Can Inclusive Capitalism be the next Thing?

Purpose and Profit are inextricably linked. Profit is the result, Inclusion a natural side effect.

Shareholder Value capitalism is not good capitalism. It created a lot of financial wealth though. The termination of Bretton Woods was a turning point for the financial systems of most countries in the world.?

Capitalism helped escape from extreme poverty and transform countries and societies from agricultural to industrial during the last 120 years.

Back in the year 1900, 70% of the world population was living in extreme poverty, with less than $ 2.- available income per day. It took 76 years to lift another 20% of out of extreme poverty. We were at 50% in 1976. 2017, just 41 years later, twice as many - 40% escaped from extreme poverty. Today less than 10% of world population is living in extreme poverty. What an effort!?

Our economic model was creating so much wealth for so many people in the world, it helped bring all but one billion people out of poverty. But it put our planet with its resources into climate change, growing inequality in salaries, water and resource scarcity, soil degradation, loss of biodiversity.?

Is capitalism, as it was during the last 70 years, the right economic system? What changes are needed that an?inclusive capitalism is creating long-term value for all stakeholders – businesses, investors, employees, customers, governments, communities, and the planet??

World GDP rose significantly during that period. Ass did entropy. What is entropy?

?Entropy is business created from violence, crime, drugs, environmental damage, waste of energy, military, inner safety, private safety, terrorism, social unrest, strikes, unemployment, health related issues, traffic jams and gambling. The world GDP in 2004 was 55.000 billion. 14.000 billion was the sectors without health-related issues. This is 25% of world GDP. Another 8.000 billion are from health-related issues, which is 15%. The total cost of entropy in 2004 was 40% of world GDP. This is the major factor to inhibit growth and further development of the world-economy. The entropic sector shows an alarming level of illness of the world. Special attention is on??negative health effects. Burnout is a rising factor, coaches, life- and social counselling is booming, the level of engagement of employees is at an alarming low rate, slowing down the potential of companies and in society. That means, physical, mental, social and ecologic disruptions and diseases are the biggest obstacle for growth for the world economy and at the same time form the biggest reserve for productivity and growth. The main source of entropy is the lack of purpose in business and personal life, lack of company culture stemming from a lack of moral.?

Setting profit as the only target in business, prevents people and companies to foster productivity and growth. 85% of adults worldwide are not engaged or are actively disengaged at work. We need 1,7 planets to feed the world. 40% of world GDP are wasted by entropy. Putting purpose before profit does strengthen moral as the foundation of an integrated society and the business world.

Unleashing the power of people for companies and the economy

There are companies outgrowing others by far. They are magnetic for employees and customers. Employees go the extra-mile and understand their contribution to an overall purpose of the company. Yet the findings on a global level are different.

The 2018 engagement index from Gallup shows that the percentage of actively disengaged adults in Western Europe with 19% is almost double from engaged people 10%. On a global scale 15% are engaged, 32% of working-age adults have a “good job”, 85% of adults worldwide are not engaged or are actively disengaged. Western Europe ends up as second to last on a list of 12 worldwide regions ahead of East-China. The positive signal is that the percentage of actively disengaged employees decreased significantly since the great recession in 2009 from 26% to 17%. A great manager is among the five workplace qualities employees rate as most important. 45% of disengaged employees have considered leaving because of a bad manager. 53% of German workers say they felt burned-out during the last 30 days.

There is more laughter and happiness in countries less developed, than in countries well developed. The immense pressure on employees, families and companies and the ever-growing speed of change and innovation is the consequence of a mislead economic system and society with lack of moral and ethical boundaries to interact with each other. As a consequence, mental illnesses are reported to be the source of physical disease at a rate of 40%. Western medicine reports to have 31.000 clinical pictures, but not one health-picture.?

Renewable resources & Bretton Woods

Although environmental pollution was evident by the year 1970, nature could reproduce what we were taking. Beginning with 1971, according to Global Footprint Network? we were taking mor than nature could renew. Since then, overshoot day is earlier in the year. In 2021 it was July 29th. Back in 1970 one planet was enough to supply mankind, in 2021 we need 1,7 planets to reproduce what we take from nature.?https://www.footprintnetwork.org

In the early 1970ies markets changed from provider markets to buyers’ markets. Consumers demanded better products for less money. And businesses were able to deliver what customers wanted. This in turn led to rise of competition at an incredible scale. Since then, we were producing more than we need.?

Competition became even more intense and a dominant selling argument was a “lower price”. The role of?Competition, in capitalism is a founding pillar: through firms’ freedom to enter and exit markets, maximizes social welfare, that is, the joint welfare of both producers and consumers; Consumer’s welfare is declining. But there is too much power in the hands of too few people. The social component of capitalism is under threat.?

The new and important factor in the equation is nature. Since more than 50 years, people from all over the world meet at climate conferences to find common ground how to tackle climate crisis, pollution, loss of agricultural land, extinction of species and plants. We are not able to meet what was agreed in Paris. And this is just 50% of what is needed to keep the rise of temperature below 1,5 degrees.

From Shareholder Value to Stakeholder Value

Like disconnecting our brain from the heart, the disconnection of purpose from profit leads to bad decisions and unhealthy results in business and society. There is no integrated fairness across generations?so that one generation does not overburden the planet or realize near-term benefits that incur long-term costs, at the cost of future generations.

The purpose of a Corporation

Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance. Each version of the document issued since 1997 has endorsed principles of shareholder primacy – that corporations exist principally to serve shareholders. With this announcement, the new Statement supersedes previous statements and outlines a modern standard for corporate responsibility.?The CEOs of Business Roundtable adopted a new?Statement on the Purpose of a Corporation?declaring that?companies should serve not only their shareholders, but also deliver value to their customers, invest in employees, deal fairly with suppliers and support the communities in which they operate.

World Economic Forum founder Klaus Schwab said: “It is more than just producing profit for shareholders.” Will the CEOs deliver? Larry Fink, CEO of BlackRock, the world’s largest investor takes a stand for: “Purpose and profit are inextricably linked”, Purpose being in the lead, profit the result.

A Harvard Columbia study found that Purpose creates a 5-7% premium per year.?

Purpose is the foundation to discover and identify what the business world, society and the planet need and it creates the future playfield where and how to position a product or service to make a difference.?

Purpose creates a company’s culture, its values and principles, the why we do what we do, how, when and with whom we deliver and fulfill what we promise to stand for to position our company and brand in the mind of the customer. A higher Purpose impacts what businesses do for society and nature, it is the implementation directive for a company’s technology, its operations and utmost important, our employees to make businesses profitable and customers happy.?

A higher Purpose needs to be at the heart of strategy and positioning. It is the incorporation of a vision, the possible spot in the customers’ mind to store the company’s valuable offer. We must create, reinvent, reshape, build our future connecting a higher purpose with a meaningful positioning. We must stay to what we want to stand for and adapt fast. We have to create a great journey together with our employees.?

What’s the purpose of purpose?

The purpose of business-purpose is to both run better companies, and to run companies better. Purpose-driven companies make a positive difference in the lives of their employees, their communities, and the world. Diversity and inclusion, giving back to communities, and many important global environmental and social issues – from climate change to LGBT rights to ending the war on drugs, can be dealt with much easier.?

But that is only half the story. Purpose-driven companies run better. How?

Employees are happier. Businesses have significantly higher rates of employee engagement and retention than industry averages. This is wonderful for moral – and productivity. Keeping a great team together is key to any business’ success. Recent research at Harvard shows that companies with a ‘higher purpose’ are more than three times as likely to retain their employees.?

So, we know that being purpose driven provides a company the competitive edge, staff confidence and strong innovation. Our friends at Unilever have found that their Sustainable Living Brands grew 30 per cent faster than all other brands at the company in 2015. It’s also good for moral. Deloitte found that companies with a strong sense of purpose were almost twice as likely to be confident about business growth in both the short and long term.

A Harvard Columbia study found that Purpose creates a 5-7% premium per year. “Purpose and profit are inextricably linked”, Purpose being in the lead, profit the result.?A Korn & Ferry 2011 – 2015 study shows , that Purpose driven businesses show a??CAGR of 9,85% vs. 2,4%. It also shows that 90% of managers are convinced that purpose driven leadership will lead to better long-term financial results.

The IMD Business School found that companies with a well communicated purpose are having a 17% higher financial performance. A Deloitte study shows that 63% of millennials are putting well-being of society over the pursuit of profit. 70% of adults in USA say, that it is important to make a difference in the world. According to a PWC study??– 73% (39 industries) of companies are engaged, because they are purpose driven, vs. 23%, who are not.

Harvard Professor Michael Porter reports from a Harvard study - purpose driven firms that prioritize a long-term approach over short-term profitability have been shown to have higher brand loyalty, employee retention rates, better resource allocation and an overall competitive advantage.

Business purpose drives better companies, and in turn it helps companies run better.?Without purpose and meaning there is dysfunction in society and business.?

If you can’t describe the value proposition of your company, you don’t understand what you are doing.

“Purpose is the foundation to discover and identify what the business world, society and the planet need and it creates the future play field where and how to position a product or service to make a difference.”

Purpose enables a company’s culture, its values and principles, the why we do what we do, how, when and with whom we deliver and fulfill what we promise to stand for to position our company and brand in the mind of the customer.

A higher Purpose impacts what businesses do for society and nature, it is the implementation directive for a company’s technology, its operations and utmost important, our employees to make customers happy and businesses profitable.

There are millions of projects and innovations on the way to reduce pollution, waste and help societies to strive. As the human body, everything is a system. If parts of the system are not integrated, the system is doomed to die. Working together to integrate all these efforts into one system is the solution.

Let’s do the possibly best to get it right.

Univ. Lektor, Mag. Lorenz Wied Baumgartner MBA

www.wied.at