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| Vertex founder and former CEO Dr. Joshua Boger at the PBLN Washington Summit May 2010 |
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Sustainability, Justice and the Corporate Mission
Congratulations to you, the newest inductees into Phi Beta Kappa. My guess, though, is that this hasn’t really been a key goal in your life. It is what we in pharmaceutical development call a “surrogate marker”; attaining Phi Beta Kappa is a measurement, a marker, toward a mission or goal. The lowest LDL cholesterol is of no intrinsic value. But it is a pretty good predictor of cardiovascular health. It is “health” that is the goal, and low LDL doesn’t guarantee that health. Phi Beta Kappa – apart from the cool, secret live-long-and-prosper handshake – is a marker of accomplishment that portends…what? For most of you, I guess that “what” is a large positive impact in the world. For some, that necessarily means working in – maybe even starting – some “non-profit” organization. That’s great. Do that. For others of you, some almost apologetically [“I’ll make some money and then I’ll join you…”], your near-term goals involve a for-profit entity. But, you insist, “I won’t go corporate…” or , lamely, “Uh, it’s a means to an end…”
Corporations exist to make money, right? Everybody knows that the dominant responsibility – maybe even the only responsibility – of a public company is to provide a financial return to its shareholders.
Milton Friedman famously opined,
Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.
Milton Friedman
Capitalism and Freedom, 133 (1982)
Everybody believes this to be the essence of capitalism. Except it’s not true.
We live in a time when the popular feelings for “business” are anxious and confused. Indeed, that uneasiness extends to the unhappy relationship between economic measurements and life’s values. As The Onion, that tongue in cheek journal-of-record headlined a few years ago, “Cost of Living Now Outweighs Benefits.”
There are few epithets slung with more venom than “large corporation”, yet, our society virtually worships the output of these same said Satans. Everybody hates Bank of America but loves the ubiquity of their ATM’s. Ordinary and even extraordinary people, contentedly employed by large corporations, will nevertheless join in the mudslinging, as if their own paychecks – and they themselves – were somehow exempt from besmirchment.
Now, you may be saying, “But some corporation are really greedy and evil…” And I suppose that might be true [although personally I think there are even more simply-stupid corporations, a passel of silly ones and quite a number of boring ones…], but it hardly justifies a categorical condemnation. There are certainly “greedy and evil” people, but that hardly justifies so characterizing the entire human species (…even if we of European descent are 5% Neanderthal). Among those with a penchant for linking “evil” and “corporation”, there is even a sense of disdain for the counterexamples, for companies with a social conscience. They roll their eyes at the Ben & Jerry’s of the world, adding “harmless hippie exception” to their corporate epithets. They are certain that all real corporations cravenly seek only profits, at any cost and without distraction, as a matter of mission, even of legal requirement. But it is not true.
A corporation is a particular and special legal entity. Not simply a business enterprise, a corporation is a special legal construction, chartered [for US corporations] under the specific laws of a chosen state. The state laws governing incorporation convey rights and responsibilities on a chartered corporation. In many ways, those rights and responsibilities mimic those of an individual, creating of a collection of individuals – the owners – a distinct new and novel individual, the “corporation”. The laws of incorporation convey certain privileges upon the corporate individual, such as favorable tax treatments and protections from certain liabilities. But these corporate privileges are not gifts from society. A corporation has responsibilities as well as privileges. The social contract goes both ways, although, in some states, the full scope of that social contract is not made as explicit as it might be.
Vertex Pharmaceuticals, a company I founded 21 years ago, is incorporated in the Commonwealth Massachusetts, a state that has, admirably, been explicit about the responsibilities of corporations. Indeed, even in its official moniker as a “Commonwealth”, Massachusetts signals to all that government isn’t about enabling special privilege but about assuring the common good. The English noun “commonwealth” dates from the fifteenth century usage “common weal”, meaning “common well-being”.
Those responsibilities and expectations are most particularly described in the responsibilities and expectations of the corporation’s directors, the individuals who ultimately run any corporation. Massachusetts Chapter 156D, Section 8.30, General Standards for Directors, gets right to the point in subsection a3: “[A director shall discharge his {sic} duties as a director, including his duties as a member of a committee…] in a manner the director reasonably believes to be in the best interests of the corporation. In determining what the director reasonably believes to be in the best interests of the corporation, a director may consider the interests of the corporation’s employees, suppliers, creditors and customers, the economy of the state, the region and the nation, community and societal considerations, and the long-term and short-term interests of the corporation and its shareholders ...”
So the next time you hear that “the only thing corporations are interested in is making money…” you can respond: “Maybe that’s true where you live, but it’s not either the truth or the law in Massachusetts.”
Or in Connecticut, in New York, in Illinois, in New Jersey, in Pennsylvania, in Florida and in about half the states. Even in Arizona!
Beginning in the 1960’s, a large body of economic and legal theory around “non-shareholder stakeholders” led to enactment of “corporate constituency statutes”, like the one quoted for Massachusetts. Pennsylvania led the way in 1983, and more than half the states have these kind of statutes. These generally give Directors permission to consider a wide variety of non-shareholder stakeholders. Connecticut and several other states go even further requiring Directors to take into account non-shareholders stakeholders, although they offer little guidance as to how that is to be done.
California, which so far avoids these subversive ideas (and requires all corporations to take a Milton Freidman-like approach), is now considering allowing self-designation of a “Benefit Corporation, or “B-corporation” which would be certified on a societal benefit rating scheme – a “B Impact Rating System” – that would require such B-corporations to name at least one non-financial societal or environmental purpose for which the corporation exists and can be measured and held accountable. This designation would then offer these B-corporations a "safe harbor" from torch-bearing mobs of Friedman-worshipping shareholders.
But it is not only lawyers and politicians forging the pathway toward greater corporate social responsibility and sustainability. Thousands of individual businesses across the country realize that is good business to consider “multiple bottom lines”, balancing social and environmental bottom line measurements with the financial bottom line.
A few years ago I co-founded and continue to co-chair a non-profit association called the Progressive Business Leaders Network. (see www.pbln.org) With about 100 members, mostly for now in Massachusetts, we are a “C-level” (i.e., CEO’s and top officers) support group across a wide range of “for profit” companies – large and small – involved in education, energy & environment, healthcare, housing and economic development.
As noted on the web site:
PBLN’s mission is to promote the best practices of business leaders committed to socially and environmentally responsible economic growth and the public policies that advance it.
[PBLN Members believe:]
PBLN Statement of Values
- Fiscal discipline is a cornerstone of responsible public policy.
- There is a need for greater social, economic and environmental justice.
- Healthy economic growth is both robust and environmentally sustainable.
- Governments are indispensable regulators of fair, transparent and sustainable markets.
- Private sector leaders have a unique ability and, therefore, responsibility to contribute to public policies that promote healthy economic growth, effective government and greater social justice.
- Public and private sector leaders should partner to develop policies which encourage commercial ventures that have clear social and environmental benefits (such as affordable health care, affordable housing and “green” technologies).
Vertex Pharmaceuticals Incorporated was founded and operates on the following publically-disseminated mission:
Innovate
to redefine health and transform lives
with new medicines.
Nothing in there about earnings per share. Oh, don’t misunderstand, we expect to make money, but the purpose of profits to Vertex is to sustain and enhance investment in innovation that redefines what it means to be healthy and to transform lives in need of new medicines. We serve society.
And this isn’t a new idea. I didn’t make it up.
In 1950, George Merck, CEO of the multinational pharmaceutical company, Merck, that would go on in subsequent decades to become not only fantastically successful but also, by the 1980’s, America’s Most Admired company, addressed the graduating class at the Medical College of Virginia in Richmond. A main topic of his speech was the now-accepted idea that great and original research could indeed take place inside the walls of a company. But he went on to lay out some principles of the business of Merck as well.
Noting that business even then was often mis-perceived as being all about profits (although he clarified unapologetically that there can be no business – and no future – without profits) he uttered the famous lines,
“We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear.”
Now if that wasn’t radical enough…and by itself it could be dismissed as social responsibility when convenient: country club liberalism…he went on and made the quantitative economic assertion:
“The better we have remembered …[that medicine is for the patient], the larger [the profits] … have been.”
So, George Merck claimed, patient centered drug innovation isn’t just a possible business model, it is the best business model. And wading right into what sounds like a 2008 campaign statement on healthcare reform:
“How can we bring the best of medicine to each and every person? It won't be solved by wrangling with words and it won't be settled by slogans and by calling names. We will fall into gross error with fatal consequence [fatal consequences!!] unless we find the answer - how to get the best of all medicine to all the people.”
Then calling out to his fellow industry leaders:
“… We cannot step aside and say that we have achieved our goal by inventing a new drug or a new way by which to treat presently incurable diseases…. We cannot rest till the way has been found, with our help, to bring our finest achievement[s] to everyone.”
George W. Merck
Medical College of Virginia (Richmond), 01 December 1950.
The secret business ingredient – for companies in every sector of the economy – is the same one as it was in 1950: customer and society focused innovations that bring real value across society.
Innovation of high value to society is not only a viable business plan, it is the best (and maybe the only) sustainable business plan….for-profit or not-for-profit.
The noblest and most admirable instinct of your generation is to embrace a mission greater than yourself.
Naked self interest is so last millennium.
Find the joy of social justice wherever you can, and demand that mission of wherever you work.
Diane Hessan, President & CEO - Communispace
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