5
The Business of Building Cathedrals
No sire, it’s not a revolt; it’s a revolution.
—François Alexandre Frédéric de La Rochefoucauld-Liancourt, a French social reformer, to Louis XVI, the morning after the storming of the Bastille in 1789
“The purpose of a corporation is not to make money!” Jean-Marie Descarpentries, the newly appointed CEO of Honeywell Bull, exclaimed. It was 1993, and I was working at McKinsey in Paris. My colleagues and I had invited Descarpentries to dinner to explore how we could help him in his new role. I had my sales hat on, fully expecting to spend the evening understanding his priorities and pitching him.
But instead, Jean-Marie decided to brief us on what had been discussed at a gathering of French CEOs he had recently attended. In his typical animated and passionate way, he shared his views on business and how it was to be conducted.
The purpose of companies was not to make money?
My fork stopped midair. This went against everything I had learned in business school and over my early career as a management consultant. These words squarely contradicted the basic assumptions of mainstream business. What about shareholders? What about Milton Friedman?
Over steak and wine, Jean-Marie clarified what he meant for a roomful of skeptical consultants. He was not suggesting we burn cashflow statements. He was saying that making money is a vital imperative and an outcome for business. But it is not its ultimate goal.
This felt big. I had so far in my career not found the idea of maximizing shareholder value particularly inspiring, but it was just the way things were. This suggested there might be another, more inspiring way. I listened closely. Jean-Marie explained that companies have in fact three imperatives: people, business, and finance.
These three imperatives are linked. Excellence on the first imperative—the development and fulfillment of employees—leads to excellence on the second—loyal customers buying your company’s products and services again and again. This then leads to excellence on the third imperative, which is making money. The causal link goes like this:
People ➞ Business ➞ Finance
This makes profit an outcome of the first two imperatives. Jean-Marie said there is no real trade-off between these imperatives; the best companies achieve excellence on all three simultaneously.
Yet imperative and outcome, he went on, should not be confused with purpose. The company’s purpose, he said, is the development and fulfillment of its people, and the attention given to the people around them.
Jean-Marie’s energy was contagious, and his ideas struck a deep chord in me. As a management consultant, I knew how much effort was spent on tactics: what products and services to offer; where and how to position oneself to be competitive. Little thought went toward articulating an inspiring purpose. Yet this made complete sense to me. And here, finally, was something I could feel inspired about.
That conversation led me to look at business in an exciting and radically new light as I observed Jean-Marie put his principles into practice during our subsequent work together. And when I left consulting, it shaped the way I approached my job as CEO, starting with EDS France and all the way to Best Buy. This chapter discusses this shift in perspective, and chapters 6 and 7 cover its practical implications in greater detail.
Focusing on Purpose and People
As highlighted in chapter 4, we urgently need to reinvent capitalism from the inside out. The good news is, we can.
Over the years, I have developed—and put to the test again and again—an approach that lays out the architecture for a refoundation of business and capitalism. It builds on the wisdom received from Jean-Marie Descarpentries and many others along the way.
This approach is based on a seismic shift from profit to purpose: I believe that business is fundamentally about purpose, people, and human relationships—not profit, at least not primarily. Companies are not soulless entities. They are human organizations made of individuals who work together toward a common purpose. When that common purpose aligns with their own individual searches for meaning, it can unleash a kind of human magic that results in outstanding performance.
The figure below lays it out:
The purposeful human organization—a declaration of interdependence
At the very top is a noble purpose. Purpose is the reason the company exists. A noble purpose, a term borrowed from Lisa Earle McLeod,1 is the positive impact it is seeking to make on people’s lives and, by extension, its contribution to the common good. That common good is the core focus of the company and is integrated in every aspect of what the company does. Business does well by doing good.
Employees—at the center—rally around the noble purpose, and customers profoundly relate to it. It becomes a guiding North Star against which strategy is formulated and every decision made and measured.
The idea of personal purpose as the intersection of four elements introduced in chapter 2 is helpful when considering company purpose and how it differs from the narrower ideas of corporate philanthropy or corporate social responsibility. A company’s reason for being can also be found in the same way: what the world needs, what we as a team are passionate about, what the company is good at, and what it can get paid for. This concept has inspired the four questions that Best Buy uses when considering new business ideas:
- Does it fit with our purpose as a company?
- Is it good for the customer?
- Can we deliver?
- And can we make money?
A noble purpose is at the top of my framework. Employees stand at its center because 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. No 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.
The architecture I am advocating has employees at the heart of business, creating and nurturing caring and authentic relationships both within the company and also with all of the company’s stakeholders—customers, vendors, local communities, and shareholders—in a way that not only contributes to the company’s purpose but also creates great outcomes for each of these stakeholders. Doing great work for customers happens when employees relate to these customers as human beings, not walking wallets. It happens when employees, from the CEO to front liners, genuinely understand and care about what customers need and how they can best help them answer these needs. Delighting customers in this way is how love brands—brands that have built a strong emotional bond with their customers—are created, inspiring loyalty and trust. In order to do great work for customers and deliver great results, employees also connect and collaborate with vendors as partners. They connect and collaborate in ways that benefit both sides and serve customers, rather than squeeze suppliers to improve margins. Business also needs thriving communities to flourish, and employees, who come from those communities and contribute to them, are central to that connection. The noble purpose also feeds the company’s connection with communities. Finally, the connection between the company and its shareholders is fundamentally a human one. Shareholders are either individuals or companies who are themselves human organizations serving a human purpose. Asset management companies are looking after people’s financial well-being and their retirements.
So, employees pursuing a noble purpose are the heart, and relationships are the blood that flows through the entire system and make it thrive. In this approach, all elements are connected in a closely interdependent, mutually reinforcing system.
Profits are an outcome of a successful strategy and the quality of the human relationships that drive it. But they are also essential to fulfill the mission, as they make it possible to invest in employees and innovation; create growth; support the community; and, of course, reward investors.
In summary, this approach is a declaration of interdependence.
I am excited about this approach and its underlying philosophy for several reasons.
First, it makes sense, both philosophically and spiritually. For me, it echoes the wisdom of some of the world’s most important philosophers and religions, from Aristotle to Judeo-Christianism and Hinduism.
Second, it works. This is not just theory or wishful thinking. Over 25 years, I have seen close up how a purposeful, human organization creates great outcomes. I have seen it work at several companies—including Best Buy.
An Approach That Delivers
At its core, the resurgence of Best Buy is based on embracing and implementing these principles. It has propelled the company to heights that, back in 2012, few would have imagined possible. From the beginning of our turnaround, our approach was to look after all stakeholders, as is described in detail in chapter 7, and our noble purpose has been central to the way we have grown and evolved.
As you may have already guessed, Best Buy’s purpose today is not about selling TVs or laptops. It is not about beating Walmart or Amazon.
Then what is it, and how did we land on it?
In 2015, once the turnaround of the company was completed, we spent time thinking about the way forward. We were no longer drowning, and with our head above water, we could spend energy figuring out where we wanted to swim.
During our quarterly senior leadership meeting, we reflected on how to articulate our noble purpose. There are many ways to frame a purpose, but what was Best Buy’s? What defined the company and what it could be? We did left-brain analytical research, which highlighted that, although technology innovation was exciting, many customers needed help figuring out what it could do for them and how to take advantage of it. We also had to tap into right-brain creative and emotional dimensions. During one of these two-day offsites, we spent time over dinner sharing our life stories and personal purposes, which helped us gradually define what we collectively loved doing—one of the four dimensions of the purpose diagram presented in chapter 2. After two years or so, we eventually landed on a formulation for the company’s purpose that felt right, a formulation that made business sense and just made sense, period. It had meaning for us as human beings.
Best Buy’s purpose was to enrich our customers’ lives through technology. We would do this by addressing their key human needs in areas such as entertainment, productivity, communication, food, security, and health and wellness.
Guided by this noble purpose and putting people first, Best Buy illustrates why this approach works: it opens new horizons; it is inspiring; and it ensures that economic activity is sustainable and produces great bottom-line results.
This approach expands horizons
A noble purpose creates an expansive and enduring vision that opens up new markets and opportunities. Enriching people’s lives by addressing their key human needs through technology, for example, allows for many more activities than just selling consumer electronics. It expands what Best Buy can do.
This approach also allows a company to weather change. Twenty years from now, enriching the lives of customers through technology will still be relevant—even if TVs and personal computers no longer are. We will never be done enriching lives through technology, regardless of the technology. This purpose will keep stretching the company to be the best version of itself, rather than being better than someone else. Embracing this purpose has given Best Buy an ambitious, long-lasting, and aspirational goal. The company will never be done being the best it can be. Best Buy’s purpose will never be fulfilled, and the journey will never end for as long as it keeps delivering for all its stakeholders.
This approach inspires people
Do you remember the two masons from chapter 2, and how one was cutting stones, and the other was building cathedrals? What is true for masons—and individuals in general—is also true for companies. A clear purpose is not just a strategic tool. To be effective, it must also inspire and guide. Cutting stones is tedious work. Building cathedrals is a noble purpose that inspires because it helps answer our human quest for meaning. Compare the dream of enriching lives through technology to the idea of selling TVs and computers. Or maximizing shareholder value. Which is more likely to pull you out of bed in the morning and fire you up? Whenever I remember my miserable summer sticking price tags on vegetable cans as a teenager, I think of Wegmans, the US chain of grocery stores whose mission is to help families live healthier, better lives through food. Besides its affordable quality products, Wegmans is famous for its happy employees. This is why articulating and integrating a noble purpose is a critical aspect of addressing the epidemic of worker disengagement.
Anthony Wu, a Blue Shirt from the Best Buy store in Mountain View, California, illustrates the difference between cutting stones and building cathedrals. A shopper tells Anthony she is looking for headphones, but she is not sure which ones to choose. Anthony has a choice. He can directly recommend the most sophisticated—and expensive—headphones. Or he can spend time understanding what she needs. He starts a conversation. Prompted by Anthony’s interest, the woman explains that she works in a noisy open-space office, and she finds it hard to concentrate. She needs to block off some of the noise but wants to be able to communicate and hear when her colleagues need her. Anthony knows a lot about headphones, so once he understands her problem, he can recommend the ones that best solve that problem—which, it turns out, are not the most expensive. The customer is happy: she has found someone who listened and helped her. And Anthony feels good as well: he is not pushing headphones; he’s made a positive difference in someone’s daily life. This is authentic human connection at work.
This approach inspires more than employees. In his widely watched 2009 TED Talk, Simon Sinek argued that it is purpose—what he calls the “why”—that indeed sets the most inspiring leaders and organizations apart from others. The organizations that inspire deep loyalty from customers are those able to think, act, and communicate, starting from their purpose. “People don’t buy what you do,” says Simon Sinek; “people buy why you do it.”2
This approach ensures that economic activity is sustainable
Let me be clear here: I deeply disagree with Milton Friedman’s view that business has no business dealing with societal issues. There can be no thriving business without healthy, thriving communities, and there can be no thriving business if our planet is on fire. The Covid-19 pandemic has highlighted how healthy and thriving communities are essential for business health. Companies can decide how to play their part in addressing these issues, as is illustrated in chapter 6. But I believe they must play their part. Not only is this the right thing to do; it is also ultimately in their own interest.
This approach produces great bottom-line results
I love the joke about two engineers, one American and the other French. The French engineer presents his invention to his American colleague and explains the theory behind it. “Great,” says the American engineer, “but does it work in practice?” Then the American operates his own invention. “Phenomenal,” says the French engineer, “but does it work in theory?”
The purposeful human organization approach would satisfy both the American and the French engineers. It works in theory and in practice. In my experience, some of the most successful companies in the world have adopted these principles. Here are two that I know well, as I serve on their boards of directors.
The first is Ralph Lauren Corporation, a company that has defined its human purpose as inspiring the dream of a better life through authenticity and timeless style. “What I do,” says Ralph Lauren himself, “is about living the best life you can and enjoying the fullness of the life around you—from what you wear to the way you live, to the way you love.”3 This means the company is not a clothes company, but a lifestyle business. That is far more inspiring for the people of Ralph Lauren—and farther reaching and longer lasting—than selling apparel. This is the cathedral they are building.
The second company is Johnson & Johnson. In the lobby of its headquarters in New Brunswick, New Jersey, stands an eight-foot-tall, six-ton slab of quartz and limestone. Carved in the stone is the company’s Credo, four paragraphs first written in 1943, by the founder’s son, just before the company became publicly traded. The Credo’s fundamental principle is to put the needs and well-being of the people the company serves first. It defines Johnson & Johnson’s responsibilities to its customers, employees, and stockholders, as well as local and world communities.4 It has been revised several times, but its basic principles have not changed. The company sees its Credo not only as its moral compass but also as its guiding light in making decisions and the recipe for its enduring business success.
When companies embrace this approach to business, as Best Buy, Ralph Lauren, and Johnson & Johnson have, they can become “firms of endearment”—a term coined by Raj Sisodia, Jag Sheth, and David Wolfe.5 These firms—among them Whole Foods, 3M, and Timberland—have built high-performance businesses producing superior financial results based on purpose, self-actualization, and genuine partnerships that benefit all stakeholders. They are at the forefront of transforming capitalism. They have outperformed the S&P 500 by 14 times over a period of 15 years.6 This confirms that a business can do good by making a positive difference in people’s lives and be extremely successful for its shareholders, because that success is built on the fact that it conducts business responsibly.
Multiple other studies have confirmed that purpose indeed pays.7 Companies that Barron’s magazine ranks as America’s most sustainable (including Best Buy) generated average financial returns of over 34 percent for their stockholders in 2019, above the S&P 500 Index’s 31.5 percent. Their purposeful and human approach guides good strategies, and it attracts and keeps talented employees who are engaged. Their strong environmental policies lower costs, and customers increasingly want to spend their money on brands that, besides serving their needs well, have adopted good sustainable practices.8
A Revolution in the Making
The idea that the purpose of business is to contribute to the common good and that it must look after all stakeholders—hence the “stakeholder capitalism” catchphrase—has made significant headway in the past decade.
An increasing number of business leaders are embracing this approach. In 2018, I received BlackRock leader Larry Fink’s annual letter to CEOs of companies in which the asset management company holds shares. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” Fink wrote. “Without a sense of purpose, no company, either public or private, can achieve its full potential.”9 BlackRock has been actively nudging the companies in which it holds shares to define and articulate their broader purpose—one that makes a positive contribution to society—and to clearly manifest that purpose in the company’s business model and strategy.
I was excited about Larry’s letter. This was so aligned with my own beliefs. I was also thrilled that Larry used his voice and considerable influence to push for change. This convincingly contradicted the notion that shareholders care only about share price and quarterly results. Coming from the largest asset management firm in the world, the call to focus on a broader purpose instead of short-term profit, on all stakeholders instead of only shareholders, and on a long-term horizon instead of market myopia carries real weight.
In my own letter to Best Buy’s shareholders that year, I responded to Larry Fink’s challenge. I laid out Best Buy’s noble purpose, which had formally been introduced at our investor meeting a few months earlier. I explained how the idea of enriching lives through technology anchored not only our Building the New Blue growth strategy but also the way the company related to employees, customers, vendors, the environment, and our local communities. Because BlackRock is one of Best Buy’s shareholders, I decided to hand-deliver my letter to Larry Fink, which I did that July at BlackRock’s headquarters in midtown Manhattan. This gave me the opportunity to thank Larry for his leadership.
Then, in August 2019, the Business Roundtable, whose members are the CEOs of the United States’ leading companies,10 issued a new statement on the purpose of corporations. “Each of our stakeholders is essential,” it read. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”11 This was quite a shift from the organization’s 1997 position that corporations exist primarily to serve shareholders. The 181 CEOs who signed the Business Roundtable statement in August 2019 undertook to deliver value to their customers, invest in their employees, deal fairly and ethically with their suppliers, support the communities in which their companies work, and—yes—generate long-term value for their shareholders as well, of course. “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the statement said.12
I am heartened to see this vision advancing elsewhere. In May 2019, for example, France enacted a new law that revised the civil code’s definition of corporate purpose—for the first time since 1804—as the common interest of stockholders. The change follows recommendations from CEOs. Corporations must now consider the social and environmental impact of their activities. Corporations are also now able to explicitly define a raison d’être—a purpose beyond profits—in their charter.
This is a revolution, and business has unprecedented power, resources, and reach to carry it forward. Based on 2017 revenues, 69 out of the richest 100 entities in the world are corporations, not governments.13 Given the power and the global reach business enjoys, it can—and must—be part of the solution and help address the challenges that my children and I were discussing at that Christmas dinner. When the United States withdrew from the Paris Accord, for example, a number of companies responded by committing to meeting the agreement’s emission targets even faster, something that makes sense for the planet and for business as well. This kind of activism must continue to grow. If it does, it will transform business and capitalism from the inside out.
But skepticism remains. Many do not believe business leaders and shareholders are sincere in their shift toward purpose and stakeholder capitalism. They see this as lip service to placate customers and employees.
The gap that lies between today’s reality and my vision is not between words and intention, however. It is between intention and practice. The business leaders I know are genuinely convinced that the system has to change14—and they know that employees, customers, and investors will eventually clobber anyone who is pretending and content with window dressing.
But good intentions alone or shortcuts will not result in the required change. All they will produce are hollow visions and mission statements that exist only on companies’ websites. Creating a purposeful human organization that truly unleashes human magic and makes a positive difference in the world is not only complex, but it is also hard work. It influences every aspect of the business—both in good times and in challenging ones. It requires a fundamental rethinking of management and leadership.
It’s not easy, but it is necessary. How can companies make such profound change happen? This is what is explored in the next few chapters.
Questions to Reflect On
- Has the company you work at done a good job of articulating an inspiring noble purpose?
- Has it translated that purpose into developing meaningful relationships with its customers, its employees, its vendors, its shareholders, and the communities in which it operates?
- Is the whole thing working?
- If not, what would it take to get there?