British historian Arnold Toynbee concluded his 25-year study of 21 civilisations with the observation that “Great civilizations die from suicide, not by murder.” Toynbee observed that each civilisation—or cultural system—has within itself the seeds of its own change and destruction and that even the most prosperous and sophisticated civilisations are vulnerable to self-inflicted ruin. This is a warning that merits attention by all successful civilisations, including our own.

Wars have created ‘successful’ industries. Misconduct and criminal behaviour have created ‘successful’ industries.

Are these industries worthy?

Is it time to re frame the definition of success?

Can we broaden organisational purpose to include non shareholder concerns and costs?

Some months ago, at an event for Board members, I shared how LeisureNet Ltd had created a strategic attention deficit disorder by speeding up progress instead of continuing to nudge their core business. Where a theatre of success with vanity metrics that said nothing and claimed everything created a halo that blinded institutional shareholders to the reality.

I shared how LeisureNets’ short term outlook incentive and reward structure began with the corporations’ biggest lie. This lie? The financial reports and how LeisureNet had been recognising revenue. As soon as the financials conversation was initiated, the political games began. Hyper competitive and rapacious greed set in and pretty much everyone wanted more than someone else—and more than is consistent with norms of fairness—and of course this is how social injury, both in the corporation and society occurs.

On reflection and discussion of this flawed strategy with the Board member participants, I suggested that the LeisureNet Board members might have considered what LeisureNets’ corporate purpose was. Was it to operate only within the straitjacket of shareholder maximisation that shaped warped financial incentives for corporate executives? Or was it’s purpose much broader than that? Was it fair for executives to heavily discount the importance of non-shareholder concerns and costs? As a South African I shared how I remembered when General Motors and Pepsi signalled their corporate purpose when they pulled out of South Africa in response to public protest of its apartheid regime. That was 34 years ago, in 1986.

To my astonishment, bringing the word ‘purpose’ into the room appeared to unleash a defensive, fear-driven backlash. One participating board member, cynically suggested that I ‘would say that’ as I ‘wasn’t a ‘team player’ and proceeded to tell me that that was why, as a whistleblower, I had suffered as a result. Another bemoaned that their company had already lost a lot of money because they were attempting to lead the way in halting the use of plastic bags in their retail stores and that it was this that had resulted in smaller dividends being paid to their share holders. A contributing panel member sceptically jumped right in, as bullies do, to nebulously suggest I was leading the conversation towards a ‘war on success’.

Let’s explore.

What is Success? What is Worthy of Success?
Unfortunately, too many people and corporations index their success and associated ‘worth’ to the amount of money they make, for both shareholders and themselves, without factoring in how that money is made. We seem to be absolutely wedded to financial metrics as if corporate performance is only about the current share price.

I believe that if corporations and ourselves shift our mindsets to begin to measure worth by net-worth, we, as a society, have a chance.

For over two thousand years, corporations have steadily changed their purposes and functions. The earliest corporations, created in Roman Empire times and later during the Middle Ages by the Catholic church and municipalities were set up to perform such public services as administering towns, satisfying spiritual as well as material needs and providing seats of knowledge and learning. The key requirement of these corporations, whether chartered by the church or a political authority, was that they bind people together for long periods of time—in contrast to entrepreneurial ventures (usually partnerships) that had funding of limited duration. Over the centuries, corporations evolved from serving the purposes of towns, guilds and hospitals to building and operating canals, railroads, lending, insurance, and finally financial trading businesses through partnerships. In other words, the purposes and functions of the corporation evolved to include not only the original public mandate, but also private interests. In due course, and certainly by the beginning of 20th century, the corporation was progressively losing its public sense of purpose as it began raising private capital and allowing the trading of capital in ways that the earlier corporations and partnerships had not. And, by the 1930s, the conversation about the purpose and role of the emergent, large-scale private corporation exploded. With the development of the investor-owned corporation came the separation of ownership (by disbursed shareholders) and control (by hired managers) and hot debate about what purposes this remarkably transformed institution should serve going forward.

Professor Malcolm S. Salter, an Emeritus Faculty Associate, Edmund J. Safra Center for Ethics Harvard University recently wrote an illuminating research paper challenging organisations and society to rehabilitate the meaning of corporate purpose. The ascent of shareholder value maximisation into the central consciousness of public corporations has had malignant side-effects in that it has crowded out more pluralistic and cooperative views of corporate purpose—and created a great deal of dysfunction in our society that is now becoming increasingly apparent to civil society. This contracted view has diverted attention away from the broader purpose of the corporation; making things that benefit customers and the larger community and contributed to a self-centered winner-take-all culture that invites a variety of corrupt behaviors, social injustices, and system inefficiencies.

The aspirations and conduct of privately and publicly owned firms vary widely depending on what expressions of purpose they adopt. The research found that firms governed according to the principle of shareholder value maximisation behave quite differently from those determined to be more responsive to a broader set of interests associated with parties that can affect and are affected by the enterprise.

War and GDP – Is this an Appropriate Measure of Success?
This world currently spends $9 to $11 trillion on conflict prevention and wars and the numbers continue to go up.  That’s 9 to 11% of the global GDP that we are willing to spend on consequences without really taking the time to go on the underlying causes.   When the United States invented GDP after World War II it was meant as a measure of industrial output. But Simon Kuznets, who invented it, was very clear that GDP shouldn’t be used to measure the health of an economy.  From the end of World War II until the 2008 financial crisis, US capitalism consistently delivered attractive annual rates of GNP growth (3.2% on average). Is it acceptable that the more wars we make, the better it is for our GDP.? The oil spill of BP in the Gulf added 2.5 percentage points to the GDP growth of the US.  But if we take care of our forests and protect them, it doesn’t get our their GDP.We certainly have a weird definition of success and this is the seriousness of what we have collectively created.Climate change is probably one of our major issues that need to be tackled . The WWF, WorldWildlife Fund, put a report out called The Living Planet in
September-October, and reported that we’re losing species at 1000 times the normal rate already today.

And at some point in time you might have to ask yourself the question ‘when is it our time?  It’s not a battle between men and Nature. It’s a battle for our survival and Nature will be there. Hubert Reeves, a philosopher in Canada, put it very well, saying “a man is the most insane species, he worships an invisible God and destroys a visible nature, not realising that the visible nature he destroys is the invisible God he worships in the first place”

Corporate Fines – Is this an Appropriate Measure of Worth?
With $235 billion (and still counting) in fines and settlements paid by the world’s top 20 banks for misleading investors on mortgage-backed securities and derivatives, LIBOR manipulation, interest rate collusion, money laundering, and circumvention of Iran sanctions, the lack of reckoning or payback by the leaders of offending institutions has many observers mystified, and angry. The offending banks’ shareholders paid this bill. Few senior executives were asked to “fork over.” To the contrary, the massive inflow of government support to the banks was accompanied in several well-publicized cases by bonuses paid to bailed-out bankers. The optics and reality of this situation have been toxic: the bankers appear to have been rewarded for their incompetence, excessive risk-taking, and lack of judgment. Similarly, few corporate executives outside of banking have been held financially or criminally accountable for their frauds (VW’s former CEO is a recent exception) or the environmental degradation their companies have caused.

Predictably, in the presence of such a widespread lack of accountability and care, it’s not surprising that popular trust in what success and worthiness has been defined by, is diminishing.

The effects of this poisonous cocktail of shareholder value maximisation spiked with institutionalised short-termism are becoming visible (and palpable) to both investors and the general public—suggesting that the time is ripe for re examining the espoused purposes of public companies before irreversible damage is done to the social contract and the public. A large proportion of the public (including an expanding cohort of investors) apparently agrees.

It would great if CEOs and their boards of directors instantaneously saw the benefit of integrating ethical reciprocity into their expressions of corporate purpose and corporate governance practices. But it took decades for shareholder value maximisation to become the default purpose of most public corporations, and it will take years for a major course correction by public companies, one that embraces some version of ethical reciprocity as a principled guide to corporate purpose.

Once liberated from the straitjacket of shareholder value maximisation as the sole, legitimate expression of corporate purpose, public corporations would be free to pursue a broader diversity of purposes of both an economic and social nature.

Can corporate purpose be brought more in line with long-established principles of justice before a public push-back seriously challenges corporation legitimacy?

What can Corporations, their Boards and Employees do?
With tailwinds gathering behind the idea that corporations have some kind of direct obligation for their non-shareholding stakeholders, corporate boards will be increasingly called upon to accelerate the integration of the reciprocal justice principle into expressions of corporate purpose and corporate governance priorities.

Voluntarily adopt green strategies.
Became longer term focused.
Appreciate that you cannot bring purpose back into the rat race of quarterly reporting.
Mirror Unilever, still the only corporation that has issued a human rights report, twice.
Start with something that makes you feel uncomfortable. That way, you’ll have the courage to move forward.
Prepare for Millennial and Z-Generation employees. Millennials are very much purpose driven. Z-Generation are born activists.
To create good leaders is to know yourself.
Collectively initiate intentional energy behind a common purpose.
Utilise your purchasing power to consider who your suppliers are – if their products are only to make some people richer, don’t buy from them.  If it’s to make our Planet worse than how we inherited it, don’t buy from them.
Invest in the future of humanity and become willing to invest in providing training for people that might take 25 years before reaping the full benefits.
Be humble in recognising the need to work in partnerships.
Include” Accounting for Sustainability” in your measure of success.
Re frame current challenges as enormous future opportunities.
Measure success in the billions of people you touch through ethical reciprocity.
Employ, harness and nurture purpose driven leaders.  We need people that stand up and go beyond their own circle of influence and actually enlarge that, whether they’re labelled team players or not.  There is something infinitely more valuable, more successful, more long term and worthy than our current systemic models of success and worth.

Invest in Specialist Courageous Conversation coaching to work with the Board so that  honest, open and courageous conversations become the norm and strike a leadership tone.  A good coach acts as a sounding board and wont be afraid to tell you the uncomfortable truth to keep you from lying to yourself and hold yourself accountable.
Regards,
SpeakOut SpeakUp