Chip Headley

Though I don’t claim to be someone that watches a ton of football, the events of the past few weekends have caught my eye; here’s my take:

We all have opinions and a myriad of places to express those opinions. The safety we feel as American people to freely express those opinions is, unarguably, one of the things that make our country great. When our opinions are expressed, at best they can lead to conversations and learning; at worst they lead to division and rifts between us. It might sound idealistic, but I think we are capable of the best case scenario. I think we can learn from each other and let our differing opinions start a conversation.

 

When Colin Kaepernick first took a knee last year, President Obama stated, “I want (the protesters) to listen to the pain that that may cause somebody who, for example, had a spouse or a child who was killed in combat and why it hurts them to see somebody not standing. But I also want people to think about the pain he (Kaepernick) may be expressing about somebody who’s lost a loved one that they think was unfairly shot.” I think this gets at the heart of the issue. We have to take a step back from our own biases and narratives we live in and be willing to see the issue from another person’s side. This openness challenges us, grows us, and makes us better.

 

When I think of this debate and the narrative from both sides, I just want to have a conversation. I want to sit down and talk to my friends who see things differently than me, to hear how this situation touches their mind and heart. I think we can all take a step and listen to each other and have honest conversations. I don’t think this kind of situation gets solved from a Facebook rant, I think it starts with a cup of coffee, a trusted colleague, and an open mind.

Last year one NFL player chose to sit rather than stand for the National Anthem before a game. Later, he began to kneel for the Anthem and was joined by a handful of other players. President Trump weighed in on Friday at a political rally and in a series of tweets. The NFL commissioner called him divisive, ignoring the divisive action that started this in the first place. The President responded, and things escalated.

 

On Sunday, over 200 players took a knee for the National Anthem. Others locked arms in solidarity, while other teams decided to stay in the locker room for the Anthem. Players were booed by some, cheered by others.

 

The league is in a tough spot. They have been maneuvered, or put themselves, into a difficult situation. If they support their players they risk further alienating a significant portion of their fans. President Trump has called for a boycott of the NFL. Overnight ratings from Sunday’s prime-time game were down 8% from the previous week, which were down 17% from the season opener. It is undeniable that ratings are down. Is this because of the player protests or are other factors in play? Only time will tell.

 

If the league supports the fans that are boycotting or outraged at the player protests they risk alienating their players. What happens if the league orders the players to stand and they choose not to play? The league has chosen not to enforce its own rules.

 

The rules regarding the anthem are found on pages A62-63 of the league’s game operational manual:

 

“The National Anthem must be played prior to every NFL game, and all players must be on the sideline for the National Anthem.

 

During the National Anthem, players on the field and bench area should stand at attention, face the flag, hold helmets in their left hand, and refrain from talking. The home team should ensure that the American flag is in good condition. It should be pointed out to players and coaches that we continue to be judged by the public in this area or respect for the flag and our country. Failure to be on the field by the start of the National Anthem may result in discipline, such as fines, suspensions, and/or the forfeiture of draft choice(s) for violations of the above, including first offenses.”

 

So, what can our organizations learn from the NFL? Two things stand out for me.

 

First, at the height of his career, Michael Jordan was asked to publicly to endorse a Democrat for the Senate race in North Carolina. Jordan refused to do so, reportedly saying, “Republicans buy shoes, too.” Whether Jordan actually said this is in some doubt, but the sentiment is correct. The NFL has allowed a situation to develop that has alienated a number of their customers. The damage may be permanent.

Second, the NFL had a rule in place that addressed this very action. They could have intervened the first time a player sat or kneeled. They chose to act in a manner inconsistent with their own stated policy and the protests escalated. The argument can be made that the policy itself was wrong. If so, the league should have determined that the policy was not in keeping with their values and changed the policy, but they didn’t. Now they have to deal with the consequences of their choices. It is almost impossible for the league to now enforce a policy that chose to ignore. Changing the policy now is also fraught with difficulty.

 

The NFL is facing a number of disruptions to its business model, from CTE concerns, to cord cutting, declining attendance, and now a portion of their customer base who have tuned out. Boycotts rarely last, but I believe this is different. I always saw the NFL as a diversion, a time on Sunday afternoon to cheer for my team and enjoy time free of thoughts of work, politics, and the everyday stresses of life. I stopped watching because it isn’t fun anymore.

 

Taking controversial decisions may be the right thing for our organizations or for each of us individually. It is important to understand that freedom of speech, and positions or causes we support are not without consequences. When we take positions that alienate our employees or our customers we have to be ready to deal with the fallout from our positions. Sometimes right is right, regardless of the consequences, but that does not insulate us or our organizations from negative outcomes.

 

This is why I believe in values-based leadership. It gives us a framework or a moral compass to guide us when we make decisions on what causes to support, how to treat our teammates, and how we interact with our external stakeholders. Values provide a guide to aid our actions. Values give us a rock on which to stand. Using the NFL’s situation as a cautionary tale for all of us, I encourage you to review your stated values. Are they what you really believe? Are they what you are willing to stand for regardless of the consequences? Do your policies and actions align with your values? When our values drive our behavior we have confidence in our actions.

For the last 50 years academics, investors, and economists have argued over shareholder and stakeholder theories. Shareholder theory says that companies sole duty is to maximize profits within the law. Stakeholder theory says that companies should balance the returns of all stakeholders even if it reduces profits. So, which is it, make money or do good?

When we think about this we usually default to examining large multi-national public companies, but they are just a piece of this debate. According to the Small Business Administration there are 18,600 large companies in the U.S., about 3,700 of these are publicly traded. They define a large company as having more than 500 employees. There are 28,800,000 small businesses! That is 99.9% of all businesses! Small businesses employ about half of the non-governmental workforce and over the last 20 years have created over 63% of net new jobs. Those of us who work in small businesses have a role in this debate.

Milton Friedman is one of the leading voices of shareholder theory. He said, “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it…engages in open and free competition without deceit or fraud.” There is a common misconception about shareholder theory that it precludes charitable giving or any activity that reduces short term profits. The theory simply says that for an activity or charitable contribution to be made it must in the long term be beneficial to the company’s profits. For example, if a company made a charitable contribution to build a new hospital that would reduce the cost of employee healthcare, such that company profits would increase, this would be consistent with shareholder theory. Ultimately, all activities must increase profits.

Stakeholder theory on the other hand says that a company must consider all of its “community” and must act in a way that yes, makes a profit, but does so in a way that benefits its employees, vendors, customers, and neighbors.

Each of these are normative theories, that is, they say would a company should do, in contrast to descriptive theories that show what they actually do. (We intend in the coming months to share with you some stories of what our company is actually doing to promote our communities, along with what some others are doing. We invite you to share your stories with us.)

So, which is it, make money or do good? Companies can’t exist without making a profit, and making a profit is hard. About 50% of small businesses survive for five years and only 33% last ten years. If your business isn’t profitable you eventually run out of money and close. There is no conflict here between shareholder and stakeholder theories, you have to make money period. You can’t do good if you’re not in business.

The problem with shareholder theory is that it leads to a myopic focus on profitability that results in lower profitability. Shareholder theory operates in a vacuum. It assumes that what happens to a business’s stakeholders doesn’t affect the operations of the company. The welfare of stakeholders is critical to the success or failure of a business. Our team members have joy and sorrow in their lives. Times of health and illness. Customers have times of expansion and contraction. Innovation leads to changes in our environments. A rising tide lifts all boats, but a receding tide lowers all boats. Our companies are interconnected with our team members, customers, and communities. We cannot succeed, if they don’t succeed. This is why stakeholder theory matters.

“Doing good” is about making our communities better. Our communities include all of our stakeholders. When we do good, we help create a rising tide, and oh by the way, we are more profitable, not less so.

So, what do you think, is it making money or doing good?

The launch of ChipHeadley.com came from a seasoned entrepreneur’s desire to share his knowledge and start conversations. Three years later, that desire has remained the same. With new focus, consistent content, and a fresh format, the best is yet to come.

This relaunch of this blog contains some shifts in focus and format. First, this site is intended to be a collection of voices. This will occur through multiple authors and audience commentary.  Our desire is for the comment section to be a collection of people discussing topics, sharing and debating ideas, and mostly coming together over the things that matter to us and our businesses. The other shift will be in content. We will still discuss entrepreneurship, and leadership but we will add a few other things to the docket as well. One is corporate social responsibility. Though not new, this concept is shifting every industry to some degree. We will discuss how it is being incorporated into our lives and companies as well. Another topic will be company culture and teamwork. We will discuss how work place dynamics effect overall company effectiveness, and consider millennials in the work force.

We are thrilled for this next season. Our hope is that you join the conversation, learn new things and share lessons you’ve learned over the years with us.

Welcome to the new ChipHeadley.com!