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’.
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.