The video features a comprehensive discussion led by Leo Strand Jr., highlighting the crucial role businesses play in society, especially in a climate marked by societal divisions. It emphasizes the responsibility of businesses to make money ethically, by ensuring respectful treatment of workers, communities, and consumers. Strand stresses the necessity for directors to pose challenging questions and comprehend how businesses truly operate to instill ethical practices at every level.

Strand outlines the importance of integrity in business operations and the need to focus on social impact, particularly in areas involving worker welfare, community interaction, and environmental practices. The conversation further examines the intersections of business values, law compliance, and societal interaction. The efficacy of boards is weighed on their ability to adequately manage and monitor risks, highlighting the gaps that exist within current governance structures and the call for improvement.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. crosscurrents [ˈkrɒsˌkɜːrənts] - (noun) - Conflicting or opposing trends or influences. - Synonyms: (conflicts, turbulence, contradictions)

Business is caught in the crosscurrents and there is no question we have a lot of societal division and business has been thrust in the middle.

2. charter [ˈtʃɑːrtər] - (verb) - To formally set up or establish something, such as a business. - Synonyms: (establish, institute, authorize)

Our society does not charter lawbreakers and you're only allowed to do lawful business by lawful means.

3. hallmark [ˈhɔːlˌmɑːrk] - (noun) - A feature or quality that is typical of a person or thing. - Synonyms: (attribute, characteristic, signature)

That's actually a hallmark of our society.

4. navigate [ˈnævɪˌɡeɪt] - (verb) - To find a way through or find solutions to a problem or complex issue. - Synonyms: (steer, negotiate, manage)

...business leaders don't have any way to navigate that.

5. partisan [ˈpɑːrtɪzən] - (adjective) - Strongly supporting a particular cause, party, or person, often without considering other views. - Synonyms: (biased, partial, one-sided)

...the partisan differences melt away.

6. compliance [kəmˈplaɪəns] - (noun) - The act of conforming to or following rules or standards. - Synonyms: (adherence, obedience, conformity)

...and then you think about the law compliance function and you relate those things and integrate them...

7. cognizance [ˈkɒɡnɪzəns] - (noun) - Awareness or understanding of a particular fact or situation. - Synonyms: (awareness, perception, consciousness)

...where the boards are expressly allowed to take full cognizance of the interests of other stakeholders.

8. globalization [ˌɡloʊbələˈzeɪʃən] - (noun) - The process by which businesses or other organizations develop international influence or start operating on an international scale. - Synonyms: (internationalization, worldwide integration, global development)

With globalization, with an erosion of protection for other stakeholders, it's more important than ever...

9. erosion [ɪˈroʊʒən] - (noun) - The gradual reduction or diminishment of something significant. - Synonyms: (degradation, deterioration, decline)

With globalization, with an erosion of protection for other stakeholders, it's more important than ever...

10. consensus [kənˈsɛnsəs] - (noun) - General agreement or a collective opinion. - Synonyms: (agreement, accord, unity)

...and that they come up with innovative ways for us to reshape that consensus...

Leo Strine Jr. - Where business is a good citizen

Business is caught in the crosscurrents and there is no question we have a lot of societal division and business has been thrust in the middle. Your first order of business is making sure that you're making money the right way. So look at how you're treating your workers, how you're treating your communities of operation, how you're treating your consumers. And make sure that your values are showing forth in the way that matters the most, which is in your day to day operations.

As a director, you need to ask the hard questions. You need to insist that management explains it. And you also need to think about the company and ask this, answer this question, how does this company make money? It is true that stockholders have the most power within corporate law because they get the elect people. But the bottom line is never profit maximization. Our society does not charter lawbreakers and you're only allowed to do lawful business by lawful means.

I'm Leo Strand Jr. I, I am a corporate lawyer at Wachtell Lipton. For many years I was a judge in Delaware on the Delaware Court of Chancery and I was Chief justice of the Delaware Supreme Court. I started my career many years ago when I actually had bangs. Business is caught in the crosscurrents. And there is no question we have a lot of societal division and business has been thrust in the middle. But some of that is because we don't necessarily think about what the role of business, the proper role of business is and we don't necessarily talk about things in the right way.

And we forget this. We are a free society and people are entitled to have different beliefs. That's actually a hallmark of our society. When businesses get into issues that they don't control and where 50% of the population believes one thing and 50% believes another, business leaders don't have any way to navigate that. But when you think about being a good corporate citizen in the way that I have, the partisan differences melt away. If you look at polls about whether companies should treat their workers with respect and pay them well, there's no partisan divide. Everybody of all political persuasions believe that's the case.

If you look at polls about pollution in the environment, people who hunt and fish, which are often associated with the Republican Party, super majorities of Americans of all political beliefs believe that companies should respect the environment and not pollute. When you ask questions about product safety and the obligations that companies have to their consumers, the partisan divide goes away. And so when you talk about proper business conduct and making money in the right way, where you respectfully Treat all the stakeholder groups that you rub up against, a lot of what divides us goes away and we're building on the common ground and you're building on what business leaders are best at.

I think that one of the most important things for business leaders to do is to run a business in a high integrity way and where the business is a good citizen. Your first order of business is making sure that you're making money the right way. So look at how you're treating your workers, how you're treating your communities of operation, how you're treating your consumers, and make sure that your values are showing forth in the way that matters the most, which is in your day to day operations.

Second, realize that your most important social impact is in those areas. Because where you rub up against society, if you think about that, how you affect your workers lives, how you affect your community's lives, how you affect the environment, how you affect your customers, that is what's core to being a business. And that's where you really show your values, is in how you behave towards those you affect.

And the third thing is to realize that where you rub up against society is where the law rubs up against you. So if you think about the relationship between your values being how you affect others, and then you think about the law compliance function and you relate those things and integrate them, you're going to be more effective and efficient as a business leader and you're going to maximize your business's reputation. Because how you ultimately treat your stakeholders is really what's going to be the testimony of whether you're respected in the community.

When they become a director, they act like they're a part of a kabuki theater and they're just supposed to play a role. As a director, you need to ask the hard questions, you need to insist that management explains it. And you also need to think about the company and answer this question. How does this company make money? And I mean that in the most literal way, which is how do we take a product we sell or a service we sell and turn it into cash flow and understand the people affected by that cycle.

Because you cannot act as a director and monitor management unless you answer that. And if you're running the company on a day to day basis, you have to make the same determination. And you need to provide management and management and the board need to operate together to set up structures to make sure that the key areas that are most essential to the company in terms of making money and affecting other people, that there are systems to monitor all those risks, and to be honest, American boards of directors could come a long way from where they are to a better world in terms of that. And if we want to talk details, we can.

If you're a pharmaceutical company, people may have heard of Dr. Fauci. Dr. Fauci might not be able to sit on the compliance committee of many pharmaceutical or food companies. That would be surprising, right? Because he's a pretty expert guy in these areas. But if you put the compliance function of a pharmaceutical company in the audit committee, where it's supposed to be comprised of financial experts, Dr. Fauci may not feel comfortable. Also, the audit committee has an awful lot to do and the core business risk of the FDA and a product safety might get lost.

We have not organized things around function. We have not actually looked at the role of the board and seated people in a way that where we can make sure that all risks are monitored in an appropriate way. Most of the world has a stakeholder form of corporate governance where the boards are expressly allowed to take full cognizance of the interests of other stakeholders. A majority of American states have that. It is true that stockholders have the most power within corporate law because they get the elect people. But the bottom line is never profit maximization.

Our society does not charter law breakers. And you're only allowed to do lawful business by lawful means. So it is true that in Delaware, the best interest of stockholders is the end of corporate law. But even in Delaware, you can consider stakeholders. As long as there's a rational relationship to the best interest of stockholders, there's no immediate duty to maximize stock price. And there is an important bottom line that you cannot benefit stockholders by unlawful conduct.

That said, if we don't deal with the power dynamics of corporate law, and if we don't recognize that institutional investors are much stronger and they don't have responsibilities to consider the best interests of society, the best interests of their long term investors, then we aren't going to get the outcomes we want. But there is plenty of room within corporate law to consider other stakeholders. But in reality, when you're elected by stockholders, unless the stockholders support you doing so, you're unlikely to get maximal protection for stakeholders at a moment like this.

With globalization, with an erosion of protection for other stakeholders, it's more important than ever that institutions like Biggs think in a deep way about the power structure within which corporations operate and that they think across borders. And that they come up with innovative ways for us to reshape that consensus so that multinational corporate power is exercised in the best interest of everyone and that there are upward pressure on wages for workers in every region of the world, upward protections for consumers and for the environment.

Business, Leadership, Economics, Corporate Governance, Social Responsibility, Ethical Practices, Harvard Business School