment to lessening their environmental impact, living more with the earth. Or Dr. Bronner's
Magic Soaps is an Eco-friendly. So for the commitment to social responsibility practices and investments and fair
trade. There are lots of companies out, trying to figure out how to live more in concert, more in-tune with the
Earth, and are tying to develop a darker shade of green. So the argument here is yes a green capitalism is
possible its not only possible its happening in the world today and its one of the most exciting ways to think
about how business is set inside society.

7:46
What I want you to think about is what some examples of shades of green companies. From your own
experience. And further more, what about you? What obligation does a customer have to spend their shopping
dollars on green businesses? [BLANK_AUDIO]

S0207-The Challenges of Environmentalism

0:00
I'm not trying to be Pollyanna about the affect of the environment on rethinking our model of business. There are
a lot of problems and there are a lot of issues, there's a lot of static in the system, but I think we've turned the
corner.

0:17
If you take a look, at any website of a big company today you'll see page after page about its environmental
programs. And sure, some of these are just puff and PR. But many of them

0:32
I can tell you are real. I've talked to thousands of managers over the past 30 years. As the rise of public opinion
about the environment has gone. And, by the way, they're husbands and wives and mothers and fathers and
citizens as well. If you destroy this idea that they're just greedy, muddy, money grubbing self-interested
people. And you see them as fully human, they are worried about the environment, too. I recently had a
conversation with an environmentalist, someone who worked for a large multinational environmental
organization. About a very large com, company, and he said to me, you know, this company is changing the
world. They believe that they have to be greener and their really doing it. Their putting all their
processes, etcetera, all they're management knowledge to making the world greener. And for my money, said
the environmentalist. They're doing, they're going to accomplish more than years of regulation could.

1:48
Now, maybe it's just in the U.S, here, where the public policy process is really been fractured. I know that's not, I
know that's not true, that's it's fractured in other places as well. But it can be a real barrier. It focuses too much
on cleanup, on who did what to whom and on who pays. Now, all these questions are important, but ultimately
they're questions that look to the past. Who did what, who has to clean up. I want to think about business as
looking to the future. Looking to say, well, what are the kinds of things we can do to make the world cleaner? To
make it better for our children. So we can be sure that our children have the same kind of future, possibilities that
we do. Environmentalism, becomes in a way a special case of a more general question about how value,
creation and trade are sustainable over time.

2:54
To think about environmental sustainability, we might also have to think about moral or ethical sustainability. If we
don't, environmentalism and environmental sustainability runs the risk of politicizing the idea of valued creation
and trade. To the detriment of planet and people. Acting on this requires, sometimes. Courage and tenacity, and
passion. The same characteristics I'm going to argue later you need to start a business.

3:33
I want to tell you a story briefly, about a student, named Jamie.

3:38
Jamie was passionate about recycling. She was passionate about the environment, still is.

3:45
And yet, the school she was a part of really didn't do much with this, this was some years ago.

3:52
So Jamie put out recycling containers, and then every Friday you could see her with a green garbage bag going
out emptying these containers. Essentially, embarrassing the organization into doing something that it didn't
want to do. Jamie through her own passion, her commitment, actually made something happen.

4:20
What can you do?

4:23
You can take seriously your responsibility, you don't leave it up to politicians or academics or companies. This is
an area where there are lots of choices. And I believe that some action gets better results than no action, even
acknowledging that somethings that we do might be wrong.

4:42
Recycling can help us be aware of waste and whether it's actually good for the environment in terms of
energy use etc. We'll live in a more careful way, we'll invent other ideas and invent other businesses. We'll be
more aware of our choices and what we teach our children. And, as always, in thinking about new models of
business in society, [LAUGH] we need a great big dose of humility. we're not the experts, we don't know
everything, and passion tempered with humility can be powerful.

5:23
What I'd like you to think about, and talk about in the discussion forums is, what are some of the actions you can
take to make the world cleaner better and more efficient?

5:34
And think about, where does your responsibility end? [BLANK_AUDIO]
S0301- The Emergence of a Stakeholder Approach to Business
0:07
[MUSIC]. So far, we've talked about problems with the dominant story of business. And we've outlined a number
of ways to think about business as set in society. Some new models of business and society. Based on
corporate philanthropy, based on corporate social responsibility, and based on multiple ways of understanding
the environment.

0:27
What I'd like to do now is put these in perspective and suggest there is a more comprehensive way to reorient
the dominant story of business. And this depends on the emergence of the idea of stakeholders. Now most of
you have probably heard of the idea of stakeholders, but I can tell you, thirty years ago, almost no one had
heard of the idea. It really grew out of, people thinking about business strategy. And as the business
environment began to change and get more global and, people began to be aware of things, outside of their
companies.

1:06
There needed to be a way to organize this same thinking. And so a group of people at the Stanford Research
Institute in the 1960s, came up with this idea. Well let's organize it by customers, suppliers,
employees, communities and financiers, the people with the money. And let's call those groups stakeholders. A
second thing happened in the Scandinavian countries primarily in Sweden. A thinker named Eric Renman began
to worried about not only the environment and how changes in the environment changed what you needed to in
a company. But also began to be worried about the role of employee.

1:45
and the whole movement in Scandinavian countries of industrial democracy. And so, from this, came the idea
that businesses needed to pay attention to its stake holders. Now there are lots of reasons for this. You can think
businesses need to pay attention to stakeholders, because it's the right thing to do, and I think it is. You could
think business needs to pay attention to stakeholders, because it's the smart thing to do. And it is, I think that's
right, or you might have some other reason. It doesn't depend on a particular political ideology one way or the
other. What's important here is that what I've called stakeholder theory comes from what companies actually do.
This is not some theoretical exercise. I developed a lot of the ideas based on my own observations in the late
1970s and 80s on how companies dealt with their stakeholders.

2:47
I define stakeholder as any group or individual who can affect or be affected by the achievement of a company's
purpose. Now, sometime it's useful to think very broadly so that NGOs, interest groups, governments, media,
even competitors are stakeholders. And sometimes it's useful to think more narrowly. to think about really
just customers, suppliers, employees, communities and financiers. How you define stakeholders depends on in
part on what you're trying to do. If you want to get a broad scan of who can affect you, you need to think
broadly. If you want a more narrow idea, then you need to think more narrowly. A picture might be helpful here.
We could think about, put the firm in the middle. And think about customers, communities, employees, suppliers,
and the people with the money, financiers, right? And then [SOUND] we might think about those groups that can
affect these. NGOs, governments, the media, competitors, and lets just say others.

4:12
Every company has a picture roughly like this. I like to play you a short

4:18
clip of an interview that I did about what is stakeholder theory.

4:24
Stakeholder theory is an idea about how business really works. It says, that for any business to be successful it
has to create value for customers, suppliers, employees, communities and financiers, shareholders, banks. And
others to people with the money. It says that you can't look at anyone of those stakes or stakeholders, if you like
in isolation. Their interest has to go together. And a job of a manager or an entrepreneur is to figure out how the
interest of customers, suppliers, communities, employees and financiers go in the same direction. Now, think
about, how, important, each of these groups is for a business to be successful.

5:11
Think about a business that's lost it's edge, with its customers, that has products and services, that it's
customers don't want as much. Or, that they don't want at all. That's a business in decline. Think about a
business who manages suppliers in a way that the suppliers don't make them better. The suppliers just take
orders and sell stuff, but the suppliers aren't trying to make a business more innovative, more creative. That's a
business that's in a holding pattern and probably in decline. Think about a business whose employees don't
want to be there everyday. Who aren't using 100% of their effort and their energy and their creativity to make the
business better, that's a business in decline. Think about a business that's not a good citizen in their community,
that routinely ignores or violates local custom and law. That doesn't pay attention to the quality of life in the
community. Doesn't pay attention to issues of corporate responsibility, of sustainability of its effects on civil
society. That's a business that's soon to be regulated into decline. And think about a business that doesn't create
value, doesn't create profits for its financiers. Its shareholders, banks, and others, that's a business in
decline. So, stakeholder theory is the idea that each one of these groups is important to the success of a
business. And figuring out where their interests go in the same direction is what the managerial task and the
entrepreneurial task is all about. Stakeholder in theory says, if you just focus on financiers, you miss what makes
capitalism tick. What makes capitalism tick is that shareholders and financiers, customers, suppliers, employers,
communities can together create something that no one of them can create alone.

7:10
So there's some basic ideas here. All businesses create or sometimes destroy value for its stakeholders. And
knowing where how that value is created and what it is, turns out to be important, I don't mean just financial
value.

7:30
The second principle is, successful companies, constantly look for the intersection of stakeholder interest.

7:41
I remember a conversation with a fast-moving consumer goods company in Europe who was very near to
bankruptcy.

7:51
And that they ask me they said look in our situation we're really hurting. Why should we worry about
stakeholders? Should we worry about them and I said well look of course you have to. You haven't done a very
good job with customers, with your suppliers, with your employees. You haven't found the sweet spot, the
interception of those interests, and

8:17
you need to rethink your business model. How you create value for stakeholders, is in effect what your business
model turns out to be. The stakeholder idea sets this firmly in society. Now, of course, you can also think about
the stakeholder idea personally. So, you could put

8:45
yourself in here. Here, I'll just do one for me, I'll put Ed in here.

8:49
and I'll think about my students as a stake, as a stakeholder. I'll think about my family. I'll think

9:00
about my colleagues.

9:04
I'll think about the media, because I have to deal with them some. I'll think about the university.

9:11
I'll think about other universities where I might go, I'll think about some businesses that I work with, and you can
think about in a sense a personal stakeholder map.

9:29
Now what's important here is that I might have some purpose. My case, it's to try and inspire my students and I
try to think about who can affect that.

9:40
What I'd like you to do for an engagement question and to talk about, if you feel comfortable in the discussion
forums. Is to draw a stakeholder map for yourself.

9:53
Who can affect or be affected by what you do? Do you have a purpose? You can answer this for an organization
you belong to, or just for yourself. [BLANK_AUDIO]
S0302- It's Purpose, Not Profits
0:00
So thinking about stakeholders, forms the basis for how we really can understand the role of business in
society. But that's not the whole thing, purpose actually turns out to be really important. Thinking about
stakeholders without thinking about purpose, well you can't even answer the question, who are your
stakeholders? If you don't think about purpose. Who your stakeholders are, depends in part, on what you're
trying to do. So, let's think about, for a few minutes,what's a good purpose for a company? And you can apply
this to your own lives.

0:38
One way to think about purpose, is that, it's an answer to a question of why. And for instance I might ask you if
we ever meet why did you take this course? And you might say, well I wanted to learn something. I'd say, well
why do you want to learn something? Well I might want to get a better job? Well why do you want to get a better
job? cause I want to, you know do better for my family. Well why do you want to do that? And eventually we'll
come to something you just can't answer anymore. An end to the string of why questions. When we get to that
Will say, we've got a purpose. Like if part of my purpose is to, inspire students. Well, why do I want to do
that? Well, I just do. That's sort of who I am and why I want to, and, and why I live the way I do. It's about our
identity, and purpose is like that. Many companies have identities. They have an answer to a why question. They
put a stake in the ground and said this is who we are. This is what makes us distinct, it sets us apart. It's how it
gives the driving force. The wellspring for how we manage our stakeholder relationships. How we create value
for our stakeholders. It makes us ask and answer why our business matters. There's really an excellent recent
book by Harvard Business School Professor Cynthia Montgomery, called The Strategist. And in that book She
suggests also what a good purpose is not. She says a good purpose isn't something that's well I'll just read you
what she says. We'll provide branded products and services of superior quality and value that'll improve the lives
of the worlds consumers now and for generations to come. As a result, consumer's who reward us with
leadership sales, profit value, creation [UNKNOWN] people are shareholders communities which we live to work
and to prosper. That's just generic, it doesn't, it's not distinct. It doesn't inspire anybody, and if a good purpose is
anything, it is inspiring certainly to you.

2:52
Sometimes companies have purposes like the best, I'm going to be the best in my industry, specializing in
satisfied customers. Well, that's just something you have to do, it's not inspiring. It's not an answer to a why
question. It doesn't set you apart, it's purpose. That's a part of this new model of business in society, not
profits. Think about Southwest Airlines, dedication to the highest quality of customer service with warmth,
friendliness, individual pride in company spirit. If you've ever flown it, you know that's real. Or Nike, Nike's
purpose to bring inspiration and innovation to every athlete in the world. Or a company I especially like and been
privileged to sit down and talk with Novo Nordisk, a company in Den, Den, Denmark. Their purpose is very
simple, they want to rid the world of diabetes or BMW. German Company, the only manufacturer of automobiles
and motorcycles worldwide that concentrates entirely on premium standards and quality.

4:01
Or think about Microsoft, Microsoft wants to help people and businesses realize their potential. But it's not just
businesses, but National Audobon Society says, we're going to reconserve and restore natural
ecosystem. Focusing on birds and other wildlifes, their habitats for the benefit of humanity in earth biological
diversity. Could go back to something we talked about last week or Starbuck's coffee. Again you can like these
companies or not like them, doesn't matter. They're purpose driven, to inspire and nurture the human spirit one
person, one cop, one neighborhood at a time. Now, sometimes people don't fulfill their purposes.

4:49
Sometimes I don't inspire my students very much.

4:53
But it doesn't mean because sometimes we fail, that purpose isn't important. In fact it's the most important thing
that we can do. To think about what our purpose is and to think about how what we do realizes that. Whether,
your company like AstraZeneca are worried about making a meaningful difference in, to their patient's health and
adding value for stakeholders in society. Or if your Kenyan air, air, air, Airlines, an African company that tries to
maximize stakeholder value. By providing, the highest level of customer satisfaction, safety, and security. And be
committed to corporate and social responsibility. Purpose, is incredibly important. If we're really going to make
business better, it's because we're going to realize That it's purpose, not profit. What I'd like you to think about as
an engagement question and talk about it in your discussion forums, is to think about organizations that you
know. Think about organizations where you're a member.

6:07
What's the purpose? That, does it inspire people? What's the why question that it answers?

6:14
Does, does it make the organization distinctive? And also think about organizations that may not be very
purpose driven. What are some of the issues, that those organizations have.

S0303 The Interconnection and No Trade-off Principles

0:00
So we thought about how stakeholders let's us see business and society as going together. And by the way,
thinking about stakeholders isn't separate from thinking about philanthropy and corporate social responsibility
and the environment. Usually these things build together.

0:18
We've talked about how thinking about stakeholders has to go along with purpose. I want to add to that two
principles that often times are a little counterintuitive, because the standard story just can't deal with these
principles. They're worth spelling out because they are really important. In building these new models. The first
principle I'm going to call the Interconnection Principle.

0:47
The Interconnection Principles work like this. Because stakeholder interests go together over time, we need
solutions to issues that satisfy multiple stakeholders simultaneously. Many years ago, in the United
States, Datsun, now Nissan ran developed an engine, it ran on just regular gas. This was before unleaded gas
and they, they planted a tree for every one you test drove. They figured out a way, they figured out a way to
satisfy multiple stakeholders simultaneously. Companies need to figure out how to creating value for one
stakeholder implies value creation for another. It's about win, win, win, win, win. It's about how when you do
something for customers you also make the community greener, etcetera. So the second principle that's
involved in this is that you can't think about trade-offs. It's something I want to call the No Tradeoff Principle. If
we take the stakeholder idea seriously, we try to never trade off the interest of one stakeholder versus another.
Certainly not, continuously over time.

2:08
When you trade the interest of one group off versus another, continuously over time. If you always make trade
offs in favor of shareholders versus employees, what happens? In a relatively free society it's straight
forward. employers would use the political mechanism to have their rights enforced.

2:27
If you always trade off the interest of a customers over suppliers, what's going to happen? Suppliers are going to
go to your competitors and help make your competitors better. Because you're not creating enough value for
them. So the idea here is the No Tradeoff Principle says, whey you make customers better off, how does that
make suppliers better off? And when you make customers and suppliers better off, how does that make
employees better off? And when you do that how does that make communities off? And when you do that, how
do you make. Share holders or financiers better off, and by the way, if you make customers worse off you better
understand how to improve the trade-offs. When you have to make a trade-off the next question is how do I
improve the trade-offs for both sides.

3:22
This was brought home to me, listening to a CEO talk about again, example from the environment. This was a
large chemical company. They were pretty routinely seen as being a pretty dirty company. And the CEO decides
to change things, and so they announce that they're going to be committed to zero pollution. Now that's going to
take time. It'll take actually generations, big co, company, worldwide company. And they're going to have a, you
know, a pretty business like process with milestones and this kind of thing. And the CEO as he told the story is
going around to all the facilities. telling people here is our new approach, you know, we mean this, we're going
to, we're going to clean up our act. And the engineers at one facility came to them and said you know, we just
can't do this. This planting equipment is too old, this process is too dirty. We can't meet the interim standards,
the interim milestones. We'll never do that, and the CEO said, well okay, you know we're serious about this, so
we'll have to close this plant.

4:33
So the engineers walked away.

4:35
Two, three weeks happen, go, go by, you know what happens, the engineers come back. And they say to the
CEO well actually you know, [LAUGH], looks like a miracle. We've figured out how to do it, and [LAUGH], you
know, so we can, you know, it's going to work for us. You don't have to close the plant. The CEO said, well how
much is it going to cost? He's thinking you know, several millions of dollars, big plant. And the engineer said,
actually, we're embarrassed to say, if we do it this way, we're going to save money. What's happening? Tradeoff,
community, that's where I would put environmental in the stakeholder model, and employees. The CEO says
okay, we'll make a tradeoff if you can't figure it out. Community wins, employees lose, okay? This is
unacceptable to the employees. They kick into gear, the only infinite resource we have, and that's what's up
here. They figure out how to be creative, and, how to make this plant more efficient, greener, safer, cleaner and
save money. And what we find is, when we allow people to exercise their creativity, we see this again and again
and again.

5:56
What I'd like you to think about, is how do the No Tradeoff Principles, don't look for trade-offs among
stakeholders. And how to the interconnection principles see stakeholders as going in the same direction. How do
they apply, not to the companies you know? But how do they apply to how you spend your time?

6:14
Do you constantly make trade-offs? Or do you look for ways for trade-offs to disappear?

S0304 The Friction Principle

0:00
We've talked about how you think about stakeholders, the importance of purpose, the importance of two
principles. The Interconnection Principle, and the No Tradeoffs Principle. I'd like to add a third principle to that,
and again this is a little bit counter intuitive, certainly counter intuitive to the old model.

0:18
To make stakeholder theory really work you need intensive communication and dialogue, and engagement with
your stakeholders. And not just those who agree with you. Critics, it turns out, are an important source of value
creation, and friction if you like. Where critics kind of rub you the wrong way, friction among
stakeholders. Sometimes among values you think you believe, and friction even among your time horizon. Short
term, long term, can be a source of value creation. So I want to articulate this principle that I've called the
Friction Principle and it goes like this. The conflict between and among stakeholders conflict around
values critics, even time horizons, can all be sources of value creation.

1:19
Now, lots of times we just want friction to go away. It's uncomfortable, it's conflict and in different societies we
have different ways of handling it. But we think about value creation in business, understanding friction can be a
really important resource. Look no further to an industry other than tobacco and again regardless of what you
think about the industry or the companies in it. You can think about the critics of the industry as saying, look until
you give us the pleasure of smoking, without the health risk if that's possible, you haven't done your job.

1:54
the critics can be a source of value creation, or a company like a big insurance company in, in the U.S. called
Aetna. Was on kind of hard times and they realized what they saw was their criticism, were hammering
them about some of the PR, processes that they had. And it wasn't until they sat down and talked with
them. Talked with their stakeholders and understood how to redesign their processes.

2:24
Another amazing story about the golden arches, McDonald's. Greenpeace started a program against them,
because soy farmers were deforesting the Amazon. McDonald's idea was okay, maybe we can do better. They
worked with Greenpeace to develop what they've called a zero deforestation plan. This put pressure on other
people in the industry, but McDonald's was willing to ask the value creation question. How can we use this critic
to get better at what we do. And again, you can like or dislike any of the companies, I'm talking about,
the principle of understanding how critics are telling you something about your business is what's important.

3:18
Much of the stakeholder idea was developed in the 1970s and 80s as I worked with a number of utilities.

3:29
they for the most part, paid not much attention to their critics. There was a formal process called a rate hearing
that happened. And what we began to discover was that the more we met with critics ahead of time. The more
we could reorient the services of the utilities around what the critics were saying. Companies could get better
and you could avoid the expensive regulatory process. We know dealing with critics, is just good management
when we think about, how companies deal with their customers. Everything from, money-back guarantees
to incredible rating systems, that we see in places like Amazon and, and others. Gets feedback from customers,
so that we could take that feedback and input it into the value creation process. That same idea applies when we
think about business as broader than just customers. Getting feedback as to how we can have a better
relationship with suppliers. Or, how, if we have a better relationship with suppliers, it feeds a better relationship
with cus, customers, or, getting feedback from employees. This is so important, I'm going to talk about this,
separately, in a later video. Getting feedback, treating critics, as sources of value creation, enhances their
engagement with you. And ultimately means, you're more likely to realize your purpose.

5:01
So what makes a company successful? You got to have customers whose lives are better because of your
products and services. You gotta have employees who engaged and hopefully inspired. You got to have
suppliers that want to make you better.

5:17
You gotta have communities that are supportive, who want to, who want you there, because you make the
community better. And investors, who make money. You gotta manage these stakeholder relationships
simultaneously. You gotta find the intersection, you gotta avoid trade-offs. You gotta look for friction of conflicting
interests of critics to produce innovation. That doesn't sound much like the standard story, but company after
company is realizing this story in the real world. What I'd like you to think about in the discussion forums, it is
again a personal question. If you feel comfortable talking about it, that would be great.

5:59
Do you spend your time, most of your time dealing with people who agree with you? I mean, that's always nice.

6:07
How do you deal with critics? How do you deal with personal critics? That can be a little
trickier. [BLANK_AUDIO]

S0305 Examples of Creating Value for Stakeholders

0:00
I want to show you three short clips from CEOs talking about how they create value for stakeholders. Because
this is the cornerstone of thinking about a new story about business in society. Of thinking about our goal here,
which is to think differently about business and to make it better. First, John Mackey, CEO, Co-CEO, Co-founder
of Whole Foods Markets.

0:31
Can you say some more about this culture creation and how you do that at Whole Foods Markets? >> Well, the
way I think about it is that it starts without purpose in the, in the center and then the stakeholders radiate out like
spokes on a wheel and are connected to that purpose. And then, the culture aspects are all the things that unite
the stakeholders to the fulfillment of the purpose. So the purpose satisfying the stakeholders. And the culture or,
or mean structures processes, strategies to do that. How do we create that at Whole Foods?

1:08
we co-create it. the stakeholders are involved in that creation. But once you internalize that purpose and what
you have a stakeholder model. Then you can examine the culture that exists and say that's not really serving us
in terms of our mission or our purpose or in terms of creating value for stakeholders. So we gotta evolve that or
get rid of that. In this type of strategy so, for example Whole Foods is organized into, into teams, into self-
managing work teams. And, that helps the team members the employees, we called team members at Whole
Foods, that helps them to flourish. And if they flourish, if they're happy in their work and, and they are creative
and that, that helps them to serve the customers better. Of course, if they're serving the customers better, the
business is going to flourish and that'll serve the investors because the business will be more profitable. so the,
by having that type team structure, that's a cultural, organizational value at our company that helps serve the
purpose and the stakeholder groups. There's, there's literally dozens and dozens, perhaps even hundreds of
cultural aspects of Whole Foods that have evolved over time that serve the mission and the stakeholder
model. >> Next, I'd like you to listen to Kip Tindell, the Co-Founder and CEO of The Container Store. We talked
a lot about what we call Stakeholder Theory. The idea that what companies really do is they create value for
customers, suppliers, employees communities and people with the money. and a lot of people have said to me
as, as, as well as people who write about this a lot, they've said you know, how, how does, that's a great theory,
but you know, can it work in practice? And you've always run The Container Store, it seems to me, along the
stateholder lines the same way John Mackey's run Whole Foods along those lines. a lot of companies have
done that, so how, how did you come to understand, I think you said somewhere businesses are comprised of
in, interdependent sets of stakeholders. How did, how did you come to realize that? Was that just a intuitive thing
as an entrepreneur or, or did, did the light bulb go on one day or is that just the way you've always been?

3:36
Well, I think, no, I mean, we think about it. We've talked about it. Nobody knows more it's fun talking to you about
this. Nobody knows more about this topic than you, but let's take the, the vendor as as one of the
stakeholders. You know, I mean, so, so primarily, we have the, the, the employees and the customers and the
vendors and the shareholders, and the community, and and there's more, but the

4:03
it's how is the little Container Store going to compete with the mass merchants? You know, we can't, we can't
beat Walmart on volume. But we can beat and we do beat Walmart on relationship building. Creatively crafting a
mutual relationship with that vendor, you know and.

4:22
>> So the vendors want to make you better?

4:25
>> Yeah, yeah, I mean we're creatively, you know, rather than laying awake at night trying to figure out how to
screw each other around, we're, we're actually laying around at night thinking how we can synergistically. you
know improve that, that, that relationship and it's, it's thrilling. It's, it's, it's more profitable than any other
way. We're, I would dare say that, that most of our vendors will tell you that The Container Store is their favorite
customer, you know? I mean we, we we do things for them. We loan them money. We, we, we buy a shrink warp
machine for them. We pay all of our bills on time because we can afford to do that and they can't. A retailer gets
paid immediately. A vendor gets paid, you know, 60 days later. And so, you you create synergy. Somebody gets
the the last pallet of whatever the hot item is that Christmas. Somebody gets the best price in the, in, in the
country. And through this very creatively extensive hopefully, many years of creating a true partnership with that
manufacturer, you can enhance the profitability of, of, of both sides far more than, than any other approach. And
it not only enriches You're lives and in life of the people you do business with it actually, actually works better to
think of the methodology too. If all you really want to do is make as much money as possible, as quickly as
possible, I would submit to you the best way, the best way to do it. And the same goes for the employees. The
same goes. As you know so well, balancing the needs of all those stakeholders allows for a, a really enduring,
long term, and increasingly synergistic build of the business. And when I look at companies that are really
dominant in their niche or doing what they're doing better than anybody else, they all possess that same mind
set. That same approach to business. In any human relationship, if one party's taking advantage of the other it
doesn't last very long or you hope it doesn't last very long. So. >> If you one of, one of, one of the ways
of thinking about this is that's fairly dominant in our world is that its only shareholders that matter. It's only the
people who are investors that, that matter and I realize The Container Store is a privately owned company, but
suppose for a minute that you. >> We still have shareholders. >> Yeah, you still have share, you still have share,
shareholders. >> Think for a moment if you, if you only had to worry about shareholders, you only had to worry
about the investors.

6:50
What, what would The Container Store be like? >> Yeah, so I [CROSSTALK]. >> So you didn't worry about
employees the way you did, you didn't worry about vendor, vendors. >> Well, it wouldn't have The Container
Store yummy culture and it's the culture that drives the value. so it wouldn't exist, I mean if you, if you, if you
myopically focus only on the shareholder. As business schools have taught people to do for decades, if you, if
you myopically focus on the, shareholder it loses the magic, magic, you don't have a business or you don't have
a very good one. And I think that companies that continue to companies that, that don't evolve into this
approach, this sort of stakeholder, Conscious Capitalism method of doing business are, are, are going to lose
out. the the great thing about it, what, what, what we, what we call Conscious Capitalism and our foundation of
principles that kind of a purpose-driven and values-driven methodology of doing business. if you look at the
companies that, that do that, Whole Foods Southwest Airlines Google Trader Joe's, they do better than anybody
else. I mean there's, there's been studies made that, that, that suggests that it's perhaps six or eight times the
S&P and that's not two or three times. So what's interesting about Conscious Capitalism I think is that pretty
soon, most people are going to do it. Because most, I mean a good capitalist is eventually going to adopt that
methodology which is most successful, right? I mean, we're out there, you know, speaking about how great it is
to do it, but I think most people will do it eventually. >> Yeah. >> The, the, the, the myopic focus only on a
shareholder alienates the employee, it alienates the vendor, it alienates even the customer ironically in the way
that in the way that so many technology companies. I mean today, take care of the customer better than the old,
the old guard banks take care of the, you know, you don't really trust that bank, you think they are trying to get
into your pocket too much. But this technology company will say, hey, don't order this book you ordered it six
months ago. >> Yeah. >> You forgot. >> oh, yeah, thank you. You know, I mean, they're, they're looking out for
you. They're, they're, they're, they're on your side a bit. >> Yeah. >> And so, yeah, it's, it's you know, the way to
do it. You know, we, we pay 50 to 100% above industry average. >> Right. >> And so, it'd be easy for a
shareholder to demand that you not do that, but that's not their money. That's the employees, you know,
money. We actually we don't constantly nickel-and-dimed the vendors to, to the point that they we, we want them
to be profitable to. I think we're, I think we're intelligent enough to creatively craft that mutually-beneficial
relationship. You know Andrew Carnegie was lying on his deathbed in the Adirondacks and a card reporter
from The New York Times came up and said, hey, you know you're probably the most successful.

10:00
[INAUDIBLE] of all time is anything you attribute your incredible business success to and he said, yeah, there
is. There's one beacon, one guiding light that I attribute all my business success to and that is filling the guy's
basket to the brim, making money then becomes an easy proposition. Fill the other guy's basket to the brim,
making money then becomes an easy proposition. That sounds like something that >> Good investor, a
shareholder would sure hate to hear a CEO say, but it actually, it actually does work. >> I actually think that
principle, fill the other guy's basket to the brim, is the best articulation of what stakeholder theory is that I've ever
heard. >> Mm-hm. >> If you fill that stakeholder's basket to the brim Making money's going to take care of itself.
Finally, listen to Tom Gardner at the Motley Fool. I think there's a large recognition that the current business
model, the current narrative, business is about the money, it's only profits that matter. People are competitive
and self-interested, and that's all that matters.

11:04
Businesspeople lie, cheat and steal more than the average and then by some magic, the greatest good
emerges. That sort of caricature of the model of business that's in our culture is changing.

11:17
changing in a whole bunch of directions toward people worrying about corporate responsibility, towards
sustainability, towards a more stakeholder oriented idea like conscious capitalism etcetera. What do we need to
do as, as individuals [INAUDIBLE] to hasten that change. to if you like bring the principles of conscious
capitalism more to the center to encourage more of that thinking. Because the old model is still, you know, has a
grip on much of the business world as well. I think I'm a believer in appropriately place positive
reinforcement. And so I I'm a bigger fan of identifying the companies that are doing what it appears to be
effective appears to serve many stakeholders simultaneously. we were talking before about super alignment,
what I call super alignment. You're much more articulate on this than I am Ed, but the things that actually cause
all stakeholders to benefit simultaneously. So its not a trade off if I lower prices for customers then I'm going to
have to lower salaries for employess. If I if, if I'm not going to be creating commercial value for the shareholders
then I'm going to have to also take some value away from the employees and said how do we set this
organization up. To get a multiplier effect for everyone, so that everyone's cheering each other on and I think
there are great organizations that are doing them. A lot of those organization are newer companies that are
being created with that new, with the newer thinking. with the, without the Milton Friedman, it is about
the shareholder, that's the only, that's the primary, if not exclusive stake holder that matters for an
organization. You know really I think the great organizations kind of put the shareholder. In fourth place, because
that shareholder is going to derive a tremendous amount of value if the other folks involved in that business are
happy over a long period of time. So, I think it's about positively re-enforcing companies, and I think that's one of
the things I love about conscious capitalism. The highlight companies that are apart of that movement, Whole
Foods, and The Container Store and so many other great business that treat their stakeholders with respect.

13:20
Creating value for stakeholders is in part, or rather purpose is a very important part of of each of what these
CEOs do. It's been there since they started these companies and its evolved in a way, there's kind of fly-wheel,
once you get them going in the same direction Kip Tindle often says the world, the universtions inspires to
corpororate with you. Once you see these interestes going in the same direction. But this isn't enough for you.
Listen to what some other executives say. Who are not apart of the consous capitalism movement. Some people
you would think are very different from that. First of all the iconic CEO of General Electric in the 80s and 90s
Jack Welch. Jack Welch says on the face of it shareholder value is the dumbest idea in the world.

14:16
Shareholder value is a result not a strategy, your main constituencies according to Welch are your employees,
your customers and your products. Well not quite the way I'd put it but still the idea that profits are result and
what we're focusing on is that underlying model of how business fits in society or Henry Kravis. A buyout expert,
sometimes called a corporate raider, he says, you have to focus on all of the stake holders. It's a new thing for
us and we're really hammering long term value is only achieved if growth benefits all stake holders from owners
to employees, communities, even governments. We're conscious, we're fiduciaries to millions of hard-working
men and women and university in Damas. Trust must be earned over the long haul and maintain
constantly. We've not always adequately explained that to the man on the street. [UNKNOWN] is in a way
articulating a summary of this new story.

15:20
One of my favorite quotes from Bill George, now a professor at Harvard Business School, longtime chief
executive of Medtronic. He says serving all your stakeholders is the best way to produce longtime
results. Create a growing prosperous company. Let me be clear about this. There's no conflict between serving
your stakeholders and providing excellent returns for shareholders. Let me just read that again. There's no
conflict between serving all your stakeholders and providing excellent returns for shareholders. It's impossible to
have one without the other. However, serving all these stakeholder groups requires discipline, vision and
committed leadership.

16:01
And finally, for those of you who might be academics, Michael Jensen economist, inventor of agency theory,
theory and a kind of die hard shareholder value guy. Said, we can learn from the stakeholder theorists how to
lead managers and participants in our organization to think more generally and creatively about how the
organization's policies treat all the important constituencies of the firm. This includes not just financial markets,
but employees, customers, suppliers, the community in which the organization exists, and so on.

16:40
There is a revolution afoot in business. We're creating new models. We're creating new ideas and more
importantly we're creating new businesses that put business and society together. This is not easy to do. Don't
mistake my enthusiasm for doing this with the idea that I think it's easy, I know it's not.

17:08
The question I'd like you to ask is what do you see as the main challenges for companies that are trying to do
this, because next week, I'm going to ask you to think about what you can do in terms of starting a company or
In terms of your roll as customer or employee.

S0306 Conscious Capitalism

0:00
One of the ways to put all of these ideas together that's actually very exciting, that's happened in the past few
years. Is an idea called Conscious Capitalism. Conscious capitalism is the idea, main idea of two people John
Mackey who's a CEO of Whole Foods. And [UNKNOWN] whose a academic and a business [INAUDIBLE]. And
they've written this book, called Conscious Capitalism. Which is again on the suggested reading list for, for
you. Listen to John Mackey talk about what Conscious Capitalism is, in an interview that I did with him.

0:36
So, you've, you've been the, the author recently of a new story about business that you called Conscious
Capitalism. >> Mm-hm. >> Tell me a little about how you see Conscious Capitalism in, growing and evolving
and, and what you really mean by that. >> Well, of course you, capitalism is

0:59
a, a way of organizing economic, relationships. It's a theory about that. And conscious capitalism at the essence
is becoming more conscious of those processes. So they're, they're not merely happening automatically through
merely the invisible hand. But we become more conscious of, of how this all works, the greater system of how it
all works. And we have identified certain key principles of which right now I think there are four that make up
what Conscious Capitalism is. And, and first for the economic system it's the simple things like freedom of
contract, freedom of exchange, the rule of law. And property rights, the four basic principles. They've, they've
always been part of capitalism, but we're making that more conscious. And then, the conscious business, which
exist within the conscious capitalistic economy, has four key principles to that, which are deeper purpose. The
business has a purpose besides maximizing profits. >> And it can be a whole, it can be, doesn't have to be one
particular purpose, there's a whole. >> There's probably as many different [CROSSTALK] purposes businesses
and entrepreneurs. They can get grouped into the categories. >> Right. >> Each of them is in some ways also
unique. Secondly is the stakeholder, what we call the stakeholder model that that you have these major
stakeholders who are interdependent on one another. And so that the purpose, the leaderships job is to manage
the business in such a way, as to create value simultaneously for all of these interdependent stakeholders. That,
that also has the happy result of also maximizing long term profits as well. Its a better strategy for doing so, but it
recognizes that all of these major stakeholders are completely interdependent on one another. You cannot
optimize one without optimizing other ones. >> Well that, that, that means you can't look at it as making trade-
offs among them. Because lots of people will say yes, great you've got these stakeholders, but the managers job
is to make trade-offs among them. >> Exactly, it's thinking about it in a different way. I always say if you look for
trade-offs you can find them. If you look for synergies, you can find those as well, so in the conscious business
you're looking for the synergies. You're looking for the win, win, win strategies that will create value for all of the
stakeholders. And it's, it's, in a it's, it's my opinion wrong thinking to believe, that it's a, the zero sum game is that
one benefits, another one must lose. Is the very thing capitalism sort of proves doesn't have to be the case. That
when you're creating value for inter-dependent sta, stakeholders, no one has to be losing.

3:56
even competitors don't necessarily have to lose if you view, the, the competitive interactions correctly. Which is
your competitors are actually your allies in helping you improve, to helping you get better. They challenge you to
move out of your complacency, so, it's not a zero sum game. It's a, it's a positive sum game where all these
stakeholders simultaneously winning. And the other couple of principles I want to outline in terms of the
conscious business are the third key principle is what we call Conscious Leadership. And so that the
management's job is, is not to is, is not primarily self interested. And too many businesses' leadership today tries
to take as much out of the business as possible. It's one of the reasons corporations are trusted that well. You
have greedy executives who are basically have a view that they want to get as much out of the business as
possible. Where as in the conscious business, the leadership, in a sense is serving the mission or purpose of the
business. Serving the stakeholders. And is a good steward of the resources that have been entrusted to them by
the shareholders and investors. And the fourth principle is, you can't have a conscious business unless you
create Conscious Culture. The, the strategies, the processes, and the structures

5:17
that compose the culture, have to be consciously created. In such a way that they allow the enterprise to fulfill its
purpose, and to create value for all of these interdependent stakeholders. >> So they're four key principles here
that John talks about. And in a way purpose has to come first. Purpose greater that profits, multi-stakeholders
without tradeoff, conscious leadership and conscious culture. It turns out their lots of conscious businesses
these days.

5:51
If you go to a website called consciouscapitalism.org, you'll find a lot more information about this and let me
have full disclosure here. I'm a board member of this organization. And I believe in what conscious capitalism is
trying to do as a way of bringing new models of business in society. And there are companies involved
everywhere, everything from Whole Foods and The Container Store who you'll a little more from later. to Posco
which is an very interesting integrated Korean steel manufacturer. As businesses become more aware of their
effects in society, they can consciously create more value for their stakeholders.

6:36
Let's listen to chief executive Kip Tindell of the container store, talk about how this works when he started the
container store. >> How did you come, come with the idea of the container store? How did it get started? >>
Well, it, it was really sort of an evaluation in our case. It wasn't so much of a light bulb going off as we thought
we might do furniture, but then furniture is kind of boring. There's no traffic in a retail furniture store. we thought
we might want to do food. this was before fabulous grocery stores like Whole Foods and you know, I mean,
there was nothing like that back in 1978.

7:16
we wound up doing sort of function, storage and organization containers Every, everything saves you space, it
saves you time. you know, there's a certain Zen quality to being well organized if you, if you're well
organized you can get a lot more done in life. You can get half the things you want to get done in life if you're
reasonably well organized. So we spent two years, developing the concept, developing the products. We fell in
love with the products, and finally it was like, yeah, it's the, it's the container store. It saves you space, it saves
you time. People have addressed that for businesses. Businesses were interested in saving space and saving
time. Nobody had ever done that for consumers or individuals. So if you wanted to organize your pantry, or your
closet, or your kid's toy storage, you'd have to go to 50 different stores to find the goods to do that. And, I don't
know we got excited about shoe boxes and >> So, >> Started with $35,000 and one tiny little 1,600 square foot
store, you know. That's that, there weren't any products. The products were commercial and industrial in
nature. there was Grayline and Rubbermaid and that was about it. And so, my other stores were like 2,500
square feet, and it's a big category within the housewares industry, so. >> A lot of people think that entrepreneur
start businesses, because they are obsessed with profits and making money.

8:39
was that, was that really the motivating force behind, the, the, The Container Store when you started it? No. It's I,
I really love retail. I think retail's the greatest profession and I just can't imagine doing anything else. You know,
you've got all the creative aspects of it with a product. And, and then it's so people-oriented, you know, with,
with, with the service and everything. So, it's more of a, more of a medium more of a well, we spent two
years without pay you know, developing the concept. >> [LAUGH], so, it couldn't have been the money. >> Yeah,
we're, we're just trying to get it right, you know? And then we well, you know, play the violin, we pay, we paid
ourselves $700 a month for a few years, and then $1,000 a month for a few years. So we were very interested in
with all due modesty, we were trying to create the perfect retail store. >> Yeah. >> And getting the products
developed as you get bigger, you can design the products. You, you can, you can fill the holes in the
marketplace. it took us 10 years to find the exact correct, actually Japanese manufacturer, to produce the world's
most perfect shoe boxes and sweater boxes. And we got so excited and they fit into our alpha drawers, and
they stacked, and they were completely transparent, and you could stand them they were so strong. And to get
big enough to be able to afford to do the molds for that is like the world has the perfect shoe box. >> Kip
had passion for retail. He started the container story. He didn't have this big idea of conscious capitalism. He just
understood, that he needed to treat people the right way, to have some purpose and to build the systems,
etcetera. That went along with that. That's the idea behind Conscious Capitalism. We'll talk about this a little bit
more in the next video. But I want you to think about. How can the principles of Conscious Capitalism be applied
in the organizations that you are familiar with? What might be some of the strengths
and weaknesses? [BLANK_AUDIO]

S0307 Employee Engagement

0:00
In conscious capitalism, the last two principles, thinking about conscious leadership and conscious culture all put
employee engagement in the very center. And this is true in corporate philanthropy and CSR in the environment
as well. Understanding the role of employees and the importance of that, is what's absolutely central in
rebuilding a new way to think about business, in making business better. All of these new models think about the
role of employee engagement, so I want to focus on that. Of course happy and productive employees who share
your purpose do great things for other stakeholders as well and we all want to be treated with dignity and
respect. So let's listen to a couple of CEO's tell how this works. First, Tom Gardner who's the co-founder and
CEO Of an investment advisory firm called The Motley Fool. He also calls himself the chief fool. Tom, you've
been involved in this idea of conscious capitalism.

1:14
there aren't that many financial firms involved in that so, could you tell us a little bit about how you see conscious
capitalism >> And it's relationship to the Motley Fool. >> Great you know conscious capitalism can be a little
bit more difficult for companies that don't get to see their product. And particularly with technology you don't
necessarily get to see the impact on the customer for us at the Motley Fool. We're not meeting face to face with
investors. So it's, it, that makes it even more important to us as a company and, and for us conscious capitalism
is about being a purpose-driven company. Our aim at the Motley Fool is to help the world invest better. And to
have values that really have an impact in our culture. And to balance the interests of our stakeholders, which
for us is primarily our customers, employees, shareholders and the world. So when you start looking at the world
through that lens and trying to build a long-term enterprise >> I, I do think that what we've been creating is a bit
of a condemnation of Wall Street. I won't say that that's why we've been building what we've been building but
we do a lot of things very differently than what we have encountered and investors have encountered on Wall
Street. >>And I think you've been very successful. So what, what do you think the barriers are to the rest of the
industry? >> adopting some of the same practices that you do at The Motley Fool? >> There's a lot of academic
research on reward systems. And that research hasn't found its way to Wall Street. And what that research
shows is that while everyone wants a big financial payoff. Who wouldn't want that? that's not high on the list for
most people when they go to work. They want to have a purpose that they believe in. They want to work with
people they love working with. They want a job and challenges that are exciting. They want the flexibility to get
their work done in the way they want to get it done. And I think what Wall Street has done, unfortunately, is to
elevate that big financial upside, not just to second place or third place, that's number one on Wall Street. And I
think that puts those organizations in trouble, because it encourages short-term thinking, the use of leverage to
try and generate as much as you can and in a single year. If you know that you could turn, turn your salary into a
five-x bonus at the end of this year. What type of behaviors might that encourage you to take on during that
year. So, I think that you know, probably the number one thing that we're inverting when we look at Wall Street is
just the time that we're trying to find success on for our, for everyone who is associated with our
business. >>And our research also tells us, that if you use if-then incentives, if you do this then you'll get this. >>
We know those incentives except for very specialized boring repetitive task, actually make performance
worse. >> Absolutely. >> And I'm just wondering how you, what kind of incentives you use at the Motley Fool. Or
is it, would you say what drives people there is the purpose and the set of values. And then you want the
incentive, sort of consistent with that. But they work in the background. >>Well I've always loved Charlie Munger,
Warren Buffet's right hand man at Berkshire Hathaway line about incentives. The problem with incentives is that
they work. So you really have to think through.

4:08
What are the unintended consequences? And we have a great board director at the Motley Fools. His name is
Steve [UNKNOWN] Not the former hoops player at the Chicago Bulls, but the former, Chief Learning Officer at
General Electric and Goldman Sachs. And, basically, I mean, here's one reality, for us and
incentives [INAUDIBLE] . We never anchor on a single factor. If you say cash flow is what matters most,
this year, let's nail that and everyone will get a big bonus. Or if you say, no, the number one thing we want is
customer retention at the end of this year. If you fo, focus on just one factor, everything else can get thrown, you
know, off to the side of the road while you're desperately driving full speed toward that one, that one item. And,
that's dangerous way to run any organization. Organizations are complex. In our company, we're a small
company. We have about 275 employees. You got 275 different people with different motivations, different
interest, and you're trying to unify them in in the aim of serving the world. And you can't do that in a simple
format. So I guess, probably the 2 things I'd say about our reward system at the Motley Fool is that we
experiment a lot. And we never anchor on a single factor and if I can add a third thing, it's not all about
capital. It's one of the greatest incentives you can give to somebody is, hey Ed, your doing such great work
here's another project I want you to take on. I'm going to take off your plate, give me the three things you like
doing the least. Let's get them off you plate now and let's get you focused on helping us growing our
international business which you've expressed interest in. That opportuntiy to take on a new chaellenge and
shed things you dont' enjoy is often worth more to people than knowing they are going to get a couple extra bills
in their bonus at the end of the year. And when I am able to do that with great people. >> Absolutely. >> That
seems to me to be even more terrific. Its not just I can pursue the products I want to pursue. >>But I can pursue
him with people that I respect, that I want to be around, that I want to have fun with. And my brief visit to your
headquarters that looks like what people were engaged in there. >>It starts with recruiting, making sure you're
getting people who are passionate about your purpose making sure you're getting people that are going to work
well with others that are interested in the dynamics of the workplace that you've created. we talked before this
discussion about Facebook. I was mentioning how I think they do a remarkable job at allowing people to choose
the projects that they're going to work on. The people that they work with even the peop, the person that they
report to. Imagine going to work the, the Gallop survey data from last year's survey on workplace engagement
showed that more than 70% of people out there, around the world, and that's a, that's a study of more than 5
million people are saying that they're either disengaged, they're indifferent to the work they're doing or they're
actively disen, disengaged, they're negative. Imagine those people being able to choose their project, choose
the people the work with, choose the person that they report to. That puts a huge demand on the organization to
figure out logistically how to make that work, but once you get those systems in place [CROSSTALK] you're
liberating, and a huge increase in productivity. >> It's almost, it's almost like >> You want to say, there's, there's
sort of of a moral duty, to liberate people to, to, to do that. I, I can't imagine what it must be like, to show up for
work everyday and be negative, or, or not love what your doing. >> It's, it's we,we, you, you've touched on the
two points that I think about. Number one, if I'm just going to be purely, a rational economic being, which I don't
think we are But I'm just going to think that way. It's insane to have an organization where 70% of the people are
indifferent or negative. That has to change in, in organizations. That is the [INAUDIBLE] , strategy is second
place to culture. If you can get that full workforce engaged, you'll find your way to great strategies. But if you
have a great strategy and 7 out of 10 people don't care about it, that's a disaster. But then the moral duty side of
it. >> Something I think about frequently, we have at the Motley Fool, bring your child to work day. And, many
organizations have that. When we introduced, bring your parents to work day, it created a different dynamic
because what does the average parent want to see for their child? They don't want to see a disengaged per,
person, who's [CROSSTALK] they don't like [CROSSTALK] and so, their, every conversation, I mean, many
conversations I, I've had with parents of people who work at our company are Thank you for treating my child as
an individual and that's hard to do as you add employees. When you go from 20 employees to 75, now were at
275 and obviously when I mention Facebook they are at near 5000 employees. But organizations have to set
themselves up to see the individual and liberate the individual to go after projects that excite them and that takes
a lot of work. >> But the rewards are, are massive for all the stakeholders. >> Tom's business is built around the
idea of having people inspired every day. I've been to the Motley Fool and I can tell you, you walk in the place
and you can feel the excitement. You can feel that people are there trying to do some great things. I don't think
this is true in every investment firm. Often times those are built only for the money and I think Tom's onto
something. Pretty important here.

9:14
Lets listen to Kip Tindle, CEO of the container store talk about their view of employee engagement. The
container store is always truely known for being a great place to work, Its always in the lists of things etcetera.

9:31
You, you really seem to sort of put employees first.

9:35
One of your founding principals is, on great person. Get three good people but you get one great person. How
did, how did you find that mindset? I mean, how, how did you come around because its so different T>>han lots
of businesses who see people as well, that's an HR, that's an expense. And you guys really see it
differently. >>Yeah. >How'd you come to that? Well, that's, that, that's a big question for us. I mean, it's, we really
are an employee first culture. I mean, we put the employees first As you know so well milton friedman once said
the only reason a corporation exists is to maximize the return of the shareholders.

10:14
And we're like with all due respect milton, we actually put the employee first and if you really and truly take better
care of the employee than anybody else, they will really take better care of the customer than anybody else. And
if those two folks are ecstatic, your shareholders is going to be as well.

10:35
So, the company is really based on seven of what we call foundation principles that really guide our
actions. We're not smart enough to tell six thousand employees, how to act in any given situation but if we can, if
we can agree on the in's and the liberate each individual employees genius to choose the means to those
ends. Were not 6,000 yahoos going in 6,000 different directions.

11:03
and, and something that occurs in Miami, in the Miami stores have, handled amazingly similarly to the one in the
Seattle store, simply because we've agreed on these sort of values driven foundation principles, one equals
three. In terms of business productivity, we really think it's easy for somebody to be three times as effective as
somebody else at something. You know, there's >> There's, there's me on the golf course and there's Phil
Mickelson on the golf course. >> [LAUGH] >> He's more than three, one equals three is an understatement. >>I
mean one, that, that may be for me it would be one e, equals ten, not one equals three. >>It's almost
discouraging how good those guys are. >> [LAUGH]. >> But it's so in Fortune magazine we've been on the
Fortune 100 best companies to work for in America list for 14 years in a row. Number one twice, number two
twice. Just to be on the list, is, is, is great. And I think you can boil that down, there's a lot of things that go into
creating a great place to work or, well, first of all, if you're in, if you're lucky enough to be somebody's employer, I
think you have a huge Really moral obligation to make sure they look forward to getting out of bed and coming to
work in the morning. And that's kind of a never, never ending thing. But the, the two most important ingredients
are communication, we always say that communication and leadership are the same thing. That's what
leadership is, communication. And the second one is this 1 equals 3 great. If we were going to make a golf
team. I sound like I'm obsessed with golf. I'm not really. shoe boxes maybe. But wouldn't it be fun to
have [COUGH] Phil Mickelson on our golf team? I mean, it is, it is thrilling to work with people that are 1 equals 3
great. I mean, you can do so much more. And the human spirit is such that people don't want to go to work and
goof off and not accomplish much. They want to go do great things at work with great people, and then go home
at night feeling how wonderful, feeling great about what they've done. So you want to work with the greatest
people you can. It's just, it's the same mindset. That somebody has a building a baseball team or a basketball
team you want the I mean if it no one's over qualifed if a retired federal reserve chairman that's fine with
us [LAUGH] you know, and we want people that are thrilled and enthralled with what we're doing and. >>Um,
that's, that's fun to work with. >>Why if so if, if you look at the surveys most people the majority of the people
don't hate their job but their not engaged with their job. Why, why do most or >>What a tragedy. >>Or say, not
most a lot of companies get this wrong. >> Well what's, what's wrong with the way we think about it? >> Well I
think a really bad boss or leader thinks that people don't want to go to work and work really, really hard and do
great things and go home at night feeling great about it. They think the opposite and they think it's.

13:53
their job is to somehow pull this out of people. People love to do that. They love to create great things. They love
the quest of trying to create the perfect retail store or and

14:10
I think you just have to sort of unshackle that people that work on an organization. Fine, let's agree on seven
foundation principles. But then let each person figure out how to get there on their own. And then you see this
enthusiasm and this creative genius that each person possesses, and then everybody's. So, free that you start
to see a I think team is one of the most beautiful of human experiences when its done right, and so you get you'll
eliminate silos. You create a, a, a team environment and its kind of funny because its both individualistic and
team at the same time. And, and you get productivity. You know you get, in the best businesses you see that,
you know, one of the other foundation principals is that, you know, three steps in the door you can tell wither a
place has the air of excitement. People write about it. Hemingway might have called it a clean well lighted
place. When you can walk into a bar, or restaurant and tell everybody wants to be there >> The customers want
to be there. The employees want to be there. And so, that's another aspect of everything. >> Tom, Tom, Tom
Peters had a way of saying [INAUDIBLE] He said, you can walk into a place, you can smell the values. >>
Yeah. >> You can smell whether it's real or not. And you walk into a Container Store and you can absolutely
smell the place that people take this seriously, that they're, that they're pumped up to be, to be, be there these
ideas really should come as, no surprise to us. We all know as, as human beings, that, we're complicated. We
want to be respected by others, we want to do great work,
15:52
we want to, have love in our, in our, in our lives. We want to love what we do. We want to have great
relationships with others, and why would we ever spend time eight to ten hours a day in a place sometimes more
whereas that wasn't true. There's a lot of research about this issue. A lot of research on what's come to be called
thriving employees. Gretchen Spritesern Kristen Porat at the in an article in the Harvard business school called
creating sustainable performance. This'll be on the resources for you as well says private employees aren't just
satisfied and productive they're engaged in creating the future. The companies on their own. Thriving employees
from their research have a bit of an edge. They're highly energized, but they know how to avoid burn-out. There
are real productivity gains with happy people, and there are real gains in society when we have jobs. That fulfill
us when we're able to provide for our families and our loved ones.

17:00
What I'd like you to think about is, have you ever been part of an organization where the employees were
thriving and you were just thrilled to be a part of that organization? What'd that feel like. Was there a negative to
this organization? What was it?

S0401 Social Entrepreneurship to Stakeholder Entrepreneurship

0:07
[MUSIC] We've talked about a lot of ideas about how to think differently about business. Everything from the
problem with the dominant narrative in society. And now, I hope you know how you can begin to think differently,
see business differently, expect it to be different. And, I want to focus this week on things you can do. Maybe
start your own business. Things you might be able to do as a customer, an employee, as a citizen. I want to
orient this week around something I'm going to call becoming a stakeholder entrepreneur. Now, one of the
models we've seen emerge in the past, really, ten years is this idea of, social entrepreneurship. And
social entrepreneurship focuses on people who primarily care about doing good, not so much about making
money. One of the originators was a man who won the Nobel prize, the Nobel Peace Prize Dr. Muhammad
Yunus in Bangladesh. Yunus started a bank called the Grameen Bank that [INAUDIBLE] whose motto is poverty
belongs in a museum. It only lends money to the poorest of the poor who have, who have no collateral. So they
broken every rule in the banking industry. And as a result, they've raised millions of people out of poverty. Now,

1:40
these are not interest free loans. In fact, the interest rates are actually quite high. But the emergence of
microfinance really came out of Muhammad Yunus wandering through a village near Chittagong and
Bangladesh and saying, why does it have to be like this? Can't we figure out a better way than money lenders
for these incredible craftspeople to finance their businesses? Now, I want to argue that social entrepreneurship
and what it really does is very much in keeping with what we've talked about so far, that it's about finding some
stakeholders and creating value for them. And it doesn't matter whether it's for profit, like the Grameen Bank, or
not for profit, like the Ashoka entrepreneurs. Again, if you go to the Ashoka, Ashoka website, you'll find out more
about what they're doing, in a book by David Bornstein called, Building a Better World. So, I want to redefine
this [INAUDIBLE] this idea of social entrepreneurship, reorient it around the story of business we've been
creating. A stakeholder entrepreneur is somebody who starts or improves an organization by making it
responsive to a stakeholder's needs or a set of stakeholder's needs. You can be a stakeholder entrepreneur in
an existing business or you can be one in a start up. Stakeholder entrepreneurs understand that
their organizations are firmly set within society. They're not in some free market land, and they're not just doing
government programs. They're set in society where they have clear stakeholders and clear purposes. They also
understand that they have to have a business model that satisfies stakeholders and generates self-sustaining
funds. And it doesn't matter whether these funds go to shareholders, whether they is satisfaction to donors but
you gotta be able to essentially pay the bills.

3:54
Stakeholder entrepreneurs want to make the world better, and they have to make money to sustain that. It
encompasses both traditional entrepreneurship and social entrepreneurship. So I'd like you to look at a brief
video from someone who I think is a paradigm stakeholder entrepreneur Blake Mycoskie from Tom's
Shoes. [BLANK_AUDIO] What Blake Mycoskie's done is he's identified some points of, of pain in a society.
Children need shoes to be safer. And he's identified something he has passion about. Helping
these [INAUDIBLE], theses children. He's managed to figure out how to work with over 75 partner organizations.
They've donated over two million pairs of shoes, while at the same time, addressing the challenge of doing
business in often not very well developed parts of the world. Tom's makes shoes in places that are quite poor
and they've been criticized for that as well. But they're committed to making those communities better. They've
recently started a program for eyewear as well, where you buy one and they donate one. The one for one
business model that Tom's has developed, you can see combines elements of philanthropy, social responsibility
and thinking about stakeholders and purpose. What I'd like you to do is think about two or three businesses. Can
you find two or three businesses like Tom's Shoes?

5:44
What are their strengths? What are their challenges, do you think? [BLANK_AUDIO]

S0402 Husk Power

0:00
I hope you're getting the idea of what a stakeholder entrepreneur is. Someone who tries to make the world a
better place and create value for its stakeholders and generate enough funds to keep the enterprise going and
make money. Here's another idea of a company called Husk Power.

0:26
[BLANK_AUDIO] Now, Husk Power plans to electrify the world for at least 10 million people. It was started, not
only because of the pain point that the founders saw. But it started in part because of the passion of the
entrepreneurs. And I can tell you, they really had no idea how to do what they were done. One of the things
Manoj Sinha was one of the co-founders and I'm, I'm very happy to say, he was a student of mine has said, is
you've gotta be ready to change your ideas. They keep going on the purpose. Give an example recently they
figured out a way to take the waste from the rice brand generators and make incense out of that waste. Again,
another example of creating value for stakeholders, and that fly wheel approach, as you start doing one thing, in
Kip Tindell's words, the universe conspires to help you. The engagement question I'd like you to think about is,
do you think that companies like Husk Power and Tom's Shoes are scalable? They're pretty small.

1:42
Can they grow to a substantial size and have the same kind of societal impact? [BLANK_AUDIO]

S0403 Maggie's Ethical Auto Repair

0:00
I want to make this personal for you. As personal as, as we can in video.

0:05
I want you to think about some personal points of pain, some bumps in the road for your daily lives. I'll give you
some examples. Some of the ones, some of my students here at the University of Virginia have suggested our
you know, where can I get cheap, fast but healthy food. How can I resell my furniture when I'm leaving school?

0:31
How can I minimize the time I have to spend when I'm planning a major life event like a wedding.

0:37
And someone even said, well, gee, how can I end relationships in a way that's not so painful as breakups often
are? Each of these personal pain points contain the seeds of business ideas. When we take an approach to
business like the one we've discussed for the past several weeks. Yes, you have to make money and you have
to create value for someone. I'm going to take a personal example of a pain point for me and that's getting my
car repaired. I don't know about you. Have you ever felt that you were ripped off when you got your car or your
motor bike repaired? I don't know about where you live in the US. Sometimes car repair business has a
reputation for not very ethical behavior. And I'm not very good at it. I was the guy in school who couldn't take an
engine apart and put it back together. I think most guys are supposed to be able to do that but I couldn't. And so,
getting my car repaired has always been one of those things where I was afraid I was going to get ripped off and
not, not know what I was doing. So let's suppose you wanted to take advantage of that reputation of unethical
behavior. And suppose you wanted to start a business that clean that up. You want to make the world a better
place and, of course, you gotta make, make some money as well. So let's start a business, let's call it Maggie's
Auto Repair.

2:07
How would you think about that, where Maggie's Auto Repair is going to be an ethical, responsible car repair
business? So let's go back to what we've talked about. Let's start with purpose.

2:21
Well, what about something like what we're trying to do with Maggie's Auto Repair, is take the fear and unethical
behavior out of the car repair business. I'm afraid to get it repaired. I'm afraid I"m going to get ripped off. Let's
take that out. Or maybe our purpose is provide trustworthy car repair for our town.

2:43
The scope is different in both of these businesses. but both turn out to be viable. So, let's think about
stakeholders, our purpose, let's think about stakeholders. In the first model, you might want to find a way to
provide a service to existing car repair businesses, who want some kind of stamp of assurance, the Maggie
stamp of assurance, that they meet ethical guidelines. That leads you down a path of figuring out what would be
important?

3:14
How [INAUDIBLE] important are issues like, a return service, no questions asked? Or, transparency about where
parts might come from. Or pricing transparency. Why does labor cost really this much? Or maybe it's about
recycling of materials. What happens to the old parts? Maybe it's about environmental cleanup. What happens
when you get the oil changed? How does that process work? You can imagine coming up with something like a
score card that would rate car repair services on these criteria. And that would be one way to take this idea of
taking the fear and the unethical behavior out of car repair [INAUDIBLE] services. A second model might focus
more on the geography of where you live, of building a brand of car repair that becomes known for its good
business practices. You would have to treat customers transparently and fairly, be good citizens in the
community, and do all of the kinds of things we've talked about in this course, so far, to create value for
stakeholders. This is really a simple idea. But you take a point of pain in your life and you think about how can I
create a business that would make this go away. There are multiple ways to do it. Maggie's Auto Repair could be
an international, could become an international stamp that cleaned up the [INAUDIBLE], the industry. Or, you
can be one garage that build its own reputation. So here's what I want you to do. I want you to think about some
pain points that may contain the possibility of new business ideas. You should feel free to share them on the
discussion forums, but also understand that when you share them on the discussion forums your ideas become
public. [BLANK_AUDIO].

S0404 Red Goat Records and Passion

0:00
One of the things it takes to be a stakeholder entrepreneur isn't just a life of pain points.

0:06
The second thing you can do is think not only about your pain, but think about the pain of other people.

0:14
Go to the web sometime and find some websites that depict a sort of human misery. Think through what are the
kinds of businesses that might be available to be started to alleviate some of that suffering. That's the idea
behind stakeholder entrepreneurship, but it isn't just pain.

0:36
As you listen to John Mackey and talk about Whole Foods, and Kip talk about The Container Store, and
Blake Mycoskie talk about Tom's Shoes, and the folks at Husk Power, one of the things you realize is that being
a stakeholder entrepreneur also requires passion. You can't solve all those pain points. And, if you think about it
as pain points in human misery, of course you can't solve them. But you can find something, that you're
passionate about. It might seem small on the scale of world hunger, but it's something that you can do. If you ask
most students, do you want to be an entrepreneur? Do you want to start your own business? in my experience,
70 to 80% of them raise their hand, yes. If you ask them, while you're in school, when you get out of school, are
you going to do it? Most of the hands go down.

1:27
You know, maybe they have loans. There are lots of good reasons for people not to start a business at a
particular time, but sometimes, you know you have to just do it. There's never going to be a good time. There's
never going to be a time when you've got too much money, when you have too much capital. you know, and so
sometimes you have to literally just say, I'm passionate about this, I need to get some experience doing it. And
so I'm going to let it rip. I'm going to tell you a personal story.

2:00
I'm an academic. I never started much in my life.
2:04
My son's a musician. And, we had a dream.

2:09
We both love rhythm and blues music. We love the old school music of Motown and Stax Records of the
last [INAUDIBLE] century. And we wanted to bring this back to the way people listen to music today.

2:25
We've never going to be a good time to do that. We're both always going to have plenty of other projects to
do. But we decided to do something now to get our boots on the ground, is the way I like to see, to say it, and
figure out how to make this happen. So we started a company called Red Goat Records. The point of Red Goat
Records, start with purpose, is to bring the creativity and inspiration of old school rhythm and blues music into
the twenty first century. We have a couple of artist and we're close to having some records done. But, one of the
things we found, is that our business model, with boots on the ground, had to evolve. So, over the last two years,
we've only started this for for the last two years, we've added a songwriting [INAUDIBLE] business. None of this
matters though, without great music and great songs. We started yet some external validation, a song writing
contest, demo projects, early releases of some music, but we know it's going to succeed. We know it's going to
succeed, even though we don't know what form it's going to take. If you want some time, go to
redgoatrecords.com, you can listen to some of our music. What's important here is that we just try to do
something. We didn't wait until it all fell into place.

3:54
People have said Dr. Martin Luther King said I had a dream, not I had a plan. So it's, you don't have to have
everything sort of locked up and nailed down before you start something. You have a dream, you have an idea
and you go out in the world and you make it happen. Whether it's a small thing about music or whether it's a big
thing, like giving shoes to poor, to poor people. What I want you to talk about on the discussion forums. How do
you want to change the world? What can you do to make it better?

S0405 Can One Person Make a Difference?

0:00
Can you make a difference? Listen to John Mackey and

0:06
his advice on starting a business. Hopefully there'll be a lot of young people in the YouTube generation who see
this. hopefully someone, maybe you maybe me, maybe others, will inspire them to start a business.

0:29
Any advice for them, as they think about whether to do that or not, what kind of business to start,

0:38
>> Well my first advice that I always give to young people as I, I do talk at a lot of business schools and I often
time would ask, how many people here, someday, plan to open their own business. And surprisingly I get
half. >> You get a lot of hands obviously, yeah. >> I get a lot of hands, half to three quarters. >> Yeah. >> But my
follow up question is, how many of you plan to start a business immediately after school? Very few. >> Why, why,
why is that do you think, first of all? >> I think most of them owe a lot of money. >> A lot, yeah. >> Yeah, they
gotta pay it back. But they have a fantasy about doing their own business, but they're not quite ready to do
it. And my first piece of advice is that: young people don't realize this, but life is, actually goes by pretty fast. And
it's too short to do anything less than following you passions to follow your heart. Things that you deeply care
about or the things that you should involve your life energies in.

1:33
you shouldn't be preparing in a sense to follow your passions later because you may end up getting trapped in a
job or a career that you, that doesn't really engage your, your deepest passions. The things you care most
about. and you do it simply to make money. And, again, there's nothing wrong with making money. I think that's a
very good thing. But for people to want to start their own businesses. Most entrepreneurs just go out and do it. I
mean, if you look at the great entrepreneurs of this, of my generation. People like Bill Gates and, and Michael
Dell and Steven Jobs. they, they were on fire and they just went out and did their businesses. And they, it's, it's
so follow your passions. Follow your heart. Follow your bliss. However you want to call it, I think is a key strategy
for not only business but for life.
2:30
>> I think you can make a difference as an entrepreneur, as a customer, as an employee, as a citizen, and a
community member. I know not everyone wants to start a business but everyone can make a difference. You
have the tools now to think differently about a business,

2:51
first as an entrepreneur. And you can start something that matters. Maybe it starts with a pain point in your
life. Maybe it starts with something like Tom's Shoes. But the idea behind being an entrepreneur is often times
you don't think about risk. I remember a time in which my son and I were talking about Red Goat Records and
an MBA student asked us, asked him as a young guy, how did he think about the risk of doing this to his
career? And he had an interesting answer. He said, I never thought about the risk until you just raised the
question.

3:29
You feel the passion to do something and the risk is in not doing it. As a customer, you can pay attention to the
companies you do business with. You give them your hard earned dollars.

3:46
You can pay attention to how their products are made.

3:50
You can pay attention to the conditions under which those products are made and sold. You can pay attention to
what those companies are dong, how they're making society better, how they're making your life better.

4:04
As an employee, you can engage. So many people in the world today go to work every day, and they are not
engaged in what their companies are doing. Now I'm not arguing it's always their fault. But sometimes you can
push, you can try to make your company purpose oriented. This is hard to do and again I don't want to be
Pollyanna about this but you can think about one or two things you can do maybe within the work group
that you're in, to make your company a better place.

4:41
You can think about as a citizen, as a community member, about being active, about the companies that are in
your community.

4:50
What are they doing? Are they community destroyers?

4:54
Are they community builders? Are they good citizens?

5:00
There's a lot that needs to be changed in the world.

5:04
Business has to be a part of that change, and we need to

5:11
be able to do it for ourselves, as well as our companies. I'd like you to think about the issues we've talked
about for the past several weeks, and discuss them in the discussion forum.

5:26
Focus on what are the two or three important ideas from your perspective. Why are they important? And what
are you going to do with them?

S0406 Summary and Next Steps

0:00
Well, if you've made it this far in the videos, I just want to thank you for your energy and participation. I think you
now have the tools to think differently about business. And that's what new models of business in society is
about. We need people like you to think differently about how business can make society better.

0:23
We've had a number of ideas over the weeks. We said, look, this idea that the business is about money and
profits and people are self-interested is a story that, if it's time was ever useful, it's long gone. That story has got
to go. We've gotta have some new ways to think about business. We've thought about the idea of business in
society through its philanthropic activities, through fulfilling its social responsibilities, by using the environment as
a way to have multiple shades of green. And think about business models that obey the law, that live with the
earth, that are sustainable. We've talked about lots of companies that are doing this.

1:14
We pulled this together with an idea of thinking about stakeholders and purpose and conscious leadership and
building conscious processes and culture with this idea called conscious capitalism. And you heard from a
number of CEO's who are actually doing this out in the world. I've tried to challenge you to think about being a
stakeholder entrepreneur, someone who finds a stakeholder relationship that can be improved by starting the
business, by changing the business that already exists.

1:51
To create value for others is the engine of capitalism. Capitalism and business works as the greatest system of
social cooperation ever designed because we can create value for each other. We can make each other's lives
better. You can do this as an entrepreneur. You can do this by thinking about pain points in your life, in the lives
of others. You can think about points of passion, where you really want to create something that makes the world
better, for me, that's trying to inspire you and that's also around music.

2:31
You can think about your role as customer or investor or employee. And the demands that you make on the
companies you do business with. The engagement that you have with those companies because you're a part of
their stakeholder networks. These are the tools to make business better. I started this course by saying, we can
be the generation that makes business better. I want to end it by saying, we have to be the generation that
makes business better. That's the real challenge to you and to me. I want to thank you again for your energy and
your participation in this course. there, there is an exam. if you paid attention in the videos and you've
participated in the discussion forums it'll be very easy for you. Thank you once again.