A Business Model for the 21st Century
“We’re entering an Age of Transcendence, as people increasingly search for higher meaning in their lives, not just possessions. This is transforming the marketplace, the workplace, the very soul of capitalism. Increasingly, today’s most successful companies are bringing love, joy, authenticity, empathy and soulfulness into their businesses; they are delivering emotional, experiential, and social value – not just profits.”
Thus begins Wharton School Publishing’s description of Firms of Endearment on the inside flap of the cover jacket.
It is a signal event that the publishing arm of one of the top-rated business schools in the world chose to publish Firms of Endearment, a book that promotes the spreading of love, joy, authenticity, empathy and soulfulness in business management. Business schools are not noted for advocating such humanistic themes.
The term firm of endearment (FoE) is a metaphor standing for companies that are guided by the stakeholder relationship management business model. The SRM business model grants legitimacy to the stakeholder status of customers, employees, suppliers and community (society) as well as shareholders. Firms of Endearment, shows how companies that strive to endear themselves to all stakeholders can outperform non-SRM companies in building shareholder wealth.
R. Edward Freeman, head of University of Virginia’s Olsson Center for Applied Ethics at the Darden Business School, advanced the stakeholder business model in his book, Strategic Management: A Stakeholder Approach (1984). Since then, stakeholders in every category have increased pressure on companies to give greater attention to their needs. This has triggered heated debate about the defining purpose of a corporation: Is it maximization of shareholder gain? Or is it service to other stakeholders and society at-large?
Firms of Endearment posits that examining corporate purpose in such either/or propositions is flawed. It offers solid evidence that giving attention to all stakeholders is a valid strategy for building shareholder value. FoE Southwest Airlines record is held up as one example: 35 consecutive years of profit. No other major airline comes close to that record. At the end of 2005, Southwest’s market cap exceeded the market cap of all other Big Eight airlines combined.
As is typical of FoEs, Southwest’s shareholders have benefited from its ability to ride out economic downturns with minimal negative effects. Like other FoEs, Southwest adapts quickly to rapid changes in the business environment with few or no lasting adverse effects on any stakeholder group. For example, it was the only major airline that did not lay off workers and cut back flights after 9/11.
Defenders of stockholder-biased business models may view FoE concern for all stakeholders as unsustainable in the “real world” in the “long haul.” But the “real world” is where FoEs dwell. It is a new “real world” in which CEOs of FoEs are focused as much on Darwinian battles for business survival and supremacy as any CEO adhering to a traditional business model.
Firms of Endearment uses the acronym SPICE to represent the five primary stakeholders of a business.
