Ed Freeman is one of the most significant figures in the world of stakeholder business. (I had Ed as a professor when I did my MBA at Darden. This was more than 20 years ago and he was already a well-known figure). A few years ago he joined with a couple of colleagues to write The Power Of And. This is a book about how important it is think more broadly about business. How business can be about benefiting owners and much more.
Five Key Ideas
The book is admirably clear in that it lays out its key ideas and then structures the book around these ideas. These ideas will make sense to anyone who is sympathetic to stakeholder business thinking. Purpose, values, and ethics are not just nice extras to drop into a business plan (or a business course) if you have space to fill at the end. Ethics should be part of the business model and the curriculum. Instead of values being tacked on, they are what business is about. Business should be there to help its stakeholders. (A stakeholder is any entity impacted by, or can impact, the firm).
It similarly doesn’t make sense to treat business as something existing outside society and the physical world. Business exists because society creates conditions that favor it. The same can be said of nature. Without a decent planet, there isn’t much business going to happen.
People Are Complex
One of the key ideas they outline is that people are complex. We can tend to fall into saints and sinners thinking. The challenge is that no one is perfect and most of us have a fair number of good and bad parts. Companies are like that too. We shouldn’t expect perfection from any company but neither does one failure mean that the company is irredeemable.
No person is always a saint or always a sinner. Nor is an organization always a hero or always a villian. The point of this is that it is best to reserve moral judgment for a specific action rather than to summarize a person or organization.
Freeman, Martin, & Parmar (2020) page 124
Benefiting Owners And Much More
Their take on what managers are for is really helpful. We shouldn’t see managers as only there to help some particular stakeholder group or another. Managers aren’t just there for the owners, but the managers’ work should be about benefitting owners and much more. This is the power of ‘and’. A good manager successfully addresses the needs of owners, employees, customers, the local community around a factory, business partners, and even harder-to-consult groups whose lives will be impacted by the firm’s actions. The manager’s job is there to help the firm get away from zero-sum thinking. (Zero-sum thinking is represented by the idea that we can only help one group by ripping off another). Instead, the manager can think how can we create value for all?
We see the task of the executive as getting stakeholders interest pointing in the same direction over time, trade-offs will disappear.
Freeman, Martin, & Parmar (2020) page 79
Getting To Better Business
The authors are pretty positive about the role that business can play. Growth can be achieved by effectively aligning the interests of owners, employees, and the environment. As they say, respect for the environment can be a powerful elixir for creativity (page 22).
The three authors see values as an antidote to bad business. In an example, they noted how managers they talked to had been pushed to use the same “clever” financial engineering that looked so good for Enron, (until it didn’t and everything went up in smoke). What stopped these managers from going down the cheap (and illegal) sugar high of Enron’s financial schemes? The managers’ values. They didn’t see how financial trickery added value for the customers that it was serving. (Which was because it didn’t).
The power of and is massive. Let’s encourage more of the good stuff.
For more on stakeholder business see here, here, here, and here.
And zero-sum thinking see here, here, here, and here.
Read: R. Edward Freeman, Kirsten E. Martin, and Bidhan L. Parmar (2020) The Power of And: Responsible Business Without Trade-Offs, Columbia Business School Publishing
