A Call for Stakeholder Activists – Marc Benioff – CEO Salesforce

At the World Economic Forum in Davos last month, I joined 2,500 global leaders in business, government, academia and the arts to discuss the state of the world. It was my 14th visit to Davos, and as in past years, the agenda was packed with sessions on the global economy, environmental risks, geopolitics and health care.

Not surprisingly, technology moved from being one of many conversations to a fundamental part of all conversations at Davos. Every day the world is becoming more connected and open. Ericsson predicts that by 2020, 90 percent of the world’s population over 6 years old will have a mobile phone. The mobile phone makes everything go faster and it democratizes communication, information, knowledge and even commerce. As The Gates Foundation wrote in its 2015 letter, having a mobile phone opens a wide range of possibilities for economic advancement, such as having a bank account for the first time and access to online education.

But throughout the conference, the debilitating effects of economic inequality and the rising dangers of climate change were at the forefront of discussions. Rising youth unemployment is a constant source of instability, and it is being amplified by the coming wave of artificial intelligence and robotics. The UN estimates that there are more than 200 million unemployed worldwide — 33 million in the US and Europe. Talent development, lifelong learning and career reinvention will be critical to addressing the global unemployment problem.

As practiced today, capitalism too often becomes a race to the bottom. In low-growth economies, a focus on earnings-per-share (EPS) is leading to more unemployment and deepening inequality. According to Oxfam, the richest 1 percent in the world are expected to hold more than 50 percent of the world’s wealth by 2016. In fact, today just 80 individuals account for the same amount of wealth as more than 3.5 billion people. Imagine what would happen if those 80 individuals made a simple decision to give a large portion of their wealth back before they die? What progress could we make?

Greenhouse gas concentrations in the atmosphere are estimated to be at their highest level in 800,000 years, with strong evidence that climate change could have profoundly adverse effects on economic and human development. The oceans have risen to record levels, rising an average of 3.2 millimeters per year, about twice the average of the preceding 80 years.

As UN Secretary General Ban Ki-moon said in Davos, “We are the first generation that can end poverty and the last generation that can take steps to avoid the worst impact of climate change. Future generations will judge us harshly if we fail to uphold our moral and historical responsibilities.”

We now have an imperative to address expanding economic disparity and environmental hazards, which are adding fuel to geopolitical tensions around the world, and to reassess the role of business can play in improving the world for future generations.

The renowned economist Milton Friedman preached that the business of business is to engage in activities designed to increase profits. He was wrong. The business of business isn’t just about creating profits for shareholders — it’s also about improving the state of the world and driving stakeholder value.

That was the vision of Professor Klaus Schwab when he founded the World Economic Forum in 1971, and it remains the core principle underlying the annual Davos gathering. He believes that we have an imperative to shift from creating shareholder value to stakeholder value. His “stakeholder theory” asserts that corporate management isn’t just accountable to shareholders, and that businesses must focus on serving the interests all stakeholders — customers, employees, partners, suppliers, citizens, governments, the environment and any other entity impacted by its operations.

To be successful in business, we have to be ready to buy into the stakeholder theory. When I launched Salesforce, we created the Salesforce Foundation, a 501(c)(3) public charity and the 1-1-1 model of integrated philanthropy-donating 1 percent each of equity, employee time and product to our communities and causes. It is integral to our company and employee values, and adheres to the notion that no business should remain at odds with its community — whether it’s a small town or the entire world.

But we have to do more. We have to build radically higher levels of trust and transparency with all of our stakeholders. We need legions of “stakeholder activists” who seek to hold companies accountable for all constituents, going beyond the role of investor activists, who focus on holding CEOs and boards of directors accountable in terms of share price.

Ultimately, the most effective way to create shareholder value is to serve the interests of all stakeholders.

Wall Street analysts recently asked Mark Zuckerberg whether Facebook initiatives to connect people in less developed countries to the Internet should matter to investors. “It matters to the kind of investors that we want to have, because we are really a mission-focused company. We wake up every day and make decisions because we want to help connect the world. That’s what we’re doing here.” Zuckerberg said. “If we were only focused on making money we might put all of our energy on just increasing ads to people in the U.S. and the other most developed countries, but that’s not the only thing that we care about here.” Over time, bringing the Internet to underserved communities will be a good business for Facebook.

As I wrote my 2004 book, Compassionate Capitalism, which was inspired by Prof. Schwab, “The competitive advantage you gain from being a caring and sharing company is significant; it instills in your people a higher integrity level. In turn, stakeholders want to be associated with a company that has heart. Community service: You do it because it’s the right thing to do, but it’s also the profitable thing to do.”

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Marc Benioff is the Chairman and CEO of Salesforce.

http://www.huffingtonpost.com/marc-benioff/a-call-for-stakeholder-activists_b_6599000.html

 

If you lose the Millennials – you lose!

 

Corporations with long tenure in mature industries often operate based on a number of principles that is reasonably stable. The most important one is that the future success of the corporation is based on the same principles as the historic success. The leads to an operating principle focusing on continuous improvement: Evolution over revolution or small incremental changes to what was done last year. The model is also based on a view of the market as a place with stable boundaries and actors that are quite similar and unchanging – a place of competition.With the rise of first the internet and later the revolution of social networks, unlimited power of the cloud and the rapid move to mobile technologies, no industry is immune to disruptive changes.It is well known that the disruption can come from a change in product offerings, like the iPhone changed the mobile industry. It can also come from outside the market boundaries like Google’s absorption of advertising budgets or it can be a disruption of the supply chain the way Blockbuster died from Netflix competition. Most mature companies are aware that they need to keep an eye on changes in the market structure, customer preferences.
There is however a significant change underway that will fundamentally change the way corporations has to operate in order to succeed independent of what industry or market they operate in. The rise of the Millennials or generation Y as people born in the 1980 -2000 time span has been categorised. This is not a surprise to the marketing departments of consumer based corporations – they know Millennials are different customers to the prior generations (generation x and baby boomers) and work hard to position offerings attractive to them.
What seems to come as a surprise is that Millennials are also becoming a significant factor as employees. 

geny

 

Before 2020 Millenials and younger generations  will become the dominant part of the labour market everywhere, and most of them will work in an environment designed by generation X for generation X. This is likely to fail, just ask your marketing department.

 

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survey done by beyond.com shows that the gap between Millennials perception of themselves and that of HR professionals are very different, This indicates the expectations of the corporations based on Gen X thinking and that of Millennial employees are very different – a recipe for disaster.
The problem has still not become visible as very few corporations has been in talent acquisition mode since the financial crisis but as Gen X moves towards retirement it will become an issue
It is easy to point fingers at HR and HR policies and blame them for not adapting to attract and retain the new employees but the problem goes a lot deeper. Millenials don’t see work as a chore like the baby boomers and they don’t see it as means to an enjoyable life outside work like generation x. They are hard workers but not motivated the same way as earlier generations. Millennials want freedom, trust, support, fun and they need a higher level purpose to really engage. Corporations need to develop a purpose above and beyond profit and revenue. To attract and keep Millenials, it is imperative to create an environment of personal growth, equality, Social/Environmental responsibility, freedom and team spirit.

Are your company’s policies designed to enable employees or limit them?

This might sound alien to companies firmly based in command and control thinking but it is already being implemented by successful companies in the new economy. Google, Amazon, Netflix, Tesla and similar companies are ahead and design their people policies very different.

You are not only competing with these companies for the consumer
You are also competing with them for the employees.

The 6 Drivers of Employee Engagement

The world of management is still obsessed with the mechanistic view of employees as resources, something that can be acquired and exploited in the quests for profit. This has been covered up by improvement in working conditions, benefits and skill training programs and it has even made the executive wall: People are our greatest strength. Despite this apparent progress most corporations still treats people as a commodity. HR departments are tasked with getting the best resource, shaping the resource with skills training, keeping the resource with competitive compensation packages and finally getting rid of the resource if it does not live up to expectations.

The employee is seen as something that has certain characteristics that can be changed (skills) and something that cannot (personality and motivation). When something goes wrong the problem is assigned to the employee rather than the corporation and the personal improvement process starts often resulting in a termination and a search for more appropriate resource.

Assuming that employees are  “good” or “bad” and corporations are always “right” makes the life of management a lot easier but not necessarily the company more effective and profitable. It is not going to be possible to find Engaged employees and hire them. Employee Engagement is a strategic process that creates an emotional relationship between the company and the employee. The best of companies understand this an know that Engagement is the responsibility of the company - not the employee. When successful Employee Engagement creates significant intrinsic motivation in the employee and a feeling of being part of something important and worthwhile.

 

Employee Engagement is impacted by 6 main drivers:

Fairness:

The concept of fairness being important for employee engagement is not new. What is often forgotten is that fairness is completely subjective and changes over time. People don’t see their parents work contract as fair. For younger generations, the concept of fairness goes well beyond the psychological contract between the corporation and the employee – it involves the fairness towards all stakeholder groups. An important part of fairness that is often forgotten is the relative fairness - people can be happy with what they got until they find out somebody gets more.

 

Identity:

Through the development of social psychology it has become apparent that people’s decisions are heavily influenced by social settings and what group people belong to. As work represents a significant part of most people’s lives they derive a lot of their identity from work. Great corporations understand this and create jobs and an organisation that individual are proud of being associated with. 

Identity is significantly influenced by what other people think of you, what you do and your role. This is not people inside the organisation, the view of your friends and family matters.

 

Growth

Being appropriately challenged and given the opportunity to learn and grow is a key element in employee engagement. Is the corporation a place where mistakes are seen as learning opportunities or where they are punished? Is HR and their policies and procedures seen as enabling people or limiting them? Do employees have the opportunity to be promoted at appropriate points in their career or are they locked in their current position.

Getting people on a path to mastery is a powerful motivator and a key driver of Employee Engagement. Great corporations know that growing people is the responsibility of the corporation.

 

Purpose

The days of pure focus on shareholders are over. Money, profits and growth is not a purpose – it is an outcome of successfully pursuing a purpose. Being the very best “x” in the “x” industry is a very common vision, but not a powerful purpose. A powerful purpose is in its essence something that benefits many if not all stakeholders of the corporation – a purpose that benefits society and humanity. This might sound soft to hardnosed finance people but customers and employees do not get engaged by cost cutting and headcount reductions in a race to zero margin as most mature companies are engaged in.

Companies that believe in people and in their ability to create value for customers and society have the potential to rally all stakeholder groups around a strong purpose and will prosper as they will create engagement in all groups.

 

"Think of your work as a calling with a mission that matters." Lazlo Bock, Head of People Ops, Google

Culture:

The company culture has a significant impact on Employee Engagement. It is not just the stated culture hanging on the boardroom wall but also the lived culture. What Enron said and did were two completely different things. It is also important to understand how measurements and rewards interacts with culture: Individual bonuses and a culture of teamwork are working against each other. Culture is not something that has been written on stone tablet and remain fixed in time. Culture needs to change as the strategy changes.

 

"You’ll see culture mostly talked about as stories or anecdotes. It’s a vague concept that people sort of know is important, but they don’t quite know how to apply."

"You need  to get the people, structure, metrics, and culture aligned with the strategy." Charles A. O’Reilly, Stanford

Leadership:

The most important source of Employee Engagement is the direct manager. Even though the creation of Employee Engagement is a strategic process, it is vital to make sure the middle managers are trained and supported to create highly Engaged Employees. Direct managers are responsible for defining a reality and a purpose for the employee that creates motivation. Then create opportunities for participation, growth and involvement in decision processes.

51% of managers are not engaged; 14% are actively disengaged

 

Managers who work for Engaged Leaders are 39% more likely to be Engaged

 

Employees working for Engaged Managers are 59% more likely to be Engaged Gallup

 

You cannot separate strategy and implementation

For a very long time the process of strategy formation and the process of strategy implementation has been seen as two separate areas and part of a two-step process. This has its roots in the assumption that strategy is predominantly a financial process best left to senior management and financial consultants that delivers a fait d’accompli to the line businesses and HR to implement. Change process research has demonstrated that most change initiatives fail to bring the intended benefits to the corporation. That does not prevent managers from declaring victory even for implementations that destroyed shareholder value. Even a good strategy can fail as a result of a poor implementation and the other way around.

Nice landing – wrong airport!
 
By integrating the strategy and the implementation process it is possible to increase the probability of success significantly. Here are 7 steps to integrating Strategy formation and Implement the change process.

1.  Have a clear non-financial goal with the strategy.

It is fine to have a financial goal for the strategy but it is not a strategy; a financial goal is an outcome of a successful strategy. Strategies are in their core about creating future sustainable competitiveness as either a response to external events or as an attempt to create events. Too often the financial goal is communicated as a strategy bearing no meaning to most of the stakeholders.

2. Make sure your strategy makes the world a better place (it also ok to make a profit).

This vital element of a strategy has been known for a long time but has been forgotten in recent years. Carl von Clausewitz put it: “There can be no strategy without noble purpose”. With a noble purpose it will be possible to move the organisation through a change process. Profit and revenue might be powerful motivators for management and executive staff but as Daniel Pink demonstrates it does not really motivate significantly.

3. Make the cost of doing nothing clear.

It is often assumed that doing nothing is the lowest risk option. In this time of disruption it is never the case. When Stephen Elop, CEO of Nokia, declared: “Nokia is on a burning platform” he made it very clear that change was needed and even that would not guarantee success. People don’t change as a result of information. They change either to get away from a bad situation or to get to a better place or both. For the change process to succeed, the strategy has to create tension between these to states.

4. To secure implementation, it is important for the strategy to benefit all or most stakeholders.

Most strategies have a short term aim to create monetary benefits for the shareholders often at the expense of other stakeholders. Profits can be increased by reducing headcount at the expense of the people that stay; they will have to work harder. Profits can also be increased by reducing service staff at the expense of the customer. These kinds of strategies are rarely implemented effectively and although short term profits can be demonstrated it also destructs shareholder value in loss of employee engagement and customer defection. For a strategy to be effective it has to benefit most or all stakeholders not just shareholders. If the strategy benefits employees, customers, external organisations and society, it should also benefit the shareholders. Even if this is not the most common way of operating it is quite obvious that there are a number of companies that have taken this path and are in a league of their own. Companies like Google, Tesla, Netflix and Virgin are willing to make their strategy work through their employees and not at their expense.

5. Convince your shareholders of the long term perspective or change them.

It can be challenging or even scary to take a long term strategy to the shareholder community. Stories are countless of stocks being punished for initiatives that create long term shareholder value. When Paul Polman took over Unilever after 10 years of cost cutting he declared that his goal was to double the revenue and the days of cost cutting where over. If an investment made sense it would be implemented no matter what the quarter looked like. He decided to stop giving guidance to the stockmarket and was immediately punished with an 8% drop in shareprice when the quarter-rapers left the stock. As he put it “Like you select what customers you want to serve, you also need to select what shareholders you want to work with. You need to find shareholders that share your long term sustainable vision for creating shareholder value without exploiting other stakeholders. Since then, the Unilever stock price has doubled.

6. Involve stakeholders in the strategy creation.

It is not common to involve stakeholders into the process of strategic formation. Senior management often believes that it is best to keep this process behind closed doors to limit damage. The assumption is that the speculation stakeholders has outside the door is less damaging that if they were on the inside of the process. This is a reminiscent of the ancient view of heroic leadership – senior management knows best and just do what you are told. Most implementations fail, not as a result of people being change resistant but as a result of people resisting being manipulated. By involving stakeholders into the process, the strategy might change in ways that benefits different groups and as advocates are involved the implementation has started before the strategy process has finished.

7. Communication of the Strategy has to involve Emotional Persuasion as well as rational arguments.

New neurological research that has proven that human behaviour is modulated heavily by emotions and social context. Many years of study has failed to establish a strong link between employee and customer satisfaction and corporate results. More recent research by Gallup has shown that employee and customer engagement directly predicts corporate performance. Where satisfaction has it base in a rational exchange between the corporation and the stakeholders – engagement is a fully emotional connection.
Management theory has a lot of research on both strategy formation and change processes for successful transformation of organisations. However most of these models assume that people and organisations predominantly behave rationally. There has been a lot of new neurological research that has proven that human behaviour is not predominantly rational and does not change as a result of getting new information. But we already knew – if we were rational there would be no wars, stock market crashes, substance abuse, obesity, poverty or exploitation of resource.