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Moving Forward with Purpose: Leadership in the Next Chapter


CD&R Co-President Dave Novak (left) hosts Professor Nien-hê Hsieh (right), the Joseph L. Rice, III Faculty Fellow at Harvard Business School, for a discussion about the cultural shifts around business and purpose.

As Founder, Chairman, Chief Executive Officer, and Partner over his three-decade career at CD&R, Joseph L. Rice, III shaped an institution grounded in a set of core values with integrity at the center. Joe spent the major portion of his business career in private equity and is recognized for his emphasis on ethical decision-making.

The Joseph L. Rice, III Faculty Fellowship is supported by a fund CD&R established in 2012 (The Fellowship Fund) to honor Joe’s contributions to the Firm and the private equity industry. The Fellowship Fund supports academic activity focused on the study of values, integrity, and leadership in business.

Professor Hsieh is the third HBS professor to be a Joseph L. Rice, III Faculty Fellow. In addition he is the Kim B. Clark Professor of Business Administration at HBS and Director of the Edmond J. Safra Center for Ethics at Harvard University. His research concerns ethical issues in business and the responsibilities of global business leaders.

Transcript: CD&R Co-President Dave Novak & HBS Professor Nien-hê Hsieh

Dave Novak: Welcome to our conversation: Moving forward with purpose – leadership in the next chapter. My name is Dave Novak. We have the privilege of exploring some of the important cultural shifts around business and purpose with Professor Nien-hê Hsieh. Professor Hsieh is Joseph L. Rice III Faculty Fellow in the General Management unit at Harvard Business School. He’s also the director of the Edmond J. Safra Center for Ethics at Harvard. Ethics and purpose in business is a complex topic, and one that has become increasingly important as leaders are called to engage on social and political topics in a more active and meaningful way than they ever have in the past. This need has become even more acute during the pandemic, as people’s relationships with businesses have been questioned in ways they haven’t before – as customers, employees, suppliers, managers, and leaders.

Professor Hsieh’s research focuses on ethical issues in business and the responsibilities of global leaders. It centers in some ways on the question of whether and how managers ought to be guided not only by considerations of economic efficiency, but also by values such as freedom, fairness, and respect for basic rights. In a prescient 2018 research paper titled, “The Social Purpose of Corporations,” Professor Hsieh explores the question, what is a corporation really for? Now in 2021, many companies are wrestling with this very concept, and we’ll get into all that in our discussion today. But before we start, Professor Hsieh, how did you become interested in studying ethical issues in business?

Nien-hê Hsieh: Thanks so much, Dave, for that introduction. And for that question. Before I answer it, if it’s okay, I just wanted to mention how grateful I am to be here and also how great of an honor it is to have been named a Joseph L. Rice III Faculty Fellow at Harvard Business School, given the work and reputation of your firm.

So it goes back in some ways to the global. My mother was born in Japan during World War II. My father was born in China during World War II. And they met each other when they were studying at the University of Chicago as graduate students. And as you may be familiar, it was not common given the war, the history between the two countries, for someone from Japan and for someone from China to fall in love and be able to get married. But what enabled their marriage was a real sense of common values. The idea that there were certain values that unite us. There are certain ways that we can behave that are about treating each other with a degree of respect and equality that would transcend historical and cultural and national differences.

And just to sort of interject how personal it was, my father’s uncle on this Chinese side was actually a student at HBS in 1924. And he had gone back to China and was killed by the Japanese during the war. So these tensions and conflict run deep. And yet the fact that my parents could get married was, I think, a signal to my sister and myself that what we should really strive for is looking for those ethical values that can sort of bring us together. In that sense, ethics has always been there in terms of my life. The business side ironically comes out of the fact that I grew up in an academic family. And growing up in an academic family, it’s like an extension of school. And the world has a certain rhythm, where often the summer, things start in September.

So it really just feels like an extension of school. But the more time I spent looking outside of that academic life, I was just amazed at the diversity of activity that people were pursuing. and how much of that activity was really in the form of business. And how much of the needs that people were meeting through their work and business wasn’t really planned. It happened to the market, to people buying and selling. And so the fact that we can meet some of our most basic needs as human beings – food, clothing, shelter – through this kind of coordinated, but unplanned activity, if you will, really caught my attention. And so then in college, I studied economics, and sort of got into that. So then that’s where these things came together, because on the one hand, there are a lot of great things that can come out of business and global capitalism. But on the other hand, going back to the values piece, there can be some real challenges. And so how do we, on the one hand, really achieve what is great, while at the same time avoiding some of those challenges and harms and downsides. And making sure all of that’s done in a fair way is kind of what got me into thinking about ethics in business.

Dave Novak: What do you think accounts for the growing interest by corporations in considering potentially the trade-offs between the traditional economic efficiency model that has really guided corporate decision-making for many decades now, and this broader purpose, this corporate good?

Nien-hê Hsieh: So I think we should distinguish between sort of what you might call two ways in thinking about purpose or responsibility in the context of corporations. And one is what you might call the specific purpose or the specific conception of the responsibilities of a specific corporation. The other one is I think this more general question, which you’re getting at, which is certainly related, which is about the purpose of business and corporations more generally – contrasting that with the economic efficiency view that has been dominant for some time. I think a lot of what my sense is in talking to people, whether it’s students, business leaders, and also people outside of business, is that for the first one, thinking about a purpose in terms of a corporation or a firm or a purpose in a business is this real sense for people to find some kind of meaning in their lives. That they’re part of something bigger.

That there are engaged in an enterprise that isn’t only about what they want and what they want to do and their own success, but the idea that they’re part of a broader enterprise and a broader mission that’s contributing to something bigger than themselves, and that they can take that mission from elsewhere. Now, I don’t know where that is coming from. I think there’s lots of sources for why that might be on people’s minds. I think part of it is that maybe some jobs feel less meaningful, and so there’s a need to sort of put it into a broader context to help make sense of it. I think people maybe are looking for community and other spaces where they might not have gotten it before. So that sense of purpose, I think in the first sense, is definitely there.

I think we see that right now – the whole idea of the Great Resignation. The Great Resignation is a response to people thinking about, in the face of COVID, what do I really want to do with my life? And, I know it’s hard for businesses, and I appreciate that, but in a way that was already there before COVID. And the whole idea of thinking about the purpose of the corporation, that in a way was, I think, to meet people where they were and sort of provide that sense of purpose and belonging, that you’re doing something that’s bigger. And I know that’s, in talking to a lot of people, that was a big push for that. So I think that’s the way to understand that first sense of an increase in thinking about purpose and responsibility.

The second one, how do we think about the purpose in a more general sense, like the social purpose of business, or, the role of business in society, the role of corporations in society and the pushback on the economic view? That I think is the result of the recognition that the economic view had some potential downsides. So if we go back to the Economics 101, the view then is that, well, if we all pursue our own individual self-interest or pursue profits in the context of the corporation, and we do that in a way that’s respectful of basic institutions and laws – we don’t engage in outright fraud; we don’t engage in sort of outright theft – in doing that, ultimately everybody benefits in society. And so we have an overall social welfare that is increased. That’s kind of the view that I think drove a lot of that economic thinking. But as people have seen over the last number of years, that didn’t seem to work out so well for a lot of people.

Dave Novak: As long as institutions do no harm, it’s all fine…

Nien-hê Hsieh: And you just pursue yourself interest… and there are lots of ways that it hasn’t worked out well. So, again, going back to economics, a standard one is externalities. There are lots of negative impacts that aren’t being mitigated because of institutional issues, operating in institutional environments that aren’t able to sort of mitigate those externalities. Pollution is the natural one that people think about. Inequality – letting the market run on its own doesn’t necessarily lead to more equal outcomes. That’s not a necessary feature of markets. So that’s another way in which things happened. And, technological change, again, if it’s market driven, can lead to all sorts of dislocations and disruptions. And for some things, transition isn’t hard? We can change the price of goods and services. Capital can move pretty quickly if it’s in various forms, not always.

But , jobs, right, moving from one job to another, there’s a lot of friction there. That’s not something that’s easily done. Moving geographically, that’s not always something that’s easily done. And so I think people come to realize that the idea of where letting things run on their own is going to ultimately benefit everybody, that’s not entirely the case for a lot of people. So I think that’s sort of, what’s pushed a lot of people that I think about, well, maybe we businesses then, or corporations should have a different mandate to actually think about the externalities, to think about equality, to think about technological change in a way that sort of makes up for those shortfalls.

Dave Novak: Let me just grab on that for a second. You have a bunch of traditionalists or people who’ve been around a while or just believe, that’s capitalism – we’re comfortable with some lack of equilibrium of different outcomes for different people, but overall focusing on profits, letting the market drive winners and losers is OK. In the long run that creates the most growth, the most jobs, in which of course there’ll continue to be winners and losers, but overall that grows the pie the most. How do you respond to that?

Nien-hê Hsieh: No, that’s great So there are two ways to look at it. One is you can sort of say, look, it’s hard to know what the counterfactual would be. But I think there’s a lot of good empirical evidence to suggest that doing that there are alternative ways to do things, and it hasn’t necessarily led to the best outcome for all sorts of people. Look at the empirical evidence and economists have looked at this. They’ve looked at different economies over time, and how have they done things. If you look at the United States, for example, right, during the 50’s, there was a lot more regulation. There was a lot higher taxes, and yet overall the economy seemed to be doing better for everybody than it currently was. So I think that’s one way of looking at the empirical evidence. For me as somebody who studies ethics, I am interested in focusing on two other answers.

The first one is, is maximizing the size of the pie the only thing we should be thinking about. Shouldn’t we also be thinking about how the pie is divided? That’s sort of one kind of response that we could make. The other one, and this is something that’s really evolved in my own thinking over time, being at the business school, engaging with practitioners, is business ultimately is a human and social activity. It’s not done in this kind of vacuum of pure self-interest and maximizing social welfare. It’s done in the context of team members at a firm. It’s done out of relationships with other people. It’s done in terms of thinking about how to integrate one’s own values with one’s business practice. And if we take that perspective, I’m not sure we would say that, oh, in other parts of our lives, if we just sort of pursued our own self-interest and everything would be okay. I mean, certainly that’s what I’ve learned in my marriage. Or having children. And so once we embed, if you will, business activity into our broader lives, either as individuals, community members, family members, society, it becomes harder, I think, for people to sort of have this economic view, on the one hand, and make that cohere with everything else. And so that’s for me, the way that I like to think about responding to that issue.

Dave Novak: I think that’s a really good response. And the truth is it reflects reality. Everybody can relate to that answer. When you think about companies that do this well, exhibit good responsibility, versus those that don’t, how important is culture – people all adhering to and getting behind a set of shared beliefs versus something that’s written down on paper?

Nien-hê Hsieh: It’s a great question. I think it, so in addition to those things, I would also add just a pure compliance model or something like that, too. I think culture certainly is really important. If we understand culture is not just what’s written down on paper, not just as sort of what’s prescribed in terms of compliance, but culture really is about how people relate to one another and sort of the motivation that they have, then clearly culture is massively important in these sorts of endeavors to thinking about what works well and doesn’t work well. I guess the other thing that I would add to culture, maybe this is part of culture, is leadership. Not just having a common culture, but it really is leadership. So not in that sense of being dictatorial, as you mentioned earlier, but in modeling behavior – demonstrating how do we teach and engage with one another. I think also in setting the culture and, thirdly, demonstrating care.

So it’s not just modeling the values. It’s not sort of helping to set the values. But increasingly, the more time I spend looking at organizations, I feel like a lot of it comes down to the question of people answering the question of, does the leadership – does this company – care about me? I think that actually really helps create an environment where people aren’t going to do things that might have bad effects. And there are lots of ways to demonstrate care. It doesn’t have to be as explicit or profound. But take something like worker safety. Safety – I think to create a safe work environment – is one of the most basic ways that we can express the fact that somebody matters. Their safety matters. And so it’s those kinds of expressions and recognition of other people that I feel like is really important to creating that kind of environment.

Dave Novak: We think about that a lot, and in the companies that we invest in today, worker safety is a clear area of that. But a lot of it goes to wellness and benefits, maternity and paternity care, mental health support, access to proper healthcare if you’re ill. All of those kinds of things we have found to be very important ways to demonstrate care. And it’s interesting because, I’m in the private equity business and one of the mantras for private equity for a very long time –Michael Jensen worked wrote about it decades ago and I studied it decades ago – it’s around aligning incentives, if you will. It was quite easy to fall into the pattern that if people are economically aligned, financially aligned, if employees make money, if the investor and owner makes money, all good things happen. I would never say that that is not important, and there are not strong correlation between aligned incentives in that way. This concept about shared beliefs and values – this concept about feeling cared for in a lot of different ways – is proving to be more and more important in aligning incentives for longer-term performance.

Nien-hê Hsieh: That’s interesting. And if I could add to that, Dave it’s an interesting point, because I think what’s interesting about, for example, wellness programs or thinking about benefits and things like this is, they touch on not just the incentive side, but also on this caring side. So in other words, I think there’s one view, which is quite prominent now, which is that, well, if you treat your employees better then they’ll work harder and feel valued. And so that you could think about it as an alignment of incentives. But if the only reason that a company is providing those benefits is to align incentives, I don’t know if it actually works.

Because then it’s just another version of the earlier story. And for it to work, it may have to have something else there. The way I like to illustrate this question, I sort of ask people about trust. And so one reason, Dave, you might trust me let’s say, or I might trust you is that people are reliable. That’s why we trust. They sort of do what they say. They meet certain standards. They’re on time, they’re reliable. That’s kind of one version of trust. But there’s another version of trust, which people often talk about, which is trust is goodwill. I trust you, Dave, because I believe that at some level you actually have my own interests in mind when you’re engaging with me. And that’s not a purely transactional reliance model. That’s actually a different kind of trust. And so, thinking about employee benefits and this, we can think about it in terms of the reliance, aligning incentives, but also I think for it to work has to appeal to this other sense of trust as well. I think what you’re saying is that finding that that’s more important, really kind of gets at that point.

Dave Novak: I’d like to build on this care and trust discussion, and take it in a slightly different, but I think very relevant direction, which is around increasing diversity, equity and inclusion in all of our companies. In some ways the U.S. and many parts of the world are going through a bit of a social reckoning, frankly. And, on the heels of a lot of the events of 2020, many institutions have focused on it in ways in which they haven’t in the past. I think we’ve learned that increasing diversity amongst your people is one part of it and a very important part. But then making those people feel like they’re included – that they have an equitable opportunity to be successful – is critical. And I think this whole concept of trust and care is particularly relevant about that.

I looked at some of your work and some of the things you said in the past about that traditional power relationship between manager and employee and how important that is around these areas is one aspect of it. But then as your workforce gets more diverse, the complexity around the power dynamic, which really changes considerably when you think about other factors – gender, race, ethnicity, sexual orientation, etc. And so I’d be really interested to hear you talk and reflect on that a little bit as all these companies that we’re investing in and dealing with, and you’re researching and consulting with, are thinking about how to improve this and get good at it.

Nien-hê Hsieh: I think you’re right. That’s one of the biggest challenges. And this comes back to our earlier point, which is that having a common culture can be very powerful. And we often don’t even think about the kind of culture that we have, if we’re all similar. And it’s sort of just very easy to engage with one another. And we refer to things, that’s obvious what we referred to,  so that’s kind of a sense in which thinking about greater diversity equity inclusion in the context of culture can be challenging in some ways.

So we’ve been thinking a lot about this issue, particularly for me most recently, in the context of the tech sector, which has been facing this issue quite a bit, whether on issues of gender or race and ethnicity. And my sense is that to make this work, it has to be part of people’s performance metrics. Don’t get me wrong – I’m not saying it’s not challenging. But the places where I’ve seen it work are places where these are part of one’s performance metrics. Who are we recruiting? How are we thinking about promotion? Mentoring? And so once that’s done, that in a way you can tell two stories: One is that, well, this basically sort of makes it a part of people’s incentive system. I think that’s possible.

I think more, and more than anything else, it just signals people that this is important, and we tend to shy away from doing things that are difficult. It’s probably human nature. And so, it’s more just reminding people: Know this is important and because it’s difficult, it’s especially important to remind people that we have to think about it. Because otherwise it’s easy to forget. And similarly, all of us are encumbered by implicit biases. And so again, making things explicit is a way to sort of get around that issue there. It’s not really addressing your question of how do we get around something that’s difficult. But my own view is that even before we can get there, we just have to make sure that people aren’t shying away from it, and that people are actually thinking about it directly. Because once it’s there, and we just get over the fact that it’s hard to talk about, we just have to get over the fact that it’s something that we want to shy away from.

I almost feel like we have to, in thinking about this issue and wanting to make it work so hard, we’ve almost become too polite sometimes. We just have to just accept that it’s not going to be easy. We have to accept that it’s going to be hard, and we have to accept that mistakes will be made along the way. Because without doing that, we’re not going to get anywhere. And so in talking to people in this space, that’s sort of actually the place to start, I think.

Dave Novak: Thank you. Before we finish up, do you think post-pandemic questions like this will be more prevalent in the boardrooms, among senior management teams. Will it bubble up from employees, customers, etc.? What can we look forward to?

Nien-hê Hsieh: My hope is that the pandemic remind us that we can’t take these things for granted – health. Fragility of supply chain. The need for people to engage with one another. These are things that sometimes we take for granted. So my hope is that going forward, what this will spur is a conversation around how do we make sure that we have these basics in place, and they’re not susceptible to the next version of the pandemic, whatever it is. And I think it was very easy for us to sort of engineer and optimize in certain kinds of ways, by taking lots of things for granted. I think what this has done has made people realize there’s some things that we just can’t take for granted. And so how do we shore up those basic things to make sure that we can really have a thriving economy?

Dave Novak: Thank you for that. It’s interesting because it’s on the one hand given how dramatic the pandemic has been and the impact of it has been on all of us, not only in our business lives, but our personal lives, we’d like to think that people won’t forget, for sure. I think there’s a decent chance that it has a lasting impact on all of us. At the same time, in some instances, humans have shown to have short memories. I guess we will see. Thank you very much for your time. I really enjoyed it. Really appreciate it. The work you’re doing is clearly at the forefront of what most business leaders are thinking about today. And as we discussed, it’s really impactful, not only in the business leaders, but employees at all levels and in all companies. So I hope we can do this again sometime soon. Look forward to hearing about, as you figure out your new balance of in-person versus remote versus in Boston versus travel, how that works out for you and what you decide.

Nien-hê Hsieh: No, thank you, Dave. Thank you so much for this opportunity. And again, I’m grateful for the faculty fellowship named after Joseph L. Rice III, and I look forward to continuing this conversation and to working with all of you and the students that we have from you going forward. So thanks very much.

Dave Novak: Well, I will say, Nien-hê, that the work you’re doing and the way you model it is absolutely consistent with Joe Rice’s values and his moral compass and the way he founded our firm and the way we all feel today.

Nien-hê Hsieh: Thank you. It means a lot to hear that.