Month: November 2021

30. Family businesses: the most successful, long-lasting and impactful businesses in the world

Rob and Josh are each co-founders of BanyanGlobal Family Business Advisors which advises family owners on business, finance, ownership, philanthropy, and a wide range of other issues.  They are each leaders in the field of family-owned business.  They recently co-authored the Harvard Business School publication: “Family Business Handbook: How to Build and Sustain a Successful, Enduring Enterprise.”

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Links

Why the 21st Century Will Belong To Family Businesses

Build a Family Business that Lasts

Click here to order the HBR Family Handbook

Quotes

Family Business Myths/Facts

Myth: Family businesses don’t really matter.

Fact: “About 90% of all businesses in the United States are family owned and they account for about 50% of all employment.”

Myth: Family businesses don’t last, after three generations, they’re doomed to fail.

 

Fact: “Family businesses last longer on average than other forms of ownership. Some of the longest lasting and most successful businesses in the world are family businesses. Why don’t Americans know that?”

Joe: Josh, why do you think that the myth that family businesses are less successful, that they never get beyond the third generation, why does that persist?

Josh: It’s a great scare tactic, I think you keep hearing it is because people want to tell you, “You’re doomed to fail and therefore you need my help to be able to overcome it.”

Myth: Family businesses are rife with conflicts – family members are fighting and suing each other and just can’t possibly get along

Fact:  “Most family businesses struggle not from having too much conflict, but from too little conflict, because it’s really hard to raise some of these issues about fairness and compensation and all the things that come in as being part of a family business.”

Rob: It’s strange, but the celebrity or the business celebrities, when I went to business school, Jack Welch, and he was making a brand for himself. Now, it’s Bill Gates or Mark Zuckerberg at Facebook or Elon Musk at Tesla. They seek the publicity. I would say most all of the family business that we know the owners, they shy away from publicity. They don’t want to be the face of their family business. They actually know the downside that can come with that.

Josh: Most family businesses are private companies and the word “private” is there for a reason, that they don’t want to be public. They see advantages in being below the radar. I was visiting a family business recently in a state out west and I drive up to the headquarters and I was like, “That can’t be it. We must have the address wrong. That can’t possibly be the headquarters of a billion dollar company.” And of course, it was.

“One of the amazing things about family businesses is that they can break the rules in a way and practice business in a way that is fundamentally different than other companies.”

“Family business owners can, if they choose, own it for their whole lifetime and maybe set it up for their next generation. It’s the difference between maybe renting an apartment or even being in an Airbnb overnight – you’re day trading versus owning a home that you’re hoping to bequeath to your children.”

Unlike other companies,  family businesses actually talk about longevity. How often do you hear companies outside of the world of family businesses talking about how many generations do you last? Do we put like a second or third generation as if that’s just a low number, but then you have to multiply it by 20 or 30 years and you realize that a third-generation family business has probably been around for a hundred years.

Josh:  People say: “Oh, most family businesses don’t make it for a hundred years and therefore they’re doomed to fail.” I’m like, “No, no, most businesses last for under a year, maybe five years.”

Joe: Their success is actually used as a way of talking about their failure when it’s not really a failure at all.

What we find in family businesses is that core decisions are really made at the owner level in family businesses, not like publicly-traded companies. If you don’t like what’s going on at GM, you sell GM and you’re out and it wasn’t really hard to sell. With a family business you’re in. So, you’re going to work really hard to make the owner decisions the right decisions.

The rights that come with that ownership are profound, the ability to influence the company in ways that are positive and negative are fundamental and learning how to effectively step into that role as owners is essence of the work that we do and the essence of the book that we set out to write.

If you’re working in a family business or if you’re on the board of a family business and you don’t understand the owner strategy, like what trade-offs they’re making, you’re going to be very surprised by the decisions that are coming your way.

Leadership Transition

If you’ve been in this position of leading a family business for decades, maybe your entire adult life, you’re not just going to quit that and play golf. In most cases, you need some place to land, some place to go to…. to give that up, it’s super scary.  It’s psychologically very challenging for some people.

Joe: One of the things we talked about earlier … for the person that’s been running the family business it is not just a job. It is his or her identity because they’re really living their job. I think that provides a perspective of why it’s so hard to let go.

Rob: That’s a great point.  It is their narrative and maybe it’s been their narrative since they were five years old, is that they wanted to be the controlling owner or CEO of their family business, and their narrative probably never got to that final few chapters about how they’re going to relinquish control over time.

Some do it, and some do it with such aplomb, it’s really quite amazing. We’re trying to learn from those people about what it is that gets them to the other side of that transition.

Getting to the next generation, the hardest thing often is the current generation! It’s like letting go of the reins and really talking. We have some clients who it’s fairly easy for, but they’re the exception.

“One of the hardest things to get right in a family business is family employment. One of the things that causes the most conflict in a family businesses is who gets a job, who gets paid how much, who gets promoted, who gets the CEO spot. And it’s really hard to navigate those issues.”

“Once your (family) business gets to a certain size, the value you get from the right independent directors is almost always going to be worth the time and investment that you make into them.”

Big Ideas/Thoughts

The kinds of things that family businesses are able to do in terms of investing in their employees, investing in their communities that they believe and see paying off in their company, they would never be able to do them if they had to focus on quarterly earnings.

It’s so interesting, when CFOs come into family businesses from public companies or from private equity, they have to be retrained, just retrained about what the priorities of the family owners are.

Managing Expectations

Another one of the things that people say about family businesses is that families grow faster than businesses, so therefore a family business is doomed to fail because at some point the size of the family will outstrip the ability of the business to support it. That’s where expectations come into play because that’s a choice.  Should family members actually expect to live off the business or do you expect them to find other ways and treat the dividends they get as a nice bonus to buy something, to buy a new car, or maybe if it’s a great year, to get a new house, but not to treat it as sort of like the foundation of the family living on.

The Wall Street Journal is a great example of expectation driving decisions. The family (that owned the WSJ) lived off of a very profitable business, a growing family over time. And then as the digital age came in and disrupted newspapers, it was no longer as profitable anymore. And so the family was in a position where they either had to drastically cut their lifestyle or drastically cut the reinvestment in the business, putting them almost in a no-win position that Rupert Murdoch took advantage of and made an offer that they really felt like they didn’t have a choice, but to accept.

Dividend policy and debt are two of the things that families have to grapple with, and that often leads to their demise.

Regarding debt: You go to business school, and they’d say, “Oh, look at all of the great benefits of leverage. You can get a much higher return on equity. Interest payments are tax deductible.” So,  you come out of business school saying, “Lever up, baby.” and there are also these LBOs going on.

You go into the world of family business, and it’s so, so different. Many of our large clients effectively have zero debt. And in fact, we had one client, it was in the agricultural business, and they had zero debt and they had two full years of operating expenses on their balance sheet. And we’re like, “This is not what we learned at business school.”

 

Family Business Goals

From an ownership perspective, there are three main things you might want. You could want to grow the value of the business – let’s go from a million to ten million to a billion and so on. You might want to do that just because you want to be richer, or maybe you want to influence the world and you see your business as a platform to do that.

The second thing you might want as an owner is liquidity, and here we mean taking money out of the business. So, you might want to do that because you want to lead a nice lifestyle, or you want to give it away to charity. Or you want to have something that is yours and not belonging to your entire family.

And the third thing you might want is control, and control is sort of like you have it until you give it up. So, if you take on an equity partner, you are giving up some level of control. If you take on outside debt, you’re giving up control because now someone else is in the room with you and has some influence over your decisions.

The most common path to building a successful family business is the mixture of growth and control. If you look at the largest family businesses in the world, most of them have been built in exactly the same way, which is that they make a dollar, and they reinvest 99 cents. They give themselves enough money to pay the bills and they put 99 cents right back into the business. They do that over and over and over again until they’ve built something very significant.

The growth and control is at the expense of liquidity.

Owners Room/Importance of Owner Decisions

In family businesses on top of the boardroom sits the “owner room” and here there are very few decisions, but this is about the longevity of the firm.  What’s being traded in this room isn’t the competency that’s traded in a management room or the wisdom in a boardroom. It’s actually power and influence. It’s the power that if 51% of the voting shareholders do it this way, that’s where it’s going to go. But it’s also the influence that if you stick it to your sister and she goes to her dad, oh, it may come back to haunt you somewhere else.

So what part of what we say is the owner room needs to have both the vote, the 51% we talked about, but really important to have the voice. Sometimes it’s okay to be out voted if you had a voice in the matter and people have taken seriously what you have to say.

Transcript

Joe: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives business success.

Hi, I’m Joe Ayoub, and I’m here with my co-host, Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month, this is the place to learn about one of the most critically important aspects of any company or organization: its board of directors or advisors, as well as the important issues that are facing boards, company leadership and stakeholders.

Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.

Joe: Our guests today are Rob Lachenauer and Josh Baron. [00:01:00] Rob is co-founder and managing partner of BanyanGlobal Family Business Advisors, which advises family owners on business, finance, ownership, philanthropy, and a wide range of other issues. Rob has been a business leader and writer throughout his career, focused on leadership and governance for family businesses.

While at the Boston Consulting Group, he coauthored Hardball: Are You Playing to Play or Playing to Win?, a book that has been translated into ten languages. He’s also made frequent contributions to the Harvard Business Review. Most recently, he and Josh coauthored The Family Business Handbook: How to Build and Sustain a Successful Enduring Enterprise published by the Harvard Business Review.

Raza: Josh is also a co-founder and partner at Banyan. Prior to Banyan, Josh worked at Bain & Company and Bridgespan Group. He [00:02:00] teaches courses on family business at Columbia Business School, publishes and speaks frequently on family enterprises, and is a regular contributor to the Harvard Business Review, including his recent article, Why the 21st Century Will Belong to the Family Businesses.

Joe: Welcome, Rob and Josh. Thanks so much for joining us today on On Boards.

Rob:   Great to be here.

Josh: Thank you so much for having us.

Joe: So, we’ve talked a little bit in the past about the fact that there are many myths about family businesses in the United States. What are the myths, and why do they persist?

Rob: Actually, there are a lot of myths. Maybe I’ll say a couple, and then Josh will too. One myth is the family businesses just don’t even matter. You’d think, “Oh, a family business, that’s the local pizza shop.” When in fact, about 90% of all businesses in the United States are family owned [00:03:00] and they account for about 50% of all employment.

So, getting family businesses right matters a whole lot. An awful myth that Josh and I just wrote about an HBR is that family businesses don’t last, that after three generations, they’re doomed to fail, and it’s not true. If you look deep at the data, it shows that family businesses last longer on average than other forms of ownership. And don’t believe that myth is what we say. Josh, you want to add a few?

Josh: I think one of the other ones is the perception that we have about family businesses is that they’re just rife with conflicts, that family members are fighting and suing each other and just can’t possibly get along. And look, when family businesses go wrong, they make for great dramatic stories, and those are both the fictional kind with succession and dynasty; Dallas, Yellowstone, and there’s a whole tradition of dramatic shows based upon family businesses.

But even in the press, when most of the stories about family businesses are [00:04:00] about when they implode. And because of that, people tend to apply and say, “Well, all family businesses must be like that,” when in fact that’s just such a small slice.

In fact, most family businesses struggle not from having too much conflict, but from too little conflict, because it’s really hard to raise some of these issues about fairness and compensation and all the things that come in as being part of a family business. That’s much more like a common thread than family members fighting each other through lawsuits.

Joe: Yeah, that’s a great point. Raising conflict or confronting conflict is very difficult to do. We know that some of the longest lasting and most successful businesses in the world are family businesses. Why don’t Americans know that?

Rob: It’s strange, but the celebrity or the business celebrities, when I went to business school, Jack Welch, and he was making a brand for himself. Now, it’s Bill Gates or[00:05:00] Mark Zuckerberg at Facebook or Elon Musk at Tesla. They seek the publicity. I would say most all of the family business that we know the owners, they shy away from publicity. They don’t want to be the face of their family business. They actually know the downside that can come with that.

Partly I think it has to do with they typically own businesses together. They’re not trying to be the tall poppy. They’re one of many owners. Because if you’re a family business, it’s typically more than one owner. And if someone tries to become like the celebrity, they’ll come back to their family room and be told, Don’t do that. You know we all own it.”

And there’s also a consideration I think that many have that discretion is a good idea for if you’re quite wealthy, which the largest family business owners are quite wealthy, it can make you a real target. And who would want that target on your back?

Joe: Yeah, Josh, thoughts about that?

Josh: Well, a [00:06:00] lot of them are just below the radar. I mean, most family businesses are private companies and the word “private” is there for a reason, that they don’t want to be public. They see advantages in being below the radar.

I always find it amazing. I was visiting a family business recently in a state out west and I drive up to the headquarters and I was like, “That can’t be it. We must have the address wrong. That can’t possibly be the headquarters of a billion dollar company.”

And of course, it was, and there are these examples that we see all over the world of these companies that don’t have the palatial headquarters and sort of ping pong in the offices and stuff like that. But they are these really pillars of communities around the country.

I think one reason is that they value being private. I think especially in the business world, we don’t really study them. In business school, we don’t talk about them so much. Again, because they are private. When we talk about family businesses and statistics on family businesses, for the most part, we’re actually talking about that very small [00:07:00] subset that are publicly-traded, family-controlled where there’s data about them, and there’s examples about them, and there are stories about them.

So, unless you’re underneath the veil and sort of allowed to come in and see what’s going on, it’s just really hard to understand what’s happening in a more typical family business versus the ones that make their way into the media.

Joe: Josh, why do you think that the myth that family businesses are less successful, that they never get beyond the third generation, why does that persist?

Josh: It’s a great scare tactic. But honestly, I think the fundamental reason why you keep hearing it is because people want to tell you, “You’re doomed to fail and therefore you need my help to be able to overcome it.” And I think that’s one reason why.

The other, I think, is because unlike other companies, family businesses actually talk about longevity. I mean, how often do you hear companies outside of the world of family businesses talking about how long did you [00:08:00] last, how many generations do you last? Do we put like a second or third generation as if that’s just a low number, but then you have to multiply it by 20 or 30 years and you realize that a third-generation family business has probably been around for a hundred years.

So, I think it’s a little bit of a self-obsession with the idea of longevity, not in a bad way. I think it’s a variable that family businesses evaluate their success against that other businesses might not so much, and that’s fine. The idea of talking about difficulties and the challenges of lasting for generations is a reasonable thing to do, but it’s gone way too far where I think people are actually putting onto that, “Oh, most family businesses don’t make it for a hundred years and therefore they’re doomed to fail.” I’m like, “No, no, most businesses last for like under a year, maybe five years.” like if you think about everything it takes to make any business last for a hundred years, by the way, almost all of which are family businesses, let’s celebrate the [00:09:00] ones that last as opposed to getting ourselves into the self-fulfilling prophecy of worrying ourselves to failure and focusing on the negative rather than on the positive things that family ownership brings to the potential for longevity.

Joe: Yeah, great. Absolutely, it’s interesting. Their success is actually used as a way of talking about their failure when it’s not really a failure at all. What about some of the other differences between family businesses and other types of business? What distinguishes a family business from public or other private business?

Rob: One of the biggest things, Joe, is the form of ownership. It’s owned typically by family members. So it could be owned by three sisters who own a a hundred million dollar business, and that changes everything. First of all, they’re private owners, so they don’t have a share price that they’re chasing up. They can make [00:10:00] their own decisions about what they want to do with their business.

Also, the fact, in our case here, that they’re sisters, and I don’t know about your family, but I’ve got a brother and a sister and it would be hard to own a business with them. I love them deeply and we’re very, very different. So, these three sisters or brothers or whatever have big decisions that they need to make together, that the Lachenauer family doesn’t need to make together. So, that puts a lot of pressure on really, in some ways, the most important people in the business, which are, in our case, these three owners have to make big decisions and they have to make it in an environment of a lot of pressure that’s not necessarily a pressure that you would expect to be in a family system. So, that’s very different from a publicly-traded company where the rules are very explicit about what you’re trying to get to, which is a higher share price and maybe some other things. These three owners can set their own rules about what they want to do with running the business as long as they can get together and talk about it well.[00:11:00]

Josh: The challenge is, or in some ways, the great thing is if you can make the rules, it means you can break the rules, so it’s not like someone is imposing that structure. As Rob is talking about, one of the amazing things about family businesses is that they can break the rules in a way and practice business in a way that is fundamentally different than other companies.

One of the hardest things about family businesses is that they can break the rules in ways that make the business collapse well before its time. And that’s sort of the reality of being in this environment where the owners are able to sort of in a way that is much less constrained by sort of outside forces shape what happens inside of that company.

Rob: It’s so cool because instead of an institution like Fidelity Contrafund, owning it and selling it the next day, these people can, if they choose, own it for their whole lifetime and maybe set it up for their next generation. Can you imagine anything different?

It’s like the difference between, Joe, maybe renting an [00:12:00] apartment or even being like Airbnb overnight, you’re like day trading versus owning a home that you’re hoping to bequeath to your children, and just think of how you treat your home different than you treat your Airbnb. That’s a lot to say about how family owners treat their business and their employees and their customers, they’re quite different mindset.

Joe: Do you think that the fact that family business can plan 25 years into the future is an advantage?

Josh: I definitely do. And part of that is because, especially when we think about things like the trade off between doing the right thing for a customer and short-term profitability or doing the right thing for the environment or diversity equity inclusion or anything that is more closer to the values, we talk about that as sort of like, “Oh, we can’t do that because we have to make our numbers.”

And if you’re a family business and you decide that you actually [00:13:00] are willing to not see those as trade-offs, because they’re generally speaking only trade-offs in the short term. I think of one family business that we work with that’s in the manufacturing industry and they’re investing a huge amount of money into modernizing their facilities, and you ask them, “Are you doing that because it will make you more profitable?” Yes. “Are you doing that because it will reduce your environmental footprint? Yes.

And it’s not like a trade-off between doing the right thing and making money if you take the longer time horizon that you can through a family business, but those kinds of decisions, and we hear examples of these all the time, the kinds of things that family businesses are able to do in terms of investing in their employees, investing in their communities that they believe and see paying off in their company, they would never be able to do them if they had to answer to those investments on a quarterly earnings basis.

Rob: A really cool client we worked with in the southeast United States, we’re doing a growth strategy for the family owners, and [00:14:00] I’ll never forget the patriarch who was like in his early eighties at that time. He sat us down and he said, “Boys, let’s get this straight. Here, our priorities are to survive, profit and then grow. If we get those reversed, we may not have a family business in the next generation.”

And for a guy who was schooled in total shareholder return and so much of it’s driven by your growth, I’m like, Wow, it is fundamentally different than if your first instinct has to be and is survival instead of growth, it changes all of your investment things. It’s so interesting when CFOs come into family businesses from public companies or from private, they have to be retrained, just retrained about what the priorities of the family owners are.

Joe: So, we talked about at least one factor that contributes to whether a family business survives, and that’s the stress of actually trying to plan things with your family. Another one that you’ve mentioned is [00:15:00] mismatched expectations. Can you talk a little bit about that?

Josh: Sure. This is again another one of those things that people say about family businesses, which is that families grow faster than businesses, so therefore a family business is doomed to fail because at some point the size of the family will outstrip the ability of the business to support it. And people will have treated that as if it’s sort of like an iron law and, in reality, it reflects some choices that were made over the years because, yes, that’s true if the family lives off of the business, their lifestyle depends on the business day in, day out, and lifestyles go up rather than down across generations, which is oftentimes the case, then it’s just pure math, the families are growing at 5 to 10% a year if you kind of look at it over time. Businesses struggle to do that, so therefore you’re going to have that problem.

But, again, that’s where the expectations come into play because [00:16:00] that’s a choice. Should family members actually expect to live off the business or do you expect them to find other ways and treat the dividends they get as a nice bonus to buy something, to buy a new car, or maybe if it’s a great year, to get a new house, but not to treat it as sort of like the foundation of the family living on.

So, really, a lot of it is about getting those expectations set correctly. If you want the business to be able to invest and continue to invest for the longterm then you have to certainly be very careful about how those expectations are set about money coming out. And when you see that mismatch, that’s when family businesses get in trouble. The Wall Street Journal is a great example of that, where the family lived off of a very profitable business, a growing family over time, and then the business actually, as the digital came in and disrupted newspapers, it was no longer as profitable anymore. And so the family was in a position where they either had to drastically cut their lifestyle or [00:17:00] drastically cut the reinvestment in the business, putting them almost in a no-win position that Rupert Murdoch took advantage of and made an offer that they really felt like they didn’t have a choice, but to accept.

Joe: Yeah. Interesting. I think one of the things you talked about, or we talked about earlier was the dividend policy and debt are two of the things that families have to grapple with, and that often leads to their demise. Can you talk a little bit about that?

Rob: I’ll mention debt first. So, you go to business school. I remember business school and they they’d say, “Oh, look at all of the great benefits of leverage. You can get a much higher return on equity. Interest payments are tax deductible.” So, you come out of business school saying, “Lever up, baby.” and there are also these LBOs going on.

You go into the world of family business, and it’s so, so different. Many of our large clients effectively have zero debt. And in fact, we had one client, it was in the [00:18:00] agricultural business, and they had zero debt and they had two full years of operating expenses on their balance sheet. And we’re like, “This is not what we learned at business school.”

And they said “The reason we’re a client,” meaning the reason that we’re still in a business in this incredibly cyclical agricultural business, “is that we have this buffer. And if we had a lot of debt, we’d hit a dry spell, the business would go down and who would own it, not us, but the banks.” So, if survival is first on your list and not profit, survival is first, your whole attitude towards debt…

Now, we do work with clients who have had heavy debt levels. So, not every family business is like low debt, but I have to say, if your objectives are survival first, your debt policies are typically very  

Raza: Rob and Josh you’ve been advising families for [00:19:00] many years and you’ve now writtenthis wonderful book called Family Business Handbook. In the course of putting this book together, did you learn something from a governance standpoint that maybe surprised you?

Josh: I think it’s less of a surprise per se, and more really of a crystallization of something that we’ve been working on. When Rob and I joined the field

in family businesses, there’s a real focus on trying to manage the family and creating these sort of family councils and family constitutions, but the real goal is ultimately to make sure that the family wasn’t really disrupting the business, so to keep them over here.

That’s an important part of the puzzle is to make sure that there are some boundaries between the family and the business, but what we’ve really found is that what makes the fundamental difference between those that survive and those that don’t, this has really crystallized as we were writing the book, is ownership.

 talked about ownership a lot over the course of this podcast and it’s interesting, ownership is not something we talk [00:20:00] about that much in the business world. It’s usually left for the lawyers to sort of look at the shareholder agreement or the corporate bylaws. That’s where ownership sits.

What we found is that actually ownership can’t just sit in a document because you have the owners who are present and they’re people. They’re not just sort of investing in thousands of different companies, they’re invested in this particular company. The rights that come with that ownership are profound, the ability to influence the company in ways that are positive and negative are fundamental and learning how to effectively step into that role as owners is sort of the essence of the work that we do and the essence of the book that we set out to write.

Rob: What we learned was governance is a lot about decision-making and it’s like the model of decision-making and US capitalism, typically, the core decisions are made by the board and the CEO.

What we find in family businesses is they’re missing the fact that the core decisions are [00:21:00]really made at the owner level in family businesses, not in publicly-traded companies, if you don’t like what’s going on at GM, you sell GM and your Facebook, you’re out here. Here you’re in, and it wasn’t really hard to sell. So, you’re going to work really hard to make the owner decisions, the right decisions. And if they get those things right, you’ve got a chance. If you get the owner decisions wrong, there’s a big chance that the whole business is going to governance is a surprising thing.

Raza: Yeah. In your book, then you have come up with the concept of the five rights of the owners. Can you talk a little bit about that?

Rob: Yes, Josh, do you want to go?

Josh: Sure. Yeah. And this is what we’re saying is that what ownership ultimately when it comes down to it, what does ownership mean? Ownership is the right to do something that no one else has the right to do.

So, if you own your home, it means that you get to make decisions, like what color am I going to paint the outside? Who can come in and who’s not allowed? When am I going to sell it? There’s a series [00:22:00] of decisions that you get to make that no one else gets to make, unless you explicitly give them that choice.

So, that’s what we talk about that we find

in family business, and really in all businesses, there are these five rights that come with ownership and they are just broadly: the right to design, which is basically to say, what kind of a family business is this? What are we going to own together? Is it just an operating company? Are we going to have an investment vehicle, a foundation? Who gets to be an owner. And how do the owners share control? Do we all share it or does one person have all the control, even though we all benefit economically from it?

You have the right to decide, which is to basically make all the decisions about how things work in that company and how you want to delegate authority across the rest of the family business.

You have the right to value, which is how you define success, as Rob said, in a public company it’s all about total shareholder returns. For most private family businesses, they care about a lot of other stuff. Oftentimes even more than the returns that are going to shareholders.

You have the [00:23:00] rights you inform, so you get access to information, and so you get to control communication across the family, the business, the public. What do you want to do with that? How do you use that information to build relationships?

And then lastly, you have the right to transfer, which basically means if you own something you get to decide who gets it next. Do you want to sell the business, or do you want to pass it down to the next generation? If so, in what way?

When you kind of look across those five rights, the ability of the owners to influence everything, both the business and the family, it’s all there. It’s all in that role of the owners.

Joe: Is it fair to say that a lot of the work you do with families does focus on the rights of owners because it’s not necessarily intuitive to business people?

Rob: Yes, our work goes through the owner room at some time, I would say almost always. And as you’re suggesting, Joe, a lot of it is because these rights are thought of, as Josh said, the lawyers do that, and we say, “No, actually, they’re the essence [00:24:00] of having a business go across generations and last for a long time or getting these decisions right.”

Getting these decisions right actually has a lot to do with the conflict that you might describe as family conflict, but it’s actually most likely part family, but a lot that you’re disagreeing on some things that are implicit in the way that you’re owning. Let’s say, your dividend policy, how are we doing dividends?

So, we really try to get the owning families together, give them a framing of the decisions on how to make them and show them options. Nothing is perfect about what the decisions they’re going to make, but just show them the options that they understand the trade-offs that they’re implicitly making now and making them explicit so they can make them better.

Raza: Rob, you just referred to the owner’s room, and it looks like there’s actually four rooms or a model around thinking about the decision-making happening in those four rooms. Talk about that concept as you describe it in your book.

Rob: Yes. One of the concepts that [00:25:00] is most powerful with family businesses, we call the four room model and we developed this through our client work. They really taught us that they’re in governance. How you’re making decisions in these very complex, large family businesses.

It’s helpful to think, first, there’s a management room and we all know about that. There’s a CEO. Hundreds of decisions are made every day. There’s a hierarchy; hire, fire, all of this stuff. That room reports to typically the boardroom, and you can vote, but that shouldn’t happen very often. And there are only a few, but every decision that the board should be involved in is a make-or-break decision for the firm. It’s about hire or fire CEO. It’s about approval of strategy. It’s these things.

Then in family businesses on top of the boardroom sits the owner room, and up here, again, very few decisions, but this is about the longevity of the firm. These are the five decision rights that Josh mentioned earlier.

Here, typically, it is the owners, and [00:26:00] we think what’s being traded in this room isn’t the competency that’s traded in a management room or the wisdom in a boardroom. It’s actually power and influence. It’s the power that if 51% of the voting shareholders do it this way, that’s where it’s going to go. But it’s also the influence that if you stick it to your sister and she goes to her dad, oh, it may come back to haunt you somewhere else.

So what part of what we say is the owner room needs to have both the vote, the 51% we talked about, but really important to have the voice. Sometimes it’s okay to be over voted if you had a voice in the matter and people have taken seriously what you have to say.

And the fourth room is as important as the other rooms, which we call the family room. In the family room, all the family is invited and non-family is not invited. What’s traded in this room isn’t power and influence, it is typically emotions. It’s about the next generation, nurturing, developing them, having them build a connection with each [00:27:00] other, having them build a connection to the family, developing them to be the talent, to serve the business, or maybe the board or the owner room at some time.

When we share this framing with family businesses that we’re just meeting, frankly, many are very thankful. They’re like, “Oh gosh, we’ve been operating in this loft where I think dad’s talking to me, but he’s talking as an owner, but he’s also the CEO. I don’t know what’s coming at me.”

By saying we’re in the owner room now, and we’re going to be talking about, “Oh no, that’s actually an operational issue that you’ve brought up. We’ll table that for later,” it gets the right people talking about the right decision so they can make the kind of decisions that they face. Hopefully that’s helpful.

Raza: That’s like an excellent, very powerful concept that can sort out a lot of things. Then further, you also talk about the owner strategy triangle. What is that? And how does that help family businesses think about the long term.

Josh: Yeah. So this kind of [00:28:00] goes into when we’re talking about the five rights, and one of them is value, which is sort of what do you value? How do you define success? And in a private company, you get to define that for yourself. You get to choose your own adventure. And so this is a way of thinking about those choices that we’ve developed to really highlight the trade-offs that you have to think about as you’re choosing what adventure you want.

And so what we first say is from an ownership perspective, there are three main things you would want. You could want to grow the value of the business that Rob was kind of talking about as the sort of the shareholder returns, let’s go from a million to ten million to a billion and so on.

So, growing the value of it. That’s something you could want as an owner, and you might want to do that just because you want to be richer, or maybe you want to influence the world and you see your business as a platform to do that.

The second thing you might want as an owner is liquidity, and here we mean taking money out of the business. So, you might want to do that because you want to lead a nice lifestyle or you want to give it away to charity. Or you want to have something that is yours and not belonging to your entire family.[00:29:00]

And the third thing you might want is control, and control is sort of like you have it until you give it up. So, if you take on an equity partner, you are giving up some level of control. If you take on outside debt, you’re giving up control because now someone else is in the room with you and has some influence over your decisions.

And again, control you might want because you don’t like answering to someone else, or it might be because you have a certain way of working that you’re convinced that if someone else had influence over it, you wouldn’t be able to treat your employees a certain way or make decisions and you’d be forced to operate by a certain set of standards that you don’t want to do.

So, those are the three main types of goals that you can want as an owner, and you could want some mix of all of them, but the idea behind the triangle is you put each of those as sort of a point on a triangle and realize that actually it’s hard to get all three of those at the same time, and in fact, one way to understand those choices is to say that you can actually focus on any two of them, but at the expense of the third.

For example, [00:30:00] the most common path to building a successful family business is the mixture of growth and control. So, if you look at the largest family businesses in the world, most of them have been built in exactly the same way, which is that they make a dollar and they take 99

cents. They give themselves enough money to pay the bills and they put 99 cents right back into the business. They do that over and over and over again until they’ve built something very significant.

Well, if you want to do that, you can, but you can’t take out a bunch of money from the company to do it. So the growth and control is at the expense of liquidity. Or if you want to take the company public, that way you can continue to grow it using other people’s money and you could take your nest egg, you can take your money out, give it away to charity or do whatever you want with it, but you’ve given up control in the process, and round and round.

So, we found that this triangle is a really simple, but helpful way of thinking about the trade-offs that you have to make as the owners of a company.

Raza: Josh and [00:31:00] Rob, so these three are really powerful concepts from the five rights of owners, to the four rooms, to the owner strategy triangle. Collectively, who were your audience for this book,

 that this book would be the most helpful for? Who did you write it for?

Rob: We really wrote it for anyone who was associated with a family business. And that could be family owners. It could be in-laws, people who are married into a family business. It’s definitely for people who are on board of directors for family businesses, which we should talk about explicitly in a minute.

And then it should also be about people who’ve worked in family businesses. If you’re working in a family business or if you’re on the board of a family business and you don’t understand the owner strategy, like what trade-offs they’re making, you’re going to be so surprised by the decisions that are coming your way.

So, we were hoping that the book will help all of those types. The other thing [00:32:00] is we’re hoping that we’re finding that the book actually can have a broad reach,

and we work with certain clients at certain price point, blah, blah, blah. This book, if you own a two-person pizza shop, you and your daughter, the book is helpful. You should read it. You probably don’t need a board of directors, but how to manage conflict, how to do family employment right, that’s all in the book too. So, it really reaches more than half or it should reach more than half of the businesses in the world.

Raza: Excellent.

Joe: Let’s talk about leadership transition, in a family business. What are the biggest challenges in

a family making it leadership transition to the next generation where there is no clear next leader?

Rob: I’ll say one thing and

 then turn it to Josh. : Getting to the next generation, the hardest thing often is the current generation. It’s like letting go of

the reins and really talking. We have some clients who it’s fairly easy for, but [00:33:00] they’re almost the exception.

For many people who are inexperienced, and frankly, a very successful behavioral set of what it takes to be successful in a company environment, the centerpiece is hub and spoke. I make the decisions here, and to give that up, it’s super scary. It’s psychologically very challenging for some people.

We have this 93-year-old matriarch who owns and controls a multi-billion dollar company, and she’s not willing to give up the reins to her daughters and sons, nor even to her grandchildren. She’s still in the seat of power in the whole system. So, the first thing is helping that current generation of leaders with what do they really want. Do they really want a few more years of this in the seat, or are they really interested in helping their next generations assume leadership? And there are a lot of tools that we can talk about in there, but that’s one of the things that we’re always looking at.

Joe: Well, one of the [00:34:00] things you said when we talked earlier was it’s not just a job. The person that’s been running the family business is not just in a job. It is his or her identity because they’re really living this job. And I think that gave me, and I think would help give people a perspective of why it’s so hard to let go.

The CEOs of companies might have some trouble, non-family companies, but it’s just not the same. And if you look at it the same way, you might miss the challenges that these leaders have in finding that the next five or ten years or whatever it might be as they phase out.

Rob: That’s a great point, Joe. It is their narrative and maybe it’s been their narrative since they were five years old, is that they wanted to be the controlling owner or CEO of their family business, and their narrative probably never got to that final few chapters about how they’re going to relinquish control over time.

Some do it, [00:35:00] and some do it with such aplomb, it’s really quite amazing. We’re trying to learn from those people about what it is that gets them to the other side of that transition.

Joe: So, what is some of the things that you’ve helped leaders do to make this transition? What are some of the glide paths that they find? What combination of things will work for some of these folks?

Josh: Sure. Yeah. Well, I think you’ve got the essence, the idea there. We talk a lot about the climb path the way up to the top of the ladder. We don’t talk a lot about the way down or the way somewhere else. And I think that’s part of the essence of it is that if you’ve been in this position of leading a family business for decades, maybe your entire adult life, you’re not just going to quit that and play golf. In most cases, you need some place to land, some place to go to.

I think really trying to figure out what that is and helping that leader to find what is the next thing can be really helpful to, not just to them and finding some [00:36:00] meaning beyond the role that they’ve had for a long time, but opening up the space for other people to step in and really thinking about what does that look like. Sometimes it’s moving up to the board and playing more of a governance role and bringing their wisdom and insight there. Sometimes it’s going into something charitable and giving money away. Sometimes it’s still staying in the business, but doing the thing that they’re really passionate about.

I think of one family business that we worked with where there was a leader that was having trouble letting go, but it turned out that what he really wanted to keep a hold on was the acquisitions part of their business. He loved the deal game. He’s a deal junkie and just love buying businesses so on. He didn’t really care about running them. He never really liked that so much. He did it because he had to.

His son, by contrast, was fantastic at that, just had a real expertise in that, and so part of the transition was really putting the current leader in that position to say, “You can still do that. We’ll let you. We’re going to put a team to help you with [00:37:00] sort of working on these deals. We want you to do that as long as you’re able to. And, by the way, all that management stuff, the stuff that’s like 95% of actually running the business, let us take that on for you.”

It really helped to sort of have that person step into a role. So I think the whole notion of just stepping aside is going to be really difficult for most people. It has to be going somewhere else, finding some other way to fill that gap, to identify a new identity that they can step into as opposed to just that sense of loss that comes with leading a role that’s meant so much to them.

Joe: Right. So, let’s talk about boards of directors for families. One of the things that I observe is that a number of family businesses have boards of directors that are all family members. And what I usually say to them is that’s nice, but it’s not really a board of directors. So, what do you think about that? Is that a little too harsh or do you think it really does require, in almost every instance, independent [00:38:00] members to make that board really operate properly and effectively?

Rob: Board of directors is a complex issue as you guys know, but for purposes, it’ s one of the most important ideas, like why do you want a board of directors? And if you get family owners talking about that issue, what we find is most often, not always, but most often, they’ll get to a place that they’ll say, “What we’re looking for is oversight, thinking long-term about strategy, some competencies that we don’t have as a family right now.”

And they kind of backed themselves into, “Gosh, it might be useful to have independence, either advisors or directors,” but then they stop and they say, “Oh, wait, but that would mean we might have to give up control.” And then you can talk them through, “Well, no, you don’t need to, because owners are the ones who elect the board members and if they’re non-family board members, independents that you don’t like, then you can get them off the board by voting them off. Or you can have advisors [00:39:00] rather than directors on your board, who are really outsiders.”

So, we find that it is super useful for most family businesses to have independent advisors or directors. And if you think through purpose to capabilities to where you still have control, it can be an easier journey to take this step to those

first few board members.

Josh: And beyond the competency, the value that comes with independent members is that it changes the nature of the dialogue in the boardroom. It gets it away from being a purely family, which in the family room, you want the family, the messiness and the emotion, and all of that, but that’s what you want. You want people talking about what matters to them and all that kind of stuff in the boardroom. It really helps to have a different kind of conversation and that the independent members help to change the nature of that conversation.

They’re also really useful for one of the topics that’s the hardest to get right in a family business, which is family employment. I mean, it’s one of the things that causes the most conflict in a family businesses [00:40:00] is who gets a job, who gets paid how much, who gets

promoted, who gets the CEO spot. And it’s really hard to navigate those issues purely internally, because it’s hard for family employees to get real feedback from non-family members or family members, and having independent directors who can create kind of like a family employment committee or other kind of support structures or help in that big decision about who should get the CEO can just be super helpful.

So, when you add it all together, Rob and I don’t believe in best practices just because for almost, without exception, for every time you say, “Oh, here’s what this really great family business did on whatever topic, on dividend policy, on family employment or whatever, we can show you a family business that’s been equally successful and done the opposite.”

But this whole issue, I think, of independent directors is about as close to a best practice as I think we would feel comfortable saying. Once your business gets to a certain size, the value you get from the right [00:41:00] independent members is almost always going to be worth the time and investment that you make into them.

Joe: So, it really is a best practice.

Josh: Almost. getting there. approaching that place, but you have to do it right.

Rob: Yeah, if you don’t have your owner room in good shape, you shouldn’t be getting yet the independent directors because they’ll come in and they’ll put what they think you want to do with your family business. You need to get your own owner strategy right before you let others that are independent to maybe tell you what they think you should do with your family business.

Joe: Interesting. Yeah, Raza, you may want to talk about off boarding?

Raza: I would. So, you alluded to it a little bit, so it can come in two flavors in this case where you’re off-boarding an independent, and that might be a different scenario, but there is also a possibility of scenario where you need to off board family members off the board. [00:42:00] It’s always a hard topic. We’ve talked about it with a number of guests and all have come up with really good techniques. What have you seen? And what in your view are in each of the scenarios, the best way to handle off-boarding?

Rob: It’s always easier to get board members on your board then off

your board. Of course, I think you’re seeing the same thing. Some of the best practices I’ve seen is the owner group gets ahead of the issue with policy decisions around term and term limits. And if they’re putting on the first independent board members, typically will say, “We’re hiring you because this is

the purpose of the board, it’s these capabilities we’re looking at. And we’re assuming that it’s going to be a two-, maybe three-year term.” And they put an expectation of leaving rather than expectation of staying, and maybe they’ll re-up you up, but they pretty aggressively rotate their independents off, so what they don’t want is an independent member who has been on the board for 15 years.

I have one [00:43:00] client who loves that. I don’t think it’s that functional of a board right now, but most of the clients are looking for some sort of rotation over time, just because of the experience that they need With family members, again, it depends on the size of the family. We have some families that don’t have enough, so they actually are there for a long, long time.

But a lot of it then comes down to, with my experience, I’ll be interested to see what Josh says, is they again go on policy, which is, if we have a big family, do we have a few things? Do we have terms and term limits? Two is what are our qualifications around development for next generation coming on the board, and three, and really important is, what are the feedback systems on the board of directors?

So, if you have a good feedback system led typically by the chairman or the governance committee about what the board needs and individually how board members are contributing and how the board overall is doing, if you have some members who aren’t contributing well, it is the responsibility of a chairman to provide that [00:44:00] feedback and maybe walk the family members to the right decision for the family business.

Josh: I agree with everything Rob had said. I would just add that it’s important to create that pipeline of who’s coming in next, because that does create a little bit of pressure to have those conversations, and you can do that by having sort of associate directors, people that are not full members, but they come into attend board meetings or having that training program for board members, the next generation, the next group coming in.

So, I think developing that strong pipeline helps to create a little bit of that impetus in the family to say, “Okay, you’ve had your turn. If our goal is to make this a business to last for generations, we have to create space for the next generation to start to come in.” It’s a hard conversation, but at least you’re appealing to that sense of purpose of the “why” behind what is a really hard conversation.

Joe: Yeah, it is a hard conversation, but as you’ve both pointed out, it’s one that has to be had, whether it’s a family business or any other kind of business.[00:45:00]

Josh and Rob, it’s been great speaking with you today. Thanks so much for joining us.

Rob: Thank you for the, great conversation. I think we both really appreciated it. We went into some areas that aren’t often covered when we’re talking on podcasts and stuff, so thanks for the insightful questions and thank you for listening.

Josh: Yeah, and it’s such an important topic so we’re delighted that you’re pursuing that boards play such an important role in the success of all businesses, but especially family businesses and demystifying some of the ” how you do it well” can make a real difference in their success, so keep it up.

Joe: Thanks.

Rob: Thanks, Raza and Joe..

Joe: And thank you all for listening to On Boards with our special guests, Josh Baron and Rob Lachenauer. To our listeners, we have a request. If you enjoy our podcast, please take a moment to review and rate it on Apple iTunes. It really helps others find and discover this podcast.

Raza: Also the easiest way is to go to our website, onboardspodcast.com. That’s [00:46:00]onboardspodcast.com. All of our episodes are available. And if you have questions, comments, or suggestions for us, please we’d love to hear from you. You can do it right on the website.

Joe: Please stay safe. Take care of yourselves, your families, and your communities as best you can. Raza, you take care, too.

Raza: You too, Joe.

Joe: Thanks.

29. Marcus Peacock on the impact of the Business Roundtable

Marcus Peacock is the Chief Operating Officer of the Business Roundtable, an association of Chief Executive Officers of America’s leading companies.  In this episode we discuss the Business Roundtable, its highly publicized Statement of Corporate Purpose (August 2019) and what it’s like to administer the BRT board of directors, composed of more than 20 CEOs of large US companies.

Thanks for listening!

We love our listeners! Drop us a line or give us guest suggestions here.

Links

Marcus Peacock bio

Link to Statement of Corporate Purpose

Link to BRT website

Quotes

The purpose of the Business Roundtable is to promote policies that will result in a growing and thriving economy for everybody in the United States. We ar            e made up of the CEOs of large US companies. So, if you think of a large US company, their CEO is probably a member.

The CEOs are the members – not their companies – and we help them develop and formulate policies that we think will meet the mission of the organization, and then we help them advocate those policies at the federal level – with the administration or on Capitol Hill.

The BRT is an issues organization, not a partisan one.  We don’t give campaign money. We don’t have a PAC, but there are issues that our members care a lot about that, we think, if our policies are adopted, it’ll help the economy grow and people find jobs and help out the general welfare.

Big Ideas/Thoughts

The BRT Statement of Corporate Purpose (8.8.19)

See full text below and here.

Just so people know, it states that a company, and particularly the CEO of the company, has a commitment not only to the shareholders of that company, but to the customers, the employees, the suppliers, and the communities in which that company works. Of course, there’s more detail in the statement.

In 2018, some of our members were receiving criticism from both the left and the right of the political spectrum based on a stereotype of businesses where it’s all about maximizing short-term value, even if that hurt suppliers or communities or employees, and they felt “that’s not the way we do business” and “we need to do something more than just push back when we see these people making these assertions.”

The statement sets a standard that is very much about long-term value, and I think some of the criticism we received may miss that point. You’re not going to have, in the long-term, a thriving organization that doesn’t treat its customers, employers, suppliers, and communities well.  All those things are necessary.

Criticism of the Statement from the Wall Street Journal

JA: I wanted to ask about criticism that you’ve got from the Wall Street Journal and the pushback that you’ve received.

MP: They were saying, “No, this is about your shareholders. They are the people who are taking the risk. They’re putting the investment in. This isn’t about these other stakeholders who may have completely different objective functions.”

And our response to the Wall Street Journal is “well, so you’re against the long-term.  You make commitments to these other stakeholders because you’re trying to build this long-term value. If you’re not interested in long-term value, then, yeah, go ahead and screw your suppliers, you get out of them what you can today, but pretty much from now on, they may be broken down and gone. That’s a good way to get short-term value, it’s not a good way to build up a company for the long term.”

Momentum Behind Change in Corporate Perspective

JA: I believe some of the momentum is driven because institutional investors who look at the failure to focus on the long term as a risk, and as long as there’s that risk, that creates a problem for the company.

MP: It does mean that, particularly for a signatory, people should be able to go to them and go, “How are you implementing [this]? How are you living up to the words that you signed on to?” And the fact is, they are.

Impact of Statement on BRT

Some CEOs who had not been members in the past have now come to us since the statement was put out and said, “We would like to join BRT.” In some cases, I know the statement made a difference.

And some of the increased interest in BRT comes directly from actions our members took during the pandemic and also in the wake of George Floyd’s murder. Our members have taken actions which people see demonstrate that they’re living by the words that they’d signed on to.

Managing a Board of 20 Top CEOs

JA: I’d like to talk about your role as COO – one of  your jobs is to manage the BRT board. Managing a board is always a challenging job but managing a board of 20-plus CEOs of the biggest companies in the US must be, let’s say, particularly interesting. Tell us what that’s like.

MP: Well, I’ve learned more from them than they learned from me. But for me, because they know what they’re doing, in some ways it’s somewhat easy, although their expectations are high.

The biggest job for me is to make sure that every minute of their time related to the board of directors is something that is of value to them – – including allowing them time to talk to each other, in a social way, which is something they do value because they don’t often get to hang out with each other

Also, to make sure they’re not dealing with anything that’s too trivial, and that they’re given the information that they need so they can have an informed discussion and come to a decision that’s going to be right for them.

JA: Well, I think that’s the perfect confluence of all the things that you want for great governance: a group of people who are really good at what they do, who have high expectations, who want to use their time well, and from what you’re telling us, willing to work hard at the job. They’re not just showing up and show me a PowerPoint, they’re really digging in and asking tough questions.

Every board, that’s the challenge. You have high expectations for the board, but that means that whoever’s organizing it – the chair, senior management, whoever, really needs to give a lot of thought to how are we going to take best advantage of this very valuable time of our board members. 

Girl Scouts National Board of Directors

I have two daughters, they were girl scouts. My wife was their troop leader. My wife was a gold award girl scout. Her mother was there, too. I was a volunteer. It’s just a great organization. They have a great mission. Their mission is to build girls of courage, confidence, and character to make the world a better place. I mean, how can you beat that? I feel privileged to be on that board.

I think that they have done a tremendous job. I’m forgetting the exact number, but I did read that a very large percentage of the women fortune 1000 CEOs were girl scouts at one point in their lives and in fact, a significant number of the members of Congress and senators who are women were girl scouts.

Transcript:

Joe: Hello and welcome to On Boards, a deep dive at what drives business success.

Hi, I’m Joe Ayoub, and I’m here with my co-host, Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month, this is the place to learn about one of the most critically important aspects of any company or organization; its board of directors or advisors, as well as the important issues that are facing boards, company leadership, and stakeholders.

Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.

Joe: Our guest today is Marcus Peacock. Marcus is the Chief Operating Officer of the Business Roundtable, an association of Chief Executive Officers [00:01:00] of America’s leading companies. Among his duties as COO is to manage the Business Roundtable’s board of directors, which consists of more than 20 CEOs of those leading companies.

Raza: Marcus has held a number of high-level posts in the US government, including being the deputy administrator at the Environmental Protection Agency, the EPA, and the associate director for Natural Resources, Energy and Science at the Office of Management and Budget, the OMB. Marcus also served as a staff director on committees in both the US House and the Senate.

Joe: In addition, Marcus has served on a number of boards of nonprofit organizations and currently serves as the director on the board of the Girl Scouts of the USA. Welcome, Marcus, it’s great to have you here today.

Marcus: Well, Joe and Raza, thank you for letting me part of the broad range of guests that you have on your show. I look forward to it.

Raza: Marcus, please give us a [00:02:00] brief overview of the Business Roundtable, its purpose, and how it conducts its business.

Marcus: The purpose of the Business Roundtable is to promote policies that will result in a growing and thriving economy for everybody in the United States. And as you indicated, we are made up of the CEOs of large US companies. So, if you thought of a large US company, their CEO is probably a member.

We have over 230 members right now, and they are the actual members. It’s not the companies that are members, but it’s the individual CEOs, which makes us a bit different. And it’s also, of course, across industry, so we have CEOs of companies that do everything from run retail shops to making tractors, so it’s an unusual in that respect.

So, the CEOs are the members and we help them develop and formulate policies that we think will meet the mission of the organization, and then we also help them advocate those policies at the federal level, so with the administration or on Capitol Hill.

Raza: Marcus, because this [00:03:00] advocacy is for the CEOs and represents a pretty significant swath of the US economy, how do you keep it apolitical or bipartisan?

Marcus: Yeah, that’s a great question. So we are an issues organization, not a partisan one, and frankly, I’m surprised the number of CEOs who don’t necessarily have a political affiliation, they would prefer, many of them, to just stay out of Washington.

But there are particular issues that their interested in. So we’re not Republican, we’re not Democratic. We don’t give campaign money. We don’t have a PAC, but there are issues that our members care a lot about that, that we think if our policies are adopted, it’ll help the economy grow and people find jobs and help out the general welfare.

 I’ll take the Trump administration as an example. We supported many of the Trump administration policies on tax and regulation, for instance, but we were very critical of policies that they advanced on immigration or trade. And that can confuse some people in Washington because they’re used to dealing with probably more partisan organizations. But I think a lot of members of [00:04:00] Congress and eventually administrations do understand where we’re coming from, and and we find that what best serves our mission is to make sure that we don’t become partisan.

Joe: Marcus, the Business Roundtable issued a landmark statement regarding corporate purpose in August, 2019. Could you tell us a little bit about how this came about? What was the process to having it issued?

Marcus: Yeah. So the statement on the purpose of a corporation, which as you mentioned, came out in August of 2019. First of all, I encourage people to actually go read it. It’s only 300 words long. It’s gotten a lot of coverage, but some people read out of it things they don’t like, or for whatever reason, they don’t want to see, they read into it things that aren’t there, so it’s good to go back to the original document.

And just so people know, it states that a company, and particularly the CEO of company, has a commitment not only the shareholders of that company, but to the customers, the employees, the suppliers, [00:05:00] and the communities in which that company works, and there’s, of course, more detail in the statement.

But in 2018, some of our members noticed that they were receiving criticism from both the left and the right of the political spectrum, people that we respect, and that criticism was based on a stereotype of businesses where it’s all about maximizing short-term value, even if that hurt suppliers or communities or employees, and they felt that’s not the way we do business and we need to do something more than just push back when we see these individuals making these assertion.

And so, actually But in 2018, some of our members noticed that they were receiving criticism from both the left and the right of the political spectrum, people that we respect, and that criticism was based on a stereotype of businesses where it’s all about maximizing short-term value, even if that [00:06:00] hurt suppliers or communities or employees, and they felt that’s not the way we do business and we need to do something more than just push back when we see these individuals making these assertion.

it received much more coverage than I think at least I expected and. I think was effective in gathering people’s attention and better understanding at least what the CEOs of BRT felt the purpose of a corporation was and correcting the image that some people were developing out there.

Now, that said, there were definitely people on the right and people on the left, who at the time, and still criticize the statement of a purpose of a corporation, either on the right, because they consider it a statement which is from a group of woke CEOs that shouldn’t be meddling in issues that they’re getting into, and on the left, because, well, they don’t necessarily mind what it says, but they think it’s whitewashing, that they don’t really mean what they say. And all I’d say is go back to the original [00:07:00] document and compare it to what CEOs are actually doing, and I think it does stand up well.

Joe: We’ll get into that, but I will say that if you’re getting criticism from both sides of the political spectrum, that’s a good sign.

Marcus: Yeah. Well, Raza mentioned I’ve worked at EPA, that was sort of a test at EPA. If we were being criticized on both sides, we were probably around the right spot.

Joe: So, the term “stakeholder capitalism,” I don’t think appears in the statement, but a lot of people, when they refer to that statement, use that term, because it is a broad look at all stakeholders who have an interest, and so I find that interesting. But what I read when I see this is that it’s focused on long-term success of a company, and that isn’t really a shift, but the statement feels like it was a moment when US business really was prepared to say something a little different than [00:08:00] maybe most people thought was going on.

Marcus: And I think for some of our CEOs, they felt there had been an evolution which had gone unnoticed, and so you could say there was a watershed here where suddenly people said, “Oh, it has changed.” Whereas for the CEOs, that was a slower change.

But there are probably BRT CEOs, and certainly CEOs that are not members of BRT that do not necessarily behave this way, do not think about the long-term shareholder value, and I think our CEOs felt that this not only maybe express what many of them were already doing, but was a model and a standard that other CEOs could look to or be held accountable to.

So, I think that’s another beneficial aspect of other than just being descriptive. It does set a standard. And as you point out, Joe, it is very much triggered about long-term value, and I think some of the criticism we received may miss that point. I mean, you’re not going to have, in the long-term, a thriving organization that doesn’t treat its customers, employers, suppliers, and [00:09:00]communities well. All those things are necessary.

Joe: Well, it seems like part of the momentum is driven because institutional investors, for example, look at the failure to focus on the long term as a risk, and as long as that’s a risk, which makes perfect sense to me, by the way, then that creates a problem for the company. So, if you’re not doing this, the people who are investing in you may not be so interested in investing anymore, and that seems like something that really would move the needle.

Marcus: Yeah. Well, I mean, I go back to the CEOs themselves. The CEOs I know and their boards are all focused on long-term value. They understand the risk of thinking in short-termism and that’s not what they’re interested in. They’ve made a conscious choice to avoid that.

There are CEOs who have explicitly made decisions that they know may, in the short term, drop their share value, but they are betting, at least the examples I’m aware of, it has turned out that it has increased it in the long term. It’s [00:10:00] made them more resilient, or after sort of the initial reaction has taken place, shareholders and others realize, “Oh, this has strengthened the company.”

Joe: So, I suppose the statement must be of help to companies and company boards where a CEO is doing that. And maybe there might have been trepidation in the past, but having the Business Roundtable come out and say, “This is what we believe might have helped companies where that momentum needed a little push.”

Marcus: Yeah, that was not the main purpose for doing it, but I think we came to realize that was a definite benefit. We’ve been approached after it was released. We have been approached by many people who I think would like to define what it means, and many of them already had defined in their heads and sort of imposed their definition.

I mean, we’ve had one senator who essentially wrote us and said, “Well, now you must support my bill that does X, Y, Z.” So, that’s their definition. But regardless of the specifics, it does mean that, particularly for a signatory, someone should be [00:11:00] able to go to them and go, “How are you implementing? How are you living up to the words that you signed on to?”

And another thing I know of our members is they do not put their signature on anything lightly, and in this case, that is particularly true.

Raza: So, Marcus, now about almost two years into the statement, what reaction is BRT getting on the statement and from whom?

Marcus: Well, that’s a great question, Raza, because it has been different depending on who you look at? First and foremost for us is the CEOs who were not members of BRT for whatever reason and often it’s just because of time, we do have in-person meetings at least pre-COVID and now post-COVID, if we can get there, there’ll be in person again, but they are required to show up to some of those meetings. So there’s a time commitment there.

But some of those CEOs who had not been members in the past have now come to us since the statement was put out and said, “We would like to join BRT.” In some cases, I know the statement made a difference. In others, I [00:12:00] guess it did, and then probably other things.

So, I think among the cadre of CEOs, it’s been something they’ve seen as desirable and beneficial, both those CEOs within BRT, as well as those who were not members. We live in Washington, DC. I think we’ve seen, as I mentioned before, reactions on the left and right, which at first were skeptical. I’m not sure we’ve diffused all the skepticism, but I have seen a softening just among columnists who write, particularly in the print media, as well as some of the political people on the Hill who said, “Well, show me”. And some of that comes directly from actions our members took during the pandemic and also in the wake of George Floyd’s murder. Our members have taken actions, which people see demonstrate that they’re living by the words that they’d signed on to.

Joe: Maybe we should talk about a few of the things that did come out of it. You mentioned in the aftermath of George Floyd’s murder, what are some of the things that happened that really did catch your attention and help [00:13:00] create more momentum?

Marcus: BRT has developed a slate of racial equity and justice proposals. But one of the first is actually on policing and police reform, and I think immediate reaction from some to that was why does the CEOs are they getting involved in police reform? That’s got nothing to do with business, which actually is not true.

I mean, we have some members. Well, I just mentioned one member, not by name, but for instance, they have a fleet of trucks and they noted that more than half of their drivers are black and they’re driving around all the time, interacting with the police on a somewhat frequent basis for whatever reason, and so this very much mattered to the employees of that organization, as well as other corporations have a similar story to tell.

But we also felt that a lot of employees care about what their company is doing in their communities and how they’re trying to make their communities better, and police reform, in particular, is an area that can benefit the communities within the United States, as well as the [00:14:00] employees.

And so, each issue is different, but this was an area where we thought BRT’s voice could be helpful, and eventually, help in terms of bringing more more people into the workforce and helping the diversity of the workforce, which again, serves our mission.

So, we have put together police reform for principles. We’re strong advocates of a bipartisan solution, which Senator Scott and Bass in the House, I think Senator Booker are all trying to work on right now, and we’re hoping to be able to push that through, but that’s an example of some of the actions we took afterward, which people have noticed is something that perhaps BRT wouldn’t have gotten involved in the past.

Joe: I wanted to ask about criticism that you’ve got from the Wall Street Journal and that the pushback that you’ve heard is: “so you’re not in favor of the long term.”

Marcus: Well, actually, it’s the other way round, Joe. They were saying, “No, this is about you shareholders. They are the people who are taking the risk. They’re putting the investment in. This isn’t about these other stakeholders who may have completely [00:15:00] different objective functions.”

And really our response to the Wall Street Journal is well, so you’re against the long-term because you make commitments to these other stakeholders because you’re trying to build this long-term value. If you’re not interested in long-term value, then, yeah, go ahead and screw your suppliers, you get out of what you can today, but pretty much from now, they may be broken down and gone. But that’s a good way to get short-term value, it’s not a good way to build up a company for the long term.

Joe: It seems like a very compelling argument. CEOs are not usually interested in statements of principle, but it sounds like this statement of corporate purpose really caught the attention of CEOs around the country. So, one of the things I wanted to ask you about is the impact it’s had on the Business Roundtable, but you started to talk about it earlier.

What are the numbers like? What has the response been? What has it meant to the Business Roundtable since that statement was made two years ago?

Marcus: Yeah, well, like many associations in Washington, DC when the pandemic started and became obvious this was going to be [00:16:00] a serious problem, we went back to our budget and I think that we planned on something like 15% reduction in membership and since then it’s increased by more than 15%, but it went completely the other way.

And again, I think the statement on the purpose of a corporation had something to do with that. But I also think there were other changes that were brought into place around the same time, because I think the statement was an outgrowth of a number of changes, which took place at Business Roundtable.

Jamie Dimon of JPMorgan Chase came in as a new chair. In 2017, and both he and the board worked on a number of changes including taking a look at our membership, and we put in for the first time membership guidelines. We’re a small organization, still we’re under 50 people, which is small for a cross-industry association in DC, but we were less than 30 people at the time, and there was a heavy reliance on consultants, and the board said, [00:17:00] “What we’d like to see is you bring in more expertise in house.”

So, we did that, and I think that gave us the heft and the expertise to do things like put together the statement, for instance, and craft that in-house and make sure the CEOs were happy with that. I’m not sure what would have happened just relying on consultants.

And there was a lot of other work like that. We’re organized in ten different policy committees, and I think, particularly, the change in in-house expertise made all of those committees stronger and probably able to do more work and more work in depth.

I think all of those things have attracted CEOs to Business Roundtable, such that in the end, after a few years, they see us we’re on the sort of outside looking in, saw the difference, and those CEOs who joined became recruiters for us, not because we necessarily asked them to, but because they would talk to their colleagues and go, “I’ve been at BRT for a year now and they’re doing some good stuff over there.”

Joe: I like the fact that the statement of corporate [00:18:00] purpose, it doesn’t reside in a committee, it’s kind of owned by the board. And in this case, since the board is all CEOs, that means the CEOs own the statement, and that’s pretty impressive, I think.

Marcus: Yeah. And that’s the way it has to be, but the ten committees, they’re all on the issue areas you would think a CEO would be interested in, tax, trade. We have an energy and environment committee, workforce and corporate governance.

But when we put the statement together, there was a conversation among the CEOs regarding how are we going to make sure people are aware of this, how do we measure it? And they decided if we continue to behave or make it obvious we’re behaving in line with the commitments we’ve made, be demonstrative, and if we think about how CEOs’ brains work, they’re very operational and so that’s what they’ve done.

I think if anybody looks, I mean, there are literally dozens of examples on our website of this, but if you look at how they’re actually performing and how they performed within the [00:19:00] last year and a half, they feel they are demonstrating it on a daily basis. And again, their colleagues see that happening, and I think are, again, drawn to the organization as they see these people are living by the words that they’ve committed to.

Joe: Can you give us a couple of examples of some of the things that really have impressed you?

Marcus: Yeah. Well, COVID was just really impressive. I guess I’ll start with it because I was given the task of helping organize that. But almost right out of the box, I mean, people have forgotten how important personal protective equipment was, the masks and the gloves and all that, particularly for caregivers in hospitals, but also first responders. We immediately stood up a method for companies to either produce or give/donate, whether it was money or actual PPE, to hospitals, first responders, teachers, and millions of masks and other pieces of equipment were donated to communities.

And it was often the communities in which they work, which makes some sense. I mean, Salesforce, for instance was tremendous. It wasn’t [00:20:00] just Salesforce, Bank of America, Hanesbrands actually started using, I don’t know if it was their underwear lines or whatever, and making masks that met the standards and donating those or providing them at cost. But a lot of hospitals, UCSF Hospital in San Francisco leaps to mind, they were completely outfitted by Salesforce who’s right there in San Francisco, but there are many other examples of donations that took place.

In fact, in some cases, a lot of those donations also went to hotspots overseas. We’ve just finished a tremendous effort in India. As you know, India just went crazy two or three months ago now, and our members organized sending ventilators, oxygen tanks, a lot of emergency supplies, hospital tents to India to help set up and provide relief there.

So COVID is a bit of one whole step, and I can’t leave COVID without saying what the pharmaceutical companies have done in both the development, production and the distribution of the vaccine, it’s just phenomenal.

So my favorite area is education and workforce. Right now, we [00:21:00] have an effort called the “multiple pathways initiative,” and this is exciting because what we found is there are a lot of people in the United States who can’t get jobs because they don’t have a particular credential, even though they may have the skills, and corporations over time, particularly just because they tend to be bureaucratic, for instance, have over credentialed job descriptions. So it says only those with a bachelor’s degree, a four-year college may apply or you need this particular certificate.

So, we have over 80 companies now that have committed to going through a set of actions, which will base hiring decisions on skills, not credentials. So if you can demonstrate you have the skills, whether it’s welding or accounting or whatever it may be. If you’ve got the skillset, they will hire you. So they’re decredentialing, for instance, position descriptions. They’re providing a transparent pathway for how you would advance in the company or where will you go into the company, and they are also producing training [00:22:00] modules, so that if somebody reaches their level of competency and their skillset, which they can prove, then it’s like, “Okay, you take this training module and pass out of that, here’s where you can go next in the company to advance.”

I think this is really opening up a lot of hiring and advancement for people across the country. And what you see also in that respect is, our companies are making commitments to hiring particular individuals. I know AT&T set a goal, not that long ago, of hiring 10,000 new employees from low- and moderate-income communities. I think they’re halfway to that. They’ve also signed onto the initiative. Walmart, I believe achieved its goal of hiring 250,000 veterans.

You see these commitments being made by the companies and it fits right into this commitment regarding employees and communities, which they’ve made in the statement of corporate purpose. So, that the education area is great.

Climate change is another one where we’ve just seen a spate of commitments. Recently, a lot of companies are making commitments to go to net zero by [00:23:00] a particular year or a certain reduction in greenhouse gases. And beyond that, the companies are doing a lot. Amazon has a $2 billion commitment in grants in venture capital to small companies, entrepreneurial companies that are sustainable in nature so that they either are net zero or even perhaps a negative greenhouse gas emissions.

So, there’s a lot of activities across the board. Again, I encourage people to go to the website. There are just dozens examples of what our members are doing and it’s added to almost every day, I think.

Joe: Well, the commitment to doing things for climate change has caught my attention. I had not connected it with the Business Roundtable. So, one of my questions is, how are you communicating that the Business Roundtable has a role in this? How are you getting that word out as opposed to, I heard Tim Cook saying what they’re going to do?

Marcus: So, Business Roundtable, actually, I think it was 2007, we were the first business association to acknowledge that climate change was a problem and needed to be addressed by business. The policy, which I think we released, think it was [00:24:00] last January, and this is George Oliver, who’s the CEO of Johnson Controls, who leads our energy and environment committee.

So we have a climate change policy. For instance, it supports a pricing on carbon and other efforts to reduce carbon emissions in the economy. And again, you can go to our website and read that, but we have some specific principles regarding climate change and how to handle it.

Joe: But are you trying to communicate the connection between what these companies who are members or what the CEOs who are members are doing in the Roundtable?

Marcus: No, none other than collecting those examples as examples of how our members are living by the statement of corporate purpose, but we don’t necessarily connect them to any provision we have in our particular climate change policy, for instance.

We may have members who don’t agree with all the policies we put out, but our members are free to go, and, obviously, advocate for policies on their own, but as a general matter, we do represent the majority of our members.

Raza: Marcus, it sounds like the statement itself has[00:25:00] dovetailed nicely and has boosted the conversation around the ESG goals for companies. Is that how it’s been seen at the Business Roundtable as well?

Marcus: Yeah, I think very much so. In fact, many of the examples that I think we’ve already posted have come from annual ESG reports of the companies, because a lot of our members have ESG metrics that they have put out and that they track and then annually report on.

Again, we’ve encouraged companies to have metrics and to be transparent and report on them. I think our CEOs want to be held accountable for the commitments they’ve made, both in general through the statement of corporate purpose, but also specifically, commitments they’ve made themselves.

We have been approached by many organizations and by other advocates who would like us to adopt a standard set of metrics, and we’ve talked about that, but when you’re dealing with everything from Ralph Lauren to Chevron, you can’t really come up with one set of metrics that’s going to fit everybody.

We do have some of [00:26:00] our members who have worked on a universal set of metrics, and we don’t oppose that. That’s fine. And I think they’re trying to get other companies to sign onto that, but at this point, for us, each of our companies has to decide what’s right for them.

Raza: Marcus, you briefly alluded to the other committees and other work that Business Roundtable does. I want to make sure that gets covered, and the statement has been tremendous, but what are the other areas that Business Roundtable advocates, particularly focuses or does its work?

Marcus: Yeah, thank you, Raza. Because right now, our number one priority is to try and get the bipartisan infrastructure package. It’s not legislation as of today, but we are spending millions of dollars on advertising, both across social media platforms, radio, television, I think print media as well and hopefully getting that bipartisan package passed.

So, infrastructure is our number one priority right now. We have a lot of concerns about another surge of COVID, so we have what’s called the [00:27:00] #MoveTheNeedle campaign that we’ve also been putting money into the Ad Council. We’re working with the Ad Council on that.

We’re looking very closely at that because the members are not happy with the progress that’s been made on vaccination, so we’re trying to look at what may be effective to get that kind of the last large group of holdouts, but how do you get them?

And that fits in the statement as well. So, for instance, many companies, AT&T as an example, they put up vaccination stations, not just in their facilities where their employees are, but in the communities in which they operate. So, they weren’t just offering it to AT&T employees, they were trying to make it as convenient as possible for their communities to get vaccinated, and there were other companies who did that.

So there’s COVID that were very concerned about. Tax, we and others, a reconciliation package being discussed, which will have changes in tax. We support a user pays for infrastructure, a user-pays approach, but there some tax proposals, which we may or may not like, or there are some things I think that the President has proposed that we don’t want, so we’re going to keep an eye on that, [00:28:00] but those are our priorities.

And then racial equity and justice, I mentioned police reform before and there are other reforms there that we’re very interested in that we think will help bring more people into the workforce.

Joe: I was going to say, I would think that the infrastructure, being bipartisan is a great fit for the board at the Roundtable because you’re non-partisan and the support from a bipartisan group of business leaders must really help create some momentum in Congress, I would think.

Marcus: Well, we like to think our voice is heard. Again, I mentioned we’re a small group, but we’d like to pick we’re small but mighty. But an important aspect of supporting bipartisanship is CEOs love more certainty than more uncertainty, and when bipartisan proposals pass and become law, they’re much less likely to be changed in the future.

Joe: Right.

Marcus: And that’s different for partisan changes in law. And so just from looking at it from a stability [00:29:00] standpoint, bipartisanship is something we very much support.

Joe: Well, I think you’ve kind of summarized why bipartisan politics is so much more effective in the long term than anything else, because you really want something that’s going to be predictable, dependable for the future, and without bipartisanship, it’s hard to know.

Marcus: Yeah. We are at risk of having policy whiplash. I think if Democrats control everything and if the Republicans control everything, then really in the long run, that’s not going to help anybody.

Joe: Not at all. So let me talk about your role as COO, and one of the jobs is to manage this board. So, managing a board is always a challenging job, but managing a board of 20-plus CEOs of the biggest companies in the United States must be, let’s say particularly interesting.

Tell us what that’s like.

Marcus: Well, I learned more from them than they learned from me. I mean, there’s more experience in any one of them that I’ve ever had on managing a board. But for me, because they know what they’re doing, in [00:30:00] some ways it’s somewhat easy. On the other hand, their expectations are high.

So, there’s a lot of things I’m not good at, but I’m a trained industrial engineer, that’s what my original training was, and I actually worked in a printing plant doing that, but they love efficiency. I mean, I think it’s just in most of their DNA, and I love efficiency as well. So ,my one job is to make those meetings as efficient and effective as possible, and attention to details is also just very important to them. So, the biggest job for me is to make sure that every minute of their time is something that is a value to them, whether it’s allowing them time to just talk to each other in a social way, which is something they do value because they don’t often get to hang out with each other.

Well, I had one new CEO approached me at one point, this was a couple of years ago, and said to me, “I never thought that there were a bunch of other people that have the same problems I have.” This was a CEO that didn’t belong to any associations, really. So, they really liked that time together.

But also when they are doing business, that the questions that they [00:31:00] need to answer, first of all, are questions they do need to answer, they’re not dealing with anything that’s too trivial. And secondly, that they’re given the information that they need to be able to have an informed discussion and come to a decision that’s going to be right for them.

Anybody who’s had to run a board, that can sound easy, but particularly, for a really smart group of people who are very well read, it can be a challenge, but it’s a challenge I really enjoy meeting.

Joe: Well, I think it’s the perfect confluence of all the things that you want for great governance, a group of people who are really good at what they do, who have high expectations, who want to use their time well, and from what you’re telling us, a willing to work hard at the job. They’re not just showing up and show me a PowerPoint, they’re really digging in and asking tough questions.

Marcus: Well, Joe, that is a great observation because A lot of boards are, particularly nonprofits or nonprofit, don’t have a small executive committee. We don’t have that. Ours is a working [00:32:00]board because CEOs, if they’re going to get engaged in something, they’re going to get engaged in it. They don’t join something just to have a name on a list. So, we couldn’t be much larger than we are because they’re very engaged and they all want to be part of the discussion, the decision, which is a terrific problem to have.

I’ll just also say, my boss, Josh Bolton, who is best known as the chief of staff to President George W. Bush. I worked with Josh on the White House Campus, and I think I’ve never thought about it this way, but a lot of people that work in the White House, their job is to make sure the time of the President is used in the most efficient way possible, and that skill set is exactly kind of what I tap into when I’m managing this board.

Joe: Yeah. Well, you know what, I bet your board really appreciates that.

No,

Marcus: so.

Joe: Every board, that’s the struggle. You have high expectations for the board, but that means that whoever’s organizing, the chair, senior management, whoever, really needs to give a [00:33:00] lot of thought to how are we going to take best advantage of this very valuable time of our board members? And so I totally get it.

Marcus: Thinking about it, we have quarterly board meetings. We start thinking about the next board meeting the day after the previous board meeting, because that’s really what you have to do.

Joe: That’s not surprising. With the group you have, that makes perfect sense to me.

Marcus: Yeah. And I got to say, another thing that surprises people is how nice this group of people is. Yeah. There’s always some folks who may be grumpy or whatever, but I think part of why they are, where are they are, is because how they treat people, and there is a humility there and an openness that you can have a conversation with them and change their minds if you can bring them better information.

So.

Joe: that is great to hear.

Raza: I guess you’re also on the board of the Girl Scouts of the USA organization. What got you to join that board? And can you talk about the experience with that organization and what are the [00:34:00] key issues facing that board?

Marcus: Yeah, Yeah, that’s good, Raza.

Given my day job, I have my finger on like one other board, one board, and the Girl Scouts came along. I have two daughters, they were girl scouts. My wife was their troop leader. My wife was a gold award girl scout. Her mother was there, too. I was a volunteer. It’s just a great organization. They have a great mission. Their mission is to build girls of courage, confidence, and character to make the world a better place. I mean, how can you beat that?

I feel privileged to be on that board.

They, like other nonprofit organizations, have been hit by COVID, like a lot of other organizations grappling with that, but also a board is a great place to be If you’re interested in constantly improving an organization. Because really the purpose to me of a board is to be thinking about how to make that organization thrive, how to make sure it’s meeting its mission, not just tomorrow, but next year and the year after that and the year after that. And if you’re standing [00:35:00] still, you will get run over.

So, to think about how do we keep achieving that mission of serving girls In the long term, because things are evolving out there. It’s a fascinating challenge, and with a great organization, that I think we’ll be able to meet that challenge, but it’s going to have to keep changing.

Raza: I think that they have done a tremendous job. I’m forgetting the exact number, but I did read that a very large percentage of the women fortune 1000 CEOs were girl scouts at one point in their lives.

Marcus: Yes, that’s right. And in fact, I should have the numbers off the top of my head, a significant number of the members of Congress and senators who are women were girl scouts. One of the great assets of the Girl Scouts is the alumni network, and so if there’s questions about how you tap into that and use that, but you also have to keep thinking, what do girls of today, what do they care about? What do they want? What’s going to motivate them. And it’s not necessarily what the girls of tomorrow are motivated by. So, [00:36:00] that gets back to keeping it fresh and keeping changing.

Raza: And whenever I read about Girl Scouts, what comes to my mind is the Girl Scout cookies and the tremendous amount of fundraising that it does. How does that work out for the Girl Scout organization?

Marcus: Well, it is an iconic aspect of the Girl Scouts. I’m a similar person, by the way. Most people love coconut. But again, I think the the purpose of being on a board is to constantly be thinking about the strategy

of the organization and how it can be made better. And cookie sales is another thing I think we always have to think about as an iconic aspect of the girl Scouts. It is the major way in which councils are funded. But cookies are not necessarily the healthiest thing. So, we’ve started to produce gluten-free cookies and other types of cookies, but are there other ways to raise funding that doesn’t necessarily involve selling cookies door to door? So, it’s worth thinking about.

Joe: Yeah, there is a risk management aspect to [00:37:00] that because people might stop eating cookies, but I hope you don’t stop selling them.

Marcus: I don’t think that’ll ever happen. How do we diversify our revenue? How about that?

Joe: Exactly. If you think about any organization, that’s the key. You don’t want to be reliant on any one product, obviously.

Marcus: Yeah. And that to me is a sign of a good board that’s constantly kind of pushing the edge and asking questions to stay ahead of the curve rather than being reactive to changes.

Joe: Marcus. It’s been great speaking with you today. Thanks for joining us.

Marcus: pleasure. It was good to talk to you, Joe, and to Raza.

Joe: And thank you all for listening to On Boards with our special guest, Marcus Peacock. To our listeners, we have a request. If you enjoy our podcast, please take a moment to review and rate it on Apple iTunes. It really helps others find and discover this podcast.

Raza: The easiest way also is to go to our website, OnBoardsPodcast.com. All the episodes are available there. And if you have questions [00:38:00] or comments or suggestions for us, we would love to hear from you.

Joe: Please stay safe. Take care of yourselves, your families, and your communities as best you can. Raza, you take care too.

Raza: You too, Joe.

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