Embattled U.S. business leaders may want to take a lesson from CEOs in India, who put shareholder value fourth on their list of priorities. Not only are the Indian companies able to do well while doing good, there is every reason to believe that they have done well precisely because they are doing good.
It's been a tough decade for corporate leaders in the United States.
Financial scandals and the Wall Street investment collapse are just part of the problem. The public image of CEOs and other business leaders is in the basement. They appear to be ducking any serious consideration of reforming their own compensation, they are largely silent on social issues, and the perception that corporate lobbyists are subverting the public interest is widespread.
Nor have companies performed well financially. Shareholder performance, the sine qua non for U.S. business, has been a complete dud, reporting a net decline over the past decade and the second-worst performance among developed countries.
The idea that what is good for business is good for America -- a common phrase in an earlier generation -- seems a distant memory. Where do we look for business leadership?
Let's outsource it!
In an interesting sign of the times, the most impressive business leaders at the moment may be in India. What makes them impressive is a commitment to social goals that extend beyond the interests of their firms and -- here's the good part -- stunningly impressive performance.
They don't appear to be paying any price in terms of performance for being good citizens.
The Indian economy largely sidestepped the financial crisis because of wise banking practices; its overall growth rate is second in the world, only to China. Its major corporations are growing at rates of 20 percent to 40 percent per year, competing and winning in precisely the international markets where the United States sees its future: high-skilled service industries.
Indian companies have been on an acquisition binge, and the evidence suggests that when they acquire foreign companies, those companies perform better. And Indian executives are increasingly on the short list for leadership positions in Europe and elsewhere.
My colleagues -- Harbir Singh, Jitendra Singh and Michael Useem -- and I recently completed a study of Indian businesses based around interviews with the leaders of 100 of the biggest companies in India. The India Way: How India's Top Business Leaders Are Revolutionizing Management will be published this month by Harvard Business School Press.
Here's a finding from the study that should get your attention: We asked them to rank their priorities as the company leader. No prizes for guessing that U.S. corporate leaders are almost required to say that shareholder value comes first. Here's what the Indian leaders said:
Indian Business Leader Priorities
1. Chief input for business strategy;
2. Keeper of organizational culture;
3. Guide or teacher for employees;
4. Representative of owner and investor interests; and
5. Representative of other stakeholders (e.g., employees and the community).
Shareholder value comes fourth on the list, and that's true for companies that are listed on U.S. stock exchanges as well as for companies that are family controlled.
That's not as stunning as the priority that beats it, No. 3 on the list: serving as a good role model for employees. By that, they didn't just mean a role model in the sense of a hard-working employee. They mean as a citizen and member of society.
There are some terrific role models among individual U.S. CEOs, but it is hard to imagine many saying that being a role model is a top priority, let alone that it was more important to them than maximizing shareholder profits.
Keeper of organizational culture, No. 2 on their list, fits in with the No. 1 item, shaping corporate strategy.
In these companies, competitiveness is seen as coming from within the firm, not from clever marketing strategies, financial deals, or mergers and acquisitions -- but through superior capabilities at problem solving and execution, which fundamentally come down to employees and the way they are managed. Culture plays a big role there.
Every executive we interviewed described the main objective of their company in terms of a social mission. It wasn't primarily to make money.
In the case of Bharti Airtel, it is to get cell phones into the hands of people who have no means to communicate; for ICICI Bank, it is to provide financial help to those with no access to banking; for Dr. Reddy's, the pharmaceutical company, it is to address healthcare needs the world over; for Infosys, it is to show that Indian business can lead in technology.
Business strategy is based on the social mission. And they put their money behind mission at a level that dwarfs anything we'd see in the United States: Sixty-five percent of the profits of Tata Group companies go to charities. Infosys built and staffed entire hospitals in different regions of the country, rolling out a national curriculum to develop IT skills at the same time. Dr. Reddy's provides for the healthcare needs for 40,000 children. The list goes on and on.
Not only are the Indian companies able to do well while doing good, there is every reason to believe that they have done well precisely because they are doing good. Helping poor people pays off when those people get money and become consumers, as millions of Indians have done every year. It also helps in a still-regulated economy to get government permissions and approvals.
But the biggest reason, and the one that translates most directly to the United States, is that social mission provides a powerful means for motivating employees. We have long known that employees do much better when they see how their tasks contribute to the overall goal of the organization, and new research by my colleague Adam Grant -- "The Significance of Task Significance: Job Performance Effects, Relational Mechanisms, and Boundary Conditions," published in the Journal of Applied Psychology -- shows that the results are especially powerful when those goals relate to helping people. Performance is two or three times better.
Other evidence suggests that a strong social mission makes it easier to attract and retain employees. Mission drives employee performance, which drives strategy.
A generation ago, most U.S. business leaders saw their jobs as serving the needs of all stakeholders, not just shareholders but employees and the broader society. The more recent focus only on shareholders doesn't appear to have worked so well for any of them. The Indian experience suggests that maybe those earlier U.S. leaders were onto something.
Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School. www.talentondemand.org.