Maximising Shareholder Value
“There is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
~Milton Friedman~ US economist (1912–2006)
With a 2015 speech for the St Pauls Institute Conor Ketoe, co-founder and director of McKinsey explains how corporate personhood drives short termism in business which may not serve the greater interests of society.
Three years earlier in 2012, Mckinsey launched their Long Term Capitalism initiative in which I contributed “Re-imagining Capitalism — The New Bottom Line” albeit too late to be included.
It included the argument from our founder’s 1996 paper on People-Centered Economic Development, for a business model which puts social benefit before shareholder return:
“The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands.”
“If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of corporate employees and community leaders. “
“The New Bottom Line” described how this model was used to research and develop the 2007 strategy plan described as a ‘Marshall Plan’ for Ukraine, to replicate on a national basis, rather than the conventional trickle down approach:
‘This is a long-term permanently sustainable program, the basis for “people-centered” economic development. Core focus is always on people and their needs, with neediest people having first priority — as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine’s poorest and most desperate citizens, rather than a “top-down” approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first — not secondarily, along the way or by the way. ‘
To my knowledge, this was the only contribution based on practical application, though another describing a new ‘Benefit Corporation’ was seemingly based on these principles.
Social Business and For Benefit Corporations is the name of the Linkedin group I’ve managed since 2008. In 2009, I’d introduced the concept to B Labs, who founded the B Corporation movement. They declined my suggestion to collaborate.
One of the interesting points in the article about the Benefit Corporatio is about support infrastructure:
“Social Enterprise UK and Social Venture Network are among the better-established support networks; since their beginnings in informal relationships and best-practice swapping, they have taken on the trappings of professional societies and trade associations. Conferences like the Skoll World Forum on Social Entrepreneurship and SOCAP provide vital cross-pollination, bringing together entrepreneurs, funders, and service providers from around the world. “
As a long term participant in Skoll and SOCAP networks, I’d introduced people-centered business to Social Enterprise UK in 2006, when they were known as the Social Enterprise Coalition. Our work , I was told, was beyond their focus.
There’s this also:
“What’s crucial now is to put all of the pieces together like a puzzle. That’s the approach of pilots like the North Carolina Fourth Sector Cluster Initiative (NCFSCI), launched in 2010. The NCFSCI is a collaboration of business, community, government, academic, and economic development leaders convened to accelerate the growth of the fourth sector across North Carolina.”
P=CED was conceived in Chapel Hill NC and the white paper circulated widely on campus at UNC Attempting to join their Linkedin group, I discover it’s a club that won’t have me as a member.
In the 2003 fast for economic rights in Chapel Hill which led to P-CED coming to the UK, I had the role of forwarding progress reports to Senator John Edwards who would go on to launch the Center on Poverty Work and Opportunity on campus in 2005.
All this would be something of a farce, were it not for the consequences which led to the death of Terry Hallman and the many children he tried to help in Ukraine.
In 2012 with her book, The Shareholder Value Myth, Cornell law professor Lynne Stout would argue that maximising shareholder value is not law.
In 2009, it wasn’t a management consultancy or a law professor who came on side with the argument for a people-centered approach to business. It was Pope Benedict in his encyclical Caritas in Veritate, calling for “ethics which is people-centred”
“This is not merely a matter of a “third sector”, but of a broad new composite reality embracing the private and public spheres, one which does not exclude profit, but instead considers it a means for achieving human and social ends. Whether such companies distribute dividends or not, whether their juridical structure corresponds to one or other of the established forms, becomes secondary in relation to their willingness to view profit as a means of achieving the goal of a more humane market and society. “
The President of the UN General Assembly, a Catholic priest was also on side:
“The anti-values of greed, individualism and exclusion should be replaced by solidarity, common good and inclusion. The objective of our economic and social activity should not be the limitless, endless, mindless accumulation of wealth in a profit-centred economy but rather a people-centred economy that guarantees human needs, human rights, and human security, as well as conserves life on earth. These should be universal values that underpin our ethical and moral responsibility.”
(Miguel D’Escoto Brockmann, the President of the United Nations General Assembly speaking in 2009)
More recently, the Archbishop of Westminster joined the fray with Blueprint for Business:
“My starting point is simple. It is the good of the human person. As a Catholic I have a fundamental belief, along with many others and indeed shared by very many people of no faith, that we must start from the conviction that people really matter. We are none of us simply producers, or consumers, or employees. What we all share first and foremost is a common humanity. Good societies are built on that fundamental respect for the human person.”
Indeed people matter, or as it was argued in 1996 — other people matter.
Does this mean Catholics are investing wholesale in business that puts people over profit? No, but we may hear how it should be — the future of business lies in people not profit.
Aren’t people the true purpose of business, a man asked his President 20 years ago:
“At first glance, it might seem redundant to emphasize people as the central focus of economics. After all, isn’t the purpose of economics, as well as business, people? Aren’t people automatically the central focus of business and economic activities? Yes and no.
People certainly gain and benefit, but the rub is: which people? More than a billion children, women, and men on this planet suffer from hunger. It is a travesty that this is the case, a blight upon us all as a global social group. Perhaps an even greater travesty is that it does not have to be this way; the problems of human suffering on such a massive scale are not unsolvable. If a few businesses were conducted only slightly differently, much of the misery and suffering as we now know it could be eliminated. This is where the concept of a “people-centered” economics system comes in.”
