Posted by: Dr Churchill | October 4, 2014

Capitalism Revisited — Reform is Good Capitalism

I led a two day High Level Economic, Business, and Finance Summit on Capitalism in London and these are the conclusions we arrived at and the actions we aim to take in the near and longer term:

Capitalism is a sure Guide to Desires fulfilled.

Capitalism is a network of marketplaces that interact and fulfil basic needs as well as frivolous desires.

No other social, economic, and philosophical system, provides that much faith in fulfilling our needs and desires. From simple basic human needs — food, shelter, and procreation — as well as extremely harmful desires all are met through relatively free markets enabled by capital. That is capitalism. It is an endless parade of goods and services all available for a price, to meet the cravings, the gratification, and consumption, to fulfil our near endless desires.

Capitalism works well to provide for people.

Sadly it also promotes Excesses, Corruption, and Destruction of the Ecosystem.

Yet for all of us, in good measure — it provides a ground-breaking model for understanding and responding to consumer desire. It helps us by offering companies, brands, and industries, a way to build relationships with government, fickle middle class consumers, and allows us to gain a lasting competitive advantage in the marketplace.

Through this post, I explore past the Pavlovian basic needs and instead concentrate on the five most common desires. The desire of already fulfilled people, to feel community, adventure, aesthetics, vitality and purpose.

By examining our motivation for these key desires, we can teach CEOs, Companies, and Consumer advocates, to understand how to develop successful products and services that offer real value for people both in the short and in the long term. Thus fulfilling the consumer desires and protecting the natural habitat.

And this in turn is Capitalism redefined…

Featuring the techniques and tactics for desire-based capitalist strategies, we can argue that a desire well met is more likely to lead to further consumption and thus will be reinforced and will be felt again, leading in a serious cycle of ever growing lust. And that lust is never ending thus depleting all the natural resources and our vitality from our ecosystems and it resigns us to a bankrupt future. Much like the sovereign crisis we are now faced with an Ecosystem crisis that will be far more deadly because when the agriculture fails and our hotter world becomes inhospitable for our species — you will recognize that you cannot eat money.

So we need to return to the golden rule. The golden medium. A measure of capitalism that doesn’t run to extreme inequity and to satisfying evil desires. Too much of anything is evil.

So let’s reform Capitalism in such a way so that it doesn’t run to excess.

And by the way — we can turn that primal lust we all have inside of us, to the good. We can turn it to our advantage in desiring a healthful living. In balance and harmony with Nature and Earth. And we can start doing this by taking a walk in the forest and by appreciating the healing quality of the natural world. You know that the need to preserve the green skin of our planet only gets born when you walk in a green forest and feel it’s presence.

So let’s start our Capitalist Reformation by respecting other species contributions to our world, and thus preserving the vital ecosystem we inhabit.

Because we are far too smart to get lost as a species due to our illogical propensity to consume. And as all other species get lost and half of them are going extinct, due to our aggressive and illogically exploitative nature — we soon will be lost too. We get lost striving for the maximization of anything and everything. And believing in our exceptionalism, is a sure sign of death inviting hybris. And we can largely blame our economic system for this because as so often happens in Capitalism, the “best” has become the enemy of the good.

The Doctrine of Maximization of profit and Shareholder Value has in effect become the death knell of capitalism because of it’s mandatory excesses.

So now we have arrived at the moment when the Reformation of capitalism has become mandatory.

This idea and the events surrounding all the conferences and congresses about the incoming Capitalist revolution are worth remembering in the context of the emerging movements to reform the management of big government and big corporations of today.

It is a crucial moment, as all progressive thought leaders allude to a Reformation in Capitalism through Management, and Government Reform.

Indeed for the first time in decades we now speak openly about the reformation of the entire system of capitalism in which leaders, followers, and “managers” operate.

Am not alone in calling for some kind of Reformation. Today along with mass movements the world over — many writers and leaders, both spiritual and secular, as well as lay people from all over the world; are all denouncing the two key management practices that have brought us to the precipice’s edge.

Whether we will jump off the cliff like so many lemurs is up to us. The question placed upon us now is this: Are we going to be able to give up on the twin evils that govern corporate and government ethos; that of maximization of profits and maximization of shareholder value — or we will perish ?

Seems to me that the canaries in the mine have already “spoken” by keeling over…

The writing on the wall, is now clear.
The moment of reckoning has arrived, now that a critical mass of people and leaders, are calling for major change.

But what it is that has been achieved by all this is unclear.

Yes, we are reaching a turning point in management, in government, and indeed in capitalism as a whole.

I think so. The Pope seems to think so. And so do you.

Pope Francis spoke against the twin evils of capitalism — time and time again. And so have many of the world’s thought leaders.

And now we have another forum to voice our concerns and arrive at some semblance of action manifestation, because a lot of the world’s top management leaders will converge in Vienna Austria on November 13-14, 2014, to discuss this very question at the Global Peter Drucker Forum.

Peter Drucker and his management theories are the lived in gospel of Capitalist Society and Corporate Management practice. Drucker was the icon saint of all MBAs and all the MBA led corporation although he himself said: “Beware of the MBAs armed with greed alone.”
So this year we honour Peter Drucker and his Management Theory by convening in the Drucker Forum great reformist speakers that include Clayton Christensen of Harvard Business School and father of the Disruption effects of Innovation theory, Gary Hamel, Roger Martin, and yours truly, among many others.

It promises to be a Great School for Thought. No agreement on the issues is expected but it wasn’t meant to be a love-fest since this is not a hippie crowd either; and as the Peter Drucker Management Forum says we are going to talk and exchange views because: “We have arrived at a turning point. Either the world will embark on a route towards long-term growth and prosperity, or we will manage our way to economic decline.”

The question is whether the Drucker Forum in November or any forum and fora of global reach, will be able to generate adequate debate amongst high level participants and then manage to foster agreement on the way forward, and thus generate a united front for reform of capitalism and corporate management theory. Or whether the forum, will splinter into different factions, as thought leaders emphasize their own particular slant on the issues, with the obvious common ground among them being lost. Lost as so often happens in the din of heated debate when the participants are getting sidetracked on tiny doctrinal issues…

These are the expectations and admittedly it’s a rather low bar being set here. But let us at least examine, why the current calls for reform are significant, and why people have to stand up and take notice…

A number of aspects are significant for assessing the current calls for reform of Capitalism and Capitalist society and corporate practice in particular.

First of all is that these calls don’t come from a bunch of protesters camping in a park. They come from the most distinguished pro-business voices in the world —- the “heavy artillery” of capitalism itself.

Secondly, it isn’t just one or two voices. The critiques and the calls for change are many and simultaneous. Big-gun broadsides are coming all at once.

Thirdly, these thought leaders are not speaking in euphemisms or hedging their bets. These are flat-out denunciations of not just one sector, like the banking and finance sector, or of one firm, or slew of companies, but of the whole management culture that prevails in big business. Phrases like “stock price manipulation” (HBR), “corporate cocaine” (The Economist) and “zombie managers in the grip of management ideas that refuse to die” (Financial Times) are typical.

Fourthly, we now see leaders, trendsetting Investors, top of the world CEOs, and incumbent members of the C-suite all speaking out. Leaders, such as Tim Cook at Apple [AAPL], Paul Polman at Unilever [UN], Xavier Huillard at the Vinci Group and John Mackey at Whole Foods [WFM] are all vocal advocates for Change.
The important thing to notice is that these corporate leaders are speaking out while they are still in office, as compared to “elder statesmen” like Jack Welch, who called shareholder primacy “the dumbest idea in the world,” long after he had retired.

An even larger number of corporate leaders at firms like Gore, Google [GOOG], Amazon [AMZN], Linux, and Morning Star and many small organizations are actually practicing a more creative brand of management, even if they don’t always go around making speeches about capitalism.

Fifth, although there are different terms in use and different emphases, the common ground among the voices for change is more striking than the differences.

Finally, these thought leaders make a powerful case that the economic and social costs of current management practices are so grievous that in any event they are not sustainable. As Roger Martin argues in his article in the October issue of HBR on “The Rise and Fall of the Talent Economy,” change will happen, one way or another. The only question is whether the transition is going to be quick and intelligent and elegant, or slow and ugly and even violent—like the religious Reformation— and take more than a century.

Obstacles to a Reformation of capitalism are legion but none so pervasive as the apathy and entropy present in the system today. The Status-quo is not daft, or silly. It’s just morose…

Nevertheless, the obstacles to be overcome if the Drucker Forum is to contribute to the move towards a turning point are formidable, yet easily scaled.

First, calls for reform have been going on for a long time. “A-list management voices as well as a cohort of younger thinkers and doers, have been calling for the reinvention of management along these lines for years,” writes Simon Caulkin in the Financial Times. “But nothing much has changed, at least among large established companies—just look at the unreconstructed financial sector. If anything, managers report that short-term pressures are getting worse.” As Andrew Hill also writes in the Financial Times, “US chief executives hoard good news for stock sales” with dubious practices that resemble “cookie jar accounting.”

Second, overwhelming incentives are in place for the continuance of the status quo. In the period 2004-2013, Bill Lazonick’s research shows that share buybacks shifted some $3.4 trillion from organizations to their shareholders and managers away from employees, investment and innovation. This diversion of resources is macro-economic in scale. As the C-suite is becoming not just rich but legacy-rich, why should they change?

Third, the entrenched interests are mutually reinforcing, as society as a whole has come to accept the practices and ideology of 20th Century management as inevitable. The C-suite is offered extraordinary compensation by their boards for implementing the practices. Business schools teach their students how do it. Institutional shareholders are complicit. Regulators pursue individual wrong-doing rather than addressing systemic failure. Rating agencies reward malfeasance. Analysts applaud short-term gains and mostly ignore long-term rot. Politicians, lavished with campaign contributions, stand by and watch. In such a context, it isn’t easy for any individual business leader to take a stand and say: this is simply not right. It’s the entire society that needs to change.

Thus we are dealing with a systemic issue. This isn’t about individual corporate managers acting badly in isolation but about a number of key systemic elements—managers, their boards, investors, particularly institutional investors, regulators like the SEC, the central banks like the FED, financial institutions, hedge funds, business schools, rating agencies, the media—all acting in concert. The case can be made that corporate leaders find themselves operating in a society that has, as a whole, lost its way.

Fourth, a previous effort to reach common ground on the reform of management provided no clear path forward. Thus Gary Hamel in 2008 assembled a gathering of thirty-five of the world’s top management thinkers. Hamel wrote up the outcome in his famous article, “Moonshots For Management” in HBR in 2009. There was strong agreement that the current management model was broken, but no consensus among the strong-minded participants as to how to reform it.

Fifth, even if shareholder primacy is set aside, corporate leaders will have to master fundamentally different management practices, with a different kind of leadership that involves different ways of thinking, speaking and acting in the workplace. Old habits will die hard, even if their abandonment is rational and necessary. In the New York Times, Peter Thiel, the co-founder of PayPal, questions whether many of the “the conformist, risk-averse politicians who already control most American mega-corporations” are even capable of making the needed change.

Settling on a common cause now is crucial for progress away from the capitalist orthodoxy dogma.

The question on the agenda of the Drucker Forum is whether we have reached a turning point in management, and indeed in capitalism itself. If Peter Drucker himself were still with us, he might suggest that we begin by agreeing on a common set of questions, and then see whether we can even get close to some answers. The outcome will depend on whether the Forum can agree on the broad direction of change, or whether it will, allow obscure doctrinal differences to prevent any agreement. In effect, will pursuit of perfection, once again become the enemy of the good?

As Caulkin notes in the Financial Times, “the invisible link between sluggish innovation, cost-cutting, share buybacks, the jobs and pay squeeze, and neo-Taylorism, is management incentives. What locks them all together in a tight, self-reinforcing paradigm is shareholder value–the assertion that the sole purpose of the company is to maximize returns to shareholders.”

If this is correct, the principal question for the Drucker Forum is whether we will be able to agree on severing this invisible link. Will the Forum accept that this is the critical link that needs to be broken? Obviously the Forum itself has no power to sever the link, but will it be able to show how it might be done and point the way forward?

“The fact that this is a zombie idea does nothing to weaken its hold on the corporate psyche, particularly in the US,” writes Simon Caulkin. As the late London Business School scholar Sumantra Ghoshal explained: “The problem is not that we fail to recognize good management practice — it is rather that bad management theory and practice, anesthetized it.”



So Yes, an era of management-led sustainable growth is both feasible and urgently needed.

But the renaissance will not flourish unless a stake is driven through the heart of the shareholder-primacy zombie first.

And that task is hard because it takes a whole “village” to accomplish.

So come along, stand with me, and be counted, in Vienna and at the Drucker Forum this November.

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