Judy Samuelson on the Six New Rules of Business

In this episode of Lehigh University’s College of Business ilLUminate podcast, we are talking with Judy Samuelson, founder and executive director of the Aspen Institute Business and Society program, about her book, The Six New Rules of Business: Creating Real Value in a Changing World.

Samuelson, also a vice president of the Aspen Institute, was on campus for a roundtable discussion with Lehigh Business student leaders that was part of the college's Year of Learning, centered on the theme: The Corporation and Society. Prior to joining the Aspen Institute, she worked in legislative affairs in California and banking in New York's garment center, and ran the Ford Foundation's office of program-related investments.

She spoke with Jack Croft, host of the ilLUminate podcast. Listen to the podcast here and subscribe and download Lehigh Business on Apple Podcasts or wherever you get your podcasts.

Below is an edited excerpt from that conversation. Read the complete podcast transcript. 

Jack Croft: The book that you've written talks about creating real value. So what is the difference between the real value you're talking about and the definition of value that's been the standard for the past half-century?

Judy Samuelson: I think we've been living through an era in which the intense focus on the stock price has hollowed out the long-term investments that we need for companies to be able to operate successfully, to prepare for risks that are abundant and are growing, and to produce goods and services that are of high quality, but under a business model where the value creators are really compensated fairly for their time and their input. And I think we're seeing the impact of shareholder value—share price maximization or shareholder value—as the organizing principle. It's a driver of inequality today, and, sadly, the pressure that it has put on companies means that they're not doing the kinds of investments that I think are necessary for the long-term health of the enterprise.

I think there's some characteristics of companies that create real value. I think they sufficiently reward those things that are absolutely instrumental to the health of the enterprise. They have to sufficiently reward workers, employees. They need to be well compensated for the work that they do to create value at the level of the enterprise. They need to get things priced right. If you don't price the real inputs to the enterprise, you find yourself in the value extraction business rather than the value creation business.

And there's lots of examples of that, and some that have hit hard in the last decade or so. I think we could talk about Purdue [Pharma]. We could talk about the tragic failure of Boeing, VW and Dieselgate, Wells Fargo and selling false accounts. These things happen because there's such an intense focus on profit maximization that companies essentially lose their way. But an important kind of calibrator of value is a principle of how long-term focused the company is. And there's this notion that the Native Americans had about seven generations—you need to assure that the decisions you make today will stand for seven generations. That was the concept, and it's a metaphor for something that actually is very difficult to accomplish.

But ultimately it is all about time frame. And companies that are value creators, naturally have a sustainability mindset, that they are stewards of resources and think about how to make decisions that stand the test of time.

Croft: It would seem, then, that definition would explain why you include climate change, for example, as one of the things that have to be part of any value creation for a corporation.

Samuelson: Corporations are critically important institutions. They're very powerful. They have a lot of influence. And we need them at the table to solve our most complex problems. And climate change clearly falls in that domain. We need industrial organizations to embed the real costs of operation, and climate is just the most exaggerated form of that. We need business making the kinds of investments that are required in order to address climate change aggressively. But back to the current state of play, we're not getting that.

Our tepid response to addressing climate change, some of it anyway, returns us to the idea of companies that are driving to the single objective of stock price, which is not an enabler of long-term investment in addressing the kinds of crises that we're facing in that domain in particular. It's expensive. Doing the changes that are needed is expensive. What has been the case for over a decade now, if we're hollowing out the treasury to give 93% of the profits to the shareholders, that doesn't leave a lot of money either to withstand the kind of crises that we've been through in the last couple of years, during COVID, to make sure, again, that people get a fair wage for the work that they contribute, or certainly to do the kind of massive, expensive investment that's required to address climate change.

And we're seeing that in real time. The amount of money that companies are investing in share buybacks. Share buybacks are just a-- depending on who you talk to, they're either a way to give a return to the shareholder or to manipulate the stock price. But if you're returning that much of the free cash to the shareholders, you're simply not retaining enough to invest for the future.

Croft: Getting back to that idea of the seven generations and having an eye on the long-term, obviously, business schools are key players in that. What changes do you think need to be made to create the business leaders that we're going to need for the difficult times ahead?

Samuelson: Well, it is a leadership question. I write about some leaders that I really admire. The CEO's job has changed profoundly. The CEO today is the leader of a community of interests. The CEO isn't just a leader of an enterprise defined in kind of its local footprint. It needs to build the trust of a set of players, including its own employee base first and foremost. That's a profoundly different job. I think what we need from business schools is both to recognize that and to equip leaders to be able to think with those broad and long-term interests at play.

It's tricky for business schools because as students [graduate], they're often taking on entry-level jobs that often have a high kind of technical quotient of skills that somebody wants to replace them so they don't have to do that part of the job anymore. It's a person a couple of years out who's actually recruiting somebody to take their place. Where if you think longer term about what is it that individual needs to understand, what kind of attitudes and attributes do they need to actually end up being able to manage well inside the enterprise? So those are two different things, getting your first job, and succeeding 10 or 15 years down the road. And that's one of the things that business schools have to balance. And it's a complicated one because of the pressure to have the right skill set to be able to get a job to begin with. But I think there's also other ideas that we need to land here.

I'm a critic of business schools that are kind of awash in shareholder primacy thinking and are not finding ways to step back from that and think about what is it we need to prepare people for a world that is more complex than that? But there's all of these ideas around circular economy. We assume in business education, and in our economy generally, that it's based on growth. Growth is kind of central. And yet we live in an environmental reality that growth isn't the answer. Different kinds of products and services, and ways of limiting growth, are actually going to be critical to our future. So there's first principles at play here, and I think we're seeing-- boomers are finally starting to step down from jobs, although not all of them, not all of us. And it gives an opportunity for fresh thinking to come into business schools, and I welcome it.

Croft: Do you feel optimistic about the future from the students that you've interacted with?

Samuelson: You're asking that question in a particularly hard time. For a couple of years, I haven't done much. I mean, I've taught a couple of classes, but I haven't had as much contact directly with students, although there's certainly a lot that's happened online. I think they're pragmatic. I think they see the complexity. They know that there are no simple solutions here. And I think that they're actually struggling with some of the same questions that plague managers and people much more senior. It's like kind of why am I here? And what I'm hopeful about is that these students understand how much the equation has changed and how much weight they have in the system. They don't have to accept the status quo. They're entering the market at a very interesting time where they actually hold a certain amount of power in the system.

I think the students who are entering the market today can enter the market with some confidence that they should be able to pick and choose a company that they feel excited about working for and proud of being a part of, and that they can be raising, inside enterprises, some of this complexity. I think they've got the right tools to do it. And I'm hopeful that they understand the importance of moving into enterprises that are real value creators.