Bringing values back into the boardroom

A new brand of ‘supercorp’ is putting social value at the heart of its operations – and is gaining the competitive edge, says Rosabeth Moss Kanter

A new approach to conducting business must arise from the ashes of a failed capitalist model. For companies to survive and thrive in challenging times, an economic logic of short-term profit-maximisation must be joined by a social logic of long-term institution building. Fortunately, there are prominent companies throughout the world that already reflect a new model of values-based capitalism, which involves investment for the longer term, a sense of enduring purpose and a focus on serving society through innovation that solves challenging problems.

Values-based capitalism is my catch-all phrase for the wide swathe from ethical behaviour to above-and-beyond social contributions. It means being guided by standards and principles that are not reducible only to economics. It implies responsibilities toward employees, customers, consumers, suppliers, communities and the public that are shaped by social norms even when there are no specific laws governing the relationships. Values-based leadership in an empowering system is not just a way to regain public trust; it is a better way to run a company, because it creates a climate in which innovation can flourish.

Service to society, guided by well-articulated values, is not just ‘nice to do’ but an integral part of the business models for companies that I call ‘the vanguard’. At these companies, values, principles and attention to society have moved from the sidelines to the centre of business strategy. Vanguard companies use their strengths to provide innovative solutions to a wide range of societal challenges. Some are directly connected to business opportunities, such as General Electric’s embracing of the opportunities in green technologies. Others address problems without an immediate market opportunity but end up developing useful technologies with later commercial applications.

For example, IBM’s activities to improve basic education and literacy resulted in new voice-recognition technology; ICICI Bank’s desire to improve the lives of poor, rural villagers in India and build an eventual market for banking services led to breakthroughs in mobile banking through mobile phones. Societal initiatives undertaken without immediate profit motives are part of the culture that builds high performance and thus, ironically, results in profits. IBM is a prime example. Since its founding in 1911, IBM has been known for a strong culture and a commitment to fairness and social responsibility, operating under a set of principles articulated by its founder. But as IBM entered its second century, it took a fresh look at its culture through strategic use of IBM technology and innovation. In 2003, CEO Sam Palmisano authorised a bold, global dialogue called a ‘values jam’, a 72-hour web chat about what IBM stands for. Open to every IBM user in the world, it attracted contributions from nearly 150,000 people. Palmisano wanted people to have pride in IBM as an institution, which would stimulate loyalty and creativity. He told me: ‘Management is temporary, returns are cyclical. The values are the connective tissue that has longevity. We are the only ones in technology to have lasted more than 30 years.’

The result of the ‘values jam’ was three overarching values closely connected to its business purpose: dedication to every client’s success; innovation that matters for the company and the world; trust and personal responsibility in all relationships. These focus employees on service to broad societal goals. An IBM Latin America executive sees this as a trend in IBM users employing an external standard to judge the company’s contributions: ‘I see a change in the way we think about social responsibility. Twenty years ago, the focus was to do the right thing internally. Before, if I saw a problem in society, in the community, I didn’t care because it was not inside IBM; I had nothing to do with it. The change right now is to leverage the size of IBM and do the right thing outside our organisation, through the whole supply chain with providers and customers.’

This focus has led to numerous innovations and diffusion of innovation, with continuing profitability even in tough times. Through IBM’s Reinventing Education initiative, project teams working in partnership with school systems created innovations in data warehousing, interactive mentoring of teachers and students, and tools to teach reading. Partnerships for innovation with government education ministries in the UK, Brazil, India, China and elsewhere led to new applications of technology that were useful in the commercial business while giving IBM a seat at the table. When IBM had a breakthrough in grid computing (now known as cloud computing), its first demonstration was via a non-profit partnership called World Community Grid, led by IBM but with partners worldwide donating unused computing power from laptops and desktops to big scientific projects, such as AIDS research or climate change.

These are not just random examples of doing occasional good; they reflect a comprehensive set of business practices that constitute the vanguard company paradigm. By thinking beyond today’s customers to the wider world, a vanguard company finds new arenas for social betterment and anticipates markets. This is not altruistic, but it is also not how business self-interest is usually framed. Vanguard company employees come to feel that, if they do not tackle a big societal problem using their special prowess, then who will? Their self-image involves an imperative to innovate, a responsibility to solve problems to improve the world. Companies have always succeeded by emphasising innovation. The new addition is three key words in IBM’s core values: ‘Innovation that matters for the company and the world’. Emphasising ‘for the world’ makes the connection between business and society. A short mental loop connects ‘changing the world’ and ‘my daily job’.

Bringing values back to the boardroomAt each phase of the innovation process – generating ideas, selling others on those ideas and executing the projects to turn ideas into reality – purpose-driven companies gain advantages. Their technical capabilities must meet high standards, but that’s not all there is to it. Framing their missions in social terms and reinforcing the desire for social improvement with empowering organisational cultures gives them a boost beyond the technical realm. This is even more important in emerging market countries such as India that are starting to produce some innovations ahead of the US or Europe because companies there face challenging societal problems that force creative solutions.

Sceptics claim that such activities are self-interested. Of course they are. And they should be. Enlightened self-interest makes efforts sustainable, because employees, customers, and shareholders reward good conduct with their loyalty. In the global Millennium Survey, more than 90 per cent of 25,000 citizens of 23 countries reported that they want companies to focus on more than profitability. In another survey, two-thirds of American consumers said they feel more trust in products aligned with social values.

Let me be clear that this is aspirational. Even the best companies do not meet their ideals all the time; they have vulnerabilities and can be mired in bureaucracy. Their leaders are not soft-hearted do-gooders. The companies mount and defend lawsuits, push the limits of their market dominance and pricing power, compete aggressively and lobby governments for favourable treatment. They are often the best among their peers, but not always. Most of the companies in my research have outperformed the industry in the current global financial crisis, but some did not. The vanguard company model has limits for society, too. One company can make a difference but not necessarily change the surrounding system, at least not without multiple collaborators and government spreading the change. And this is not philanthropy; some of the worst corporate crimes have been committed by companies with good track records of philanthropy, and corporate donations do not signify well-run companies. What is unique about the vanguard companies I investigated is that values, principles and attention to societal needs pervade every aspect of the company and drive the quest for innovation.

Vanguard companies live up to high aspirations often enough to be role models for a new business paradigm. This new paradigm is particularly timely as the world struggles to recover from financial crisis and also faces ongoing challenges of climate change, educational and economic disparities, political uncertainties in conflict-ridden regions and the potential for border-crossing pandemics. The vanguard companies I studied have mastered the turbulence of technological and geopolitical change by making critical internal changes. They motivate employees to seek and create new ideas, and they have lent their business capabilities to produce innovations from which the general public can benefit.

In the fullest flowering of the model, vanguard companies are global thinkers building global networks. They include an extended family of partners in their strategies, drawing on suppliers, distributors, venture partners or alumni as sources of ideas for innovation. They want to raise standards by attempting to operate by one set of values and principles, taking the highest standard as their common denominator and spreading that ethos to the extended family. They globalise, transcending the particularities of place, and also localise, attempting to deeply understand the society around them. They take social or human needs as a starting point for the business, seeking solutions that propel innovation. What they get out of all this is not only business opportunities and market position but also innovation, employee motivation, company solidarity and public influence.

Values and principles, including respect for people and concern for the environment, contribute to numerous business capabilities: sensing opportunities and stimulating innovation; enhancing customer success and value for end users; attracting and motivating top talent; working collaboratively to react or change quickly; and tapping the extended family of business partners for new ideas or market reach. All of this creates sustainable institutions capable of survival and renewal in the interests of social good.

Rosabeth Moss Kanter holds the Ernest L Arbuckle Professorship at the Harvard Business School

 

Vanguard companies in action

  • Procter & Gamble's corporate statement of 'purpose, values and principles' is a central tool for guiding the activities of 140,000 people worldwide. The desire to create products that 'improve the lives of the world's consumers, now and for generations to come' led to research on water purification, since a majority of the world’s population lacks access to clean drinking water, contributing to global health problems. But a water purification powder sold in sachets failed to catch on with lower-income consumers at sufficient scale to make it a profitable business, in part because of lack of education about its health benefits. Rather than close the venture, P&G set up a not-for-profit company in partnership with major NGOs and United Nations agencies to continue to distribute the product, called Children’s Safe Drinking Water. This saved lives during the aftermath of the Asian tsunami, has won P&G numerous awards and has been a source of pride for employees, helping the company attract some of the world's best talent.

  • Cemex, which began as Cementos Mexicanos in 1906, is one of the world’s largest building materials companies. Its philosophy is to improve wellbeing through innovative industry solutions and a commitment to sustainability. Its Cemex Way methods have helped it grow successfully through significant international acquisitions and improve productivity and working conditions in cement factories in the US and Europe. It has raised wages and supported community development in Egypt and created innovative solutions for affordable housing in rural Mexico. In 2002, Cemex won a World Environment Center Gold Medal for International Corporate Achievement in Sustainable Development, despite being in one of the most polluting industries, because of its commitment to alternative fuels and environmental clean-up.

  • Omron, a Japanese electronics company that describes itself as 'small but global', invokes its motto – 'At work for a better life, a better world for all' – as the impetus for numerous innovations. These include one of the world’s first ATMs, an automated train station, a system to increase safety and reduce deaths in industrial laundries and a blood pressure monitor for women. The Omron Principles, first articulated in 1960, are said to be responsible for its success in acquiring outstanding smaller US companies with similar values, without being the highest bidder.

  • Banco Real, headquartered in São Paolo, Brazil, makes social and environmental responsibility the centrepiece of its business strategy. Starting early in this decade, it grew quickly to become Brazil’s third largest bank. Its strong culture and high banking and societal standards have made it stronger following the acquisition of its former Dutch parent, ABN AMRO, by Grupo Santander of Spain. Banco Real’s commitment to the environment reinforced ABN AMRO’s successful effort to encourage the World Bank’s International Finance Corporation to write the Equator Principles, guidelines for environmentally friendly project finance, in 2003, which more than 60 major international banks have signed to date.