In Folge zwei ist Ed Freeman zu Gast, einer der einflussreichsten Philosophen und Ökonomen im Bereich der Wirtschaftsethik. Mit Tim Kramer und Corinne Riedener spricht er über die Grundprinzipien und die Bedeutung der Stakeholder-Theorie. Ein weiteres Thema ist die Entwicklung der Corporate Governance im 21. Jahrhundert – insbesondere angesichts aktueller globaler Herausforderungen. Freeman betont die Notwendigkeit, Wirtschaft neu und innovativ zu denken. Und er erklärt, welche Rolle Pasta in seiner Ehe spielt.

Das Gespräch wurde auf Englisch geführt und am 13. März 2025 geführt.

Square Talks, unser Podcast mit den Personalities and Artists in Residence. We can start with our second podcast. It's only our second podcast from Tim and Mine and it's in English this time because of our guest.

He plays the piano, he plays the guitar, he sings and he shaped modern management like few others.

He is a US American philosopher, economist and professor at the University of Virginia and he is best known for his book Strategic Management as Stakeholder Approach, which was published in nineteen eighty four. And he's here at Square for three days as part of our programe Personalities in Residency.

This is his third and last day at Square. Very warm. Welcome to our podcast Ed Freeman.

Thank you very much. Very much a pleasure to be here.

Cool. How was your stay so far?

It's been great. I really enjoyed meeting people. I've always wanted to come to St. Gallen, but I've never had the chance, because I've heard of the St.

Gallon Management Model for a long time. It's very famous, knew a few people here and it's been a great visit. I love the Square.

I wish we could transport it to Charlottesville, Virginia and see all the students hard at work etcetera in the sessions with the students. I mean, they've been terrific in terms of asking questions and being critical and etcetera. So it's been A really delightful two days and I'm.

Looking forward to one more this last day.

And also on the microphone and sitting next to us is Tim Kramer, the residency host and director of this beautiful place named Square. And I am Corinne Riedener, journalist from St. Gallen. And we gonna talk a little bit about doing business in the twenty first century.

And I also like to know what corporate governance has to do with making music. Perhaps we can discuss it too. So Ed Freeman, you are considered the father of Stakeholder theory.

I would guess that everyone who has ever studied business is quite familiar with it. But can you give us and our listeners anyway a little refresher? What are the fundamentals of the so called Stakeholder theory?

Sure, well, first of all, I get way too much credit for this. I didn't invent this. I did try to find out who did.

But I've often said I'm the only person to have written about this, who did not claim to have invented it and so now I get a lot of credit and since I'm old, I just say thanks, thank you. But the Stakeholder idea is really the simplest idea in the world.

In fact, when I wrote this old book, you mentioned, I didn't think it was very interesting.

The stakeholder ideas essentially says what every business does and what it's always done is create value for its customers, its suppliers, its employees, its communities and the people with the money. And this sort of goes against the sort.

Of old story about business that's deep into cultures around the world, says business is basically just about the money, money.

For the shareholders.

And just the money, whether it's for the managers or whether it's for the shareholders. The economists dress it up so that it's for shareholders. But sometimes it's not but just focus on the money. And what Stakeholder theory says is that.

No, that's not how you build a great business. You focus on customers and suppliers and supply chains and you treat employees with respect and dignity and you are good citizens in the community.

And if you do those things and you get kind of lucky, you might make money. But making money is an outcome.

It's not an objective, it's an outcome and usually the objective is something like well usually with entrepreneurs, it's what drives them, It's the passion they have for building their business idea, having a purpose and having the purpose and taking that purpose to the world and making it real. And that's just the simplest idea in the world.

I never understood now I came to this as a philosopher, I was working at the Wharton school then, but I never understood why people thought it was controversial. You know, I thought gee, this is just common sense, common sense.

I mean my wife said she read the book, she has an MBA from Wharton and she said, you know, this is really kind of common sense. I'm not sure you're going to make a living at this, so I didn't. I was extremely surprised when people saw me as some sort of radical idealist.

You know, OK, thank you so much. So the idea is that doing business is way more than making money and it's more about ethical values in business now critically.

I would say those things go together, ethics and business have to go together. And if you talk to business people, they believe that, they believe and so again, what's radical is.

It's against this old idea that it's just about the money or just about the money for shareholders. That's important. But it's not how you build a great business, not the only thing that's important.

So everybody who does business thinks, that is common sense. Now for the years after Tim, who came up with the idea to invite Ed Friedman to this residency program and.

Why we have a PhD here who came. To us and she visited you at your university, she knew about it. And right from the first moment I thought it was a really good idea and a great idea.

And when I talked with people who could meet you, it's fulfilled all my experience. It's really, really, really great, great thing to have you here.

I have a question too with the, with the stakeholder, with the stakeholder whole idea here at the moment here in St. Gallen, they thinking about, because you said you knew the St.

Gallen Management model and now we have a lot of professors here And they say now after forty years, I think forty five years something like this, they really try to rethink the whole idea. Your book is also from nineteen eighty four is there a need to rethink this whole stakeholder approach? What you talked about?

Well, I've thought about that a lot and I've sort of tried to do it better a bunch of times. I wrote a book called Corporate Strategy in the search for ethics, which nobody read.

And I thought that was sort of the sequel where I tried to be explicit that ethics matters here and look at the sort of corporate strategy models and show how athletes was in. And again not too many people read that.

And then we wrote a book called Managing for Stakeholders, in which we tried to again revise the eighty-four books and especially. Pay attention to how do you do this? I mean a lot of people say well, you know the stakeholder thing's fine, that's ideal, but how do you do it?

And I've always thought that was not a very good criticism, because we didn't make this stuff up.

I mean, I was out working with companies and trying to make sense of what they were doing in trying to help them solve some of the problems they had, as external groups became more and more vocal in a more global environment. And that started in the late seventies and eighties, but it continued through that.

And so I think through those three books we sort of did evolve the idea. We wrote A Book in Twenty Ten Called Stateholder the. State of the Art.

And here what we tried to do was show how the stateholder idea had been embraced in a bunch of business disciplines, from finance, strategy obviously, but even things like administration in healthcare, in those kinds of things.

And then in twenty twenty, twenty twenty one somewhere during the pandemic, we wrote this book called the Power of and I think that's really the best statement so far of it. Where we say, look, it's not stakeholders versus shareholders. It's not purpose versus profits. It's purpose and profits. Profits are important.

Many people read the stakeholder idea as saying, well, this is just about civil society. It's just about paying attention to critics and it's always going to cost you. You're always going to have a trade off.

If you pay attention to stakeholders, you won't have as much money for shareholders. Well, that's deeply embedded in the old story and so what we tried to do in the power of and say no. Look there are five things you got to deal with.

It's purpose and profits, it's stakeholders and the people with the money. It's thinking of business as a societal institution and a market institution.

It's thinking about human beings as complicated and simple economic creatures and it's about putting business and ethics together. And if you take those five things together, you create a new narrative about business.

What do you think is the biggest task for the whole stakeholder idea at the moment I mean, you have a president now who is more what you said the old. I mean this is more the shareholder view at the moment. Getting stronger.

Look, I try not to think much about politics and certainly now. And I've spent forty years kind of pissing off the people on the left and the right.

You know, the people on the left think business couldn't possibly do good things that profits are evil and bad. And this Freeman guy, well, he sold out the business, so he's not credible at all because he thinks business can actually do something good.

What I tell him is, yeah, I think business is the greatest system of social cooperation we have ever invented. You know, it's about how we work together to get things done that no one of us could. Do alone.

And of course the people on the right think I'm a communist.

Because I actually believe, if you believe in freedom, if you're the biggest libertarian in the world and you believe in freedom, you better have a sense of responsibility that freedom and responsibility are two sides of the same coin. And so I don't know what it means to be in the center now in the US It just means you take the worst ideas of both sides.

So I don't really have a political tribe And you know it varies back and forth. We've swung an extreme way now.

That doesn't invalidate that you still got to deal with customers and suppliers and communities and employees and the people the money. And like I said, I don't know how to say that in a simpler way business people know this.

They're often seduced by this idea that it's just about the money. But even those people who think it's just about the money, watch what they do. They better have some products and services customers want.

They need to have suppliers who are trying to make them better. It's a lot easier if their employees are engaged in the business rather than just there for the check.

And you know, you gotta be enough of a good citizen, so that the communities don't throw you out and if you do and you have to make money, you don't make money, you can't exist and so. I'm a little bit at sea When people say well, does this really work well? What do you mean? Does it work?

I mean, it's what business is now it's tricky though, because it's like that character in the Moliere novel, I don't remember what his name my name was who gets kind of upset because he figures he's got to learn to speak prose and he doesn't realize he's already speaking prose. So that's a little bit of what's happened. Once you realize that you're not just doing it for the shareholders and the money.

If you want to build a great business, then you can improve the hell out of what you're doing. And you can actually think about not just saying well, I'll trade off shareholders for customers, but you can say no. How do those things go together?

And if you just see one, you can't find those opportunities for value creation.

And the other thing about the stakeholder idea, which is a little harder for people to understand sometimes is that stakeholder interests are intertwined, they're interconnected. How you deal with one depends on how you're dealing with the others. You could write. I've tried to write a little bit of the mathematics here.

You can write value created for shareholders as a function of the value created for the others plus some interaction term and so seeing the interaction here, trying to capture where that is. It's a little bit like people say well, these stakeholder interests conflict. How do you resolve the conflicts?

And my answer is, you don't trade them off. What you do is you try to get them going in the same direction?

Yes, their interests are different and they're not going to be aligned in the sense of have the same interest, but you try to get them going in the same direction. And here again, I borrow an idea from music theory about harmony When notes are in harmony, in consonant harmony, They sound good together.

They're different, but they sound good together. So what the entrepreneur or the executor's job is, is to get these notes, these different stakeholder interests to sound good together.

And over time, you gotta, you know, you do that sometimes you have to make trade offs, but if all you look for is trade offs, that's all you're gonna find. I'm pretty certain about that. That's just logic.

I'm really wondering what the younger people are thinking. You've met a lot of local students in the past two days. Which questions do they come to you with?

Do they discuss different topics than your students back in Virginia?

Not really you have to be careful about making claims about generations. I have three millennial children and they're all pretty different.

So there's usually more variation within a generation than there is between generations. But one of the things that the younger generation, millennials, gen Z, they're called etc.

One is, they want, you know good jobs, they want to be able to make a good living and they want to make a difference now. The difference is. I mean, I'm an old boomer.

I wanted to make a difference too when I was in my twenties and I still do in my seventies, but I think, when I was in my twenties, I wouldn't have demanded it. And I think the younger generations today are kind of demanding that I can't tell you how many CEO's have said to me.

Jesus said, how do I deal with millennials? How do I deal with people in gen Z? And I usually say to them, can you talk to your teenagers?

And I say well, it's hard, I said well, it's going to be the same thing. And we need to listen to that. We need to have. I think, especially given the way the technologies are going, we really need.

We can't wait for those folks to be fifty years old to be. In leadership positions. We need to help them be in leadership positions now, because they're more fit for the world. We're living in than we are.

So that you are saying that we need more younger people in leader positions.

Absolutely, you know, I'm tired look I'm seventy three and fairly fit and I'm certainly not capable of doing some of these high powered leadership things. I'm tired of looking around the world and seeing a bunch of old white guys in charge. You know, let's give other people a chance.

People who have to you know are going to have to live with the consequences. And so I really hope what we'll see pretty soon is kind of a remaking of the leadership dimensions.

We've seen it a little bit in technology companies, but we need to see it in politics. I'm not just talking about the US here. I'm talking about the you know the politics in general. Yeah.

And what kind of competences do the immediate generation need for?

Well, I think step in, yeah, I think the biggest one especially given the technology, the biggest one is what I would call Creative imagination. Look all the routine tasks and all that sort of stuff. Ai's gonna do that. They're already doing a lot of it.

So what do we humans bring to the table here? Well, we bring our pretty substantial imagination. We're able to invent vocabularies that solve our problems.

And when you think about the fact that we can invent vocabularies to solve our problems, there isn't much. We can't do if we put our minds to it. Can we solve global warming? Yeah, of course we can. It's going to take thousands of experiments.

It's going to take a bunch of people starting companies. Some of which will work and some of which won't. It's going to take experimental policy initiatives.

The problem with looking to governments to solve that is when governments enact a policy and I mean, they're well meaning, but it has to be a kind of one size fits all and one size fits all. Solutions don't work for most problems.

It's never the best solution.

It's a great solution. But now you got to find a problem that you need to solve with it. And generally our knowledge is limited, the world is complex.

So what we need to be is open to new ideas and we need to be experimental. There's nothing new here.

As the American philosopher, the pragmatist John Dewey, talked a lot about building the institutions behind democracy and to do that you have to have this experimental attitude. Try some stuff if it works, keep it. If it doesn't try something else. And I think that's the mindset that we really need.

Rather than I know the answer, I'm going to implement the answer. And regardless of what the problem is, that's the answer, Tim.

The square is also a place which wants to be an experimental environment isn't it.

Yeah, what ed said, I think this very good definition for what we like to bring to the students this idea of doing experiments and also doing like you fail. I mean the old Beckett.

Well, I know, people say this a lot, but it's actually true. Failure is great. That's the only way you learn what you don't know.

And people have said you could read the history of philosophy as a history of failures and I think that's pretty much right. You sort of take something until it kind of blows up and fails and then you say, okay, now I gotta try something else, But what's missing here?

I think what's really missing. We go back to this idea of creative imagination.

I don't think we're very good in business schools or universities, really, but let me just talk to what I know. We're not good at business schools at doing that creative imagination is a muscle.

And if you don't exercise it, it has to be trained and exercise the psychological experiments say that people are most creative when they're about six years old and then what happens is the creativity goes down, the more we go and get educated, We learn to listen and do what we're told and give the answers on the exams and that sort of stuff and that that limits in part your creativity. So you build creative imagination. I think the best way there are multiple ways, but the best way is through the creative arts.

And that gets back to your question about what does music have to do with this? Well, it's one way to do it. We know if you do music, fifteen thirty minutes a day, it'll change your brain.

Yes. And in music there's never only one solution.

There are many ways and there aren't. If you play with people, there's a great ted talk by I'll think. Of his name in a minute, but it talks about there are no mistakes on the bandstand.

So somebody makes what you might think is a mistake, but somebody else responds to it and there you create jazz. Yeah, that's right. It's told jazz, but it's great when you do it and it helps you to. Well, it changes how you think about things.

You're more open and you're more able to listen. And part of creative imagination is kind of listening.

We do a course on theater and we teach people about being in the moment and listening to others and the way we say it is. You got to listen with the bottoms of your feet. You got to listen with your whole body.

And if you're able to do that, then you can hear what people say, not judging it to be right or wrong. We're all really good at that. But we listen to what people say and we see what possibilities that opens.

So it's not listening for judgment, it's listening for possibility and you're right now saying yep, that's right. Yeah, see, you're listening for judgment and if you're saying, oh, what does that make possible for me?

The other way to think about listening is listening for silence, listening for what people don't say. And sometimes it's a very powerful thing to be able to articulate the silence to be able to say well, why isn't anybody talking about this?

But those things, those very detailed skills that you can teach people or in part what it is to build creative imagination.

And I've just found that's best done not with business cases, but it's best done with the arts, whether it's literature or art or theater or it doesn't matter who.

And are those courses mandatory or?

No, no, they're, they're electives.

I want to stick a little moment at the education. You mentioned it, Before doing business can be part of the solution of solving big problems.

And my question is what should be teached young people in business schools nowadays? What kind of skills they need?

Well, they need the sort of what we were called table state skills. They need to know some economics, finance and accounting and operations and those kinds of things. There's nothing wrong with those.

It's just that we need to infuse those with a sense of you need to improve it. So for instance, I've often said business schools, well, professional schools have at least two functions.

The first function is to socialize the students into the language of the profession. You want doctors to know about disease and bodies and health and that sort of stuff right? But you also want them to be able to improve that.

You know, you want lawyers to know about history and precedent and how to argue cases, but you also want them to improve that. Well, you want business people to know about accounting and finance and business, but you want them to improve it.

We're really good at the socializing part in business schools, and I think we're lousy at trying to improve the practice of business.

So having students take on this idea that hey, I need to know how to be a banker and I need to be able to think critically about how to improve what's there Because again that's how you create value is. You take what you have and you improve it. We have a saying that I got from one of my colleagues, Sandrine Venkatron at Darden.

He's an entrepreneurship scholar that really led the way towards entrepreneurship being an academic discipline and he's always had look, let's use this principle of critique through creation. You see something that you don't think is quite right. You have two options. You can kind of bitch and moan about it.

That's kind of fun to do, sometimes recreational complaining and we all do that. Or you can figure out a better way to do it.

And we try to teach our students that complain fine understand the psychology of that, but figure out a better way to do it. That's what entrepreneurs do. They look at the world and they see a gap somewhere and they go wait a minute. I can do this better.

I can figure out a way to do that.

And I think we need to teach our students to critique through creating something better that gets back to this idea of creative imagination being central and I'm not saying you throw out the other stuff. I'm just saying both of those things. It's an and again both of those things turn out to be incredibly important.

Then it's also very important that they are being critical against their teachers and their colleagues and everybody on the campus.

Yeah, look it turns out that if you care about values, you want to know when you're not living it. If you care about your purpose, you want feedback that says, wait a minute, you didn't do this better right feedback is a gift.

You don't have to take it all. But this idea of dissent and critique is incredibly important.

And we know from psychological studies like Stanley Milgram's obedience experiments, we know for the most part that we hardwire ourselves from babyhood to kind of do what we're told and it's very hard to push back. I've often said that I think most corporations and certainly all universities radically underperformed because there's just not enough pushback.

You know, people have said well ed, but this could go too far. Couldn't it. And I went yeah, I could, but I've never seen it.

Is there a way to enhance that? Also with the special culture on the campus.

Yeah, I mean, I think you need a culture that pushbacked and by pushback. I don't necessarily mean protest. I don't necessarily mean being like a rude American.

There are culturally acceptable ways to push back in every culture. Some of them are ways I've not understood when I've experienced it, but there are ways to do that And you have to want the feedback.

Just a quick story. I have three kids and when they were young, I think I have twin girls. They were eight and I think my son was eleven and I'm the cook in my family.

So I make for dinner one night I make fresh pasta from scratch, from scratch, from scratch. Oh yeah, I'm feeling pretty good about this. You know? I'm feeling pretty good about this.

And so I go to the table, my wife is there and I say so, how's the pasta? Right? You think I'm asking for feedback? No, I don't want any feedback. I want praise. I want them to say.

Gee, how lucky we are to have a father who makes us fresh pasta. You know, that's ge. We are so privileged. That's what I want to hear. And what they said was, do we have any of that?

Kraft Macaroni and cheese in the blue box. Oh hello, okay. I think that was the last time I made fresh pasta, but in other words. But it was like I was crushed.

My wife, who's much wiser than I am, looked at me and said if you can't deal with the feedback, don't ask for it. Don't ask for it, but we confuse all the time.

And managers make this mistake all the time they ask for feedback, but what they want is praise and distinguishing that. Sometimes what happens is, I'll give you the feedback the first time. And then when I realize you didn't really want it, I won't give it.

To you again, because we are not worth it.

Well, I know, you don't want it. I'm sure. If I had seemed disappointed, if I hadn't paid attention and gone and made them some Mac and cheese in the blue box, which I did next time.

They just said, oh father, yes, we're so happy, but they wouldn't have meant it. So feedback is really important. Giving feedback and taking it. We teach this in our theater course.

Because on stage actors make all kinds of decisions and you need an external eye to say, you know, wait a minute. Were you trying to be angry? Because I got angry out of what you did? And we teach them about how to give and receive feedback.

It's incredibly important skill. And we teach them how to collaborate.

Look when we're on stage, it doesn't matter what we're doing, whether we're pretending we're acting so that we're in love or that we're in hate or that we're at war or we're indifferent to each other. All you got is a line I give you and all I got is the line you give me.

So theater is pure collaboration and it's the most powerful place to teach collaboration and trust that I've ever found.

You would subscribe that aren't you. He was just a little information, he was the director of the so he knows what you are speaking about.

Yeah, totally, totally agree in my course. We also talking about the feedback culture, try to teach them.

And what we, what I have always to tell them is when you give your feedback, because let's I drive them to give them peer to peer feedback and then they say, oh feedback, okay.

And then they go first, they go with the negative feedback and always have to say no go for the positive first and then afterwards you can go for the negative.

Yeah, that makes people hear the negative part.

Yeah, absolutely.

You have to do a little groundwork first.

I think those managers they have to work also on the atmosphere and to bring other people to be honest, they have to deal with it.

Yeah, the other piece of feedback we try to teach people to say you don't have to take it all you know, you don't have to do. It's not, it's a matter of, it's not a matter of you telling me what to do, it's a matter of you giving me feedback.

I'm trying to figure out what I want and how that feedback helps or doesn't help etcetera. I mean, I know just as an amateur musician, that when you play with people, you get feedback all the time.

When we were playing here the other eve, eve, eve, Thursday evening we got, we were giving each other all kinds of feedback, because we'd never played together before. We didn't always take it all. But that process is very much central to the creative arts.

I learned a lot about feedback when I first worked with an English language director and in Germany in German language, they say critique, you know, when you say critique. And he always said now we're going with notes.

Yeah, notes, notes, notes, yeah, such for me.

It was such a really nice difference that it's not about putting somebody down. It's really feedback for you're interested in what you're really doing.

Yeah, I like this idea of notes, but as a philosopher I like the critique as well, because critique is positive and we again have this idea that being critical is somehow a negative thing.

But it's not as a journalist, it's my work to critical thinking everybody.

But most journalists are negative all the time, right?

Yeah, perhaps so did you like the feedback from the crowd when you were jamming with the event?

That's what I was going to say. You get feedback in lots of ways. I think one of the things that kept us going the other evening was, we got great feedback from the crowd.

I have played many a gig in which the crowd doesn't care less what you're doing. They were at the other end of the bar or the other end of the venue, talking amongst themselves and you're just up there playing.

I guess you background music to them, but then what you do is true on stage as well. You're not doing it for their crowd, you're doing it for each other.

And if you can find that piece, you've probably got a good ensemble or good band or whatever. Crowds. Crowds are crowds sometimes it works sometimes it doesn't. Yes.

And it's often a question of the dynamic for crowd. So I really like the concert. Tim, what? Which was your favorite song?

Oh wow, I mean, very charming was the sweet, sweet St. Gallon.

Yeah, for the crowd. We took sweet home Chicago and we had emailed beforehand and I said well, I would sing sing this because we had done it before and I went chicago. St.

Gallen. Oh yeah, that'll work Same available. It was a bit of cheap, cheap show, it was cheap theater.

There's no question about, but it was pretty effective absolutely.

Yes, that leads me to my last question. We stay with St. Gallen. You had a pretty packed program last few days with lectures, talks, workshops. Did you have seen anything from St. Gallen?

Look, it looks to me like. It's a pretty vibrant community in every day at Darden. It's a real community.

It's a place where if you want to come and just do your work and be by yourself and get your degree. We tell people not to come, because it's a very intense community. Students are doing things all the time.

There's an ethics club that asked us to do more ethics. There's you know, there are conferences that students put on etcetera etc.

And they have a thursday night drinking club and there's all kinds of intense student activities and we only have about one thousand students total.

And I'll know a lot of them by the time they graduate in Tuesday We have a faculty student band, you know, we have classes where we have students to our house and cook together and that it's a real cooking pasta from scrap. No, no, I haven't done that yet. That's a still. I may have to go back and do that once just so I can't tell the story anymore.

And Sunk Allen reminds me of that. I don't know much, but just here in swear it seems as if the students are working and learning together in things. And I've been impressed.

I did a class yesterday morning on corporate governance. Students were super prepared and very engaged in the work and obviously that's not one hundred percent of the students.

I understand how or one hundred percent of the faculty. But we take teaching very seriously at Darden. At Darden. I'm not really known for stateholder theory. I'm known as a teacher and I like that.

That's nice.

And I think you my impression after again only three days, so who knows what that's worth is? That this is more of a community than most places that you do.

Take teaching seriously, certainly in the classes I've been in and I think that's great. And the fact that you have faculty members willing to play.

Music with a guy who they've never rehearsed with before, that says to me, you got some people here that are open to experimentation and you take creative imagination pretty seriously.

Yes, it was a really cool. Start for your residency. I hope you can enjoy the last few hours I will say for your absolutely will.

And thank you so much for being here with US Team Kramer and me. Hope you enjoyed.

Yep, it's been an honor to be a guest. So thank you for inviting me.

Thank you.

Thank you very much.