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May 4, 2009
A Missed Opportunity
I attended the annual dinner of the Atlantic Council on Wednesday night in Washington, DC, to celebrate the 20th anniversary of the fall of the Berlin Wall. The honorees included former President George H.W. Bush, Chancellor Helmut Kohl (unfortunately, too ill to attend) and IBM CEO Sam Palmisano. Tributes were made to the former President, including speeches by Defense Secretary Gates (“I love this man”) and former German national security advisor Teltschik (“I will never forget what you did to reunite my country”).
Palmisano’s speech began with refreshingly self-deprecating remarks, about feeling unworthy in such august company. He spoke of the promise of technology in restoring economic growth. He said that his company intended to be a leader in bettering the urban environment, through changes in transportation, commercial and residential property. But did Palmisano miss an opportunity to make a broader statement about the evolving relationship between business and government?
The bankruptcy of Chrysler, following on the heels of US Government bailouts of such center of the economy companies as AIG, Bank of America (twice), Citigroup, GM, while the UK Government intervenes to save Northern Rock and refinance RBS, calls into question the Anglo-Saxon model of unbridled capitalism as the source of economic prosperity. Government is intervening in the private sector in ways has not seen since the Great Depression. Senator Jack Reed, who runs the Senate Finance Committee, said that populist anger at outsized Wall Street compensation in the face of growing unemployment had led him to implement low ceilings on bonuses for companies accepting the TALF funds. President Obama is insisting that GM build more fuel-efficient vehicles as a condition of further funding. How will business respond to this new, rather aggressive bed-fellow?
Here’s what I would have urged Mr. Palmisano to say to the 1,000 policy leaders in the room on Wednesday night:
First, business is the most successful change agent in society. Look at the evolution of countries such as Brazil, Mexico, India or Indonesia, where the average person’s income has gone up by 20 times in the past decade. But CEO’s must now recognize the responsibility of business to go beyond that described by Milton Friedman, who said, “So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not”. We’re entering a new era of Mutual Social Responsibility, a virtuous circle in which people consume what they need (not what they want) while companies agree to achieve financial AND societal objectives.
Second, those of us in leadership roles in the business community acknowledge the violation of people’s trust and are committed to fixing the problem. We will be more transparent about our corporate strategy and risks associated with our plans. We realize that pay levels for top executives have escalated while the average wage-earner has had no increase. Bonuses for short term performance have led to unacceptable risk-taking. This system will be changed, to one which embraces shared sacrifice.
Third, there are new voices whose views must be incorporated into a global governance model based on a stakeholder society. Non-governmental organizations, communities as well as employees and consumers are entitled to a hearing. This is an evolution from the shareholder society which concentrates only on investors and is regulated by government. It calls for an outside in, listening approach by business and government because both of these traditional institutions have lost the mandate to lead unilaterally.
This is not a time for business as usual. The collateral damage of the crisis goes beyond those sectors requiring government bail-outs, namely autos and finance. The way forward is Private Sector Diplomacy, in which business shares the stage with government and NGOs to find solutions. Mr. Palmisano went part way along the path, committing to work on a major global issue, the consequences of urbanization. It is important that CEO’s use future public speaking opportunities to move from company stewards to private sector statesmen.
PS. Here are my thoughts at the recent Georgetown Summit on the new role of business in society.
http://www.youtube.com/watch?v=1vkAODxM5QY&feature=channel_page
Posted by Edelman at May 4, 2009 2:09 PM |
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Comments
Great post, Richard.
But how do we get corporations to embrace the "virtuous circle" given that most of the metrics reward financial performance regardless of broader responsibilities? Is there something special that organizations' PR advisers can do to nudge them in the right direction?
Posted by: David Weinberger at May 4, 2009 4:58 PM
Hey, No fair writing speeches for CEOs for free...
Especially such a good one...Excellent advice, Richard. Executives trying to cope with the day-to-day challenges of surviving this recession should not forget that the key to long-term growth in the 21st Century is combining business expansion with social responsibility.
Posted by: Jeffrey Porro at May 5, 2009 10:51 AM
Good call Richard. Friedman's quote was made much before my time, but I'm still suprised that anyone would dare imply that corporate executives, don't have responsibilities in their business activities besides making money. A company with that model would not survive, and perhaps, that's partially why the economy is in the state it is now. One thing I've always learned, in one way or another, is that "the customer is always right." And in today's society, consumers are more right than ever before. For those businesses who don't wake up, consumers will not purchase their products and stray away investing in their business, regardless of their need (or want) for them. As a millenial, I'm proud of the transparency the Internet has forced business leaders to accept and adopt. Too many unethical, under-the-table decisions have been made for far too long without regard to their affect on consumers and the community. The whole idea of American business is to make money, but it's also to drive the country's economy and serve its consumers (who are are citizens of this country). When business leaders are greedy and don't feed some profits, if not philanthropic efforts, into the American economy, widespread problems occur and money dries up everywhere.
Posted by: Mark Taylor II at May 5, 2009 3:10 PM
This is pretty presumptuous. You mean a world business leader who speaks about the challenges of globalization on urban settings -- where the majority of the world actually lives -- and who speaks about how his company will help address those challenges is not enough for you? IBM talks about making the world's systems work smarter, and promises improvements in health care, transportation, and many other areas. That doesn't seem like a missed opportunity to me.
Posted by: allyb at May 5, 2009 3:34 PM
Ally,
I liked Palmisano’s commitment to cities. But I did not think it was framed in the context of a broader commitment by IBM to society. Thanks for your comment.
Richard
Posted by: Richard Edelman at May 5, 2009 4:16 PM
Richard,
Acute crises tend to be game-changers for many industries, making your message very relevant. With the collateral damage of this crisis going beyond the autos and finance sectors preparation for the worse while hoping for the best is highly warranted. The degree to which the unbridled capitalism model is ingrained in America will produce intense pushback from the business community to stakeholder engagement. System thinking and the stakeholder engagement model helped transform Japan after WWI.
You and/or your staff should find the following documentaries helpful in pioneering stakeholder engagement:
If Japan can why can't we?
How Everyone Wins: Finding Joy, Meaning and Profit in the Workplace.
I welcome the opportunity to share my extra copies with a Time Square neighbor.
Posted by: Hugh Campbell at May 5, 2009 9:39 PM
Richard,
As always you have managed to hit the nail right on the head. The current economic woes of the world go much deeper than being a simple "correction." We are entering a new era where each organization's, and each individual's contribution to society as a whole is becoming increasingly important. The adjustment to the "stakeholder society" will not be easy for many business leaders so it is up the those who are leading the large corporations to articulate the new paradigm and show the way
Posted by: Ross Rowbury at May 6, 2009 8:54 PM