Decision Making For Purpose Driven Leaders
I designed and teach a class in the Entrepreneurship Department of IE University in Madrid. The course is called Decision Making For Purpose Driven Leaders.
Here is the syllabus. I created this class after struggling with many of these same decisions while building CircleUp. With my teaching, I want to continue exploring these issues: exploring with the class how to make consistent, ethical leadership decisions as a founder in the complex, modern stakeholder economy.
An essential job of a founder is to make good decisions on behalf of investors, employees, and customers - current and future. We need to deepen our understanding of what that means for founders today. I hope this course continues to develop and evolve in this exploration, and welcome ideas, collaborations and constructive feedback to the course below.
Decision Making For Purpose Driven Leaders
Course Description
Today’s entrepreneurs face the often impossible task of balancing many
different stakeholders. While managers have always had to consider the
interest of investors, employees, and customers, the rising support for
stakeholder capitalism (or ‘stakeholderism’) has increased decision making
complexity for organizational leaders.
This course looks at organizational leadership through the lens of real time
decision making. How can executives ensure they will lead with integrity and
consistency when there are competing stakeholder claims on scarce
organizational resources? As stakeholderism expands the expectations of
various constituencies, what are the tools and structures managers can build
around themselves to manage these disparate stakeholder interests?
We introduce a model for stakeholderism and then examine a series of critical
real-time decisions faced by good faith leaders trying to balance various
stakeholder interests. We follow the typical life cycle of an organization:
- Module 1 involves Foundational Decisions - setting a vision, deciding on
a legal structure, choosing how and when to raise capital, and developing a go
to market approach. - Module 2 follows the Growth of an Organization, when leaders are faced
with a series of managerial decisions - hiring and compensation, hard
conversations, cultural change, stressful moments, pivoting, and managing
growth. - Module 3 focuses on Transitional Decisions - how and when to exit,
personally and for the organization.
In each of the sessions, we focus on a decision point made particularly
challenging by the stakeholder mindset. We continually find ourselves faced by
choices without easy solutions, weighing tradeoffs to determine the best course
of action for the organization. Stakeholderism, as held by this course,
inevitably involves choosing the least bad option, while thoughtfully preparing
and communicating decisions amongst various constituencies to improve the
odds of success. We live in this ambiguity to prepare students to lead in a
world of complexity.
MODULE 1 - FOUNDATIONAL DECISIONS
Class 1: A Vision to Be Shared
An introduction to the course and the complexities of leading in the stakeholder economy. When the shareholder maximization constraint is removed, managers must decide anew how to weigh different stakeholders’ interests. How to begin? How should we understand what an organization is, and why it matters?
We introduce the course framework and discuss implications of stakeholderism vs capitalism.
Case: Meaningful Gigs
- Why does Meaningful Gigs exist? Come prepared to defend your answer with examples.
- What should Ronnie do? Using our model, what stakeholder groups will be most satisfied with this decision and which will be most disappointed? How can Ronnie best manage this tension?
Class 2: Legal Structure
One of the most important early decisions is how to set up your organization legally. In the stakeholder economy, there are many more choices, each with different implications for future choices and outcomes. Will the economic benefit of the organization go to one stakeholder group or to several? Who decides and when? We examine potential legal structures, and how to consider the choice of for-profit, non-profit, or something in between.
Case: Just Arrived: Integrating Refugees in Sweden
- Given the social impact goals of the organizations described in the case, what are the benefits of a non-profit legal status? A for-profit?
- Using Trelstad’s model from “Should Your Startup be a For-profit or nonprofit,” what aspects of the challenge lend itself to each model?
- The companies described in the case are all in the early stage – how do you foresee the challenges and opportunities of each model going forward?
- Are there other business formation options that should be considered?
- Broadening, what does the Trelstad framework get right and what does it miss about the decision to establish a new organization?
Class 3: Raising Capital
Raising capital is a forcing function for many stakeholder focused entrepreneurs. If you raise traditional venture capital, do you default to shareholder primacy? How can you keep stakeholder constituencies aligned as you raise capital? We discuss common challenges, and provide a framework for decision making.
Case: Atticus: The Search for the Ideal Investor
- How did Sam end up in this position? Are there steps the founders took early on that help their position today? What else could they have done to improve where they are today?
- Given where they are, what should they do?
- How can Sam and team best manage the decision making and communication process going forward?
Class 4: Go to Market - Business Model
How do you balance stakeholders in the design of your business - everything from your financing, your products, your pricing? We explore the tradeoffs needed when building a sustainable enterprise that earns revenue and has shareholders but also exists for a broader mission.
Case: Tesla: Business & Operating Model Evolution
- The case makes several claims about the goals of Tesla in the early days. Using our course framework, how does the initial business plan take into account different stakeholders? Do you believe the claim that the company is set up to accelerate the world's transition to sustainable transport? Why or why not?
- If we accept the goal of the company at this time was to "accelerate the world's transition to sustainable transport", what alternatives existed to this business model and go to market approach? What were the risks/opportunities of those compared to the model chosen?
- The case ends in 2022 with a question of what the company should do next to accelerate the world's transition to sustainable energy. Come to class with an new idea for what Tesla could do for this goal - bold ideas encouraged.
MODULE 2: MANAGEMENT DECISIONS
The Growth of an Organization, when leaders are faced with a series of managerial decisions -hiring and compensation, hard conversations, cultural change, stressful moments, pivoting, and managing growth
Class 5: Hiring & Compensation Decisions
Employee decisions are heightened in many stakeholder focused organizations, as alignment on purpose is an important consideration for both employee and employer. Should the process differ from shareholder focused organizations? What challenges may come up in compensation, and how can leaders best prepare for those decisions before they arrive.
Case: Paga: Ending Cash's Reign in Emerging Markets
Guest: Tayo Oviosu, CEO and Founder, Paga
- What do you think of Tayo’s process for hiring as he looks to expand Paga?
- Which stakeholder groups should be most pleased with the decision? Which would you expect to be disappointed?
- What steps could he have taken before and after the decision to help alleviate concerns?
Class 6: Managing a Pivot
Making a pivot in an organization necessitates significant change. How should purpose driven leaders consider pivots differently than traditional companies? What are the additional requirements and complexities? How are they best mitigated, and even leveraged, to increase the probability of a successful pivot?
Case: CircleUp
Guest: Ryan Caldbeck, founder and CEO, CircleUp
- What steps should Ryan take to best inform his decision using the stakeholder lens of the course?
- What should Ryan do? How can he best alleviate inevitable concerns from relevant stakeholders before and after the decision?
Class 7: Internal Leadership – Scale & Growth
How should leaders grow a purpose driven organization? How should your approach to growth differ, if at all, from an organization that has a traditional shareholder maximization goal?
Unlike other private schools, Eleva chose to admit all students as an important reflection of their values. How might Eleva’s different stakeholders (investors, employees, families) think about the implications of this choice on their cost structure, academic outcomes, school culture, and brand?
- What decisions did the leader of Eleva make to help support the balance of different stakeholder groups through this period of growth? Where could they have improved?
- Eleva uses a variety of strategies to ensure both quality and financial stability. Will these strategies be sufficient as they increase the number of schools they operate in diverse geographies and at such different cost levels?
Class 8: Stressful Moments - Internal Decisions
When external shocks arrive, stakeholder companies must navigate while preserving the delicate balance between various constituencies, maintaining integrity to the shared purpose while also surviving. How can purpose driven leaders lead a process of change when markets shift? What should leaders do to ensure the organization adapts but also preserves the critical parts of the
vision that hold stakeholders together?
- How well did Raj consider each stakeholder group in his decision-making process?
- With hindsight, are there steps he could have taken well before the pandemic that could have helped when the moment arrived?
- What should he do and why?
Class 9: Stressful Moments - External Communications
How should stakeholder leaders respond publicly when faced with an existential crisis? What requirements are different when purpose is centered for the organization?
Article: A Conversation with Brian Chesky
- Prior to the pandemic, what actions had Brian taken that set up the organization well when the crisis occurred? Where was the organization unprepared?
- What risks do you see to his immediate response? How could those have been best mitigated?
- What should Brian do?
Class 10: Leading Your Team
Personnel decisions are always challenging, but with the stakeholder lens these conversations can become particularly fraught, as personal identity blends with professional motivation. What steps should leaders take before, during and after difficult conversations to best preserve stability in a purpose driven organization?
- What do you think of Rachel’s decision and communication approach around her maternity leave?
- What additional tensions come up from a stakeholder perspective when ‘commitment to workers’ is a significant company value?
- How should Rachel proceed?
- Stepping back, how might you design your HR process differently in a stakeholder organization?
Class 11: Managing Growth
As organizations grow, they inevitably change. This change can create new tension between various stakeholders. How can leaders sustain balance in stakeholder interests through growth? Should they? What decisions are needed when to manage complexity of growth in a purpose driven
company
- From reading the case, and the background materials, what do you think of stakeholder alignment in this organization? Use our course framework to analyze the different interests acting upon the company.
- This case was written with the product manager as the protagonist. How might it have been different if the focus was on the Founder?
- Through our lens of decision making, how could the CEO design a process for aligned decision making as the company ‘enters its next chapter’ as the case says?
MODULE 3: TRANSITION PLANNING
Module 3 focuses on Transitional Decisions - how and when to exit, personally and for the organization.
Class 12: Employee Ownership Decision
What happens when an employee ownership model is introduced midway through an organizational journey? How can leaders prepare for significant changes in stakeholder alignment?
Case: Zingerman's Community of Businesses: Broad-Based Ownership, Governance, & Sustainability
- Using our lens, what would you expect are the typical strengths and risks for employee owned organizations? How do these show up in the metrics? What should leaders be careful of in particular when leading such an organization?
- What enabled Zingermans to be in the position to even consider this transition?
- How should the Partners Group proceed? What can they do to limit the risk in any transition?
Class 13: Governance Decision
When and how to exit? There are a number of recent innovations in corporate design that open space for new governance decisions. We discuss trade-offs and what may happen in the future with these new corporate structures.
Case: Patagonia: "Earth Is Now Our Only Shareholder"
Article: The Patagonia Structure in the Context of Steward-Ownership (Purpose)
Article: Patagonia's Next Chapter: Earth is Now Our Only Shareholder(Patagonia
works)
- Imagine you are the leader of the new Patagonia Trust. How is your role different than a traditional for-profit CEO? How does it differ from a traditional non-profit leader?
- What information gathering systems would you want to have in place to effectively lead in a Steward Ownership model?
- What communication system would you want to have in place to communicate out decisions to different stakeholder groups?
- What can we learn about the relationship between effective leadership and governance structure through this example?
Class 14: Founder Mindset
Module 3 ends with a discussion of founder fit – how personal choices help navigate the entrepreneurial journey from start to exit, considering what it takes to be create and sustain a successful purpose driven company.
- What made Gary right for the Stonyfield mission?
- How was Gary able to build into the organizational design a stakeholder focus? What could he have done better from today’s viewpoint?
Class 15: Closing Session
We close with a discussion of leadership and uncertainty, revisiting our course framework from the perspective of what it takes as a founder to build and sustain a successful purpose driven company.
Course Background
This course is a response to the rapidly growing support for stakeholder capitalism. The Business Roundtable and the World Economic Forum are both urging companies of all sizes to ‘lead their companies to the benefit of all stakeholders.’ Increasingly, entrepreneurs, employees and investors are looking to build with an objective of purpose, not just profit.
The academic foundation for this course comes from the recent study of Stakeholder Capitalism, in particular the work of Lucian Bebchuk and Roberto Tallarita, (Bebchuk and Tallarita, 2020). Bebchuk and Tallarita argue stakeholderism is either a rhetorical public relations tool, or vague commitment that makes corporate leaders less accountable. Leaders can use the language of stakeholderism when convenient to reduce governance pressure from shareholders, and ignore it when personal or corporate incentives favor shareholder preference.
In this course, we accept the analysis of Bebchuk and Tallarita. Stakeholderism, as understood today, is inherently vague. We also accept the good faith of our students to lead their organizations with a stakeholder mindset. Our course will explore how a leader operating with good intentions but without the clarity provided by shareholder primacy can effectively align resources and manage complexity. We aim to provide tools for these managers for the critical moments when hard decisions must be made between competing stakeholder interests.
Throughout the course we will refer back to a shared understanding of stakeholderism. While there are many, we define it here as the view that organizational leaders should give weight not only to the interests of shareholders but also to those of all other corporate constituencies. This contrasts to shareholder primacy, a view that organizations should optimize for shareholder returns within the constraint of operating within the law. Stakeholderism accepts the independent value of multiple different stakeholders yet doesn’t provide a method for how and when to ‘weigh’ these different interests. Therein lies the challenge for modern leaders.
The organization sits in the center of four distinct stakeholders (Capital, People, Customers and the Environment). Each stakeholder group is itself a collection of disparate and dynamic interests. The organization is constituted by the decisions of each of the groups, and decisions of the organization impact each of the stakeholders. Each organization will have a different relationship between these groups.
● Capital can be investors, or donors in the case of a non-profit organization. Capital can earn a fixed return in the case of debt, or a variable return in the case of equity. Shareholders are the owners of equity in the organization. Capital can have governance rights in the organization, or it cannot. When capital has the residual claim on the assets of the organization, we call it a company.
● People provide the labor to the company as either employees or contractors of the organization. They earn compensation, which can be either fixed in the case of a salary and benefits or variable in the case of stock options. Employees can have governance rights in the organization, or they cannot. When employees own the residual claim to the assets of the organization, we call it an ESOP (employee-owned stock option plan) or a co-op.
● Customers use the products or services of the organization, typically providing payment back to the organization as revenue. Some non-profit organizations call this constituency ‘beneficiaries’ as they do not buy the product directly. Customers rarely have direct governance rights in the organization. When customers own the residual claim to the assets of the organization, we call it a co-op.
● Environment is used here in the broad sense of other groups affected by the organization that are not direct capital providers, employees, or customers. This could be the employees of other organizations as in the case of a supply chain, the natural world as in the case of carbon emissions, or taxpayers as in the case of tax payments/subsidies provided by the organization. Economists call this category externalities, with positive or negative externalities coming from the activity of the organization. Many organizations provide some governance role to outside ‘independent’ Board members which can represent some portion of the environment constituency. When external parties own the residual claim to the assets of the organization, we call it a Trust structure, or more traditionally, a non-profit.