Re-creating the For-Profit Company Exploring Alternative Organizational Designs for Global Sustainability James A.F. Stoner and Frank M. Werner Schools.

Re-creating the For-Profit CompanyExploring Alternative Organizational Designs for Global Sustainability

James A.F. Stoner and Frank M. Werner

Schools of BusinessFordham University

International Association of Jesuit Business Schools15th World Forum – Jamshedpur, India7-10 June 2009

Stoner, WernerIAJBS 2009 – Jamshedpur

AGENDA

• Introductions

• Premise

• The company

• Would you be interested in this company?

• Why this type of company?

• Now what?


About Frank

• B.A. Physics and M.B.A. Harvard, Ph.D. Columbia

• Former Associate Dean, GBA

• Recipient – Gladys and Henry Crown Award for faculty excellence, 1985 and 2004; Stanley Fuchs Award for impact on students, 2008

• Chairholder – James A.F. Stoner Chair in Global Quality Leadership, 1993–1994

• Author – three textbooks, five research books, novel, book chapters, journal articles

• Research – quality and finance, the goal of the firm, finance for global sustainability


About Jim

• B.S. Engineering Antioch, S.M. and Ph.D. MIT• Recipient – Gladys and Henry Crown Award for faculty

excellence in 1999, 2005• Chairholder – James A.F. Stoner Chair in Global

Quality Leadership, 2002–2006, Global Sustainability 2006-2012• Author – five textbooks (many editions), ten

research books, book chapters, journal articles • Research – 1960s: “risky shift,” 1970s: career

plateaus, 1980s–1990s: world class managing, quality and finance, 2000s: managing for global sustainability


What is Global Sustainability?

• Meeting this generation’s needs in ways that enhance the capacity of future generations to meet their needs (modified Brundtland Commission definition)

• A world that works for everyone with no one left out


What is Global Sustainability?

Use permitted by Creative Commons – GNU Free Documentation License


Premise

• Companies operating under the constraints of the current business model may not be able to contribute enough to create a sustainable world

• Alternative forms of for-profit companies might be able to make major contributions to world benefits, especially global sustainability


Developing the Concept

• March 2006 – keynote address at a conference in Sri Lanka – by Jim

• May 2006 – audio paper at Business as an Agent of World Benefits Conference, Case Western Reserve University, Cleveland, USA – by Jim and Frank


The Company – Purpose

• Core spiritual value: “To contribute to a world that works for everyone with no one left out.”

• The company explicitly renounces shareholder-wealth-maximization as a management goal and obligation although it is committed to making profits so it can sustain itself and can reward investors sufficiently to maintain their support.


The Company – Leadership and Executive Compensation• Four co-equal CEOs

– good friends who love to work with each other– restricted from working > 45 hours per week– receive very modest compensation relative to today’s executive compensation practices• for a very large US or multinational company, TOTAL compensation per CEO might be about $1 million per year, including all perqs, retirement contributions, etc.

• no performance bonuses• any “termination package” would not exceed one year’s total compensation


The Company – Leadership Style

• Formally mandated as a blend of team-based “Level Five Leadership” (Collins, 2001) and “Servant Leadership” (Greenleaf, 1977)– the top management style is the “official leadership style” throughout the company

– the co-equal CEOs make key decisions by consensus

– any one of them can make immediate decisions if a crisis requiring instantaneous action occurs


The Company – Leadership Style

– all company members are compensated well enough to have a comfortable life style and retirement – but “obscene” levels of compensation are ruled out

– leaders and employees at all levels are formally responsible for committing to making the company a “joyful place to work”


The Company – Patient Capital

• Shares of the company may be sold only once every 10 years

• Only 10% of the company’s shares become available for sale in any single year


The Company – Management Succession• Three of the co-CEOs may replace the

fourth at any time

• The Board may replace all four co-CEOs at any time, but may not replace less than four


The Company – Board of Directors’ Responsibilities• The Board has three prime responsibilities:

1. to assure the company meets all legal, regulatory, environmental, fiduciary, etc., requirements

2. to assure that the top management team is pursuing the company’s stated purpose as its primary objective and that it exemplifies the company’s mandated leadership style

3. to replace all four co-CEOs if they stray from the purpose and required leadership style and/or if the company is not sustaining itself financially


Would You Be Interested in this Company? – LEADINGPlease assume:

– The company is in a field of endeavor where you’d like to build your career, at least for a while

– You are in an appropriate career stage for being a CEO

– You are competent to perform well in a top management position

– You have been offered the position as co-CEO in this company


Would You Be Interested in this Company? – LEADING1. Would you accept the job of co-CEO?

a. YES, under the conditions specified above ___

b. NO, no matter how it might be altered in negotiations ___

c. ONLY if some conditions were altered (please think about which ones) ___

2. If you answered a or c above: How many individuals do you currently know with whom you would love to work as co- CEOs (under conditions acceptable to you)? ___


Would You Be Interested in this Company? – INVESTINGPlease assume:

– You are deciding about investing some of your considerable funds for the long term, for example:– for your very young children’s

college education (say 15-20 years from now)

– for your retirement (say 20-40 years from now)


Would You Be Interested in this Company? – INVESTINGIf the company were managed under the specified

conditions:3. Would you purchase stock in the company if you had

to abide by the stock sale provisions?a. YES ___b. NO ___

4. Would you purchase stock in the company if you (and other investors) could sell your shares at any time whatsoevera. YES ___b. NO ___


Would You Be Interested in this Company? – WORKINGPlease assume:

– You are in your current work and life situation

5. Would you be interested in joining the company in a position similar to the one you currently occupy or are looking for?a.YES, definitely ___b.MAYBE ___c.NO, definitely not___


Would You Be Interested in this Company? – BUYING6. As a consumer, would you desire to purchase

products and services from a company like this one?a.YES, definitely ___b.MAYBE ___c.NO, definitely not___


Why This Type of Company?

• Purpose– Assumption – making sustainability the purpose of the company will make it more likely it will benefit society

– Assumption – such a company may be more long-lived than “traditional” for-profit companies and perhaps even more profitable

– Perception – shareholder wealth maximization is a hollow, demeaning, and spiritually empty goal

– Desire – to offer a spiritual ethos and guide for all company actions



• Leadership and executive compensation– Multiple CEOs

•avoid the “heroic leader” who is overworked, isolated, and has no time for family or community

•bring multiple skill sets to the role•create time for listening and learning•Lead to higher-quality decisions (that well-functioning teams make)



• Leadership and executive compensation– 45 hours/week

•CEO(s) remain healthy, alert, vital•Models the company’s commitment to leading a balanced life

•4 x 45 hours = 180 hours > 100 hours from one individual, both in time and quality of work



• Leadership and executive compensation– Restrictions on executive compensation

•we are unconvinced that higher pay produces better executives– talent pool not so limited– “greed” is not a superior motivation– high compensation leads to dysfunctional behaviors

•Exorbitant pay does not lead to happiness•Pay-for-performance systems with the “right” motivation are extraordinarily difficult to create



• Leadership style– Consensus decision making

•better, possible faster, decisions– A joyful place to work

•why would anyone want to work in a place that is not joyful?

•“a world with nobody left out” includes employees

– A comfortable life style and retirement•to attract and keep employees•to avoid “affluenza”



• Leadership style– Level Five Leadership

•passion•humility

– Servant Leadership•collaboration•trust•foresight•listening•ethical use of power and empowerment



• Patient capital– Eliminate short-term management focus and dangers of “managerial cocaine”

– Eliminate need to respond to traders rather than long-term investors

– May require higher rate of return due to liquidity risk

– May require lower rate of return if risk of corporate failure is lower and profitability is higher



• Management succession and leadership continuity– Easier to replace one of four CEOs than a single CEO if/when a resignation, retirement, illness, death, disability, etc., occurs

– Better management continuity with three CEOs continuing in place while and when the fourth one is being replaced

– Lower chance of making a bad succession decision

– Less of a problem if a bad succession decision is made


Now What?

• Three questions we believe are worth pursuing about alternative organizational designs:1. Are they desirable?2. Are they feasible?3. Are they already emerging?


Now What?

• Two requests:1. We request assistance in filling

in the gaps in our thinking– Books, articles, working papers,

videos, speeches, etc.

2. We request assistance in locating companies that have experimented with or adopted any of the key elements in this model

Re-creating the For-Profit Company Exploring Alternative Organizational Designs for Global Sustainability James A.F. Stoner and Frank M. Werner Schools.

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