Business leaders are being urged to adopt a multistakeholder approach to governance in place of the shareholder-centered approach that has guided their work for several decades. But through hundreds of interviews with directors, executives, investors, governance professionals, and academics over the years, the author has found wide differences in how those leaders understand stakeholder capitalism. That lack of clarity can put boards and executives on a collision course with one another when decisions requiring difficult trade-offs among stakeholders' interests arise. It also creates expectations among stakeholders that if unfulfilled will fuel cynicism, alienation, and distrust. To help reduce the risk of such negative consequences, the author has created a guide for corporate leaders that illuminates four versions of stakeholder capitalism: instrumental, classic, beneficial, and structural. They reflect significantly different levels of commitment to the interests of stakeholders and rest on very different rationales.
The Dutch East India Company's board of directors must decide what to do about an impending legal requirement to liquidate the company's assets and return to shareholders their capital and any profits earned during a ten-year lock up period. The charter granted to the company in 1602 by the Dutch Estates General (legislature) required the liquidation and accounting to shareholders after the initial ten-year period and again at the end of a second ten-year period. However, the company's directors believe that more time is needed to reap the benefits of shareholders' initial investments and that liquidating the company's assets after the initial ten-year lock-up would make it impossible to raise capital for the second ten-year term. The case describes the origins of the Dutch East India Company, the world's first publicly-traded multinational company, and traces key aspects of the company's governance and development during its first ten years, including the emergence of disagreement among shareholders about corporate strategy and dividend policy.
Ellen J. Kullman, the retired Chairman and CEO of DuPont, describes how she guided the storied science and technology company through a contentious proxy battle with activist investor Trian Partners, which acquired DuPont shares in 2013 and sought to break up the company. Trian's pursuit of board seats led to a 2015 shareholder vote, which DuPont won under Kullman's leadership. In a sweeping interview with Professor Lynn S. Paine, Kullman describes lessons from her experiences navigating the proxy contest that captured national attention as well as about working with your board, setting company strategy, leading a large corporation, evaluating time frames for shareholder returns, measuring stakeholder performance, assessing shareholder engagement, considering joining a new board and boardroom dynamics, and understanding how boards have changed over the years.
In November and December of 2013, Target Corporation suffered one of the largest cyber breaches till date. The breach that occurred during the busy holiday shopping season resulted in personal and credit card information of about 110 million Target customers to be compromised. The case describes the details of the breach, circumstances that led to it, consequences for customers and for Target, and the company's response. The case then discusses the role of management and the board of directors in cyber security at Target. Target's board of directors was subject to intense criticism by shareholders and governance experts such as the leading proxy advisor Institutional Shareholder Services (ISS). The case discusses the critique and defense of the board's role. The case is designed to allow for a discussion of the causes and consequences of the cyber breach and accountability of directors in cyber security.
More and more companies recognize the importance of corporate responsibility to their long-term success--and yet the matter gets short shrift in most boardrooms, consistently ranking at the bottom of some two dozen possible priorities. Many years ago labor conditions in Asian contract factories prompted Nike board member Jill Ker Conway to lobby for a board-level corporate responsibility committee, which the company created in 2001. In the years since, the committee has steadily broadened its purview, now advising on a broad range of issues including innovation and acquisitions in addition to labor practices and resource sustainability. A close examination of Nike's experience has led HBS professor Lynn S. Paine to conclude that a dedicated board-level committee of this sort could be a valuable addition to many if not most companies in at least five ways: as a source of knowledge and expertise, as a sounding board and constructive critic, as a driver of accountability, as a stimulus for innovation, and as a resource for the full board. In an accompanying interview with Paine, Conway discusses the committee's creation and provides an insider's perspective on what has made it so effective.
As China's largest homebuilder, China Vanke Co. Ltd. (Vanke) was facing an industry downturn sparked by strong government intervention. Faced with falling prices, Vanke's president must decide whether to keep the company's pricing and product positioning intact, and how aggressively to pursue its greener building strategy. Follow-up cases present additional decisions, including how, and how aggressively, to improve safety and quality (A-2), and whether to expand into other asset classes, such as commercial real estate.
China Vanke's president and his team must decide on a plan of action after reviewing the quality issues the company faced in early 2012 after a series of highly publicized incidents concerning the quality of the homes they built.
China Vanke's president is considering whether and how the company might make further inroads into the commercial real estate sector, while continuing to lead in the residential sector. He is also considering whether to branch into overseas residential markets such as Hong Kong, Singapore, and the United States.
The case describes Vanke's response to the decisions posed in the A1, A2, and A3 cases and asks whether Vanke should expand its strategic scope by defining itself as an "urban facilities provider" rather than a "residential housing developer." The management team is also reviewing the company's forays in places such as Hong Kong, Singapore, the U.S., and Europe.
Two members of Nike's executive team must decide what sustainability targets to propose to Nike's CEO and to the corporate responsibility committee of Nike's board of directors. Set in 2012, the case traces the evolution of Nike's approach to environmental and social concerns from its origins in student protests against labor conditions in the supply chain in the 1990s through the development of a board-level corporate responsibility (CR) committee in 2001 to the creation of the Sustainable Business & Innovation (SB&I) strategy in 2009. In this context, Hannah Jones, Nike's VP of SB&I, and Eric Sprunk, VP of Merchandising & Product, are working to finalize the company's next round of sustainability targets for presentation to the CR committee. When Nike signs on to the Roadmap to Zero, a Greenpeace-inspired initiative to eliminate the discharge of toxic chemicals into the water supply by 2020, the company's target-setting process becomes more complex. Jones and Sprunk must decide whether to recommend that Nike dial back other sustainability goals to meet the zero toxics challenge, modify its commitment to zero toxics, or find another solution.
Two members of Nike's executive team must decide what sustainability targets to propose to Nike's CEO and to the corporate responsibility committee of Nike's board of directors. Set in 2012, the case traces the evolution of Nike's approach to environmental and social concerns from its origins in student protests against labor conditions in the supply chain in the 1990s through the development of a board-level corporate responsibility (CR) committee in 2001 to the creation of the Sustainable Business & Innovation (SB&I) strategy in 2009. In this context, Hannah Jones, Nike's VP of SB&I, and Eric Sprunk, VP of Merchandising & Product, are working to finalize the company's next round of sustainability targets for presentation to the CR committee. When Nike signs on to the Roadmap to Zero, a Greenpeace-inspired initiative to eliminate the discharge of toxic chemicals into the water supply by 2020, the company's target-setting process becomes more complex. Jones and Sprunk must decide whether to recommend that Nike dial back other sustainability goals to meet the zero toxics challenge, modify its commitment to zero toxics, or find another solution.
Market capitalism, a system that has proven to be a remarkable engine of wealth creation, is poised for a breakdown. That sounds dire, and it is. Increasing income inequality, migration, weaknesses in the global financial system, environmental degradation, and inadequate government and international institutions are just a few of the forces that threaten to disrupt global market capitalism in the decades ahead. In conversations with business leaders around the world, the authors found that virtually all of them shared a deep concern for the sustainability of the market system, but their beliefs about how to respond varied widely. Some said that changing their behavior would be unnecessary or even inappropriate. Others were unsure how to deal with issues seldom thought to be the responsibility of individual firms. The authors call for business to be both innovator and activist in protecting and strengthening market capitalism. Instead of seeing themselves as narrowly self-interested players in a system that is overseen by others, business leaders must spearhead entrepreneurial activity on a massive scale-devising strategies that provide employment for the billions now outside the system, inventing business models that make better use of scarce resources, and creating institutional arrangements for coordinating and governing neglected and dysfunctional aspects of market capitalism.
An extensive global survey by three Harvard Business School professors finds that employees agree on core standards of corporate behavior. But meeting those standards will require new approaches to managing business conduct. The compliance and ethics programs of most companies today fall short of addressing multinationals' basic responsibilities, let alone such vexing issues as how to stay competitive in markets where rivals follow different rules. Companies must bring to the management of business conduct the same performance tools and concepts that they use to manage quality, innovation, and financial results.
To achieve growth and profitability in the world's third-largest economy, multinationals need strong leadership-but China is tough on top executives. Pulsating with opportunity, China attracts foreigners, yet HR professionals continue to rank it as one of the most challenging destinations for expatriates. The problem, says the author, is that many executives sent to lead China operations are ill equipped to tackle the country's unique challenges. And it's hard to overcome that handicap, because leading in China calls for skills that go beyond and in some cases conflict with standard business teaching and practice. Foreign executives must be adept at reworking management orthodoxies in real time to do well there. The author's research-which includes interviews with the China business heads of around two dozen companies-confirms that success requires cultural understanding and adaptability, market knowledge, the ability to sense and respond to rapid change, and support from headquarters. Most important, effective leaders have the crucial ability to play roles that Westerners often view as contradictory: For instance, they are strategic yet hands-on; authoritative yet nurturing; and action driven yet circumspect. Above all, they have the intellectual dexterity to develop new frameworks and capabilities to meet China's particular circumstances. This article illustrates how CEOs have modified accepted wisdom to tackle their biggest challenges in China. Though some of the lessons may seem like common sense to experienced China hands, they're anything but to a freshman expat. Leaders must (1) understand the market, but work with the state; (2) adapt to local conditions, but implement global standards; (3) pay for performance, but build a people-centric workplace; (4) drive costs down, but maintain quality; and (5) recognize complexity, but define clear priorities.