Off the fall season. Arenado speakers you mentioned ed freeman he has the Professor Business Administration at the Darden School of uva. Today hes going to discuss his latest book which is so relevant given the current discourse that is going on in our nation. He calls the word and the most powerful word in our language. Here to find out why the power of and responsible business without tradeoffs. Thanks very much for having me. Its a real treat to be back even if only virtually at fordham. Many years ago in a fit of youthful idealism that you mentioned i have that ph. D. In philosophy. That was great. My father said well you will never have to worry about it job because they just opened a bunch of philosophy factories at the interstate. You will be fine. I got very lucky. Ive always taught in Business Schools but i want to recapture today if i can fact as an optimist and idealism in the shadows of this awful pandemic and the real devastation that has occurred in the world in many communities. I still remain incredibly optimistic that we are going to find our way out of this, that we are going to find our way to Racial Justice and that we are going to build a better world which is what all of us i think would like to do. I want to focus on the mistake that exists about ethics and capitalism. There is an old story about business thats a deeplyrooted all over the world trades not just in the u. S. And you know the old story. Its about the money. Its about profits. Last week was the 50th anniversary of the very famous paper by Milton Friedman and 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 or they dont want to know but its not very useful. Its not very useful anymore. The idea that making money is all that matters and the idea that shareholders are all what matters and businesses about greedy people trying to do each other in a people only worry about their shortterm economics and when i tell somebody the specifics that people at the managed not to laugh or they have to make jokes comics and oxymoron like jumbo shrimp or Theatre Company theoretical subject. Ever since the Global Financial crisis youve seen an increase in the clarion call for can we think about business or capitalism different . Im going to use those two terms interchangeably. Im kind of a modern day adam smith fan. Smith never use the word capitalism. He did write a lot about ethics and most people dont read. The aftermath of the Global Financial crisis on increase in the calls for reform. I would juxtapose that against several rome spread the first trouble him is called the 70 problem. The 70 problem comes from a study that looked at engagement, how much are people engaged in there were . The 70 number was done in the u. S. In many places the world and the few places like singapore and others and 70 of people are in engaged and i love this or actively and engaged in their jobs. If you are unengaged you just dont care. If you are actively and engaged i would guess you would show up every day to take the place down. Thats a real problem, a real practical problem. I have asked many ceos what are the numbers in those organizations and they all like to think its better but some would say well you know we have to work on this. Theres a standard issue thats been there for a long time about trust in business, trust in business and executives. Youve seen studies around 20 . People trust the business less than they trust doctors in less than they trust lawyers which hurts to some of us. Global financial crisis. And along comes the covid19 pandemic and along comes the movement by black lives matter and search for Racial Justice. Reed business is not immune to any of these things. He has a part of plate in all of them. But we are not going to solve these problems with more of the wrong thing. Not going to solve these problems trying harder to maximize shareholder value is were not going to solve these problems by saying business as just a bunch of greedy pastors trying to outcompete each other. Always acting in the short term, self interest. And what we need is a new narrative. A new story of business. A new way to think about business. We needed a new conceptualization. Another good news is that its fairly dark beginning in the good news is that this is happening the world. And it is easy to forget about it. Thinking about the incredible interests, starting in the 60s. But we have seen incredible renewal of interest in Corporate Responsibility and sustainability. We have seen entrepreneurship come to the floor. An organization adjust capital. Like an exclusive capitalism. I richard script whose name i always forget. Like the gri and the impact. In the Conscious Capitalism and socially responsible investing. All of these movements and they are all founded by the Real Companies doing business in a different way. I was at a meeting at the white house and the rainy days of the Obama Administration and the point in the meeting was to try to figure out what is the right brand. And what with the government in particular, the department of labor, what do they do to encourage this movement. I just kept thinking what is the right way and how does this get branded. Wouldnt it be better if we all sort of pull together under one brand. And im sitting there for a while and began to think that maybe it was the wrong question. Very 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 and capitalism as to deal with. And so we decided to write, bobby, one of my colleagues and also martin, colleagues at notre dame. We decided to write the the power of and, the responsible business without tradeoffs and suggest that there are five key areas and principles, five key ideas and maybe six or seven and we focus on these five. They are connected. They give us a way out of thinking about business in the old story. But they do require a fair amount of imagination. So i wanted just briefly talk about these five, and focus on any of them in the q a that you want to. And the first one says that we need to think about the idea of purpose. This is that purpose of businesses to make as much money as you can. Hello, i need red blood cells to live. But it doesnt fall from that that the purpose of my life is to make red blood cells. Even when i might have to focus on making red blood cells, had a fun weekend a few years ago, i got my hips replaced. That was not a fun weekend. I had a focus on taking red blood cells. And even though thats what i had to do, that wasnt the purpose of my life. A business must have profits. In the idea profits are bad or evil, is like red blood cells saying that they are evil. No, you have to have them. You tell them to live. Im a little bit of a musician. Everybodys cutting and paint. It doesnt matter whether you are forprofit or notforprofit. You have to get paid and invest in the future. So profits are necessary. As of the purpose of the business. And some might say im going to start something to make money. And i saved have a better chance of making money getting a job in egypt starting one. Entrepreneurs start a business because they have a purpose, they have a vision. Want to bring something into being. Purpose is what activates business ideas. Profits follow the purpose. And they are not themselves the purpose of business. Theyre not come. Its a little bit like some of you may know people who spent a lot of the time focusing on being happy. Everything they do is about being happy, they gotta be happy. Etc. These are the most miserable people on the planet. Because they just dont understand that happiness is an outcome. An outcome of what your relationships are, what you are doing with your life, what your purposes. Etc. Profits of the same way. Profits are simply not come of how you make your purpose real. What are the ways in which you create value for your stakeholders. We need her for purpose and profit. The second point is no surprise, to any of you that are familiar with anything that ive done since the late 70s. A written about this idea of stakeholders. I thought that was the way business worked. Even on a dirt farm in georgia, we knew you had to deal with the folks who could affect you and that you could affect. That seemed like just complete common sense to me. It always has. Have never understood why people thought that was a radical idea. Even an interesting idea. But that there were some interesting ideas in this old book i wrote called Strategic Management stakeholder approach. I didnt thank you so the most interesting one. I did not realize how embedded the old story was, how much and what my practical friends would say, where in the grip of that old story. Integrate the need to break. Look, any business has always and will always create and sometimes destroy, the value for customer supplies. In the communities. And the people with some money. Building and leading a business means getting these things going in the same direction. Even if in the most staunch person in the world. And all you care about his shareholder value spring how you will you do it. Are you going to have supplies to make it better. You can have employees, who are engaged in communities and want to there if you do that youre lucky, you might makes money. So sing the stake holders versus the shareholders is a complete mistake. These are interdependent. You cannot look at them as one versus another. In the second thing to notice here is that thinking about stakeholders is a fundamentally different way that most people want to think about business. Because you had to think about them in relational terms. You have to think about stakeholder relationships. In the 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. And elise the personal relationships, we kind of get restored to pray wife and i have been married for 43 years. She is the reason that i went to work in the first place. This full we went to grad school and followed her there. I know if i went next door, and of in our house we are, and i said, you know and keeping score and i think you owe me three. Im very certain of what the outcome of that would be. Since she is a Second Degree black belt. Dont think it would be good for me. Relationships, you dont have to keep score. Wish push comes to shove, help each other. That is 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 better relationships. So his purpose and profits as stakeholders, and shareholders. Business does not exist in this world, imagined by economists. Where is perfect competition, all information is paid and price etc. Etc. We dont have that story goes. Business in the real world is connected with other Society Institutions. And we as actors, we are at once, consumers, and sometimes employees, citizens, parents, partners, patients it is very hard to separate out what 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 like. To improve. This is also true if you think about we call the business embedded. And one of the things we know is we cannot forget about not only are intangible resources that are tangible resources. And so thinking about the sustainability and what it means, and how business can be connected. So lots of other Society Institutions is a problem. Its a problem but especially today, in the u. S. And other places of the world because of capitalism. Because of some businesses and cocoons with people in government the make special deals for themselves. Here the case is not let the markets work enough and not seeing businesses apart of society. But rather im doing this to make as much money as i can. We need, for going to solve problems like global warming, we really need people to start businesses and use their creative imaginations. A human complexity principle, and the idea behind it is that were not one dimensional of our shortterm answers. There are people like that. We call them sociopaths. And for the most part, we elect them to a political office. And i just want to say thats a completely nonpartisan statement coming from me. Human beings, what are they. Well we can be selfish of course. And we can be incredibly caring. Anybody who has been in love for anyone whos ever had a child, knows that this idea of focusing on our rational self interest is just a logic mistake. That is not what human beings are. Ive often said what a human is and can be illustrated by disciple that i have here. Think of the vocabularies that we had to literally invent to get to iphone. It in terms in the problems the histories, we had to invent a vocabulary about glass. We had to invent the information on the inside. What a human being is a set of what, or a human being is a creature who invents vocabulary to solve problems together. To actually realize those solutions. Thats what business does. In times that we recognize that. Business works because we can Work Together to create something. And no one of us can create alone. Its not the urge to compete that is so important. It is the urge to create, to be a part of themselves and to Work Together in relationships with others. That is what capitalism and more and it does high time. [inaudible]. That they would set lots of examples of companies that are doing this. This is eds wish list, dont take it that way. The way the world should be, it is rather wouldve tried to argue is this is actually happening in the world. But in such the grip that sometimes we dont see it. It in the final issue is that weve got to put this in ethics together. In most people to the truth and keep their promises. But if they didnt, will have crisis in society we can talk about the stuff anymore because we can talk about race or gender or cant talk about religion. We think theyre too sensitive etc. That honestly is the deathknell. The society if we cant figure out how to talk critically about the things that affect all of us i think and it is not here for very long. Simply summarize and say, five things. Purpose and profits. Stakeholders and shareholders. A Market Institution in business. People with full humanity and economic interests. It an ethics and business. If we put this five things together, i think we get a very different view of business in a different view of the world. We need moral leadership. We need people who lead critical conversations, not righteous ones. No lectures on moralities. We have to take people where they are and lead them to where they need to be. This requires i believe incredible emotional intelligence, requires humility and i think it is best done with a good dose of humor. If we can address our own values, and authenticity, and contribute to others, were going to have a really good future. It let me end by saying two things. So one take away is are you willing to see the results of your conversations in the newspaper. People always say the new york times, and the washington post. In the papers, they never say show daily progress. Because if they did, the test would be at least five years and is the caption under the picture correct. Even vague idea that you read this two days before somewhere else. It so does not work for us tiny little charlottesville. So we had to invent a new and inventive test is something that i would call the molly test. The names of the kids. Can i go home at the end of the day and say to ben and emma and molly, let me tell you what i did today that i am proud of that i want you to learn from. Because we are not making our organizations or synagogues and community centers, our educational institutions, for not trying to make the places for our children to live in, with that the bar too low. The second thing comes from one of my favorite musicians and guitar player by the name of Warren Haynes, is a great guitarist. Later in government in places like allman brothers etc. Numbering to play slime by listening to him on a video. Now playing a slight guitar sounds like youre basically killing a cat. And that you are doing it because the cat the most pain. Its just the way it sounds. Thats are struggling with this. All of a sudden Warren Haynes stopped and he said, now look. When you put in front play the blues, doesnt really matter how any notes you play. You just have to mean the notes that you play. My challenge to all of you, is to figure out what are the notes that you mean to play. Because in todays world, theres a lot coming at you. Theres an awful lot that we dont know. In listening to somebody like Warren Haynes we became, that one note full of. I wish there is more humanity in that one note that in the hundred others that people complain. I think that is a role to set as well. Let me start to turn it back over to david. It. Host thank you so much and that was great. We have 50 copies of your book. In your book, you give the number of concrete examples of companies that are playing great notes to use your analogy. Can you share a couple of examples and why you chose some of the companies that you chose. Ed sure, there are lots of them. Reed some of them give a lot of press like whole foods. Weve also done and led by a film called fishing with dynamite. And it is a 70 minute town on the shareholders in stakeholder idea for a more of people comment on it including Michael Jensen and others. I would pick out in their three companies. The container store, its a medium sized retailer. In a startup of a company is fully sustainable. Fishing and grain. In a chemical company. There. Interesting companies. We look at nearby which is in the business for very long time. They basically embodied these principles. We looked at tarmacs. Which is revolutionized the used car industry which is to me the used car salesman another used to be the icon of unethical behavior. And there are lots of others per unit is important to note that we are not trying to argue that any of these Companies Get it right all the time. The oldest story tells us, you gotta think about this like faith and centers. Most