One could legitimately argue that the capitalist system has won the battle and that capitalism is the winning formula. The building blocks of this global system are business organizations. They generate employment and tax revenue for governments. In addition, they create an environment that allows individuals to fulfill their ambitions while building a future for themselves and their families.
The expansion of the global economy in the past fifty years has stemmed from the significant growth of public limited companies. This has created large-scale employment at the global level, as well as creating more opportunities for individuals; it has also improved the standard of living of huge numbers of people in both developed and developing countries. However, the growth in the global economy has been driven by companies’ short-term attitude to generating financial value above all else.
From the perspective of “unattached” financial investors, business organizations’ success is measured by share price, profit, and dividends. As those of you who studied business or economics may recall, in 1976, Jensen and Meckling argued that ‘the singular goal of a company should be to maximize the return to shareholders’. Although they made this statement almost 40 years ago, many latter-day economists and accountants continue to promote such a view. The key question now is whether this narrow perspective is appropriate in the 21st century.
Today’s capitalist economy relies on the liquidity and viability of publicly quoted companies. This reliance is centred on the continuous growth of share value, which is governed by the stock market. One could argue that the stock market is an institution that allows independent investors to generate wealth by speculating on the short-term financial results of companies. As a result, it places little or no importance to stakeholders such as employees and the wider community. My own view is that the investor/stock market system has absolutely no concern for the long-term future of publicly quoted companies or for the future of the communities that those companies support.
The leaders of publicly quoted businesses are enticed to increase the share value of their companies and to demonstrate evidence of growth on a quarterly basis. Such a narrow focus often encourages actions that satisfy the interests of company executives and speculators while putting the long-term well-being of the company and the communities that they support at risk. The damage that this behaviour causes to countries’ economies and to society is evident to all.
It is our responsibility as change leaders to bring balance to the predominantly individualistic attitude and the narrow focus towards generating power and personal wealth. We need to lead the way through our unconditional commitment to doing the ‘right thing’. To me, this means that all our actions and recommendations need to take into account the well-being of all stakeholders – staff, managers, leaders, customers, service providers, investors, and local communities.
While I appreciate that this may sound romantic and far-fetched, we can already see a shift in that direction. When Jack Welch calls maximizing shareholder value ‘the dumbest idea in the world’, then my views no longer sound so implausible. Unfortunately, however, I believe it will take many years before the value of a more holistic view of the roles of companies in society becomes a cultural norm.
In the meantime, the one thing companies cannot ignore is the inadequacy of command and control style of management. In order to attract, motivate and retain the right people – as well as foster the agility companies need to operate effectively in a global market – we must create an empowering environment.
Empowerment does not mean simply allocating responsibility and holding people accountable. When one’s ability to perform is constraint by a lack of appropriate skills, as well as uncompromising management structures, processes and procedures the accountability becomes meaningless.
An empowering environment encourages individuals at all levels to innovate, implement change, make mistakes and to learn through proactive coaching relationships. In addition to taking responsibility for themselves, their teams, the results they produce and the satisfaction of their external and internal customers. The foundation of such culture is instilling a shared purpose and a shared vision across the organization; without it, empowerment will only cause frustration, waste, and confusion.