The Six New Rules of Business: Creating Real Value in a Changing World

The Six New Rules of Business: Creating Real Value in a Changing World  by Judy Samuelson, Berrett-Koehler 

For too long, the idea of “what’s good for business” has been reduced to profit maximization. Shoring up a business has come to mean shoring up its short-term financial position, whatever it might cost in other terms to do so. Stock buybacks prevail over reinvestment in people, research and development, and new products and services. Any “externalities”—from how a company’s products might affect the health and longevity of customers to how the byproducts of business operations might affect our environment—are ignored and kept off the balance sheet. Wall Street regularly rewards businesses for massive rounds of layoffs because people are seen as a cost rather than a necessary source of sustainability and growth, even though there is ample evidence that layoffs hurt operations and end up costing more over the long-term than they save in the short term (which is beside the fact that such massive layoffs are antithetical to our larger, national economic goal of keeping unemployment low).  

Put simply, “what’s good for business”—if it means short-term profit maximization—is an unsustainable economic model and becoming an untenable position to take. It is, in fact, not even good for business itself in the long run, because the problems it creates are all ones that businesses themselves must eventually bear. Even ignoring the larger issues of climate change and other externalities, a company's decisions to focus and feast on short-term financial profits can come back to bite them.  

Judy Samuelson, in her new book The Six New Rules of Business, touches very briefly on the story of Wausau Paper here in Wisconsin. Paper is big business in the state, one built on the extraction of our natural resources, but that has provided ample employment and anchored towns—until activist investors decided that even that devil’s bargain was too good a deal for some residents. She quotes Senator Tammy Baldwin on what happened next:      

“Wausau Paper in Wisconsin … had a 100-year history of making paper in Wisconsin. When a wolf-pack seized control, they forced out the company’s executives and sold several mills—causing one Wisconsin town to declare bankruptcy. The hedge funds demanded that Wausau abandon investments in future growth and instead borrow to buy back shares and boost stock prices.”  

It is not a new story, nor unique to Wisconsin. Jamie Sayen’s brilliant 2017 oral history, You Had a Job for Life, tells the story of Groveton, New Hampshire, which was organized around a paper mill. The mill weathered rounds of mergers, hostile takeovers, and absentee owners beginning in the late 1960s that devastated the company and demoralized its workforce before being rescued by another outside company interested in investing in the paper-making expertise of the mill's workers and modernizing its machinery. That inflow of investment produced some of the best years in the life of the mill and those who worked there, but it was short-lived. While profitable, it wasn’t profitable enough for its new owners, and it ceased production in Groveton in 2008. The company, in its exit, would ultimately sign the mill’s death warrant—and by extension, to a large degree, perhaps the town’s—by placing a covenant upon future owners of the property from making paper there when it left. That company was Wausau Paper.  

It has become a vicious cycle rather than a virtuous one. And Kerri Arsenault’s 2020 book Mill Town: Reckoning with What’s Left Behind, about her birthplace and ancestral hometown of Mexico, Maine, shows that keeping paper mills open without questioning their environmental and health impacts is not a model of sustainability either. The Six New Rules of Business is, of course, not about paper manufacturing. But working in books, and as a lover of newspapers and magazines, I think about it a lot. And it reminded me that while the cycle of problems caused by the old rules of business is national and even global in scale, it affects all of us individually and our communities. As Samuelson writes: 

Tell me which of the pressing issues of our time keep you awake at night, and I will tell you how the old rules of profit maximization and short-term thinking contribute to those problems.  

[…] Climate change is a product of industrial processes. It is a problem with unimaginable consequences that cannot be solved without collective action; it now tops the list of global concerns. We can easily connect the dots between consumers shopping on the basis of price, low-cost labor markets, and the working conditions where human rights violations and even human trafficking persist. The economics of overcompensation and unsustainable growth create boom-and-bust cycles that favor some but push others to the side. Marketing of unhealthy products. Tax avoidance. Obesity. Our infatuation with guns. Food waste. Deforestation. Pervasive inequality and its consequences. 

For good or for ill (and it’s both), global business—talent-rich, capacious, and connected—is the most influential institution of our age, akin to the Church in the Middle Ages. 

There is a reformation under way. The idea of “what’s good for business” is changing. The “walls between business and society” that kept companies shielded from a full accounting of their effect on society while maintaining an outsized influence over it, are crumbling. The “core assumptions and dominant beliefs” of business are slowly evolving, being pushed by both outside activists and those within. Judy Samuelson is one of those champions. She reminds us that…  

Business is the most influential institution of our day. We need business’s talent, investment, problem-solving skills, and global reach to make progress on intractable problems from climate change to inequality to equipping workers for a new age of work. This lens on business does not override the need for government regulation and public investment. Indeed, business is a powerful influencer of public policy as well. To what end is business using its voice? 

Anand Giridharadas, in Winners Take All, warned us against accepting the idea that those who caused these problems can or should be the ones tasked with solving it. Just today he reminded us that: “The people who led us into this mess will not lead us out of it. Causing a problem is not a qualification for solving it. Arsonists don't make good firefighters.” That, I don’t believe, is what Samuelson is suggesting for those in business. She is suggesting that we change the rules so people are incentivized to pick up a pail of water instead of a torch, to help fight the fire instead of continuing to stoke it. Business will still wield great power and make a healthy profit, but they must become a part of the solution—and it can’t be relegated to philanthropic efforts that aim to help solve problems they continue to create and to perpetuate their own power in the process. The good news is that profit maximization—while perhaps an age-old impulse—is a relatively new gospel, and it can be dispelled. The rules can be rewritten. Samuelson offers six, and what they are replacing: 

OLD Rule: Hard assets determine firm value.  
NEW Rule: Reputation, trust, and other intangibles drive business value.  

OLD Rule: “Shareholder value” or “profit maximization” is the organizing principle of the corporation.  
NEW Rule: Businesses serve many objectives beyond shareholder value. 

OLD Rule: Corporate responsibility is defined by host communities and fence-line neighbors. 
NEW Rule: Corporate responsibility is defined far outside the business gates.

OLD Rule: Labor is a cost to be minimized. 
NEW Rule: Employees give voice to risk and competitive advantage.  

OLD Rule: Capital is king; shareholders rule.  
NEW Rule: Culture is king; talent rules. 

OLD Rule: Compete to win.  
New Rule: Co-create to win. 

In many corners, shoring up a business is coming to mean accounting for, and working toward ending, any negative effects its operations have on people and the environment. It is coming to mean building trust and equity in the community, and in some cases having the community—the workers, consumers, or producers supporting the business—own equity in the company.  

We can no longer separate market value from our values. If we do, markets lose their legitimacy and use to society. The old rules of value extraction are sapping the value of markets, undermining the businesses that must play by those rules and the democratic values of the society they are supposed to serve. I don’t have strong feelings about GameStop, but I do have a strong sense that its recent newsworthiness is a sign that the financial system is broken, that it is more of a game that must be stopped and operate under new rules if it is going to act as a machine for true value creation again. It might be more symbolic than anything, and the ultimate outcome in this instance might be further enriching the rich, but it proves that the conversation can be changed, that assumptions can be upended. More than that, in all its absurdity, maybe it proves that they already are.  

More than a new set of rules, I feel like Samuelson’s book suggests that we need to write a new story. Maybe, in the midst of the many crises we face, we’ll find a way to finally begin a new one—and better ways to make the paper we write it on.