We, Incorporated

Smith spent 11 years at McKinsey, where he ultimately co-led the organizational practice, a worldwide group of more than 100 consultants. With Jon Katzenbach, then another McKinsey guru, he wrote The Wisdom of Teams: Creating the High-Performance Organization (Harvard Business School Press, 1993), widely considered a classic. And then, in 1993, he left. He did so, he says, at a time when the firm was caught in a battle between profit-obsessed partners and those who would have pursued a broader mission. But more important, he wanted to consult on his own terms.

So Smith has passed the years since consulting for a jumble of corporate and nonprofit clients -- and thinking and writing. It's not exactly an ascetic existence: This is a guy who made some serious money over the years. But he is, in some ways, a modest person (his ambition to alter the course of humanity notwithstanding). He is not a showman and never won the notoriety of a Tom Peters or Jim Collins. The farmhouse he shares with his wife, Jane, is appropriately remote, and his Saab is showing hints of rust.

Gradually, he has found his way. A few years ago, he traveled to Alaska to work with the Arctic Slope Regional Corp., one of a dozen native Alaskan companies formed to ease construction of the oil pipeline. The shareholders were the Inupiat people, spread primarily around Barrow and seven other remote villages across a region the size of Minnesota. But, in pursuit of scale, the ASRC had expanded rapidly into a bunch of doggy businesses.

Here, he saw, was an organization populated by people living in the traditional world of places, as well as those in the world of purposes. The company's board of directors struggled with its dual mission of preserving Inupiat culture and providing economic opportunity -- two goals directly in opposition and, disastrously, left disconnected. Economic value fought moral values: Which would prevail?

And this was the problem: In our way of thinking, one or the other had to prevail. Markets, networks, and organizations, Smith argues, are the new communities, but they "are peculiarly vulnerable to dangerous fundamentalism" that limits their ability (and therefore ours, as individual employee-citizens) to connect value and values.

Most profoundly, in the business world of the past 20 years, that fundamentalism has taken the form of a near-religious obsession with the primacy of investors -- the belief that public corporations operate, ultimately, in the service of shareholder value. In such organizations, discussions of ethics, if not their practice, become marginalized. At best, Smith says, ethics have been seen as something that serve economic value -- something nice to have, as long as it doesn't get in the way.

That's what he thinks happened at Royal Dutch/Shell Group. Through the 1990s, Shell went to remarkable lengths to distance itself from crises in Nigeria and the North Sea -- indeed, to distance itself from the public's traditional perception of an oil company. Its "Listening and Responding" program tries "to educate everyone from our business partners, employees, and investors to the media and general public in Shell's business practices," according to the company's Web site. Its annual "Shell Report" presents an accounting of environmental and social impact. Shell even operates a public-access online bulletin board that allows critics to take shots at its performance.

Yet, beginning in 1997, according to a report commissioned by Shell's group audit committee, company units began aggressively booking questionable oil and gas reserves as proven. As early as mid-2001, the report indicates, managers raised the problem -- but were rebuffed by Shell's new chairman, Sir Philip Watts, with the knowledge of other senior executives. Watts directed that "no stone [be left] unturned" in the pursuit of financial targets.

No one knows for sure why Shell apparently lied, leading to the stunning admission in January that it had overstated reserves by 3.9 billion barrels. But for Smith, it smacks of investor fundamentalism and the marginalization of ethics.

"This is not cynical. This isn't Shell people saying, 'Let's manipulate the bastards,' " he says. "This is Shell people saying, 'Let's do the right thing, but within the orthodoxy of value.' So Shell pursued sustainability in the name of shareholder value -- but not at the level that says unless we truly incorporate a blend of value and values, deeply and substantively, we're going to blow up the planet. That difference is all the difference."

Smith doesn't condemn shareholder value. "If we don't have financial pressure, then what's real about any decision we make?" he asks. He just wants to connect the financial to the ethical. If Shell is a political community, then decisions driven primar-ily by financial measures cannot be sustainable -- for Shell, its people, or the world. "Neither valueless values nor valuesless value are worth much, and we know it," he says. Reconnecting the two "is a concern for all of us -- collectively and individually."