The Enlightened Capitalists: Cautionary Tales of Business Pioneers Who Tried to Do Well by Doing Good

506 Pages·2019·6.73 MB·English

by  James O’Toole

Dedication
For Marilyn
Contents
Cover
Title Page
Dedication
Preface: The Good Unearthed
Introduction and Background: Why It Is Hard to Do Good
Part I: The Pioneers
1: The First Business Reformer: Robert Owen (1771–1858)
2: Man with a Thousand Partners: James Cash Penney (1875–1971)
3: The Businessman Who “Cleaned Up the World”: William Lever (1851–1925)
4: Kisses Sweeter Than Wine: Milton Snavely Hershey (1857–1945)
5: Creating an Enduring Enterprise: James Lincoln (1883–1965)
6: New Forms of Incorporation and Governance: John Spedan Lewis (1885–
1963) and John Joseph Eagan (1870–1924)
7: Johnson & Johnson’s Roller-Coaster Ride: Robert Wood Johnson (1893–
1968) and James Burke (1925–2012)
8: Great Genes: Levi Strauss (1829–1902) and His Heirs
9: Marks & Sparks: Michael Marks (1863–1900) and the Marks and Sieff
Families
Part II: The Golden Era
10: Leadership as an Art: Max De Pree (1924–2017)
11: Too Much of a Good Thing: William C. Norris (1911–2006)
12: Business Mavericks: Ken Iverson (1925–2002), Robert Townsend (1920–
1998), Herb Kelleher (1931–), Bill Gore (1912–1986), and Terri Kelly
(1963–)
13: The Patricians: Thornton Bradshaw (1917–1988), J. Irwin Miller (1909–
2004), Edwin Land (1909–1991), John Whitehead (1922–2015), and Roy
Vagelos (1929–)
14: Environmentalists or Capitalists? Anita Perella Roddick (1942–2007) and
Tom Chappell (1943–)
15: Lever Redux: Ben Cohen (1951–)
16: Capitalists of a Different Stripe: Yvon Chouinard (1938–), Jack Stack
(1949–), Robert Beyster (1924–2014), and Others
Part III: Yesterday, Today, and Tomorrow
17: Looking Back: What We Have Learned
18: Looking Forward: The Prospects for Enlightened Corporate Leadership
Conclusion: Difficile Est Bonum Esse
Acknowledgments
Notes
Index
Photo Section
About the Author
Also by James O’Toole
Copyright
About the Publisher
Preface
The Good Unearthed
. . . the good is oft interred with their bones.
—Shakespeare, Julius Caesar
One was a professional manager who during the bleakest days of the Industrial
Revolution created Britain’s most successful manufacturing business, the profits
from which he used to provide decent working and living conditions for his
workers and their families. For those efforts he was damned by his peers in
industry—and by Karl Marx. One was a self-made American millionaire who
enabled a thousand others to become successful business executives, only to lose
his own fortune during the Great Depression on an ill-conceived investment.
Another, the inventor of bar soap and modern product advertising, shared his
wealth with thousands of employees and then lost his giant global enterprise to
his creditors. Yet another was the playboy heir to a great corporation, a self-
styled military “general” who created a model code of ethics for his company
that, later, was ignored by executives who succeeded him.
Then there was the brilliant computer scientist who single-mindedly
dedicated his company to addressing some of the world’s most intractable social
programs, leading it to virtual bankruptcy in the process. And more recently
there was the woman known as “the mosquito,” who pestered the corporate
world to pay attention to environmental and consumer health issues before
selling her company to a large corporation that showed little interest in such
matters.
For nearly five decades, I have been fascinated by the stories of these and a
small group of other (mostly now forgotten) business leaders who attempted to
do good while at the same time doing well. I call them the enlightened
capitalists. I have identified some fifty American and British business leaders
who, over the last two centuries, have introduced unusually admirable
organizational practices that greatly benefited both their shareowners and
society, the careers of roughly half of whom are profiled in these pages. Each
attempted to address the world’s most chronic and deeply entrenched problems:
unemployment, poverty, unsafe and unhealthy working conditions, low-quality
goods, and environmental degradation. By endeavoring to serve the needs of
their employees, customers, and the broader community while at the same time
successfully meeting the necessity of profit, those leaders hoped the
organizations they created would serve as models their fellow capitalists would
emulate.
Significantly, the enlightened capitalists sought to address social problems
primarily through their business practices, rather than by acts of charity or
philanthropy. Their ethical and responsible acts were not add-ons, afterthoughts,
or atonement for bad behavior, but integral to the way they did business,
incorporated in how they made products and delivered services. Their actions
went far beyond the current executive affirmation that “our company serves the
needs of all our stakeholders.” Unlike practitioners of the “Davos Conscience”—
executives who migrate to the Swiss Alps to speak high-mindedly for a few days
a year, then go back to business as usual for the next eleven and three-quarter
months—the enlightened capitalists have steadfastly attempted to practice what
they preach.
I admire the moral courage these men and women have displayed when
doing what they felt was right, whatever the personal cost. Some of them have
been, I admit, a bit quirky and obsessive, and a few utterly eccentric;
nonetheless, to the extent that I have heroes, they are mine. They represent the
promise of a virtuous corporate capitalism that the idealistic side of me finds
socially and economically desirable.
Yet as I have studied—and sometimes personally observed—the efforts of
these pioneering individuals, the realist in me has been struck by the fact that in
their companies few of their virtuous practices have been long maintained. At
some point shortly after the enlightened capitalists retired, died, were forced out
of office, or sold their companies, their successors abandoned the very practices
that made those companies both financially successful and publicly admired.
Among the two dozen companies we examine—the earliest dating back to the
early 1800s—at only a handful did their founders’ virtuous practices survive
through as many as two successions in leadership.
That pattern has continued to the current day. In the mid-1980s I had pegged
two dozen American firms as being in the vanguard of what I then believed
would become a general movement toward the adoption of enlightened
practices. Before the century was out, only three of those companies had
maintained those practices. The others abandoned them as the result, variously,
of being acquired by other firms, going bankrupt, or changes in leadership.1
Of course all companies change over time, forced to alter their products and
strategies and adopt new technologies to meet competitive challenges. But the
changes made at the enlightened capitalists’ companies were of a different sort:
they involved the deliberate cessation of successful, socially desirable practices
—practices, moreover, that were often the cornerstones of company success.
Indeed, over the last two centuries, precious few companies have managed to
sustain enlightened practices—particularly corporations operating in economies
characterized by the Anglo-American variety of laissez-faire shareholder
capitalism. That is not to say all good companies inevitably come to bad ends;
nonetheless, there has been an unmistakable historical pattern in that direction.
While the focus of this book is on the past—after all, that is the only way the
sustainability of business practices can be evaluated—it should not be seen as a
work of history. Rather, it is about economic, political, and social issues being
debated today. As I have studied enlightened leaders and the companies they led,
I have found my idealistic and realistic sides debating the question many citizens
are asking today: Are socially virtuous business practices compatible with
shareholder capitalism? I offer my personal (uncertain) answer to that question
at the end of the book. But what ultimately will matter is the collective judgment
of corporate executives: Do they believe it is possible—or sensible—to try to do
good as they seek to do well?
There is now a special urgency for them to engage with this issue. Over the
last decade, a growing number of citizens in America and Britain have begun to
challenge the legitimacy of the current economic order—a central pillar of which
is the private corporation. The role corporations play in that order is a major
(albeit not the only) determinant of the degree to which economic systems are
viewed as fair and legitimate. When giant businesses are seen as behaving
ethically, responsibly, and in the public interest, the citizenry tends to be
satisfied that the system of corporate capitalism is fair. But when corporate
behavior is perceived as rapacious, narrowly self-interested, and insensitive to
the needs of society, those citizens may demand radical changes to the system.
The threat of radical change may be what led CEOs attending the 2018
Davos meeting into earnest discussion about social responsibility. There, the
chairman of Wall Street’s Vanguard investment fund, Bill McNabb, called on
his fellow executives to end their obsession with short-term profits and instead
focus on addressing such major social problems as climate change and employee
well-being. This came fast on the heels of a similar plea by Larry Fink, CEO of
$6 trillion investment fund BlackRock, who had recently declared that “society
is demanding that companies, both public and private, serve a social purpose . . .
and benefit all their stakeholders.” A few months earlier, the editors of the
Financial Times concluded that “business must help fix the failures of
capitalism.”2 Arguing that “capitalism needs a new social contract,” a system
more “competent, ethical and fair,” they warned corporate leaders that
“proposals for tighter regulation, heavier legislation and even nationalization [in
Britain] are winning support.” Without offering the particulars of that new
relationship between business and society, the editors suggested that “a better
social contract would be built on the idea of a humane, mutually beneficial
interdependence between the two.”3 In essence, business leaders are now being
called on to decide if their corporations can, will, or should engage more deeply
in efforts to solve social and environmental problems—or instead continue to
concentrate on fulfilling their economic missions. As we see in the pages that
follow, that decision is not an easy one to make.
It is important to note that McNabb, Fink, and the Financial Times editors
were specifically referring to companies operating under the Anglo-American
form of corporate capitalism. This differs in several historical and legal respects
from Continental European and Asian forms. There, characteristically, large
firms are far more likely to be owned and controlled by families and private
foundations, and in cases where stock is publicly traded, shareholders
traditionally have fewer rights and influence; in particular, it is more difficult to
engage in hostile takeovers. Furthermore, European companies tend to be more
heavily regulated and, at the same time, work more closely with their national
governments to address social issues. In light of those and other analysis-
complicating differences, our focus in these pages is on companies in the United
Kingdom and the United States.
As today’s executives in Britain and America struggle to decide whether
their companies should attempt to address complex social problems, I believe it
is instructive for them to review the careers of men and women who attempted to
do business in ways that were, in the words of the Financial Times, “competent,
ethical, and fair.” In essence, those enlightened capitalists—in their own
companies, and in their own ways—attempted to flesh out in practice the terms
of a new social contract between business and society. We thus turn to the past
not because we believe history will be repeated, or for answers we can apply
willy-nilly to current problems; instead, we primarily examine historical
experience to avoid repeating errors of the past. There is no excuse for doing
that. As President Harry Truman—an astute student of history—noted when a
skeptic asked why he spent so much time reviewing “old” news, “the only new
thing in the world [is] the history you [have] not read.”4