ARTICLES

Corporations Will Shape Our Future Values

Directorship
by Jim Collins
September 1999
“If the impact and relevance to the world of the U.S. federal government is 1.0, then what is the potential impact and relevance of your company?” I recently put this question to the chief executive of a leading Fortune 500 media company.

His answer: “Three times that.”

Think about that for a moment: a single corporation with three times more impact, relevance and importance than the U.S. government.

Is he right? Perhaps three times is a bit high. But whether it is 3x or 1x or 0.5x, the order of magnitude highlights a profound evolution that has taken place over the last 150 years—namely, the rise of the corporate state as one of the most powerful forces on Earth. This trend will accelerate into the next century, to the point where well-managed corporate entities will be the primary pistons not only of economic progress, but also social change.

The well-managed corporation is the most significant commercial invention of the 20th century—more significant than electrical lighting, the Model T, jet aircraft, the computer or the Internet. Without well-managed corporations, we could not have had these innovations in the first place, at least on a large scale.

Yet, 100 years ago corporations did only a small fraction of the world's work. Certainly, a few large corporations existed, notably Standard Oil of New Jersey and U.S. Steel, but these were unusual. Family farms, mom-and-pop stores and sole proprietorships dominated the economic landscape.

There was no Fortune magazine or Business Week. The Harvard Business School—the consummate symbol of the corporate state—had not even come into existence. In fact, there was not a single MBA-degreed person on the entire planet. Management itself had not even been identified as a central function in society.

By midcentury, this had all changed. “Management” became a distinct and accepted concept, thanks in large part to the insight and writings of Peter Drucker. Many of our brightest young minds began to see management as a viable and legitimate career path. During the first half of the 20th century, talented executives at such companies as General Electric Co., General Motors Corp. and Procter & Gamble Co. developed management into an understandable, repeatable activity. By the 1990s, 700-plus MBA programs generated more than 80,000 graduates per year in the United States alone.

In the second half of the 20th century, the ability to manage complex organizations became a widely distributed skill. People learned how to apply this skill not only to for-profit corporations, but also to universities, health care systems and just about any other productive activity. In a sense, all organized activities became “corporatized.”

Instead of red-brick school buildings, we built large school systems. Universities grew from hundreds of students to tens of thousands. Managed-care organizations replaced the family doctor, and hundred-person law firms replaced the practicing attorney.

Even the pure “nonprofit” sector became corporatized, as its executives eagerly sought to apply the best corporate practices to their work. The Salvation Army, the Nature Conservancy, the Boys and Girls Clubs of America—these organizations became as systematically managed as any Fortune 500 corporation.

The modern megachurch, which is rapidly gobbling up spiritual market share, is entirely a corporate concept. One regional church I’ve worked with draws 17,000 worshippers a weekend, has a paid professional staff of almost 600, and uses the words “customers,” “value delivery” and “strategic planning” with as much ease as any McKinsey consultant. In fact, its executive pastor is an ex-McKinsey consultant.

The point is that well-managed corporate entities—be they for-profit or not-for-profit—have become the dominant productive vehicle in society. And now we've reached a point where a leading chief executive can conceive of his company having three times the importance and relevance to the world of the U.S. federal government.

This raises profound questions of executive responsibility. At the turn of the past century, corporate entities felt little need to be responsible citizens. By midcentury, a few visionary companies, such as Johnson & Johnson and Merck & Co. Inc., identified social responsibility as an explicit corporate objective—a radical step at the time. By the late 20th century, “stakeholder responsibility” had become an objective at the vast majority of companies and a central tenet taught in MBA programs.

But is social responsibility a high enough standard? With the corporate model becoming the dominant vehicle of human productivity, might corporations need to shift from being socially responsible (adhering to society's values and rules) to socially progressive (consciously shaping societal values)? As examples: A media company could use its programming to advance gender equality; a running-shoe company could promote health consciousness; a soft-drink company could use its brand name to champion global citizenship; a computer company could use its power to influence the way schools teach our children.

A scary thought, to be sure, and one that should give us pause. But let's be realistic. Corporations already do shape societal values to a large degree.

For good or bad, CNN, Nike, Coca-Cola and Microsoft are powerful cultural forces. Furthermore, corporate executives are in a superb position to accelerate social progress through their actions. The shattering of the glass ceiling at Hewlett-Packard Co., where more than one-quarter of its managers are women, including its recently appointed CEO, is just such an example.

Nor is it just huge companies that have the power to influence. Consider Patagonia, a privately held outdoor clothing company that explicitly views itself as an activist for environmental causes. Not only does Patagonia pioneer environment-friendly products, such as organic cotton and jackets made from recycled plastic bottles, but it also funds dozens of environmental organizations with 1% of its annual sales skimmed right off the top as a self-imposed “Earth Tax.”

As government continues to lose moral authority and practical effectiveness, the corporate state will increase its value-shaping role. Some of us may not like that fact, but it is a fact nonetheless.

So, those with executive responsibility face two options. On the one hand, they can choose to ignore the potential for a wider role of their companies and forgo the opportunity to rethink the very purpose of their corporations. And many—perhaps most—will choose this first option, for in every evolution there are those left behind, the perpetual laggards.

For others, there is the second option: to replace the tired debate about “stakeholder responsibility” with invigorating dialogue about what the role of their corporations should be and can become in the next century. They will choose to embrace the opportunity for a more progressive role—to see their corporations explicitly as value-shaping entities of the world they touch, while simultaneously keeping their economic engines well tuned and powerful.

I believe the very best will evolve toward this second option. And they, in turn, will teach the others, in the way that the best have always taught: by the inspiration of example.

Copyright © 1999 Jim Collins, All rights reserved.