MIT Sloan Senior Lecturer Robert Pozen
Should public companies focus on earning profits for their shareholders, or should they serve broader societal needs? Larry Fink, the head of BlackRock, the largest fund manager in the world, recently issued a letter to company CEOs stating: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Yet the same letter tells public companies that they should adopt a strategic plan with “a path to achieve financial performance.” The letter reconciles these potentially conflicting objectives by pushing companies to pursue “long-term value creation” rather than short-term profits. In other words, they can enhance their long-term financial returns to shareholders by serving the needs of other stakeholders—even if this lowers short-term profits.
While BlackRock was trying to sensitize companies to their social responsibilities, the letter could undermine the accountability of corporate directors to their shareholders. CEOs could hypothetically justify any decline in annual earnings by claiming they were serving all stakeholders in hopes of increasing long-term financial results. How will shareholders later assess whether these stakeholder-focused policies actually resulted in higher financial returns? And does the long term mean five, 10, or even 20 years? Read More
MIT Sloan Senior Lecturer Sharmila Chatterjee
From Boston Business Journal
Hal Gregersen, Executive Director of the MIT Leadership Center
At a dinner party a few years ago, Salesforce CRM 2.16% Founder Marc Benioff and Dropbox co-founder Drew Houston got to talking. Their conversation led to a new idea, and that idea led to Salesforce’s Chatter, an enterprise social network, Benioff recalled during an interview I had with him two years ago (for an upcoming book about what causes senior leaders, especially CEOs, to ask the right questions – before someone else does it for them).
Their conversation led to a new idea, and that idea led to Salesforce’s Chatter, an enterprise social network. Chatter was not just a result of a chance encounter. At the age of 50, Benioff regularly invites 20- and 30-something year-old entrepreneurs to his house for dinner. It’s in this pursuit of perspectives different than his own that he is able to constantly bring new services and ideas to market. Benioff, who is known to buy smaller firms for people (not products), once told me, “I don’t have all the ideas. That isn’t my job. My job is to build a culture of innovation.”
Our research shows that innovators like Benioff have mastered the art of networking ideas. By purposefully growing their networks to include people from diverse industries and backgrounds, they are quicker to act on observations
that spur innovation.
MIT Sloan Adjunct Associate Professor Zeynep Ton
From Harvard Business Review
Walmart announced today that it is raising its starting wages in the United States from $9 per hour to $11, giving employees one-time cash bonuses of as much as $1,000, and expanding maternity and parental leave benefits as a result of the recently enacted tax reform. It is part of Walmart’s broader effort to create a better experience for its employees and customers. The new tax law creates a major business opportunity for other retailers as well — if their leaders are wise enough to take advantage of it.
The U.S. corporate tax rate is dropping from 35% to 21%. Retailers, many of whom have been paying the full tax rate, are going to benefit substantially. Take a retailer that makes 15% pretax income. Assuming its effective tax rate goes from 35% to 21%, it could save the equivalent of 2.3% of sales. Specialty retailers with higher pretax income will save even more.
Retail executives have a choice in how they use these savings. I believe the smartest choice — one that will help them compete against online retailers like Amazon — is to create a better experience for customers and to achieve operational excellence in stores. For most retailers, doing both requires more investment in store employees — starting with higher wages and more-predictable work schedules. My research shows that combining higher pay for retail employees with a set of smart operational choices that leverage that investment results in more-satisfied customers, employees, and investors. Read More