Michael Skapinker, who once shared the quiet pessimism of Leonard Cohen, explains why a new era of positive change may be upon us.
Most management writers have their preferred gurus. For some it’s Peter Drucker,while othersmight look toMichael Porter or Charles Handy. When I come across a new business fad, I turn to the words of Leonard Cohen: “Baby, I’ve been here before, I know this room, I’ve walked this floor.”
I quoted Cohen’s lines from his much-covered song Hallelujah in the Financial Times in 2019 when I wrote about the companies, from JP Morgan Chase to Glencore, that had committed themselves to acting with purpose, recognizing that they had a responsibility that went beyond Milton Friedman’s instruction to focus purely on shareholders’ desires, “which generally will be to make as much money as possible”.
The reason for my resort to Cohen was that, in more than 30 years of covering business, I have seen these corporate commitments to serve society – and not just shareholders – come and go. Company leaders usually made these pledges in good times, only to abandon them when the economy turned sour and they needed to return to making enough money to survive. I watched it happen during recessions, and especially after the 2008 financial crisis. When executives see their companies imploding, their promises to work for the greater good tend to crumble in the struggle to bring in enough cash to fend off collapse.
Unlike the previous responsible business waves I had witnessed, this one wasn’t just being pushed by NGOs and campaigners; the pressure was coming from shareholders
I thought the same would happen to the current fashion for ESG (environment, social and governance) and purpose beyond profit. When the Business Roundtable, representing the US’s largest companies, issued a statement in 2019 redefining the purpose of a corporation as being to benefit “all stakeholders – customers, employees, suppliers, communities and shareholders”, I thought, “Here we go again.” I had seen these pious undertakings called many things: business in the community, corporate social responsibility, sustainability, ESG, and now purpose. Same idea, different labels. As Cohen wrote: “I see you’ve gone and changed your name again.” I suspected the outcome would be the same: company promises to behave for the good of society would be ditched when the bad times came.
The bad times did come, early in 2020, first with COVID-19 and then, in 2022, with Russia’s invasion of Ukraine – and the subsequent energy shock. Yet, to my surprise, much of the corporate world maintained its commitment to purpose beyond profit. Indeed, as I write in my new book, Inside the Leaders’ Club: How Top Companies Deal with Pressing Business Issues, the demands that businesses maintain their allegiance to a wider social purpose became even stronger. There was a good reason for this. Unlike the previous responsible business waves I had witnessed, this one wasn’t just being pushed by NGOs and campaigners: the pressure was coming from shareholders.
In November 2020, a group of 38 investors including JP Morgan Asset Management, Fidelity International, and M&G Investments wrote to 30 of Europe’s leading companies saying they expected them to list material climate risks in their accounts.
When mining company Rio Tinto found itself in trouble after destroying a 46,000-year-old sacred Aboriginal site in Western Australia to expand an iron ore mine, it was shareholders who helped force the departure of its CEO and two other senior executives.
There were some wobbles in keeping businesses on the purpose path. With the Ukraine war restricting access to Russian gas, some of the most prominent advocates of “business with purpose”, such as BlackRock, pulled back a bit. The FT reported in July 2022 that the group’s support for shareholder proposals on environmental and social issues had fallen by nearly half. BlackRock insisted its principles hadn’t altered; just the pace at which it could act on them. “We haven’t changed. The context is changing around us,” it said. But for many businesses, despite the struggles caused by the pandemic and war in Europe, the direction of travel remained the same. Walmart, the US retail giant, was still committed to a wider purpose. “We understand that for a business to last, it must have a fundamental reason for being – which is found in the value it creates not only for shareholders, but for the world,” the company’s website says.
Jamie Dimon, JP Morgan Chase’s CEO, dismissed claims from some conservative US politicians that the duty to a wider range of stakeholders was “woke”. He said it made business sense for companies to care about their customers, the environment, and their employees. It seems that, unlike in earlier eras, companies’ commitment to a purpose beyond profit seems to be surviving.
Why? First, because many executives recognize the dangers to business and society from climate change. Most accept the need to “keep 1.5 alive” – to limit global temperature increases to two degrees centigrade, and preferably 1.5 degrees, compared with pre-industrial levels.
But there is a second important reason why companies are sticking to the idea of a wider purpose: their employees are demanding it.
I moderate many business conferences and executive education programs, and senior executives often say that when their companies interview new recruits the potential employees all ask the same question: what is your organization’s purpose? What does it do for society?
The same applies to retaining people: executives say it’s easier to keep staff if they believe they are doing something useful. In my book I quote Emmanuel Faber, former CEO of Danone, who said his employees insisted on the French food group being a purpose-led company that cared about the climate and sustainable agriculture. “We see it as a magnet for talent,” he said. “People are more and more impatient. If they don’t get what they were expecting to get from the company, they leave.”
There is occasionally a dissenting voice. Once, when I was running a program for the leadership of a European manufacturing company, the heads of departments such as human resources and marketing all made the usual points about how much new recruits valued the organization’s purpose. But one top executive remained silent, looking increasingly unhappy. Eventually he spoke. All this talk of purpose was fine, he said, but can we just remember that 80% of our people spend their days in front of a machine in our factories, and their only purpose is to make enough money to support their families.
This is an important point. Those who have jobs that pay them enough to live comfortably can start to think about what else they would like from work: interest, stimulation, and the feeling that they are making a difference to the world. Others, as my dissenting executive pointed out, have more fundamental needs: feeding and housing themselves and their families.
The American psychologist Abraham Maslow called this a “hierarchy of needs”. In his 1943 paper, A Theory of Human Motivation, Maslow laid out the five stages in his hierarchy, from the bottom to the top. He said the first needs that humans had were physiological: food, water, clothing and shelter. People could not think about higher-order needs until those were satisfied. Second came the need for safety and security, including financial security. After that came the need for love, friendship, and intimacy. Fourth, and second highest, in the five-step hierarchy was the need for esteem. When people’s esteem needs were satisfied, Maslow said, they had “feelings of self-confidence, worth, strength, capability and adequacy of being useful and necessary in the world”. On the other hand, “thwarting of these needs produces feelings of inferiority, of weakness and of helplessness”. At the top of the hierarchy was self-actualization, which came from putting your talents to full use, to being the person you wanted to be.
How does Maslow’s hierarchy apply to recruits asking about the purpose of the organization in their interviews? As the dissident executive at the manufacturing company was saying, not all new recruits are bothered by the company’s contribution to society. They have more basic needs, the first two in Maslow’s hierarchy: feeding and clothing themselves and their families, and attaining some financial security. Much of the world is in this position. If they are fortunate, they can also achieve the third level in the hierarchy – love and friendship. It is only the luckiest and best placed who can start looking for Maslow’s two highest-order needs: esteem and a feeling of self-worth, and self-actualization, the ability to use their talents fully. They are the ones who most naturally ask what the company is doing for the world. Their needs for safety, security and, they hope, love and intimacy met, they can start to look for self-esteem, self-actualization and feeling, in Maslow’s words, “useful and necessary in the world”.
It seems that, unlike in earlier eras, companies’ commitment to a purpose beyond profit seems to be surviving
Does this mean that those in lower-paid jobs never experience the satisfaction of contributing to the world and feeling useful in society? Of course not. Hospital porters and ambulance staff know they are making a difference. But so are many others; it’s just that our societies and companies have not always recognized that.
The pandemic brought home to us the importance of jobs that many of us had not paid enough attention to. The COVID-19 lockdowns showed how vital the roles of street sweepers, refuse collectors, supermarket delivery drivers and neighborhood shopkeepers were. They kept our world running.
Many hoped that these key workers’ contributions would continue to be recognized when the lockdowns ended. They often weren’t. Recognition would have meant paying those people more, and few countries and companies were prepared to do that. In the UK and France, many of these workers, battered by high inflation, went on strike.
How can we show that recognition? Pay is the best way to demonstrate to people that you appreciate what they do, that you understand their importance to your organization and our societies. But there are other ways too. In my book, I talk about the importance of top executives spending more time with people who do jobs far away from the C-suite. People in these posts often have a good idea of what is really happening in the organization and how to make it more productive.
I tell a story of when Allan Leighton was CEO of Asda, the UK supermarket group. He was talking to the checkout staff and they made a suggestion. The biggest-selling Asda item was bananas. If there was a single button they could press every time a banana appeared at the cash register, they could save a lot of time. That one change increased checkout productivity by 20%.
Did this push the Asda checkout staff up Maslow’s hierarchy of needs, from the ability to feed and house their families to self-esteem and self-actualization? Possibly not. But it probably made them feel more appreciated and a greater part of the company’s ability to keep its customers happy. People want to feel that they are part of something bigger than themselves, that they are not just small parts of a machine but actors in making the machine work.
It is not just in the highest reaches of organizations that we can find happiness. In his best-selling book Man’s Search for Meaning, the Viennese psychiatrist Viktor Frankl wrote that people could find meaning in their lives in the least promising circumstances. Frankl, who survived Auschwitz and other Nazi concentration camps, formulated many of his ideas while he was a slave laborer, close to starvation and death. He believed that all humans searched for meaning in their lives. What that meaning was depended on them and on their circumstances. Trying to prescribe what that meaning should be was like asking what the best move was in chess: it depended on your position at the time.
I believe that “meaning” is a more useful word than “purpose” when it comes to what employees are after and what organizations can give them. You could be offering them more money. But people also want to feel that their work has meaning, that they have made a difference. The leader’s role is to create an organization that not only makes the world a better place but in which all employees feel that they are making a difference too – an organization in which they are appreciated and listened to, in which they understand how they contribute to the whole, whether they are at the top of the marketing department or standing in front of a machine.
Leaders who achieve that will not only attract people who want to stay – they can win over all the employees, the community, customers, and, in the long run, shareholders too.
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