“The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty and we must rise with the occasion. As our case is new, we must think anew and act anew.” -Abraham Lincoln
As an insidious virus spreads around the world, we are wise to stop and ask: what can it teach us?
Much, I think. One question I am drawn to lately is this: what does the pandemic teach us about the role of business in society?
“This moment is the curriculum.” -Jon Kabat-Zinn
First, some context. For half a century, an epic battle has been raging in board rooms and business schools about the purpose of business. Economist Milton Friedman took the first shot:
“There is one and only one social responsibility of business—to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” -Milton Friedman
His work laid the groundwork for “shareholder primacy theory,” the idea that shareholders should come first when business executives make decisions, that the primary purpose of business is to increase shareholder (owner) wealth, and that the ultimate measure of a company’s success is the extent to which it rewards shareholders. Jack Welch, former CEO of General Electric (in the 1980s and 1990s), is also credited with fueling this idea in practice.
This idea was so successful that, now, many people take it for granted, as business school gospel, as a law of nature. Of course the role of business executives is to maximize profits and reward shareholders. Right?
Not so fast. Edward Freeman, a business school professor, had a different idea:
“Business is not about making as much money as possible. It is about creating value for stakeholders.” -Edward Freeman
Freeman’s “stakeholder theory” focused not just on shareholders but also employees, customers, suppliers, communities, and the environment, since these are all necessary for the business to survive and thrive. This was not an exercise in wishful thinking or naive altruism. There is a systemic view and innovation imperative that fuels the engine of value creation:
“Managing for stakeholders is not about trade-off thinking. It is about using innovation and entrepreneurship to make all key stakeholders better off and get all of their interests going in the same direction.” -Edward Freeman
The battle was afoot, continuing even to this day.
What does this have to do with a tiny virus (SARS-CoV-2) that causes a global pandemic due to the rapid spread of a novel coronavirus disease (COVID-19)? Much, I think.
Today we see that our health care systems are strained, in some places to the breaking point. These systems are complex, relying on private, nonprofit, and public hospitals and chains and their personnel, equipment, technologies and related links like supply chains, research, labs, insurance providers, laws, regulations, information flows, and data models.
These complex health systems rely heavily on business products and services (e.g., ventilators, masks, vaccines, etc.), which arise from an amalgamation of complex business systems: raw materials, suppliers, manufacturers, distributors, customers, etc., each with their own business models, incentives, and limitations.
These business systems are heavily influenced by complex government systems at different levels—federal, state, and local—which are not used to close collaboration amidst the cascading timing crunches imposed by crises. These government systems include the three branches of government (executive, legislative, judicial) purposely designed to provide checks and balances to each other (i.e., slowing things down) and an array of challenges and sometimes bizarre influences (e.g., laws, regulations, court orders, campaigns, elections, lobbying, committees, messaging, press briefings, inspectors general, etc.).
During this health + economic crisis, those of us who are parents are also seeing how reliant we are upon a functioning education system, with its own complexities (federal, state, and local laws, regulations, and funding streams). When schools are closed, the impacts on families, workplaces, communities, etc. are vast.
All these systems are affected by a complex financial system. And transportation system. And travel industry. And food industry. And media industry. All of which are complex systems under strain.
All these complex systems exist not only within nations but also across borders, with each country having its own systems and context.
And all of this sits on our planet, itself a vastly complicated system of oceans, winds, climate, biology, chemistry, physics, and more.
Meanwhile, our own personal virus risk profile comes down to an interplay between our own internal systems, including our respiratory and immune systems but also our overall physical and mental health and our own decisions and context related to our work, families, home, movement, and social milieu.
In short, we see compounding strains on systems of systems of systems. In all the death, suffering, and disruption, we are faced with a powerful reminder of just how interdependent we all are, and how relevant systems are to our life, work, and leadership.
In an age of global pandemics that threaten our lives and livelihood, business has a vital role to play. Many business executives are facing their greatest professional trial. A retreat to previous thinking about narrow shareholder focus and short-term profits will be a recipe for disaster—for the business and its stakeholders (us). We need more—and must demand more.
This brings us to a newer idea: “conscious capitalism.” John Mackey and Raj Sisodia wrote a book about it and conceptualize it to include higher purpose, a focus on stakeholders (not just shareholders), conscious leadership, and conscious culture.
“Conscious businesses believe that creating value for all their stakeholders is intrinsic to the success of their business, and they consider both communities and the environment to be important stakeholders. Creating value for these stakeholders is thus an organic part of the business philosophy and operating model of a conscious business.” -John Mackey and Raj Sisodia, Conscious Capitalism
The conscious capitalism movement is dynamic and growing, but up against an entrenched ideology and powerful array of forces, interests, and funds. It is not wrong to view it as an epic battle between two versions of capitalism, but we should place this war of ideas in historical context: capitalism has been around for centuries. Many view Adam Smith’s classic book, The Wealth of Nations (published in 1776), as a landmark of capitalism, but we forget that his prior book, The Theory of Moral Sentiments, provided important underpinning to it.
Capitalism, business, entrepreneurship, and leadership are all social phenomena with ethical dimensions, and have always been so. What’s more, we have always had “flavors” of capitalism. Some are crass, mercenary, brutal, and short-sighted. Others not. Look to the current practice in northern Europe and the Nordic countries as intriguing examples, and that sync well with the way that many family businesses have operated for centuries (e.g., valuing workers, stewarding resources, taking the long view).
No, Milton Friedman does not have a monopoly on the industry of business ideas.
No, the choice is not between capitalism and socialism.
No, the answer is not to discard the dynamic engine of progress created by a capitalist system of enterprise that has lifted so many worldwide out of abject poverty and taken so many into days of prosperity.
No, businesses cannot just hunker down and maximize profits in a pandemic. They are part of the social fabric, with a vital role to play in getting us through the crisis.
And no, the purpose of business is not to make a profit.
Profit is the oxygen which allows the business to survive so that it can create value and pursue a higher purpose, for its people and its customers, and ideally also for its community and our world.
“The purpose of business is not to make a profit. The purpose of business is to find profitable solutions to the problems of people and the planet.” -Robert Fish, co-founder, Biggby Coffee
This is not about turning business into charity. It is instead a challenge to recognize the role of business in society and to look for ways for business to “do well by doing good”—a bold creative challenge. The idea, then, is not profit versus purpose. It is both.
“Just as happiness is best experienced by not aiming for it directly, profits are best achieved by not making them the primary goal of the business.” -John Mackey and Raj Sisodia, Conscious Capitalism
These are the hidden lessons of the virus. They are calling us to think and act anew. And the call is urgent.
Gregg Vanourek (@GVanourek) is an executive, changemaker, and award-winning author who trains, teaches, and speaks on leadership, entrepreneurship, and life and work design. He runs Gregg Vanourek LLC, a training venture focused on leading self, leading others, and leading change. Gregg is co-author of three books, including Triple Crown Leadership (a winner of the International Book Awards) and LIFE Entrepreneurs (a manifesto for integrating our life and work with purpose and passion).
Today, we are all being tested greatly, and so it is with our leaders. Individuals, organizations, and systems are all under strain, with some facing overload. Here are several keys to leading well in a crisis.
Radical Focus. When you are in a crisis, your immediate priority is survival. Crises require take fierce discipline in personal and organizational time management. Leaders should expect to use more “steel” (hard-edged leadership) than “velvet” (soft-edged) at the outset.
In a crisis, leaders must mercilessly cast aside all manner of ideas and projects—some with real merit—to ensure a tight focus on one or two key priorities needed for survival. Other priorities must wait. Even with this radical focus, leaders should look beyond the current storm, seeking creative ways to position the organization or group to flourish once the storm has passed.
Communicating Reality and Confidence. During a crisis, people need to know what is happening. Effective communications are essential, and it is imperative that the executive is factually accurate and forthright.
Leaders should block their calendar daily for time with their team and other key stakeholders. They must be visibly present inside and outside the organization—using all available technologies to enhance access.
Since people are stressed and worried as rumors fly, leaders must give people a sense of what to expect in the coming days and weeks, blending both realism about the current situation and confidence about the future if wise and bold action is taken.
It is essential to listen carefully and answer questions honestly. People need to be heard, and they deserve a realistic assessment of the situation and want solutions (or credible plans for how to get them). Credibility is a tremendous asset for the hard work ahead and must not be squandered.
Psychological Stability. In a crisis, many people are afraid, upset, or angry. The executive must establish not only financial and operational stability but also psychological stability. People need to be unfrozen, empowered to do what is required with confidence. Here is a tried and true process for establishing psychological stability:
Crisis Response Team. Facilitating the process above, the executive will get a sense for who would be reliable officers in the stormy seas ahead and who would be dead weight.
Selecting the crisis response team (and its associated roles and processes) is one of the most important things a leader can do. Skill set, character, emotional intelligence, resilience, courage, and buy-in with the shared values are good criteria to use in selecting the team. An effective organizational structure with clear roles and responsibilities, reporting lines, and communication channels are all required.
Operating Rhythm. A real risk in crises is that the initial momentum fizzles, causing the enterprise to spiral down again. To maintain forward momentum, leaders must establish a persistent operating rhythm with accountability follow-ups. Regular status reports and town hall meetings with employees (or constituents) are important.
The effort requires persistence. The group must hack away at the root causes of the problems, not symptoms. Together, they make slow and steady progress over time, reporting results and encouraging each other. Such feedback loops help foster alignment.
“A river cuts through rock, not because of its power, but because of its persistence.” -James Watkins, author
Sanctuary. In crises, leaders receive a barrage of body blows. To survive such an onslaught and to remain at their best, leaders need a daily practice of sanctuary to refresh mind, body, and spirit. Leaders must not lose themselves in their role, taking the inevitable attacks and setbacks personally.
“In moments of darkness you need to remember why you’re here and why you’re fighting that fight.” -Jacqueline Ros, co-founder and CEO of Revolar
Triple Crown Leadership Practices. Finally, the five “triple crown leadership” practices that are key to building excellent, ethical, and enduring organizations are all applicable to crises:
Additional Tips from the Field:
Gregg Vanourek (@GVanourek) is an executive, changemaker, and award-winning author who trains, teaches, and speaks on leadership, entrepreneurship, and life and work design. He runs Gregg Vanourek LLC, a training venture focused on leading self, leading others, and leading change. Gregg is co-author of three books, including Triple Crown Leadership (a winner of the International Book Awards) and LIFE Entrepreneurs. This blog is based on a chapter in the book, Triple Crown Leadership, co-authored with Bob Vanourek (Gregg’s father)
“The world breaks everyone and afterward many are strong at the broken places.”
-Ernest Hemingway in A Farewell to Arms
In leadership circles, too often the focus is on success principles for effective leading. That is all well and good, but often it can be more helpful to tackle things from the other perspective: what causes leadership to break down (and what can we do to avoid breakdowns)?
First, there is a connection between personal breakdowns among leaders and the breakdowns of their organizations. Here we reflect on both.
“Take rest; a field that has rested gives a bountiful crop.”
-Ovid, Roman poet
Even the best leaders are at risk of breakdowns or setbacks in their life and work. Many leaders have frenetic schedules of meetings and travel, or face constant stress and pressure. As the effects accumulate over time, exhaustion sets in. Though many just “suck it up” and ignore the risks, those who want to thrive and endure recognize the potential for danger, including losing their ethical moorings, making rash decisions, and damaging important relationships.
Leaders need regular exercise and movement, nutritious food, good sleep, and ways to find sanctuary (e.g., mindfulness practices, nature walks). “Triple crown leadership” (our model for excellent, ethical, and enduring/sustainable leadership) begins with leading ourselves. Failure to do so leads to problems with all three areas: excellent (in terms of performance problems), ethical (with lapses in judgment and impulsive compromises), and enduring (with an unsustainable pace that wreaks havoc on our health, judgment, and relationships, and that can damage our organizational culture). Leaders seeking to avoid organizational breakdowns should start by leading themselves.
“The cornerstone of effective leadership is self-mastery.”
-Patricia Aburdene, best-selling author and social forecaster
In today’s volatile environment, organizational breakdowns are common. Sometimes it is a quiet affair with an orderly dissolution of assets. Other times, it is a seismic crash with painful ripple effects. Sometimes an organization rises to the pinnacle and then slowly fades back in the field.
Most organizations do not break down before emitting warning signs. Normally, the financial signals, such as revenue declines and shrinking margins, are lagging indicators. Leading indicators are more important because leaders can address them before the financials go south. What are some early warning signals of potential breakdowns?
Early Warning Signals of Organizational Breakdowns
Some of the common causes of these breakdowns include: excessive deference to the top managers, failing to tap into the potential of people, leaders assuming they must make all the decisions and have all the answers, poor communication and secrecy, organizational silos, and lack of discipline and follow-through. All are failures of leadership.
As you encounter the early warning signs, you will need courage to take decisive and bold action to get the enterprise back on track. Often, this requires a rare blend of what we call “steel” (flexing to the hard edge of leadership, even if that is not a natural mode for you as a person) and smart use of people practices, such as unleashing the latent leadership potential of people throughout the organization, via what we call a culture of “stewards.”
We can avoid the breakdowns when we tap into the brilliant potential and goodwill of our team, aligning their work toward the organization’s purpose and vision, while guided by its shared values. Such resilience is the hallmark of triple crown organizations, and it can turn these challenges into amazing opportunities for transformation.
Gregg Vanourek (@GVanourek) is an award-winning author and changemaker who trains, teaches, and speaks on leadership, entrepreneurship, and life design. He runs Gregg Vanourek LLC, a training venture focused on leading self, leading others, and leading change. Gregg is co-author of three books, including Triple Crown Leadership (a winner of the International Book Awards) and LIFE Entrepreneurs. This blog is based on a chapter in the book, Triple Crown Leadership, co-authored with Bob Vanourek (Gregg’s father).
Gregg Vanourek is a high-impact leadership developer, changemaker, and award-winning author who trains, speaks, teaches, coaches, and consults on leadership, entrepreneurship, and life design.