The firestorm that raged through finance and other companies over the last few years exposed the deficiencies of the current brand of capitalism. The naked greed and short-term thinking that characterised much of commercial world was over-looked as consumers enjoyed a bonanza based on the cornucopia of cheap finance.
But as we stand surveying the wreckage, with hindsight, more of us can see the flaws in the system. In the March 2011 Harvard Business Review, Dominic Barton, of McKinsey and Company identifies three areas to create a more sustainable and kinder capitalism:
- fight the tyranny of short-termism
- serve stakeholders and enrich shareholders
- act like owners
The equities markets have developed a hummingbird metabolism. Barton identifies that “roughly 70% of all U.S. equities trading is now done by ‘hyperspeed’ traders – some of whom hold stocks for a few seconds”. This is hardly the basis for a long-term company-investor relationship. When oil prices peaked at $US140 a barrel, for every barrel of oil consumed in the U.S., 100 were being traded. These short-term market signals generate short-term management thinking, pursuing favorable quarterly results rather than longer-term thinking. There are encouraging signs that the lessons are being learned and some companies are refocusing on longer timelines.
Barton’s article confirms for me that the stakeholder focus is now becoming mainstream. Capitalism is in the twilight of its hunter-gatherer phase, as companies learn to focus on more than the singular pursuit of profit.
“In 2008 and again in 2010, McKinsey surveyed nearly 2,000 executives and investors: more than 75% said that environmental, social, and governance (ESG) initiatives create corporate value in the long-term. Companies that bring a real stakeholder perspective into corporate strategy can generate tangible value even sooner”.
The transition from hunter-gatherers to corporate farmers will see companies becoming more embedded in the communities they serve and more relevant to them. There are two reasons that this has to happen – the first is that the predatory relationships in places such as the supply chain are unsustainable. And the second is that the public, over time, will become more insistent for ethical and sustainable corporate behaviour.
More on predatory relationships
Lets consider the chocolate industry. A BBC Panorama documentary exposed the widespread use of child slave labour in West African cocoa plantations. And the small farmers who actually grow the cocoa are paid so little, that marginal profits are forcing them to look elsewhere for income.
So the chocolate you eat, could have been produced by slave child labour. As the world is increasingly interconnected, this is an issue from every one in the supply chain, from the farm labourers, to the end consumer. Fair Trade chocolate overcomes this issue, by establishing labour and environmental standards, insisting on schooling for children and setting fair prices insulated from market fluctuations. Large chocolate manufacturers, such as Cadburys are including Fair Trade chocolate in their offerings. They are limited by supply. So the big challenge is to move as much chocolate production as possible to the Fair Trade model.
This is more than a moral issue for consumers. It is also a security and economic issue. The largest chocolate producer, the Ivory Coast, continues to be embroiled in conflict. Impoverished conditions are the culture for the conflict germ. We are all stakeholders.
Act like owners
Barton’s third point encourages organisational leaders to act like owners to engender a longer-term focus. This includes more commitment from board members and more sensible CEO pay. I recommend his article.
Going deeper, we need to challenge the assumptions that drive hunter-gatherer capitalism. These are revealed in the language of capitalism. For example justifying a dodgy business deal with the phrase “business is business” tells us that business defines its own rules and is not answerable to broader public sentiment. In a stroke of brilliance, John Elkington coined the phrase, “triple bottom line” – a discursive tool that eventually will see the phrase “the bottom line”, with its implicit dominance of the profit motive, fade from prominence in business discourse.
Of course, hunter-gatherer capitalism is ably supported by (up until recently) unbridled consumerism. I would like to explore the relationship of these two bedfellows, but I will leave it for another post.
And I am not saying we need to abandon chocolate. But if we eat a little less, and pay a little more for Free Trade chocolate – we will all be better off!