Posted by The globalized world of 2012 is locked in a debate about the appropriate role of corporations. Should corporations continue to have as their primary purpose the maximization of “shareholder value,” (Capitalism 1.0) or should they also be concerned also about creating “shared value” for the societies in which they operate and the world as a whole? (Capitalism 2.0). Ultimately this is a paradox that leaders at all levels of society will need to be committed to recognize and manage.
The key aspect of a management paradox is that it contains two equally valid, but contradictory viewpoints which need to be managed over time so that neither one is totally neglected. Work-family balance is one of the easiest paradoxes to understand, but there other many others in business such global-local balance and quality-cost management.
While philosophically many would agree to the expansion of corporate responsibility from maximizing shareholder value to creating shared value for society, the current forces in place allow little deviation from a corporation’s original responsibility to maximize shareholder value. The vast majority of these forces are not Wall Street greed (although this is obviously a factor), but the fact that our global economic system has built a dependency of investors, including pensioners around the world, on a consistent return on investment from the corporate sector. As a result, the pressure from the investment community to keep corporations focused on maximization is relentless. Under these circumstances, how will the role of the corporation be expanded to include a better balance of shareholder value and shared?
I believe the answer is very simple and very complex – it will depend on leadership. Leadership that is committed to managing the paradoxes of profit and purpose and short-term vs. long-term needs. And there are signs that the next generation of leaders, as well as their corporate and academic mentors, are taking on that commitment. Consider the following.
In January 2009, in the middle of the financial meltdown, I conducted a session on global leadership for the Young Global Leaders at the World Economic Forum in Davos. The Young Global Leaders are 150 leaders under 40 chosen by nomination and are considered to be some of the best and brightest young leaders from all parts of society and the world. They attend the World Economic Forum to provide input on what the younger generations are seeing and thinking about the issues discussed during the Forum.
As part of the preparatory day I spent with them, they were asked to work in small groups to analyze what they thought were the primary reasons for the economic turmoil in which the world found itself. After much deliberation, their report-outs can be summarized in two conclusions:
- They felt the current generation of leadership had defined the scope of its responsibility too narrowly. These leaders had not just maximized shareholders’ value, but also had maximized personal bonuses, and the success of their corporations at the expense of everyone else. The young leaders believed that their generation would have to redefine this scope of responsibility to be more inclusive of others in their society and in the world. In other words, they would needed to see themselves as “global leaders” as well as “local leaders.”
- These young leaders also believed the current leadership generation defined their responsibility in too short a timeline. They felt that concentration on short-term returns without adequate consideration for longer-term sustainability had reached a point of no return. They felt their generation would be faced with balancing these forces more than ever before.
Think scope and time – broader scope and longer timeframes of responsibility are needed for leaders to sustain corporations as engines of shared value for society today and tomorrow.
In the end Capitalism 2.0 will be about leadership. It is easy to acknowledge the merits of Capitalism 2.0, but implementing a broadened agenda will require leaders who have the courage to stand for a new vision of the corporation. Globally responsible leadership begins with the vision that a leader has for his or her stewardship. The best leaders understand that leadership is not about them, but about what they enable others to do for their organization and the world.
Guest Blog Post by Stephen Rhinesmith
Stephen – Like you, I have found that the new generation of emerging leaders – such as you encountered with the WEF Young Global Leaders, a group that’s impressed me too – they do, indeed, care about managing the paradoxes of profit and purpose. With their broader scope and longer time-frames, I believe Capitalism 2.0 will, in fact, become a reality. – Nadine
Glad I came across this article, as I’m keynoting tomorrow about the 21st century leadership & mixity.
“Ultimately this is a paradox that leaders at all levels of society will need to be committed to recognize and manage.”
Yes! Including intercultural global skills, emotional intelligence and digital expertise, consideration for others and self-achievement: ultimately, reconciliating masculine and feminine archetypes.
I also like the metaphor of “dancing with dilemmas”.
The question is now, how to learn that dance?
Stephen, thanks for your post and for reminding us that courageous leaders can help achieve the desired balance.
However, I think leadership won’t be enough. The system of short term financial reporting needs to be challenged. For that to happen we need to prove (and perhaps it’s been done before)that mid term strategies and financial reporting policies (compliance permitting) positively influence stock price.
We are on our way with CEOs such as Paul Polman already preaching long term investing. This is not new. I learned in Investments 101 that value stocks existed. We know that over the long term a portfolio of investments can yield a good benefit.
In consequence, the new generations of leaders have to be mindful of the societal tensions that short-term thinking creates. More importantly, I believe older generations have the responsibility to pass on the wisdom of the effects of short term thinking via forums and management education. New leaders won’t be able to understand the importance of scope and time that you mention unless they experience their professional leadership crucible. We can’t wait for these crucibles of leadership. We need to prepare innovation leaders today for scenarios they are totally unaware of.
Stephan, about a year back I had written a blog on a very similar idea of Leadership Paradox ( http://wp.me/p1tjVg-P ). The mordern corporate leadership philosophies and accrodingly the way we train our new leaders to think are fundamentally designed to mutually benifit “the shareholders-Top-Management” junta, and unfortunately there is no easy solution to this ‘cancer’. Similar to the whole global warming problem, (which is a result of this ‘greed’) we all know the consequencies are inevitable, (worst – we are living in it) yet no-one is will to take the first major step. Most of the Corporate Leaders provide lip-service in the name of CSR/Shared value.
The ‘middle-path’ won’t lead us anywhere; what we need are a set of “let-the-too-big-to-fail” fail measures – preferably the Governmemts – leading this almost forgotten ‘social responsibility’.
Great article, thanks for framing it so well and very timely given the current political and economic environment.
@Nadine Hack:
Nadine – thanks for your confirmation of what I have felt in the younger generation. I believe they willpursue the issue.
@Marion Chapsal
I hope the article did in fact help with your speech. A few of us are working on the “dancing with dilemmas” issue – essentially it seems to boil down to balance, innovate or integrate the various competing forces – once you have acknowledged their legitimacy.
@eros sharma
I agree that the long-term-short-term issue is a very sticky one that will require leadership in the financial community, as well in all other sectors.
I think some of the new global leadership programs that give people different in-country experiences may be one way to help people to understand the scope and time issues – and climate change will drive it home.
@Navarun Bhattacharya
I think we real have to back Michael Porter’s article on Creating Shared Value in the January 2011 HBR. He makes the case in a way I think corporations can hear – assuming they can take the time to read it.
@Lauren Powers
Thanks – hope it helps you in your work.