Police in order for your data to be put into their system or example and that information is also being used. Sarah brain sunday night at 8 00 p. M. Eastern on cspans q a. It is great to be back for the kick off for the fall season and our inaugural speaker is ed freeman and he is the professor of Business Administration at the dart school at uva and today ed has come to discuss his latest book which is so relevant given the current discourse going on in our nation. He calls the word and the most powerful world in our language so lets find out why in the power of and responsible business without tradeoffs. Ed. Thank you for having me. Its a real treat to be back even if only virtually at fordham. Many years ago in a fit of useful idealism i got a phd in philosophy and that was great and my father was always terrific and said well, you will never have to worry about a job because i just opened a bunch of philosophy factories by the interstate and you will be fine. I got very lucky to get a post doctorate at morton and of always taught at Business Schools but i want to recapture today, if i can, that sense of optimism and idealism in the shadows of this awful pandemic and the really devastation that has occurred in the world and in many communities. I still remain incredibly optimistic that we are going to find her way out of it that we will find our way to Racial Justice and that we will build a better world which is what all of us, i think, would like to do. I want to focus on the debate which exists about ethics and capitalism. There is an old story about business deeply rooted in all over the world and not just in the u. S. And you know the old story, business is about the money and about profit and last week was the 50th anniversary of the very famous paper by milton freedman, the only task of managers is to make as much money as possible for shareholders. That old story may have been useful at some point, i dont want to know, but its not very useful and not very useful anymore. The idea that making money and profits is all that matters in the idea of shield holders is all that matters in the idea that business is about greedy old pastors out trying to do each other and people only worry about their shortterm economic Short Interest and when i tell someone to teach business at six people make jokes and try not to laugh and its an oxymoron in like jumbo shrimp or must be short course and i did not know business had any or theoretical subjects and if youve got new ones put them in the chat so i can, so i can use them. Ever since the Global Financial crisis we have seen an increase in the sort of clarion call for can we think about business or capitalism different. I will use those two terms interchangeably and im kind of a modern day adam smith fan, smith never used the word capitalism and he did write a lot about ethics the most people dont reed. The aftermath of the Global Financial crisis saw an increase in the calls for reform. I want to juxtapose the packets of our problems are there and first problem i would call the 70 problem. 70 problem comes from the study that looked at engagement and how much our people engaged in their work . The 70 number was done on the u. S. And is higher in many places in the world and lower in a few places like singapore and others and 70 of people are unengaged and i love this, or actively unengaged in their jobs. If you are unengaged you just dont care. If you are actively unengaged i guess you would show up every day and take the place down. Thats a real problem, i think, a real practical problem. Ive asked many ceos what are those numbers in their organization and they all like to think its better but some will say well, we got to work on that. There is a standard issue about that has been there a long time about trust in business and trust in business and Business Executives is fairly low and you seen studies around 2 and people trust business less than they trust doctors and less than they trust lawyers which hurts for some of us in the only Group Business beats in terms of trust is politicians and i will let you decide whether thats a victory or not. It seems not to me. We are still dealing with the aftermath of the Global Financial crisis. Along comes the covid pandemic and along comes the movement catalyzed by black lives matter and search for Racial Justice. Business is not immune to any of these things and as a part to play in all of them but we are not going to solve these problems with more of the wrong thing. We will not solve these problems trying harder to maximize shareholder value. We are not going to solve these problems by seeing business as just a bunch of men trying to do each other in and out competing each other always acting in their shortterm so interest and what we need is a new narrative and a new story of business and a new way to speak about this. We need a new conceptualization of business. Now, the good news is as i painted a fairly dark beginning the good news is this is happening in the world and its easy to forget about it. Think about the incredible interest and it started in the 60s but we see incredible renewal of interest in corporate response ability and sustainability and weve seen social entrepreneurship come to the fore in organizations like just capital like Inclusive Capitalism like richard brand whose name i always forget and like the gri and Impact Investing in Conscious Capitalism and social responsible investing in stakeholder capitalism and all of these movements and they are all founded on Real Companies out doing business in a different way. I was at a meeting in the white house in the waning days of the Obama Administration and the point of the meeting was to try to figure out what is the right brand and what good luck in government in particular department of labor with tom ferris, what could they do to encourage this movement, right . But what is the right brand and how does this get branded . Wouldnt it be better if we all sort of pull together under one brand and i began to think that maybe it is the wrong question or a different question. Maybe a better question is to think about what are the four or five absolutely necessary things that whatever the brand turns out to be this new story of business, this new story of capitalism has to deal with and we decided to write an bobby in one of my colleagues at darden and Kirsten Martin who said professor at notre dame we decided to write the power of and responsible business without tradeoffs and suggest that the key principles five key ideas and maybe they are six or seven and we focused on these five and they are connected. They give us a way out of thinking about business in the stories but they do require a fair amount of imagination. I want to just briefly talk about these five and we can in the q a focus on any that you want to and the first one says we need to think about, the old story gets the idea of purpose wrong. It says purpose of business is to make as much money as you can. Now look, i need red blood cells to live. But it doesnt follow that the purpose of my life is to make red blood cells. Even when i might have to focus on making red blood cells i had a fun weekend a few years ago and got my hips replaced. Thats a actually not a fun week but i had to focus on making red blood cells and it wasnt the purpose of my life even though that is what i had to do. Business must have problems and the idea that profits are evil or bad is the same, its like red blood cells are evil. Youve got to have one to live and im a little bit of a musician and we have a saying that everyone has to get paid and doesnt whether your forprofit or notforprofit you got to get paid and invest in the future so profits are necessary but thats not the purpose of a business and that is why entrepreneurs do business. I have students who say i will start something so i can make a lot of money and i say you better get a job because you got a better chance to make money getting a job then you do starting a company. Entrepreneurs start a business because they have a purpose and vision and want to bring something into being. Purpose is what activates Business Ideas and profits follow from purpose and they are not themselves the purpose of business but they are in outcome. Its a little bit like some of you may know people who spend a lot of their time focusing on being happy. Everything they do is about being happy and you got to be happy et cetera and they are the most miserable people on the planet because they dont understand that happiness is an outcome and its an outcome of what your relationships are, what you do in life, what your purposes et cetera. Profits are the same way. Its simply an outcome of how you make your purpose real and what are the ways that you create value for your stakeholders so we need purpose and profit not just profit. The second point is no surprise to any of you that are familiar with anything ive done and since the late 70s everything about this idea of stakeholders and how i thought thats just the way business worked. Look, even on a dirt farm in georgia we knew you had to deal with the folks who could effect you in that you could affect and that is just complete common sense to me always has and i never understood why people thought that was a radical idea or quite honestly even an interesting idea and i thought there were some interesting ideas in this old book i wrote called Strategic Management stakeholder approach but i did not think the stakeholder idea it was interesting one. I didnt realize how embedded the old story was in our mind and how much and what might would say we are in the grip of that old story and its a grip that we need to break. Look, any business has always and will always create and sometimes destroy value for customers supplies employees and communities and the people with money. Building and leading a business means getting these things going in the same direction even if youre the most staunch freedman night in the world and all you care about shareholder value so how will you do that . Integrate products for customers, have suppliers who want to make you better and you will have employees who are engaged and will have communities who want to there and if you do that and youre lucky you you might make some money. Seen stakeholders versus shareholders is a complete mistake. These are interdependent and you cant look at them as one versus another. The second thing to notice here is that thinking about stakeholders is a fundamentally different way than most people want to think about big business because you have to think about them in relation and you have to think about stakeholder relationships. Relationship is very different than a transaction. Transactions are oneoff things that might be repeated but relationships endure over time. You expect them to continue. At least in our personal relationships we kind of keep score. My wife and i have been married for 43 years and she is the reason i went to wharton in the first place and thats where she went to grad school and i followed her along. I know if i went next door to another room in her house and i said you know, honey, ive been keeping score and i think you only three. Im not very certain of what the outcome of that would be since shes a Second Degree black belt in tae kwon do. I dont think it would be good for me. Relationships you dont have to keep score. Push comes to shove, you help each other. Thats how business works. It is not just this transactional thing. There are some parts of business that are like that but for the most part to build a Great Company you build a set of relationships. Its purpose and profit to stakeholders and shareholders. Business doesnt exist in this world imagined by economists and thats a pretty good story where there is perfect competition and only Market Forces all information is contained in the price et cetera et cetera and we know how that story goes. Business in the real world is connected with other societal institutions and we are as actors with big businesses we are at once consumers and sometimes employees, citizens, parents, partners, patients and its very hard to separate out one institution from another. We need to see business as connected in society with these other institutions and to try and understand how business can partner with them, if you would like, to improve our society. It is also true if we think about we call this the business embeddedness principle and businesses embedded in the physical world. I mean, one of the things we know is we cant forget about, not only are intangible resources but are tangible resources. Thinking about what sustainability means and how business can be connected to lots of other societal institutions is the problem. If the problem especially today and its a problem especially today in the u. S. And other places in the world because of crony capitalism. Because of some businesses in cahoots with people in government to make special deals for themselves. Here the case is not letting markets work enough and not seen business as a part of society. Look, im doing this to make as much money as i can. We need, if we are going to solve problems like global warming, we really need people to start as this is and use their creative imagination. The fourth principle is human complexity and the idea behind the complexity principle is that we are not onedimensional maximizers of our Short Term Health management. There are people like that and we call them sociopaths and for the most part you know, we elect them to political office. I just want to say im a completely nonpartisan statement coming for me. Human beings, you know, what are human beings . We can be selfish, of course. Can be incredibly other regarding. Anybody who is ever been in love or anyone whos ever had a child knows that this idea of focusing on our rational self is just a logical statement but not what human beings are. Ive often thought what it human being is could be illustrated by this iphone i have here. You know, think of the vocabulary that we had to literally invent to get to iphone. We literally had to invent the terms and the problems and the issues. Had to invent a vocabulary about glass and invent the physics that went on the inside and what a human being is is a set of a creature who came in. [audio difficulties] to solve problems and Work Together to realize those solutions but that is what business does. It is time we recognize that. Business works because we can Work Together to create something that no one of us can create alone. It is not the urge to compete. [audio difficulties] it is the urge to create and to be a part of themselves and to Work Together in relationships with others. That is what makes capitalism work and it is high time that we recognize that. There are lots of examples of companies that are doing this and that is, dont take this as a wish list of the way i wish the world should be but it is rather what im trying to argue is this is happening in the world but was such the grip of the old story that sometimes we dont see it. Final issue is you got to put business and ethics together. Most people tell the truth and keep their promises and businesses can work if they didnt we have a crisis in society that we cant talk about the stuff anymore because cant talk about race or gender or you cant talk about religion these things are too sensitive et cetera and that honestly is the deathknell of a Democratic Society. If we cant figure out how to talk critically about the things that affect all of us that Democratic Society i think is not here for very long. Let me just summarize and say five things. Purpose and profits, stakeholders and shareholders, business as a societal institution and a Market Institution and people with full humanity and economic interests and ethics in business and if we put those five things together i think we will get a very different view of business in a different view of the world. We need more leadership. We need people who lead critical conversations, not righteous ones, no lectures on morality and we have to take people where there are and lead them to where they need to be. This requires, i believe, incredible Emotional Intelligence and requires humility and i think it is best done with a good dose of humor. If we can address our own values and our own authenticity and contribute to others we will have a early good future but let me end by saying two things. What is the take away . One take away is you know, are you willing to see the results of your conversations in the newspaper and people always say the new york times, you know, washington post. As great as those papers are they never say Charlottesville Daily progress. If they did the test would be at least five factual errors in the caption under the picture is a correct and this vague idea that you reed this before somewhere else so the new does not work in tiny lidded little charlottesville. We have to invent a new task and its something i would call ben, emma and molly test and can i go home at the end of the day and say to then, emma and molly let me tell you what i did today that im proud of and that i want you to learn from and because if we are not making our organizations and our companies and synagogues and mosques and Community Centers and educational institutions if we are not making them places for children to live in weve got the bar too low and the second thing is coming from one of my favorite musicians qatar player by the name of warren hayes, Warren Haynes is a great blues guitarist and the leader of government [inaudible] and played with the [inaudible] and im trying to play slide qatar by listening to his video. Plain slide qatar sounds like youre basically killing a cat and that you are doing it to cause the cat is most pain as possible. That is the way it sounds. Im struggling with this and all of a sudden Warren Haynes stops and s