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The New Story of Business: Towards a More Responsible

Capitalism

R. EDWARD FREEMAN

ABSTRACT

Business is undergoing a conceptual revolution. Since the Global Financial Crisis there are many new ideas and pro- posals to make capitalism more responsible. The purpose of this paper is to identify key flaws in the “old story” of capitalism. Six principles are explained that taken together form the basis for a new story of business, one of responsible capitalism.

INTRODUCTION

The last 40 years have seen great changes in our understand- ing of business. In our lifetime, we have seen a remarkable pace of globalization. We have seen revolutionary informa-

tion technology. We have seen nothing less than a fundamental shift in the story of business. In this talk I will try to explicate what I believe is a conceptual revolution in business, and in particular, I

R. Edward Freeman is University Professor and Olsson Professor of Business Administration, the Darden School, University of Virginia, Charlottesville, VA. E-mail: [email protected] ginia.edu; redwardfreeman.com.

Editor’s Note: A public lecture by R. Edward Freeman, Verizon Visiting Professor of Business Ethics, Bentley University.

VC 2017 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

Business and Society Review 122:3 449–465

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will try to explain this “new story of business” in terms of a few fun- damental principles or ideas.

While the roots of this revolution are easily traceable back to the 1980s or even earlier, they are most clearly seen in the responses to the Global Financial Crisis (GFC) of 2008. Since that time, we have seen an explosion of ideas of how to make businesses more responsible for the consequences of their actions.

For instance, many companies have taken a renewed interest in corporate social responsibility and sustainability. In addition, we have seen a renewed emphasis on the idea of Conscious Capitalism as John Mackey and Raj Sisodia have argued that companies that follow the tenets of conscious capitalism will outperform those that do not. Michael Porter and a colleague have suggested that compa- nies focus on “shared value” where economic value and social value are seen as going hand in hand. Nestle has been the show pony for this idea. Just Capital is an NGO that is committed to rating com- panies on widely accepted standards of justice. Bill Gates has sug- gested Creative Capitalism, whereby companies forego profits for the sake of public welfare. Senator Mark Warner of Virginia has suggested that it is time for new metrics, especially around the wel- fare of workers and has hailed a move to Capitalism 2.0.

Meanwhile, the idea of social entrepreneurship has taken off with many millennials beginning to start businesses that address social problems. NGOs such as the Acumen Fund, Kiva, Kickstar- ter, and countless others have been started to provide capital for small and very small businesses and entrepreneurs who are socie- tal change agents. Even on Wall Street, we see an increase in the movement toward what is variously called, “patient capital,” “impact investing,” “responsible investing,” and other terms.

Business pundits have gotten into the act, decrying a lack of ethics that they claim brought about the GFC. Robert Reich has argued that ethics and profits have to go together. Agency Theorist pioneer Michael Jensen has suggested that integrity is an important element in a successful business. The Aspen Program in Business and Society has led various conversations about new business mod- els, new governance models, and a variety of other related ideas.

At two recent meetings at the White House in 2016 sponsored by the Obama Administration’s Department of Labor, 75 people from these organizations and movements gathered to discuss common- alities and whether or not there needed to be one brand that

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identifies this new story of business that is emerging. While such a brand may someday emerge, or perhaps it already has, for my pur- poses I want to focus on the underlying ideas and principles that are inspiring all of this activity. Whichever brand or brands that ultimately become the rallying cry on which this conceptual revolu- tion will be based. The brand will have to be based on a sense of purpose and ethics that is as central to the new narrative as profit is to the old one. It will have to address how companies can simul- taneously create value for all of its key stakeholders. The brand will have to take sustainability and the physical limits of business very seriously. And, it will have to recognize that people are complex and that they can and do collaborate with others to create value. I will set these ideas out more carefully in a later section. For now, let’s turn to the dominant narrative or the “old story of business,” and see why it is no longer applicable for the twenty-first century.

THE DOMINANT NARRATIVE

While all of these conversations and new business models are going on, we still see many executives and academics who are strongly committed to the idea that the main goal of any business is to make as much money as possible for its shareholders. This view was artic- ulated best by Milton Friedman in a 1970 New York Times article in which he stated that the only responsibility of the executives is to make as much money as possible for shareholders. While Friedman’s view is more nuanced and is often misinterpreted, the shareholder primacy idea has a real grip on both executives and academics. This dominant narrative of what we might call the old story of business is deeply rooted in business cultures around the world. Oftentimes, it is appealed to as a way of justifying almost any action that seems to harm groups other than shareholders. Consequently, especially since the GFC, there’s a real struggle going on around the issue of the ethics of capitalism. Let’s be a little more precise here. We can talk about this old story of business in terms of five claims.

The first is that business is primarily about making money and profits for shareholders. Business on this view is the physics of money, and the language of money and profits is seen by many to be the main metaphor in talking about business. Often these theorists talk as if money is the only thing that matters, and the vocabulary of

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finance and accounting are the only vocabularies that tell us how to build a great business. More precisely, business is seen as a collec- tion of economic transactions that can be fully understood using economic models and concepts. Modern economics has built some really powerful models, from general equilibrium to modern econo- metrics, and indeed they are useful for understanding how markets work. The problem is that they are not the only way to understand business, and they can be misleading as the GFC taught us.

The second claim is that the only constituency that matters is shareholders. Friedman’s claim is that the only social responsibility of an executive is to make as much money as possible for sharehold- ers. Even though Friedman was careful to also say that such a claim was subject to ethical rules and law—this part of the claim often gets left out. So, executives and pundits sometimes argue that what- ever is not illegal is permissible in the name of shareholder value.

The third claim is often implicit. It is that we live in a world of fairly limitless physical resources, or that market forces will always determine which resources are economically feasible to use. We need markets for natural resources such as air, water, and carbon emissions, not regulation.

The fourth claim, that we see played out in the popular press all the time, is about what motivates business people. In keeping with the idea that business is about the physics of money there is a wide- spread idea that given the opportunity business people will cut cor- ners, lie, and cheat. People, on this view, are completely self- interested. They will work for others, only if they are incentivized to do so with either a threat of punishment or a promise of rewards.

The fifth claim summarizes the first four and says that business and capitalism work because people and companies are self- interested, competitive, and greedy. The greatest good emerges as if by an invisible hand. Usually homage is paid to a brief passage in Adam Smith about the butcher and baker.

WHAT’S WRONG WITH THE OLD STORY?

Profits Are not the Purpose of Business

While there has been much criticism of this so-called neo-classical view of the firm, for our purposes I want to focus on three main

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flaws that make it easier to see why the old story is no longer appropriate. The first flaw is the idea that business is the physics of money and that profits are and should be the purpose of any business.

While there are many businesses that have come to see making money for their “owners” as the main purpose of their business, most of these businesses didn’t start out this way. Most entrepre- neurs start their companies because, in John Mackey’s words, “they are on fire about their business idea.” No matter whether it was Steve Jobs and Bill Gates on fire about the desktop computing revolution and starting Apple and Microsoft, Mackey himself, on fire about bringing healthy food to people through what became Whole Foods Market, or my son, Ben, on fire about bringing the great rhythm and blues sound of Motown and Stax into the twenty-first century with Red Goat Records, none of these entre- preneurs started the business with the purpose of making as much money as they could.

Now, of course, money and profits are important. They must exist for a business to live. Demonizing profits, as many pundits have done, is just a shortsighted, ideological mistake. Likewise, to claim that the purpose of a business is to make profits for owners is a similar and often ideological mistake.

I need to make red blood cells to live. However, it does not follow, without a lot of argument that I simple cannot imagine, that the purpose of my life is to make red blood cells. Even if I have fallen on unhealthy times, and I have to actually concentrate on making red blood cells, for instance by paying a lot of attention to the iron in my diet, it still does not follow that the purpose of life is to make red blood cells (or to breathe, or to drink water, etc.).

Likewise, sometimes businesses fall on hard times. A competi- tor disrupts the industry, or mistakes have been made, or the world simply changed. In all of these cases, a business might have to focus fairly clearly on generating profits to stay alive, but it would be a mistake to claim that profits were the purpose of the business.

Former CEO of GE, Jack Welch, business guru, Simon Sinek, and many others have claimed that it is best to see profits as an outcome. And, I will add it is an outcome of purpose and how value gets created for stakeholders. More on that idea later.

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Business Ethics Is Not a Contradiction

When I tell people that I teach business ethics you know what hap- pens. Either they have to manage not to laugh, or they say “business ethics” I thought that was a contradiction. The idea that business and ethics do not go together has long been a part of the dominant story of business. After all, if business is just about money, shareholders, and profits, there’s not much room for ethics to be a central part of it. The way I like to put it is that of the phrase “business ethics,” we only really misunderstand two of the words.

First, let’s talk about business. The old story of business says to us that business is about competing, making money, and doing whatever you can get away with. The idea that business people are not trustworthy is in many cultures around the world. A recent study found that only 19% of people around the world actually trust business executives of large companies. Now, every business person that’s here today knows that business is not just about making money. But even if that’s all you want to do, how are you going to do it? You would better have some products and services that customers want to buy. You need suppliers who are commit- ted to making you better by improving your business with their products and services. You need employees who are not there just for the paycheck but are there to make your business better— employees who are engaged in their jobs. You need them not to be unengaged or actively engaged, as many studies have found is the case in a lot of businesses. And, you need to be a good citizen in the community. If you are not a good citizen in the community, communities will pass restrictive laws or ordinances to prevent your business from operating well there. If you do these things, if you have great products and services for customers, if your suppli- ers want to make you better, if you have employees who are engaged, and if you are a community builder, then if you put those things together the right way, profits will emerge. Again, this is the idea that profits are an outcome. So business, far from being just about the money, is about creating value for stakeholders.

Now, let’s talk about ethics. Many people think that ethics is about things you talk about only on Sunday. It’s about angels and organ music or very serious things talked about in hushed tones. While religion is important in ethics, I want to urge you to think

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about it more broadly. Ethics is really the most practical thing around. Ethics is about how I live my life and how living my life affects how you live your life. Ethics is always personal; it’s about what I want and how I’m going to live. And, it’s always interpersonal. It’s about how we are going to live together. Many people have the idea that ethics is about rules chipped into stone, rules that never change and rules that are fairly inflexible. But sometimes these “rules” can conflict and sometimes they need to change or be inter- preted in different ways as we invent new technologies or discover other previously hidden features of a situation. Ethics is, in my view, a conversation about how we are going to live together. It is a conver- sation that substitutes reason, dialogue, and talking together for vio- lence. It’s easy to see in many places in the world where the conversation has broken down. Violence is not a good answer. Now, many people would argue that ethics is personal. I get to decide what my ethics are. I have to look myself in the mirror. I have to live with myself. And that’s true, you do have to live with yourself. But all of us have to live with you too. And that gives us some right to join in the dialogue and conversation about how we are all going to live and thrive together. From the time when we lived in caves, we have always had conversation about what behavior is appropriate and what behavior is inappropriate in a community. We have had con- versations about what are some good ideas—some good rules of thumb—to keep the order in society and to allow all of us to flourish. This is ethics at its best. Over time, we have grown quite good at ethi- cal reasoning. But at the same time, we have many challenges to our ethics in society today primarily because of technological change and the emergence of new societies to do things differently and new cases of a kind that we just have not thought of before.

For instance, I learned ethics at my grandmother’s knee in the 1950s in Georgia, but we did not have any conversations about intellectual-property that could be digitally reproduced for no cost. We did not have any conversation about end-of-life technology that could prolong life at a great cost. We did not have any conversa- tions about abortion or things like file-sharing and Napster or what’s appropriate on Facebook and Twitter. Those things simply did not exist. Now, one thing you can say is know your ethics and your values and you will not have to have much of a conversation. The problem with this is that it is very hard to do in today’s world. Human beings are very good at fooling themselves and saying one

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thing and doing something else. We need each other in this conver- sation about how we are going to live together.

What does all this have to do with business? If you ask people around the world to write down their three most important values that they would like to teach their children, or their three most important ethical principles, they all pretty much actually write the same thing. There is some version of respect, honesty and integrity, caring and love, and responsibility. Of course, what it means to show respect in Jakarta is very different than what it means in Charlottesville, so there is always a cultural context. But, it is diffi- cult to imagine doing business without these values. Try to think what it would be like to do business always with people you did not respect, or on whose honesty you could not rely on, or who did not care about others. It would be impossible.

Adam Smith knew how important ethics was to business. Indeed, in The Theory of Moral Sentiments and in The Wealth of Nations, Smith makes it clear that without a sense of justice, mar- kets just will not work very well at all. Thinking that business ethics is a contradiction is a deep flaw in the dominant narrative of business.

People Are Complicated

There is ample scientific evidence that human beings are not the rational economic beings that much of our economic and business theory assumes. We are not always driven by extrinsic if-then rewards. We want to be engaged in doing something that has meaning and purpose. Some like Daniel Pink, have argued that we understand human motivation in terms of three ideas: Mastery, the sheer joy we take out of getting better at something; Autonomy, the freedom to live our own lives to try new things; and Purpose, the idea that we stand for something greater than just ourselves and our self-interest. By thinking about mastery, autonomy, and purpose we get a much more realistic view of what motivates peo- ple in business. The old story’s insistence on human beings being motivated primarily by money is really not appropriate in the twenty-first century if it ever was appropriate. Certainly, the new generation that we call Millennials want to do something that has meaning, that has purpose, that is not just making money.

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Psychologist, Harry Levinson, used to hang out at the Harvard Business School. He was kind of a crusty old guy and would often ask executives what was the main way people are motivated inside corpora- tions. Most executives would say to him rewards and punishments or carrots and sticks. Levinson would draw on the board a carrot at one end and a stick at the other. In the middle, he would put a question mark. He would ask what animal do you imagine between the carrot and the stick? Most people would say a jackass. So, Levinson coined the idea that he called the great jackass fallacy. It goes like this: maybe. . .

just maybe, human beings are slightly more complex than jackasses. Maybe they have social, spiritual, sexual, political, ethical lives as well as economic lives. But it’s even a little more difficult than that. If you treat people like jackasses, they begin to act like jackasses. They nose around for the carrots and they try to avoid getting the stick. Think of all of the productivity that gets left on the table, and, indeed, think of all of the human misery that results from treating people like jackasses. Human beings are more complex than the dominant story would have us believe. We will say more about this as we move to thinking about the principles that underlie this new story of business.

There are at least three flaws in the current story of business. First, the purpose of a business is not only to make money. Sec- ond, business and ethics need to go hand in hand. And, third, human beings are complicated. The time has passed for these flaws. The new story of business that is being built by thousands of entrepreneurs and executives around the world eschews these flaws and takes a different approach. Let’s turn to understanding the ideas that are behind the new narrative.

THE IDEAS BEHIND THE NEW STORY

I have identified at least six new ideas that undergird the new story of business that is emerging. They are: (1) The unit of analysis is stakeholder relationships; (2) stakeholders are interdependent; (3) tradeoffs are managerial failures of creative imagination; (4) pur- pose, values, and ethics must be embedded in organizations; (5) business exists in the physical world; and (6) people are compli- cated. Let’s look at each in turn and see how they are connected with each other and this new story.

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The Unit of Analysis Is Stakeholder Relationships

One of the cornerstone ideas behind the new story of business that is emerging is the importance of looking beyond shareholders to a broader group of stakeholders. As we saw earlier, creating value for stakeholders is something that every successful busi- ness has actually done. As we become more aware of this fact, we can build into our business models more nuanced ways to create value.

The key difference is that in a relationship there is a presump- tion that the relationship will continue over time, other things being equal. Businesses need relationships with their stakeholders so that each has some attachment to the other. You want custom- ers to have some degree of loyalty. You want employees to give you the benefit of the doubt, and you want shareholders who will stick by you when things are tough. Seeing these relationships through the lens of “discrete transactions unrelated to each other” does not build loyalty. In fact, it encourages exit when things get tough. Building loyalty with stakeholders mitigates the risks of difficult times.

Company X had built a relationship with a stakeholder group that often criticized the company. The stakeholder was targeting X with a campaign and called to tell them. The executive at Com- pany X asked for help in solving the problem that the campaign was about, and the company and stakeholder were able to intro- duce an innovative program that went a long way toward solving the problem. All of this happened because there was a relational mind set.

Of course, relationships are two-way streets. Companies have to stand by their suppliers and their employees when times are tough for them. And, they have to share in the rewards of success, in a broad manner, not just in terms of rewarding senior management. Whole Foods Market uses gain-sharing to reward the employees who work to bring things in under budget. They also give most of the stock options to non-top management employees.

Stakeholders Are Interdependent

It has often been said that the key insight of stakeholder theory is that there are groups that are important other than shareholders.

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And, while this is one insight that the theory has brought to man- agement thinkers, another is more important. It is that stake- holder interests have a certain interdependence. And, when management can capture this interdependence and push it for- ward, great results are likely to occur. Wal-Mart was for many years a poster child for this interdependence. By negotiating tough deals with suppliers, Wal-Mart could offer customers every- day low prices, and even though the margins were thin for suppli- ers, there was a great deal of volume that could lead to profitability. Employees were better off since there were more cus- tomers coming to take advantage of the everyday low prices, and the stock price saw a steady increase. Unfortunately, Wal-Mart paid little attention to communities as stakeholders, focusing on citizens as customers. Many outside groups began to be formed and Wal-Mart was blamed for many social ills. Today, Wal-Mart is working hard to repair its relationships with communities and to integrate ideas that make communities better off into the rest of its business model. The progress that has been made with sus- tainability is but one of several examples where Wal-Mart has taken a leadership role.

Even the companies who do CSR and who have adopted Michael Porter’s view of shared value have begun to see stakeholders as interdependent. For a long time, CSR was seen as something of a public relations move, unconnected to the main business model. More recently, we have begun to see how CSR can be connected to the basics of what a company knows how to do. Nestle has pio- neered this idea with shared value, as it has sought to introduce the creation of social value all the way down its economic value chain.

Trade-offs Are Managerial Failures of Creative Imagination

Economists love trade-offs. In fact, one of the hallmarks of modern economics is that one can always calculate trade-offs. I have become increasingly skeptical of trade-off thinking. In fact, I believe that the drive to collaborate and avoid trade-off thinking is far more powerful. When we see the task of the executive as getting stakeholder interests all going in the same direction over time, trade-offs will disappear. Of course, sometimes they have to be

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made, because we cannot imagine an alternative, but when we make a trade-off we need to immediately begin the process of mak- ing the trade-off better for both sides.

I have often told the story of a large chemical company who decided to commit to being more sustainable and cleaner. The CEO announced a large and lofty sustainability goal and proceeds around to the divisions and plant sites to let them know that he was very serious about this. There were interim goals and plans in a very businesslike approach. In one facility, as he told the story to a symposium at Dartmouth in the 1990s, the engineers came up to him and said, “Sorry but we can’t meet these interim goals. This process is too dirty, this equipment is too old, and we can’t meet the first target.” The CEO said that they were serious about this program and so they would have to close the plant. What I under- stood from that was that he was willing to make a trade-off, envi- ronment or community on the one hand versus employees on the other. The CEO’s trade-off was that the environment was a serious issue and it was going to be the winner. So, he told the engineers to prepare to close the plant. A few weeks later the engineers came back and said that a miracle had occurred. They figured out how to do it. When the CEO asked what it would cost, the engineers actually were embarrassed to say that the new method would save money.

When trade-off thinking becomes unacceptable we kick into gear the only infinite resource we really have, which is our creative imagination. The use of the creative imagination is radically underutilized in most companies today. Trade-offs are easy. In the new story of business with the stakeholder mindset, trade-offs become managerial failures. As more and more companies are thinking about the new story of business, they are discovering ways to satisfy multiple stakeholders. Simultaneously, this is one of the key ideas in the new story.

What this means is that conflict, often avoided in many compa- nies, is precisely the place where value creation can take place. When there’s conflict among stakeholders, where there’s conflict among core values, where there is conflict among competitors or products this is exactly the place where we can reimagine that con- flict and create more value. We have to come to see conflict as a good thing. Recall the story above about company X who had con- flict with the stakeholder group but kept up the relationship

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because that stakeholder group could help them figure out how to solve a problem. A lot of value was created.

Purpose, Values, and Ethics Must Be Embedded in the Organization

One of the great things about business as an institution is that many different purposes are possible. Novo Nordisk wants to rid the world of diabetes. Whole Foods Market wants to help people be healthier with better choices for food. Tastings, a small restaurant in my hometown, wants to bring the joy of good French country cooking to its customers. The founders of Relish MBA want to make it easier for companies and MBA students to find a good match. The only limit to the purpose of a business is our imagina- tion. Of course, purposes do not have to be all good. We have plenty of examples from human history about organizations that were of high purpose, but whose purpose was morally evil. A sense of values and ethics has to go alongside purpose. There are many organizations in the pantheon of new story organizations who are addressing precisely this issue. Just Capital is rating organizations based on a notion of “Justice.” However, it shakes out, we can no longer make the mistake that the pursuit of profits is the sole pur- pose of business. Real purpose inspires both employees and other stakeholders who come to share that purpose. And, this new story of business is an inspirational story.

Businesses Exist in the Physical World

While many who write about sustainability and the environment sound a caution about the physical limits of the world, I want to suggest that this is only part of the story. We do need to come to see business as embodied in the world, and hence, there are con- straints imposed by the physical world. However, we also need to see business as capable of transforming those constraints into new opportunities. We have seen this time and again as companies such as 3M figure out how to turn waste streams into products and services. Obviously, we need to tackle climate change, but see- ing it as giving us limits to growth is forgetting the creative imagi- nation that has solved so many of our problems in the past. Adopting some kind of green values, and integrating respect for the

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environment into our purpose and values, can be a powerful elixir for creativity.

People Are Complicated

I do not want to repeat the arguments I gave earlier about the flaws in the old story. Rather, I want to suggest that there is a much more inspirational view of human beings that is emerging. People are using business models and ideas to attack age old problems of poverty, education, disease, and more participation in society. Often these problems are attacked by these “new story companies” in conjunction with NGOs, governments, and other private organi- zations. We have seen a wave of “social entrepreneurs” and “impact investing” where the explicit idea is to use business to make society better and to solve social problems. I believe that we are fast craft- ing a new idea about what it is to be human. Let me illustrate.

What is this smartphone, really? The way I see it, it’s some bits of sand and metal, some vocabularies that we have invented to solve problems, and the fact that we can work together collabora- tively to achieve things that no one of us can achieve alone. In short, I see the world not as a world of scarcity, but as one of abun- dance. We have an almost infinite capacity to invent ways to solve our problems, whether we take on poverty, space travel, climate change, or understanding the rules of cricket. But, we are not in it alone. We invent mutually beneficial vocabularies with others to solve our problems. And, this is true whether we are scientists or politicians. We are surely more than narrow economic creatures, and in fact, capitalism works just because of this complex human dimension.

TOWARDS A MORE RESPONSIBLE CAPITALISM

If we are to move our system to a more responsible capitalism, we need a few more ideas that will transcend these particular ones aimed at creating and sustaining a successful business. First of all, we need some broadly defined principles of responsibility throughout our society. Responsibility is an idea that comes with the more libertarian idea of freedom that underpins market sys- tems. We need to see people and companies as responsible for the

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effects of their actions on others. That is the moral cornerstone of the stakeholder idea. Unless we are willing to take responsibility and to be willing to justify our actions to our fellow humans, our society will not continue to flourish.

The second idea is that we need to continue to see business as a voluntary enterprise. No one is forced to do business with anyone else. This idea of choice as applied to multiple stakeholders is cen- tral in creating a system of business that works for everyone. Com- petition should celebrate the choice that customers have. Restricting that choice artificially through institutions like crony capitalism should have strong sanctions.

Finally, we need a new idea of the role of government. While we have clear theories about how government plays its role as both regulator and redistributor, there is another role that is often over- looked. Government can be a facilitator of value creation. It does this via infrastructure and other programs such as enforcing civil rights, and ensuring that crony capitalism does not take hold. We have only begun to explore this idea of government as facilitator of value creation, so stay tuned.

WHAT CAN YOU AND YOUR COMPANY DO?

Let me wrap up by taking these ideas down to an extremely practi- cal level. There are at least five ways to begin to practice this more responsible capitalism in your businesses.

First, you can rediscover your purpose and the values that go with it. No less a company than Unilever has begun this process, and while it takes time, the payoffs are large. Employees become inspired, and the innovative ideas begin to flow. How do you redis- cover your purpose? Well, the first thing to do is to have a look at history. What are the founders’ stories that are told in the com- pany? Why do people actually show up for work? What really helps them when they are at their best? It takes a concerted effort if a company has lost its way, but it is an exciting process to rediscover the purpose of an organization. Values go along with purpose and are often seen as the “How” we are going to realize the purpose.

Second, you can perform a systems/process check on the pur- pose and values. Purpose and values live in the systems and pro- cesses of an organization. Talk is cheap. The first places to look are

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the HR and expense reimbursement systems. Think about an orga- nization that trumpeted its respect for employees but required them to get a receipt for a $2 toll on the Mass Pike, a task that is mostly dangerous if not impossible. Or consider an organization who is very proud of its stand on values, yet waits 60 days to reim- burse employees, and pays suppliers in even later terms.

Third, you can begin live conversations about the purpose and values. Small groups of employees can help to clarify what values are actually in force at the company, and there are known techni- ques for creating a conversation about these values, such as which ones are we really serious about, and which ones are we just giving lip service to. Some companies have begun to encourage meetings where employees bring “values vignettes,” or sticky problems, to groups of peers to try and get insights. Based on Johnson and Johnson’s original “challenge meetings” discussions of these vignettes helps to clarify what the true meaning and intention of often quite general values statements are.

Fourth, you can be a community builder. There are many ways to help build the communities in which you operate. Giving employees time off to volunteer, hiring some of the least well-off members of a community and giving them training, and donating to charities, are all viable strategies. However, figuring out what you know how to do, can be used to build community, brings the power of the business model to bear on tough problems. We are beginning to see more and more companies working with stake- holder groups in the nonbusiness sector to jointly tackle societal issues. Such multi-sector collaborations are one of the best ways to build community.

Finally, you can communicate how your organization makes the world a better place. We need business organizations to inspire us. We need business to become an institution of hope. We need busi- ness executive to try and remake their organizations to be places we want our children to live in. Asking anything else is to set the bar too low.

ACKNOWLEDGMENTS

The ideas in this paper have been partially developed in a number of places, especially Freeman, Martin, and Parmar (2007); Freeman,

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Parmar, and Martin (2016); Freeman and Ginena (2015); and, Free- man (2017, forthcoming).

I am grateful to editors and co-authors for their permission to more carefully develop these ideas here for a public audience. This paper will be a part of a forthcoming book, tentatively titled The New Story of Business: Responsible Capitalism, co-authored with Bidhan Par- mar and Kirsten Martin, in 2018.

REFERENCES

Freeman, R. E. 2017. “Five challenges to stakeholder theory: A report on research in progress,” in D. Wasieleski and J. Weber, eds., Stakeholder Management, Business and Society 360 Series. Emerald Publishing (forthcoming).

Freeman, R. E., and Ginena, K. 2015. “Rethinking the purpose of the cor- poration: Challenges from stakeholder theory,” Notizie di Politeia 31(117): 9–18.

Freeman, R. E., Harrison, J., Wicks, A., Parmar, B., and de Colle, S. 2010. Stakeholder Theory: The State of the Art. Cambridge: Cambridge University Press.

Freeman, R. E., Martin, K., and Parmar, B. 2006. “Ethics and capitalism,” in M. Epstein and K. Hanson, eds., The Accountable Corporation, Vol 2: Business Ethics. Westport, CT: Praeger, pp. 193–208.

Freeman, R. E., Martin, K., and Parmar, B. 2007. “Stakeholder capital- ism,” Journal of Business Ethics 74: 303–314.

Freeman, R. E., Parmar, B., and Martin, K. 2016. “Responsible capital- ism: Business for the 21st century,” in D. Barton, D. Horvath, and M. Kipping, eds., Re-Imagining Capitalism. Oxford: Oxford University Press, pp. 135–144.

Friedman, M. 1970. “The social responsibility of business is to increase its profits,” New York Times Magazine 13: 32–33.

465R. EDWARD FREEMAN