Amid the deep affection and accolades pouring out this week to commemorate Steve Jobs, I heard a message that has the power to transform how we talk about business in classrooms and boardrooms alike. The message comes through loud and clear, from both colleagues and competitors. Jobs' passion -- even reverence -- for satisfying customers trumped conventional business objectives like making money and "serving the shareholder."
Let's call it common sense capitalism: focus on quality and excellence in delivering goods and services -- and ultimately, you create value for everyone who touches the enterprise -- the customers, as well as investors. Indeed, like Apple, you might change the world.
The example of Apple and Steve Jobs' success can recall the best attributes of another era of capitalism, before ideas like "shareholder primacy" and "profit maximization" took hold of the textbooks and became the mantra of the business press. Jobs' legacy tips the balance in the battle of the heart about the purpose of business -- now we need to conquer the easy reliance on bad "theory" and simplistic metrics as we orient the next generation of business minds.
At an Aspen Institute roundtable hosted by UCLA School of Law in late September, scholars from leading business and law schools discussed what we teach about the purpose of the firm. I was already convinced that we need a new narrative about the purpose of business, but here is some of what I learned from the exchange.
First, boards DO have discretion to make decisions that balance hard numbers with intangibles like quality, and service. So-called "shareholder primacy" measured by share price, is not enshrined in business law. The courts, specifically, the Delaware court where so many public corporations reside, has been clear on this point: the Business Judgment Rule allows boards to put the long-term health of the enterprise before the short-term demands of stock analysts and traders.
Two, in the business world, complexity abounds and things are not getting any simpler. Every company manager or board member worth his or her salt must consider multiple objectives in arriving at a decision or investment. It is insulting, and potentially quite damaging to the health of the company, and ultimately, the shareholders, to think otherwise. Only in the dreams of "Chainsaw" Al Dunlap, the infamous executive who seemed to take perverse glee in reducing headcounts, can boards and managers ignore the long-term impacts of business decisions on employee morale, customer loyalty, supplier satisfaction, environmental demands, brand reputation, and so on.
Three, the fact that companies have complex objectives and mission statements that speak to things like quality products, customer service, and being a good place to work, does not mean that shareholders are ignored--indeed they are increasingly noisy and influential. But, there is a difference between responding to short-term pressures of some investors and having a legal mandate to do so.
Even Milton Friedman was more nuanced than he is given credit for. His contention that "the social responsibility of business is to increase its profits" may have taken on mantra-like status among many executives, researchers and journalists, but he also offered illustrations of when a company would want to invest in the local community, for strategic reasons and when does government need to weigh in. And, Professor Mike Jensen of Harvard Business School, who had a lot to do with the current fixation with paying executives in stock and stock options, to deleterious effects in the last decade, now encourages executives to think differently. According to Jensen, "CEOs and CFOs put themselves in a bind by providing earnings guidance [forecasts] and then making decisions designed to meet Wall Street's expectations for quarterly earnings."
Finally, it matters a great deal that we get this question of business purpose right. Otherwise, business will fail to step up to the promise of capitalism as a generator of both wealth and societal well-being. There is growing support for Apple's common sense approach. A new crop of Deans in our best business schools are working to connect business education to the important societal challenges where business capacity and influence matter. Contemporary management thinkers, like Michael Porter and Roger Martin are building on the timeless ideas of a Peter Drucker or a Charles Handy and write about the need for a robust mission that connects the enterprise back to the franchise to operate and to public purpose. Business historians remind us that the privilege of limited liability, which protects business owners and facilitates risk-taking, was first extended to private enterprises to create public goods.
The best executives are wise enough to realize that zealous pursuit of profits is not a viable long-term strategy. The founders of Google and Facebook, as well as the leaders of Unilever, PepsiCo, Xerox and Procter and Gamble and a host of other public companies, plus private firms, like Levi Strauss and SC Johnson, are clear about the complex, long-term orientation and mission of their enterprises. Even Jack Welch has weighed in, calling a fixation on shareholder value "the Dumbest Idea in the World."
As a consumer of the iPod or iPad, you don't need to read any lofty words or CEO's speeches to get it however. The culture and values at Apple are transcendent. Instead, you get to hold the sublime mission of Steve Jobs in the palm of your hand.