Vistria Partner and Head of Investment Strategies Mona Sutphen speaks with Rebecca Henderson, University Professor at Harvard Business School and author of “Reimagining Capitalism in a World on Fire”, about how the perspectives of CEOs and emerging business leaders on capitalism have evolved.
Vistria Partner and Head of Investment Strategies Mona Sutphen speaks with Rebecca Henderson, University Professor at Harvard Business School and author of “Reimagining Capitalism in a World on Fire”, about how the perspectives of CEOs and emerging business leaders on capitalism have evolved.
Intro:
The financial crisis was a watershed moment for global capital markets. Risk-taking and speculation led to bank failures and major investor losses as the contagion spread around the world. Sound familiar? Well, this isn't the story of 2008. It's the story of 1772's global financial crisis, but the silver lining of a crisis some 250 years ago was the innovation it unleashed. Back then a Dutch merchant wanted to help small investors diversify to avoid future losses, and the mutual fund was born. Capitalism isn't perfect, but the innovations of the past show us the path toward the future, a future of capitalism that is more equitable and sustainable. Welcome to the Future of Capitalism podcast presented by The Vistria Group.
Guest Introduction:
In this episode, Vistria senior advisor, Mona Sutphen, speaks with Rebecca Henderson, university professor at Harvard Business School and author of Reimagining Capitalism in a World on Fire about how conversations around the future of capitalism have evolved and what we may see going forward.
Mona Sutphen:
Rebecca.
Rebecca Henderson:
Mona.
Mona Sutphen:
Again, after many months on Zoom, hopefully again in person one day, but I'm really glad that you're willing to spend the time with us today on our Future of Capitalism podcast. And your book on reimagining capitalism probably is the most well-timed publication in the history of modern literature. So I really wanted to start with, why did you feel the need to write on this topic at that time? And again, before any of this drama unfolded.
Rebecca Henderson:
Mona, thank you. And it's such a pleasure to be here. It's been a great pleasure to have the chance to work with Vistria over this year and last. And a series on reimagining capitalism is a sign of how the world is changing, so I'm just honored to be here. To your question, some people have said to me, "Well, your book Reimagining Capitalism in a World on Fire, how did you know?" To which I answer, "Well, it wasn't that hard." The book is the culmination of over 15 years of research and teaching.
Rebecca Henderson:
My early career was focused on innovation and change and the problems firms face when the world around them really shifts and they have to start acting in new ways. What is the role of business in dealing with these enormous problems that we face? 15 years ago when I started teaching this class, I had 28 students in the room. We now have nearly a third of the second-year class at Harvard taking Reimagining Capitalism, and the Dean asked me to take the ideas and put them into the first-year course.
Rebecca Henderson:
So for me, this is not new. The fact that our society is under enormous stress and business has the resources and the capacity and the business case to address these issues is central. So to answer your question, I got lucky.
Mona Sutphen:
Well lucky, but also really at a point where you could see that churn happening organically and anticipate that the mix of people feeling very frustrated. I'm really interested in how millennials and how the students see the world. And I hear it even with my own kids, the fact that the system is not working the way it was supposed to be working. Can you talk a little bit about how the student dynamic has changed and why you have 10X numbers of students signed up for this, and what you think that says about those future business leaders when they all go off to wherever they're ultimately going to go for their careers after the fact, what they're taking out of this moment and how they're changing really how they think about capitalism and their role in it and the business community's role in it?
Rebecca Henderson:
Mona, I've been teaching MBAs for 30 years. I cannot tell you how different young-
Mona Sutphen:
You're too young to have been teaching MBAs for 30 years, by the way.
Rebecca Henderson:
Yes, I'm sorry?
Mona Sutphen:
I said you're too young to have been teaching MBAs for 30 years.
Rebecca Henderson:
What a nice thing to say, but it is true. I have been teaching MBAs for 30 years, and they've really changed. I could not imagine 30 years ago saying in the classroom, "Business has a responsibility to address the great problems of our time." I think the students would have looked at me and said, "What? I'm here to make money. This is business school. Did I misread the sign on the outside?" I think what's happened is, as you said, the young people can see the system is, in many ways, deeply broken.
Rebecca Henderson:
Sometimes my students, and this is at the Harvard Business School, say to me, "Why reimagine capitalism? Why not get rid of it? It is not working. It's not working for billions of people. It's not working for the planet. All the money is going to the top 1% who are creating all kinds of problems for everyone else." And I never thought that in an HBS classroom, I would be saying, "No, capitalism is really a good idea. We are not going to throw this out the window. Indeed, the only way we're going to solve these problems is if we mobilize the energy and innovation and creativity that private enterprise gives you. It is the only solution."
Rebecca Henderson:
The idea that I would be making that case in an HBS classroom. Now, of course, the students are students, and there's only a very few that are that radical, and I think mostly they're just trying to push my button. But they take for granted that they need to be concerned about these issues. This is a generation that grew up trying to do good things in high school in order to get into college. They started orphanages in Rwanda. They worked at the hospitals. But the good news is that means that many of them have seen some of these problems face-to-face. You don't have to convince them that climate change is real, or that biodiversity is crashing, or that if you have a different color skin and you were born in the wrong place, your life chances are completely different. Many of them have actually seen that.
Rebecca Henderson:
And so I would say, and I'm pulling this number out of the air, but I would say maybe half the class really wants to use their business career to make a difference, and the other half want to make a lot of money and then use that money to make a difference. So it's a very exciting time to be teaching. I'd say the world has changed almost unrecognizably in the last 18 months. When the panic hit and my book came out a month later, I thought, well, that's that. It's going to disappear without a trace. And instead, the phone started ringing off the hook.
Rebecca Henderson:
Now, the book's a decent book, but I don't think it's me. I think the world has fundamentally shifted. And I'm not sure why, but talking about reimagining capitalism, people used to look at me sideways. Well, that's very interesting. That might be somebody else's job. When I taught in the executive programs at HBS, my colleagues would put me on the agenda because they thought people should hear climate change is a problem. You can make money in solving it. And I used to get 4.5, five out of 10. And when I taught innovation, I was a nine out of 10 girl. I was not a 4.5 out of 10 girl. But I think people thought, it's marginal. What's going on?
Rebecca Henderson:
This last year, I was scoring right at the top of the range. People would tell me it was the most important thing they had seen in the course. I have given talks to thousands of people at hundreds of organizations, and why did it happen? I don't know. We can speculate about it, but has it happened? Absolutely. I've been talking to mainstream investor groups who never took sustainability seriously. I've been talking to boards. This ESG thing, is it for real? Is it really going to stay? I've been talking to groups of CEOs. I've been talking to young people.
Rebecca Henderson:
The sense that we have to move on climate change, we have to move on race, we have to at least think about inequality, this is no longer in question. I no longer have to make the case. The whole conversation has shifted to how. How fast? How do we do it? What does it mean? How do I make money doing it? And Mona, it's completely different.
Mona Sutphen:
And one of the things I did want to get you talking about a little bit is this challenge of turning the idea into the reality and how long some of this change, how difficult it is to turn the tide on some of these topics. Because it's a huge accomplishment to have achieved some consensus that we have to do something. Okay, that's great, and that might be 50% of the way there. That's actually very important for the leadership to consistently commit to doing things, but that other 50%, which is the how are we going to start doing it, I think, is really where the rub is going to hit. And so I'm just curious if you're detecting that. And I think more innovation is going to be needed because it's not clear to me that the solutions are all entirely clear either. So it's going to be a while.
Rebecca Henderson:
It's definitely going to take some time. The two examples that are in my mind are Harvard, where I am the co-chair of the committee on climate operations, which is a long word for saying, how do we get Harvard's footprint down? And I'm very proud to be able to tell you that Harvard has cut its emissions by more than 50%. That took me a second to say. You know how many hundreds of people work for more than 10 years on project after project, finding the project, implementing the project, measuring the outcomes, making it happen? And that's just a university, and it took us 10 years.
Rebecca Henderson:
Or another firm I work a little bit with is Walmart, which committed to really reducing their carbon footprint in 2005. So that's what now, more than 15 years ago. And they've made fabulous progress. It's really amazing. And I think as we look to firms that have shown us how it can be done. But I know. How is it done? Individuals sitting down, picking the low-hanging fruit, making it happen.
Rebecca Henderson:
Everyone on this call knows what it takes to really implement a strategy, and that's what it takes. It takes concrete goals, break them down into sub-tasks, measure the heck out of everything, follow up, get it done. And so I think right now there's a little bit of euphoria with firms saying, oh, I'm going to be carbon neutral by 2035 or carbon zero by 2035. Well, I can tell you, because at Harvard I've actually looked at what that takes. That's-
Mona Sutphen:
Very hard.
Rebecca Henderson:
That's very hard. And I think as a society, we can do it, but my goodness, there's a little bit of, and then a miracle here. And we can definitely do it. We can do the innovation. The physics is possible. If we want to do this, we can do it. But it's not going to be some little off-to-the-side thing that you delegate to an intern. And I've been talking about climate because it's what I know. My impression is that really making the workforce diverse in a real way and really making everybody feel totally included, it is going to be just as hard.
Mona Sutphen:
Yeah. I do feel like we're at a really incredible moment of innovation where companies are taking risks to do things slightly differently. Nobody knows whether it's really going to work, but they're trying, and they're leading the way really for everybody else. And so I think it's a great moment for great leaders to show that leadership that it's possible to do something different. But I do worry a little bit, and I want to get your thoughts on this, that really no pun intended, the sustainability of all of this over a long period of time. And so are we, I don't know, three, four years are now going to say, oh, that was the high watermark of excitement around the imagination of what could be? And then people got ground down in the reality of how to get from here to there and it petered out. Do you see what I mean?
Rebecca Henderson:
I do. I see the fear. I don't think it's a high probability, fear, if that makes any sense, for a couple of reasons. Firstly, because a lot of the groundwork has already been done. We have firms that have walked out in front in many industries and have shown it's possible to drive real change. I call them purpose-driven firms because it takes a little bit of guts and a little bit of creativity and risk-taking. But mostly it takes the belief that we really have to do this. This is the right thing to do. And those were the firms that walked out, that are walking out now, and there's been a lot learned. We can all have pluses and minuses about consultants, but there is a universe of small consulting firms of people who've lived through these transitions and are ready to help, let alone McKinsey and Deloitte. They're happy to help you do this too. So we know how to do it.
Rebecca Henderson:
The second thing is it really is the case that in many industries, when you think hard about how to clean up your supply chain and how to reduce your waste and how to make a difference in the lives of the people you serve, and you really think about that, and you think systemically about the whole structure of the value chain, that often, not always, but often you can find a better way to do things.
Mona Sutphen:
You're a business leader, and you're listening to this. It's like, what's coming next for me after the race equity questions in my business, after figuring out how I'm going to lower my carbon footprint? What's next?
Rebecca Henderson:
Oh, dear. Well, what's next is politics.
Mona Sutphen:
Ah.
Rebecca Henderson:
Yeah, no. And I'm working with a bunch of CEOs now who are like, "Wait, wait, wait, wait. Okay. Climate change. All right. Biodiversity. Okay. Race. Okay. But now you want me to worry about voting rights?" And I say, "Yeah, I want you to worry about voting rights because free markets need free politics, and if we lose the democracy-"
Mona Sutphen:
We've also lost the rule of law, which is the very one thing. If you've ever been a consultant advising a company outside the United States, the thing that drives everybody crazy is the unpredictability of whatever the rules and laws are.
Rebecca Henderson:
And the pride and joy of the United States, I can't believe I'm saying this, has been the rule of law and the commitment to the good of the society. And so I am afraid voting rights is coming soon to a CEO near you. The good news is I think many business people can see this, and this doesn't have to be an individual level issue, that I'm seeing associations spring up at the state level where business people are working through their state associations, just saying, "Look, this is my state too, and I really have a stake in this," and business acting together to do this. But no, this is hard. The job of the CEO is much bigger than it was.
Mona Sutphen:
Yeah. That's really exciting. So I guess this is my last question. You're an optimist at heart. I know about this, about this question. So one thing I'm curious about is let's say 10, 15 years from now, when we look back at this, do you think that we can really change the trajectory about how people think about capitalism when all is said and done?
Rebecca Henderson:
I don't think this is going to be an easy ride. Fundamentally, we're talking about major systemic change. When we talk about ESG, we're talking about really shifting the foundations of accounting, paying maybe not as much, but very serious attention to non-financial metrics. And when we listen to the investors, a lot of them want firms to focus on a much longer timeframe and to think about a wider range of impacts, and they want to see those measured.
Rebecca Henderson:
That's a fundamental shift in how we think about running firms. To go from I am maximizing profits this quarter to I'm paying attention to a range of metrics, dealing with investors who have much longer timeframes, I am going from me right now to us and later. And I'm thinking about the firm as not just about making money in the moment, but being part of the broader institutional context.
Rebecca Henderson:
So that's a huge shift. Will it happen? It's beginning to happen. And here is the thing. We have no idea what the future's going to look like. Discontinuous change is possible. Humans respond very well to emergencies, and I'm afraid we're going to have a sequence of emergencies. We're going to have major shocks hitting our society on a regular basis. But humans can be selfish and shortsighted, but they're also incredibly smart and very ingenious.
Rebecca Henderson:
And at base, most people want the right thing. They want to be part of a society that's taking care of this beautiful world we live on, that is creating decent jobs and where everyone's making a reasonable amount of money. And that's eminently possible.The reason, in the end, I am so optimistic is we have almost all the technology and we can innovate the rest. We have the resources. We are richer than we have ever been. The problems we solve, see, are eminently solvable. These are political and managerial problems. If we want to solve them, we will.
Mona Sutphen:
Yeah. Well, with that, we'll leave it here. But Rebecca, as always, fantastic conversation. Always really insightful. It's just great to listen to you. It's a really interesting conversation.
Intro:
Thank you for listening. Tune in to our next episode with CalPERS CEO, Marcie Frost. Learn more about The Vistria Group at vistria com.