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 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 threequarter 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 good as they seek to 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 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 The individuals whose unusual business philosophies are reviewed in these pages attempted to prove to their peers in industry that profitable companies can, in fact, operate in ways widely perceived as being in the public interest But to what degree does the record of their efforts support that contention? In the chapters that follow, we examine the practices of the enlightened capitalists— the strategies, programs, and policies they introduced—with an eye to discovering which were successful, which were not, and why To the extent that the motivations of others can ever be fully understood, we try to fathom what compelled them to take the road less traveled Were they in search of greater profit, public recognition, or the respect of their peers? Were they motivated by religious precepts, economic ideology, ethical principles instilled by their parents, or the ego satisfaction that derives from creating something new and unusual? Finally, we endeavor to understand why, in most cases, their practices were not sustained, and—in the few instances where they were—why and how they succeeded In conducting this review, my method is simple storytelling Obviously any one of the stories told here, by itself, amounts only to anecdotal evidence But when many stories are compiled, one on the other—and we look to see where they and not overlap—we then can analytically examine a rich body of data This approach allows readers to make their own generalizations based on a substantial body of experience For some readers, a few of these stories may be familiar; for most, I suspect that the names of the profiled individuals will largely be unknown Indeed, it was said of one of these idealists that his “good works had been interred even before his bones.” My task has been to unearth the records of forgotten men and women who struggled with challenges similar to the ones business leaders face today, and who, like them, experienced both successes and setbacks Typically, most business biographies have either been portraits of larger-than-life executives whose accomplishments are inflated and failures swept under the rug, or of robber barons, rogues, and fabulously wealthy tycoons whose practices were shady at best In contrast, this look backward entails neither the heroic hagiography found in too many current business biographies nor the Enron/WorldCom/Bernie Madoff brand of corporate crime stories popular of late Nor will I focus on the behavior of contemporary business executives; as one who wrote a glowing account of the practices of Enron’s leaders just months before their criminal shenanigans were revealed, I am living proof of the foolishness of prematurely judging executive performance Instead, I endeavor to depict these idealistic capitalists as objectively as I can, examining the careers of deceased or long-retired men and women who, like all other humans, had flaws as well as virtues What follows, then, are the stories of a few rare individuals who sought to create a good society through enlightened business management—stories replete with incredible characters, high drama, improbable twists, acts of impressive courage, rare feats of imagination and innovation, moments of elation and disappointment, displays of folly and wisdom, and marvelous dollops of inspiration Their efforts represent what might be thought of as two hundred years of socioeconomic experimentation I hope they encourage today’s leaders of business—small or large, publicly traded or privately owned—to draw useful lessons from their experiments, then proceed to create profitable business organizations that address the most profound human needs Introduction and Background Why It Is Hard to Do Good If the water were clear enough if the water were still you would see yourself, slipped out of your skin, nosing upstream, slapping, thrashing, tumbling over the rocks till you paint them with your belly’s blood you would surprise yourself in that other flesh heavy with milt, bruised, battering toward the dam —Stanley Kunitz, “King of the River” Call them salmon Akin to the metaphorically finny humans in Stanley Kunitz’s poem, the business leaders profiled in these pages are men and women who, “nosing upstream, slapping, thrashing, tumbling over the rocks,” were ceaselessly driven on, bloodied, “bruised, battering toward the dam.” They insisted on swimming against the current of received wisdom and, with long odds contrary to success, struggled to overcome formidable obstacles placed in their way by those opposed to the ends they pursued (and by those who simply thought them insane for making the attempt) Indeed, few succeeded in reaching the desired end of their improbable journeys, the goal of which was to spawn future generations of enlightened business executives who would transform the ways in which corporations are organized and led Traditionally, most businesspeople have viewed their work simply as a way to earn a living and accumulate wealth; thus, they have been motivated primarily, if not exclusively, by the prospects of material gain (and personal satisfaction) And a few have been inventors who entered business to profit from a product idea or technological creation It makes sense, then, that their standard of success would be the profit they made in the short term and the wealth they generated in the long run But the chapters that follow examine the atypical careers of men and women who also took up the greater challenge of addressing social problems through their business activities They attempted to create profitable businesses while daring to differ from the vast majority of their peers in several significant ways: They developed fully fleshed-out philosophies of business in which they identified higher purposes for their enterprises than simply making a profit Significantly, they were not philanthropists: the good they attempted to was an integral part of their business practices J C Penney’s Golden Rule Store in Kemmerer, Wyoming, in the early twentieth century (Courtesy of DeGolyer Library, Southern Methodist University) James Cash Penney in his later years after he had lost influence in the company he founded (Courtesy of DeGolyer Library, Southern Methodist University) Soap magnate William Hasketh Lever, aka “Lord Leverhulme.” (Courtesy of Unilever from originals in Unilever’s Collection, Unilever Art, Archives and Records Management, Port Sunlight) Port Sunlight, home of Lever Bros.’ soap works and model village (Courtesy of Unilever from originals in Unilever’s Collection, Unilever Art, Archives and Records Management, Port Sunlight) Chocolate bar baron Milton Hershey with his wife, Catherine “Kitty” Sweeney, dressed for their favorite pastime, world travel (Courtesy of Hershey Community Archives, Hershey, Pennsylvania) James Finney Lincoln, head of the Lincoln Electric Company and creator of America’s longest-running industrial success story (Courtesy of Lincoln Electric, Cleveland, Ohio) John Spedan Lewis in his customary Edwardian collar—a business leader nowhere near as rigid as he appeared (Courtesy of the John Lewis Partnership) Michael Marks, the immigrant peddler who founded Britain’s Marks & Spencer (Courtesy of Marks & Spencer company archives) Marcus (later, Baron) Sieff—grandson and, oddly, also grandnephew of Michael Marks— the last member of his family to lead Marks & Spencer (Courtesy of Marks & Spencer company archives) Robert Wood Johnson—“the General” who authored Johnson & Johnson’s influential credo (Courtesy of Johnson & Johnson Archives) James Burke, the chief executive who led J&J successfully through the Tylenol crisis (Courtesy of Johnson & Johnson Archives) Levi Strauss, the denim merchant who, contrary to popular belief, did not sew the first pair of jeans that would come to be known as Levi’s (Courtesy of Levi Strauss & Co Archives) Strauss family descendants Walter Haas Jr (center) and Walter Haas Sr (right), ever ready to accommodate all their customers, even their biggest [Man on the left unidentified.] (Courtesy of Levi Strauss & Co Archives) Herman Miller’s avuncular chief executive Max De Pree, who practiced leadership “as an art.” (Courtesy of Herman Miller Archives) The Body Shop’s environmentalist founder Anita Roddick, with friends in the Amazon (Courtesy of photographer Christine Burrill) About the Author JAMES O’TOOLE is Professor Emeritus at the University of Southern California’s Marshall School of Business, and Founding Director of the Neely Center for Ethical Leadership At USC he held the University Associates’ Chair of Management, served as Executive Director of the Leadership Institute, and edited New Management magazine O’Toole received his doctorate in social anthropology from Oxford University, where he was a Rhodes Scholar He was Chairman of the Task Force on Work in America and Director of Field Investigations for the Commission on Campus Unrest during the Nixon administration He served on the Board of Editors of the Encyclopaedia Britannica, was editor of The American Oxonian magazine, and is currently a contributing editor to Strategy+ magazine He has been Executive Vice President, and later the Mortimer J Adler Senior Fellow, at the Aspen Institute, and Chairman of the Booz/Allen/Hamilton Strategic Leadership Center He is currently a Senior Fellow at Santa Clara University’s Markkula Center for Applied Ethics O’Toole’s research and writings have mainly been in the areas of leadership, ethics, and corporate culture Among his nineteen books, Vanguard Management was chosen as “One of the best business and economics books of the year” by the editors of Business Week He has won a Mitchell Prize for a paper on economic growth policy, named one of the “100 most influential people in business ethics” by the editors of Ethisphere, and one of “the top 100 thought leaders on leadership” by Leadership Excellence magazine Discover great authors, exclusive offers, and more at hc.com Also by James O’Toole Watts and Woodstock: Identity and Culture in the United States and South Africa Work in America (principal author) Work and the Quality of Life (editor) Energy and Social Change (principal author) Work, Learning, and the American Future Tenure (principal author) Making America Work Working: Changes and Choices (principal editor) Vanguard Management: Redesigning the Corporate Future The Executive’s Compass: Business and the Good Society Leading Change: Overcoming the Ideology of Comfort and the Tyranny of Custom Leadership A to Z: A Guide for the Appropriately Ambitious Creating the Good Life: Applying Aristotle’s Wisdom to Find Meaning and Happiness The New American Workplace (co-author) America at Work (co-editor) Transparency: Creating a Culture of Candor (co-author) Good Business: Exercising Effective and Ethical Leadership (co-editor) The Practical Idealist: Gandhi’s Leadership Lessons Corporate Stewardship: Achieving Sustainable Effectiveness (co-editor) Copyright THE ENLIGHTENED CAPITALISTS Copyright © 2019 by James O’Toole All rights reserved under International and PanAmerican Copyright Conventions By payment of the required fees, you have been granted the nonexclusive, nontransferable right to access and read the text of this e-book on-screen No part of this text may be reproduced, transmitted, downloaded, decompiled, reverseengineered, or stored in or introduced into any information storage and retrieval system, in any form or by any means, whether electronic or mechanical, now known or hereafter invented, without the express written permission of HarperCollins e-book FIRST EDITION Poem “King of the River” © 1971 by Stanley Kunitz, from The Collected Poems by Stanley Kunitz Used by permission of W W Norton & Company, Inc Cover design by Milan Bozic Cover photograph © Dmytro Synelnychenko/iStock/Getty Images (texture) Library of Congress Cataloging-in-Publication Data Names: O’Toole, James, author Title: The enlightened capitalists: cautionary tales of business pioneers who tried to well by doing good / James O’Toole Description: New York: HarperCollins, [2018] | Includes bibliographical references Identifiers: LCCN 2018024870 | ISBN 9780062880246 (hardcover) Subjects: LCSH: Businesspeople—United States—Biography | Entrepreneurship—United States—History | Businesspeople—United Kingdom—Biography | Entrepreneurship—United Kingdom—History Classification: LCC HC102.5.A2 O85 2018 | DDC 338.092/273—dc23 LC record available at https://lccn.loc.gov/2018024870 Digital Edition FEBRUARY 2019 ISBN: 978-0-06-288026-0 Version 01102019 Print ISBN: 978-0-06-288024-6 About the Publisher Australia HarperCollins Publishers Australia Pty Ltd Level 13, 201 Elizabeth Street Sydney, NSW 2000, Australia www.harpercollins.com.au Canada HarperCollins Publishers Ltd Bay Adelaide Centre, East Tower 22 Adelaide Street West, 41st Floor Toronto, Ontario, Canada M5H 4E3 www.harpercollins.ca India HarperCollins India A 75, Sector 57 Noida Uttar Pradesh 201 301 www.harpercollins.co.in New Zealand HarperCollins Publishers New Zealand Unit D1, 63 Apollo Drive Rosedale 0632 Auckland, New Zealand www.harpercollins.co.nz United Kingdom HarperCollins Publishers Ltd London Bridge Street London SE1 9GF, UK www.harpercollins.co.uk United States HarperCollins Publishers Inc 195 Broadway New York, NY 10007 www.harpercollins.com * Southwest Airlines practices a form of piecework compensation, as described in chapter 12, and the founder of SAIC credited Lincoln Electric as the inspiration for its employee ownership plan and system of employee participation, as noted in chapter 16 ... which they had some control (their businesses) Which brings us to the purpose of the stories we are about to review: Do the experiences of past business leaders support the contentions of the realists... itself: the one about the division of labor, and the trading of goods to meet the necessities of life For most of early human history business consisted solely of trading and bartering To increase... most businesspeople continued to view their work solely as a means to accumulate wealth for themselves and their families To the extent they also sought to contribute to the betterment of their