Good leaders don’t worship before the idol of one goal or one stakeholder. They have learned the art of balancing and tilting among competing and conflicting interests and among short- and long-term considerations.
It’s easier for leaders to maximize results for one goal or one stakeholder group. But good leadership isn’t easy.
Virtually every organization sets goals. Businesses might set goals involving profitability, revenue growth, customer satisfaction, and intangibles like brand appreciation. Nonprofits might set goals for impact, constituents served, fundraising, or new programs to offer.
But goals can conflict and lead to undesirable behaviors:
- Maximizing profit might conflict with investments in new product development.
- Maximizing short-term profits can lead to depressing future profits.
Good leaders balance competing interests for the good of their organizations, both short-term and long-term.
Sometimes leaders must take hits to short-term profitability because customers, workers, or the local community make a compelling case that they’re being harmed. Good leaders understand these issues and make tough decisions in the face of tradeoffs.
Leadership Derailers Assessment
Take this assessment to identify what’s inhibiting your leadership effectiveness. It will help you develop self-awareness and identify ways to improve your leadership.
In Milton Friedman’s famous essay, “The Social Responsibility of Business Is To Increase Its Profits,” he concluded with this statement:
“…there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
We disagree. Friedman was an economist and statistician who never ran a business nor experienced what happens when his maxim was followed for so long by so many. He extolled free markets and feared socialism.
We believe in a market-based economic system as well. But we can’t ignore that free-enterprise businesses can create value for people or harm them, and that there are externalities (indirect costs) which current accounting systems don’t appraise fully, such as pollution from factories.
For business success over the long run, we believe it’s essential to have the trust of stakeholders. Sometimes an organization must sacrifice profits in the short run to build trust with:
- Customers who claim refunds or poor quality
- Workers or vendors for alleged mistreatment
- Communities for the harm they’ve experienced
Businesses have both a legal and social license to exist. The legal license is from incorporation documents approved by a relevant government authority. The social license emerges from the trust of the firm’s stakeholders. If a business breaks that trust by abusing or misleading stakeholders, sooner or later that maltreatment will haunt the company.
Good leaders learn to balance among the sometimes competing interests of different stakeholders, creatively looking for ways to align or reconcile those interests reasonably—tilting here and there in a dynamic process.
Purpose, Values, and Vision
But what about consistency? Won’t people be confused if businesses sometimes tilt to customers, then shareholders, workers, or a social injustice initiative? Of course, consistency in leadership is essential.
Good leaders hold fast to the sacrosanct principles on which their organization is based. We call these principles the “colors” of an organization—its shared purpose, values, and vision. When good business leaders tilt toward one side or stakeholder, they carefully explain why they’re doing so and anchor their positions in those colors.
Personal Values Exercise
Complete this exercise to identify your personal values. It will help you develop self-awareness, including clarity about what’s most important to you in life and work, and serve as a safe harbor for you to return to when things are tough.
Tilts across the Three Es: Excellent, Ethical, Enduring
In our “triple crown leadership model,” there are three overarching aims for top organizations:
- to be excellent (achieve exceptional results and positive impacts across stakeholders)
- to be ethical (do the right thing, even when it’s costly or hard)
- to be enduring (stand the test of time and operate sustainably—being both excellent and ethical over time)
Some people wonder whether triple crown leadership requires giving equal priority to “excellent,” “ethical,” and “enduring” considerations.
Our answer is no. There’s no such magic formula. Sometimes tilts are necessary.
Sometimes short-term considerations must take precedence to save the organization. Heavy criticism may follow, but it will be moot if the organization goes out of business.
Other times the reverse is necessary: leaders must be willing to dampen short-term results to make long-term investments to set the enterprise up for future success.
There is, however, one hard-and-fast rule:
Triple crown leaders don’t compromise on the ethical imperative.
If they do so, they’ve stepped onto a slippery slope. Ethical compromises set a bad precedent, communicate a reverberating message, undermine credibility, and will come back to haunt them many times over.
Leaders must draw the line. Better to fail with honor than succeed with disgrace.
We believe good leaders create trust with their customers, workers, vendors, communities, and investors. They listen to their stakeholders, respond to their issues, and develop and maintain a constructive relationship with them. Good leaders balance their stakeholders’ competing and conflicting needs, in the process earning their trust and goodwill. The results show up in many critical areas:
- worker motivation and retention
- customer loyalty
We believe that maximizing one goal—profitability—or one stakeholder—shareholders—suboptimizes others. The result is loss of trust from other important constituents, which can be devastating.
Good leaders learn to balance and tilt among these sometimes competing and conflicting forces, priorities, and interests. They navigate turbulent waters, remaining true to their shared purpose, values, and vision—and their quest to be excellent, ethical, and enduring.
- How well are you balancing and tilting among stakeholders?
- What more could you do to balance and tilt while honoring the shared purpose, values, and vision of your organization?
Tools for You
- Leadership Derailers Assessment to help you identify what’s inhibiting your leadership effectiveness
- Personal Values Exercise to help you determine and clarify what’s most important to you
- Alignment Scorecard to help you assess your organization’s level of alignment
Postscript: Quotations on Tilts and Stakeholders
- “In an age where everything and everyone is linked through networks of glass and air, no one—no business, organization, government agency, country—is an island. We need to do right by all our stakeholders, and that’s how you create value for shareholders. And one thing is for sure—no organization can succeed in a world that is failing.” -Don Tapscott, author
- “Companies, to date, have often used the excuse that they are only beholden to their shareholders, but we need shareholders to think of themselves as stakeholders in the well-being of society as well.” -Simon Mainwaring, leadership author
- “Find the appropriate balance of competing claims by various groups of stakeholders.” -Warren Bennis, leadership author
- “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.” -Marc Benioff, CEO, Salesforce
- “The purpose of business is not to make a profit. The purpose of business is to find profitable solutions to the problems of people and the planet.” -Robert Fish, co-founder, Biggby Coffee
- “Managing for stakeholders is not about trade-off thinking. It is about using innovation and entrepreneurship to make all key stakeholders better off and get all of their interests going in the same direction.” -Ed Freeman, management professor
- “Business as usual is not a viable option…. It’s all about seeing the opportunities where doing the right thing overlaps with doing the profitable thing.” -Rebecca Henderson, professor, Reimagining Capitalism in a World on Fire
- “Unfortunately, early economists went far beyond merely describing how entrepreneurs always seek profits as an important goal, to concluding that maximizing profits is the only goal entrepreneurs should seek…. The principle of profit maximization even became codified into corporate law as the de facto definition of fiduciary responsibility.” -John Mackey and Raj Sisodia, Conscious Capitalism
- “…in many countries, such as Germany, companies have a legal obligation to stakeholders, and even in the United States the legal primacy of shareholders is open to very broad interpretation.” -Ian Davis, McKinsey Quarterly
- “The CEOs I know believe there is no conflict between serving shareholders and stakeholders. In fact, Delaware law—which is the predominant corporate standard—requires that boards of directors take into account the interests of the company and its shareholders in making decisions. Under the ‘business judgment’ rule, they are given wide latitude to make tradeoffs between competing stakeholders interests as long as they are acting in the best interests of the company…. Nineteen other states have laws explicitly enabling boards to consider the interests of customers, employees, and communities in addition to shareholders.” -Bill George
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Bob Vanourek and Gregg Vanourek are leadership practitioners, teachers, trainers, and award-winning authors. They are co-authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, a winner of the International Book Awards. Join their community and sign up for their newsletter. If you found value in this, please forward it to a friend. Every little bit helps!