In 1987 ICI, one of the leading chemical conglomerates at the time, described its purpose as follows:
ICI aims to be the world’s leading chemical company serving customers internationally through the innovative and responsible application of chemistry and related science. Through the achievement of our aim we will enhance the wealth and well-being of shareholders, employees, customers, and communities which we serve and in which we operate.
In 1994 the company objective had changed to:
Our objective is to maximise value for our shareholders by focussing on businesses where we have market leadership, a technological edge, and a world competitive cost base.
So, what changed? What changed so that ICI no longer aimed to be the world’s leading chemical company? What changed such that ICI’s application of science was no longer to be the innovative and responsible application of chemistry and related science, but only that in which they had a technological edge? What happened to the employees, customers, and communities which we serve, to be replaced by to maximise value for our shareholders?
The answer requires a book rather than a blog but the case of ICI is illustrative of the way in which business has become separated from ethics, values and a truly holistic purpose which historically served the economy and society well.
The Quakers represented, in 1850, no more than one half a percent of the population. Thus it is even more extraordinary just how many of our household names had Quaker origins – not least in financial services – Barclays, Lloyds, Friends Provident, Cadbury, Rowntree, Clarks (as in shoes), Huntley and Palmer (biscuits). The successful iron smelting that formed the basis of the Industrial Revolution came from a Quaker family, the Darbys.
I am not suggesting that the solution to the problems of business purpose and intent today is solved if we all became Quakers! However, what I am saying is that by understanding the key reasons why the Quakers were successful (mostly) in business can inform our contemporary debates in a helpful manner.
There were four key reasons behind Quaker business success, all of which have wider application today.
Entrepreneurs do not flourish alone. Professor Mark Casson of Henley Business School has argued that the quality of entrepreneurship depends upon the quality of business culture. A strong culture is built upon trust, confidence integrity and quality. The strength of the Quaker culture had a direct impact upon their business success. The Quakers – among others – had by 1800 faced around 150 years of oppression, crucially including exclusion from the Universities. Hence many Quakers turned their minds to business. This persecution made them close-knit communities and it was within this setting that apprenticeships were developed, trust and confidence built as the major families all knew each other, with dishonesty and especially bankruptcy viewed in highly negative terms due to the impact on Quaker reputation. A strong culture which enhanced positive behaviour of honesty and integrity (quality products at fixed prices) and discouraged negative behaviour.
A major complexity today is that we have become so individualistic that moral behaviour is reduced also to the behaviour of each individual. We need to recover not ‘moralising’ but ‘moral character’ and ‘moral action.’ The reality is that much of the Quakers integrity derived from their spiritual principles. Their moral codes included injunctions against overtrading, honesty, payment of debts, caution over indebtedness, transparent and accurate accounts and understanding of the business. These principles derive from the Quaker ‘Advices’ and ‘Queries’ on trade issued between 1675 and 1793. Many Quakers became wealthy, but often had to endure the long and patient wait of the entrepreneur for success. As a result, they were not ostentatious with their wealth and certainly exercised personal discipline and frugality in the wait for a return. There are clear lessons for us today and we must become more willing to talk about moral values.
Generally speaking, negative views of business are aimed at the big corporates and more positive views of business related to smaller, local and family businesses (SMEs). All the successful Quaker businesses began as family businesses. Indeed, most involved the capital of the founders and owners being placed at risk. The opposite of limited liability. Growth inevitably led to a dilution of the family business and the need for capital ultimately led the leading Quaker businesses to adopt limited liability. However, the idea of the family business lay at the heart of the Quaker vision. The business was seen as part of the family and as a result concern for both quality products and the employees – so, everything from sport, to societies, savings clubs but also pension funds, sick pay and even bonus schemes.
The compartmentalisation of business from society is disastrous. The Quaker businesses had a much more holistic view of their purpose. Profitability was essential, but so were reputation, customers and the society of which they were part. The days of company’s building model villages providing housing – not charitable, but commercial – as well as ensuring community green space, fresh air and light may be over but the principles still provide lessons. Social purpose and commercial profitability and success are not mutually exclusive. Real relationships – between owners and managers, managers and workers, companies and customers and so on – are infinitely more purposeful than the remoteness and the contractual nature of so many business relationships.
How far we have come. Without a sense of ethical responsibility, disciplined moral behaviour and character and a recognition that capital and its economic return carry responsibilities as well as rewards, we will continue to increase the divide of business and society. However, we must also recognise that all of this can only be achieved in the context of a free economy where wealth creation is celebrated rather than despised and where the limits of government are recognised to be as significant as its regulatory and redistributive roles. A concern for society and the responsibilities of wealth do not need to be separated from a wealth-creating, efficient business enterprise. Profit is virtuous, but does not need to be maximised at the expense of all other demands.
Culture, ethics, family relationships, purpose, values, employees, responsibility – for all these things we can thank, at least in part, the Quaker businesses. All of those things are essential in restoring confidence in business today.
Dr Richard Turnbull is the Director of the Centre for Enterprise, Markets & Ethics (CEME). For more information about Richard please click here.
The Centre for Enterprise, Markets & Ethics (CEME) held a conference on ‘Green Markets, Sustainable Business’. Hosted by CEME and sponsored by CCLA Investment Management, the event focused on the green economy, investment trends in sustainable energy, and the environment.
It proved to be a terrific debate with passionate engagements from both the speakers and the audience. The distinguished panel of speakers included: Michael Liebreich (Chairman, Advisory Board, Bloomberg New Energy Finance), Rt Revd James Jones (Bishop of Liverpool 1998-2013), Baroness Bryony Worthington (Former spokesperson for Energy & Climate Change, Executive Director – Environmental Defence Fund Europe), Prof. David Vines (Ethics & Economics, University of Oxford), Andy Darrell, (Chief of Strategy, Environmental Defence Fund), Kingsmill Bond (Energy Strategist, Trusted Sources), and others.
The event took place on Thursday 2nd March 2017, at One Great George Street, London SW1P 3AA.
Andy Darrell – Investor Confidence
Michael Liebreich – Green Markets, Sustainable Business
Kingsmill Bond – The New Energy Revolution – From Morality to Market
Cameron Hepburn – Carbon Trading: Unethical, Unjust and Ineffective?
Erin Priddle – Environmental Defense Fund – EDF Oceans
Those who have studied modern technology based or enabled companies will doubtless consider Platform Capitalism to be superficial. Srnicek does not provide any worked through suggestions that will be useful either to the makers of public policy or to those involved in the management of business and many of his conclusions are contentious and appear to be based more on his prior left-wing accelerationist philosophical position than on the evidence presented in this book.
And yet: the book is interesting and thought provoking. Leaving aside the eccentric use (or, rather, minimal use) of paragraphing, Srnicek has an engaging style and presents a readable and helpful overview of the impact of technology on economic activity and of the strategy of technology companies. The book is short (l29 small pages) and can easily be read carefully in a couple of evenings. It is worth devoting this time to it.
Srnicek’s subject is the effect of digital technology on capitalism. He claims that “the platform” has emerged as a new business model and his aim is “to set these platforms in the context of a larger economic history, understand them as a means to generate profit, and outline some tendencies they produce as a result” (page 6). After a reasonably orthodox (if very obviously left-wing) review of economic and business trends since the 1970’s (primarily focussed on the USA and UK), he moves on to consider the emergence of “platforms”, which he defines as “digital infrastructures that enable two or more groups to interact” (page 43). He distinguishes five types of these: advertising platforms (e.g. the Google search engine), which allow their owners to extract information on users, undertake analysis, and use the product of this to sell advertising space; cloud platforms (e.g. Amazon Web Services), which comprise hardware and software that is rented out to digital-dependent businesses; industrial platforms (e.g. that of GE), which comprise the hardware and software necessary to transform traditional manufacturing; product platforms (e.g. that of Rolls Royce), which transform a traditional good into a service; and lean platforms (e.g. that of Uber), which are like product platforms but whose owners attempt to reduce their ownership of assets to a minimum.
The analysis of each of these business models is much the most interesting part of Platform Capitalism. Srnicek concludes, perhaps surprisingly, that lean platforms “seem likely to fall apart in coming years” (page 88) but he recognises that the other types of platform are here to stay. He sees some benefits in this (e.g. better products for customers) but his main focus is on the concerns to which the emergence of platforms gives rise.
His biggest concern is the perceived monopolistic tendency of platform capitalism. He returns to this on a number of occasions and asks “Will competition survive in the digital era, or are we headed for a new monopoly capitalism?” (page 94). This is certainly a question that needs to be addressed but, Srnicek’s analysis points to various factors that suggest that there will continue to be significant competition among the platform providers. Nonetheless, his prognosis is bleak. “Let us be clear,” he says, “this is ….. the concentration of ownership” and, he continues, “Far from being mere owners of information, these companies are becoming owners of the infrastructures of society” (page 92). This is surely unduly apocalyptic.
Srnicek’s other major concern relates to labour. It is here that his left-wing philosophy is most apparent. He points to some real concerns (e.g. the mis-labelling of employees as independent contractors with a view to avoiding employment protections) and he dismisses the absurd idea that user-created data comprises the exploiting of free labour. However, he makes many statements that rely on assumptions that are at best dubious. For example, his suggestion that “In a healthy economy [people such as Uber drivers] would have no need to be micro-tasking, as they would have proper jobs” (page 82) seems to be based on the assumption that the job market of, perhaps, 50 to 70 years ago is the only acceptable model and smacks of left-wing nostalgia for the days of manufacturing-based factory capitalism. Likewise, his suggestion that companies such as Airbnb have “off-loaded costs from their balance sheet and shifted them to their workers” (page 83) suggests preference for the rigidities of integrated corporate monoliths over the more flexible models permitted by modern technology.
The book also suffers in some places from loose use of terminology. For example, Srnicek several times mentions (with apparent disapproval) the “cross-subsidisation” that he believes is inherent in some platform business models (e.g. Googles) that involve providing a free service that enables advertising space to be sold. This use of the term is eccentric. Google is no more involved in cross-subsidisation than are the owners of commercial television stations or free local newspapers that have historically survived by selling advertising space. It is hard to see what is wrong with the Google “cross-subsidisation” model from a competitive or any other point of view.
More seriously, Srnicek’s frequent attacks on “tax evasion” are mis-directed. Many people are rightly concerned about tax evasion but he confuses illegal evasion with legitimate tax minimisation. In particular, he seems unaware that, pursuant to express US law, US corporations may legally avoid the payment of US tax on foreign profits for so long as these are not repatriated. He may not like the relevant US legislation but there is logic behind it and, in any event, companies can hardly be criticised for making use of it. His statement that “The leaders of tax evasion have …… been tech companies” (page 59) followed by a list of well-known names, without any supporting evidence, is both disturbing and disappointing.
The final section of the book (relating to what the future may hold) is less disturbing but equally disappointing. One idea is piled on another. In less than two pages, there are suggestions of: co-operative platforms; anti-trust action; regulation of, or even the banning of, lean platforms; co-ordinated action on tax; the creation of “platforms owned and controlled by the people”, which must nonetheless be “independent of the surveillance State apparatus”; “post capitalist platforms” (whatever they might be); and the collectivisation of platforms (pages 127/8). None of these ideas is explored and one may doubt the realism of at least some of them and the practical benefits of others.
This is a pity because there are many issues arising from “platform capitalism” that should be explored by both policy makers and those involved in business. What are the implications for privacy and, indeed, personal freedom and how should we respond to these? What kind of protections for “workers” are practicable and appropriate in a digital world? Where do the responsibilities of the platform companies to employees, customers, suppliers and others begin and end and how can they best discharge them? What kinds of regulatory regimes (if any) are needed for this kind of company and how can they be imposed in a digital, cross-border world? Generally, what does responsible digital business look like?
Srnicek fails to offer any insights into these matters. None-the-less, his analysis of the platform companies is important because it should help others to do so. It should also help all of us to note the way in which the business world is moving and avoid suggesting outdated solutions to modern business problems.
“Platform Capitalism” was first published in 2017 by Polity Press (ISBN 1509504869, 9781509504862), 120pp.
Richard Godden is a Lawyer and has been a Partner with Linklaters for over 25 years during which time he has advised on a wide range of transactions and issues in various parts of the world.
Richard’s experience includes his time as Secretary at the UK Takeover Panel and a secondment to Linklaters’ Hong Kong office. He also served as Global Head of Client Sectors, responsible for Linklaters’ industry sector groups, and was a member of the Global Executive Committee.
John Wesley’s influence in the history of Christianity is indisputable. His movement for ‘scriptural holiness,’ his foundation of Methodism as both movement and denomination, his organisational prowess, his spiritual passion for the established church, all form part of his legacy. His Journals, letters and sermons are a goldmine of information and insight. Naturally this wealth of primary resources has also generated a history of interpretation. The fire in his parents’ Rectory at Epworth (‘a brand plucked from the flames’) came to form part of the providential history of Methodism, as indeed did his ‘conversion’ experience at a meeting of the Moravians in Aldersgate Street in London in May 1738. Wesley also was a political conservative, a supporter of the monarch, willing to pray against the French and resistant to the rebellion of the north American colonies.
So, a quest for Wesley’s economic and social ethic is an attractive possibility. Surely if there is an ‘evangelical economics,’ we will find Wesley an able exponent? The enormous strength of this book is that it gathers into one place Wesley’s writings and teachings on economic and social matters. The weakness lies in the interpretation in which we learn more about the author than we do the subject.
Professor Theodore Jennings is currently an affiliated Faculty member of Chicago Theological Seminary as Professor of Biblical and Constructive Theology. He has been a local pastor and also taught at the Methodist Seminary in Mexico City. He clearly stated aim is to re-interpret Wesley through the lens of liberation theology. So his starting point is a ‘demystification of wealth and power’ and a ‘preferential option for the poor’ (pp24-25). By ‘evangelical economics’ the author means ‘the criticism of wealth, the forms of solidarity with the poor, the notion of stewardship, and the vision of an economic practice based on the example of the Pentecostal community’ (p24). Intriguing though these themes are, they hardly form an adequate definition for ‘evangelical economics.’
The book is constructed around these key themes together with chapters on ‘The Theological Basis of Wesley’s Ethic,’ ‘Why did Wesley Fail?’ and ‘The Relevance of Wesley,’ together with an appendix on ‘Wesley on Politics.’ These chapters, forming the second half of the book, are essential to Jennings interpretative exercise – because he has, by his own admission, to deal with Wesley’s well-known conservatism, his swift abandonment of the Pentecostal ideal, Wesley’s own contra-writings to the liberation theology theme and the unwillingness of Methodism to embrace the apparent ideals of their founder.
Jennings powerfully brings out Wesley’s critique of wealth and excess. Wealth was a temptation and increasing riches increase the temptation and conformity to the world. Luxury leads to laziness and contempt for the poor. Jennings here draws upon Wesley’s Journal and his sermons, On Riches, The Danger of Riches, On the Danger of Increasing Riches. Wesley expounds the theme that all our riches and wealth are held on stewardship from God and with a purpose:
Do you not know that God entrusted you with that money (all above what buys necessaries for your families) to feed the hungry, to clothe the naked, to help the stranger, the widow, the fatherless; and, indeed, as far as it will go, to relieve the wants of all mankind (p102, quoting the sermon on ‘The Danger of Increasing Riches’).
Wesley’s most famous treatise on the matter was his well-known sermon on ‘The Use of Money,’ and the famous three-fold injunctions of ‘Earn all you can, save all you can, give all you can.’ Jennings does recognise the complexity of this sermon but we see also his own forced interpretation here by his description of this sermon as ‘the source of most of Wesley’s problems with the Methodists’ (p167). This is wholly inadequate by way of interpretation. Wesley refers to money as ‘an excellent gift of God’ and being of ‘unspeakable service to all civilised nations,’ whilst also arguing for ‘honest industry’ and for the avoidance of sinful trade or the undercutting of competitors. In reality there is little economics (evangelical or otherwise); the feel is very much that of a preacher.
There is also the vexed question of Wesley’s advocacy of the ‘community of goods,’ upon which Jennings places great store but about which two things are clear. First, that Wesley experimented intellectually (and hoped to do so practically) with the idea in the 1740s and, secondly, that he subsequently abandoned it either because he considered it to be unrealistic or because his thought had moved on, perhaps as he preached his sermon on “The Use of Money” (which he delivered on 23 occasions according to the sermon register, starting in 1744, and which was printed in 1760).
Despite his occasional radical thoughts Wesley stood in the mainstream tradition; he accepts the basic role of the market, offers strictures against excess and looks to the voluntary principle as a response to social need. However, for all that, we should not underestimate the power of his critique of wealth and money.
Ultimately, Jennings forces the material to his theme. He makes far too many pejorative interjections in his interpretation for the contemporary age. That is not to say that there is nothing powerful about gathering together from their disparate sources Wesley’s economic and social thought. However, he does so partially. By separating those writings of Wesley which operate in the opposite direction we are left with two halves of a theological tradition without the necessary interpretation of the complexity. Wesley was not an economist and his writings on economics – claimed indeed by both ‘free-marketers’ and ‘socialists’ (which merely illustrates the complexity) – simply cannot be garnered into some overarching economic strategy. As a preacher he certainly knew the challenges wealth brought; about business and market itself (the use of the word capitalism would be an anachronism) he was unquestionably equivocal.
“Good News to the Poor: John Wesley’s Evangelical Economics” was first published in 1990 by Abingdon Press (ISBN-10: 0687155282)
Dr Richard Turnbull is the Director of the Centre for Enterprise, Markets & Ethics (CEME). For more information about Richard please click here.
I first read this book shortly after it was published in 1994, at a time when I was starting to explore the interface between Christian ethics and economics. Re-reading it some twenty years later has been instructive, now that this field has been developed rather more and is taken seriously again by at least some of those involved in politics and public life.
The book is set out in four parts, preceded by a helpful introduction in which Tim Gorringe sets out his stall by explaining how he uses Karl Marx as a dialogue partner throughout. This gives a hint as to his own political leanings. Indeed, in his introduction he even locates Marx as standing within the tradition of prophecy (p. xi). This means that Gorringe works essentially with a structured view of society and of economics that draws on Marxist theories of power and domination, rather than something more dynamic or entrepreneurial, and this is the undergirding theme of Part One. However, the theme of ‘narrative’ and economic history is certainly also present here, as part of his general critique of a version of economics that is ‘at the mercy of abstract laws which only experts can fathom’ (p. 22).
Within Part One I enjoyed finding at least two sharp criticisms of Brian Griffiths, Chairman of CEME, and having heard Lord Griffiths’ more recent reflections my sense is that he might now yield a little ground to Gorringe when it comes to the place for Christianity within public policy (see p. 13), while holding fast against the Marxist view on equality and liberty (p. 54). In certain respects, the world that Gorringe describes has changed. I particularly noticed this in his discussion of a living wage, which has now been embraced across the political spectrum in the UK.
Part Two of the book has four chapters that address more focused subjects. The first of these, ‘Work, Leisure, and Human Fulfillment’, sets out a valuable survey of Christian thinking through history on this theme, with the conclusion that ‘true leisure is not utilitarian’ (p. 77), and that both work and leisure are about human realisation. As a stand-alone section this would make good reading for anyone wanting a critique of a self-contained neo-classical economic world-view. However, the other three chapters in Part Two resonate more strongly with Gorringe’s Marxist theme, as they tackle the subjects of alienation, solidarity, resistance, and social justice. Gorringe looks for a ‘rejection of the individualism which divides people and sets them against each other, affirmation that humanity consists in working together’ (p. 102). While this is indeed a hopeful broad vision to set forth, as I read these words I found myself wondering whether it takes seriously enough the way in which entrepreneurial energies operate within the economy.
Part Three is given the over-arching heading ‘The Common Treasury’, in which Gorringe explores the subjects of personal property, inequality, planning and ecology. His general approach is one that advocates a socialist ‘control’ of the economy, and at one point he states that ‘some kind of global planning is needed’ (p. 140). Part Four then consists of a single final chapter, entitled ‘Two Ways’, in which Gorringe mounts a strong attack on global capitalism. It was here that I was surprised but pleased to stumble across a reference to the economist Joseph Schumpeter. His work had been used as ammunition within a 1980s debate between the Roman Catholic bishops of the USA and some prominent Catholic lay people. Reading this section carefully, my impression was that Gorringe brackets Schumpeter with a more general neo-classical take on economic theory, and then summarily lambasts them both. However, I would argue that he has missed something here, and that a more careful look at the contrast between Schumpeterian economics and the neo-classical approach would have been fruitful. In fact, Schumpeter has been taken in a Marxist direction, notably by Paul Sweezy, and I wondered if Gorringe might have changed his line if he had been aware of this.
On almost the last page of the book I then found this sentence: ‘There is nothing intrinsically wrong with enterprise, initiative and ownership. What is wrong is when these are harnessed to profit, power, self-aggrandisement, and inequality.’ (p. 166) As a programmatic statement this felt promising to me, but I struggled to see how large parts of the book itself could be taken to support or develop it. Rather, for Gorringe any sense of enterprise or initiative seems essentially to be subsumed within a Marxist superstructure, and the need for human cooperation to be played out in a society marked by planning and control. In the end, therefore, I found this book to be a helpful foil against which I wanted to put forward different ideas connected to human enterprise. However, as a major contribution in the field of theological ethics and economic theory its importance cannot be doubted.
“Capital and the Kingdom: Theological Ethics and Economic Order” was published in 1994 by SPCK/Orbis Books (ISBN 10: 0-281-04773-1)
Edward Carter is Vicar of St Peter Mancroft Church in Norwich, having previously been the Canon Theologian at Chelmsford Cathedral, a parish priest in Oxfordshire, a Minor Canon at St George’s Windsor and a curate in Norwich. Prior to ordination he worked for small companies and ran his own business.
He chairs the Church Investors Group, an ecumenical body that represents over £10bn of church money, and which engages with a wide range of publicly listed companies on ethical issues. His research interests include the theology of enterprise and of competition, and his hobbies include board-games, volleyball and film-making. He is married to Sarah and they have two adult sons.
They often say ‘never to judge a book by its cover’, that initial external appearances can distort or even deceive the audience from the content that lies within. Well, the principle doesn’t apply here. Lynn Stout’s The Shareholder Value Myth attempts to achieve exactly what the title entails: a pure and straight forward critique of the belief that the ultimate purpose of business is to maximise shareholder value, which often dominates the field of business management.
Author Lynn Stout is Professor of Corporate & Business Law at the Cornell Law School where her main areas of research include corporate law, securities and derivatives regulation, economics, and organisational behaviour. Stout argues that the Shareholder Value ideology is ultimately just an ideology, not a legal requirement or a ‘practical necessity of modern-day business life’ (p3). In this sense, Shareholder Value thinking is a mistake for most companies because it indirectly forces corporate managers and executives to ‘myopically’ focus on short-term earnings at the expense of long-term stability and performance. It also ‘discourages investment and innovation, harms employees, customers, and communities; and causes companies to indulge in reckless, sociopathic, and socially irresponsible behaviours’ (p10).
The book is written clearly and concisely, predominantly using direct rhetoric and short sentences. In terms of structure, the book is broadly divided in two comprising parts: Part 1 is a direct attempt in ‘Debunking the Shareholder Value Myth’ while Part 2 is mostly an investigative endeavour into who the ‘shareholders’ are and what they actually value. Each part is made up of five shorter Chapters so let’s take a closer look into some of the main points and arguments made throughout the book.
The first half can be seen as a systematic critique of the means and (even disastrous) consequences of ‘shareholder value thinking’. Corporate scandals such as the 2010 BP Oil Spill and cases of serious fraud in large companies such as Enron, HealthSouth and Worldcom throughout the 2000s are all cited as consequences of shareholder value thinking. Professor Stout makes a compelling case that the ‘narrow’ focus on share price alone can result in ruthless management behaviour. The drive for extreme cost-cutting in the hope of increasing short term profit doesn’t just hurt the employees and the company, but the shareholders themselves.
The book provides a brief historical account of how shareholder value thinking came to dominate teaching in business schools as well as becoming the norm within the private sector itself. If in the 1800s most privately held companies were of single ownership (or a tight shared ownership), by the 1990s publicly held companies have tens of thousands of shareholders. Stout rightly argues that this replacement of the ‘single’ ownership model with an executive Board to represent the vast number of shareholders causes the Board (as well as the senior management) to assume that all the shareholders want is ‘to make as much money as possible, as quickly as possible’. It rather quickly trickles down to the lowest common moral denominator, ignoring the fact that shareholders are real human beings with different investment timeframes, different priorities and different attitudes toward the well-being of others. In this sense Lynn Stout rightly argues that ‘recognising these differences reveals that the idea of a single objectively measurable “shareholder value” [i.e. solely based of share price] is not only quixotic, but intellectually incoherent’ (p60).
The second half of the book turns its attention toward the shareholders themselves: who are they? And what do they want to get out of their investment? These questions in turn give rise to a clear dichotomy within a company’s pool of shareholders: ‘short-term speculators versus long-term investors’. Again, Lynn Stout rightly points out that ‘long-term shareholders fear corporate myopia. Short-term investors embrace it – and many powerful shareholders today are short-term’ (p65). The conflict of interest generated by short vs. long-term investors indirectly forces a company’s management to take the default position and assume that every shareholder is a ‘platonic investor’ – i.e. an investor that only owns shares in company ‘X’ and the share price increase is all that they are interested in. Lynn Stout argues that in reality however, this ‘platonic investor’ does not exist. The overwhelming majority of investors today own more than just shares in company ‘X’, they are invested in the marketplace as a whole and want to protect the value of their other investments also. In this sense, the short-term focus generated by shareholder value thinking can actually work against the interests of the shareholders themselves.
The book as a whole presents a compelling critique of shareholder value thinking. Yet it’s strength is also its greatest weakness: it is just that, a critique –nothing more and nothing less. What are the solutions? The final pages of the book only tentatively touch on a possible way forward in arguing that what is needed is a more ‘complex and subtle understanding of what shareholders really want from corporations’ (p115). This all sounds great and very necessary but how do companies get there? Even if executives come to acknowledge the variations in their shareholder’s desires – is this a guarantee that the company’s approach to corporate governance will change?
I have written on this topic in the past where I highlighted the importance of first establishing a concrete set of internal ethical values and practices. Only then does it become possible to accommodate the desires of a larger pool of shareholders and indeed, stakeholders.
A great deal remains to be written on this topic and The Shareholder Value Myth by Lynn Stout is an excellent addition to the growing body of literature that forces us to re-think the role and purpose of business in society.
A recommended read.
“The Shareholder Value Myth” was published in 2012 by Berrett-Koehler Publishers (ISBN 10: 1605098132). 134pp.
Andrei Rogobete is Associate Director of the Centre for Enterprise, Markets & Ethics. For more information about Andrei please click here.
The concept of “the common good” dates back at least to Aristotle and has been used by political theorists, moral philosophers and economists down the ages, including people as diverse as Thomas Aquinas, John Locke and Adam Smith. It is a basic concept in Catholic social teaching and is easily understandable by all. However, it is not familiar today in discourse about the purpose and role of business.
Wong and Rae want to change this. They suggest that, “it is an important time to reconsider what business, and our current or future participation in it, is all about” (page 28) and they undertake this reconsideration by first considering the purpose of those engaged in business. They suggest that, “The idea that business can be a calling is becoming more widely appreciated and accepted” but that “what exactly business is a calling to needs much more exploration” (page 33; the emphasis is theirs). They then launch into the required exploration. The first part of this leads to the conclusion that business is a calling “to transformational service for the common good” (page 76) and the implications of this are then worked through.
Business for the Common Good forms part of the InterVarsity Press “Christian Worldview Integration Series” and is, thus, written primarily for Christians. However, Prabhu Guptara observes in his endorsement that “Nothing in this book prevents it enriching the lives of Hindus such as myself – or, as far as I can see, those of Buddhists, Muslims, agnostics or atheists!” He is right. The book’s conclusions do not depend upon any theological propositions other than a general view of God and the World that will be shared, at least in its more important features, by millions of people of various faiths and, at least in relation to its view of the World, by many of no faith. Furthermore, although the Series Preface suggests that college students may be a primary target audience, the book is likely to assist a far wider audience, including those who have been in business for many years. Some readers will find its lack of interaction with other literature a downside but others will welcome the fact that it does not assume any prior reading and deals with issues from first principles.
After an over long Series Preface and their (shorter) Introduction, Wong and Rae helpfully examine the purpose of work, addressing the question whether work has merely an instrumental purpose or whether it also has an intrinsic purpose. Put simply, do we work merely to live or do we live to work? Many, perhaps most, people today would say that they work to live and for the poor this may seem obviously true but Wong and Rae seek to re-establish the idea that, as Martin Luther said, “The entire World is full of service to God, not only in the Churches but also the home, the kitchen, the cellar, the workshop and the field of the townsfolk and farmers” (page 60). As Wong and Rae put it, “Our work can serve as an altar” (i.e. an act of worship; page 46).
On this basis, they ask whose interests business should serve. It is their analysis of this that leads to what they describe as their “Christian vision for business” (page 76) and hence to their basic proposition that the calling to business is a calling to transformational service for the common good.
Having laid these foundations, they then turn to a series of specific issues: how involvement in business can result in negative effects on our character but how it can also transform us for good (which they rightly describe as a “rarely examined question”; page 37); what our attitude towards wealth, success and ambition should be; how we should respond to globalisation; ethics in the work place; business leadership and management; marketing; and stewardship and sustainability. Finally, they turn to what they describe as “several exciting (and very inspiring) ways that emerging practices and organisations are moving business towards becoming proactive and intentional partners in solving social problems” (page 38).
This is a huge amount to cover in a relatively short book and some parts of the book may leave the reader feeling a little short changed. However, this is not a superficial book or one that deals in generalities. It is closely argued and it is careful to explain both its starting points and its logic. It is also good to see issues such as the ethics of marketing addressed head on rather than in passing and, more generally, to have work place ethics placed in the broader context of the purpose of business rather than considered in isolation.
More seriously, many may question whether it is realistic to expect society as a whole to adopt Wong and Rae’s view of the purpose of business and whether it is even worth attempting to persuade society to do so. Wong and Rae are ethicists not business people and on occasions this is revealed in a lack of sophistication in the examples of business situations that they give. Furthermore, their view of the world leans towards the optimistic end of the theological spectrum (being in Niebuhr’s “Christ the Transformer of Culture” category and, in some respects, leaning towards his “Christ of Culture” category) and many will wish to question this optimism.
Wong and Rae recognise these issues and seek to address them. Not all of what they say is wholly convincing and they leave many unexamined issues (e.g. with regard to the role of competition). However, the points that they make should at least cause those who are more pessimistic, whether from experience or theological conviction, to analyse their views and perhaps conclude that, even if they are right to be pessimistic, Wong and Rae’s basic suggestions are worth pursuing.
Business for the Common Good provides an overview of its subject matter and, if it leaves readers with many questions requiring further exploration, that is for the good. Wong and Rae state that their intention is “to plant seeds, deepen conversations and enable changed outlooks, purposes, values and practices” (page 285). Their book should achieve this goal.
“Business for the Common Good” was published in 2011 by InterVarsity Press (ISBN 10: 0830828168). 288pp.
Richard Godden is a Lawyer and has been a Partner with Linklaters for over 25 years during which time he has advised on a wide range of transactions and issues in various parts of the world.
Richard’s experience includes his time as Secretary at the UK Takeover Panel and a secondment to Linklaters’ Hong Kong office. He also served as Global Head of Client Sectors, responsible for Linklaters’ industry sector groups, and was a member of the Global Executive Committee.
The Centre for Enterprise, Markets and Ethics (CEME) is pleased to announce the publication of Ethics in Global Business: Building Moral Capitalism by Andrei Rogobete.
The publication can be downloaded here. Alternatively, hardcopies can be ordered by contacting CEME’s offices via email at: office@theceme.org
CCLA Investment Management and the Centre for Enterprise, Markets and Ethics held a book launch, lecture, panel discussion and reception. Author Revd Canon Edward Carter spoke about his new book, published by The Centre for Enterprise, Markets and Ethics as part of its series on Enterprise and Faith.
A distinguished panel included Joanna Moriarty, Lord Glasman, Lord Griffiths and the Bishop of Dover, the Rt Revd Trevor Willmott.
The Centre for Enterprise, Markets and Ethics (CEME) is pleased to announce the publication of Business in Catholic Social Thought by Martin Schlag.
The publication can be downloaded here. Alternatively, paperback copies can be ordered by contacting CEME’s offices via email at: office@theceme.org or by telephone at, (+44) 0186 5513 453.