For Companies And Individuals: Capitalism’s Ultimate Promise
Let's Use Kitchen Table Wisdom And Street Corner Logic, So We All Get It
It is time to cut through all the research, studies, speeches and similar ways to give attention to this critically important subject. Let’s consider the playbook, the new actionable paradigm for the 21st century and beyond that will elegantly do the job. It is almost embarrassing that we even need to explain it. If it was a snake it would bite us. We will address this important subject in some detail in this article.
This post is written, with great respect to other recent efforts (mentioned below), to get to the heart and essence of the question of how to repair or rehabilitate Capitalism. Several other efforts in recent years, while they do offer ways to create value, really only nibble around the edges of this larger matter. The proposal here addresses Capitalism’s ultimate promise – its highest value potential for local and global societies. We are confident Adam Smith would endorse this concept.
It should help to provide two prefatory exclamation points on this matter right at the start:
Doing Well By Doing Good.
There have been many efforts recently to study and propose ways to make capitalism rise to its highest level. Some of them have been described in short-hand as “doing well by doing good.” This is an understandable description. It means of course that a company can do better for itself, have more profit if it does good for others. While understandable it is so obviously second best, partly because it is still self-focused. It uses doing good for others as an instrumental means to an end – more profit for self.
On the other hand and ironically, the new paradigm we advocate in this article can be called “the golden rule as the ultimate commercially effective paradigm” – the way to create ultimate wealth as an outcome of a total focus on service to others. The difference is one of focus and reason for existence. In this approach, our focus is on others – our primary stakeholders. And, this focus is or will become part of any company’s DNA. The additional value to us (our company) is an outcome, not our driving purpose.
So, we present the 21st century essential dominant mindset and it is grounded in the true meaning that underlies the golden rule. How serendipitously elegant that a complete focus on serving others results also in achieving our own maximum level of wealth creation or value over the long run as an outcome.
People As Markets, In Kitchen Table Language.
In this article we discuss ubiquitous virtues, unalienable rights and fiduciary obligations, among other concepts. We use “markets” as a synonym for “people.” The plain meaning of it all can be expressed as follows:
1. Markets like companies that have and live the ubiquitous virtues.
2. Markets like companies that treasure and honor the unalienable rights.
3. Markets like companies that fully understand they have fiduciary obligations to all their primary stakeholders.
4. Markets like companies that are ethical and fair.
5. Markets like companies that are effective, efficient, productive, creative and innovative.
6. Markets like companies that produce high quality products and services at reasonable prices.
7. Markets like companies that are good citizens, pitching in and helping out in their communities.
8. Markets like companies that treasure the environment and are good stewards for future generations, attending to the public interest.
9. Markets like companies that compensate their employees fairly and create great, stimulating work environments for them – helping them be creative and innovative.
So, because one of our principal messages is that there is a mindset that is clearly the best mindset for capitalism to be grounded in (long term, primary stakeholder-focused and value-optimizing) and that this mindset itself is grounded in a solid understanding of the golden rule, these two prefatory explanations should help the reader make sense of the entire article.
Now, we can get on with explaining how to achieve capitalism’s ultimate promise – locally, globally and for all people.
Now, Actionable Paradigm – What The Heck Does That Mean?
Actionable paradigm, while sounding a bit too-too, simply means something that is or can be the model for conducting business that changes everything – that sets a new standard. The model we present here, when put into action by companies, by all organizations, will result in maximum value and wealth creation, local and global, over the long run. The real beauty of this paradigm is that it will reach to and raise the well-being of all people around the globe once it becomes viral – once it becomes universally embraced. At the same time and as an essential outcome it will enable companies to get on their long term trajectory of maximum wealth creation and stay on it over the long term.
A bunch of study and research has been done over the last 20 or 30 years on whether and how for profit publicly held companies can do better – or even their best – as they make and sell their products and services to customers. The reasons studies are done are many. The primary one, though, is that while much value has been created over the last 150 years or so (including through such recent and disruptive innovations as the communications and internet revolutions), such moments and events as the great recession of 2007-’08, the behavior of companies like Enron, WorldCom and others and the gap between the rich and poor as driven by the economy over time cause us to scratch our heads and look for approaches to improve the way that capitalism is acted out. Even more basically, we scratch our heads to determine whether a new way (a new paradigm) might be needed to allow capitalism to reach its highest potential as the best wealth creation catalyst for local and global economies.
It can fairly be said that the existing dominant concept (paradigm) in capitalist economies is that it is about profit, the more the better. In this way, that argument goes, corporations will make their best contribution to society. This concept can be said to have been most forcefully and successfully articulated by Professor Milton Friedman of the University of Chicago – extremely crisply in a New York Times article in September, 1970. It has been largely applied and taught as the intrinsic purpose and motivation of business since about that time.
Bad things have happened under this old paradigm, though, including one (the 2007-’08 recession) that nearly ended free market capitalism’s life.
Here are some examples of efforts to address this very important matter:
1. . Triple bottom line capitalism, 2. Creative capitalism, 3. Conscious capitalism, 4. Authentic capitalism, 5. Creating shared value capitalism and 6. Solution-creating (problem solving) capitalism. This sixth one has democracy necessarily accompany it because democracy helps create prosperity by resolving conflicts fairly – according to the people who studied and produced this approach. In fact, we believe legitimate democracy is the best partner for each of these approaches.
Each and all of these studies, research efforts and concepts have their own merit. They all fall short, though, of presenting a concept that is integrally consistent, one that reflects the highest expectations of local and global markets (populations) and that offers and ensures that companies – all organizations – and societies can get on their respective highest wealth creation trajectory and stay on them over the long term.
This matter of wealth creation, then, is that what it’s all about? The answer is yes and no.
Wealth creation is one way to describe the necessary outcome of a business that creates a product or service and sells it in the marketplace. Profit is another way, as is value creation. The main point is that when a business receives more for its product or service than it costs to produce and sell it, a profit must be an outcome. It can be called wealth creation. But, and this is the key, while this outcome is essential for the long term existence of the business, it is not its purpose.
Every business has, as its own purpose, its own reason for existence, the creation of something it has the passion for and aptitudes to produce. It must be something that buyers will buy because it creates value for them (it provides a solution for them), enough that they value it more than the money they pay for it.
For non-profit organizations a positive margin must be produced, enough to enable the non-profit to continue to provide optimal value to its primary stakeholder groups over the long run.
So Far, Kind of Staying Simple, But Let’s Spit It Out – What Concept Will Do This Job?
The Golden Rule Does The Job. Period.
We think it would be good to express the golden rule in business lexicon words, although an argument can be made that these words are not part of business lexicon. We hope they will be – soon. We lay claim to the “21st century essential, dominant mindset” as the name that applies to the following definition of the golden rule when used in describing it in the business (organizational) context. It also qualifies as the truly “big idea” for capitalism, a moniker claimed by some other efforts on this subject:
The real breakthrough "big idea" is that self-interest value maximization is a direct function of optimization of the value provided by an organization (and a person) to each of that organization's (and person’s) primary stakeholder groups – each relative to the others. That is, when a business devotes its time, talent and treasure to doing its best to optimize the value it provides to its major stakeholder groups (customers, employees, [and investors as a stakeholder group], suppliers, communities in which it has a presence and society [the general public interest]), it will maximize its own long-term value as an outcome (a by-product) - measured in appropriate financial terms as well as the other value measures it holds dear. This is not a belief; it is a self-evident axiom.
It can be expressed as a formula or an equation:
IVM= f (S1VO, S2VO,..… SNVO), where “I” is “institution” (any organization), “f” is “function of,” “S” is “stakeholder,” “V” is “value” (valued things) and “O” is “optimization.”
A. It is important to note here that just as the number of primary stakeholder groups is finite – really about six for every organization, so also is the number of “primary valued things” for each of these groups – about three or four for each group. That is, it is not a monumental task to identify them. In fact, this makes the marketing dimension so focusable and so achievable.
B. Again, the primary stakeholder groups, almost without exception, are: customers, employees, investors, suppliers, communities in which the company has a presence and the general public interest. Depending on the sector, different names are used – for example in health care the customer is the patient.
Every business, in fact every organization (every group with a unifying purpose) will maximize its own long term value or wealth creation as a direct function of optimally serving its primary stakeholder groups.
That is, it is simple and doable.
At the kitchen table and on the street corner these groups would be and are discussed as the key groups. People look with great interest at how these groups are treated by any company. If it is good, people like it and bring their business to that company. If not, people do not.
Of course. This new paradigm, this “big idea” conceptual foundation must intersect with and be integrally connected to an adaptive multi-year planning-and-doing process that makes it all happen (be actionable) – day in, day out, year in, year out. Often called a strategic plan, it can also be called a multi-year playbook. How simple is that?
Other Important Aspects Of This Paradigm.
There are just a few other very important aspects of this new paradigm. These aspects are integral to and breathe robust life into it. They are listed here without much elaboration, to allow the reader to see the dots and, almost certainly, connect them:
1. Ubiquitous virtues: Research by Professor Martin Seligman of the University of Pennsylvania, with others, indicates that there are about six virtues that are treasured by virtually all peoples around the globe. It turns out that these virtues are literally the same as the cardinal virtues – together with the theological virtues from Christian teaching. This new paradigm is areligious, but the ubiquitous virtues are strikingly similar. They are wisdom and knowledge, courage, humanity, justice, temperance and transcendence. Of course each virtue presents itself through a number of tangible traits, like creativity and curiosity as traits indicative of wisdom and knowledge, and kindness as indicative of humanity. They all make sense and sell at the kitchen table.
2. Universally Possessed Unalienable Rights: The rights to life, liberty, the pursuit of happiness and property (where property means one’s own skills and aptitudes – the abilities of each person to actualize her/his own potential) are almost universally agreed upon to be unalienable.
3. Fiduciary Responsibilities: The robust understanding must be that every organization, certainly every company, has a fiduciary obligation to each of its primary stakeholder groups – not just to its investors, its owners.
4. The Normal Blocking and Tackling of a Business: These will blossom most fully with our new paradigm. They are the functions of effectiveness, efficiency, productivity, creativity and innovation. In fact, with each employee doing that which fits her aptitudes and about which she is most energized and passionate (Jim Collins’ “seats on the bus”) these functions will be artistically acted out.
5. Gold Standard Leadership Characteristics: Enough mistakes have been made and attention given to the characteristics that work and those that don’t work that these seem obvious: Establish direction (vision, personal humility and professional will), modest and fearless, inclusive, enabling, inspirational, a listener, stakeholder-focused – in a maniacally profound way, heart of a servant, ethical courageous and just, and fun.
6. Gold Standard Cultural Characteristics: These are also clear, after many years of wandering: Adaptive, with a core ideology (purpose and values), risk taking, trusting, proactive, one in which all are heard and the truth is heard, reflective, humble, anticipatory and involved, rational and respectful, a conscious mindset, quietly confident, unassuming while maniacally pursuing the organization’s vision and mission with prudence, perseverance, humor and zest, disciplined people, thoughts and actions in a fun and dynamic environment, open, supportive and enthusiastic, happy, in a stakeholder-centered (H3) way, and fun.
7. Happiness: This aspect, once dismissed as unnecessary to have a productive work force, is essential – and it is at the heart of our 21st century mindset. It applies to the entity itself and to its work force. Briefly, Aristotle’s four kinds or levels of happiness, H1 through H4 are so obviously explaining that a dominant H3 life, the happiness that flows from contributing to the happiness of and creating value for others, is ultimately the best way for one to fully actualize one’s own potential in life. It is servant existence and servant leadership in action. Our big idea is grounded in this reality – we just breathe commercial life into the idea. It fits. And, it has as one essential outcome the maximization of the organization’s H2 (achievement – wealth creation) level of happiness.
8. Multi-Year Adaptive Planning and Doing Process: the plain vanilla strategic planning processes are fine. However our 21st century mindset’s intersection (harmonization) with this planning and doing process puts the company on that highest wealth creation trajectory and helps us stay there over the long term. Going from charter statements of purpose, values and beliefs, which are or should be timeless, through vision, mission, the successive and adaptive multi-year plans (with their goals and strategies) to annual budgets (with their objectives and tactics). What once and forever has seemed perhaps mundane to many (collectors of dust on the shelves) takes on a vibrant life with this harmonization, this nexus plus.
9. Ethical Behavior Always: This imperative was once thought to be optional for companies. They are legal persons, not real persons. As long as they did nothing illegal, as long as they followed the law in their conduct, ethical behavior was considered optional. Can you believe it?
10. Opportunity Cost Awareness and Minimization: This will be another and welcomed outcome of the new paradigm, local and global, micro and macro.
11. Full Potential – Seen and Actualized: This state of being is of course the ultimate outcome for an organization, and our 21st century essential dominant mindset produces it. Reached through our actionable paradigm, it is the equivalent of the happy life for a real person – the good and full life, well lived.
Now, how is that for keeping it simple? This is the golden rule applied to organizations – and individuals for that matter. It applies to all groups of people who are gathered together with a unifying purpose, a common cause.
The 21st Century Essential Dominant Mindset: A Summary.
This article has presented the organic new paradigm that will allow companies and, really, all organizations to get on their highest wealth creation trajectory and stay on it for the long term. It will do it because it invites and enables companies to appeal to the highest shared characteristics of people (markets), both locally and globally. It also invites all people to find work that allows them to fully use that most precious and unalienable property of theirs – their aptitudes and skills that they are passionate about.
While staying simple, there is more to this actionable paradigm, but the heart and soul of it has been presented here.
Some might or will consider this proposal to be a bridge too far. That is, to ask leaders of companies to have a long term, primary stakeholder-focused and value-optimizing mindset, rather than the largely short term-dominant, inward-focused and win-lose mindset that they have been accustomed to simply asks too much.
We think that view underestimates the ability of companies (all organizations) and their leaders to see and conduct themselves in accordance with their better angels. If for no other reason, this mindset is and for companies and leaders everywhere will increasingly become the best commercial choice available. That is, get on board or go out of existence!
We believe companies and their leaders, once introduced to this paradigm and enabled to understand its merit, will enthusiastically embrace and adopt it.
This, then, represents a new paradigm for capitalism that can enable all, at the local and global levels, to fully realize the benefits of capitalism’s ultimate promise.