In a landmark announcement, 181 of the most powerful publicly traded CEOs in the world, including such heavyweights as Tim Cook of Apple, Jeff Bezos of Amazon, Jamie Dimon of JPMorgan, Laurence Fink of BlackRock, Charlie Scharf of New York Mellon Corp, and David Solomon of Goldman Sachs, released a statement in August 2019 that businesses are responsible to all of their various “stakeholders,” including their employees, suppliers, and local communities. This is a significant shift from the shareholder supremacy approach that has been deeply ingrained in American capitalism. They went on to say that, “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. This can be achieved only after we address the public discontent over income inequality and the burgeoning cost of healthcare and higher education.”
A healthy dose of skepticism in their desire to follow-up with concrete action is understandable, especially since they have not provided an action plan or a roadmap to get there. These companies are still largely driven by a desire to earn a profit. The cynical view would be that these leaders and organizations have too much to lose to change the status quo since their shareholders determine who sits on the board, who in turn set CEO compensation. While this may be true with some, it is not fair to make sweeping generalization of all leaders and corporations. It is lonely and emotionally draining to lead organizations where there is relentless pressure to deliver constant financial growth, stress is rampant, and employee engagement is stuck at 30 percent. It is no wonder that Johnson & Johnson CEO Alex Gorsky, who drafted the statement said, “There were times when I felt like Thomas Jefferson.” Corporate America, apparently, has just declared its independence.
I believe there are deeper, entrenched reasons why successful leaders struggle to build conscious and inclusive stakeholder-centric organizations. According to a recent Ernst & Young Oxford University study, 87 percent of top business leaders believe companies perform best over time if their purpose goes beyond profit. However, only 37 percent say their business model and operations are well-aligned with this purpose. In my humble opinion, the skills that helped them grow shareholder-centric companies are no longer sufficient to nurture thriving stakeholder-centric organizations. This is because the nature of work has shifted, and business growth expectations have evolved and expanded significantly.
The nature of work has shifted. Back in the day, expectations were simple and limited. Work was a place to get a steady paycheck to make a living. Then we sought professional excellence in an intellectually stimulating environment. We now expect a purposeful, high trust and high-performance work environment in order to pursue not just intellectual growth but also emotional needs such as understanding, trust and empathy, and spiritual requirements such as feeling purposeful and becoming our best version. Employees seek transparency, meritocracy, authenticity, inclusion, reverse accountability, professional excellence, and personal fulfillment.
Business growth expectations have evolved. Greatness for business organizations has traditionally been defined in terms of financial performance. It did not matter how disengaged, stressed, or unhappy employees were, or how fragile their supplier and business partnerships were, as long as shareholder return was solid. That is now evolving; a great company is one that earns the admiration of not just shareholders but also employees, customers, suppliers, and the community. Customers would rather do business with organizations that focus on stakeholder return. It will become increasingly difficult to grow financially at the expense of other critical emotional, social, and spiritual requirements.
In order for leaders to succeed, thrive, and even survive in this stakeholder-centric environment, successful shareholder-centric leaders need to shift their mindset. The journey from shareholder-centric to stakeholder-centric leadership starts with personal transformation. Shareholder-centric leaders attribute their success to ego or self-centered drive, besides knowledge and intellect. They are passionate, authoritative, and accountable. They motivate people by focusing primarily on one aspect of human nature: self-interest or self-centered drive. This one-dimensional financial success comes with a steep price of an overwhelming sense of lack of purpose and fulfillment. Leadership feels like a burden and not an exciting, sacred opportunity.
The key to building thriving stakeholder-centric organizations is to give expression to both aspects of human nature and motivation. We are driven by both self-interest — when our ego is in charge— and selfless service — when our ego is in service of a higher calling. Ego has its place; it helps us from danger and from being taken advantage of. But ego also prevents us from pursuing our purpose fearlessly and from collaborating unconditionally.
To give expression to both aspects of human nature requires us to master our ego. This is exactly what great leaders do. They demonstrate both self-centered drive and selfless humility, passion and compassion, pursuing professional excellence and personal fulfillment, profit and purpose. They are authoritative and empathetic; accountable and empowering as the situation demands. Instead of depending on their hierarchical power, they utilize their moral authority and inspire all stakeholders to give their very best by appealing not only to the intellect, but also heart and spirit. This is how they achieve financial success with fun, emotional fulfillment, and spiritual purpose. It is an immense possibility and a game-changer!
When leaders operate in this state of selfless, self-actualized mastery, how they conduct the key functions of business (such as communication and meetings, decision-making and conflict resolution, strategy planning and budgeting, performance evaluation, and compensation) changes dramatically. For example:
- Action leadership in a self-centered shareholder-centric mindset means to give instructions to do the job, assume or force buy-in. In an inclusive stakeholder-centric mindset, we ensure buy-in and inspire them to get the job done.
- Being authentic in a self-centered mindset means we are direct and blunt without consideration for others’ opinion and feelings. Whereas in an inclusive, stakeholder-centric mindset, we are direct and yet constructive, taking full accountability for our behavior.
- Accountability when results are poor: In a stakeholder-centric mindset, we lead with empathy and review to make sure the right action and process is being followed and then hold people accountable. In a shareholder-centric mindset, we start by holding people accountable and then make half-hearted attempts at being empathetic and trying to understand if the right action steps are being taken.
The socioeconomic challenges such as inequality and poor employee engagement along with evolved expectations, i.e. the collective consciousness of all stakeholders, leave us no choice but to upgrade our leadership skills and transform our organizational infrastructure. We have to bake stakeholder-centric practices in the DNA of the organization. Not transforming will have dire consequences and potentially tragic implications and facilitating the shift provides the greatest opportunity in recorded human history. When a tipping point of business leaders and organizations make the shift, we can elevate capitalism to its highest natural capability and help create prosperous, inclusive, conscious, and enlightened organizations and societies.
Sudhir Chadalavada partners with successful business leaders to help unleash their full potential and unlock the full value of their organizations. His clients have been recognized as outstanding leaders and CEOs. Bringing more than 25 years of leadership experience with F500 and small to midsize companies as a CEO, senior executive, trusted advisor and leadership coach, he trains, speaks, and writes passionately on the new rules of capitalism, the socio-economic shift, and the changing role of business organizations and leadership. His book, “CEO Mastery Journey – 7 Breakthrough Practices that Propel Successful Leaders to Greatness,” explains this in depth. He lives in Orange County, California, with his wife and three children.