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Capitalism Needs a Rethink – Evolving Toward a Stronger and More Equitable Future?

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Capitalism Needs a Rethink – Evolving Toward a Stronger and More Equitable Future?

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This blog is provided by Ty Montague, co-founder & CEO of co:collective, a creative and strategic transformation partner for purpose-led businesses.  It is a companion to his interview on Innovating Leadership, Co-creating Our Future titled StoryDoers: Leaders and Organizations with Clearly Defined Higher Purposes that aired on Tuesday, November 17th, 2020.

 

It is fair to say we live in a world described as volatile, uncertain, complex, and ambiguous (VUCA). In James Stoller’s recent book, he indicates, “One way to define the “action of our time” is to ensure high performance under pressure in a VUCA world. People do not have to adapt to VUCA, though as W. Edwards Deming cautioned, “It is not necessary to change. Survival is not mandatory. VUCA rewards excellence and is harsh on mediocrity.” As we consider excellence in corporate performance, we must rethink how we define the corporation’s foundational role. Many corporate titans call for just this change to how we think about the corporation’s role in the national and global ecosystem.

To inform this conversation, let’s start with some history. On September 13th, 1970, Milton Friedman published what would become known as the Friedman Doctrine — a seminal essay on a corporation’s purpose.  The full essay is worth a read; the central thesis can be boiled down to a few sentences:

“Some businessmen (sic) believe that they are defending free enterprise when they disclaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes its responsibilities seriously for providing employment eliminating discrimination, avoiding pollution and whatever else might be the catchwords of the contemporary reformers. They are — or would be if they or anyone else took them seriously– preaching pure unadulterated socialism. Businessmen who talk this way are the unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades”.

In my view, the world is a worse place today because of it. Why? Well, to say that Freidman’s Doctrine made an impression on the business world would be an understatement.  It was a frying pan to the head of the day’s conventional capitalist philosophy — let’s call it humanist capitalism — which held that enlightened business leaders needed to consider the needs of a broader set of stakeholders, not just shareholders.  This form of capitalism essentially created the bountiful economic environment in America between the end of WWII and 1970 and created the middle class.  Thwak!  With a single essay, Milton Friedman killed humanist capitalism as dead as a doornail. That thwak resounded broadly — it echoed through the hallways of America’s elite business schools and whanged around inside the boardrooms of our largest corporations. Looking around at the world today, many of the most challenging problems we face in America are a direct result of Friedman’s idea — let’s call it predatory capitalism.

Over the next several decades, many corporate leaders, following Friedman’s directive that the sole purpose of a corporation is to maximize profits for its shareholders, hacked away at internal costs by paying the lowest possible wages, providing less training, less PTO, less maternity leave and less healthcare protection. They fought unions. They held the minimum wage at sub-poverty levels. Simultaneously they found ways to artificially lower the cost of their products by externalizing as much cost as possible, for example, by dumping the by-products of their manufacturing processes into the public common (our air and our water) and then refusing to take any financial or legal responsibility for cleaning up the mess.

The truly predatory behavior happened at the regulatory level where corporations began to relentlessly lobby to lower the corporate tax rate (resulting in, for instance, public schools today that can’t afford critical supplies) and to continuously weaken environmental protections (resulting in, for example, the existential threat of our time, climate change).  But the real damage occurred when they succeeded in changing the laws around political contributions to maximize their ability to press their giant fingers on the scale of democracy and tip the entire system permanently in their favor. This effort culminated recently in the landmark Supreme Court decision, Citizens United,  which formalizes corporations’ recognition as people.  As full “citizens,” with all of the rights (but few of the responsibilities) that come with citizenship, companies can now contribute unlimited amounts of money to political contests, which, under the decision, is defined as corporate “free speech.” So, their voice in the political process is now exponentially louder than yours or mine.

So when we look around today at the ominous condition of America today — an unprecedented and growing gap between the haves and the have-nots, a devastated middle class, record rates of depression and drug abuse, an environment teetering on the edge of systemic collapse as evidenced by the rapid extinction of species, out of control wildfires, hurricanes and flooding events at record levels, et al,– in many respects, we have Milton Friedman to thank.

Now let’s shift to the optimistic view! And by the way, I’m also a capitalist. I believe that capitalism can solve these problems, and I think we already see some positive signs.  But we have to quickly evolve away from this extreme, predatory form of capitalism that enriches a handful of us to absurd levels.

We urgently need to re-discover the form of capitalism that created the most remarkable economic expansion the world has ever seen. The structure where all corporations, as well as all citizens, pay their fair share of taxes.  The capitalist system where corporations are corporations, not citizens, and don’t have an infinitely amplified voice in our political process. The structure of capitalism, where skill, creativity, and ambition are rewarded by upward mobility but not by savagely standing on our neighbors and fellow citizens’ necks. The structure of capitalism that values cultural and social diversity, where we remember that America was founded to be a melting pot and that this diversity makes us more resilient, not less.  The structure of capitalism incentivizes both short and long-term thinking about our planetary life support system — the natural environment. And let’s one-up the capitalism of the 1940s, ‘50s, and ’60s and pay attention to social justice, equity and inclusion while we’re at it.

Nice dream?

Maybe. But over the past ten years, we started to see some green shoots in this space. More and more companies are waking up because they have a broader responsibility than only enriching their shareholders directly.  We see innovations like the B Corp, and its stricter cousin, the “Benefit Corporation.”  We see the Conscious Capitalism movement take hold. We see powerful capitalists like Larry Fink, the CEO of Blackrock, taking up the cause — in his closely followed ‘annual letter to CEO’s’ in 2018, he stated that Blackrock (the world’s largest investment fund manager) would no longer invest in companies that are unable to articulate a higher social or environmental purpose. The Business Roundtable, comprised of the CEO’s of 200 of the largest corporations in the world, recently published an open letter proclaiming the exact opposite of the Friedman Doctrine, that the purpose of a corporation must not be solely to create profit for shareholders, but must also be to create value for a wide variety of stakeholders., These capitalist chieftains are not saying this exclusively to salve their souls. After all, they are capitalists, and they are saying this because they sense something new happening. A new generation of consumers won’t do business with companies that operate in the antiquated, predatory, Friedmanesque model.  “Woke” millennial consumers aren’t accepting it. Their POV on predatory capitalist enterprises of today?  “Change or die.  We’ll take either.”

So, the writing is on the wall. Capitalism and capitalists must evolve once again (as we always have and always should!).  If you run a company today, rather than resist this, my request is to get on the right side of history.  Get to work defining your higher purpose.  And then put it to work driving positive innovation and permanent change in your company, your community, and in the world. Your children and their children will thank you (by buying your products, for starters).

 

To become a more innovative leader, you can begin by taking our free leadership assessments and then enrolling in our online leadership development program.

Check out the companion interview and past episodes of Innovating Leadership, Co-creating Our Future, via iTunes, Google Play, TuneIn, Stitcher, Spotify and iHeartRADIO. Stay up-to-date on new shows airing by following the Innovative Leadership Institute LinkedIn.

 

About the Authors

Ty Montague co-founder & CEO of co:collective, a creative and strategic transformation partner for purpose-led businesses. Co: works with leadership teams to define their higher purpose and to bring that purpose to life through innovation in the customer experience. They call this process StoryDoing.  Ty published a book about StoryDoing in 2013 called True Story, and since that time the co: team has been fortunate to work with some of the most inspiring and progressive organizations and leaders, including Google, YouTube, LinkedIn, IBM, MetLife, Microsoft, the ACLU, Infiniti, Capital One, and Under Armour. He previously served as Co-President & Chief Creative Officer of J Walter Thompson North America and Creative Director of Wieden and Kennedy New York.

Maureen Metcalf, CEO of the Innovative Leadership Institute, is a renowned executive advisor, coach, consultant, author and speaker.

 

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