I love books, especially good business books. In fact, I read three or four a week which I believe makes me a very discerning critic when it comes to ones with the right message. A One-Legged Stool: How Shareholder Primacy Has Broken Business (And What We Can Do About It) by Ed Chambliss is one that can help us in both business and life. It has the right message.
This book is so timely and extremely important now because Chambliss brings to light one of the great wrongs in the thinking of the last century, an error that has broken business for the past 50 years—the idea that we are all in business to make money for our shareholders and (and all others, employees, customers, and vendors be damned). We all know where this has gotten us.
In this interview, Chambliss reflects on his many years in marketing, the process of writing a book, and most importantly, his views on how to harness the good being done in business to solve society’s problems. It is my privilege to bring you this interview. Enjoy.
Dan Beaulieu: Ed, thanks for speaking with me today. What’s your background?
Ed Chambliss: My whole career has been in marketing and advertising, about 35 years. I started as a copywriter, writing ads that tried to get people to buy things, such as tickets onboard Delta Air Lines. However, early in my career, I discovered that my true strengths (and passions) lay in business strategy and teaching. That led to teaching at a post-graduate advertising school, getting my master’s degree, and working my way through management of a marketing agency in Los Angeles, where I eventually became CEO. Throughout it all, my constant focus has been helping companies connect with customers (and other stakeholders) on a human level.
Beaulieu: Interesting background. I like that. How did you get the idea for this book?
Chambliss: Over the past decade, I had become increasingly frustrated by my interactions with my clients. While they were smart, experienced, and nice people, more and more, they seemed unwilling or unable to invest in the people and programs that would bring their companies success in the long-term. It seemed they were always more focused on hitting their short-term numbers than laying the foundation for success. When I spoke to my clients about this in private, their comments were always the same. They knew they were making it harder to be successful down the road, but they just didn’t feel they had any choice—they had to cut costs now to satisfy shareholders and the investment community.
Beaulieu: How long did it take for you to develop this line of thinking?
Chambliss: I had been toying with ideas, arguments, and solutions that could break the grip of “maximizing shareholder value at all costs” ever since I noticed the trend with my clients. But it wasn’t until a few years ago that I felt I had to walk away from actively running a business so I could focus on understanding the problem, how we got here, and what we could do to liberate business to make a real difference in the world.
Beaulieu: Why did you write this book? What moved you? Writing is not easy and a book can take so much time out of your life. What was the passion that drove you to undertake this daunting task?
Chambliss: Free enterprise is an amazing concept. In America, it accounts for almost 90% of gross domestic product (GDP). I felt that if we could find a way to harness all that power and those resources to solve society’s problems, instead of making them worse in the name of paying investors even more, business could substantially improve the quality of life for everyone. Conversely, if we don’t change our focus, I doubt we stand a chance at solving significant social and environmental problems because the undercurrent of shareholder focus is just too strong to swim against.
Beaulieu: Who are you trying to reach with this book?
Chambliss: I’m trying to reach those individuals who sense that something is really out of whack when it comes to business but can’t quite put their finger on what it is. These people are searching for answers, not just about what’s going on, but also how to change it.
Beaulieu: Ed, I could not agree more. Especially now when company owners are confused that potential hires are not blindly happy to get any job. It is their time to be fussy and careful about who they work for. That proverbial worm has turned. So, why is this book important?
Chambliss: There is so much written about how to leverage shareholder primacy to enrich yourself, with very little to no mention of the negative consequences or implications. The handful of literature that does take on shareholder primacy is mostly academic in nature, focusing on complicated legal or economic arguments. While these are absolutely critical points of view from brilliant people, they won’t be able to change things by themselves. The practice of shareholder primacy is just too entrenched, especially among the wealthy and powerful. I decided to write a book for the lay audience—to educate and inspire everyday people to take actions as customers, employees, citizens, and investors who will force business to change.
Beaulieu: What do you hope to accomplish?
Chambliss: In the end, I hope that people everywhere will realize what a stupid idea it is to run business primarily for the benefit of people who, by definition, already have enough money that they can afford to invest it, even as others are living hand to mouth. But also, I hope that we embrace that all of us—even shareholders—are human beings who want more out of life than money, and that our obsession with converting the world into cash is damaging or destroying so many of the things that create a higher quality of life.
Beaulieu: You are so right there. In the end, all business is about the people, you can never deny that, yet we did for so many years. Do you think we can change the flawed Freidman economic philosophy that has broken business?
Chambliss: Absolutely. Free enterprise hasn’t always been structured this way. Before Milton Friedman kicked off the shareholder primacy era in 1970, the predominant business model was called “managerialism,” a belief that business was a shared social and economic institution that was designed to benefit everyone. Back then, the job of business leaders was to balance the competing interests, so it maximized the aggregate benefit for everyone. And, you know what? It worked. The era of managerialism between 1930 and 1970 saw the rise of the U.S. as an economic superpower, flourishing innovation, rising employee wages, and a steady stream of dividend checks for shareholders. (In fact, the S&P 500 returned a compound average annual return of 7.5% during this time frame.)
Beaulieu: Would you summarize the basic premise of the book?
Chambliss: I’d be happy to, Dan. Shareholder primacy—the belief and business practice that shareholders are more important than all other stakeholders—has been taken to such an extreme that companies regularly cut investments in the people and programs that actually create value for the enterprise (and shareholders.) Instead, they focus on the short-term extraction of value to pay to shareholders, either through dividends, stock buy backs, or inflating share price. Of course, this value has to come from somewhere, so customers, employees, communities, and the environment all have to pay the tab.
Beaulieu: Please explain exactly what “shareholder” means.
Chambliss: Simply put, a shareholder is someone who has a contract with a corporation. That contract entitles them to receive a financial dividend if the corporation is profitable. It also entitles them to vote on certain activities the corporation can take, such as a stock split or sale of the enterprise. However, and contrary to popular opinion, shareholders are not the owners of a corporation. Unlike a true owner, they do not direct the day-to-day activities of the enterprise, they do not hire management, and they have zero liability (beyond their investment) should the corporation do something wrong—all things a true owner can’t claim. In fact, as a separate legal person, a corporation owns itself and can’t be owned by someone else since it would be a violation of the 14th Amendment to the U.S. Constitution that prohibits slavery.
Beaulieu: I love the metaphor of the stool; it’s such a great idea. What are the other legs of the proverbial stool?
Chambliss: For the stool of business to be stable, and for it to continuously elevate humanity, it needs more stakeholders than just shareholders. It needs customers (the sole source of revenue), employees (to create, sell, and support products), and communities (in which to place facilities.) Together, these stakeholders create an interconnected ecosystem that the company needs to succeed.
Beaulieu: What do you think we have to do to change to a more three- or four-legged stool type of business thinking?
Chambliss: Essentially, we need to retrain our society so that it expects business to serve human beings, instead of the other way around. Collectively, we granted life to the institution of business, so we are its parents. As our corporate child has grown up, it has unfortunately developed some bad habits. So, it’s up to us to stage an intervention and set the expectations that will result in our child becoming a productive member of society. To be effective, this intervention needs to permeate all the roles we play, including customer, employee, citizen, and investor, and it has a bit of a “carrot and stick” to it. The carrot is to reward companies that do serve the greater good. The stick is for companies that continue to favor shareholders over everyone else, by not buying their products, not working for them, not welcoming them into our communities, and not investing in them.
Beaulieu: Excellent. So, what happens now? What is your next step?
Chambliss: I’m trying to promote the ideas contained in the book so that as many people as possible hear them. That includes engaging with business leaders, nonprofits, academics, civic groups, and government representatives. And for those business leaders who realize something is wrong with shareholder primacy and want to transform their own companies, I work with them to define the best way to profit by satisfying the human needs of all their stakeholders.
Beaulieu: I hope you will humor me for a minute. I have a fascination about the process of writing and especially writing a book like yours. Let’s talk about your process. Is this your first book?
Beaulieu: Are you a natural writer? Would you say that writing comes easily to you?
Chambliss: I think I’m a person who naturally wants to share what I find interesting so others can have the same joy of discovery that I did. But it takes practice to write in a way that allows the reader to participate in the pseudo-conversation of a narrative, rather than just a one-sided delivery of what I think.
Beaulieu: Do you write articles?
Chambliss: Yes, primarily op-eds for the business community.
Beaulieu: When did you start writing the book?
Chambliss: I started working on it full-time in March 2019.
Beaulieu: How did you write it? What was your process?
Chambliss: I had some understanding of what problems shareholder primacy was causing, just as I had some ideas for how to solve it, but I spent much of the first year educating myself on the legal and economic foundations, how we got here, and how other forms of inequity have been successfully changed by society. After strengthening my foundation, then I was able to craft the text, knowing it was deeply based in facts and not just speculation.
Beaulieu: How long did it take?
Chambliss: Three years.
Beaulieu: How did you do research for the book?
Chambliss: Lots of reading in academic journals, news articles, and books. I also conducted a fair number of personal interviews with experts in the areas of law and economics so I could benefit from their deep understanding of how all the details work together.
Beaulieu: First, thanks so much for writing this great book first, and second, a special thanks for spending time with me today. What’s next? Where do you go from here?
Chambliss: Good question. I don’t know. My mission right now is bringing the conversation about shareholder primacy to everyday people and to start a national (if not global) discussion about it and how the role of business should change. I don’t know if that will take me back into the corporate world, a nonprofit, or even public service. Whatever pathways seem to provide the most traction are the ones I’ll travel.
Beaulieu: Thanks again Ed.
Chambliss: My pleasure Dan.