Adam Smith’s The Wealth of Nations (1776), is an influence to the creation of companies and a great contribution to our understanding of markets. The ‘invisible hand’ as a metaphor for the power of markets to produce efficiency without the supervision of government is the cornerstone of modern economics for the developed world. Since the British Parliament passed the Joint Stock Companies Act of 1844, corporations have been relieved of any social purpose from the get go. Milton Friedman said, “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” Milton Friedman went on to chastise executives who imbued their companies with a sense of social purpose, saying: ” the businessmen who believe that business is not concerned only with profit but also with promoting desirable social ends, has a social conscience and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution etc, are preaching pure and unadulterated socialism. They are unwitting puppets of the intellectual forces that have been undermining the basis of our free society these past decades”.
A good thing done to excess? Maybe if you call to attention the pervasive greed, the scandalous poster boys such as Enron, Tyco, Oil majors, WorldCom, Siemens and other scandal ridden misfit privateer corporations, pirate company misteps and even corporate led wars. Have you seen the movie “The Corporation” ? it paints a rather harsh picture of corporations and a bleak future for us through their irrational quest for profits and economic hegemony.
However, while commanding fewer and smaller headlines, enlightened companies in growing numbers have quietly incorporated a resolve to help create a better world, right into their missions. Many are the companies that are taking on tasks traditionally considered the job of governments and NGOs. For example Starbucks uses its considerable purchasing power to improve the lives of coffee producers and the people in coffee growing countries. It offers growers multi-year fixed prices regardless of fluctuations in market prices. In exchange, growers must plow some of their profits back into educational, housing, healthcare and other social needs of their communities. Promote fair trade and you’ve got a Win Win for both. Include the community and you’ve got a win for all.
First time in history, that companies’ wealth economically rivals the wealth of most nations on earth. Of the world’s 100 largest economic entities, 43 are business enterprises. Their annual revenues are greater than the GDP of all but 57 nations. Within the next decade Corporations will be the majority.
Folks fearful of globalization see the growing power of companies as a dire threat that warrants government intervention. However, not many nations are likely to take actions that curb the growing power of business. They cannot afford to. Instead nations increasingly look for company synergies to help them solve big problems and in some cases they abdicate their own vested interests in favor of a corporate sponsor. Often this follows disasters or precipitates social unrest. Maybe people aren’t ready for this yet.
After a century of benevolent society behavior, developed nations such as old Merry England and the rest of Europe are finding it increasingly difficult to pay the bills. They are experiencing population shrinkage, which leads to falling tax revenues, and unprecedented growth in elderly populations, which increases the per capita cost of entitlements. This along with tax reform favoring supply side economics creates a Catch 22 situation for the exchequer. Add to this the costly folly of foreign police wars for oil or imaginary friends and you ve got a major leak under the bonnet in Mr Brown’s automobile.
Traditionally governments depended on taxes to cover costs associated with fulfilling their social agendas. Now, raising taxes is no longer politically or economically defensible. So, governments must look elsewhere for resources to meet public needs. One rapidly growing trend is selling the public infrastructures such as national companies, roads, bridges, airports, ports and prisons to private enterprises on a revenue-sharing basis. And in many cases building new infrastructure on a partnership with private and public companies.
Today I like to say that “open markets turn open minds” and forward leading Companies have moved on their own to address major social problems. The eco-imagination initiative of GE is one prominent example stemming from a departure from the Jack Weltch mindset. Like a growing number of other leader inspired companies, GE’s CEO Jeff Immel focused on profitable opportunities in taking green actions that benefit the company’s and product brand, the people’s homes as well as their pocketbook and in turn the environment their consumers inhabit. Seems to me like a multistakeholder initiative by any other name and a budding social mission. Well done Jeff. Other social issues capturing the attention of global companies include exploitation of workers in poorer nations, aging populations and the shrinking of the Middle class. For some of these issues companies launch easily forgotten marketing and PR initiatives but not really a mission critical effort. Therein lies the Dichotomy.
Yet the really big issues like the root causes of Environmental degradation, the blatant poverty, human rights, Injustice, world health for the poor, ethnic conflict, wars of attrition, genocides, failing health across the globe, failingdemocracy, the Billions of humans in the bottom of poverty, never seem to enter the radar of either corporations or governments as seemingly insurmountable problems or issues too political become white elephants. Adversely the herd mentality of leaderless groups of companies causes disasters such as the caving of all the US Telcos to a spying executive without due process of law or the capitulation of corporations to the dictates of Chinese censors as in the cases of Yahoo, Google and Microsoft show the glimmer of Orwell’s 1984 ever present in the weak leadership of these companies. How can a just and powerful leader of a company balance his objection to blatant powers with his desire to promote justice while still driving profits for the company?
It is here that we can influence the world as corporate citizens the most. If anything globalization has created the positive effect of the creation of global citizenry and that is most often a corporation. A transnational entity beholds a specific responsibility to the individual stakeholders, the world at large and ought to maintain a higher level of morality if it is destined to motivate transborder global solutions to today’s global issues. Here is where global leading CEOs are needed to tackle the great problems for the well being of their constituencies at large. For the many stakeholders in the world community and the globe itself. If we could consider other metrics in addition to profit as drivers of growth and corporate rewards, then it turns out we could fashion better and more independent socially engaged companies. It is unthinkable to me that a corporation as a global citizen is not held to the highest standard. And that standard should include full observance of the UN human rights charter as it applies to all the people affected by their actions. No US president or Chinese censor can force a company to overlook it’s own code of conduct if it is anchored first and foremost in human rights observance and a definite mission.
The intelligent CEO wielding quiet power, has tremendous wealth and resources at his disposal and can exert seesmic forces if he/she chooses. CEOs of global companies shouldn’t shy away from responsibility but instead should assume the mantle of leadership. The leadership vacated by government’s weak, inefficient, often corrupt, Gulliver tied, relatively resource poor, dictatorial, crony interest serving, inward looking and Darwinian selection challenged government office holders. There is a crisis of leadership, mostly in Government. Chalk it up to the poor payscale…
By contrast the quietly powerful CEO can override the national boundaries and exert change in a dignified manner for all his stakeholders. I am not alone saying these things as a CEO talking to other CEOs. There are many voices pushing for change.
Any intelligent leader of great corporations can easily get good counsel from our old friend Adam Smith. He wrote presciently for the new social consciousness endeavors of the all powerful Global corporations. Even after writing “The Wealth of Nations” in 1776, Adam Smith believed that his most important contribution to science and society was an understanding of the role of emotions as the basis of action and as the foundation for a moral conscience. After all Adam Smith’s first great book, “The Theory of Moral Sentiments” written in 1759 laid the foundation for understanding the moral context in which the invisible hand operates. Using Adam Smith’s vision for the CEO involvement in Social causes, we must follow the interconnections between Smith’s view of morals and markets. A fine read indeed. Much maligned Adam Smith’s thoughts interpreted by 20th century economists need to come into context with the earlier foundational reference work and his research on Moral values in Economies. Spending on research is a way to buy future profits but someone has to apply the earlier research to action and in the case of Adam Smith we just now begin to do this.
That is why I believe we need to create a mechanism for another Joint stock companies act in the Parliament to create hybrid social companies that will undertake clear missions and to separate them from their brethren who can be either NGOs, Social companies, Non-Profit companies or simply for profit ones. This will also be a way to reward the great leaders in the person of CEOs of the great companies. The same will create a new set of leaders with plenty of ammunition for social change and foster value creation via new Exchange that will take place in tandem with the existing stock exchanges. This can be a Social Exchange or a Moral Exchange or even a Goodwill exchange. In essence it will simply be a Fair Exchange for the future – our future. It will take an act of parliament to do this but it will be beneficial for companies and it will pass as a Goodwill Social Exchange. Especially for large scale multinational corporations Goodwill is the greatest tangible asset they carry across borders and in the heart and minds of the consumers. Even as we built the social companies of the future and the social exchange that will house them and trade in their shares, we must reflect a different set of metrics of performance, value creation, accountability and exchange istock certificates reflectingthem. Not very different than the Carbon Emmissions trading shares or credits today.
In doing this we must reflect further on Adam Smith’s moral values and perhaps we will assign additional and different sets of values in the shares. Certainly not just monetary values only.
This will help to create great communities in partnership with great new forms of corporate entities and most importantly will revitalize the mature global corporations infusing them with a sorely needed new sense of MISSION. Time is of the essence as the societies change fast and the sentiment towards corporations and their global citizenship even faster. We must create this Fair Exchange now and it shouldn’t be modelled on the old exchanges…
To put it simply: My friend Adam Smith is not pleased that wealth became uncoupled from virtue. Time to right a wrong…
PS: Many years ago as a student in Oxford, I visited Adam Smith’s grave in Edinburgh’s Canongate Kirkyard but couldn’t find it in a dilapidated churchyard. Finally today I think to have found him.
