A Conversation with Fortune CEO, Alan Murray, on Tomorrows Capitalism & The Search for the Soul of Business

A Conversation with Fortune CEO, Alan Murray, on Tomorrows Capitalism & The Search for the Soul of Business

Alan Murray is CEO of Fortune Media. Fortune Media Group are a multinational company that publishes Fortune magazine, Fortune.com and other business media including the Global Forum, Most Powerful Women and Brainstorm conference. Alan has spent four decades at the forefront of business journalism, getting to know the most influential businesses and business leaders on the planet.

In his new book, Tomorrow’s Capitalist, Alan Murray explores how the most powerful businesses on the planet are responding to a world where the core tenets of capitalism are being challenged. He reveals how corporate CEOs are taking on issues including climate, diversity & inclusion, inequality, and workforce opportunity, and shows how businesses who are not embracing stakeholder capitalism may lose their operating license.

In this interview, I speak to Alan Murray, CEO of Fortune Media. We discuss the origins and meaning of stakeholder capitalism. We look at how businesses are activating and helping to solve, some of the greatest challenges our world faces from climate to inequality.  We look at why businesses need to engage with broader stakeholder groups, the business case for it, and how tomorrow’s corporate leaders will need fundamentally different skills than today.

Q: What is stakeholder capitalism?

[Alan Murray]: Klaus Schwab would tell you that stakeholder capitalism started 45 years ago in Davos, Switzerland. My view is a little different… I’ve spent the past four decades speaking to business leaders about what they do, and why. At the time of the last great recession, something changed. It was a significant failure of the markets, and really did cause people to question market economics. Bill Gates spoke at Davos in 2008, about the need for creative capitalism. Michael Porter (Harvard) started talking about shared value capitalism, John Mackey of Whole Foods started talking about conscious capitalism and Marc Benioff (Salesforce Founder) started talking about compassionate capitalism. It was the beginning of a time when everybody felt the need to put a modifier in front of the word ‘capitalism,’ it was clear the incumbent version wasn’t working as well as it could. Capitalism created great prosperity around the world- there are over 600 million people who are out of poverty in China because of this model; but something wasn’t working…

2016 was a real inflexion point. It was the year of the Brexit vote, where every authority figure (in business and politics) suddenly said, ‘what the hell just happened? Nobody is listening to us anymore?’ At the same time in the U.S., you had this crazy election where Donald Trump, on the Republican side, was running against globalisation and free-trade. Meanwhile, on the Democratic side, you had Bernie Sanders, a socialist, who almost defeated Hillary Clinton for the Democratic nomination! A lot of business leaders were watching all this and seeing it as a warning call… they felt that they had to figure out how to operate better or risk losing their operating license. You started to see episodes of CEOs speaking out on controversial issues. Marc Benioff stepped in, in Indiana, when the religious liberties law was passed. He spoke of how it discriminates against the LGBTQ community and made it clear that unless the law was changed, his business would not come there. In North Carolina, Delta Airlines removed its discount for the NRA, and it culminated in many ways with the Charlottesville Riots in the US following-which a bunch of CEOs said they were not going to be part of Donald Trump’s advisory committee.  In 2019, the Business Roundtable redefined their statement on the purpose of corporations. Instead of simply making money for shareholders, they now stated that businesses must take care of employers, customers, communities, and shareholders.  This really came to life in the pandemic. Companies stepped forward to take care of their employees, customers and communities. Perhaps it was the collective sense of vulnerability we all had from this virus, but the spill-over has been a huge increase in companies creating statements and policies on all pillars of stakeholder capitalism from the environment to diversity.

This isn’t a passing fad. Something fundamental is going on here.

Q: Has the move from physical to digital economies impacted stakeholder capitalism?  

[Alan Murray]: If you look at the balance sheets of Fortune 500 companies 50 years ago and today, you can see that 50 years ago, 80% of the value was physical stuff – machines, infrastructure, equipment, oil, inventory – the stuff that required financial capital to build and support, and so the financial return was paramount. Today, more than 85% of the value on Fortune 500 company balance sheets consists of intangibles. Intellectual property… code… brand…. Your ability to connect emotionally with your customers and market…. Companies must become so much more now that the value is intangible, and their value comes from their ability to inspire, drive and organise human beings.

Most technology businesses are the ultimate examples of companies that thrive off their intellectual property and not physical assets. It’s perhaps not surprising therefore that tech companies were the first to seize on and develop stakeholder capitalist models. This is moving way outside technology too. Mary Barra, the CEO of GM, announced that by 2035, they will only make clean vehicles (presumably electric). 2035 is pretty far away to most of us, but if you’re a giant automobile company and have plants to reconfigure? It’s not far at all. I’m told that since this announcement was made, every major decision in the business has been forced through this filter. The economics of this are not obvious by the way… we don’t have the charging infrastructure… we don’t have the demand for vehicles… we have supply challenges around the raw materials for batteries. This is a huge decision that could fail, but the fact that she felt it important enough to make it real is a stunning example of stakeholder capitalism in action.

Q: How is transparency impacting stakeholder capital?

[Alan Murray]: Social media has changed everything for companies. In 2017, a Doctor was pulled-off a United Airlines flight by some security guards. The whole incident was filmed by somebody and posted on social media. Within 24 hours, people on the other side of the world were cancelling flights because they were outraged at the treatment of this Doctor. At the time, Oscar Munoz was the CEO. His initial response, was exactly the wrong one. He said, ‘it wasn’t my people, it was airport security…’ – which is the exact wrong thing to say in a world where there is so much omnidirectional media. You can’t segment your message, you have to take ownership.

We are also facing the phenomenon whereby moral imagination decreases with distance. People get passionately upset about things in their community or backyard, and less so about things further away. Social media has decreased this distance (or made the back-yard bigger!) and that means that we are just as passionately bothered about things on the other side of the world, as we are things in our home town. More recently, one of the heads at a large professional services firm posted on linkedin words to the effect that, ‘what Putin is doing is horrible, but our colleagues in Russia are very important to us, and we stand by them…’ he was pummelled on LinkedIn with former employees and current ones who said that response wasn’t good enough and that they had to shut down the office.

Social media transparency has had, and is having, a huge impact on stakeholder visibility.

Q: How do leaders know when, and when not, to be activists?

[Alan Murray]: It’s increasingly difficult for CEOs to know when, and how, to engage with social issues. In the US we’re living through it right now with Disney. California and Florida are the two most important states to Disney and in Florida, the state has passed a law that restricts conversations in schools about sexual and gender identity. Disney initially decided it didn’t want to get caught up in this political battle, so the CEO keeps quiet for two weeks. For Disney, their creatives are everything. The magic of that business is anchored in having creative people who want to create magic for you. His creatives went into revolt and said, ‘you must speak out, you have to!’ They protested his office for two weeks and it was only when he finally met with them, that he understood just how deeply this was felt. This wasn’t just any issue. Disney is a company that has been fairly progressive when it comes to being an ally to the LGBTQ community, but the CEO had not realised just how much hurt this law change had caused his colleagues. When he realised, he did speak out. Now? The state of Florida has gone after him, and the whole Republican party might too. The lesson here is that as a leader, you have to realise where the value of your company comes from. You have to start these conversations way before the crisis hits. The whole notion of stakeholder governance is that you have to do more than pour over balance sheets, you have to really understand and acknowledge the wide range of stakeholders who have the ability to determine your success or failure.

Q: Are we doing a good job of measuring stakeholder KPIs?

[Alan Murray]: It took two centuries to build the financial framework around shareholder capitalism. You have big accountancy firms, big finance departments, lots of scandals, regulatory reform and analysts. We’re pretty good at measuring shareholder return, but we’re only just starting to measure stakeholder return. We are still in the very early days of being able to evaluate the environmental impact of our products across supply chains, how we’re preserving and developing our human capital, and the impact on communities in which we operate. We can’t expect change overnight!

Q: How do stakeholder capitalism change leadership models and skills?

[Alan Murray]: Most leaders are running human organisations, not financial organisations. This means they need to understand how to motivate, inspire and organise people first rather than capital first. This requires a set of skills that traditionally have not been taught in business schools. Today’s leaders have to be more human-centred and have to lead faster than ever before. The typical 20th-century company structure was an information hierarchy. People collected information, it made its way up to the C-Suite, people in the C-Suite came up with strategies, and it tricked down to the floor again. If you run a company that way today, you’ll be toast. Today, information is omnidirectional – you have to respond to it immediately- and you have to empower people, in the field, to make decisions, or you will fail. Leaders today are far less involved with telling people what to do, and much more involved with setting goals and providing guardrails. Leaders are talent attractors, and inspirers, and have to create a passion across all stakeholders. It’s a very different job that requires creativity, empathy, communication, and very different skills to the historic narrative of what a corporate leader was.

Q: Are we looking at a fundamental change in the role of a company?

[Alan Murray]: TPG is one of the world’s largest private equity companies. They created the RISE fund, an impact fund, which went on to raise over $5bn for climate-related companies. I asked a senior individual at TPG whether the trajectory was that all of their investments were going to be impact-based (not just RISE) – and he confirmed that was likely the way things were going. He said that you can no longer launch a business, or a project, without a deep analysis of the social impact alongside the financial impact. The ESG movement is a disaster- companies are putting together fraudulent ESG statements to attract customers and investors. The companies of the future will not be able to get away with this, they will have to focus on their social and environmental impact in a meaningful way. It will not be optional.

The best companies have always had this. The best companies have always been focused on their impact on society. We’re now entering an era where it’s not just the best companies, it’s all companies.

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.