Responsible capitalism should go further | Guardian Sustainable Business | Guardian Professional
Responsible capitalism should go further | Guardian Sustainable Business | Guardian Professional
With so much power held by companies, it's not enough to rely on self-discipline and voluntary initiatives, says John Elkington – and what of meso and meta-level challenges?
With so much power held by companies, it's not enough to rely on self-discipline and voluntary initiatives, says John Elkington – and what of meso and meta-level challenges?
'A group of large companies are now able to change the world at a scale historically reserved for nations,' say Eccles and Serafeim. Photograph: Johannes Mann/Corbis
Well done, Sir Roger Carr – president of the CBI and chair of Centrica. Writing on this website on 19 October, he laid out the agenda facing corporate boards and C-suites in the UK. "All businesses," he argued, "are increasingly judged not just on how much money they make, but how they make money; business behaviours and business performance are increasingly inseparable."
Not that you'd guess it from the behaviours of some leading companies. "In the last 12 months," Sir Roger noted, "malpractice in the media and the disreputable activities of the banks, have continued to poison the general public's view of business – and particularly big business."
His welcome conclusion: "Bad behaviour must be stamped out by self discipline in our boardrooms, not only to avoid the onerous burden of further red tape and damaging taxation through government intervention, but also so that we can attract diverse, talented people into our organisations."
All this resonated powerfully because we are working on the next phase of our evolving Breakthrough Capitalism programme – which aims to pin down what we should be asking not only of UK boards and C-suites but also of their international counterparts in what we dub the Global C-suite.
The nature and scale of that task was brought home recently when Bloomberg carried a blog by Bob Eccles, professor of management practice at Harvard Business School, and George Serafeim, assistant professor of business administration at HBS.
Their conclusion: "Globalisation has concentrated economic power within a group of large companies who are now able to change the world at a scale historically reserved for nations. Just 1,000 businesses are responsible for half of the total market value of the world's more than 60,000 publicly traded companies. They virtually control the global economy. This vast concentration of influence should be the starting point for any strategy of institutional change toward a sustainable society."
Interestingly, it turns out that there's substantial concentration even within the top 1000. Just 83 companies now account for a third of the Global 1000's $32tn in revenue, Eccles and Serafeim report, while the top 172 companies account for about half of it. The 172nd largest corporation, the Russian oil company Rosneft Oil, had revenue equivalent to the GDP of the 74th largest country, Uruguay.
The wider demographic and environmental evidence, meanwhile, suggests that we are headed in unsustainable directions, with the Global C-suite distracted by the downturn and other factors. In this context, Sir Roger's self-discipline and voluntary initiatives can only take us so far. We must change the rules within which capitalism operates – indeed the very rules of capitalism.
True, as Eccles and Serafeim accept, many companies now see they have some responsibility to the world beyond company operations. "They know that if they are to continue such rapid growth in developing markets – or, as Willie Sutton might say, 'where the money is' – they might need to bring in more than goods and services, such as civil-society upgrades where they're most needed: housing, health and education," they write. Now that's an idea: multinational corporations helping build civil society institutions that will help keep their own activities in check.
All this will require revolutions in our institutions, economics and accounting practices. One of the more interesting blogs was posted in October by Andrew Sheng and Xiao Geng of the Fung Global Institute, based in Hong Kong, which highlighted that economics tends to focus on the micro and macro levels, whereas two others levels are of growing concern: the meso and the meta.
"Meso-economics studies the institutional aspects of the economy that are not captured by micro or macroeconomics," say Sheng and Geng. "By presupposing perfect competition, complete information, and zero transaction costs, neoclassical economics assumes away the need for institutions like courts, parties, and religions to deal with the economic problems that people, firms, and countries face."
And meta-economics? This approach "goes still further, by studying deeper functional aspects of the economy, understood as a complex, interactive, and holistic living system. It asks questions like why an economy is more competitive and sustainable than others, how and why institutions' governance structures evolve, and how China developed four global-scale supply chains in manufacturing, infrastructure, finance, and government services within such a short period of time."
The add on our inner Darwin that: "In order to study the deep hidden principles behind human behaviour, meta-economics requires us to adopt an open-minded, systemic, and evolutionary approach, and to recognise the real economy as a complex living system within other systems. This is difficult, because official statistics mismeasure – or simply miss – many of the real economy's hidden rules and practices."
Clearly, then, we have meso and meta-level challenges that we can't address solely by switching on particular boards and C-suites. Still, converting key elements of the Global C-Suite can be a critical first step. Happily, whatever the intentions may have been, the market trends Eccles and Serafeim explore have already gone a fair way towards making the global economy more adaptable by concentrating market and (potentially) moral leadership into 1,000 boardrooms and/or C-suites.
But, as they conclude, ultimately every individual must show responsible behaviour, which can be helped by institutions. So we'll gladly take the best that self-discipline and voluntarism have to offer, Sir Roger, but look forward to hearing how Centrica, the CBI and eventually the Global C-suite plan to embrace the meso and meta dimensions to good effect.
John Elkington is executive chair of Volans and a non-executive director at SustainAbility. His latest book is The Zeronauts: Breaking the Sustainability Barrier (Earthscan/Taylor & Francis). You can read his blog here and he tweets as @volansjohn
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Not that you'd guess it from the behaviours of some leading companies. "In the last 12 months," Sir Roger noted, "malpractice in the media and the disreputable activities of the banks, have continued to poison the general public's view of business – and particularly big business."
His welcome conclusion: "Bad behaviour must be stamped out by self discipline in our boardrooms, not only to avoid the onerous burden of further red tape and damaging taxation through government intervention, but also so that we can attract diverse, talented people into our organisations."
All this resonated powerfully because we are working on the next phase of our evolving Breakthrough Capitalism programme – which aims to pin down what we should be asking not only of UK boards and C-suites but also of their international counterparts in what we dub the Global C-suite.
The nature and scale of that task was brought home recently when Bloomberg carried a blog by Bob Eccles, professor of management practice at Harvard Business School, and George Serafeim, assistant professor of business administration at HBS.
Their conclusion: "Globalisation has concentrated economic power within a group of large companies who are now able to change the world at a scale historically reserved for nations. Just 1,000 businesses are responsible for half of the total market value of the world's more than 60,000 publicly traded companies. They virtually control the global economy. This vast concentration of influence should be the starting point for any strategy of institutional change toward a sustainable society."
Interestingly, it turns out that there's substantial concentration even within the top 1000. Just 83 companies now account for a third of the Global 1000's $32tn in revenue, Eccles and Serafeim report, while the top 172 companies account for about half of it. The 172nd largest corporation, the Russian oil company Rosneft Oil, had revenue equivalent to the GDP of the 74th largest country, Uruguay.
The wider demographic and environmental evidence, meanwhile, suggests that we are headed in unsustainable directions, with the Global C-suite distracted by the downturn and other factors. In this context, Sir Roger's self-discipline and voluntary initiatives can only take us so far. We must change the rules within which capitalism operates – indeed the very rules of capitalism.
True, as Eccles and Serafeim accept, many companies now see they have some responsibility to the world beyond company operations. "They know that if they are to continue such rapid growth in developing markets – or, as Willie Sutton might say, 'where the money is' – they might need to bring in more than goods and services, such as civil-society upgrades where they're most needed: housing, health and education," they write. Now that's an idea: multinational corporations helping build civil society institutions that will help keep their own activities in check.
All this will require revolutions in our institutions, economics and accounting practices. One of the more interesting blogs was posted in October by Andrew Sheng and Xiao Geng of the Fung Global Institute, based in Hong Kong, which highlighted that economics tends to focus on the micro and macro levels, whereas two others levels are of growing concern: the meso and the meta.
"Meso-economics studies the institutional aspects of the economy that are not captured by micro or macroeconomics," say Sheng and Geng. "By presupposing perfect competition, complete information, and zero transaction costs, neoclassical economics assumes away the need for institutions like courts, parties, and religions to deal with the economic problems that people, firms, and countries face."
And meta-economics? This approach "goes still further, by studying deeper functional aspects of the economy, understood as a complex, interactive, and holistic living system. It asks questions like why an economy is more competitive and sustainable than others, how and why institutions' governance structures evolve, and how China developed four global-scale supply chains in manufacturing, infrastructure, finance, and government services within such a short period of time."
The add on our inner Darwin that: "In order to study the deep hidden principles behind human behaviour, meta-economics requires us to adopt an open-minded, systemic, and evolutionary approach, and to recognise the real economy as a complex living system within other systems. This is difficult, because official statistics mismeasure – or simply miss – many of the real economy's hidden rules and practices."
Clearly, then, we have meso and meta-level challenges that we can't address solely by switching on particular boards and C-suites. Still, converting key elements of the Global C-Suite can be a critical first step. Happily, whatever the intentions may have been, the market trends Eccles and Serafeim explore have already gone a fair way towards making the global economy more adaptable by concentrating market and (potentially) moral leadership into 1,000 boardrooms and/or C-suites.
But, as they conclude, ultimately every individual must show responsible behaviour, which can be helped by institutions. So we'll gladly take the best that self-discipline and voluntarism have to offer, Sir Roger, but look forward to hearing how Centrica, the CBI and eventually the Global C-suite plan to embrace the meso and meta dimensions to good effect.
John Elkington is executive chair of Volans and a non-executive director at SustainAbility. His latest book is The Zeronauts: Breaking the Sustainability Barrier (Earthscan/Taylor & Francis). You can read his blog here and he tweets as @volansjohn
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