I have found it very helpful and persuasive to remark on when reality aligns with the guidance or perhaps even teachings implicit in our Principles for Business. My justification for doing so is that such coincidence is not by chance, but show the principles congruent with reality.
There are three recent stories which provide such congruence.
First, John Stumpf, former Chairman and CEO of Wells Fargo, was banned from working in the banking industry and fined $17.5 million by the American Comptroller of the Currency for his role in creating fake accounts a few years ago. Stumpf agreed to the ban and payment of the fine in a settlement with the Comptroller.
The alignment of reality with our principles is that not taking reasonable care of stakeholders and acting without integrity lead to losses. To enhance profitability, it is necessary to manage stakeholder relationships with due care, follow the letter of the law and then go beyond that to establish trust.
Secondly, Boeing just incurred its first annual loss since 1997. In 2018, the company reported profits of $10.46 billion. In 2019, the company reported a loss of $636 million. That drop in profits was a big hit to its shareholders. Boeing also just reported that the costs associated with its 737 Max 8 aircraft have passed $19 billion, another hit to shareholder’s equity. The cause of these losses was failure to design and build a sufficiently safe 737 Max 8 aircraft. This constituted a failure to provide customers and their customers with a quality product. As a consequence, Boeing lost money. Profit followed on customer experience.
Thirdly, Goldman Sachs has given its shareholders an unprecedented look inside the company to reveal its plan for making profits going forward. For the first time ever, the company set financial targets for itself and previewed new business models to enhance profitability. The bank will offer new consumer products like checking accounts and financial management, as does its competitors JPMorgan Chase and Bank of America. Since the collapse of credit markets in 2008, Goldman’s stock has not been as highly valued as the stocks of those competitors.
In taking care of its shareholders, Goldman proposes to satisfy new customers. In its repositioning, Goldman is seeking to better manage its relationship with two stakeholder constituencies – customers who might or might not buy its services and investors who might or might not buy its shares.
The relevant principle is:
PRINCIPLE 1 – RESPECT STAKEHOLDERS BEYOND SHAREHOLDERS
- A responsible business acknowledges its duty to contribute value to society through the wealth and employment it creates and the products and services it provides to consumers.
- A responsible business maintains its economic health and viability not just for shareholders, but also for other stakeholders.
- A responsible business respects the interests of and acts with honesty and fairness towards its customers, employees, suppliers, competitors and the broader community.