Moral Leadership

JULIA KENNEDY: Welcome to Just Business. I'm Julia Taylor Kennedy.

Today on the program we're zooming out to take a bird's-eye view of corporations, their proper role in society, and how that should affect their strategy.

Consulting and advisory firms have long helped corporations figure out how to make their operations more efficient and how to move in a direction that will breed profitability. But, as consumers, potential employees, and business partners begin to scrutinize that behavior, business experts are looking at new frameworks for advising companies on success.

Today on Just Business we'll hear from two advisors with philosophy degrees who think deeply about the role and purpose of corporations in society.

Let's start with Dov Seidman. He's founder and CEO of the advisory firm LRN, and he holds degrees in law and philosophy from Harvard and Oxford. He wrote a book on moral-based corporate strategy, called HOW: Why How We Do Anything Means Everything. Seidman keeps good company. Bill Clinton wrote the foreword to the latest edition of HOW and Thomas Friedman often cites Seidman's ideas.

Seidman writes and speaks around the country about how a globalized climate encourages moral behavior from companies.

Seidman was dyslexic as a child, and he said that fostered a strong analytic tendency.

DOV SEIDMAN: I remember distinctly in fifth grade—now, I was really dyslexic; I could not read and write—my mother hired a tutor to hold my hand and just help me get the handwriting right—and I remember distinctly when we read stories out loud in class, I looked to my left, I looked to my right, and most students were following the story. I was petrified to be called on, and all I did was try to figure out the algorithm. Every paragraph or two, the teacher gets to me, and I was going to practice that paragraph.

So, if you will, I was in the moment but I was on the ceiling of the classroom or the ceiling of life, figuring out spatially the human dynamics, probably developing early in life an empathy or a compassion for others in the class who were suffering. I just think that morality, behavior, who's doing well, who's not, right or wrong, became a very personal passion of mine.

Cut forward many years. I struggled and struggled. I got a 970 on the SAT out of 1600. I studied another six months intensely, and I increased my score dramatically from a 970 to a 980. I still couldn't crack 1000.

But I washed Lionel Richie's cars every Saturday with my friend Reuben. Every Saturday I'd go to Lionel Richie's cars when he was the hottest singer around and we would wash four of his cars every Saturday so I could pay for high school and then college.

UCLA admitted my friend Reuben. I wrote them a letter with one week to start. I got into UC Santa Barbara, and I wrote UCLA a letter saying, "You admitted my friend Reuben. You must take me. I plead hardship. I need to be with Reuben so we can wash cars together."

UCLA did, with one condition: that I would enroll in remedial English. So I said yes. I got to UCLA and all the popular classes were taken—history, psychology, et cetera. What do you think the one open class was? Moral philosophy. It was open because it intimidated people so much because it was so hard. But if ever a seeming curse would turn out to be a blessing, it did so in my case, because moral philosophy rewarded you for reading just 10 pages in a deep, penetrating way and wrestling with the material.

Julia, I was a fish in water. I lit up. Reading and writing and communicating and—passionately, in an efficacious way—trying to promote philosophical ideas in my case was an outcome and byproduct of a tenacious love affair with moral philosophy.

At some point, I stopped being a student of philosophy and I started to philosophize and create frameworks. Here I am today, with a framework for how companies and their people should do business and conduct themselves in the marketplace, for how governance, culture, and leadership can come together and build and really synchronize to form a 21st-century corporation or organization that really is profitable at the same time as it is responsible.

JULIA KENNEDY: You went through how the way you think and the way you developed thinking and how your dyslexia helped that. I'm curious also how your upbringing in Israel and California may have informed your eagerness to—how your religious outlook might have informed your ideas, or the concept of questioning might have informed them. What kind of impact did that have?

DOV SEIDMAN: I was born in San Francisco. After 1967 my mother went to Israel with three little kids—I was three, my brother was four, my sister was two—for a 10-day holiday. On the 10th day, my mother had a chance encounter. She was an American from Detroit. She had a chance encounter with Mrs. Rabinowitz in a toy store, because she was trying to buy us toys to occupy us against boredom on the flight home.

This little lady looks up at my tall, towering mother, who was a force of nature—and I miss her every day—and said to her, "This country needs your precious little kids."

Two hours later, we were in kindergarten and she called my father and said, "I'm not coming home." This back-and-forth routine that became a habit formed: kindergarten, Tel Aviv, Israel; first grade, San Francisco; second, Jerusalem; third, San Francisco; fourth, Jerusalem; fifth, Tel Aviv; sixth, Jerusalem.

The first time I went to school two years in a row was eleventh grade. We were switching languages and countries and cities every year because my mom had this gypsy quality. She was constructive, she was all about the right values, but ran around. And we ran around with her.

I think the world became my home, not one specific place. The ability to be resilient and adaptive became core to who we are.

The physical world was less stable to me. But the world of ideas, the Platonic heaven of ideas and concepts, and dreaming about how things can be and how my life could turn out if I turned out to be able to pursue a life worth living, became my world of stability, the world of ideas. So when I found philosophy later on, it felt very familiar.

JULIA KENNEDY: You took these courses in moral philosophy, and you went to law school. How did you decide to start an advisory firm?

DOV SEIDMAN: I had some time to kill, about six months. I accepted a clerkship, of all places, back in Israel on the Supreme Court of Israel. I had spent the summer in the State Department and then I was being paid by the week to work at O'Melveny & Myers in their D.C. office, a law firm.

I was asked to do a legal research memo by a senior partner. I respect that we live in a rule-of-law society. I respect the value that lawyers bring to their clients and the world. But I came in close contact with the idea that the practice of law as a business didn't feel to me as progressive as it needed to be.

I was asked to go to the library and do a research memo on a topic that a senior partner could do in three minutes, and it took me three weeks because I was new and inexperienced. I was tenacious and industrious, but I had no sophistication and expertise to bring to bear.

I started to think about legal practice being pyramid in shape. It felt a bit like a medieval guild, where a few people on top control everything, and the pyramid gets wider and wider, and young people are hitting or missing in the library, cutting their teeth on things.

Literally, this epiphany hit me, that you can democratize legal knowledge by creating a network of over 1,000 or so law professors and lawyers. Imagine a world in which corporations could call up with any legal question or ethics question and get an answer from an expert.

Now, the partners in the law firm that I started to describe this idea to looked at me askance and said, "You're about to throw away your career. This is a dumb idea. There's provisions against the unauthorized practice of law," et cetera, et cetera, et cetera.

I could not make any long-distance phone calls because you needed a client key. But I could make local calls. The general counsel of MCI, of all companies, was a local call in D.C. I called him and he answered the phone and I pitched him this idea. He said, "Dov, come see me."

A week later, I came to see him. I described this idea to him and his senior staff that was really about, in a universalistic, capitalist society, where not everybody has $500 an hour to walk into the front door of a law firm, what if we democratized legal and ethical knowledge by making it more broadly available and creating a database of it where people could reuse it and relicense it over and over. Think of what Lexis and Westlaw did for raw data, publicly available cases and statutes. My idea was that law firms would stick to advice and counsel and complex representation and wisdom, but knowledge, research, could be done in a new way.

I spent 18 months raising $2 million and starting LRN in 1994, and here we are today.

JULIA KENNEDY: The model has changed quite a bit since you started in 1994. Tell me a little bit about what the company looks like now and some of these new initiatives you're undertaking within LRN to use it as a laboratory for some of your ideas.

DOV SEIDMAN: The company was always about behavior. There are basically two types of behavior:

• You do that which is required (law, compliance, regulation), where it's basically how do you help a company honor and meet its legal, regulatory, and policy obligations, the company and its people.
  
  
• And then there are behaviors that go beyond that which is required of you to do; that which is inspired, what's otherwise principled, right, responsible. And think of the behaviors we want from people today.

Collaboration is a behavior; innovation is a behavior; delivering an experience and not just a service to a customer; delighting someone; going on a social network and representing your company honorably and fairly but enthusiastically—these are all behaviors that we want today. We don't just want to extract speed, productivity, and performance from people; we want to inspire in them these higher-level and higher-order behaviors.

So I've always felt that there's a way to bring together a system that really inspires people to do not just what is right but that which otherwise adds value in the world. That's what governance, culture, and leadership are really designed to do in that way.

I mean think of what a culture is. The culture—what character is to you; Heraclitus said "character is our destiny." Culture is the character of an organization. It animates how the company and its people do whatever it is they do.

JULIA KENNEDY: You meet very closely with a lot of leaders of these big-name companies. What are these CEOs like and how open are they to these big ideas that you're bringing to them and to reading Heraclitus and others?

DOV SEIDMAN: You know, we're in an up-and-down world. We're in a world where most CEOs used to manage their companies on a five-year plan, then they went to a one-year plan. They're having a tough time meeting quarterly targets, whatever their targets are. There's a Greek bond crisis, a tsunami, a Gulf oil spill. I mean we use to have boom-and-bust cycles every ten years, so we were resilient for one year and then we had growth and prosperity for nine, and we were able to control our environment, and we embraced linearity. We had linear plans where next quarter was bigger than the last one.

We are now in a curvilinear world. We are going up and down. The boom-and-bust cycles are not every 10 years but they're every 10 weeks, and in some cases every 10 days.

Frankly, the leaders and CEOs that I speak to fall into two camps:

• Some are still talking about resetting and rebooting and reforming the system. They're hanging on, thinking that the world will go back to what it was. They want improvement, they want progress, so they want to fix and improve and reform.
  
  
• Then there are CEOs that say, "We are in a new era. It's discontinuous with life as we've known it. When you're in a new era, you listen to Einstein, who said that you can't use thinking from an old era in a new one and that we can't use the same level of thinking that we used to create our problems to solve these problems going forward. Those CEOs want to rethink, and they're prepared to rethink fundamentals. I think those are the ones who excite me the most.

Paul Polman, the CEO of Unilever, sometime last year we were having lunch, and he looks at me and he asks me what I know for him was a business strategic question. He said, "Dov, I've been thinking recently that it took them 17 days to get rid of Mubarak, and Mubarak had a military. I don't have tanks, I don't have a military. What if my consumers or my own colleagues or employees didn't like something about how I run this company?"

JULIA KENNEDY: Or my shareholders, right?

DOV SEIDMAN: Or my shareholders.

He was saying, "What implications does that have?" That is a rethinker. I admire people who understand the world we're in and are prepared to rethink.

I mean look at Netflix. Netflix was counting how many subscribers they could pile on as fast as possible. They felt powerful and they went out with a price increase. Eight hundred thousand subscribers bolted in 48 hours. When was the last time you saw 800,000 people collectively, in unison, act that emphatically by fleeing before? It's a new world.

JULIA KENNEDY: It impacted Netflix's policies a bit. I mean they apologized at least.

DOV SEIDMAN: That was the beginning of reconnecting. But in the meantime it also hurt their stock and their operations.

JULIA KENNEDY: Right.

Something else you've written about is some of the things that you're playing with at LRN, having to do with having channels open for communication, teams of evaluation rather than just boss/employee. Can you tell me a little bit about those and what you've been finding?

DOV SEIDMAN: We're helping companies foster do-it-right cultures that win. It's important for us to be deliberate and rigorous about how we do that for ourselves. In many ways, LRN is a laboratory, because we try things out and we bring them to our client partners and say, "Here's how we're doing it."

First and foremost, we've decided that we're a mission with a business, not a business with a mission. About three years ago, as a symbolic act, because we were evolving there anyhow, I stood up in front of my 300 or so colleagues and I ripped up the org chart and I said, "Going forward we report to the mission. No one should experience life at LRN in a subordinate relationship to a boss."

Up until that point, we went to an expense policy, where we just paid expenses on the honor system and only did some random checks to see where we're spending the money. Our vacation policy is take all the vacation you think you need as long as you do so openly and collaboratively.

But we were really trying to tear down the structures and the rules and the policies that get in the way of this kind of freedom to contribute your all. We just keep taking it further.

In our performance review process, we actually don't do performance reviews, we do principled performance. Colleagues pick up a network of 20 or so people who fill out pretty rigorous surveys and freeform paragraphs around what it's like to work with them and where they add value and contribute. In the end, each colleague internalizes for him or herself all that information and insight, does a self-evaluation, and lands on a final score for themselves. We at LRN pay bonuses to colleagues based on how they evaluate themselves, because there's no boss or supervisor to do it for them. The only thing they need to do is publish that score publicly.

JULIA KENNEDY: So the scores are published publicly. Have you seen any grade inflation?

DOV SEIDMAN: I don't think so, no.

JULIA KENNEDY: So it has been working well.

DOV SEIDMAN: Yes. We have a core value of truth. I think at the end of the day people want to look their colleagues in the eye and say, "Listen, this is the truth. I did not ignore, I really respected, what 20 or so colleagues came up with." It seems to be working.

JULIA KENNEDY: That's great.

DOV SEIDMAN: And we're going to push the limits. We're going to keep trying different things.

The world is getting flat, and I think that companies and organizations are flattening with the world. Some of the most traditional, conventional companies used to have 14 levels between, say, the receptionist and the CEO, and they've gone to six or seven.

I think that it's a struggle. How do you reward people without saying, "Here's a promotion every 18 months" because there's 37 rungs on the latter? How do we reward contribution and expanding responsibility without this vertical ladder? So everybody is struggling with how to recognize significant contribution without the traditional corporate ladder.

But I don't think you can fight the trend of flatness and of the fact that becoming a more human, empathetic, and compassionate organization that wins and thrives is where it's going. And I think that you can't say to some people, "You think long-term and you think short-term." I think people are going to have the same outlook.

JULIA KENNEDY: So then, what kind of expanded responsibilities can you give people, or what's your answer for that kind of "You've done well, here's a reward"?

DOV SEIDMAN: Look, if you go back 100 or so years, what did we want from employees? We wanted quasi-robotic, repetitive behavior—show up every day and make sure that next Tuesday you do what you did last Tuesday. It was more an industrial environment where we wanted speed, productivity, reliability, lots of energy, and consistency.

When I sit with leaders today and I say, "What do you want from your people?" here's the list: "Creativity. I'd like them to be able to collaborate with people around the world who come from different cultures and show them respect. I want them to innovate. I want them to speak on behalf of the company and, especially when we're attacked, to really get in there and defend us."

If you go through the list, what are we asking of people? We're asking for their most human qualities. You can't command this. You can't even motivate this. You can't say to two people, "Go in a room and don't come out until you learn how to innovate," or "You, don't come out until you have a great idea that's going to change the trajectory of the company." The very things we're asking from people can't be motivated or coerced with sticks and carrots. They can only be inspired.

People are inspired when they are really propelled by values that are dear and fundamental to them, when they're in pursuit of a mission worthy of their dedication, and there's a purpose there that they feel is bigger than them; and when there are leaders who are really exemplifying the best of behaviors, the values translated into behaviors that they can emulate, and where the leaders are not just manifesting formal authority (do this because I have a bigger title than you, or do this because I'm your boss), but moral authority (do this because it's right, do this because we're connected and you believe).

I sometimes speak to people and I say to them, "Are you for empowerment?"

They say, "Yes."

I go, "At some level I'm for the spirit of empowerment, the autonomy and the freedom to contribute your all. But at some level empowerment is holding us back, because when you empower someone you're reminding them that the currency here is power; I'm just a nice guy and I'm giving you some." And then you want power because you're a nice person and you want to give some.

How do we go beyond who's got the power, who gets to make this decision, so it's not, "Oh, you make all the little decisions below $5,000 and I'll make all the big ones"? How do we create a culture where people come together to collaborate on what the right decision is and they stop talking about who gets to make the call but what the right call is?

I think that's where it's going.

JULIA KENNEDY: Thank you so much for joining me on Just Business.

DOV SEIDMAN: It's a pleasure.

JULIA KENNEDY: Dov Seidman is founder, CEO, and chairman of the corporate advisory firm LRN.

Dov Seidman promotes flat organizations. Michael Raynor doesn't go that far. Raynor is a director at Deloitte Consulting and author of several books on corporate strategy, including The Innovator's Manifesto and The Strategy Paradox. He also holds a degree in philosophy and doctorate in business administration from Harvard.

Raynor thinks public corporations have gotten sidetracked into answering primarily to their shareholders. But he thinks that organizations must retain tiered management and keep those roles clear.

MICHAEL RAYNOR: Elliott Jacques basically looked at a wide variety of organizations over about a 50-year research career and was able to demonstrate, really quite convincingly, perhaps as convincingly as one could demonstrate this sort of claim, that successful managers at different hierarchical levels in an organization focused on different time horizons, and in fact at the organizational level those organizations that were the most successful manifested this kind of division of labor by time span.

I picked up on that and offered a slight modification of the way Jacques, at least as I understood him to work with those theories, had described it; which is to say, rather than looking at different time horizons and suggesting that somehow dealing with a 10-year time horizon is harder or easier than dealing with a one-year time horizon, I take the view that they're all enormously difficult but there is great value in implementing that sort of division of labor, so that senior management is thinking about the uncertainties that lie 10 years out whereas operating managers that are worried about the next 12 months are worried about delivering on the commitments that were made two or three or five years ago. In that way it's possible both to position an organization for the future while delivering on its commitments in the present.

JULIA KENNEDY: What do you think of some other views that are out there in the corporate strategy universe, that organizations should be moving to be flatter, that some of the best ideas and feedback can come from unexpected places, so there should be less hierarchy, more opportunity for interaction and dialogue among different levels of the corporation? Why is that a less feasible approach?

MICHAEL RAYNOR: Well, I don't know that it is. The notion that there should be less hierarchy is actually something that Jacques's work uncovered.

In a lot of organizations, there is actually a pathology, which is that there are too many layers. The reason you know there are too many layers is that you have too many people worried about the same time horizon so they're constantly stepping on each other's toes. People are looking above them, saying, "Will you please get off my back and let me do my job?" And people higher up in the hierarchy are looking down, saying, "Why do I constantly have to babysit you?" That's not a function of the inabilities or the incompetence of the people involved; it's rather a pathology of the structure itself. So very often there is too much hierarchy to do this well.

The other thing I'd point out is that who's responsible for making a decision doesn't say anything about where the best information for making that decision might lie. So it's perfectly, not merely conceivable but in fact in my experience likely, that if someone is worried about what could the world look like 10 years from now, the first place they should turn is the people who are wrestling with the reality as they find it today.

So there's a difference between saying the folks on the front line have tremendous insight and a great deal of input into a particular decision and being responsible for synthesizing input from across a great number of those folks into a coherent view of the uncertainties that will define the future of an organization.

JULIA KENNEDY: What are some of the virtues of hierarchy?

MICHAEL RAYNOR: Well, this ability to divide labor in ways that allow for specialization; I think that probably goes all the way back to Adam Smith's pin factory, where you are simply cutting up complicated tasks into discrete parts and then reassembling them.

I think that when it comes to coping with uncertainty and dealing with the very different demands that go along with delivering on commitments versus defining uncertainties, the ability to separate those makes it possible to manage both more effectively. Trying to put both of those into the same place and make someone responsible for both coping with uncertainty and making commitments usually means that they end up accepting rather painful and very sub-optimal compromises.

JULIA KENNEDY: You've talked about why shareholder value isn't necessarily the best guiding star for top management of major corporations. Why did that concept intrigue you and why did you start writing and thinking about it?

MICHAEL RAYNOR: I think what you're alluding to there is the notion of what's the objective function of the corporation. This is a different topic but I think an intersecting one eventually, which is that when you think about what's a corporation for, what is it there to do, that has been something that has been sort of a running gun battle in a variety of spheres for decades.

Perhaps one of the most visible and highly influential pieces on that was something by Milton Friedman—I want to say it came out in 1972—and it was the whole notion of the purpose of the corporation. He said the purpose of the corporation is to enrich the shareholders. That's a perfectly defensible view, it goes without saying. The whole notion of shareholder value supremacy is something that has really become part of the zeitgeist of the corporate world around the world. But I think it's probably worth questioning that premise, and that's something that I've spent some time thinking about.

Forgive me if this sounds a tautology. If you want to maximize shareholder wealth, then shareholder wealth maximization is the correct objective function. When an organization faces a tradeoff —should we spend more money on R&D [research and development], should we spend more money on marketing, should we cut costs here, should we expand investment there—you can only spend a dollar once, as my mother taught me, and so you're necessarily forced to make difficult tradeoffs.

And you make those tradeoffs in the face of uncertainty. It's not immediately clear whether spending more money on R&D or spending more money on marketing is going to enrich shareholders. But if you have at least an objective function, that which you are trying to maximize, then you have something to go on, something to help guide those decisions.

So now the question becomes: What's the correct objective function; how should we think about that? Is it shareholder value? There are competing views, after all.

Something that you may be familiar with is the whole notion of stakeholder theory or constituency theory, the idea that shareholders need to balance the competing claims of society at large, shareholders, customers, employees, and so on.

The problem with that, in my view, as an alternative is that it doesn't help you make a tradeoff. You need one objective function.

All right, you can't ask a corporation—in fact I think it would be a bad idea to say to corporations, "What you should do is you should focus your efforts on improving social welfare." Corporations have no mandate to do that. That's what governments are for.

So what in fact should corporations focus on? What should they try to do?

It's entirely possible, by the way, that focusing corporations on maximizing shareholder wealth is in fact the best way for them to maximize social welfare.

But my position is that that's an empirical claim that no one has demonstrated. So I have a different view. I take the view that in fact a legitimate contender for the appropriate objective function of the corporation is—and this is where things get a bit woolly, if they haven't already—the corporation's own survival. So that corporations should in fact, the managers of corporations and the boards of directors of corporations, seek to ensure the survival of the corporation.

Here I'm taking a page from evolutionary theory. For instance, if you take the view that shareholders are the proper objective function, a very popular view and a defensible one, there's an interesting problem, it seems to me, which is that when shareholders invest in a public corporation, or a private corporation for that matter, they have limited liability. They're only on the hook for the amount of capital that they invest. So that's an interesting question. That means that they in some sense make the claim that they should be the primary beneficiary of the corporation's efforts, despite the fact that they have vastly limited risk.

Contrast that with employees, for example, who invest a great number of years in developing firm-specific skills and very often relocate, take their families with them. They are much less flexible, much less liquid, and exposed to far greater risk when it comes to the investments they make in the corporation than any shareholder ever is.

So now I really do kind of scratch my head, because it sounds to me like we're maximizing the returns for the constituency that bears the lowest risk. That just doesn't seem right to me.

My view is that everybody who contributes to a corporation is fundamentally a supplier. Shareholders supply capital, workers supply labor and intellectual capital, customers supply revenue, a government supplies an operating framework, a rule of law, civil society within which to function. The corporation's job is to pay each of those suppliers whatever it needs to pay them in order to get what it needs from them. It's not in the business of maximizing returns to any one of them individually.

JULIA KENNEDY: So if we go to the idea that corporate survival should be the moral objective of leadership of corporations, how far out should that go? A byproduct of that is going to be benefit to society, and that's kind of what we've created them to do. But you could see someone coming in and saying, "Okay, well, if the idea is corporate survival, a corporation can only survive in a well-functioning society," and so there is this bar of responsibility to having a well-functioning society—i.e., cutting out any negative externalities, like pollution, damage to global health, tainting an economic indicator—all kinds of different ripple effects that can go either very far or be very immediate.

So how do you think a corporation should juggle those kinds of considerations?

MICHAEL RAYNOR: Well, the bad news is that what I'm suggesting here doesn't make those hard problems any easier to solve. So in exactly the same way when I said that if a corporation assumes that its primary purpose is the enrichment of its shareholders, it can still face very difficult and ambiguous choices around how it should spend its money and what it should do. Having an objective function sure helps, but there are lots of hard problems remaining.

JULIA KENNEDY: But then there is also a balance, if you're thinking about innovation, how much to constrain the actions of these corporations from a governmental perspective and how much the corporations should be constraining themselves, because if there are all these external constraints, then there is less room for them to operate and innovate.

MICHAEL RAYNOR: First of all, yes, I would agree with all of that.

But second, I'd say that my emphasis on constraints and me being a fan of constraints doesn't mean I'm a fan of lots of constraints. I'm a fan of the right constraints. That may sound uninformative, but I think it's an important distinction. The fewer the rules you can have in any given game, the easier it is to play and the more entertaining the competition. I think that applies here as well. We want to keep the rulebook small, clear, effective. Those are important objectives.

JULIA KENNEDY: Tell me an example of a corporation that you think gets this objective of corporate survival. You've talked about Costco quite a bit, so tell me about Costco and why they get it right.

MICHAEL RAYNOR: Yes, that's a good one to adduce. I thought it was fascinating to be able to find analysts who had looked the stock price appreciation for Costco, which had been significant by the way, one of the top—I can't remember the specifics; forgive me—one of the top-performing equities in the U.S., and yet analysts looked at it and they were a bit disgruntled, saying, "This company could have done even better still."

I took that as evidence—this is me inferring from those data—that Costco was making some very interesting tradeoffs. Costco in the retail space, at least at the time of that research, paid wages that were well above industry average, provided benefits that were better than one would find in many other retailers for comparable work. So it was actually providing—at least again my inference—more than was absolutely necessary to labor as a factor of production, to use the 19th-century terminology, and they were providing perhaps less than they could have to capital.

Now, why would they do such a thing? It seemed to me that what that was optimizing was not so much the returns to any particular constituency, but rather making a series of tradeoffs so that it was keeping everybody more than happy enough to continue to be part of the game, to continue to contribute the resources that Costco needed from them, in order to be a thriving and successful corporation.

That looks like a company that is saying, "What's important here is the thriving and survival of Costco. What is less important is maximizing returns to any particular supplier of an input that we happen to require."

JULIA KENNEDY: So I guess, as things hopefully get better in the next few years, we can watch and see whether this corporate survival priority can take root.

MICHAEL RAYNOR: Yes. Distributing the surplus is a problem that you only have when there is a surplus to distribute.

JULIA KENNEDY: Right.

Michael Raynor, thank you so much for coming. It's really interesting and great to take a step back with you. I appreciate your coming on to Just Business.

MICHAEL RAYNOR: Thanks. It's been a pleasure to be here.

JULIA KENNEDY: That was Michael Raynor. He's a director at Deloitte Consulting and he writes about business management and strategy. He spoke to me from Toronto.

That wraps up this week's look at the role of business in society and what that means for corporate strategy.

I'm Julia Taylor Kennedy. Thanks to Terence Hurley and Emil Chireno for their contributions to this week's podcast. Thanks to Tony Higgins and Setec for this week's music.

And thanks to you, our listeners, for joining us. We're happy to hear from you. Please send questions and comments to [email protected].