REDEFINING CAPITALISM – MORE THAN MONEY

We may be witnessing a turning point in history. The shift in business towards fulfilling a social purpose profitably – not just making money, but simultaneously producing social and environmental benefits.

If this is a lasting change where the corporate purposes of businesses are expected to be aligned with their social purposes, then we are entering a new era of capitalism.

The key features of this change are:

    • The rise of business enterprises that operate to secure the public good and societal benefits, as well as advancing their private commercial interests. This social purpose is not altruistic, but a source of competitive advantage and productivity improvement.
    • Increasing awareness that it makes good business sense for corporations to serve the needs of a wider group of stakeholders, rather than maximizing profits for shareholders alone. This is being recognised in corporate regulatory regimes in some jurisdictions.
    • The power to drive performance and productivity does not reside exclusively within the boundaries of the firm, its owners and managers. Rather, business success can be determined by the strength and breadth of the firm’s collaborations and relationships with external interests, e.g., researchers, competitors, supply chains, regulators.
    • Similarly, there are increasing calls to widen the measures of business success to recognize the significant contribution of intangible assets. Currently, while financial and material capital is measured, the role of human, social, intellectual and natural capital is under-valued. There is a push to redress this.

Greater prominence is being given to an authentic, positive business contribution to society and to the importance of partnerships and reciprocity between business and the community. This is being driven by the cumulative effects of a number of factors, as follows.

    • Greater stress on business’ social licence to operate, given community mistrust and incidences of corporate misconduct.
    • The mainstream take-up of internationally-recognised UN Sustainable Development Goals embedding practical action by firms on environmental, social and governance standards.
    • Competition for the attraction and retention of talent and being ‘an employer of choice’, especially in the eyes of younger generations who are tomorrow’s leaders.
    • The focus on higher purpose and community collaboration motivates greater discretionary effort and fosters new styles of business leadership required to manage open source innovative business models for transformation and growth of businesses.
    • Disillusionment with the distribution of the benefits of globalization, questioning the orthodoxy that attraction of investment in knowledge-intensive industries and skilled workers mainly in metropolitan areas and innovation hubs will ‘trickle down’ to declining regions, industries and communities and their low-paid, insecure workforces. There is a stark contrast between the advantaged and those left behind which jeopardises social cohesion.

Research and writings by two eminent Oxford University academics, Professor Colin Mayer and Professor Paul Collier, provide a substantial analysis of the forces of change impacting on today’s corporations and on the future of capitalism. Professor Mayer, in particular, rethinks the concept of the corporation and social purpose, and the implications for business strategy and for public policy.

The Australian Institute of Company Directors (AICD) quotes a presentation by Colin Mayer where he succinctly summarises this new understanding of the corporation and its purpose:

Business performance “is not only about producing profits, but about generating profitable solutions for the problems of society and the planet.” 

AICD and other analysis from the Boston Consulting Group distinguishes between a corporation’s mission as “the what”, vision as “the where to” and purpose as “the why”.  Purpose sets out a corporation’s fundamental reason for being. It is founded on the answers to two basic questions— who are we (what are our distinctive and authentic strengths) and what need do we fulfill in society.

A clear statement of purpose guides the evolution and execution of strategy and provides guardrails for decision-making. That is, a clear purpose helps businesses to navigate what to do and not do and where to best allocate resources.

Debate about the changing role of business in society, and hence the redefining of capitalism, is gaining ground. The discussions now seem to be about how, not whether, businesses can operate to maximize shared social and economic value.

REFERENCES

Paul Collier and Colin Mayer, The future of the corporation, economy and society, presentation at Cardiff University, YouTube, 14th May 2019.

Paul Collier, The Future of Capitalism, Penguin Press, July 2019.

Colin Mayer, The future of the corporation: Towards humane business, Journal of the British Academy, volume 6, supplementary issue 1, pp 17-47, posted 19th December 2018.

Domini Stuart, More Than Money, Company Director magazine, AICD, February 2020, www.aicd.com.au

Boston Consulting Group, How to Harness the Power of Purpose, BCG Perspectives, February 2020.

John Tomaney and Andy Pike, The economics of belonging: the hidden costs behind large cities, Prospect Magazine, 19th September 2019, www.prospectmagazine.co.uk

Stephen Bartholomeusz, Business leaders see the light of ‘moral capitalism’ at Davos, Sydney Morning Herald, 23rd January 2020.

24th March 2020