Leadership at a Crossroads: Addressing the Stakeholder Revolt
The King so wishes it, against that command there is no appeal. French King Louis XV, 1766 prior to French Revolution
Maximizing shareholder value can no longer be a company’s main purpose. The Business Roundtable’s response to the stakeholder revolt. August 19, 2019
LeBron Bows to Communists. NBA fan revolt October 15, 2019
The Revolt of the Stakeholders! That’s what drove The Business Roundtable’s recent proclamation that shareholder value is no longer a company’s main purpose. Since then there has been much debate about is it right, workable, and sustainable? It misses the key point. This remarkable shift did not come from a sudden burst of generosity from leading company CEOs. Rather it was in response to a hard, new stakeholder reality long in the making: customers, employees, communities revolting against leaders whose preference for shareholders is increasingly angering other stakeholders.
The speed and intensity of the stakeholder revolt can be startling, even for someone as cool and “woke” as the NBA. Just ask Commissioner Adam Silver and King (LeBron) James accused by fans of putting profits above purpose by siding with China – in response to Houston Rockets General Manager’s tweet, “fight for freedom, stand with Hong Kong.”
Moreover, to see this shift as just a business story misses the broader trend: today’s leaders in politics and faith are also increasingly pressured to defer to narrow, more extreme stakeholder groups and interests. This narrow leadership approach feeds a society-wide revolt that leaves us divided and our culture increasingly dysfunctional. How? By pitting an elite, powerful “in-crowd” against an angry, vocal “out-crowd.”
Addressing this revolt (previously discussed in this space here) now calls for a specific form of stakeholder leadership – what I describe below as “stakesmanship.” Let’s look deeper.
Business: Shareholder Value and the Stakeholder Revolt
In business and particularly public companies, it has been clear in recent decades who is King: the shareholder is King and delivering shareholder value has been the single most important measure. Whom the gods would destroy they grant short-term success.
The narrow focus on shareholder value has worked swimmingly – until it didn’t. It has contributed to great wealth and power but concentrated it in too few hands. Eight men own half the world’s wealth and CEOs made on average 287 times frontline workers in 2018. The S&P 500 spending on stock buybacks and dividends over the past five years exceeded cumulative earnings by 10 percent, which means investment in new products, markets, worker salaries, new jobs and development of employees took a back seat – or left no seat at all. While the value of public companies sky-rocketed, the number listed has fallen by 50% since 1996. The number of IPOs (Initial Public Offerings) declined by 85% even though some of those who went public were huge like Facebook. The number of business startups declined by 44% since 1978 and 50% of those start-ups were concentrated in 20 of the 3007 counties in this country.
Concentrated wealth concentrates power: power corrupts, absolute power corrupts absolutely. What Lord Acton concluded, recent research at Cal Berkeley confirms, power has similar effects on the frontal lobes as brain trauma. “You become a sociopath…When you feel powerful, you stop attending carefully to what other people think.”
Adding to leadership stress, is a new generation of stakeholders. Millennials and Gen Z bring a different set of values. As the authors of New Power state, “what is emerging—most visibly among people under 30 – is a new expectation: an inalienable right to participate.” They think like today’s stakeholders, not yesterday’s “workers” and they expect to have a voice – that is heard.
These new stakeholders care about issues beyond shareholder value. Recent headlines drive home today’s new reality:
Wells Fargo CEO Steps Down, Sales Tactics 10/12/16 CEO Sloan Out, CBS 3/28/19
Uber Founder Travis Kalanick Resigns as CEO…toxic culture, NYT 6/21/17
Papa John’s CEO John Schnatter Steps Down…racial slur, USAToday 12/21/17
CBS Chief Moonves Resigns Amid Sexual Misconduct Claims, Time 9/10/18
Google Employees Stage Global Walkout…question leaderships' response to sexual misconduct, CNBC 11/1/18
Tesla SEC Takes on Musk’s shoving, “nuke” ex-employee, Business Insider 4/5/19
None of these headlines resulted from poor financial performance. Rather these issues relate to customers, women, racial minorities, toxic culture and employee treatment – a perceived misuse or abuse of power by leaders to certain stakeholders. As stakeholders have focused on these issues, trust in leadership across business, government, non-government and media has fallen according to Edelman Trust. “Sullen but not mutinous” is half-jokingly how one leader described his team to me. Like never before, stakeholder backlash gets leaders fired.
It is not just revolt between stakeholders and leaders. Some organizations and their leaders are promoting and monetizing differences among and between stakeholder groups through a form of “tribal branding” of commercial products. Nike produced advertisements with former NFL quarterback Collin Kaepernick amid the NFL’s National Anthem “taking-a-knee” flap. Nike founder Phil Knight told a group at Stanford’s Graduate School of Business: “It doesn’t matter how many people hate your brand as long as enough people love it.” Clearly brands such as Fox News, Chick-fil-a, MSNBC along with numerous social media firms like Twitter have benefited from tribal stakeholder differences. We once lamented that politics and religion as forces behind social divide but now we add the growing power of corporations and huge marketing budgets.
Greater stakeholder conflict feeds higher leadership casualties. According to Challenger and Gray, CEO turnover was up 25% in 2018 reflecting “boards strictly enforcing relationship and ethics” issues. PWC reports that the number of CEOs removed for ethical lapse are up an historic 50% and for the first time exceed financial performance.
Politics and Faith: Playing to the Base
It’s not just business. In politics, the corollary to the business “shareholder,” is the “base” – those voters passionate about a relatively narrow band of issues and who contribute money and work to get their candidate elected. Perhaps this “get-out-the-base” model was best articulated by Karl Rove, George W. Bush’s political guru whose animating idea was, rather than move to more moderate positions in the general election, to animate “base” voters and get them to outvote the opposition. Nothing animates the base like stirring up anger by vilifying the opposition – “mad” votes. Problem is, it is hard to lead when you worked so hard to make half the country hate you.
Presidents Bush, Obama and Trump each won by getting their bases to turn out in extraordinary numbers. Predictably, as the power-base of political parties has grown narrower and more extreme, the stakeholder group called independent voters – defined by party relationships they do not have – has doubled over the past 50 years and now exceed either Democrats or Republicans. The cost of winning the base by demeaning the opposition is the repelling of moderates. Politicians keep winning elections and losing the country.
Clearly the daily fight that we call Washington D.C. reflects stakeholders so bitterly divided that little constructive gets done. The last four presidential administrations can be summarized by dysfunctional stakeholder warfare: Clinton impeached, Bush “stole the election” in Florida, Obama – birthers questioned his eligibility and “hope(d) he fails,” Trump – “resist” and now impeach. Have we become a nation whose stakeholders are so warring as to be unleadable?
In faith, the conflict between highly opinionated narrow conservatives and progressives on issues such as gay marriage has caused big splits in mainline denominations. Church leaders keep winning theological fights while seeing U.S. church membership decline to 50 percent from 70 percent in 1999.
Leaders, intended or not, have defaulted to the skills of narrow-casting, “micro-leaders” often aligning with narrow, sometimes controversial “in” groups. Preference for the narrow and the chosen is becoming unaffordable.
A New Class of Leaders
What we desperately need today is a class of leaders who can orchestrate disparate, committed stakeholders to work together collaboratively, effectively and even sacrifice personal interests for a greater cause and a common good.
The challenge is gaining commitment from groups who have competing interests. Shareholders want more profits, customers want cheaper products, employees want more pay, communities want more jobs and support – yet if the enterprise fails, they all lose. For voters, whose personal identity is increasingly tied to their political tribe, some want lower taxes, others more taxes, some more government, others less government and on it goes. Yelling and screaming to get just what you want only yields more yelling and screaming. Nothing gets done. Getting productive, sustainable things done requires stakeholder collaboration and trade-offs.
So, what might we call leadership that brings a new priority and competence to what business calls “stakeholder capitalism?” I would call it Relational Leadership that produces “statesmanship”: described as leadership that rises above petty differences and builds consensus for a common vision – even when there are big differences and disagreements. How about a new term: “stakesmanship” – intentional about building stakeholder commitment for shared vision, values and “sacrifice” to make the whole work? It was Abraham Lincoln’s mission in winning a very challenging peace after a brutal civil war.
Relational Leadership for Optimizing Stakeholder Value
Relational Leadership means making productive stakeholder relationships a top strategic priority. Here is the big question: Are your relationships big enough to get the job done? Whatever you are hoping to accomplish – take your company public, create a life-altering product, pass/implement a break-through immigration policy, alleviate hunger in your community – are your stakeholder relationships big and sustaining enough to get that done? Relational leadership is intentional about optimizing stakeholder relationships – to bring the greatest value to all stakeholders.
It starts with a strategic vision and priority for stakeholder leadership. A Relational Leader thinks and then acts like a Market Manager managing specific stakeholder segments or groups. In my previous life, my company developed a market management process which we implemented in more than 20,000 local markets on five continents. We found using a specific, intentional process that engages the stakeholders in assessing their own priorities, reveals important insights, helps allocate scarce resources and builds commitment. A similar process helps leaders working with organization stakeholder segments.
These leaders identify, engage and map key stakeholder group priorities: shareholders, customers, employees, partners like banks and distribution alliances, communities and even their competitors. For each group they assess the “buying motives.” Like a market manager they assess their key opportunities and risks, that guides goal-setting. Finally, they create a Stakeholder Scorecard to track key metrics. The good news is most organizations have metrics for key groups: employee engagement, customer satisfaction, net promoter scores, competitor analysis, partner assessments, and shareholder surveys. The bad news: they are often silo-ed and not managed as a strategic priority or as a whole that enables leadership to optimize the trade-offs between and among stakeholder groups.
A growing list of countries are encouraging and even requiring public companies to incorporate Integrated Reporting at the board level to help assess and track performance with key stakeholder groups – employees, customers, environment, communities. It means tracking and addressing stakeholder metrics with the same intensity as the financials results – that stakeholder relationships produce. It may also lead to strategic changes, like board representation by key stakeholder groups such as employees or women.
Leaders would love to please all their stakeholders, but in the real world there are trade-offs. Relational leadership is more than just being nice or futilely attempting to satisfy everyone. Former CEO Tom Monahan, calls it constructive dissatisfaction. “Look, I’ve got three groups of stakeholders — my shareholders, customers, and employees. If I were to fully satisfy any one of the three, we would be bankrupt. My job is to keep them all constructively dissatisfied in the name of making the enterprise successful so it can deliver to them all.” Constructive dissatisfaction requires leaders to help the organization find Commitment-worth Purpose and multiply Power by sharing it – topics for another time.
Jim Collins famous admonition in Good to Great: get the right people on the bus. In the age of stakeholder revolt, we need a class of leaders who can extend that: get and keep the right stakeholder relationships on the bus, even when – especially when – they have opposing interests.
Robert’s latest book, “This Land of Strangers: The Relationship Crisis That Imperils Home, Work, Politics and Faith” is now in paperback. A “recovering CEO,” he has authored 150 published articles and his work has appeared in The New York Times, Forbes, The Huffington Post, The CEO Magazine. His website: www.robertehall.com