All the while, a steady stream of innovations
in agriculture, medicine, chemistry, information technology and transportation have emerged from these businesses not, for the most part, from governments that, at best, have created positive conditions for private enterprises to operate.
This, of course, is what capitalism is all about. And there is not the slightest shadow of evidence that any other known or conceived economic system would have achieved this mind-boggling performance in value creation and innovation in such a short time-frame.
Legitimacy lost
Why then is the image of business and managers so negative? Why are business leaders not seen as the true heroes of the post-war period?
The answer is clear: leaders - especially those in large corporations and the financial sector - have squandered the chance to be celebrated because of their arrogance, complacency and isolation from the communities that lie beyond their walls. The push to ‘maximise shareholder value’ started with a legitimate idea: the concept of ‘agency theory’ as first articulated in the mid-1970s by Michael Jensen and William Meckling. But since then the pendulum has swung too far, pushing far too many executives to put a premium on short-term results over the long-term health of the enterprise. Mounting pressure to ‘make the numbers’ expected by Wall Street has led many corporations to engage in predatory behaviour, aggressive HR practices with knee-jerk restructurings and massive ‘downsizings’ whenever clouds appear on the horizon and obscene remuneration policies among a self-serving cadre of management elites.
Roger L. Martin, dean of the University of
Toronto’s Rotman School of Management, has demonstrated how this shareholder- is-king mindset has diverted corporations from having a proper customer focus.
82 Management Today | June 2012
All of these odious trends were apparent even before the financial crisis struck. CSR programmes have not helped, either. Many of these initiatives were based on a philosophy of business apologising for its success by ‘giving back’ to society; or worse, to divert attention from socially harmful practices.
A critical turning point
The upshot is that despite the undeniable progress that capitalism has brought over the last 70 years, we find ourselves at a crossroads, a painful moment of truth. We need to reform capitalism as it is currently practiced, lest we see increasing calls to dismantle the system entirely. The stakes are enormous. In the aftermath of the recent crises, we are confronted with an avalanche of challenges - a world population growing towards 9 billion by 2050; a fragile global financial system; an unresolved sovereign debt crisis, especially in Europe, exacerbated by a system of social protection that has become unsustainable due to the pressures of an aging population; and shortages of energy, food and water supplies in major parts of the world. Yet, the biggest global dream at the moment is a ‘good’ job as Jim Clifton, CEO of Gallup, pointed out at a recent entrepreneurship conference. Given a deficit of 1.5 billion ‘good jobs’ worldwide, we can appreciate the magnitude of fulfilling that aspiration…
Each of these social challenges can be
addressed only with an unprecedented stream of innovations at all levels - products and services, business models and the practice of management itself. Hence, the big question: can a better and
stronger form of capitalism be realised? Can Capitalism 2.0 provide us with the means to create the economic foundation for a liveable world for all? And what would its underlying management model and management philosophy be?
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