Mailbag: The First Rule of Business

Joel Salatin|April 18, 2023

After reading my essay about being unsure of solutions for various thorny issues, subscriber D.F. asked for my take on shareholder vs. stakeholder.

These two terms certainly occupy opposing positions in the modern business responsibility debate.

I recently picked up Leadership Not by the Book, which explains the thinking of David Green, the founder and CEO of Hobby Lobby. The subtitle is 12 Unconventional Principles to Drive Incredible Results.

It’s one of the first business books I’ve ever read that hews close to my general sense of the tension between shareholder and stakeholder.

On one side, you have Bernie Sanders and the Occupy Wall Street movement. They would like to eviscerate the one-percenters.

Partisanship loves class warfare. Demonizing the wealthy as undeserving and benefiting from ill-gotten gains fuels all sorts of righteous indignation from socialists and Marxists.

On the other side… as a capitalist and libertarian, I see nothing wrong with CEOs commanding as high of a salary as possible any more than I see anything wrong with elite NFL players negotiating for multimillion-dollar contracts.

The market bears what it will, and we all negotiate for what we can get.

Buying talent is one of the best ways to assure shareholders receive maximum return.

But is a CEO’s first responsibility to ensure shareholders receive maximum return?

That is certainly the argument in an amoral capitalist context. But we don’t live in an amoral capitalist context. We live in a world of relationships and social structures, of fellow-pilgrims on a journey through life.

Nobody’s life – not a CEO’s or a shareholder’s – can be reduced to simple arithmetic. While financial ROI is certainly a feature we’re all interested in, it’s not life’s only feature. A bank robber might have a fantastic ROI, but does that make robbing banks a good idea?

Hidden Value

As someone who signs the paychecks for about 50 people across two businesses, I think anyone who looks at numbers only is spiritually subhuman.

I’ve never had someone ask to work for me to maximize their income. Everyone wants intangibles, from recognition to feeling cared for on a personal level.

I’ve always said I’d rather die a pauper leading a loyal, faithful team that cried at my funeral than die a millionaire with an estranged spouse, alienated employees and broken relationships littering my past.

In his fabulous little book, Green articulates a similar idea…

I still make the same salary as before. I have not taken a raise in 16 years. I make 5% of what most CEOs do. What would I do with more money? Buy a second house? The one I have now gives me more than enough problems. One house is plenty. I watch CEOs make more and more money so that they can buy a boat, a vacation home, a private island – I can’t imagine any of those things giving Barbara and me more than 30 minutes of happiness. I have no desire whatever to have more of this world’s goods. Stuff is just stuff, nothing more. It’s empty.

For context, realize that Hobby Lobby is an $8 billion business that’s closed on Sundays.

Can you imagine what it would do to a business culture if the CEO committed to never making more than 10 times the janitor’s salary? Do you think people would want to work for someone like that?

To be clear, I would never be in favor of a government mandate to this effect.

In the iconic business book Small Giants, Bo Burlingham says that one of the principles of highly successful small businesses is that key lieutenants often make more gross income than the owners.

Few things give me more pleasure than giving key players on my team compensation packages that rival or even exceed my own.

Why would I do that? Because it sets a tone and establishes a climate of mutual appreciation and respect.

Does it maximize my business ROI? Perhaps not, but it sure makes this a fun place to work.

A Worthy Pursuit

Look how endearing Warren Buffett is compared with Bill Gates. Buffett still lives in a modest home and eschews exorbitant luxuries. Gates has mansions and jet sets everywhere. One is generally loved and the other generally loathed.

For the sake of team morale within the business and love within the greater culture, organizations should elevate stakeholder value. Certainly not to the exclusion of shareholder value, but perhaps balanced about equal.

Yes, organizations where the CEO makes 100 times the janitor’s salary because that’s what it takes to generate shareholder value would produce a different climate.

But the overall business would not suffer if the CEO focused on stakeholder value. Hobby Lobby is a prime example.

The desire to maximize shareholder value as the be-all and end-all objective pushes people to invest in all sorts of risky things. A company known primarily for its goodness may not return as much monetarily, but it produces returns across a wider spectrum of values.

“Working here gives me purpose and affirmation” is a credential worth pursuing. Chasing money as the sole goal is empty.

Fortunately, over the years many businesses have proved you can have a good ROI even while taking care of the human side of things.