Investment firm BlackRock delivered a strong message to businesses last week. In a letter that’s making headlines, founder and chief executive Laurence D. Fink said “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Entrepreneurs and executives who care about backing from conscious investors like BlackRock may be looking differently at their companies now. What does it mean to make a positive contribution, and how does it balance with profitability?
Over the course of the past two years, we have interviewed dozens of CEOs on the subject of Human Company Design, a management approach that chooses to create value by investing in people (vs. solely extracting from people). We define value creation broadly, taking into account both near-term business gain and long-term societal gain. We define “people” to include employees, their families, their communities, society, founders, and investors.
To be sure, these are not just warm fuzzies, or line items under CSR or “culture.” Rather, they are the signals of a demand for a new and decidedly 21st-century business imperative. The choices that CEOs and corporate boards make are their contributions to society. Decisions related to executive and employee compensation can increase or decrease income inequality. Working hours, stress, and lunch options can contribute to or prevent chronic disease. The approach to the gender pay gap and power dynamics can lift all boats — or sink the ship.
We cannot extricate business design from its effect on society. When we explicitly choose to design companies solely for short-term gain, we condition investors for growth instead of value and disregard the long-term effects on the very same people who produce and purchase our goods and services.
This is clearly not good for people. But it’s also not good for business.
Fink’s statement suggests that BlackRock is willing to be a harbinger of things to come. Until then, this is how six CEOs are walking the Human Company Design walk today.
1. Sachin Kamdar, Parse.ly
Employees, customers, investors — in that order
A value hierarchy that places employees above both customers and investors isn’t typical for an early stage technology company — or any company, for that matter. The unconventional strategy has helped Parse.ly achieve profitability and raise $6.8 million in Series B funding. Co-founders Sachin Kamdar and Andrew Montalenti flipped stale structures upside down to build a company that focuses on what’s most human about work — how people think, what they believe, and how they behave in different environments. For Sachin, this was the most intentional and most important business decision he ever made.
2. Alex Cavoulacos, The Muse
Defining a new startup culture
From the beginning, The Muse covered health insurance, and today pays 100% of the employee base plan and 80% of the dental plan cost. To co-founder and COO Alex Cavoulacos, it didn’t feel like a decision to make, but rather a right. In a world where venture-backed startups tend to favor candy bins over benefits, The Muse’s unwavering stance on providing 100% healthcare coverage stands out. “I don’t think we’ve ever had a conversation about healthcare with our investors,” Alex said. “It wasn’t a question they asked us. We just did it the way we wanted.”
3. Phin Barnes, First Round
Why startup founders should build a company, not a product
“Entrepreneurs are the designers of companies,” investor Phin Barnes told us. “Great startup CEOs recognize very early that their job is not to build a product, but to build a company — defined by mission, values, and culture.” The intentional CEO also looks to retain people by creating an environment that respects how employees work. The frenzy of many startups presumes that people will work long, deadline-driven hours. Yet Phin is fond of giving people space to be thoughtful in their decision making. He calls it “minding the gaps.” In a time when we’re exposed to so much information, people forget to take the time to process. Waves of long working hours may happen when trying to get a product out the door quickly, and those time periods can dramatically raise enterprise value, he said. At the same time, leaders must recognize that those hyper-productive weeks aren’t endlessly repeatable.
4. Josh Jones-Dilworth, JDI
How to build a business that outlives you
“There was a moment when I realized the goal was for JDI to be around after I’m dead,” founder and CEO Josh Jones-Dilworth told us. “So that means 50 years-plus, to be a multigenerational company.” Josh’s long-term ambitions for JDI led him to envision a learning program of the same caliber. The training they developed is serious stuff for a company of 16: themed, semester-long learning programs run by staff who have professional teaching experience, with case studies, exercises, homework, published findings, and guest speakers. The program has proved so popular that employees actually requested more homework last semester (though most tend to complete it during office hours). Plus, the in-house education serves as a retention tool.
5. Arjun Dev Aurora, 500 Startups
Why “crushing it” at work actually crushes ROI
As an investor and serial entrepreneur, 500 Startups partner Arjun Dev Aurora’s view is that the unspoken rules of “killing it” and “crushing it” in Silicon Valley are crushing us — and our businesses.“As lots of research has proven, there’s not only a direct cost [of replacing an employee], but also lots of ancillary and second-order challenges to it as well,” Arjun said. “An organization where people feel safe creates not only productivity, but creativity and innovation and ideas…frankly, happier employees.”
6. David Heinemeier Hansson, Basecamp
Beyond the unicorns and late nights
David Heinemeier Hansson isn’t one to mince words. He unabashedly describes many angel-invested, unicorn-seeking businesses as “horribly distorted role model systems,” “pressure cookers,” and “time bombs” that have tainted expectations of how successful businesses look. At Basecamp, where David is CTO, the culture is much different. Employees get a fully paid, planned vacation for three weeks; flexibility is valued and employees are encouraged to work no more than 40-hour work weeks. Basecamp’s policies might sound cushy, but they’re also practical. “Look at the actual work outcome and output and you’ll realize that, very often, the most amount of work is done by the people who are the most well rested, who take frequent vacations, and who have interesting, fulfilling lives outside of work,” David says.
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