Hubert Joly, who served as CEO of Best Buy from 2012 to 2019, has written a book for what he deems a new era of capitalism, one that puts employees, customers, vendors, communities, and others on equal footing with owners. The book, released this week, comes almost two years after the Business Roundtable said the purpose of a corporation is to deliver value to a range of stakeholders, instead the shareholder-first approach championed by the economist Milton Friedman. Joly spoke with Fast Company about the experiences that led to his book. Edited excerpts of the conversation—and an excerpt of The Heart of Business: Leadership Principles for the Next Era of Capitalism—follow.
Fast Company: Best Buy is a signatory to the Business Roundtable’s statement of purpose, which embraces stakeholder capitalism over shareholder primacy. Does it go far enough and have we seen real progress?
Hubert Joly: Pursuing a noble purpose, putting people at the center, embracing all stakeholders, and creating an environment where human magic can be unleashed . . . this is the way to create the most value for all stakeholders, including shareholders. I was thrilled when the Business Roundtable statement in August 2019 was written and published. We’ve had 40 years of Milton Friedman’s folly, but the idea of doing something good in the world and being a good corporate citizen, if you go back to the 19th century, this was prevalent. We’ve just had a 40-year hiatus where some people embraced [shareholder primacy] but that was sheer folly.
It’s not just folly. The conventional wisdom in business and on Wall Street is that the job of the CEO is to maximize shareholder value.
That’s been the training in the back half of the 20th century. We need to rewire our brains. Part of the book is my story of moving from a hard-charging, deeply analytical consultant to somebody who believes in human magic.
Should corporations and CEOs engage in political issues?
The role of the CEOs and leaders of companies has changed fundamentally. CEOs are not elected officials, but you cannot just be blind and stay within your four walls. At the same time, you can’t chase every car. So what you need is a set of criteria and a process to decide when and how you’re going to get engaged. When I was CEO I didn’t want to make the decision on my own. So I involved my team and they went through the criteria and made recommendation to me so that it was our collective view. The issue needs to be relevant to your business. So guns, for example, that’s an issue for Walmart or Dick’s Sporting Goods, less so for Best Buy because we don’t sell guns. The issue of the Dreamers? Big issue for us, many of our employees are Dreamers. So we have to stand for them. The travel ban? We have a lot of Muslim employees. I told our Muslim employees, “I’m going to stand for you.” There’s a business case for diversity and inclusion. The tragic thing is that it took us so long to do something, But frankly, I don’t see it as a political issue. This is a business issue.
Joly explains how he grew disillusioned from purely profit-driven leadership in this excerpt from The Heart of Business: Leadership Principles for the Next Era of Capitalism:
In early 1999, when I was president of Electronic Data Systems (EDS) France, I attended a leadership meeting with the new CEO of the global group, based in Texas. He was presenting the company’s strategy. This presentation only strengthened my growing conviction that the Friedman doctrine was wrong. The CEO’s entire approach was focused on profit. I felt uninspired. When he asked for feedback, my contribution was to point out that financial results could not be our sole focus. Over the following few months, the new CEO’s approach heightened my sense of alienation, which convinced me to leave EDS.
If, when I joined Best Buy in 2012, I had told everyone at the company that our purpose was to double our earnings per share to $5, what do you think would have happened? Not much. And for good reason. When we ask Best Buy employees what drives them, no one ever says “shareholder value.” This is not why people jump out of bed in the morning. If we want employees to be more invested, we must acknowledge that their souls are not wrapped up in a stock price. Remember, work does not have to be a chore; it is not a curse. It is a quest for meaning. Maximizing profit does not answer that quest and therefore cannot solve the epidemic of disengagement at work. It is not what drives people to give their very best to save companies like Best Buy.
I am not for a second suggesting that we should ignore profits. Of course, companies must make money—or they do not survive. And there are situations where a keen focus on the bottom line is a good thing. When a business is bleeding money and at risk of dying, for instance, you have to prioritize stopping the hemorrhage. Also, it is healthy to know how and why the business will make money.
But what is healthier still is to disavow the obsession with the bottom line. The true bottom line is this: Although profit is vital, it is an outcome, not a purpose in itself.
Then, you might ask, if not profit, what is the purpose of a company? Properly framing the answer to this question is how we start reinventing capitalism, transforming business from the inside, and helping to shape our collective future. In so doing, we can begin to answer the aspirations and concerns that my children—and probably yours as well, together with millions of other people—voice around the dinner table.
For me, this journey started in 1993 around a different dinner table, with a business discussion that would start opening my eyes to the true heart of business.
Reprinted by permission of Harvard Business Review Press. Excerpted from The Heart of Business: Leadership Principles for the Next Era of Capitalism by Hubert Joly. Copyright 2021 Hubert Joly. All rights reserved.