Values, Innovation and the Future of Capitalism in the Wake of Protests and Coronavirus

What are your organization's core values?

Few companies give their core values much thought or try to define what they are, for themselves, for their employees, customers, partners and communities. 

But that's changing. Until recently, values were an afterthought as companies were cautious not to take a position on public issues and risk offending clients. Instead, values were thought of as feel-good marketing, spun into superficial and ever shallow statements of purpose.

Values aren't marketing.

They are foundational to every organization. An organization's values are its DNA, its soul. Those values, whether they are known and articulated (or not), will ultimately guide the organization forward.

Companies and individuals that will thrive over the next decade and beyond will be able to articulate their core values, not only in what they say, but in everything they do, in their very essence. They will understand the relationship between their values and the world around them. They'll recognize the importance of knowing who they are, what they represent and what they want their impact on the world to be.

A Reckoning for Transactional Companies

The companies whose values are transactional will struggle (and many may fail). These companies are managed solely for profit by maximizing revenues using minimum resources. They’re always looking for ways to improve efficiencies and do more with less.

Royal/Dutch Shell scenario planning pioneer Arie de Geus called these “Economic Companies,” or "corporate machines," whose "sole purpose is the production of wealth for a small inner group of managers and investors." He said they lacked a sense of work community. I'll add that their practices aren’t sustainable. They aren’t built for longevity. They’re built for short-term shareholder value (stock performance).

The transactional company often willingly chooses to ignore the big picture or the long term or the wellbeing of anyone or anything outside its core shareholders. It ignores how their products, services and behaviors represent their underlying (and often hidden) values and how they impact the world.

These companies are managed on zero-sum principles that can never provide long-term competitive advantage. The pursuit of doing more with less leads to an arms race with competitors for greater efficiencies and often uninspiring and easily copied product offerings. These are the types of companies that neo-classical economists have in mind in their frictionless theories, which are often merely mathematical and economic expressions of utopian ideals.

Ultimately, transactional companies will never be able to separate themselves from their competitors. The era of transactional-driven companies is facing a reckoning as we're all forced to look in the mirror and recognize society and our economic systems can’t survive like this, with such a heavy focus on the short term.

The Corporate Malpractice of Short-Sightedness

It's wishful thinking (and perhaps even malpractice) for executives and Boards of Directors to try to ride out the coronavirus and the vast Black Lives Matter protests for racial equality with the hope of getting back to normal. It's gone. The world demands change and progress at this moment.

Unfortunately, humans aren't wired to think very well about the abstract (e.g. the future). Evolution made us largely reactive and short sighted. We tend to respond to what's right in front of us. For senior executives, that's typically quarterly earnings, sales projections, liquidity, stock prices and the looming threat of activist shareholders.

This short-sightedness leads to short-termism in the markets, which Al Gore, Paul Polman and other forward thinkers have spent their careers trying to bring to light. Long-term externalities (wealth disparities, climate change, racial and gender inequities, decreasing middle class, systemic sexual harassment) are easily diminished, denied, or ignored because the declines are microscopically incremental (occurring over years and decades) or are called out as anomalies, as isolated incidents.

It's not only easy, but easily rationalized as pragmatic, for executives and Board members to put on blinders and block out what they don't want to see, as they focus on short-term shareholder value.

Increasingly, boards and executives will be held accountable by stakeholders across society for this short-sightedness and willful ignorance.

Why are we so Afraid?

A high-profile executive at Deloitte told me that after the banking crisis of 2008, he found that CEOs weren't interested in thinking about the long-term at all. Instead, they retracted and focused on cost cutting, on control, on appeasing Wall St., on what they thought were survival tactics.

People who are afraid will often entrench against the outside world, lock themselves in, separate. But those actions come at the detriment of our collective humanity and only compound the disruptive impact and impair their own ability to lead their organizations to a better place.

In the 2008 crisis, many executives retreated to their lonely offices and ivory towers instead of coming down to the street to embrace their fellow humans and pursue solutions collectively. It's human nature in a crisis to try to hang on to what we have and build a wall for protection, but it ends up separating us and creating greater division and distrust.

As psychologists will tell us, we fear losing what we have, however meager. We become selfish. This psychology undermines our courage to pursue greater goals and to connect with our purpose, our "why", at the individual and organizational levels.

Executives in 2008 largely missed the chance to turn a disruptive market reckoning into a transformative opportunity, to build a better world, to initiate real change. They failed to rise to the demands of the moment, of society. Despite much rhetoric to the contrary, they sought merely to return the status quo, which meant superficial tweaks instead of honest reflection on their values.

Consequently, they dragged out their own recovery. Unfortunately, until we learn to rise to the moment and help effect change, we'll continue to revisit extreme social and societal shocks that have economic consequences with increasing frequency.

Values and our Raison d'être

Understanding our core values is key to innovation and long-term growth. Companies that aren't in touch with their own values can't see into the future very well, other than to extrapolate a future based exclusively on the past (e.g. straight-line projections), as a form of the status quo. They’re ill-prepared for disruption, whatever form it might take.

They can't visualize possible scenarios outside the status quo (current products, services and business practices) of where they might be and what the world might look like in 10 years, much less 2 years. Thus, they're unable to come to the forefront and lead during times of market or societal disruption.

Companies that have a deeper connection with their values are better positioned to imagine how they might adapt to a world undergoing disruption and transformation. They can project into the future where they might be, not based on product or service offerings, but on what they want their impact to be, what their purpose for being is, their "why."

Empowerment and Inclusion will Expand the Economic Engine

Companies that are connected to their values can also imagine how their industries might be changed for better.

Today, as we all grapple with wealth disparities and the future of capitalism, they can imagine building a world that's more equitable, where workers aren't seen as human capital and as a resource to be squeezed like a lemon for more productivity and greater profit, but as living, breathing people, who have families and who are part of the community, who are loved and respected, who have dreams and aspirations of their own.

They can imagine a world where diversity and raising up the poor, empowering them, is finally recognized as a real driver for economic growth and broad prosperity. They can imagine the betterment of humanity.

True Innovation is about Humanity

Companies have misunderstood innovation all along. Innovation (or what I call aspirational growth) is never tactical, or even strategic. It's foundational.

Real growth always comes from an organization's DNA, its values and its creation myths, that emerge from the "why" question of their existence. Contrary to what many aspiring Silicon Valley entrepreneurs think, innovation isn't about being clever and finding market or operational inefficiencies to “solve” (exploit) with a tech solution. It's about having the gumption to be visionary about impacting humanity. This ability to project forward, to imagine a better future, is what drives aspirational (and in turn, exponential) economic growth.

At the most grounded and aspirational companies, you'll find that the receptionists and other front-line workers will be able to speak easily about the company's values and beliefs, that there's a shared sense of purpose across the organization (a community) that is evident to any outsider.

We have a choice:

We can continue to limit our potential by focusing on short-termism and non-sustainable economics and see societal disparities get worse. In this scenario, we’ll only see an increase in social and economic disruptions as poverty and other detrimental externalities increase.

Or we can choose to focus on building companies and an economy that lifts our humanity, where companies are driven by long-term values and society starts to realize sustainable and exponential, equitable economic growth.

In this time of disruption, change and reckoning, the leaders who will shape the future and drive long-term growth will be those individuals and companies driven by strong core values, a sense of humanity and a deep empathy to connect with diverse customers, employees, partners and communities.