3 Takeaways - Business Revolution: Tech, Talent, Purpose with Fortune Media CEO Alan Murray (#92)

Episode Date: May 10, 2022

Fortune Media CEO Alan Murray shares the dramatic changes in business today due to the tech revolution, which is disrupting so many businesses, and the purpose revolution which is causing companies to re-think what they should be doing. He believes that fundamental changes in the ways businesses operate today are forcing them to pay more attention to people and the planet. It used to be that 80% of the value of the Fortune 500 came from physical assets but now over 85% of the value is intangible assets including intellectual property, software, brand value and the human emotional connection that comes from brand value.  Since intangibles, which is where the value lies today, are things that are much more closely tied to people - it's human ingenuity that creates the intellectual property, it's human emotion that creates the brand value and the brand connection -  business leaders are paying much more attention to people. Alan shares how that is changing the purpose of corporations and the role of the CEO today. He also talks about how business has changed due to the pandemic, remote work, Black Lives Matter, rising inequality, global warming and the Ukraine Russia war.Unless businesses are responsive to their employees, their customers and their communities, Alan believes they will lose. The biggest changes, he says, are yet to come. His new book is Tomorrow’s Capitalist.

Welcome to the Three Takeaways podcast, which features short, memorable conversations with the world's best thinkers, business leaders, writers, politicians, scientists, and other newsmakers. Each episode ends with the three key takeaways that person has learned over their lives and their careers. And now your host and board member of schools at Harvard, Princeton, and Columbia, Lynn Thoman. Hey, everyone. It's Lynn Thoman. Welcome to another episode. Today, I'm excited to be with Alan Murray, CEO of Fortune Media. I'm excited to find out the ways business has changed due to the rise of platform companies like Amazon, Apple, and Airbnb, as well as the ways that business has changed due to the pandemic, remote work, Black Lives Matter, and global warming. It used to be that business's only objective was profit, but now business has much broader responsibilities to its employees, its customers, its suppliers, and its community.

I'm looking forward to finding out what the new responsibilities of business are. Alan is the CEO of Fortune Media, which includes Fortune Magazine, and his new book, Tomorrow's Capitalist, is excellent. Welcome, Alan, and thanks so much for our conversation today. Thank you, Lynn. It's great to be with you. Great to be with you as well. Let's start with a brief overview of the changing arena of business and how the largest companies, such as the iconic Fortune 500, have changed. To begin with, who's in the top 10 now of the Fortune 500 versus 10 years ago? Oh, that's a very dramatic change. You have many more tech companies like Apple and Microsoft and Alphabet all making up the top 10. And a company like Exxon that was at the very top for a long time has fallen down to the bottom of the top 10.

So what you see is a change from companies that were involved in physical goods, making things, selling things, or extracting things. And today, they're replaced by technology companies, platform companies, companies that are much more about software and intellectual property. I was shocked at how dramatic that change was that just 10 years ago, the top 10 were four energy companies and two car companies, GM and Ford. So that's a huge change. Yeah. And let me give you a statistic that puts another light on it. There was some research done recently that went back and looked at all of the 500, the Fortune 500 in the 1970s. And what it found was on their balance sheets, more than 80% of the value was physical stuff. It was plant, it was equipment, it was oil in the ground, it was inventory on the

shelves, more than 80%. You do the same exercise today, and more than 85% of the value is intangibles. It's intellectual property, it's software, it's brand value and the human emotional connection that comes from brand value. And I think that just gives you a picture of how much the world has changed. And as I've spent time trying to figure out, I think it explains a lot of the change that you see in the purpose of corporations as well. So that dramatic change in the value of Fortune 500 companies coming from intangible assets, as opposed to the physical ones, means that there's a much greater premium on people, on talent and ideas. Is that right?

Absolutely. I mean, if you think about all that physical stuff, that required financial capital as support. You had to buy the big plants and the equipment or the oil fields or the inventory. And so that required huge amounts of financial capital. So it makes sense in that kind of world that your focus would be on returns to financial capital, on returns to shareholders. But intangibles, which is where the value lies today, those are things that are much more closely tied to people. It's human ingenuity that creates the intellectual property. It's human emotion that creates the brand value and the brand connection. And so it makes sense that we now live in a world where business leaders are

paying much more attention to people than they are to the financial returns. So that also means that capital is less important as well. Absolutely. Capital has not been a constraint in the economy in recent years. It's plentiful. It's easy to find. I have a unique opportunity to talk to a lot of business leaders, and I often ask them, what's top of mind for you? What's your biggest concern? I can tell you that for the past six months, the number one issue that they've mentioned when I asked that question is talent. And I can also tell you that it's been years since somebody has said to me, oh, my problem is access to capital. And the pace of business has also become much faster, as well as the competitive arena and the competitors have changed as well. I think the pace point is really important. Things are changing so fast. You know, in a way, the corporations of the 20th century were like these giant information hierarchies. And you'd have people in the field who were selling or servicing or doing whatever, passing

up information that would make its way up to the top. And you'd have a CEO and a C-suite team that would take that information and come up with a strategy. And then they would pass orders back down the chain. Here's what everybody has to do. No one can operate a business that way today. It's just too slow and too cumbersome. You have to empower people in the field to make decisions because you don't have time

to wait for it to go up to the top and be turned into a new strategy. And what that means is for the folks who are running these large corporations, their job has changed dramatically. It's much less about telling people what to do than it used to be and much more about creating inspiration, defining the North Star, creating the moral guardrails that people have to operate under, attracting talent, retaining talent. So it's just a very different job. So it's more about curating community and motivating people. Absolutely right. Yes, exactly.

And the competitive arena has changed as well. It used to be if you were a car company like a Ford, you could look at the other car companies, the GMs, the Lexuses. But these days, the competitive arena has changed as well. Yeah. So another question that I have over the course of my career asked CEOs when I have the opportunity to talk to them is, who do you consider your biggest competitor? And sure, 20 years ago, JP Morgan would have said Bank of America and Ford would have said

GM. But that's not the answer you get today. I mean, what they all recognize today is that industry boundaries are collapsing and technology is creating these new opportunities. And so GM and Ford have to be looking at Tesla or maybe some company that hasn't even been created yet. And Bank of America and JP Morgan have to be thinking about the blockchain or all these fintech companies that are trying to disrupt their very industry. Disruption has become the mode of the day. And every good CEO is looking over their shoulder wondering who's going to disrupt my business. And now on top of all of these changes, we have the changes from the last few years with

the pandemic, Black Lives Matter, rising inequality, and even the Russian invasion of Ukraine. Let's talk about each of these and how they've affected business starting with the pandemic. I know you've thought about it a lot, Alan. How has the pandemic changed business? When the pandemic first hit a couple of years ago, my first reaction was, oh my God, we're heading into a recession and all these companies are gonna say, you know, the stakeholder capitalism stuff, it's nice, but we can't afford to pay attention to that right now

because the bottom line is eroding. So I thought stakeholder capitalism would move to a back burner as they focused on shoring up their finances. But in fact, the opposite happened because of the nature of the crisis. It was a stakeholder crisis. Their employees were endangered. Their lives were endangered. Their customers, in many cases, were endangered. And so the nature of the crisis forced companies to pay more attention to people and put aside, in a way, the finances for a while because they knew they were going to have a bad year. And the other thing that was also surprising was climate became a part of that as well. There was a sense of collective vulnerability, I think, that came out of the pandemic. And so you saw this explosion of companies making commitments to climate change

action. The number of Fortune 500 companies that have adopted net zero 2050 plans in the last two years is stunning. So all of this stakeholder action actually accelerated during the pandemic rather than decelerated. And then, of course, Lynn, the other thing that happened was we just had to rethink how we worked. Look, I've spent the greater part of four decades covering business and the intersection of business and society.

And what's so fascinating about the current moment is you have this huge technology revolution that is disrupting so many industries, side by side with a huge purpose revolution, companies rethinking why they do what they do and how they deliver returns to society. And then the cherry on the cake is we're rethinking how we work. People are not going back to the office five days a week or even four days a week. So we're rethinking all of that office work and what holds people together when they aren't in the same office. And those three huge revolutions happening simultaneously, I've never seen anything like it in my career. It's stunning. It is absolutely stunning because business hasn't changed in the decades or even 100 years before that business barely changed. Alan, why do you think the murder of George Floyd by the police had so much more

impact than earlier murders of Black men, such as the murder of Michael Brown by police in Ferguson, Missouri, six years earlier, which was also similarly filmed by bystanders. Why was there so much more impact now? It's a really great point. I mean, you go back to Ferguson and Michael Brown and try and find a statement by a big company CEO at the time. It doesn't exist. I've tried. There just was no outpouring. There might have been for local companies, but there was no outpouring of corporate sentiment with the killing of Michael Brown. And yet when George Floyd happened, there were hundreds of CEOs with very heartfelt statements about how this can't continue. So I think part of what was different was the change in the nature of corporate leadership

that we've already talked about. I mean, this really built up over the course of the decade. In the 2002 to 2005, I hosted a television show on CNBC, a nightly show, and was often in the position of trying to find a CEO to come on and talk about some controversial topic of the time. And none of them would do it. They'd say, look, it doesn't affect my bottom line. I'm not going to talk about that. I'm not going to get into a big controversial fight. But starting probably around 2014, one of the first examples was Mark Benioff at Salesforce when Indiana passed a religious liberties law that was viewed as being discriminatory towards gays. Benioff said, I'm going to stop doing business in Indiana.

And a bunch of other businesses joined it. Then there was another example in North Carolina, a law restricting transgender access to public bathrooms. And a bunch of companies, including Bank of America, which is the largest employer in the state of North Carolina, said to the state, you can't do this. And then you had this outpouring. Ed Bastian at Delta took away a discount program for the NRA convention after the Parkland shootings. Ken Frazier of Merck led this revolt against all of President Trump's advisory councils. So

this whole CEO activism that we've seen most recently in the reaction to the Russian invasion of Ukraine has really only existed for about six or seven years. So I think that's one very big difference between then and now. Alan, what do you see as businesses' responsibility for racial equity, inequality, and opportunity? I think they have big responsibility. And I've spent a lot of time talking to business leaders about this. It's not just making sure you have a diverse and equitable workforce. It's that something has gone wrong in our society, in the society of industrialized countries, that the escalator of opportunity, if you want to call it that, isn't working. The whole John Kennedy notion that a rising tide lifts all boats. Well, there are a bunch of boats that aren't rising. And probably

a couple of decades ago, most business leaders would have said, well, that's not my problem. That's the government's problem. You fix that, create training programs, create education programs, whatever. I think that's changed. I think businesses now realize, look, we're the ones who create jobs. And if we aren't creating jobs, if there's a huge part of the population that can't access the jobs we're creating, we've got to do something different. So there's been a real effort on the part of businesses to do things like redefine their job postings so that they don't all require four-year degrees, because obviously a lot of people in this country don't have four-year degrees. And often that was just a kind of a credential, not really a necessary skill. Again, Ken Frazier and Ken Chenault, the former CEO of American Express, started this 110 program that's designed to create new pathways for disadvantaged people into good jobs. There's a lot of talk among the best companies now about

apprenticeship programs where they can bring in someone who doesn't quite have the skills they need, but they can do the final skilling up necessary to give them jobs. So I think that probably more than any issue, that's the one that the CEOs feel a certain degree of personal responsibility for. They recognize that the government isn't doing the job, but they also feel like they have a responsibility. And by the way, it's not just we need to do this because it's the right thing to do. It's also we need to do this because we need the workers. We need a better pipeline of talent in order to survive and thrive in the future. I also had a great

conversation with former American Express CEO Ken Chenault, who you mentioned, about that 110 program and creating opportunity for Black men and women. Alan, with the Russia-Ukraine war, we now have an additional area of responsibility for business, geopolitics. What do you think the responsibility of business is toward Russia? It's a complicated question. Not in the case of Russia. I mean, it's so outrageous what Russia has done. And each day, the outrage grows greater as we see the attacks on civilians. So I think the call that hundreds of businesses made in the first couple of weeks after the invasion to say, we're going to stop doing business with this country,

as long as this is going on, was absolutely the right call. They had to do it. Even though, Lynn, we've never seen anything like that in modern history. The only thing that's like remotely close were the boycotts of South Africa for the apartheid regime. And that was a much slower boil. It took place over decades. This happened in two weeks. So I think it's a good thing, but it gets pretty complicated. from a couple of business leaders who said that ESG should have an F in front of it for freedom and businesses should stop doing business with countries that don't support democracy and freedom. Well, that has massive implications, as you can imagine, for countries in the Middle East, for countries in Asia, and for most of all for China. So if I could just back up for a step, what's going on here is that as businesses shift to a more human mode, they feel like they're human organizations made up of people. They have to have values and they have to stand up for those values. And so they're getting involved

in social injustice. They're getting involved in climate change and saving the planet, and they're getting involved in geopolitics. But those are complicated issues, difficult issues, and they're often conflicting mandates, or they may conflict with the business imperatives. This is not an easy game. And if I can just give one more example, the ultimate example of how difficult it is, is the CEO of Disney, Bob Chapik in Florida, where when Florida passed the law that restricted discussions of gender and sexual identity in schools, his instinct was to just keep his mouth shut, which is what every CEO would have done a decade ago. It's like, I have a big business in Florida.

My business depends on the support of the government. I'm not going to get involved. But his employees revolted, literally revolted. They said, this is outrageous. This company has always been supportive of LGBTQ employees. You have to stand up for us. You have to express your values, speak out against that law in Florida. And so eventually Chapik did, spoke out, and now the state of Florida is

revoking a set of laws that make it possible for Disney to operate in the state. So this whole notion of stakeholder capitalism that companies are getting caught up in is difficult. It's not easy and there are trade-offs involved, but I think it's inevitable. And Chapik found that out. You can't hide anymore. You don't have the option of getting below your desk and waiting for the controversy to blow over. list. George Will, who was recently a guest on Three Takeaways, has pointed out that capitalism as an economic system was named by Karl Marx, father of communism. And George argues that a better name for capitalism is a market economy with a freedom to choose rather than a government directed one. I love the quote that you have in your book from former Secretary of the Treasury Larry Summers, who's also been a guest on Three Takeaways. Let me quote it, and then I'm going to ask you your perspective.

Quote from Larry Summers. If you think about it, it cannot be an accident that it is the same 15 years when communism fell, when command and control corporations like General Motors and IBM had to be drastically restructured, when planning industries through the developing world were closed down, and when the Japanese model of industrial policy proved to be a complete failure. There is something about this epoch in history that really puts a premium on incentives, on decentralization, on allowing small economic energy to bubble up rather than a more top-down, more directed approach, unquote. 100% agree with that quote from Larry Summers, who's a good friend. Look, you can't deny the

huge gains in society from the shift towards market economies over the course of the last four or five decades. Call it capitalism, call it market economies, George Will can call it whatever he wants to. It's had enormous benefits. And of course, the biggest benefit is that there are close to a billion people in the world who were in abject poverty who no longer are. So it was the biggest alleviation of poverty ever in the history of the world, which can largely be traced back to the embrace of free market economics. So nobody wants to get rid of, well, nobody. There are people who do want to get rid of it,

but no one in the business world wants to get rid of the market system. The market system has worked pretty well. But what started to happen after, I think really after the Great Recession, because the Great Recession was kind of a wake-up call, said, you know what? Okay, yeah, markets do a lot of things well, but they don't do everything well. And this was a massive failure of markets that occurred in the Great Recession. And you began to hear very smart business people talk about capitalism in a different way. Bill Gates, I think, in some way started it. He gave

a famous speech in 2008 at Davos. It was his last year as CEO of Microsoft. And he talked in that speech about the need for a more creative capitalism. Michael Porter is the famous business school professor at Harvard Business School started talking about shared value capitalism. John Mackey, who created Whole Foods, started talking about conscious capitalism. Mark Benioff at Salesforce called it compassionate capitalism. Somebody else called it inclusive capitalism. But all of a sudden, more and more people were starting to put a modifier in front of capitalism. It says, wait a minute, we have to do this better than we're doing it now, or we run into the risk of losing our operating license. And that's the sentiment that as a journalist,

I heard building and building over the course of the last decade until we've gotten to the point where we are now, where I think it's widely accepted that companies just have to step up and take more responsibility for things like social justice and climate and geopolitics, in part because governments aren't doing a very good job of it. In a Milton Friedman world,

the responsibility of business was profits, and that was very clear and also very measurable. In this new world of business was profits, and that was very clear and also very measurable in this new world of business where business has much greater social responsibilities. How should business leaders decide what policies to pursue, how aggressively to pursue social and environmental challenges, and how should CEO performance against these broader goals be measured? Yeah. Wow. There's a lot in that question, Lynn, but let me start with this point. A lot of the difference between the most fervent advocates of Milton Friedman saying the social responsibility of business is to make a profit

and the advocates of stakeholder capitalism really has to do with timeframe. Any of us who've ever been in a business know that if you're living quarter to quarter, there are lots of things you can do that will add money to the bottom line that will hurt your employees, could hurt your customers, could hurt the communities they live in and could hurt the climate. But if you're looking at a 50 or 100 year timeframe, most of those things don't work. You cannot survive as a business if the planet is on fire. You can't survive as a business if you've spent decades abusing your employees. You can't survive as a business if you pushed out faulty products to your consumers. So a lot of the

conflict between the Milton Friedman view and the stakeholder view goes away as you increase the timeframe. If your goal is to make profits for a hundred years, then you're going to have to pay attention to social injustice and climate and geopolitics, because those things are all existential threats to your ability to operate 10 years out the road. So I think that's the part of it. But having said that, there is a measurement problem. I mean, I already talked about how focusing on financial metrics and returns to shareholders may have made sense 50 years ago. It makes less sense now. We've got to come up with a whole new set of metrics.

The SEC recently came out with a 500-page rule on companies' requirements to disclose their progress on their climate commitments in and of itself. Just the climate piece is massive. I mean, it took us 100 years to build up the financial reporting infrastructure that we have today so that we had a consistent or fairly consistent framework that you can rely on to measure how you were doing in terms of your financial returns. We're going to have to have something similar to deal with these climate commitments, because right now, the numbers are all over the place. So they're going to have to figure out a consistent way to measure it.

They're going to have to be new standards. And I think the same thing is going to start to happen around the social equity piece. You see more and more companies, still a minority, but more and more companies publicly releasing their diversity data so that they can be held accountable for their commitments. I wouldn't be surprised if sometime in the next couple of years, the SEC requires every company to do that. So all of these things are going to change the way we measure, manage, and hold companies accountable. It seems very easy and clear at a very top level to talk about the responsibilities of business, whether on climate or on inequality and opportunity. But the issues become much more complex at the margin. For example, how do you

decide who to provide opportunity to? The poor immigrant from Egypt or the poor person from Appalachia or the Native American Indian? And if you support freedom of choice as a company in partners and in gender, should your company health care plan include gender transition? All of these are such thorny issues when you get into the details. Or geopolitics. Yeah, okay. I think autocratic regimes like Russia, companies should stand up to them when they invade Ukraine. But what about China? China's an autocratic regime that's making huge amounts of money for a lot of these companies. Are they going to do the same thing with China? Difficult issue. Again, look at Disney CEO Bob Chapik in

Florida. I mean, there's one point of view that says, well, what's he supposed to do? His employees are demanding he stand up for the rights of the LGBTQ employees, but his business depends on these laws that were put into place 50, 60 years ago in Florida that they need to survive. So no one says this is easy. It's a much more complex world that these companies are operating. Much more complex. Before I ask the three takeaways you'd like to leave the audience with today, Alan, is there anything else you'd like to mention? What should I have asked you that I did not? I thought your interviewing was brilliant. You asked all the right questions. And if there's anything more I have to say,

I'll try and get to it in the three takeaways. Well, that is high praise coming from you, Alan. Thank you. What are the three takeaways you'd like to leave the audience with today? The first is that this is real. It's not just a fad. It's not a bunch of woke CEOs trying to curry favor with Elizabeth Warren, that there are fundamental changes in the ways business operates that is forcing them to pay more attention to people on the planet. They have no choice. They have to do it. And so I don't think it's going to stop. I don't think it's going to go away. But then the second thing I would say on top of that is it doesn't mean that greed is dead or corporate corruption has disappeared or that businesses alone can save the planet and the world. We need effective governments in order to address the biggest, most complicated problems.

So it's a move in the right direction, but it's not a silver bullet. And then the third thing I just reemphasize is this is really about all of us becoming much more human in the way we approach work and life. I have a colleague, Jeff Colvin, who wrote a book a few years ago, and he said that, and I think this is correct, that business spent most of the 20th century trying to make people into the equivalent of machines. That's what scientific management was about, right? You had these big factories where people are asked to do repetitive jobs and repetitive activities over and over again.

So there was a huge focus on working together in lockstep like a machine. We've now reached an era where the machines are going to take care of themselves. Thank you very much. They're going to become smarter. They're going to be more effective. And what we're going to need to survive and thrive over the coming decades is for people to be better people, much greater ingenuity, much greater empathy. All the things that make us distinct as human beings are the

qualities that business is going to need for the future. Alan, this has been terrific. Thank you very much. I really enjoyed your book, Tomorrow's Capitalist, although I had one very small quibble. I thought you could have called it Today's Capitalist, but I really enjoyed it. I thought about that. I don't think we're quite there yet. I think we've made massive progress, but I think we're still in the early days. So keep an eye on tomorrow. That sounds great. Thank you, Alan. Thank you, Alan. Thank you, Lynn. If you enjoyed today's episode and would like to receive the show notes or get new fresh weekly episodes, be sure to sign up for

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