Best Buy’s Hubert Joly on Walking the Talk of Stakeholder Capitalism

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Welcome to the hbr ideacast. From harvard business review, I'm alison beard. Several years ago, a distraught mom and.

Boy came into a big box store.

With a serious problem. The robot dinosaur they'd purchased, his favorite toy, wasn't working. The store associates knew just what to do.

They explained that they were actually surgeons.

Who could fix the dinosaur's injury.

They pulled the toy behind the counter, performed their operation, really swapping one dinosaur.

For another, and handed the new one.

Over to the boy, who was of course thrilled.

The associates improvised.

This was not the store's standard operating procedure, if you'll pardon the pun.

But our guest today says that what those employees did also wasn't an accident. Their actions stemmed from a culture that he and the rest of his leadership team tried to create and spread through the once struggling retailer, Best Buy. It not only made the boys day.

It turned the company around.

Joining me today is Hubert Jolie, the former chairman and CEO of Best Buy. But he's here to talk about more than one company. He also wants to explain how other organizations can find purpose, honor all stakeholders, and lead with humanity, just like those store associates did. He's the author of the book the Heart of Leadership Principles for the Next Era of Capitalism and the HBR article, How to Lead in the Stakeholder Era. Hubert, thanks so much for being here.

Listen, thank you for having me and I so look forward to our conversation.

So at least at hbr, we have.

Been talking about this transition from shareholder capitalism to stakeholder capitalism for a long time. What is new or different about the approach that you're suggesting?

It's really the applicability. It's the concrete how do you do this? Right. Because we've been talking about this. You're right. For a long time and I'm glad we're talking about it because I think the world we live in is in a difficult state. We've had a health crisis, an economic crisis, societal issues, racial issues, environmental issues, geopolitical tension, you name it. What's the definition of madness? Doing the same thing and hoping for a different outcome. The Milton Friedman focus on shareholder primacy, the top down approaches in management, they're not working. I think all of us now realize this. The question for leaders is not whether this is the right idea or the right direction, but it's how.

Yeah. And one step is signing on to something you call a declaration of interdependence. So in broad strokes, what guidance are you giving to other companies with that declaration?

Well, I think it's the realization that business cannot live in isolation. And Best Buy is headquartered in Minneapolis. So following the horrible murder of George Floyd, of course, if the city is on fire, you cannot open the stores, you cannot run a company. Same if the planet is on fire, you don't have a business as leaders. I think during the pandemic, it was an opportunity for all of us actually to step back and think about what's important. And my belief is that an excessive focus on profit is poisonous. It's dangerous. And so the philosophy that I propose is one where at the heart of business, you have the idea of pursuing a noble purpose business being a force for good, putting people at the center, like these amazing associates. Right? Oh, my God. When I heard that story with the dinosaurs, I got it right. This was human magic being unleashed. And then this idea of embracing all stakeholders and treating profit as an outcome, and it's refusing. Alison. Zero sum games. I refuse to oppose stakeholder capitalism and shareholder capitalism because shareholders are really important. And at Best Buy, our share price went from $11 to now, I think around $110. So times 10 in nine years. And so we have to embrace this philosophy of. And as opposed to.

Or you do talk about not just purpose, but noble purpose. Do you think that every business can find a noble cause?

There may be exception. If I'm a cigarette manufacturer, maybe I need to think harder than service business because these things are dangerous, they're poisonous, and I don't care if there's a warning sign on the packet. But most companies. Noble purpose is not reserved for companies in the healthcare sector. At Best Buy, I could see this. Traditionally, we're an electronics consumer electronics retailer. But at some point in our journey, we step back and say, no, we're actually not a retailer. We're in the business of enriching lives through technology by addressing key human needs. It's a much more inspiring idea. And the good thing is that it helped us expand our addressable market vastly. And we can get into the examples. And so companies have this opportunity. And by the way, listen, let's slow down. It's hard work to define a company's purpose. This is not just, you know, the communications department come up with a catchy phrase. No, you need to do the work. Understand what are the human needs in the world that you're trying to address. What are you uniquely good at? Right. What you're passionate about, and then finally how you can make money. This is work that every company can do. A lot of companies have embarked on that journey. Purpose has truly become quite trendy and fashionable. But I think the challenge is to really do the work so that it can be translated into very specific winning strategies. That's where the work needs to start.

And how do you make sure that it's not just the leadership team and the marketing department that believes in and works toward that purpose, but also that the frontline workers feel connected to it?

If making the corporate purpose concrete enough is a first challenge, the what you've just said is a second challenge. So let's imagine, Alison, for a second that, you know, you and I work at Best Buy, and you know when we've just defined a corporate purpose and we walk into a Best Buy store and we tell the associates and the gm, look, we have some important news. We have this new purpose, right? It's to enrich life through technology by addressing key human needs. I can guarantee you, Alison, that the associates are going to look at us and say, we love you guys. But what did you just say? What do you want us to do at 10am tomorrow when we take our shift? That's real work as well. At Best Buy. To make it concrete, what did we do? We took 40 or 60 of our most respected middle and senior managers and we had them work on making this very concrete to show you how concrete it was. It culminated on one day, a Saturday in June. I think it was 2017. We closed all of the stores for a few hours and There was no PowerPoint presentation, no glossy video, no message from the CEO. I was just in one of the stores and we got into small groups and we worked on two questions in small groups. One was share with each other. Your life story was paired with a young woman. She had been in an abusive relationship with an ex boyfriend. She had been homeless. And for her, Best Buy was her family. It was her home. So all of a sudden I see her not just as an employee, but as a human being with all of the complexity and some aspects of beauty of that humanity. Second exercise. Share with each other the story of an inspiring friend in your life. So for me, it's my older brother Philippe. And then we said, look, what we're trying to do, which we are already doing when we are at our best, is to treat each other and the customers as human beings. And we're trying to treat each other and the customers as an inspiring friend to them. Oh, all of a sudden I get it right? Because in my life, for most people, what drives them is to do good things to other people. It's the old golden rule. And so I get it. And that for me that's a very seminal idea. When companies work on the corporate purpose, it's tempting to define it and then to roll it out and tell people this is what we're going to do. That's outside in and top down. Equally important, if not more important, is inside out and bottom up, meaning starting from our heart. A key question that everybody can ask themselves and people around them ask themselves. What drives me in life? What's really important? How do I want to be remembered? What gives me energy? And I think if we can in our companies, if we can manage to connect what drives each individual working at the company with their work and with the purpose of the company, that's the beginning of human magic happening.

Yeah, but people in those frontline positions are often concerned just as much with a paycheck as they are purpose. What's your take as a leader on what is fair pay for people who are in retail jobs or blue collar roles?

I think that the discussion of social injustice and inequality in this country is a very important discussion. I think that raising the minimum wage, starting wage is a very important trend. Best Buy together with other companies like Walmart and Target, has been at the forefront of this since the time I studied. I think the starting wage has increased at least from $10 to $15 per hour. And of course the average is significantly higher. The other thing is, so much of what I've learned when I was at business school or at McKinsey or my early years as an executive is either wrong, dated or incomplete. One of the things we've learned is that, you know, we need to have financial incentives to drive performance, right? And there's research by MIT that shows that, you know, financial incentives actually deteriorate performance. And on the front line, the founder of the company back in the 90s eliminated commissions because I think he thought it was driving the wrong behaviors having the salespeople drive you to the products with the highest margins as opposed to the products you wanted to buy. And then recently my successor Corey actually eliminated bonuses. There was team based bonuses or store bonuses for the frontliners and incorporated them in the base pay. So really increase the base pay because if you're at, let's say 12, 13, now $15 per hour, the bonus is actually a source of uncertainty because you need to pay rent if you're a student. We have a lot of students in our stores, you need to manage your student loan. So having the certainty is actually much better. And then the way you get 125,000 people to show up at our best and do some magical things, you don't rely on incentives to do this. You rely on creating the right environment where they want to give their best in the context where in the COVID crisis, so many people have been rethinking their life, right? So you see companies that are losing employees. So on top of your customer value proposition, the definition of your employee value proposition, I think that's going to be a big differentiator for companies.

And part of that is also a path to advancement, right?

It's a path to advancement. It's skills acquisition. So to again make it concrete. So one of the things we've done at Best Buy is we've broadened the scope of the, of the skills people have so that they can, you know, be in different parts of the stores and build more skills, both, you know, knowledge of different products, but also selling, leading. And so yes, the, the employees, again, they're wonderful human being. And if, if as an employee you're in a growth environment, you feel you belong, you feel your manager is investing in you, then you're much more charged up. Of course pay is important, but it's the whole package. There's benefits and importantly, it's the environment.

It's one thing to want to lead this way, have a plan to lead this way, but it's another to do it when you're trying to manage a huge team or run an entire company and you're dealing with complexities and challenges and even crises. So how do you maintain that focus, that one on one attention, making sure employees feel seen when so much else is going on?

So one of the implications of getting into this new era of stakeholder capitalism is the change about how we lead. The old model, what was the old model? It was the leader as the superhero. He or she knows, usually a he, right? Knows everything as is there to save the day. He's the smartest person in the room. Are too often driven by power, fame, glory or money. And nobody wants to follow a leader like this. We know a few of them around us, but nobody wants to follow them. I think the new leadership model for me, what I call the, you know, the purposeful leader is somebody who's very different. Of course, they're clear about their own purpose and they're curious about the purpose of people around them. As we've talked about. In addition, they're very authentic and vulnerable, which for many of us, self included, is a significant transformation. Because in my earlier years as a leader, I was driven by perfection, believe me, you know, it was like a disease. But then as leaders at all levels, right, all of us are leaders at minimum of our lives, we're being thrown curveballs where there's no playbook. Right. Did you have a playbook, Alison, for the COVID crisis? I did not, no. In that context, if you're trying to tell your team, I got it, I know everything, this is not authentic, they're going to know immediately that and you're going to be thrown out after five minutes. So this is a different style of leadership where you have to be able to say, as a leader, this is what we know, this is what we don't know. And let's see what we can do to figure out what we don't know. This is about being able to say, which took me years to be able to say, my name is Hubert and I need help because I don't know, how do we work together to figure this out? That's a much more powerful, by the way, way to lead.

It does seem as if the pandemic has been such a shock to the system that it did cause people to reset. And instead of reverting to old patterns, people are beginning to fundamentally rethink their careers and business. Is that why this moment is really ripe for a full on shift to this new kind of capitalism that you're talking about? Can this be the point where we really do stop caring about profits as much as we have in the past and create some long term change in the US and around the world?

Yeah, it's really a pivotal moment. And by the way, I'm not saying we shouldn't care about profit. I think we should treat profit as a very important outcome. Shareholders are people like you and I, we give them our savings, right. And so we want to make sure that they do a good job with them. But it's yes. What we have to move away from is this excessive obsession about profits and treating it as the main thing. By the way, one of the things I've learned from a client years ago is how to run your monthly business performance review meeting. And that client told me, don't start with the financial results, end with the financial results. Start with people in organization, then go to customers and business and finish with financial results. If you flip it, if you start with finance, you're going to spend your entire meeting on it. I've done this. I know, whereas if you flip it, if you start with people, then business, then finance, you'll be able to look at the drivers. But to go back to your question, I do feel it's a pivotal moment and it needs to be a pivotal moment. We've all realized the humanity of people around us, people working from home, on our teams. We, we've seen their spouses, their children, their dogs, their cats, their wi fi problem. We know they're humans. Right. There's no going back. The other thing is that, and it really struck me last year, and I'm the eternal optimist, but I had to pause and say, the world is not working well. You would need to not pay attention, to not see again the health, economic, societal, racial, environmental and geopolitical issues we have. And so we have to reinvent the way we lead and the way we use business as a force for good going forward.

It does seem like we're making progress. We have so many companies moving in this direction, but at the same time, inequality is at an all time high. Billionaires, leaders of companies made.

Hundreds of.

Billions of dollars in this pandemic when a lot of frontline workers really suffered. So how do you take the steps that we've made and push it to an extent that it really results in real change for those blue shirt workers, for the Amazon delivery drivers, for all the people working these frontline jobs all around the world?

Yeah. So, you know, these are multifaceted issues. For me, the change starts from, you know, each of us from within, how we lead, how we treat each other, how we can best embrace all of our stakeholders, starting with the employees and the customers and the community, how we commit to racial diversity. One issue, frankly, I became a citizen, I think it was almost two years ago. So big deal for me. And so I get to vote now. And when I see.

Quite a time to come into US Politics.

Exactly. Frankly, I'm personally shocked by the fact that some of our, apparently some of our billionaires are not paying taxes. This is horrendous. This is unacceptable. Now, I know some of them are giving half of their assets. You know, there's been the billionaire pledge. And by the way, I'm not a billionaire, but I'm. By the way, I'm still going to give pretty much all I have when I die or before I die, because I don't want to mess up the life of my children. The tax code has got to be changed. My view, Alison, is that we have a few ticking time bombs. We have an environmental ticking time bomb. We have a societal ticking time bomb. We need to address them. And I don't want to make it sound too easy, but status quo is not a great option.

And it does seem, given the dysfunction in a lot of political systems around the world right now, Is it your view that business leaders can show us the way forward?

I think. Here's the thing. I believe all of us have a role to play as individual leaders. We have a role to play because what we do every day to people around us makes a difference. CEOs have a role to play because they can lead companies to be a force for good and to be more than just for profits. Boards of directors can influence policies and so forth. And yes, business increasingly needs to get involved in societal issues. We have to weigh in on certain issues. But even more important than speak, we have to act. That doesn't mean that government should stay on the sidelines, but I think it's all of us and it starts with each of us. That's maybe a point I want to highlight.

Yeah. And this ties into your point about the end of zero sum competition. Best Buy is famous for its turnaround, but part of that, which was the way not only in which you differentiated yourself from big scary competitors like Amazon, but also tried to work with them. Talk a little bit more about that strategy and why it was so important for you and what other leaders can learn from it, operating in their own industries.

Yeah. One of the things I Learned from another CEO, he told me that it was very precise. 98% of the questions that are asked as either or are better answered as. And so should you focus on the short term or the long term? No, both. Should you focus on your employees or your customers or your shareholders? All of the above. And interesting enough, that also applies to competition. So traditionally, many companies, we formulate the strategy as being we want to be number one, we want to beat competition, we want to be the best. So we're defining ourselves like in a sports competition, where winning is about beating. And my view of business is different. Winning is about being unique. It's about again, pursuing that noble purpose where you address a very important human need in a unique fashion. So, yes, Amazon was supposed to kill us, right? In 2012, when I became CEO, everybody thought we were going to die. It turned out that the problems we had were not inflicted by Amazon, they were self inflicted, which made them easier to correct. But then we went the extra step and we decided to partner with the world's foremost tech companies, including Amazon, which of course sells products. Because what I saw is, of course, the customers needed best buyer because for some of our purchases, we need to touch, feel and see the product and ask questions. But the vendors also needed a place where to showcase the fruit of their billions of dollars of R and D investment. So I saw that as an opportunity. And the first deal was actually with Samsung, where In December of 2012, with the CEO of Samsung Electronics, JK Shin, we did a deal where in a matter of months, he had 1000 Samsung Experience Stores within our stores, which were good for the customer, good for Samsung, and good for us. And as it is to Amazon, some of our competitors were refusing to sell the Kindle or the Echo products in their stores. And we said, no, our customers are interested. Amazon is going to give us some money to sell their products in our stores. And so it's good for everybody. And so it's the idea of instead of focusing on beating, focus on what you're trying to accomplish in the world, try to be the best version of yourselves you can be and see who can help you achieve that.

So at what point in your turnaround did you know that this approach to stakeholder leadership was really working? And how will we know at other companies in the corporate world at large that we're making a difference? We're making Progress.

Back in 2012, so when everybody thought we were going to die two months after I studied, which in and of itself was crazy, we went to New York to present our plan to our investors and our approach. We shared with them our diagnosis, what was working, what was not working. We talked about all of our stakeholders, the employees, the customers, our vendor partners, community, and the shareholders. Of course, initially, what saved the company was the fact that we were able to stem the decline of both the revenue and the margins by refocusing on the customers and mobilizing the employees and taking some cost out. But I wanted from day one to have this holistic approach, because if we were going to do well and do good, I wanted to do good by doing well and do well by doing good. Let's take the environment. At Best Buy, we have a recycling program where anybody, irrespective of where you bought the product, you can bring back your electronic products to our stores and recycle them, because there's a lot of good metals in there, good components that we can remarket and so forth. And so the beauty of this is that this is good for the planet, obviously, but this is also good for the customers because you can empty your cabinets, right? And this is because it builds traffic to our stores, employees are demanding to work for good companies. Customers want to deal with good companies. The community is expecting us, needs us to do well and to do good in the community. And of course, shareholders, we need to take care of them as well. So might as well make peace. For me, there's no the debate is over, right. And when I listen to my former colleagues in the corporate world, I think I listen to debate of whether to move in that direction is over and the focus is really on the how wonderful.

Well, Hubert, thanks so much for joining me today.

Thank you, Edison. So enjoyed our conversation. Thank you.

That's Hubert Joly, former CEO of Best Buy. He's the author of the book the Heart of Leadership Principles for the Next Era of Capitalism and the HBR article How to Lead in the Stakeholder Era. This episode was produced by Mary Dew. We get technical help from Rob Eckart. Adam Buchholz is our audio product manager. Thanks for listening to the hbr ideacast. I'm alison beard.