Which of the IMF's 190 member nations are mature enough to reap the wealth & dividends of ESG?

Maturity Institute (MI) research evidence is clear and unequivocal: ESG is the best thing to happen to the world’s population since capitalism first emerged. There is no downside. Yet a recent Financial Times article, 'ESG backlash in the US: What implications for corporations and investors?' implies only negative effects. Nothing could be further from the truth.

Mature Corporations, already being run by mature executives, accountants, lawyers and happy workers, already exist. They might be rare but Schumpeter would be proud to see his theory of creative destruction bringing such badly needed reinvigoration to a perverse mode of capitalism that was encouraged by Milton Friedman’s New York Times article of 1970 “The social responsibility of business is to increase its profits”. Mature ESG both increases profitability and makes it responsible.

Any Americans who regard ‘ESG’ as incoherent, or a threat, should revisit the very principles on which the USA was founded (‘The Puritan Gift. Reclaiming the American Dream Amidst Global Financial Chaos’, Kenneth & William Hopper, 2009). Or, maybe Republicans should at least come to some agreement with the Democrats that all nations have to determine their own, sustainable, socioeconomic system for themselves. No nation can function efficiently or effectively while it is still arguing about what system to choose.

Maybe a good place to start reviewing ‘nationhood’ would be to revisit the IMF’s own ‘Back to basics’; to remind us where this all started, 250 years ago. It states: -

“Free markets may not be perfect but they are probably the best way to organize an economy.

Capitalism is often thought of as an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society.

The essential feature of capitalism is the motive to make a profit. As Adam Smith, the 18th century philosopher and father of modern economics, said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. Both parties to a voluntary exchange transaction have their own interest in the outcome, but neither can obtain what he or she wants without addressing what the other wants. It is this rational self-interest that can lead to economic prosperity. Book I, Chapter 2 of?‘Wealth of Nations’ 1776.”

Mature Capitalism accepts Smith’s fundamental condition, for nationhood, of reciprocity. There is something in it for every single stakeholder, who is motivated by their own interests but see the sense in mutual satisfaction. America’s ‘Shareholder capitalism’ is a perversion of this principle, supported by ideology rather than evidence.

The Maturity Institute’s ‘Model of Responsible Capitalism’ (2019) is not based on any ideology. It is a down-to-earth, explanation of the phenomenon of organizational management and what causes some corporations to work very well, while serving the interests of the whole of society. Our purpose is equally simple. To enable every human being on the planet to create as much value as they possibly can; not only for their own benefit but the benefit of everyone else on the planet. Any nation that thinks it can sustain itself by looking solely after its own interests will find itself having to maintain a huge, value destroying, defence budget.

While MI takes its lead from Adam Smith’s visionary genius, we apply it in a very practical way; with all the existential, ESG issues factored in. Our methodology offers a fresh interpretation of Smith’s wisdom (including his earlier ‘Moral Sentiments’ of 1759) by simply replacing the word ‘profit’ with ‘value’. We now invite the IMF to adopt our very practical model in helping all nations to release their true potential, to increase their own wealth and to do so without disharmony or the degradation of the planet. By redefining ‘value’ and measuring corporations against this definition (e.g. What is the value of one good idea from an employee?) we can link valuable ‘intangibles’ to the total value of the business. We still use conventional, financial and accounting measures of cost, output, revenue and quality but aggregate them with ESG included. This views corporate valuation, and societal benefits, in the much broader context of ESG. We call it Total Stakeholder Value (TSV).

This measure of TSV not only highlights the value created but identifies any value destroyed. It covers the widest wide range of factors and measures; including environmental damage, unsafe products, corporate governance, business integrity, ethics, inclusion et al. Together, they add up to a score of the Wealth of a Nation that can immediately be compared alongside conventional economic indicators such as GDP. TSV is designed to give everyone confidence that the world is back on track, moving in the right direction.

Reciprocity has to be factored-in at every stage of management decision making. In effect, asking every person on the planet how they can satisfy their ‘own interests’ while contributing to the ‘greater good’; that is, the Total Stakeholder Value across the entire world. All of our futures are more interdependent now than we had ever bothered to realise. More importantly, we need to run the world on a single, commonly agreed, system. ESG is a 'whole system' concept that only works with a practical, whole system, measurement and management system. The planet is a natural whole system. It cannot be dis-integrated.

Our overall measurement system is called OMINDEX (‘Organizational Maturity Index’). We have tested it through academic research with business schools such as Cambridge Judge Business School and have very convincing evidence (we would argue proof) of the higher returns, which are causally connected to higher OMINDEX ratings and higher TSV. ?Perhaps more importantly, the veracity and validity of OMINDEX has already been tested by credit rating agencies, financial analysts and investment professionals.

So, what steps can any Board, CEO, Regulator or Policymaker take today, to help their own transition towards a Mature Socioeconomic System?

1.??????Read and understand our core text ‘The Mature Corporation – A Model of Responsible Capitalism’.

2.??????Start to answer our 32 Questions, which produce a corporation’s Organizational Maturity Rating.

3.??????Understand and acknowledge that ESG, in a mature organization, transcends party politics and narrow interests. There is no polarisation in the world of mature nations. Distinctions between ‘Left’ and ‘Right’ becoming meaningless when the common measurement of Total Stakeholder Value can be positively correlated with conventional economic measures such as profitability, shareholder value and GDP.

4.??????Trial the methodology yourself, with one or more, willing, corporate partners (or any other form of organization) from within your own, specific, national environment. Begin with a baseline OMINDEX score/rating and analyse any initial steps necessary to improve specific measures on specific questions.

5.??????Choose a mature, business school partner, willing to explore everything that mature management has to offer. Read our AMBA Magazine, Ambition, article on Re-designing the MBA (pp. 32-38).

How long will this Total Stakeholder Value journey take? As one of the Maturity Institute’s original founders wrote, in 2013, ‘maturity is like pregnancy, you cannot become half-mature’. Once the seed of mature wisdom is safely and firmly set, it will guide you through the rest of your lifetime. A lifetime that should be longer, more secure, fulfilling and peaceful. These are the real, wealth dividends of ESG.

Maturity Institute

22nd June 2023

[email protected]

stuart [email protected]