Taken at face value, Hubert Joly’s business philosophy of tapping into “human magic” and viewing profit as an outcome rather than a main objective might sound suited for a motivational speech, not the boardroom – except Joly is the guy who, during his tenure as CEO in 2012-2019, saved Best Buy from extinction and increased share price by more than 263%.
“What’s delightful for me at this stage is the success of the turnaround adds some credibility to the message!” Joly told JUST Capital. “People are not asking me, ‘Oh, what were you smoking?'”
Joly spent an additional year as chairman after passing the CEO reins to Corie Barry, who helped Best Buy remain healthy through the pandemic. He’s out with a new book that captures the leadership philosophy he baked into the retailer, “The Heart of Business,” and his alignment with JUST is what recently led to his becoming one of our advisors.
We recently spoke with Joly about this approach to business, discussing some of its core tenets.
Treat profit as an outcome of your purpose, not the purpose itself
When Joly took the job in 2012, his predecessor had left in disgrace, Amazon was constantly draining customers from its stores, and revenues and margins were down.
He had to cut costs, but had he not first determined Best Buy’s purpose, he could have slashed spending until the company could no longer move forward. He recognized that Best Buy should focus on an American customer base and embrace its physical space and workforce. Joly had the company invest in worker training so that “blue shirts” were better equipped to answer shoppers’ questions, cut outdated items, and create brand hubs around the store that allowed for an intuitive experience that could not be replicated online. And as for Amazon, Best Buy not only began a price match guarantee, it launched an improved website. The result over his CEO tenure was six straight years of growth and a tripling of earnings.
He said this approach requires CEOs to “embrace all stakeholders in a congruent fashion,” and can be extended to all types of companies and industries. This stakeholder model requires a focus on elements that cannot be measured by GAAP standards. he said.
For example, he said, “From an environmental standpoint, the fact that destroying the planet is a free activity, that makes no sense.” he said.
Have the full support of your board
One of the strongest critiques of the Business Roundtable’s 2019 statement that corporations existed to serve all stakeholders came from Harvard Law School’s Lucian Bebchuck and Roberto Tallarita, who found that the majority of CEOs who signed the statement did not first run it by their boards, and that essentially makes the statement nothing more than a publicity stunt. Joly, who himself is now a Harvard Business School professor said that he strongly disagrees with the researchers’ inferences conclusions, but agrees with the importance of board alignment. He noted that at Best Buy, that alignment was there before signing the BRT statement.
“I don’t think you can, in this age, have a dichotomy of what you say outside and what you say inside,” he said. “That’s not sustainable. Any company that’s doing this is doomed.” He was referring to both any disingenuous rhetoric that may appear in marketing or CEOs going rogue. If the CEO and the board have not decided together that issues like worker financial wellness or racial equity are important for the business, then any initiative related to those issues is not going to work. Joly saw this in his experience as both CEO and chairman.
He said that within Best Buy, his successor, Corie Barry, had full support from the board last year to advance racial equity both within the company and in the Minnesota communities where it’s based, as well as the decision to raise the company’s starting wage to $15.
Put people at the center
You don’t have to speak with Joly long to recognize how strongly he appreciates building relationships. At Best Buy, he was able to end tensions with the company’s founder, Dick Schulze, who was engaged in a battle with the board and wanted to take the company private. Joly met with Schulze and the two shared their vision for the company. As Joly puts it in his book, Schulze understood that Joly genuinely sought his counsel and was personally invested in seeing Best Buy succeed. Schulze rejoined the company as chairman emeritus in 2013.
In our interview, Joly told us he’s a firm believer that a company’s workforce is its most valuable asset. Prioritizing leadership’s respect for their workforce and recognizing the value each employee brings is that “human magic” he talks about.
One of the key ways to put this mindset into practice is around company pay practices. During his CEO tenure, Best Buy eliminated variable pay based on performance and instead increased wages. He said this decision provided more stability for Best Buy workers, which in turn led to higher productivity than what came out of an incentive-driven pay model. “You have to really deeply think about what drives people, how to take good care of them,” he said.
Recognizing the humanity of his workers was “the essence of the Best Buy turnaround,” Joly said.