Stewardship: a 21st Century Innovation in Business Governance and Accountabilty
Made Possible By Innovations in Fiduciary Finance, and there Innovation of Fiduciary Activism
Marko Jukic writes in his article titled When the Mismanagerial Class Destroys Great Companies, published in Palladium Governance Futurism:
“the problem seems to stem from a particular way of thinking about what a company even is….”
First, words matter here.? Words are the messengers of meaning, and it is necessary to choose the right messenger to ensure that the meaning that is being understood is the same meaning that is being intended.
Second, we cannot think about a company without also thinking about the economy, because the meaning I receive from the author in their use of the word “company” is a reference to a basic building block of the economy.
If we accept the current framing of the economy, which is espoused by a philosophy of the economy, and of our being human in the world, in society through economy, that some associate with the label Neoliberalism, and that we, living in the opening decades of the 21st Century, inherited from the closing decades of the 20th Century, then we think about the economy in terms of the production and distribution of goods and services through market mechanisms for using price to allocate scarcity within the population.
Within this framing of the economy, we think of a company in terms of production and distribution. What is being produced and distributed is not important. How much is all that matters.
This framing of the economy supports the social contract within which we now are living, that calls on each of us and all of us to produce and consume more, so the economy can gives us more, through companies that produce and distribute more, on the promise that more will always be better.
Quality of life is reduced to quantities of exchange measured in prices paid in money, as mere numbers, stripped of their qualitative impacts. The actual lived experiential connection that actually always exists between quantities of money and quality of life is cancelled.
In its place, we are taught to accept, without question, the axiomatic assertion that more will always be better.
There is only one place where this axiom holds true: the capital markets.
These markets are created by design to mediate the tensions between individuals, who are idiosyncratic and opportunistic and need incremental liquidity in their investments, and enterprises that need longevity at scale in their financings.
Here we have a teachable moment about the importance of precision in the use of words as messengers of meaning in the difference between "investment" and "financing".
Both words reference the same transaction, but from opposite ends of the exchange.
The transaction in discussion is:
This transaction is termed an investment, from the perspective of the party flowing the money. It is a financing from the perspective of the party using that money, to do its work, for a time, at a cost and on terms.
The difference in words for messaging the same transaction underscores the differences between the needs of the party flowing the money, called the "investor", and the needs of the party using that money for its work, for a time, at a cost and on terms.
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We propose calling the party using the money an "enterprise", rather than "company" or "corporation" for precision in meaning.
This configuration of words as messengers of meaning empowers us to see business as the basic building blocks of the economy as:
This more expansive way of seeing the economy is less reductionist, and more informative, than "the production and distribution of goods and services". It shows us that there is more to see, when our inquiry is into the governance of the economy for the good of society, and for each of us, as individuals, living together, in society.
This more expansive way of seeing the role of enterprise in the economy shows us the importance of Finance, and financiers, in forming the businesses that form the technologies that for the choices that form the economy that forms society, and our shared future, and the possibilities from which we each can choose when forming our own personal and private worlds for living our own best lives, personally, and privately.
And it allows us to evaluate enterprise qualitatively, in three dimensions.
One, as a configuration of Knowledge, Networks and Routines for putting learning into action creating and exchanging abundance for a price.
Two, as a social contract with popular choice that flourishes for a time, and fades in the fulness of time, as times change, from time to time, and over time, and humanity evolves prosperous adaptations to life's constant changes through inquiry for insight and new learning that can inform innovation, making new learning, and the new choices that can be formed through application of that new learning, more popular, as better fit to the changing times, while letting previously popular choices fade into history as a good fit at an earlier time.
Third, as a convergence of cash flows along six different vectors of supply (OPEX); community (Compliance); assets (CAPEX); workers (Payroll); customers and competitors (Sales/Revenues); and Cost of Money (interest, dividends, growth, wealth for innovators).
The difference in needs between investors and enterprise, as counterparts to an investment/financing transaction, creates the need that is also an opportunity for a third actor in our little drama, that we have referenced using the word "financier", above, as one who is expert in weaving together the details of a transaction that is sufficient to the diverging needs of both the investor and the enterprise, binding them together through a contract that includes terms for the governance of the business being financed by the investment.
Who that third actor - that financier - is determines the rules of governance by which the enterprise being financed will be governed.
When that third actor is the capital markets, the rules of governance serve the needs of those markets, for volatility and growth in share prices to deliver liquidity to market participants that market participants require as a sine quo non to participation in those markets.
When that third actor is a social trust negotiating for Actuarial Compliance as to income and Fiduciary Faithfulness as to safety ongoing into a dignified future, the rules of governance meet the needs of those trusts for suitability to the times, longevity over time and fairness all the time, for delivering quality of life to so many directly, that they are also, of necessity, quality of life for us all, consequenlty.