How many times are we going to see Milton Friedman’s quote from a New York Times Magazine Article: “"there is one and only one social responsibility of business— to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game…" The article was published on September 16,1970.  Almost continuously since then, writers in business ethics have used that single article as an argument from which to diverge. I’m so tired of it that I could barf. I hereby apologize for every time I have ever cited the article, including right now.

 

Almost 40 years ago, Friedman was responding to advocates for a broadly expanded view of managers’ moral duties and obligations.    By so doing, he made it all too easy for four decades’ worth of lazy writers (like me) to jump into our own arguments for what managers ought to do, in contrast to Friedman’s assertion that they simply ought to make money for shareholders. 

 

What probably horked off Milton Friedman in 1970, and continues to offend many managers today, was not so much the content of the message of social responsibility, but the tone of that message, too often couched in shrill, moralistic, finger-pointing invective. Nobody likes to be called skuzzy, and nobody likes to be told what to do. Almost everybody, by contrast, likes to be recognized as a leader and rewarded for wise investments. So, why not think about social responsibility in more positive terms?

 

Managers do have a fiduciary responsibility to shareholders. They also have fundamental ethical responsibilities to the people who are touched by their businesses. Rather than argue solely about the nature of these duties, about the obligations that stakeholders impose on managers, we would do better, and go farther, by focusing instead on stakeholder relationships as strategic investment opportunities.   By investing wisely in these relationships, managers can act in socially responsible ways, while fulfilling their duty to shareholders. Their businesses will prosper by their wise investments.

 

By moving beyond the ethics of obligation to the ethics of opportunity, we open up a new realm for discussion among business leaders who are already inclined to do the right thing, just as they are motivated and driven by a desire to prosper commercially. We still need to think about compliance with relevant laws, regulations, and ethical norms. We ought not limit our thinking to those obligations, but continue thinking creatively about ways to win by going beyond them.  

 

Aligning commercial success and social responsibility is an essentially creative undertaking. By looking at our businesses through this lens, we might create competitive advantage in the supply chain, by transforming transactional vendor agreements into shared destiny, mutually beneficial partnerships. We can create organizations that attract the best employees, and environments in which those people get even better over time. We connect with customers based on a commitment to truly serve them and an awareness of the benefits that excellence can confer on our own firms. 

 

None of these benefits can accrue merely by following the rules. Compliance with ethical norms is a minimum – and failure to comply can undo much of the good we are seeking through our positive actions – but ethics is about more than compliance. Ethics is about living well and doing good. As one friend of the Hill Center, Rich Iverson of the Principal Financial Group, recently observed, “complying with ethical norms is like building a home in accordance with the building codes – that’s just the minimum. Saying a house is built to code doesn’t prove that it’s a great house, just a minimally acceptable house.” The real opportunities happen when we look for ways to build great things that others value.

 

As people concerned with ethical leadership, we need to minimize finger-wagging and moralizing, and maximize creative thinking and, for that matter, inspirational storytelling. By so doing, we help create more great stories to tell.

 

That’s my story, and I’m stickin’ to it.

 

A few weeks ago, I had a most enjoyable day skiing in Northern Minnesota. For those unfamiliar with skiing in the Midwest, it typically involves very short runs into a river valley, or in this case, down from the bluffs surrounding Lake Superior.  Some of the runs have names like “Wendel’s Widowmaker,” but nobody really believes them. On the other hand, it was a gorgeous winter day, I was with a dear friend, and we had a great time.

During the many (many, many) times up the chair lift, I got to thinking. I began to reflect on the physics of skiing, a topic of pressing interest given my recent lapses in strength training.  In our daily lives, gravity and friction are generally physical forces that slow us down. We use gasoline or jet fuel to overcome these forces, to varying degrees, in order to get where we want to go. Our business metaphors imagine us “achieving lift-off” or “streamlining” to reduce drag and friction. We see these forces as the enemies of progress. Without gravity and friction, however, skiing turns into, well, either standing or falling.

 

On the mountain, gravity and friction are our friends, so long as we treat them as such. Gravity gives us speed. Friction, when channeled into the edges of our skis, gives us control. We manage these forces to propel us down the hill and away from rocks, trees, and other skiers. When those forces manage us, we find ourselves carving snow with our noses rather than our edges.

 

The connection to business seemed clear: do we manage the forces that drive our business, or do they manage us? Or, more accurately, do we manage our business in harmony with those forces, or in opposition to them?   Do we see vendors and customers as partners in efficient, mutually beneficial transactions, or do we challenge ourselves to take a little extra from each of them at every opportunity? Are competitors enemies to be crushed, or do we seek to benefit from them when we can? Great competitors can expand markets, drive demand, and even promote innovation, if we are operating in harmony with them as external forces.

 

On the ski slope, the sensations of harmony and disharmony are unmistakable. Skiing with the mountain is smooth, flowing, gentle.  We look downhill and flow from turn to turn, aware of our surroundings as a gestalt, making decisions and acting on them in a continuous process.  Skiing against the mountain is a different experience altogether. It may begin with anxiety or inattention, and quickly devolves into a series of disconnected moves calculated, however desperately, to keep us upright. We perceive a series of snapshots and try to react accordingly. All too often, the result is both sudden and sodden.

 

In business, disharmony may be harder to perceive, until we are dangerously in its cold embrace. Many of our performance measures are actually following indicators. The forces that ultimately result in reduced revenue or profitability may have been operating for some time before the results show up on our balance sheets.  Mild employee discontent may go unnoticed until key people start to leave; customers’ needs or preferences change and they tolerate a mild mis-fit with our services until…they don’t. Key vendors experience problems that we are unaware of until we find ourselves on allocation, just when our own key customers need product immediately.

 

A great strategy for preventing these kinds of commercial spills involves cultivating strong, trusting relationships with the people who touch our business. That way we can perceive problems as they emerge, and move smoothly toward their resolution before they become disruptive. It’s another good reason for understanding those relationships while you are in the flow of successful business, and investing in maintaining that flow.  

 

Returning readers will know about my belief in the SAIP Process as a means of understanding ethical risk and aligning social responsibility with winning business practices. That kind of reflective, analytical approach to stakeholder relationships can also help businesses remain in harmony, by building stronger relationships with the people who make that possible. 

 

If my readers happen to include any Midwest ski area operators, allow me to reiterate how much fun I had, skiing in the Heartland. And, if you are interested in exploring how you might differentiate your ski area through a commitment to social responsibility…

 

Look out below!

 

”The Hill Center for Ethical Business Leadership helps organizations prosper through a strategic commitment to ethics and social responsibility.” 

 

I can only apologize if you are tired of reading the sentence above, the Mission Statement for the Hill Center. I can type it almost as quickly as I can type my own name.  The degree of repetition arises not merely from my unfortunate lack of imagination, but also from the repeated realization that the Hill Center is doing something distinctive under the rubric of “Business Ethics.” We’re helping business leaders find ways to do right, to do good, and to achieve measurable business results by so doing. Instead of constraining bad behavior, we’re promoting good actions on the part of organizations. 

 

The success of our approach hinges on the power of stakeholder relationships.  Here, too, we approach these relationships in ways that differ somewhat from conventional stakeholder theory. There is tremendous power in changing our perspective.

 

Stakeholder theory is highly influential in business ethics and management schools. It begins with the (fairly obvious) position that shareholders are not the only parties to whom management is ethically accountable. Stakeholder theorists articulate ethical claims held by others who participate in (or are touched by) an enterprise, such as employees, customers, vendors, and the communities in which the enterprise does business. Stakeholder management arguments are powerful from an ethical perspective, but they also tend to be divisive and problematic among managers and shareholders. Thankfully, we need not embrace a full, conventional view of stakeholder management to significantly improve an organization, both commercially and socially.

 

There is enormous power in a more positive notion of stakeholders: these critical relationships often present opportunities for managers to do good and to benefit in the process. Rather than argue about ethical obligations, we can often meet those obligations – or exceed them - by focusing on opportunities to invest in stakeholder relationships for mutual benefit.  Applying analytical rigor to this process can, in turn, change the way that we look at our businesses and offer rich insights into how we can do better, commercially as well as socially.

 

If we step back from the debate about who owes what to whom, the power of stakeholder relationships is unmistakable. In order to succeed, a business must produce something of value to someone. To achieve that basic end, the business needs customers who value those goods or services; employees who are willing and able to produce it; typically some vendors of needed components, materials, supplies or services; the list goes on. It seems perfectly rational, then, that an astute, creative manager can find abundant opportunities to invest in those relationships in ways that benefit stakeholders, strengthen the business, and thereby produce measurable business results.

 

If I’m right, this positive approach to stakeholder relationships underscores the general value of astute and creative management. Indeed, by looking at stakeholder relationships as levers for improving organizational performance, we open our eyes to all kinds of opportunities to reduce costs, improve products or services through innovation, streamline sales processes, open up new markets, or pursue any number of avenues for improved performance. These opportunities might not be visible through the lens of day-to-day operational management. Focusing on who owes what to which stakeholder will almost certainly keep them obscured. By considering stakeholders in positive terms we shed new light on our organizations in general. It is by that light that great managers can make remarkable changes for the better.

 

Next time, I’ll talk about some of the problems associated with this very point of view, and the solutions I propose.

 

I recently had an interesting and challenging conversation with an attorney who was generally interested in the Hill Center. He raised a number of questions concerning the kinds of people who seem naturally drawn to our core concept, the alignment of business strategy with a commitment to social responsibility and ethics. The question behind his questions was basically, “while there are certainly altruistic people out there, aren’t hard-core businesspeople really supposed to focus on generating shareholder value?” 

My initial answer was, of course, that it isn’t “either-or.” I proposed that creative business leaders can generate remarkable growth in shareholder value by investing strategically in the relationships that build the organization’s ability to generate profits and create value. A better answer would have been more complex…

 

Of course, many business people are single-mindedly focused on shareholder value. I have heard some executives describe, with some pride, their “laser-like focus” on intermediate measures such as profits, revenue growth, or both. As business leaders, these folks are too often unsuccessful at driving the very measures they revere. I’ve worked in various capacities with several firms that were single-mindedly focused on generating shareholder value. Some of them were privately-held, pursuing the killer IPO. Others were publicly held, trying like crazy to boost share price. In every instance I can think of, the management teams that were singlemindedly-focused on shareholder value failed to increase that value. In a couple of instances, shareholder value plummeted – it was like watching a slow-motion train wreck.   What was going on there?

 

Of course, the actual causal factors for business performance are generally complex, often profoundly so.  As managers, we rely on business measures to indicate what’s happening in the business. We need data to manage the business, both to predict and to influence outcomes. One problem is, when we start managing the business exclusively by the data points, we lose sight of the complex – and critical - factors that drive those data points.

 

Potential metaphors are practically roaring in my ears right now: a pilot who stares intently at the altimeter, the compass, and the artificial horizon, while she flies her plane into a mountain. Stephen Covey’s story about the team of lumberjacks that worries about its productivity until one of them climbs a tree and shouts out, “We’re in the wrong forest!”   The Three Mile Island engineers focusing on one set of gauges, worrying about pressure or something, while a stuck valve and dropping water levels almost melt down the reactor. All interesting and instructive analogies (say I), but there is something deeper and more interesting going on here, as well.

 

To illustrate my point, please bear with me through some old-fashioned philosophy.   I promise to make it worthwhile.  You may recall that hedonism is the view that pleasure is good – ethical hedonism (the classic author here is Jeremy Bentham, 1748-1832) is the view that an action is morally right to the extent that it generates the most possible pleasure overall. The particulars vary – distribution of pleasure, what kinds of pleasure, etc. – but a hedonist is someone who acts to maximize pleasure.    The egoistic (let’s just say, selfish) hedonist is someone who seeks to maximize his own pleasure.

 

Here’s an interesting problem: if you focus single-mindedly on maximizing your own pleasure, you are unlikely to achieve that goal over time.  For one thing, if you think about your actions only in terms of how much pleasure they will generate, you will forego the pleasures of spontaneity, of being delighted without seeking it. You may also waste a lot of time simply deciding what to do. More important, many great pleasures just don’t work that way: if you are entirely focused on your own pleasure, you will likely have trouble being an excellent friend, partner, spouse, or parent. These relationships inherently require that we suspend our own pleasure-seeking. They also deliver unique and remarkable pleasures not otherwise obtainable without commitment. And, making your critical commitments continent upon their pleasure-delivery potential doesn’t work. Finally, it is hard to know, in advance, how pleasurable an activity or experience will be. Nothing is more pleasant than a pleasant surprise. As a practical matter, it is difficult or impossible to predict the degree to which our actions will result in pleasure, and our very attempts to do so often diminish the very pleasure we are seeking to maximize. 

 

Contemporary philosophers, including Peter Railton and others, have called this “the paradox of hedonism.” I believe a closer look at this paradox can be instructive for us as business leaders, as well.

 

Think about the course of our lives. It is easy to imagine that the most pleasurable life is one that includes a host of commitments that are not driven directly by their potential to deliver pleasure. These certainly include the kinds of significant relationships I noted above. Likewise, our spiritual lives, our work lives, and our other passions and commitments can be deeply meaningful and afford us enormous pleasure. We can experience those kinds of pleasures only by thinking about other things first.

 

So it is in business, as well. By single-mindedly pursuing shareholder value, we put that very outcome in jeopardy.    The reasons for this are not surprising. Businesses succeed by delivering value to customers, consistently and efficiently. A business leader who focuses on strengthening the organization’s ability to do so, paying appropriate attention to a well-designed set of metrics, will do far better than a leader who focuses only on a narrow set of metrics or outcomes.

 

Moreover, because it often especially difficult to predict how specific actions will affect shareholder value, undue focus on that end point can lead us to make short-sighted decisions that will not make our organizations better at generating real value.  We succumb to the temptation to invest in promotion or hype aimed at attracting or stimulating shareholder interest. In the worst cases, we organize our businesses specifically to be attractive to shareholders, rather than to customers. We think about revenue multiples and scalability before thinking about value propositions and core-business effectiveness and efficiencies. Even without succumbing to those temptations, we are better off building our businesses to serve customers by whatever means we have chosen as our strategic direction. Very often, we can generate real shareholder value most effectively by thinking about other things first.