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A New Kind of Corporate Takeover is Needed

Published Monday, October 28, 2002 in the Star Tribune.

By Ronald Bosrock

The past two years have produced the kind of trauma that leaves a country, any country, with large gaps in its confidence, trust and feeling of security.

The events of 9/11, the resulting war on terrorism and the self-imposed restrictions on our citizens were traumatic enough.

But there was more to come -- this time caused not by a group of outside terrorists but by a group of corporate insiders. The rash of scandals by the likes of Enron, Tyco, WorldCom and Arthur Andersen caused investors worldwide to lose trust and confidence in the U.S. economic system as well as in the integrity of those executives charged with running the companies and providing the oversight of their performance.

The loss of life on 9/11 caused us to lose our sense of security while the corporate scandals caused us to lose our faith and trust in each other.

Add a weak economy, mounting layoffs, the erosion in the value of retirement assets and now the banging of war drums -- is there any wonder there is a crisis of confidence and trust?

All stakeholders

There is little that corporate America can do to restore the feeling of security caused by the threat from outside. But there's plenty business leaders can do to restore confidence and trust in themselves and the economic system upon which we all depend.

The corporate community must take back its own destiny from the Wall Street institutions that often demand short-term performance that is at odds with sound management and future planning.

It is the Street's demand for short-term earnings gains that has, in part, caused the pressure for quarter-to-quarter performance. That, in turn, leads to management shortcuts and bad decisions made to "make the numbers" (maximize short-term profits) at the expense of the company's long-term future, its employees and its customers.

The growing gap between executive compensation and employee pay often is cited as the reason there has been so much loss of confidence and trust. But the gap largely can be explained by the stock-option-laden compensation plans that reward short-term profits at the expense of long-term stewardship. There would be much less angst associated with the executive compensation issue if those executives were producing the kind of enduring value that benefits all company stakeholders -- and not just the shareholders.

But there is no reason the corporate executives can't take back the role they have been given -- namely, to run the company for the good of all the constituents.

It long has been a part of the Minnesota business culture for corporate leaders to consider themselves, their employees and their companies as part of the larger community.

And as part of the greater community, executives have a responsibility to increase more than just the shareholder value in the company. It is part of his or her role to include these four stakeholders:

• The customer. Without the customer, there is no business.
  
  
• The employee. It is the employee who has to get the job done -- produce the product or service and deliver it on time.
  
  
• The shareholder. As owners of the company, shareholders have the right to expect a reasonable return on their investment.
  
  
• The community. Because all stakeholders live in the community and because the company needs a good community to attract good workers and good executives, it becomes an important constituent.

Familiar idea

I am aware that this may sound a little preachy for the business community and even a little insulting. But the companies tainted by scandal seemed to have forgotten all the constituents.

The idea that a company could be successful and still consider the customer, the employee, the shareholder and the community all as a part of what was considered the greater community is not foreign to Minnesota.

In 1976, when I was recruited to come to Minnesota from Michigan, the recruiting firm gave me a copy of Fortune magazine that talked about Minnesota as one of the best places to live in the United States.

One of the main reasons cited by the magazine was civic spirit of the Minnesota business community. When the greater community needed to get something done, it was the business community that took the lead.

Maybe we have lost some of that special leadership and some of those special leaders. Several of our larger companies moved or no longer exist. But the scandals of the past year should be enough to cause us to reconstitute our commitment to those constituents and to the principles that build our community.

The Center for Ethical and Business Cultures at the University of St. Thomas (joined recently by the University of Minnesota) long has been an advocate for this stakeholder approach.

The center has become known around the world for developing the Minnesota Principles of doing business. At their core, the Minnesota Principles espouse managing businesses on behalf of all stakeholders for the good of the greater community.

The center, now headed by Ron James, has had some success promoting these ideas into the global economy through the Caux Roundtable, based in Switzerland.

I would propose that a similar association of executives be formed whose mission statement would include managing their companies not for the analysts in New York but in a fashion that takes into consideration all the aforementioned constituents.

Minnesota companies that were born and raised here not only gave good returns to their investors but served the other constituents as well and help to build a wonderful community. The honor roll includes 3M, Dayton Hudson (now Target Corp.) Northwest Airlines, the St. Paul Companies, Control Data, Honeywell, Burlington Northern, Pillsbury, General Mills, Carlson Companies, H.B. Fuller and Medtronic.

The executives who head these companies have the necessary clout to show Wall Street that if they run their companies in a way that serves the greater community, everyone benefits -- most certainly the shareholders.

Minnesota has been recognized for its corporate leadership in the past. Now it's time once again for Minnesota business leaders to step forward and let the investment world know that it is possible to serve more than one constituency. It's time for a different kind of corporate takeover.

Center for Ethical Business Cultures

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