Accountable

The Rise of Citizen Capitalism

Michael O'Leary, Warren Valdmanis

• Publisher: Harper Business
• Year: 2020
• Print ISBN: 9780062976512
• eBook ISBN: 9780062976550
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

“More than ever before, this is the book our economy needs.” – Dr. Rajiv Shah, president of the Rockefeller Foundation

“Unwilling to settle for easy answers or superficial changes, O’Leary and Valdmanis push us all to ask more of our economic system.” – Senator Michael F. Bennet

This provocative book takes us inside the fight to save capitalism from itself.

Corporations are broken, reflecting no purpose deeper than profit. But the tools we are relying on to fix them—corporate social responsibility, divestment, impact investing, and government control—risk making our problems worse.

With lively storytelling and careful analysis, O’Leary and Valdmanis cut through the tired dogma of current economic thinking to reveal a hopeful truth: If we can make our corporations accountable to a deeper purpose, we can make capitalism both prosperous and good.

What happens when the sustainability-driven CEO of Unilever takes on the efficiency-obsessed Warren Buffett? Does Kellogg’s—a company founded to serve a healthy breakfast—have a sacred duty to sell sugary cereal if that’s what maximizes profit? For decades, government has tried to curb CEO pay but failed. Why? Can Harvard students force the university to divest from oil and gas? Does it even matter if they do?

O’Leary and Valdmanis, two iconoclastic investors, take us on a fast-paced insider’s journey that will change the way we look at corporations. Likely to spark controversy among cynics and dreamers alike, this book is essential reading for anyone with a stake in reforming capitalism—which means all of us.

1
Chalk One Up for the Good Guys
Two Conflicting Visions for Our Economy

Guy Dixon’s cousins never worked a day at the Kyanite Mining Corporation, but they owned a third of it. When they sued him over the generations-old family business, they did so as outsiders. The suit threatened to dissolve the company.

When people think of a socially responsible business, they don’t usually think of a mine. But that’s just what Dixon was trying to build: a mine that was both socially responsible and environmentally sustainable, though he doesn’t use those words. For him, the company is rooted in an intergenerational mindset. He’s committed to his workers. He’s committed to his community.

“I’m doing what I’m doing for my kids,”1 Dixon said late one fall afternoon, looking over the Virginia mine founded by his great-grandfather and then handed down to his grandfather, his father, and now him. The sun was starting to set behind the Blue Ridge Mountains off in the distance. “One day, hopefully, one of my kids will be doing what I’m doing.” In the rest of the country, the average holding period of a stock is under a year.2

A Dartmouth graduate and an alumnus of a white-shoe consulting firm, Dixon always knew he’d come back to his family’s company, which mines the eponymous mineral kyanite in rural Virginia. Kyanite is used deep in the industrial economy, in things such as the lining of steel furnaces.

Dixon grew up working in the business. “You meet the people who are doing the real work,” he said of his childhood. “You come to respect how hard, grimy, and dangerous their jobs are.” He earned his right to run the company. He pulled up a video on his phone of his teenage daughter working a blowtorch to fix a bull gear. He scrolled through his photos until he found one of his son under a service truck changing a brake line.

Most companies rely on headhunters and external hires to fill the management ranks. A third of new CEOs are brought in from outside the company.3 But whereas the median job tenure in the United States is just over four years, at Kyanite it’s close to twenty.4 All of Dixon’s managers are homegrown. At Kyanite, it’s not unusual for someone to retire at sixty-five—not sixty-five years of age but sixty-five years of employment. Dixon guessed that a third of the 160 employees had a parent or sibling who had worked there first.

The trust between the company and its workers has been built up over generations. As far back as Dixon can remember, the company has never fired anyone for financial reasons. When demand fell during the Great Recession and the economy was firing 700,000 workers a month,5 Dixon retrained miners to do other jobs rather than lay them off. “We couldn’t just say, ‘Okay, fellas, there’s no work for you here.’” Instead, he found ways to keep his commitment.

What about the environment? Kyanite is a surface mine, which means that “liberating” the material—that’s official terminology—requires removing all the soil and rock around it. Hanging in Dixon’s office is a small black-and-white photo of a mountainside. Outside the window you can see the same mountain—except that half of it is now missing, blasted away with liquid dynamite, the kyanite itself crushed, purified, and transported to buyers worldwide. “Mining is a dirty business,” Dixon admitted. “You make messes.”

But unlike many mining companies, which are controlled by distant, anonymous shareholders, Dixon and his team are deeply ingrained in their community. “Our employees view the company as part of their family and their reputation,” he said. And so when Kyanite shuttered its first mine, the company made a commitment to reclaiming the land back to a natural state. It won national awards for its environmental stewardship, beating global behemoths orders of magnitude larger. “We’re this teeny, teeny Podunk business,” said Dixon, “but all of us live around here—we use these woods and streams, we see and interact with our neighbors in the community all the time. That kind of drives us to do the right thing.”

In their lawsuit, Dixon’s cousins alleged that he and his father were running the company for their own benefit, cutting dividends and failing to maximize shareholder value, among other things.6 The case wound its way through the Virginia courts in the early 2000s. Fearing what might happen to the company if the Supreme Court of Virginia ruled against him, in 2013 Dixon settled with his cousins by buying them out.

Guy Dixon runs a surface mine. But he runs it in a way he is proud of. Whether that’s enough depends, in part, on whether you think there can ever be such a thing as a socially responsible surface mine.

There are two conflicting visions in our economy today. One says that companies exist to make a profit and that managers should focus primarily on serving shareholders. The other says that companies should only earn a profit in pursuit of serving stakeholders—employees, customers, communities, and all those whom companies touch. We can see these conflicting visions in the Kraft Heinz Company’s attempted takeover of Unilever in 2017. At Unilever, Paul Polman’s leadership was based on a long-term stakeholder focus. At Kraft Heinz, Warren Buffett and the Brazilian private equity firm 3G Capital had an explicit focus on shareholders. The takeover fight was—as one Harvard Business School case study framed it—a “battle for the soul of capitalism.”7

Though some business leaders like Polman endeavor to build prosperous companies that also serve some deeper purpose, most remain under the ongoing influence of Andrew Carnegie’s “The Gospel of Wealth.” Carnegie’s book has us dividing our lives into two halves: economic in how we make our money, moral in how we then give it away.8 As corporations are increasingly pressured to appease both shareholders demanding profits and stakeholders demanding social responsibility, they are resorting to a rational hypocrisy: changing their marketing, not their mission.

In the end, corporations run for more than short-term profit can end up creating more long-term value for all stakeholders—shareholders included. But it’s a hard road to get there. The same was true for Guy Dixon.

To keep Kyanite Mining Corporation operating after the settlement, Dixon sold off some assets and took on as much debt as the company could bear. That gave him cash to buy out his cousins’ shares. When asked why he had cut the company’s dividend—part of what had led to the lawsuit in the first place—he pointed to investments that have now, nearly fifteen years later, doubled the company’s revenue. He tried to run his company with a long-term stakeholder focus because he was a long-term stakeholder—not just a shareholder.

Thinking about how it’s all played out with his cousins, Dixon said, “I’d rather be in our shoes than theirs.”

The Battle for the Soul of Capitalism

Paul Polman sat across the couch from his youngest son, Sebastian, for a taped interview.9 He crossed his leg casually over his knee. Between them were two mugs of tea—and a production worker holding a boom mic. It was part of #TalkToMe, a series of conversations between parents and children launched by the Huffington Post in 2016.

They talked about climate change, how society’s expectations for businesses have changed over time, and how business can be a force for good. A few minutes in, they started to talk about what Paul Polman would do if he were no longer CEO. “You can always go back to your very first job ever, right?” Sebastian smiled.

“I could go back to my first job ever: a milkman in the Netherlands.” They both laughed.

Just months later, Paul Polman—the stakeholder-focused, sustainability-proselytizing CEO of Unilever—took a meeting that he described as a “near-death” experience, when not only his career but all of Unilever would also be put at risk.10

During the interview, though, he was at ease. He told his son about the important role milkmen play in society. When you’re a milkman, a lot of people depend on you.

“Do milkmen still exist?” asked Sebastian.

“No, unfortunately not.” Both Polmans laughed again.

Unilever, the $60 billion revenue consumer goods giant that owns brands from Dove soap to Lipton tea—and, yes, plenty of dairy products like Breyers ice cream—traces its history back to 1872. To many, Unilever is the poster child for social responsibility. Polman, who became CEO in 2009, built on the company’s well-established social bona fides by putting sustainability at the center of strategy, setting long-term goals to serve customers in emerging markets, radically cutting emissions, increasing sourcing from smallholder farmers, and focusing on healthy and sustainable brands. As he put it, “When there are so many issues out there that need to be addressed, and when you are in a position to do something about that, I feel that sense of duty.”11

But all of that was suddenly at risk. One hundred forty-five years of corporate history could vanish over a few weeks, all starting with a lunch meeting over sandwiches at Unilever’s London headquarters. The meeting was with the Brazilian private equity giant 3G Capital, cofounded by billionair...

Table of contents

• Dedication
• Epigraph
• Contents
• Saving Capitalism from Itself
• 1: Chalk One Up for the Good Guys
• 2: Making a Killing
• 3: Good News and Bad News
• 4: Fighting for Corporate Social Responsibility
• 5: Hear No Evil, See No Evil
• 6: We’re Going to Need a Bigger Boat
• 7: Divided Against Ourselves
• 8: The $23 Trillion Solution
• 9: Citizen Capitalism
• A Capitalist Reformation
• Acknowledgements
• Notes
• Index
• About the Authors
• Endorsements
• Copyright
• About the Publisher