Hubert Joly brought US consumer electronics giant Best Buy back from bankruptcy. Now, he says, capitalism is in crisis. Employees, customers and even shareholders expect much more from corporations than a blind pursuit of profit. The answer is to reinvent capitalism from the inside out by putting people and purpose at the heart of business
The traditional view that the primary purpose of business is to maximise shareholder value is wrong, dangerous and ill-suited to today’s environment. Instead, the purpose of a company must be to contribute to the common good and serve all its stakeholders in a harmonious fashion.
This is the belief of Hubert Joly, former chairman and CEO of US electronics retailer Best Buy and now a lecturer at Harvard Business School. And to do this, he says, companies must be viewed as human organisations made of individuals working together in support of an inspiring common purpose.
“In the architecture of the new approach to business, a noble purpose is the raison d’être of corporations and people are at the centre of everything they do,” he says.
Not that making money is bad. As Joly says, it is vital and a natural outcome of good management. However, considering profit as the sole purpose of business is wrong for four fundamental reasons:
Profit is not a good measure of economic performance
Profit does not consider the impact of a business on the rest of society. The full cost of waste or carbon footprint does not appear on a financial statement even though it is very real. It is also hard to account for other signs of a healthy business like motivated and skilled people. Engaged employees were the engine of Best Buy’s turnaround and remain the number one reason for its continued success today.
A singular focus on profit is dangerous
Profit is the symptom of other underlying conditions and focusing on the symptom alone can be dangerous. It’s an easy game to rig – a company can maximise profit by underinvesting in people and other assets that directly benefit customers. The path to bankruptcy is littered with companies which focused on short-term profit at the expense of investing in talent and better serving customers. A steady stream of corporate scandals is the direct consequence of an excessive focus on numbers.
This singular focus antagonises customers and employees
Consumers want to do business with companies they respect and trust to be competent, ethical and actively improving society around them. Employees are also pushing for social and environmental change from their employers. Both will vote with their feet if a company is not doing enough in these areas. And even shareholders are increasingly adopting the view that being a good citizen is ultimately good for business. Assets invested and managed taking into account environmental, social and governance criteria stood at $30.7 trillion in 2018.
It is not good for the soul
Employees do not jump out of bed each morning for shareholder value. If we want employees to be more invested we must acknowledge their souls are not wrapped up in a stock price. If work is a quest for meaning, then maximising profit does not answer that quest – and therefore cannot solve the global epidemic of disengagement at work.
To reinvent capitalism from inside out there needs to be a “seismic shift from profit to purpose”.
“I believe that business is fundamentally about purpose, people and human relationships. Companies are not soulless entities. They are human organisations made of individuals who work together towards a common purpose,” says Joly.
And it is when this common purpose aligns with individuals’ own search for meaning that it unleashes a kind of “human magic” that results in outstanding performance.
Purpose is the reason a company exists. It is the positive impact the company is seeking to make on people’s lives and, by extension, its contribution to the common good. That common good is integrated in every aspect of what the company does.
Employees sit at the centre of the purposeful human organisation because, as Joly puts it, “the secret of business is to have great people do great work for customers in a way that delivers great results”.
“Employees and the work they do cannot and should not be considered merely inputs. As economic theory would have us believe. Not one wants to be an input. Doing great work starts when people feel treated like individuals – not human capital – in a work environment where they can thrive.”
He adds: “Doing great work for customers happens when employees relate to these customers as human beings, not walking wallets.”
In Joly’s model, employees pursuing a noble purpose are the heart and relationships are the blood that flows through the entire system, making it thrive. All elements are connected in a closely interdependent, mutually reinforcing system.
In his new book, The Purposeful Human Organization, Joly demonstrates how this approach underpinned the dramatic turnaround of Best Buy.
Lessons from Joly on aligning management practices to purpose
- At Best Buy Joly implemented a People – Business – Finance approach. He started monthly reviews and board meetings by discussing employees, then customers and only then the financials.
- The important Holiday Leadership Meeting at which store managers come together to kick off the vital holiday season starts with frontline employees and managers sharing personal stories about what inspires them – and not with how to maximise the outcome of this period, which accounts for half of the year’s profit.
- Key performance indicators were changed to go beyond financial metrics. Net promoter scores, carbon footprints, employee surveys and diversity achievements were added, and tools to measure how well purpose is embedded in the company’s practices are now beginning to emerge.
- Accounting standards are being developed to incorporate considerations like environmental impact.
By putting purpose and human connections at their heart businesses can start to reinvent capitalism so that it contributes to a sustainable future, believes Joly. Strides have been made across the world but, as he says: “I know from personal experience that there is a gap between understanding and doing. Much remains to be done to turn thoughts and words into reality.”
To truly move towards what Joly calls the “necessary refoundation” of business and capitalism, each individual and stakeholder group must change.
The five ‘B’s of purposeful leadership
- Be clear about your purpose, the purpose of the people around you and how it connects with the purpose of the company
- Be clear about your role as leader
- Be clear about whom you serve
- Be driven by values
- Be authentic
So start with yourself, be the leader you are meant to be and be the change you want to see. And then work on your company’s noble purpose and create an environment where everyone can blossom and human magic can be unleashed.
Hubert Joly, pictured below, is former chairman and CEO of Best Buy, serves on the boards of Johnson & Johnson and Ralph Lauren and is a senior lecturer at Harvard Business Review. His book, The Heart of Business: Leadership Principles for the Next Era of Capitalism, is out now with proceeds going to charity. Visit TheHeartOfBusiness to learn more about purposeful human organisations
In the architecture of the new approach to business, a noble purpose is the raison d’être of corporations and people are at the centre of everything they do