True “Hope and Change” for the Future: Integrative Leaders and Conscious Capitalism

1. True “Hope and Change” for the Future:Integrative Leaders and Conscious Capitalism David Waldman Professor of Management W. P. Carey School of Business Arizona State University waldman@asu.edu Presentation at the "Religion and Economic Liberty" Conference Jerusalem May 23, 2012

2. Interesting Quote from Milton Friedman in his Later Years Regarding CSR “It’s [CSR] like putting a good-looking girl in front of an automobile to sell an automobile. That’s not in order to promote pulchritude. That’s in order to sell cars.” Two implications of this quote (and other thoughts of Friedman) that the strategic thinkers have picked up on: • A strategic view of CSR would suggest that actions that are designed to serve the needs of stakeholders, without calculating the effects on shareholders/owners, are immoral • But CSR used as “window dressing” can be virtuous (or moral) as long as it serves the bottom line • it’s OK, and even a good thing, for leaders to be deceptive and inauthentic as long as the goal is to maximize profits Does this line of thinking really work – for both business firms and society as a whole?

3. The Debate Goes On … • Mulligan vs. Shaw (1988, JBE) • Waldman vs. Siegel, round 1 (LQ, 2008) • Waldman vs. Siegel, round 2 ("Religion and Economic Liberty" conference, 2012)

4. Goals for the Remainder of this Presentation • Consider capitalism in the context of public opinion • Separate “capitalism” from “capitalists” • Separate instrumental from integrative leaders • Put it all together in some final thoughts and conclusions

5. Findings of Recent Rasmussen Polls (http://www.rasmussenreports.com/public_content/politics/general_politics/april_2009/just_53_say_capitalism_better_than_socialism) • Only 53% of American adults believe that capitalism is better than socialism • 20% prefer socialism • 27% are not sure • For American adults under 30 years of age: • 37% prefer capitalism • 33% prefer socialism • 30% are not sure • But on the other hand, 70% of American adults believe that a free market system is better than an economy that is managed largely by government

6. Findings of a 2006 Harris Poll(http://www.harrisinteractive.com/vault/Harris-Interactive-Poll-Research-FT-2009-Business-leaders-4.pdf) When American adults were asked, “How much confidence to you have in the leaders of major corporations”: • 13% responded “a great deal” • 25% responded “hardly any” However, when asked about “small business leaders”: • 45% responded “a great deal” • 6% responded “hardly any”

7. So Why Should Any of this Even Matter? • Capitalism does not exist in a vacuum • socio-political forces come into play • Public backlash against perceptions of “irresponsible” leadership • in response, politicians institute regulations and laws that lead to inefficiencies for businesses • Many leaders who are perceived poorly by society may also be perceived poorly by organizational members So what exactly is the problem, and what´s the solution?

8. Which Way is It? Behavior of Capitalists (and their agents) The Capitalistic System Or is it: The Capitalistic System (and how it is perceived by society) Behavior of Capitalists (and their agents) Bottom line: The problem is not capitalism per se, but the problem may be the capitalists and their agents (e.g., CEOs)

9. Leadership and Social Responsibility: Alternate Orientations Most people in leadership roles who institute policies stressing social responsibility do so (or should do so) based largely on industry norms, image-building, or strategic gain for their firms. Versus Most people in leadership roles who institute policies stressing CSR do so (or should do so) based largely on their courage, moral conviction, and a desire to balance the needs of multiple stakeholder groups. Which orientation do you primarily have? How do you know whether that orientation really works?

10. Distinguishing Instrumental versus Integrative Leaders of CSR Instrumental Leaders Integrative Leaders Herb Kelleher John Mackey Howard Schultz Mary Kay Ash recognize that returns from CSR (or lack of CSR) may be long-term and somewhat intangible integrate CSR within their business philosophies and collective organizational cultures practice integrity/authenticity and leading-by-example the majority of business leaders • stress precise ROI for CSR activities • use CSR largely for image-building, “keeping up with the Jone’s” or “damage control” • practice deception/inauthentic leadership and delegation of CSR to others

11. Fallacious Basis of the Instrumental Approach to Responsible Leadership Two Key Fallacies: • It’s based on principles of transactional leadership and even inauthentic leadership • Models of transformational and authentic leadership have shown superiority in predicting organizational outcomes (e.g., Judge & Piccolo, 2004, Waldman, Ramirez, House, & Puranam, 2001; Avolio, Gardner, & Walumbwa, 2007) • CSR characteristics will inherently entail higher costs because firms must devote additional resources or inputs to CSR efforts • Simply not true for many actions that could be considered to be “responsible”, such as efforts to improve employee relations through leader integrity, fairer treatment of employees, continuous improvement of product/service safety through employee ideas and innovations, and so forth • Such thinking is likely to preclude “risky” or innovative CSR efforts

12. Some Final Thoughts • There is actually little research to support either my claims, or those of Don, but some recent evidence is pointing toward the integrative leader: • polling data presented earlier • Sully de Luque, Washburn, Waldman, & House (2008, ASQ) • CEOs who use integrative perspectives in their decision-making achieve stronger organizational performance, as compared to those who use more economic or calculative criteria • The instrumental approach to responsibility has been inherent in MBA programs for decades. Hmmm …. • There is more than one path to integrative leadership, but the common denominator is a passion for something more than profit maximization • However, nobody is suggesting that managers should not be held accountable • Collectivism is not a bad thing if emphasized at the organizational level • Integrative leadership does not follow a particular political party or philosophy