Business is about purpose: R. Edward Freeman at TEDxCharlottesville 2013

[Music] [Applause] in a fit of youthful optimism and idealism I got a PhD in philosophy and as my father said well you won't have trouble finding a job cuz I just opened a bunch of big philosoph factories out near the interstate but I hope to recapture today a little bit of that uh youthful idealism uh and enthusiasm and to transmit it to you because I really believe that we can be the generation that makes business better to do that we need a revolution now it's not a revolution like we talked about in the 60s in

those days it's a it's a revolution about ideas it's a conceptual Revolution we need a new story about business we need to tell a new story we need to enact a new story about business the current story about business you know how it goes business is about the money it's about profits it's about um being essentially what I would call Greedy little bastards out trying to do each other in it's about business people doing whatever they can get away with you don't believe this read the newspapers um take a a critical dare I say philosophical

look at popular culture and you'll see the story that's behind this there are three flaws in the story about business three major flaws the first flaw says that the purpose of business is to make money or for profits now it's not that profits are bad the flaw is of course that you know people think it's just about the money it's not that profits are bad businesses have to have them but to say the purpose of business is to make money is a lot like saying well I need red blood cells to live so that the

purpose of life is to make red blood cells what even when you need to focus on making red blood cells as I did a few years ago when I had a fun weekend by getting both my hips replaced uh you had to focus on making red blood cells that still wasn't the purpose of life even when businesses have to focus on M making money because the world changed or they made mistakes still not the purpose entrepreneurs don't start businesses to maximize profits they don't start businesses just to make money they start businesses because they're on

fire about something they're on fire about an idea Bill Gates and Steve jobes were absolutely on fire about their ideas for what the personal computer could do John macki at Whole Foods on fire about the uh potential if you had people eat more healthy the second flaw the second flaw it's embarrassing I tell people I teach business ethics see see see look at you listen to you you know I don't have to say anything else people have to are polite and either have to manage not to laugh unlike you or they say things like oh

business athletes said contradiction like like jumbo shrimp oxymoron um or uh oh I didn't know business had any or uh must be a short course or more recently I was in a bar in Copenhagen uh talking to someone and they said what do you do I said I teach business ethics and they go oh it's a theoretical subject now of this phrase business ethics we only misunderstand two of the words okay for first of all business any business person knows that how you run a great business is you create great products and services for customers

you have employees who show up and want to be there and be inspired you have suppliers who want to make you better you're a good citizen in the community and if you do those things you're going to make money you create value for stakeholders right we there's a mismatch between the story we tell about business and what we know it takes to run a successful business but we misunderstand ethics too we say ethics sort of Angels in organ music to be talked about in hush tones and Sunday tell someone you're interested in talking to that

you teach ethics they'll have to immediately go watch some paint dry or perhaps wash their hair several hundred times uh it's it's the way it's the way it goes um but ethics ultimately is about how what we do how it affects each other you know people say well you can't make any progress on ethics because you got yours and you got yours and you got yours whose do you use well the history of civilization is a history of US figuring out how to have conversations so we can live together people often say well now wait

a minute uh I I get to make these calls I have to look myself in the mirror I have to live with myself and that's true you have to live with yourself the problem is we all got to live with with you too so ethics is this very practical stuff about how we live together and it's at the center of business think about those companies you like to do business with as a customer it's because their stuff does what it says it's going to do and when it doesn't uh they make it right and there's

issues around values and ethics at the center whenever you say this business has an Ethics issue no one thinks they brought technology into the world that allows people to do the things that they can do you automatically think something wrong has happened we misunderstand both of these words and there's a mismatch between we know what it takes to run a successful business and the story about business the third flaw it's embarrassing to have to say as well but human beings are complicated we are not simple beings of pure economic self-interest anybody out there have children

I I think I just proved my point about it not being simple um Harry levenson was a crusty old bastard used to hang out the Harvard Business School now dead and he was a kind of a fraudi and and he'd asked people sort of what's the major way people are motivated in companies and they would say uh you know rewards and P punishment kind of carrots and sticks and each sort of raw a big question mark and go what animal is in between that want you think about that what animal do you think about between

a carrot and stick yeah somebody said bunny that's that's messed up you you think about beating a rabbit with a stick I mean that's messed up right what most people said was jackass and so levenson coined this idea that he called the Great jackass fallacy he said maybe just maybe human beings are slightly more complicated than jackasses and he said it's a little worse than that because once you start treating them like jackasses they start nosing for the carrot and start avoiding the stick right and maybe human beings have spiritual lives maybe they have emotional

lives maybe they have political lives maybe they have a values and families and we don't check that at the door every day we walk into work punch the clock here my values can I pick them up at 5:00 businesses are deeply human institutions and the flaws in the standard story ignore this there's a mismatch a disconnect between the story we tell about business and what we know it takes to run this is a technical term a kickass business there's even a mismatch between the story we sometimes teach in Business Schools and what we know it

takes to run a successful business and sometimes there's even a mismatch between the stories that Executives and managers tell about their businesses and what they really know in their hearts it takes to run a successful business Miles Davis one of my favorite musicians he asked a very famous question so what so what there's some good news the good news is that a new story is emerging a new story about business is being created by people starting and running businesses that can literally revolutionize the world that we live in this new story says first of all

business is about purpose get the purpose right profits follow fundamentally being on fire having passion about starting something and keeping that passion alive a friend of mine just took his company public in an IPO he spent a lot of time trying to figure out how he could keep that passion that fire alive business is about purpose it's about creating value for stakeholders not just shareholders and it's about doing it without making tradeoffs a company I know the CEO told a story that they wanted to clean up the environment where they were a big Chemical Company

and uh so they announced these very strict pollution goals or zero pollution going to take to generation but there's a you know milestones and ways to get through it and a very business-like approach and the CEO is going around making the speech to all the facilities the engineers in one facility say look I'm sorry but we can't uh we can't meet these interim goals this process is too dirty this plan equipment is too old we can't do it and so CEO says well okay you know we're going have to close the plant Engineers okay you

know uh tradeoff Community environment on the one hand employees on the other hand Community wins employees lose Engineers come back about 3 four weeks later as a CEO told the story and said well you know um actually um Miracle we uh we figured it out and the CEO says well what's it going to cost you know he say big company 20 $30 million and the engineer said well you know we're actually embarrassed to say we do it this new way we don't save money what's happening tradeoffs unacceptable when the trade-offs unacceptable we kicking the gear

the only infinite resource we have and that's what's in our minds our creative imagination the juice of capitalism the juice of business is our desire to create value for other people to do something together no one of us can do alone and our ability to imagine a different world we're only as good as the stories we can tell we're only as good we can only live the lives that we can imagine and imagin and creativity are muscles that atrophy if they're not used business is about working together to create value together so what do you

need to do you know the first thing you need to do is to get involved you need to think for yourself about your own purpose those groups individuals that you can affect your stakeholders your own values and ethics and how those things apply in the organizations whether they're businesses or not for profits or whatever the organizations you're a part of how those things apply we need to put ethics and values in the center we need to change the story we need to change the story of business and change what we expect and what we do

putting ethics and values at the center at least on the level with money and profits is an absolute uh First Step at what we need to do second we need to see conflict we need to see uh um challenge we need to see those things as important in what we do if you have values but you can't have those values be challenged my take is you don't have them if you have a purpose but somebody can't say to you you're not living it here you don't you're not really committed to your purpose the way I

would say it is that challenge conflict critique just rock we have to look at those things as the sources of value creation rather than something to be avoided I was reminded of this in a very dramatic way by my then now 27y old but then 10-year-old son when I said to him I said Ben look I I can't uh take you to the father son basketball camp this summer out to be in Indonesia I was one of the dads who made one the year before and won the won the three-point shooting title and uh uh

got a t-shirt the whole thing you know it's my one athletic achievement and Ben looked right at me and he said uh Dad what's more important your family or your job okay now he's 10 so it's not the teenager thing you know and I said well you know my family of course he said you're not acting like it and the painful thing was he was right I wasn't I could have gone to Indonesia whenever I wanted and I said well I got to go because I made a commitment and that's an important thing for us

I said but next summer I'll stay at home I'll coach your team will'll hang out and I did the next summer and the summer after that Etc and we created a lot of value but the only reason we created value was that he pushed back he pushed back against those values think about the value that gets left on the table because people don't push back again in culturally appropriate ways right so this idea of a culture in business and organizations of Challenge and conflict and push back is what we need to do and we need

to raise the bar we need to expect more from our companies we need to expect more from our co-workers if we can do these things I believe we can be the generation that makes business better the good news is companies like Whole Foods The Container Store uh little company Northern Virginia the mly fool companies like Novo Nordisk think about what Google and uh uh Facebook and Twitter how they've changed the world companies are changing the world they're changing the world their entrepreneurs out changing the world with bus with the governments and Civil Society we are

on the verge of a revolution in which we use the right story about capitalism literally to remake our world we can be the generation that does that thank you very [Applause] much [Applause] [Music] oh