- There's been robust debate over the purpose of a company, and whether CEOs should embrace stakeholder capitalism, the idea that a company exists to serve all its stakeholders.
- While discussing this topic, Virgin Group founder and business magnate Richard Branson once told PayPal CEO Dan Schulman that the most important stakeholder of any company is its employees.
- Branson served as a mentor to Schulman when he was CEO of Virgin Mobile from 2001 to 2009.
- PayPal CEO Dan Schulman says the key to PayPal's success in 2020 is in large part due to prior investments the company made in its employees wages and benefits.
- After hearing that some employees were struggling to make ends meet, Schulman conducted a financial wellness survey, which resulted in a program that increased wages and reduced healthcare costs, among other things.
- Schulman and other execs at PayPal say the company's 2020 success boils down, in large part, to investments made in employees.
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Over the last few years, some of the most important people in business and geopolitics have been debating whether companies should be prioritizing shareholders over everyone else - including PayPal CEO Dan Schulman and Virgin Group founder Richard Branson.
The two had "a number of late-night conversations" on inequality and the role of a business leader, Schulman told Insider. It's during those conversations that Branson shared his key leadership philosophy: employees are the most important stakeholder in a company.
Rising inequality has forced leaders to rethink the once seemingly set-in-stone ideology of economist Milton Friedman's shareholder primacy, the idea that a company's sole purpose is to maximize shareholder profits.
In fact the 2020 World Economic Forum - an annual gathering of thought leaders, CEOs, economists, and heads of state - was dedicated to this exact conversation. Attendees were asked: How do economic leaders embrace stakeholder capitalism, the idea that a company should create a positive impact for all stakeholders?
It's a question Schulman and Branson had been mulling over for a few years. From 2001 to 2009, Schulman served as CEO of Virgin Mobile. The Virgin Group founder became something of a mentor to Schulman.
Employees are the most important
Schulman knows shareholders and other stakeholders are important. But the way he sees it, their success stems from the success of employees , Schulman told Insider.
"With happy employees, we can serve customers better, and when we serve customers better, regulators are happy, and if customers are happy and regulators are happy, then obviously shareholders over the medium term are happy as well," he said.
The two speak about the idea in a similar way.
In a 2020 interview, Branson told Inc Magazine: "My philosophy has always been, if you can put staff first, your customer second, and shareholders third, effectively, in the end, the shareholders do well, the customers do better, and your staff are happy."
Putting employees first at PayPal
Schulman embraced this employee-first philosophy and said it's been crucial to PayPal's success.
In 2017, two years after Schulman spun PayPal out of its parent company, eBay, the CEO began hearing stories that some customer service employees were using a foodbank to feed their families. Almost immediately thereafter, he created an employee relief fund, funding it for $5 million.
While Schulman expected some employees to apply for the fund to weather unexpected life events, like a car accident, or an unforeseen surgery, he was surprised to see the number of employees who were asking for money simply to help pay their bills.
He decided to conduct a financial wellness survey of his employees, and found out that some 60% of employees surveyed were struggling to make ends meet.
It was something that flew in the face of his employee-first mentality, and so he decided to start a program to increase employee benefits and wages. After conducting in-depth research on employees' cost of living, transportation, housing, and other essentials, PayPal executives raised wages by an average of 7% and cut healthcare costs by some 65%.
In addition to heavy tech investments the company has made, Schulman said that the company's employee financial wellness program has set PayPal up for the success its seen in 2020.
Employee productivity and customer satisfaction, as measured by customer service call surveys, has jumped. Meanwhile, staff turnover is down. This is despite the difficulties PayPal employees faced during the pandemic, like having to switch full remote within a number of days, as well as unprecedented demand, with customers flocking to digital payments "in droves."
"I believe all of that comes from having passionate, dedicated, caring employees. And I think that is reflective of what's happening in our share price well, and what's happened in our ability to serve customers," Schulman said.
Now, Schulman is calling on other employers to conduct a similar survey of employees' financial needs.
Working with JUST Capital, an independent, nonpartisan research firm established by the billionaire Paul Tudor Jones, the Financial Health Network, and the Good Jobs Institute, PayPal launched the "Worker Financial Wellness Assessment" this past October.
"Profit and purpose of a company don't necessarily have to be at odds with each other," the CEO said.