My Prediction for 2019

I predict that in 2019 the topic of value creation will become a primary concern of policy makers, the professions (especially accounting), directors, executives, economists and journalists. This article provides an explanation of the several reasons for this prediction.

The tenth anniversary of the global financial crisis was marked in 2018. Upon the anniversary there were a flurry of articles asking if we had learned lessons from the the crash in 2008, and had we fixed the problems. The question we should have been asking is whether the system was ever likely to achieve sustainable widely shared prosperity, rather than trying to patch it up.

"Sustainable widely shared prosperity" is not my definition of the purpose of an economic system, but the definition of economic value given by Martin Wolf at the Drucker Forum in Vienna in November. In a recent article I suggested it should also be adopted as the noble cause of economics if it ever becomes a profession. Previously, when thinking about the noble cause of strategic management as a profession, I came up with something similar - the creation of value defined in terms of sustainable shared prosperity, where prosperity is defined in terms of human flourishing.    

If you accept sustainable widely shared prosperity be the goal of economics, and therefore of any economic system, consider the performance of the current system in relation to that goal. I think you will have to conclude that even before the economic crisis it was deeply flawed. The crisis merely highlighted the issues. And the only real solution if a fundamental rethink and redesign. There is no point putting a bandage on a cancer.           

Perhaps the most important article reflecting on the tenth anniversary of the crisis was by Martin Wolf. In “Why has so little changed since the crash?” he notes that after previous crashes, “people wanted change" and "they got it”. “The aim was a fundamental transformation”. But after the 2008 crisis all politicians and policymakers have tried to do is get us back to “a better version of the past”.

“The financial system is much as before, albeit with somewhat lower leverage, higher liquidity requirements and tighter regulation”. “Policymakers have barely questioned the relative roles of government and markets”. And, “few question the value of the vast quantities of financial sector activity we continue to have, or recognise the risks of further big financial crises”.

To Wolf’s observations I would add, "and no consideration was given to redesigning the system to ensure it is fit for purpose, or what that purpose should be". Thankfully I am not alone in proposing a radical rethink is necessary. There is growing recognition it is. The case was well articulated by economist Mariana Mazzucato, Professor of the Economics of Innovation and Public Value and University College London, in an article for Project-Syndicate titled “Who Really Creates Value in an Economy?”

Muzzacato said, “A decade after the crisis, the need to address enduring economic weaknesses remains. That means, first and foremost, admitting that value is determined collectively, by business, workers, strategic public institutions, and civil-society organizations”.

This gets to the heart of the matter. What is value and who decides what value is? In our current economic system value is only understood in terms of price. And the value produced by a nation (GDP) is defined in monetary terms. As a consequence, we understand “the price of everything and the value of nothing”. And, so long as this remains the case, we cannot expect to have an economic system that delivers sustainable widely shared prosperity.

Our poor understanding of the meaning of value has led to an economic system focused on the creation of money, not value. A system that is fixated by finance. This is because, as Peter Drucker said, "what gets measured gets managed". And, if we do not understand or define what real value is, and simply use a totally inadequate proxy (price), we cannot hope to effectively create real value. The 2008 crisis exposed a the serious flaws in economic theory, and in our totally inadequate accounting systems.

Accounting measures only that which we can give a monetary value to. Firms have no generally accepted means of accounting for, or being held to account for, anything else. Whilst always a problem, it is a massive problem today, particularly for investors.

The value of the firm is determined by its assets and its future value creation potential. Both are increasingly tied to the intangible assets (brand, reputation, intellectual property etc.) which are not accounted for in generally accepted ways. So, ‘investors’ must make judgements based on very poor information, or are forced to speculate, to take bets. Worse still, they instead bet on the likely movements in the market value of the firm’s shares on the stock market, leading to, what Professor Roger Martin called, the “expectations economy”.

This situation has led to businesses being run to create value based on a very narrow definition of it i.e. profits, rather than to create economic value as Wolf defines it, sustainable widely shared prosperity. This explains why businesses have proven less sustainable, their average life span having plummeted. It also means the social contract has been broken. Society gives business a licence to operate in return for its contribution to the real economy. As a result, people like Martin Wolf suggesting “We must rethink the purpose of the Corporation” which was the title of another excellent article he wrote in 2018.

The corporation, accounting profession, investors, policy makers, economists and firms generally are all just players and institutions in a broken economic system that is just not fit for purpose in its current form, and never will be.

It is for this reason I proposed the alternative which I call Valueism. It would ensure enterprise in any sector is focused on sustainable real value creation that is measured in broad terms and contributes to our shared prosperity, where prosperity is defined in terms of human flourishing. Linked to Valueism, I am working on the development of Social Contract Accounting as a new accounting standard to complement, and compensate for the failings of, traditional accounting. These are initiatives will both be developed further in 2018 with a programme of research-based initiatives. Some will be run in association with the Strategic Management Forum.

With the January 2019 introduction of the New Corporate Governance Code and the Guidance from the FRC, plus the Wates Principles for larger private businesses, I predict 2019 will be “the year of value creation” and there will finally be a debate about what we mean by value. This will help determine what society expects of business, and help business determine what value they create, who for and how. In short, they will need to understand the very foundations of strategy and strategic management. I wrote about the implications of the new governance and reporting requirements and their implications in an article in July 2018. They come into force this month.

As I have said many times previously, compliance with the new code and guidelines will be a major challenge for the directors of company boards to address. I usually evidenced this with research from McKinsey and Company, and reference to my own conversations with many experts in corporate governance, including the Chairs and Directors of a number of listed companies. One Chairman with decades of experience told me no board he ever sat on would have been prepared to meet the new requirements.

All of the above informs my plans for 2019:

New Order Leadership is the title of a conference that will take place in London on January 23rd and be repeated in other countries thereafter. It will also represent the start of a research-based programme of events. By now it ought to be clear, traditional approaches to leadership have been one of the most significant causes of almost every corporate scandal, including the mother of them all, the 2007/8 global financial crisis. Without re-thinking approaches to governance and leadership any change to the current economic system will be hard to implement. twelve speakers will give a range of perspectives on what needs to change. Visit the website   

Strategy & The Board is an initiative that will begin with a conference in the spring, to be followed by a one-year research programme exploring issues arising from the FRCs Guidance on the Strategy Report, but from an international, not a UK only perspective. Contact for details: [email protected]

Value Creation Masterclasses will take place regularly in the UK and internationally. They will be 2-day programmes to introduce Valueism and all the related approaches and tools. Contact for details: [email protected]  

Scenario-Based Strategy Masterclasses will also take place regularly in the UK and internationally. They will be 2-day programmes looking at the scenarios-based approach to the creation of new value opportunities and the preservation of existing value streams. (Next available dates, May 16th & 17th 2019). Request a brochure: [email protected]

Prosperity as the Purpose will be a two-day working conference in London on March 25th & 26th. The aim of the conference is to determine the journey strategic management needs to take to become a profession. The title is based on the suggestion the noble cause of Strategic Management must be the creation of sustainable widely shared prosperity, defined in terms of human flourishing. And this suggestion will be a discussion topic. The plan is to repeat the conference in other parts of the world later in 2019. Request details: [email protected]

Philosophy in Management will be an ongoing research-based programme of events to explore the idea that an understanding of philosophical thinking will lead to a significant improvement in the quality of strategic management theory and practice, and should be part of all management education. The first event will take place in the Spring of 2019. Request details: [email protected]

Facets of Valueism will be a major two-day conference in June 2019. You may recall we planned to run this event in 2018, but it had to be postponed when Paul Polman, CEO of Unilever was called to address the United Nations. The new date and details of this conference will be announced in January 2019. Request Details: [email protected]

My other activities include the development of:

The Faculty of Independent Strategic Management Consultants (FOISME) is a project I am working on in parallel to the Strategic Management Forum. And, linked to it is, the FOISME Platform offering a multi-media publishing, marketing and communications solution for experts who share a belief in Valueism. Membership is by invitation only. Visit the website 

Social Contract Accounting is a project linked to Valueism. They are two sides of the same coin. You can read more about Social Contract Accounting in this two-part article  

All general enquiries can be sent to: [email protected]

Finally, the Strategic Management Forum has a New Year offer on membership until 20th January. Details