Why reimagining capitalism is a personal endeavour

My recent post about 'How to be a visionary leader and still have a personal life' in HBR called out how demanding leadership role can result in collateral damage to the individual and those around them. Whilst there's no magic formula to make everyone happy I set out four ways that might help: (1) think carefully about their goals; (2) discuss them openly with their loved ones; (3) invest in your own resilience, and (4) adopt a mindset of reinvention. I conclude by saying that there's a growing acceptance of the need for organizations to contribute more than shareholder value.

Shouldn’t leaders and their loved ones get more than shareholder value, too?

Prof. Rebecca Henderson's book 'Reimagining Capitalism: how business can save the world' has been instrumental in my thinking, both at the macro (the role of business in addressing big environmental and societal issues) and micro (the impact of leadership roles on the individual and others). Here's my review of her book.

Capitalism needs to become more responsible – a successful strategy should deliver more than shareholder value. Otherwise, companies free-ride, leaving governments and society to solve the world’s most pressing issues, specifically climate change, inequality and political instability. And these issues threaten the viability of every business, let alone our society and environment.

So it’s hardly responsible business practice to

“jack up drug prices but also fish out the oceans, destabilize the climate, fight against anything that might raise labor costs”

Strategy, she argues, therefore has to be a ‘both/and’ proposition to create “shared value” – enabling companies to make a purposeful contribution and while making money. To solve inequality, for example, we need lots of “good” jobs.

Market-based capitalism has “gone off the rails” for three reasons: externalities are not properly priced (the price we pay for fossil fuel doesn’t reflect their societal impacts), many people no longer have the skills necessary to give them genuine freedom of opportunity, and companies are increasingly able to fix the rules of the game in their own favor (e.g. through lobbying).

Henderson advocates five mutually-reinforcing steps to reinvent the system in order to create a new form of capitalism that is profitable, sustainable and just: creating shared value, transforming purpose-driven organizations, rewiring the financial system, encouraging greater co-operation, and rebuilding our political institutions.

And it takes a village. Purpose-driven, “truly-human” organizations treat their employees with dignity and respect, giving them a greater sense of empowerment, ownership and transparency. Investors play their part too, particularly impact investors: they have to take a longer perspective on returns and consider a wider portfolio of measures (e.g. economic, social and corporate governance (ESG)) to measure performance. Governments and regulators have to step up to intervene where necessary, and to make it easier for employees and citizens to make their voice count. Collective action between these parties is a critical element.

Given the complexity of the challenge, we need “architectural innovation”, which tackles the components of the system in which we live. And to conduct this innovation, we need a special kind of leader: “architectural pioneer….almost schizophrenic in their ability to switch from a ruthless focus on the bottom line to passionately advocating for the greater good,” sufficiently resilient to challenge the status quo, and courageous enough to express personal values.

There are plenty of inspirational examples to learn from. There’s the CEO of Norsk Gjenvinning who sought to improve the sustainability of his Norwegian waste business into a new, highly disruptive—and highly profitable – recycling-oriented business that created shared value. And the Unilever brand manager who had the courage to source 100% sustainably grown tea whilst also increasing customer demand in a price sensitive market. The CEO of Aetna, inspired by his own personal challenges, decided to pay his employees a living wage; a critical signal that created the “commitment, creativity, and trust that would enable him to implement his vision” while setting up new initiatives to transform its data platform, and front office capability. The chief investment officer of the Japanese Government Pension Investment Fund, the largest in the world, who decided to use ESG measures as the basis of investments.

The range, and depth, of sources and references is impressive. Henderson, who shares her personal motivations, has a gift for encapsulation and is forensic in sifting through the evidence, calling out the likely counter arguments before responding eloquently. Unafraid to call out companies that she feels have not operated ethically, she nonetheless remains an optimist. For example, she reminds us that we’ve already accomplished far more difficult things than reimagining capitalism:

"In 1800, 85 percent of humanity lived in extreme poverty. In 2018, only 9 percent did.”

Quite. Creating a more responsible form of capitalism is up to us, as individuals, after all.

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Photo credits: Tobias Tullius, Aarón Blanco Tejedor, Eddi Aguirre via Unsplash.