We have been asked to look for a way to change capitalism so it is Principled, Patient and Socially Accountable. To achieve this there is a need to look at the complex outputs and arrange these in a simple manner that allows anyone to see the ethical behaviours of an organisation.
The key to this hack is the ethical behaviour of organisations and leaders. In particular we will discuss the Principle of Decency (van Luijk, 1994) and how this principle can form a significant part of a solution. It is also likely that the application of this principle will protect the long term intangible value of an organisation and would likely be socially driven.
How can capitalism be changed so it is Principled, Patient and Socially Accountable?
There is a need for ethical behaviour in all organisations.
The public too often have no ability to see the ethical behaviours organisations actually exhibit as these are masked by the gloss of good PR and branding.
Castree (2009) looked at organisations and people who are looking to “reforming capitalism in a way that synergises aspirations for greater social equality and opportunity with ambitions for a less materials-intensive form of growth”, however he appears to conclude “but can it seize the moment? Alas, I suggest not”.
So if reforming capitalism is not likely to occur then how can it be changed? Perhaps we need to look not at regulation or reform, but at how the people – customers, staff, and the general public – react (without trying to sound too left wing!) to organisational behaviour. So firstly we will examine where the value lies.
What makes up the value of a business? Eccles, Serafeim, & Krzus, (2011) found that 80% of an entity’s market value is made up of intangible assets (compared to 20% in 1975). Using tools like those in Corporate Social Responsibility (Cheng, Ioannou, & Serafeim, 2011) those intangibles can be measured.
For the long term, (to take a negative perspective) the intangible value of business is easily damaged. A business with a record of failure or poor ethical judgement will significantly damage their brand and consumer perception. Harm to the environment, a community or even to an individual by a business can lead to significant losses to that business when that harm has been socialised.
To turn this onto a positive note, “success depends on our spiritual grounding, the richness of our relationships, the structure of our families, and the character of our communities”. (Reich, 2002) and looking for long term value from our business, corporates and our economies is unlikely to be achieved without this concept of success and strong ethical behaviours.
The key to this Hack is the ethical behaviour of organisations and leaders. In particular we will discuss the Principle of Decency and how this principle can form a significant part of a solution. It is also likely that the application of this principle will protect the long term intangible value of an organisation and would likely be socially driven.
Van Luijk (1994) defines this principle of decency “where a real opportunity to contribute to the general welfare presents itself, one should have solid moral reasons not to go for it”. It is a simple benchmark that organisations can use to demonstrate good ethical behaviour. Following a reporting system like Corporate Social Responsibly (CSR) (Cheng, et al., 2011) (or any other similarly based system – there are a number to choose from), organisations can demonstrate to people their ethical conduct.
Leaders who demonstrate good ethical behaviour are more likely to instil this behaviour (and increase self-esteem) in their followers (Avey, Palanski, & Walumbwa, 2010). If our leaders are ethical, then the followers (staff, citizens etc.) are also more likely to behave ethically, (and have higher self-esteem). This in turn will promote more ethical behaviours, and so on.
Change will need to occur, however how to initiate change is a significant challenge. In The Corrosion of Character, Sennett (1998) concludes: “I have learned... if change occurs it happens on the ground, between persons speaking out of inner need, rather than through mass uprisings. What political programs follow from those inner needs I simply don’t know. But I do know a regime which provides human beings no deep reasons to care about one another cannot long preserve its legitimacy.” This concept could be easily applied to the ethical core of a business.
People react badly when they observe poor ethical behaviour, and hence can force change to an organisation. If the intangible assets make up 80% of the organisations value, then people reacting badly can cause significant (even fatal) harm to that organisation.
As an aside, is this unique to capitalism? There are many other social/political/religious/organisational structures that either also failed (or were not in a strong enough position to get any worse). Would reforming capitalism not also require all other organisational structures to be reformed as well? Would the principle of decency described by van Luijk not be applicable to those other structures also? Is good ethical behaviour not something we all should expect of our leaders (and ourselves)?
Corporates behaving in an ethical manner –and following the principle of decency is Principled, Patient – success would be measured long term as trust would need to build over time (and lost quickly); and Socially Accountable – people will determine the merits of corporate behaviour.
Business will keep doing business. People will still purchase goods and services. What can change and be practical is organisations can demonstrate their performance and publish metrics.
Embrace the principle of decency (“where a real opportunity to contribute to the general welfare presents itself, one should have solid moral reasons not to go for it”). And look for this in all business, government and social situations. Demand it. Refuse to accept anything that does not measure up.
Sell it like there is no tomorrow, use it like it is the air you breathe.
(Avey, et al., 2010)
(Cheng, et al., 2011)
(Eccles, et al., 2011)
(van Luijk, 1994)