Banks occupy a central position in society and the economy. People have passionate opinions about them – some arguably misguided, some appropriately challenging. I hope to do three things here that might enhance public debate. First, I want to offer a conceptual model and some vocabulary – tools I find useful for talking about enterprise generally. Second, I wish to suggest that the objective a typical bank board pursues is a balanced response to stakeholder claims – as opposed, that is, to maximizing the wealth of one class of stakeholders. Finally, I will discuss the matter of worthy causes clamoring for board attention. My personal view is that they cannot be wholly dismissed. What am I trying to accomplish? Brain-stretching.

1. Banks should
serve
stakeholders
not just
shareholders
HARRISON YOUNG, NON-EXECUTIVE BANKING DIRECTOR & AUTHOR

2. Banks occupy a central position in society and the
economy.
People have passionate opinions about them – some
arguably misguided, some thoughtful and challenging.
I hope to do three things here that might enhance
public debate.

3. I want to create a conceptual
framework and vocabulary for talking
about enterprise
1.

4. I wish to suggest that a bank board’s
objective is best described as a balanced
response to stakeholder claims – as opposed,
that is, to maximizing the wealth of one class
of stakeholders
2.

5. I will briefly discuss the matter of worthy causes
clamoring for board attention. My personal view
is that they cannot be wholly dismissed.
3.

7. What am I trying to
accomplish?

8. Brain-
stretching

9. I note
1.
The challenges facing
traditional corporations

10. 2.
I describe other organizational
forms

11. 3.
I highlight the value-allocation decisions
boards must make, not because I favor
moving business into some new construct,
or expect parliaments to alter corporations
acts, but to encourage directors to think
about their job description – including the
unwritten parts.

12. Some of what follows is intentionally
provocative.
The times call for unconventional
thinking.

13. There have been a couple of electoral surprises recently.
“Left” and “right” no longer have stable meanings.
Community expectations are changing.

14. Executives in every sector of the economy
perceive a rising tide of distrust. It may make
sense to re-examine how business explains
itself to a skeptical public, and see if we
believe what we’re saying.

15. Model
&
Vocabulary

16. A bank is an enterprise. The task of every
enterprise is to offer goods and services at prices
that exceed the aggregate cost of their
ingredients but are no higher than those of
alternative providers. Doing that creates value.

17. The proof is that you have
customers.

18. Some- ingredients are tangible and obvious: bricks to
build a house, clay to make bricks, men and
machines to dig up the clay. Some are intangible:
energy to bake the bricks, the skills that operators
of machines acquire, the transportation of the
bricks to market.

19. I like to use the word, “enterprise,” for value
creation – both the activity and entities that
engage in it – because it is neutral as to
distribution and structure. The purpose of an
enterprise is value creation, full stop.

20. .

21. An enterprise can take a multitude of
organizational forms.

22. How the value an enterprise creates is shared among
the parties at interest is a function of history and
negotiation.

23. “History” is shorthand for political arrangements
and resource endowments – in other words, luck.
Negotiations are conducted in accordance with a
mixture of written and unwritten rules regarding
process and entitlement that we might think of as a
virtual constitution. Every constitution is subject to
amendment.

24. “Stakeholders” is
another name for parties at
interest.

25. The term covers anyone who receives some of the
revenue and other benefits an enterprise generates, or
suffers from collateral damage the enterprise inflicts – e.g.,
by polluting.

26. Shareholders are stakeholders, of course, but so are
customers, creditors, employees,
executives, directors,
suppliers, the government in
various capacities and the community. By
echoing the word, “shareholders,” the word,
“stakeholders,” quietly asserts that all these people have a
form of ownership rights.

27. Freedom to pollute, since I mentioned pollution, is a
sort of negative ingredient.

29. Adding it to the mix imposes a cost on the community.
It may also increase the profit shareholders enjoy – for
example because they are free not to treat their waste
water before releasing it into the river.

30. Every kind of freedom can be
viewed as an ownership right. Some
freedoms turn out to be value-enhancing and some do
not.

31. Banks have a lot of stakeholders and they make a
lot of noise. I don’t know whether that should be
regarded as part of the business model, but it is
definitely an important fact about banks. It is one
of the things that makes banking hard.

32. How
Business
Explains
Itself

33. The traditional apologia begins with Adam Smith’s
“invisible hand” – the notion that honest pursuit of self-
interest takes an economy to an equilibrium state that
maximizes total welfare.

34. This is actually only true for a given initial
allocation of resources. Grossly unequal
distributions of wealth mean less total welfare, and
the remedy is more likely to be sought in politics
than in classical economics – as we have lately
seen. But never mind. Competition is the hero of
the story and businesspeople love retelling it.

35. Believing in economics and acquainted with
corporate law, directors of public companies will
often tell you – or some will – that their
job is maximizing
shareholder wealth, with
broader outcomes being the market’s affair.

36. They may even assert that the
PURPOSE of the company on whose board
they serve is “to make a profit.“

37. This wins business little
support.

38. Self-interest may be constructive from a macro-
economic perspective, as Adam Smith tells us, but
it’s unattractive at a personal level. A robust
defense of profit-seeking reminds people of how
handsomely corporate leaders are paid. More
fundamentally, this is the wrong way to think about
profit. And it doesn’t describe what companies
actually do.

39. I’ll start with profit.

40. One of the ingredients an enterprise requires in
order to deliver goods and services is the use over
time of a certain amount of financial capital.
Suppliers of capital must be adequately
compensated – as must employees and executives
as suppliers of their time and talent – or they will
not participate in the project. Profit has to cover
the cost of employing that capital, which may be
thought of as invisible rent.

41. If profit consistently exceeds that rent, the value
of owning the enterprise – i.e., the share price – will
go up. If what businesspeople mean when they say
that their purpose is to maximize shareholder
wealth is that their role is to marshal ingredients so
as to achieve that result, I have no argument.

42. But that way of putting it can alienate their fellow
citizens, and it gives the wrong message to directors,
executives and impressionable adolescents. As the
management guru Peter Drucker put it years ago,
profit is a means, not an
end. The end to focus on, and talk about, is value
creation.

43. Regarding what companies and the boards that guide
them actually do – as opposed, that is, to single-mindedly
chasing profits – let me draw a picture of reality as I see it.

44. Many communities pass laws to limit pollution. A logical corollary to
the assertion that a board’s only responsibility is maximizing shareholder value
would be an obligation to oppose or legally circumvent those laws. The odd
academic or journalistic provocateur may argue that such an obligation exists,
but practical business executives do not.

45. Just for starters, they know that public opposition could
entail brand damage, and that even quiet foot-dragging
would mean significant legal expenses and the possibility of
fines.

46. Depending on what damage the effluent does or is alleged to do,
how much treating it is projected to cost, a host of technical detail
regarding those issues, how important a clean river seems to be to the
general population, a judgment about how aggressive environmental
activists and relevant government agencies will be, and their personal
values, directors may support, attempt to clarify, improve or frustrate
such legislation.

47. Anyone who has been a company director or served on the
governing council of a school or charity knows what the
discussion will be like. Boards work hard to get a handle on
the facts, pay attention to community expectations, and try to
compare costs and benefits some of which are impossible to
quantify. In the end, part of what they do is make moral
choices. They call them “business decisions.”

48. You can be a cynic if you want, but directors want to do the
right thing. Figuring out what the right thing is can be quite
difficult.

49. Shared value - A Harvard Business School professor
and a management consultant have published a couple of
articles promoting a strategy they call “shared value,” which
makes doing the right thing somewhat easier.

50. Their idea is that corporations should pursue initiatives
that benefit the communities they operate in – without
worrying too much about immediate returns to their
shareholders.

51. Examples include facilitating the emergence of a
cluster of associated local businesses, or
reducing the amount of energy-consuming transportation
and packaging in their supply chain. Conceiving these as
business initiatives rather than charity is the first step in
making the flow of benefits sustainable.

52. Porter and Kramer see this as a new form of
capitalism. If it is, I think I like it.

53. A number of major companies have embraced
the concept. A group of academics have
attacked it. There is a “Shared Value Project” in
several countries, including Australia. The
question of purpose is occupying some very good
minds.

54. To be clear, my point is not that directors ought to
consider the interests of all stakeholders, but that
they already do.

55. I personally believe that companies
have obligations to
stakeholders other than
shareholders. I believe banks have
obligations that go beyond those of ordinary
companies. Reasonable people can debate those
propositions. Boards behave as if they are true.
That’s the way the system works.

56. The
right
home

57. Some people, observing that banks grant options to the
rest of the economy, conclude that absorbing risk is
banking’s purpose. That’s a dangerous view. Banks
accept risk in order to
provide the services they
do, but they should not seek risk the way general
insurance companies do.

58. They should strive to minimize the risks they have to
take. I regard that as fundamental banker
wisdom.

59. I know that some people believe a
bank can take any risk it wants, so long as
the price is appropriate. Within the
normal range of loan transactions, yes, a
little more risk and a little more interest
go hand in hand. But adequate
compensation for a lot more risk requires
a big discount from par.

60. Making – or more likely, buying – a very risky loan is a form of
equity investing. Different skills are
required. A very different balance sheet is required.
Until such time as the borrower repays, you can have big
arguments about valuation with your accountants and
regulators, which is difficult for banks. You are talking about a
different business model. You want to be a hedge fund .

61. Enterprise needs the right home. There must be a
congenial organization or organizational construct for value
creation to happen in. Its constitution should be consistent with
the character of the enterprise. The right home is often a
corporation, but that isn’t the only possibility.

62. For much of the 19th Century, most English banks were small
partnerships, which made bankers cautious by increasing their
personal risk. This worked when their business was seasonal
lending against inventory and receivables – and entirely domestic.
It didn’t work as well for international business, which is why
overseas banks and trading enterprises were among the first to be
given the privilege of incorporation.

63. Other venues in which value can be created
include (without limitation) a joint venture, a
charitable foundation, a government agency, a
university, a political party and a meeting. Not
all of these are businesses, or even
organizations. That’s why I use the awkward
phrase, “organizational construct.”

64. A corporation has distinct advantages as a home for
enterprise, starting with the fact that we know how it
works. It has a constitution that is written. Well, mostly
written. It has transferable and therefore permanent
capital, limited liability for the owners, and a relatively
clear decision-making process.

65. Large public corporations also have limitations.
Quoted shares make focus on current shareholder
wealth inevitable – which can give companies a short-
term bias that puts many value creation opportunities
out of reach. Transferable shares make it easy for
institutional owners to sell if they sense problems,
rather than sticking around and exercising stewardship.

66. Other organizational forms have their own strengths and
weaknesses. Members of a private partnership worry more about
personal risk and reputation than shareholders of public companies do.
Illiquid partnership interests promote long-term thinking, which in
principle ought to be value-enhancing.

67. On the other hand, the mutual trust and oversight a partnership
requires are difficult to sustain above a certain size, and the entity lacks
financial flexibility. Its dividend policy is the partners’ retirement
schedule. Its constitution is a form of musical chairs. The partners
leading a successful firm will always be in a position to enrich
themselves by going public – in doing so disappointing the expectations
of younger partners and aspiring associates. This can make such a firm
unstable. Individuals managing successful private partnerships address
this issue by describing themselves as “custodians of the franchise.”

68. Institutions that pool and deploy a community’s resources
are sometimes seen to do better without shareholders.
Many savings institutions and life insurance companies used
to be mutual entities. With no shareholders to challenge the
chief executive, however, some took egregious risks.

69. Others became hopelessly bureaucratic. A man who knew
the institution well once told me that the then-mutual
Metropolitan Life Insurance Company was “owned” by its
own law department. Most mutual organizations in the U.S.
and U.K. have been converted to normal corporations.

70. Learning
from
China

71. The corporations acts of Anglo-Saxon countries are
pretty strict about ownership rights. The world is not.
That being the case, looking at things exclusively
through a Western legal lens distorts reality. I
learned that lesson twenty years ago in China, where
I helped establish the country’s first investment
banking firm, China International Capital Corporation
(“CICC”).

72. I assumed before I arrived in Beijing that much of CICC’s
work would be restructuring state-owned enterprises
(“SOEs”).

73. So when I had dinner with a vice minister of planning, I
asked him what the hardest part of restructuring was. He
answered immediately: “Finding the owner.” He went on to
explain that ownership meant influence on operations and
access to some of the value an SOE generated. That didn’t
have to involve common shares. In the abstract, and as a
good Communist, he regarded “the people” as the owners.
But he had to identify the ones to talk to.

74. Common shares do have their uses. CICC’s main work turned out
to be taking SOEs public, which created owners in the conventional
sense, and gave everyone an interest in facilitating the changes that
made an initial public offering (“IPO”) possible. SOEs had to be
“corporatized.” Privileges enjoyed by individuals and communities
associated with the SOE had to be covered by contracts.

75. New shares had to be sold, so the restructured SOE had to be
profitable. It was assumed the price would “pop” upward the day of
the launch, so the new shares had to be allocated. All this involved
political decisions, which foreign bankers could not advise on. But
watching the process gave me a new understanding of an enterprise
as an arena in which stakeholders contend, and an appreciation of
the difficulty and importance of a balanced response to their claims
on value.

76. I expect a range of reactions to the account of
ownership in the last few paragraphs. A generation
after the birth of “capitalism with Chinese
characteristics,” a few readers may still be outraged by
communism. Others will laugh and point to my story
as evidence that “even the Communists” see the
merits of unambiguous ownership. Most will insist
that directors of corporations have a clear and simple
duty and cannot start rewriting the law.

77. All these views are understandable. Not all of them are
valid. Full-on socialism has been a failure most places it
was tried, and I’m not endorsing it. Private property is the
hook in the ceiling that the tinkling chandelier of enterprise
hangs from – with self-interest in the role of gravity – but
mutuality exists in many forms. And directors do not have
simple jobs.

78. Competing
metaphors

79. The law treats corporations (including banks) as
sentient beings empowered to
pursue their own self-interest provided
they obey whatever rules society has made for them.

80. Their self-interest is identical with shareholders’ interest.
What interests shareholders is primarily dividends and
price appreciation. The arena in which corporations seek
profit is “the marketplace.” Good outcomes
are the product of competition among
corporations, as per Adam Smith. It is not that
complicated.

81. Except that it is. You can also regard a
corporation, and especially a bank, as a
parliament of stakeholders, an
internal marketplace, a clearinghouse for stakeholder
interests. Employees want higher salaries;
shareholders want to control costs.

82. Politicians want the easy credit they
believe will revive the economy and get
them re-elected; prudential supervisors are
risk-averse.

83. Environmental activists want banks to stop financing coal
companies; management wants to respect long-standing
relationships. A bank chief executive tries to deliver for shareholders
but encounters a stream of distractions. Eventually he comes to
understand that coping with “distractions” is part of his job. He is
answerable to everyone. The outcome he must deliver is balance.

84. Markets and intelligent market participants are
good at finding the point of balance in a complex
situation – an activity economists call “price
discovery,” politicians call “consensus-
building” and investment bankers call “deal-
making.”

85. Boards perform a similar function. They
represent shareholders, to be sure, and
favor them when they can, but inside the
boardroom, directors are arbitrators as
much as advocates. Smart boards try to
understand the moral force of stakeholder
claims and anticipate shifts in community
expectations.

86. Implicit in the uncomplicated, sentient-being view of
corporate entities is an assumption that the prices of
most ingredients are set by “the market.” The challenge is
to combine them efficiently and market the resulting
products skillfully.

87. Competition is external. Banks are cross-subsidy
machines, however, so there is also internal contention
among stakeholders who want outcomes for which there is
no market. A director of a bank can see herself as a zoo-
keeper who cares for the sentient being or as speaker of the
parliament. I think she is both.

88. “License to operate” is a currently popular
name for the mixture of legal authorization and public trust
banks must maintain to be in business. (All major public
companies need some form of such a license.)

89. A bank’s license comes with fiduciary obligations to
shareholders as a group, but also to unsophisticated retail
customers who buy products they will never fully
understand, and to the community at large, which wants
financial stability. “Maximizing shareholder wealth” is at best
a partial job description.

90. The license already requires a bank chief executive,
as prime minister of his/her enterprise, to submit to
question time on a regular basis. The evolutionary path
banks are on will make the parliament-of-stakeholders
metaphor increasingly appropriate.

91. Historically, banks have presented themselves, and thought about
themselves, as safely situated behind thick walls. More recently, their
boundaries have grown porous.

92. Examples of this phenomenon include the
migration of data to the cloud just as the value of
data is being recognized; the propensity of young
people to view every job as a gig, giving banks a
work force of strangers; and the growth of cyber-
terrorism, which makes shared interest in
protecting financial infrastructure outweigh
competitive instincts.

93. If you carry these trends to their logical conclusions, the distinction
between “internal” and “external” becomes quite fuzzy. Mutuality grows.
Everyone is everyone else’ stakeholder. Ambitious businesspeople may
object to this “vegetarian capitalism,” as it might be called, but for the
vulnerable, political creatures that banks have always been, “serving
stakeholders” is the right motto.

94. Hold those thoughts while I describe an
enterprise that wasn’t an organization, and
introduce (if you haven’t heard of it) the
concept of a mixed game. As it happens, this
story comes from the world of bank regulation,
but there’s no message in that.

95. A Game of Breakfast

96. When an American bank exhausts its capital, it is supposed to be closed by
its prudential supervisor – the Office of the Comptroller of the Currency
(“OCC”) if it‘s a national bank, otherwise by the state banking commission that
chartered it. When a bank is closed, the Federal Deposit Insurance Corporation
(“FDIC”) automatically becomes the receiver. From 1991 to 1994, I ran the
division of resolutions at the FDIC.

97. Our job was to persuade another bank to assume the deposits of a failing
bank and to purchase as many of its assets as possible. It took six weeks to
arrange even the simplest
resolution, and four or five months in complex cases.

98. If the bank in question was state-chartered, the
Fed often got involved, and if, as sometimes
happened, a bank experienced liquidity pressure
as it waited to be put out of its misery, the Fed
alone could provide support.

99. Anyone who has ever worked in a bureaucracy knows
that overlapping powers and interconnected
responsibilities of this sort can result in friction and turf
wars. That simply wasn’t acceptable in 1991 and 1992.
Four or five banks were failing every week. A bungled
transaction had the potential to start a cascade of bank
runs. Preventing panic created value for the whole
country – not to mention preserving regulatory
reputations.

100. The solution, invented by my predecessor, was a
weekly breakfast, attended by two
or three senior civil servants from each agency. Most banks are
closed on Friday afternoons, so the breakfast was on Friday morning
to permit last-minute updates.

101. The OCC was always the host – I never found out why – but they
never claimed it was “their” meeting. The “constitution” was entirely
unwritten and there were only two rules: no surprises and no feuds.
You were expected to tell your colleagues what you were planning,
and mention any lurking policy issues. And if you were angry about
something that had happened during the week, you had to put it on
the table Friday.

102. You might not call that weekly breakfast an
enterprise. Officially, it didn’t even exist. Not existing
was crucial to its success. But it provided a home for
the value creation of smooth resolutions, an enterprise
in which each of the attendees had a stake. It helped
to make the resolution process a “cooperation game,”
in which none of the three federal agencies sought to
look better than their cousins.

103. The opposite of a cooperation game is the “zero-sum
game,” in which every gain is
a loss to another player. In between are “mixed games,” the
object of which is to agree on a division of value without destroying too
much of it negotiating.

104. Lengthy negotiations erode
value because they distract
management from
productive activities.

105. More fundamentally, getting the other players in a mixed game to agree
to a particular division of whatever prize you are fighting over requires you
to convince them of your sincerity in making a “final” offer or “drawing a
line in the sand.” To do that, you must demonstrate a willingness to sustain
losses if the offer is rejected or the line is crossed. An example would be a
company that abruptly cuts prices and increases its advertising spend to
prove to an interloper that it will defend its market share “at all costs.”

106. Competition with the other companies in a market
can be a zero-sum game and be good for the
economy. Competition law puts limits on
cooperation. On the other hand, stakeholders of the
same enterprise “ought” to be playing a cooperation
game. Life teaches us not to expect that. Mostly we
play mixed games.

107. In between a large public corporation and a
weekly get-together, there is a wide range of
organizational forms and constructs. The concept of
a mixed game helps us understand many of them.

108. Out-sourcing is a good example. Banks have done a
lot of it – and some are beginning to wish they hadn’t.
The vendor has an interest in minimizing the cost of
fulfilling his contractual obligations. The purchaser of
services will have put service standards into the
contract, and will hold the vendor to them.

109. But if, as the years pass, the vendor finds he
cannot make a profit without cutting corners, he is
likely to conclude that cutting corners is “fair.”
Maintenance will get deferred. Staff quality will
decline. Even with contractual inspection rights
and remediation mechanisms, the purchaser is
likely to suffer. The agreement between the
parties will have to be restructured. Signing an
out-sourcing contract amounts to creating a joint
venture. A joint venture is an agreement to play a
mixed game for an indefinite period.

110. Worthy
Causes
and
Complex
Risk
Decisions

111. Among the stakeholders boards must respond to
today are advocates of various causes.

112. They may be shareholders who care more about
some aspect of corporate conduct – the company’s
carbon footprint, for example – than they do about the
dividend. They may be community leaders who want
to see their tribe or gender better represented in senior
management.

113. Many executives and non-executive directors believe
strongly that burdening corporations with social objectives
is inappropriate, no matter how worthy those objectives
might be. It will make the enterprise inefficient, they
argue. Doing more than the law requires may sound
virtuous but it is not what the other shareholders signed
up for. And to be honest, moderating climate change is
not our core competence.

114. Others contend that large public corporations
are among society’s most important institutions.
Their license to operate creates an obligation to
help solve society’s problems. There is no reason
they shouldn’t be conscripted, just as individuals
are in time of war. Global warming is an
existential crisis, after all.

115. There are two arguments going on here.
One has to do with capability, the other with
duty. The answer to the first is easy.

116. To those who see the statement, “We serve shareholders,” as an
adequate description of what boards do and are capable of, my first
response is to ask, “Which
shareholders?” The choice of a corporate
strategy is also a decision about risk appetite, and appetites vary.

117. Some shareholders want reliable dividends.
Some want growth and price appreciation,
even at the cost of increased volatility.
Shareholders may also be sorted into groups by
reference to their time horizons and tax
positions. Some want a quick profit. Those
who would face significant capital gains taxes if
they sold want to collect dividends forever.

118. If boards can make choices about which shareholders to satisfy
and which to disappoint, banks clearly have the capacity to allocate
value among stakeholder groups. They do it all the time, in fact.

119. When a central bank lowers its benchmark interest rate,
banks have to decide how much benefit to confer on
borrowers by dropping loan rates, how much to claw back
from depositors by lowering deposit rates – and whether in
the process to widen the spread, which would benefit
shareholders. These are questions of strategy but also of
politics.

120. Or consider the process of recruiting a new chief executive.

121. There’s a negotiation about her pay. And there’s a market
for talent that can be cited to justify the outcome.
Headhunters will give you compensation figures disclosed by
other companies.

122. But there is an allocation decision buried in this process.
The board has to decide what managerial skills and record of
past success the next chief executive has to have, what part
of the market for talent that means the company is in, what
share of the value the company creates in the next few years
will go to the chief executive as compensation rather than to
the shareholders as profit.

123. Whenever current value is allocated
away from shareholders, whether to
customers or executives or environmental
protection, the decision is likely to be
described as being “in the shareholders’
long-run best interest” or as representing
“enlightened self-interest.”

124. At best these are statements of intent. The
future is profoundly uncertain. Long-run best
interest is harder to calculate
than we pretend. Judgment is required.

125. Well-constructed boards are good at making decisions
that call for judgment. One might almost say that’s what
they’re for. These “complex risk decisions,” to give them a
name, involve apples-and-oranges situations where
financial or legal analyses are not sufficient. Science,
ethics, reputation, brand, staff morale, political reaction
and changing industry structure may also be
considerations.

126. Defining a company’s strategy is a complex risk
decision. Choosing or firing a chief executive is a
complex risk decision. The questions advocates of
causes raise are similar.

127. They need to be considered from multiple perspectives.
On a distribution-neutral basis, what value can be created
– for the bank and its community? What organizational
arrangements are likely to maximize that value? How can
the allocation of burden and reward be squared with
relevant stakeholders? What is fair?

128. The best boards listen to experts if such exist, but
know they can’t out-source responsibility for
important choices. They bring to these decisions
diversity of experience outside the boardroom, the
mutual respect that comes from wrestling with
difficult questions inside the boardroom, a bit of
distance from the problem and with luck, collective
wisdom. That’s my answer regarding capability.

129. But should boards engage in these
debates? My personal view is a cautious
“yes.” To reinforce an earlier
observation, large public corporations
are the most important institutions in
modern society. Their license to operate
makes them a public resource.

130. If there is significant interest in an issue, boards might
choose to investigate it, commissioning management
and outside experts to help as necessary. If directors
have conviction, they might speak out, and encourage
their peers to join the conversation.

131. I accept that there could be costs to speaking
out. A board should probably ration the
occasions on which it does so. But this is a role
large public companies are under increasing
pressure to play. There will probably be costs
to shirking.

132. Summary

133. Every enterprise is a joint venture among its
stakeholders. They come together to create value but
fight over its distribution. They are simultaneously
allies and opponents. The work of a
board involves satisfying,
and by definition
therefore disappointing, all
stakeholders to some degree. It’s political work. We
might call it “honoring” claims.

134. Honoring
begins with
listening.

135. A company – or an industry, or business in general –
must convince every class of stakeholder that it
understands their frustrations, that it knows what they
want and knows why they’re angry. This may sound
ambitious, but it is more achievable than convincing
people of your virtue.

136. If it can find the right voice, business might
speak publicly about the ethical dilemmas it
wrestles with. Many businesspeople will recoil
from this suggestion, fearing they will lose control
of the conversation. But who says we have
control?

137. I’ll end with something quirky and hopefully
therefore memorable. I read an article nearly forty
years ago – I’ve saved it ever since – that describes
a (presumably imaginary) game called “Chinese
baseball.” It differs from the American version in
only one respect. Whenever the ball is in play, any
player may move the bases. This makes Chinese
baseball more like life than most games are.

138. The author calls the game an “art.” He
recommends that players, “Act from an
instantaneous apprehension of the totality” –
advice making the point that we all have more
capacity to imagine and shape the future than we
sometimes admit.

139. “We serve shareholders” is akin
to “I was just following orders” – a
dumbing down of the job, and an
abdication of responsibility.

140. Banks are servants of the whole community. There is no
escaping the attendant complexity. But you can find the
point of balance if you want to. And it is possible to
cultivate good judgment. Honoring the legitimate claims of
all stakeholders is common sense. It is what boards do. It
is what they ought to do.