One is the public purpose of business but i also want to shift the mindset of the Business Executives what they believe to be true and designed the businesses to achieve both of these are in pursuit of Better Business outcomes and rogers brandnew just released today book, thank you for being part of this. His new release is in this domain called when more is not better overcoming americas obsession with economic efficiency. Both alan and roger are known to many of you. Martin is professor and dean of the school of management at the university of toronto where he started the force behind the prosperity institute. The author of any number of books we will put in the chat a biography you can learn more about and finally alan thank you for joining us. The chief content officer at fortune. His ceo column how i start my day every day. We posted the biography is in the chat and alan is going to engage the audience in question and you can pose in the qanda box after we have the opportunity to learn more. With that i will turn over to you. Thank you for everything you do at the business and Society Program and thank you for letting me be your first interview. Im excited because ive read the book and i have to say based on everything ive ever read or study or talk to people about, its heresy. So many Business Leaders i know spend their lives increasing the efficiency of the organization. You think about the discipline it was about increasing efficiency in the organization and it would be interesting to see how much Business Schools do focus on that issue and you say that is the wrong goal. Tell us why. Its wrong when theres a limit. That is the fundamental error. We should worry about efficiency make it more by the division of labor. [inaudible] trading with one another theres a whole history of recognizing efficiency is a good thing but at a certain point it headed into an excessive level where there was efficiency and a single unitary goal. How did we get there to set us on this track . I think to a great extent it was Milton Friedmans famous New York TimesMagazine Article saying business must have a single unitary goal of increasing the value to shareholders and also a great guy and great scholar doubled down on that and made a powerful argument about a singular goal that all happened in the 70s and that is the decade where the motion should be singular and they believed it would make the world a better place. More value for the shareholders and investors et cetera so when they stopped thinking about the question. So often its a single measurable goal so this is what we are doing. Everybody get behind it we are going to measure it on a monthly basis and we are going to clock the results. You can tell the stories about a given project, lets put a man on the moon but when you ask the question of if you keep doing that and keep doing that and keep doing that and of course you get to where i say in the book more isnt better. When you keep doing that its no longer the perfect example of doing things give us an example of where efficiency has led business a stray. We walked through the stores and shopping experiences that sufficient staffing and then they say what on earth how can you run a store with that kind of attitude we happened to be one of the most successful gigantic retailer in america. Yes we care about efficiency but we care about other things, tomac, we care about the shoppers experience. They love it the way that they are treated by the staff to make the decisions and they do it with a certain joy with the hourly wages and staffing level and we will not do that robust good house this conversation about testicular capitalism moving away from shareholders and moving away to paying attention to multiple stakeholders . Theres a lot of that i like. They move away from things. There is one singular goal and as long as you do that, you are all fine. Ever since we had that goal the shareholders have done less well than before. By which they meant the servitude to a fellow man and woman they will end up so often the pursuit of the given goal he doesnt get you that goal. Its not terribly effective or great for society so i like the notion of moving away from that goal to the notion of stakeholders. Theres more than one so you have to balance them. What i am not so keen on with the lack of leadership that is being thrown providing tools for doing that. This book is an attempt when you dont have a tool they just dont do the same. Its interesting you pegged the turning point and found the article but what you also had was a rising ecosystem of Corporate Private equity, shareholder activists all of whom felt the people who ran Large Companies used the goals. I didnt do great on shareholder return but im doing great on this or that thing which is an understandable human dynamic that for them forcing discipline around a single metric was a means of accountability and without it they feared you wouldnt have accountability. You may guess things you didnt think you would and i do not think anybody like this planned the great massive inequality. It was the outcome of taking the lever and pulling it superhard. It was the requirement so we started and got something other than we thought. There are many classic kicks historical examples of where it went right. Look at what toyota did for the Automobile Industry and what sam walton did for the efficiency of the retail business. You talk about wages as one example where you feel like its been taken to an extreme, but give us a couple of other examples. I would never use toyota as an example. If theres any company on the face of the planet they would be clubbing for it would be toyota because the system as things that are wasteful but the way that its organized and treats employees, all those things, they have an understanding of an ecosystem and the right amount of slack. I would also say they were well treated and beloved and after they had just gotten pushed to some extent thats a lot so they are turning it back in the right direction but most unfortunately, retail hospitality has pursued to the point of having workers that kind of turned very quickly 70 turnover in the hotel business. I mean, if you are served by somebody the average hotel they are on their way to a 16 month career in that company. And it is a problem primarily in the labor market or do you see this in other parts of the corporate markets as well . Sure. We are pursuing efficiency in capital structures. Thats where you get to toys r us or iheartradio, Perfect Companies loaded with debt and inefficient capital structure. Covid weve had efficient amounts of ppe in the hospitals according to the inefficiencies numbers and how tightly the nursing staffing which is the biggest variable cost that kept getting squeezed on to be perfectly efficient. All of it was efficient but it wasnt resilient. I dont think that he said or meant you should open every economies up to everything. He just noted that you should focus your resources on the things you were better at. With the trade policy has i think pushed efficiency to an extent that is just not at the place that it does matter when we wipe out this industry that economists used to think that well, you know, they will buy their way into other industries. Now people have shown definitively that no, you know, if there is a huge human toll to some of the trade policies, theoretically it sounds strange but it isnt for the resilient economy at all. You have a portion of the book where you attack the promoters scores. I was in a meeting with ceos of Large Companies it was an off the record conversation so i cant identify but we dont need to because we were talking about how you created this company and went around the room and basically 90 of them saw the score as their main tool for focusing on consumers, so its obviously been adopted by businesses. They see it as a useful tool. Whats so bad . Let me start by saying i think i put some of them in the same category so, he is a great guy, very smart. Came up with the whole idea of customer loyalty, but it just shows what happens when you take a goal, the goal is more loyal to customers and keeping your existing customers was more effective than losing a bunch of them so keep your customers and that is then translated into a measure and then we will measure it. But what happens over time that score becomes seen as the same goal we will have the customers but its not just of that it is a measure of that and then you do things like create incentive programs around getting a high score and i told the story in the book two of the last three cars i bought the salesperson at the end of the process told me i was going to be getting a survey and instructed me to give them and all that did is made me feel like i never want to deal with that car company again and i havent actually it turned me off so much. So the pursuit by providing incentives for people to, employees to try to generate had the opposite effect that the model intended and that is a greater danger when you have one goal, that is the wells fargo story. One goal the goal, the desire to get translated into a number of accounts for customers so everybody says i know how to get the number. I will open accounts for customers. Whats wrong with that, well, they didnt want it or know about it. Billions of billions of dollars that have taken hundreds of years to build. So that is the kind of story that happened with test scores for students that had a single goal one of the things i say to everybody is ask yourself if this is how you operate. You know in your life you would never pick a single goal and exclude all other goals. I dont think so. Not for anything important or longterm. On a first goal frowned to have the goal of getting 85 or whatever, though you would realize that if that was your only goal for that round and it had nothing to do with having a good time with your friend and enjoying the wide open outdoors, taking a couple shots feeling like i could do this someday, you would have a miserable time. Its just not the way life works. Life is complex. It is a complex adaptive system. It isnt a simple mechanism system where you can say there it is i must pull back and everything good will happen. Life doesnt happen that way. Why, why do we think a company will work that way, why do we think the economy will work that way. I can imagine i wish like some of my were sitting here listening to you i think what they would say to you is what he might say is because Business People are not that smart. None of us are that smart actually. You cant get your mind around a complex ecosystem so simplification is essential for setting and achieving goals. And i think to a point its right its just what happens when you go past and that basically what im saying is we have definitively clearly gone past that point where again the idea taking that as the truth we would have a metric or simplification so lets fire everybody at the Corporate Office or lets break it into pieces. All those things can have value but we do take them to the extreme and that is the only thing youre thinking about and you are telling your employees. That is what you will get. Lets turn to solutions. What do you do about it . I think there are things Business Executives and political leaders and citizens can do. One of the things dont listen to what you think he says which is it isnt being efficient. Theres a proper amount because they are not as simple and linear as you think they are. Until the next pandemic comes along so stop with this elimination and recognize that an amount is the right thing to achieve. Second thing i would say is pick multiple goals. You say our goal is to be the lowest cost and highest Customer Satisfaction and highest Employee Satisfaction and it is a youve got to be kidding me if that is the way that you look at the track record and being all of those things simultaneously. What that will make you do is be more creative and if you are more creative, you will have a strategy that is harder to replicate. Anybody can do that but can you build an airline like this and build a hotel chain like four seasons, no because it is more complicated but that means embracing the multiple measures and not getting into the business. Its also important for the Business Executives to turn their back on again at least a halfcentury in the world of business towards the reduction. We have marketing, operations, hr et cetera. Break it down, perfect each one and then add them back up. That is how all Business Schools are organized, companies are organized and if each of these domains have their own expertise, the problem is they said there are no accounting problems are marketin or markets theres only business problems which is right however we teach Business People to identify the marketing problem that kind of reductionism is creating those that think they are being efficient but its a narrow shortterm efficiency and broadly longterm and ineffective. The last thing, dont believe that seeking the monopoly position is the thing to accomplish. Most say no, thats what i want and the problem is if you look at the history of monopolies, it doesnt end well. If you look at the company that has maintained a position for the longest time you will notice the ones that stay around for a while have competitors. Why, its because to be good at something you need practice and training. To be a pianist you need to practice and have the training to go to competition. If you are a golfer or basketball player, you need training from competitive action. If you are a monopoly, you dont have any. So, youre just not going to do things that make you better if you are a monopoly. That raises the question of how much of this is a difference in time frames between shortterm and longterm . There are lots of efficiency will fill your pocket in the short term and lots of ways but undercut you in the long term and lots of ways. The monopoly example, the wage example all being among them. What we are talking about here is the difference between a shortterm focus and longerterm focus. It is a big piece of the puzzle if you break time into chunks and optimize each it will not optimize you for a big number of the time period. Its the same form of reduction for what seems fine in this shortterm will end up when you add up a bunch its horrendous and the longer term so thats a piece of the puzzle i would consider in this idea that we understand well enough to break it into little chunks and when we add them up they will be fine. I do not believe that it will be fine when you add them up. We have a lot of questions im going to go to them in just a minute, but as an educator, how do you train the new generations of Business People to get their heads around this . What do you have to undo, what do you have to do and tied into that how do you get the super structure in place, the metrics that you need in order to be successful at managing in the way that you suggest . That is a real challenge. I would say to the first question what we need to do to teach business students now is give them tools, practical tools for seeing if part of this is a marketing problem and part of it is a finance problem hell do i take those models and integrate across them . Business education has almost completely dropped back on that and basically says thats hard so im not going to do it. They claim to teach general managers but they dont. For what its worth i did that for 50 years and its the hardest thing ive done in my entire life is try to get at that kind of thing. That is the fundamental thing that had to happen. We have to train them to deal with the clashes between models rather than picking im going to pick this and apply that marketing tool, so that is the notion. On those tools we just have to build a new toolbox and i do think that people are doing that. Something i talk about in the book based on the work and being a professor at sloane mit and how you can think about what you pay, how you train your workforce and employ them to create jobs that are good jobs, good for society and better for you to make things which says heres the different governance structure. What weve got to do and there are a lot of environmental footprint measurements again, what we need to start to do and i dont know if they will listen, but they need to start cobbling together a set of tools so they can say to their ceos if you want to do what weve said in our statement, if you actually want to live that, heres a set of tools you can deploy to do that because if you dont, they are just going to continue to keep doing what they are doing now because those are the tools they learned in business school. That is how theyve learned to do things. On that point if the first set of tools is a reasonable set of metrics, there has been some interesting work done by the Accounting Firms working with the World Economic forum under the International Business council that just put out a report last week. Brian moynahan, the ceo put a lot of time into that. Is that a step in the right direction . I havent looked at it, but that kind of effort is because if what you say, it is tool based and i am one practical guy. Unless somebody has a tool for something, they are not going to do it. People do not have trade options until we had those options frankly people did not advertise online until google created a tool to allow them to figure out how many clicks they got. One use of the tool people started doing these things and if you dont have a tool they just are not going to do it. Please put your questions into the q and a. One question here i dont have a name with it but what do you say to a ceo that says the growth is their objective and the title of your book is more not better. And at the same time build more loyal customers. That is a useful set of goals the finances played in this but what role has it had to play making the problems of the last 50 years and also related to that what role as the Federal Reserve by reducing Interest Rates and creating bubbles. On the second one, on the fed under the delusional they understand how the Machine Works and how much to get the results they want. Its delusional. Absolutely and utterly delusional. They may be the smartest people, sort of the best economists, but nobody tells them so i think they played a significant role for the part where america came to the floor as the most powerful economic superpower it had an advantage Capital Market in the world the broadest most efficient Trustworthy Company base and thats one of the reasons they became the leading to go global. In the last 20 to 30 years it is a deficit the companies have to overcome. The financial is asian were the Financial Markets now serve trade first they were set up to serve the First Companies so issuers to let them grow and second investors so they could participate in the issuers attempts to grow. Everything about them is set up and the other two who cares. As you know from covering it we have had as Many Public Health shrinking in numbers and growing because they are fleeing the market which is now making their life miserable so the financial is asian has made america less effective at the economy. Another question here do you think the ceos can make the right decision to pursue the right set of goals when they are mainly focus on the price of the company, and mainly incentivized to be focused on the company . Basically they have to be insubordinate. And there are a bunch of insubordinate ceos out there. This is the thing people do not understand about these incentives. If you do not try to maximize the incentive you are being insubordinate, if your government body and the number one figure that outweighs all others is the share price youre insubordinate if you do not work in the next year to when you get judged on how you did to maximize your share price. Then the board asks the question why were you so obsessed about the price but not building the company. Its like louis and casablanca. Im shocked a the gambling is going on here. Its like what are you people thinking. Thats the problem is incentives. Digitally they work too well. So, in this case the insubordinate ceo says thats what they told me to do and i will go and do it. There are lots of ways to increase the share price. The hardest to build the business and make it more profitable. The easiest one is the stock at the right time on wall street and the accounting practices. They wonder why are we getting shady financial practices taking shortterm investments cutting the r b. Why is the ceo doing that, like wake up you asked them to do it. It is a bad idea. It is a fundamentally bad idea and its a defectiv de facto go. Its just a bad idea. A question about supply chains. I should point out and i meant to say this earlier just for people listening that while your topic is a particular good one for the covid era, when we have seen the importance of resiliency and the lives of efficiency, your book was put to bed before covid ever hit, so you were pressing and. I think i was in that sense that i started to work in 2013 and in 2013, there were the socialism that didnt hold well but not a political figure yet and those are so the fact socialism pulls well with young people and Bernie Sanders is a powerful force in the democratic party. What is the signal, what is the signal that you are getting from those . The signal is Democratic Capitalism is not considered the absolute de facto standard. Its considered a choice. Before that it was what we did. And because it has failed to deliver. It is failing to deliver what its always delivered which is a rising prosperity or most american. The median family for me. I use that as a proxy if they are not moving ahead than the swing voter isnt moving ahead smartly and is going to say i dont know about this system. It isnt delivering for me. They made an oath in 2016 about that. Lots and lots of exit polls asking why did you vote for trump, did you really think he was going to do this and they would say no, no, no i just wanted to blow it up. So, and what was the exit, it was a blow it up and so i think when you get frustration theres more the questioning of the fundamental system and globally and that happened in the Great Depression there was a major shift words socialism and communism in western europe and asia. But if you look at the number its better in the Great Depression then theyve done since 1976, so thats what i was worried about and i think we are getting what you would expect. is capitalism in crisis . Democratic capitalism is in crisis. The capitalism isnt at all. Chinese capitalism is doing awesome. A totalitariatotalitarian capitg just fine. 30 years ago we didnt know that was a thing. But it is. It is a precious what i think of and maybe im being too modest about this, but the combination of democracy and capitalism is precious having the majority of people decide in the democracy on how we are going to run the economy being mainly by ownership and that combination is wonderful. It is getting close to a crisis point. Question here, roger you already referred to it about a double standard in the pacesetting. This aggressively applies to the logic of efficiency to keep the workers wages at the market while at the same time the board of directors assisted the executives be paid above market because they are above average. No, no, yeah the board rooms are all around the coastlines where everybody must be above. Workers are responding in the way they ought to respond. By checking up. Its to not give its all and not blame them to see what a difference is when they give their all. It is an awesome customer experience. They are happy, they want to help you. But why dont you have this kind of stuff on your shelves. That double standard is a consequence. The globalization of supply change was it a mistake . To the extent that its been taken, absolutely. Now there are lower standards often dramatically lower standards. You think the rules and regulations are good for the economy and you say at the same time you can opt out of those. Do we believe in that construct or not. What exactly did you expect its a lot of logic i think if we took stock index question is it truly sustainable or not could be a useful monopoly for a long time they were below living wa wage. I dont know how they will all make it. Fifteen years, 25 years, i am not exactly sure. It is an existential fight a worker working at 6 a. M. Because who cared about their life you just cared about having the right number of shifts you wanted them on the floor. That dimension has been ignored and entirely. There were the microeconomics and close to zero marginal cause, clear benefits to everyone from getting more people on the platform and so how does that affect the dynamic . What i would say is that its the way that it was designed in the late 1800s so it is a wellknown fact in Silicon Valley that the tech giants killed those. It will either kill it for a fortune or grinding out of the business. Because there is th theres they of the monopolization. It shouldnt matter that they are more efficient if they are making it impossible for others to complete. Unless you think they should be abolished, they are still in existence and i think that they were put there for good reason because we want dynamic efficiency so it may be more efficient if facebook buys instagram but 20 years from now is there going to be enough innovation, will there be as much after it eviscerates, i doubt it. I just have never seen that. Last question this comes from heather wilson. What role should the board play in transforming companies away from a efficiencie efficienciesf goals . They have a tough job, but i think that they should, one is a good board with all of the competition before the person retires so they can make more longterm. They have enough variability to make you have to think cleverly about the tradeoffs you make otherwise you will have a goal, boring strategy. That would be my advice with them to give great stewardship. Thank you for a great conversation. Fascinating book and thank you for taking the time to do this