It’s hard to believe after the greed-is-good 80s that the successful companies of the third millennium will be those best able to marry together human wellbeing and market success. But then again, says Alistair Ping, who would have ever imagined George Soros as a critic of capitalism?
George Soros, doyen of the financial markets, billionaire turned market reformer says capitalism has deep flaws. Meetings of institutions such as The World Trade Organisation and the World Economic Federation are attracting violent riots and participants require police protection. Multinational corporations are becoming the new target of "civil society" and globalisation is turning into a dirty word.
What's going on? Is capitalism doomed and if so, what's the alternative? Protesters and critics increasingly point to four key crises facing the world, which they blame on unrestrained free market capitalism and the globalisation movement:
• The increasing gap between rich and poor - both within countries and between countries.
• The environmental destruction and unsustainable exploitation of the world's resources - the effects of which are now being felt through climate changes.
• The changing nature of the work contract resulting in frequent periods of unemployment caused by corporate downsizing, privatisation, government cuts and irrational competition.
• Conflict, repression and war, with abuses of human rights - in some instances perpetrated by corporations in activities such as child labour and sweatshops.
These crises have been going on for quite some time but the key to the current change is the effect of the internet. The internet has largely been viewed as a communications tool but from a capitalist perspective its significance is far wider reaching.
If we view the development of capitalism from a historical perspective it could be argued that it has never really reached its full potential. Adam Smith, the first of the free market proponents, said that if all forces were operating in the market effectively, then the so called "invisible hand" would reach in and set a fair and equitable price. A "perfect market" would be one where: everyone has the same information; there are no entry or exit barriers; products are freely available from different suppliers; quality is the same; and prices are the same. Instruments such as the Capital Asset Pricing Model rely on this concept of perfect markets. But without a "perfect market", pricing inefficiencies creep in and fairness goes out the window. Something of which, by the way, George Soros has been a beneficiary.
The evolution of the internet has moved us a huge step closer to this theoretical concept. Not only has the internet increased the flow of information across the globe but it has also increased access to markets and broken down the barriers that once existed. Effects of this change can be seen in the percentage of individuals that now own shares (49 percent last year in the US) and the amount of goods now being bought over the internet. So, where does this leave us ? If we shift closer to the "perfect market" stage what are the implications ?
Try this on for size - old style capitalism is out and neo-capitalism is in. With old-style capitalism, people spent their dollars, saw themselves as citizens protected by the state and voted at elections. Neo-capitalism turns this on its head - people vote with their dollars, judge governments on how well they manage money and see themselves as stakeholders who collectively own the assets of the state. Far fetched ? Consider the Telstra float and its effect on "dinner party" conversations.
Those leading this trend are making decisions on how they interact with the economic system based on their deepest held values. That is, where they work, where they shop, what they buy and what they invest in. We are already seeing evidence of this:
• Graduate surveys indicate people are seeking not just dollars from prospective employers but wanting to know what they stand for.
• Consumer reaction to positive initiatives such as cause-related marketing and negative actions such as French nuclear testing.
• The growth in socially-responsible investment funds.
Some leading companies have picked up on this trend already and are seeking to reposition themselves. For example, BP and Shell are both working hard to shift their image from petroleum companies to energy companies. Meanwhile, talk of the triple bottom line is becoming more common in boardrooms around Australia.
How to respond?
If neo-capitalism is the next step then how should companies respond ? This template can be laid over an organisation to determine if it will succeed or fail in a neo-capitalist environment.
With a globally competitive marketplace the first step for any company should be to define its unique reason for being. That is, the corporation should be able to justify its existence so that it can enrol people in its journey. Clearly, if a company cannot define how it differs from other companies providing the same product or service then it is taking up too much space. Similarly, why would any discerning person wish to work for an organisation that has no clear vision. Given two minutes could you clearly explain why your organisation is unique and what you are trying to create ? Once there is a clear "reason for being", a company operating in a neo-capitalist world needs to have a clearly defined culture high in trust. In this day and age, it is not enough to have people coming to work and leaving their brains at the door. Low-trust cultures result in poor productivity because employees waste too much of their efforts playing petty office politics and trying to second-guess everybody else's motives. By clearly defining how the people in the organisation are going to play the game an organisation allows the basis for trust to grow. In this way people can feel safe to engage emotionally with other people in the organisation.
Does your organisation have a clear set of values and are they actually lived by people in the organisation or seen as just more wallpaper? The third area is a social and environmental mandate. That is, the organisation needs to have the approval of society for how it is carry on its business. This is important for three reasons: First, so that the people in the organisation will feel good about who they work for and be happy to tell people about it. Second, so the company will continue to have access to markets and not be penalised for poor social or environmental performance. Third, so that socially responsible investors will continue to invest in the organisation and allow it access to funds. Australia has lagged behind the US and Europe in rating organisation on such criteria but the Reputation Index compiled by The Age newspaper last year and the Prime Minister's Community Business Partnership awards, point the way forwards. How did your organisation rate ?
The fourth area in the template feeds off the other three and is key to the continued survival of the organisation. That is, the ability to have all people in the organisation continually asking "How can we do this better ?" whether it be a new system, product or service. The nature of the global market in a neo-capitalist realm is that the best way to increase revenues is though finding new ways of doing things, producing new products, or ultimately by creating new categories of goods. Innovation and creativity will directly feed off the other three areas because, let's face it, no one who feels bad about who they work for, or who is scared to fail will be able to take the risks required to find new ways of doing things. In addition, spurious and misdirected innovation will also fail to benefit the organisation. Does your organisation have an innovation unit? How many ideas come from the people at the coalface of the business? What percentage of revenue does your company generate from new products? How does organisation react to failure?
Finally, the central area of the template looks at human spirit, that indefinable aspect to successful companies that one feels as soon as one enters the building, which manifests itself as a certain esprit de corps; an aspect which is notably absent from those organisations which try hard but always seem to fail. The human spirit is the intangible quality which lifts a team above the sum total of its members. It is the quality which results from the people in the organisation having a clear sense of purpose, a high level of trust in their colleagues, a feel-good aspect to what they are doing and, a sense of fun and play which allows them to experiment with the new.
Pause for a moment the next time you walk in the office door and you will know the answer to this question.
Alistair C Ping specialises in corporate reinvention and will be a guest speaker at the AICD Annual Conference in May. He can be contacted by e-mail email@example.com
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