Sometimes it takes me a long time to realise I have been wrong about an issue or an idea.  As explaining this may take more than a few words, only read on if the topic is of interest!

It all begins with a lecture.  To be precise, with the Michael Shanks Memorial Lecture, delivered on 5 December 1990 at the Royal Society of Arts (RSA) [i] by Charles Handy: his topic “What is a Company For?”.  One of the more important of his many contributions to business topics, it has had an important and ongoing impact on my thinking.  In it, he makes two key points.

The first is to rebut the (still) pervasive view that the real purpose of companies is to maximise earnings per share.  In response, Handy argued, “The principal purpose of a company is not to make a profit – full stop.  It is to make a profit in order to continue to do things or make things, and to do so even better and more abundantly.” [ii]

The second was to challenge another strongly held view, that shareholders ‘own’ a company.  Handy argues a company is an entity in its own right, and shareholders are like ‘punters’, betting on getting a return on their funds.  Not just that, as he is after another point.  Even if shareholders might have been seen as ‘owners’, the world has changed.  “Companies used to be physical assets, run by families and their helpers.  Nowadays they are largely people, helped by physical assets.  Owning people is, I think, wrong.  Buying and selling people is wrong.” [iii]

Is this an argument in favour of the stakeholder model of a company, responding to shareholders, employees, managers, banks, suppliers, customers, government, society, the environment, and so the list goes on?  No.  Charles Handy has a different view.  He sees a company as operating in what he described as a ‘bounded space’, facing competing pressures from those various groups he calls ‘ring holder, rather than stakeholders.  In his model, companies don’t work for these entities, but rather work within the constraints each impose:

“[T]he corporation whose principal purpose is to fulfil itself, to grow and to develop to the best that it can be, given always that every other corporation is free to do the same.  It owes something to each of the ring-holders, but is owned by no one.  It is in charge of its own destiny, and it is immortal or would like to be.  It is not a piece of property, inhabited by humans, it is a community, which itself has property.  It also has shares, traded publicly, bought by punters, but those punters have limited powers.  They cannot go into the auction room unless the company defaults, or assists them to.” [iv]

All these observations have provoked a variety of outcomes.  First, he suggested we think of the people working in a company as members of a community, not as the property of the business.  Sadly, that idea has gained little traction.  Managers still control staff, their ‘human resources’.

Second, in trying to dismiss the idea that shareholders ‘own’ a company, Handy’s ideas have travelled a rocky road.  Most still believe they do, but every so often an academic will rediscover the relevant arguments.  In a recent issue of the Harvard Business Review, Professors Joseph Bower and Lynn Paine wrote on ‘The Error at the Heart of Corporate Leadership’ [v] (a title guaranteed to get readers interested!).  They point out that “legally, shareholders do not have the rights of ‘owners’ of the corporation”, nor are they “owners of the corporation on any traditional sense of the term”. [vi]  That must have caused a nice stir over at the Harvard Business School, which has taught maximising shareholder returns and directors’ responsibility to shareholders above all others for years.  A good article, 27 years late, but I doubt it will change much at all. [vii]

In the UK, Handy’s remarks led to an RSA project, on ‘Tomorrow’s Company’, which in turn resulted in the establishment of the Centre for Tomorrow’s Company.  The Centre has argued, in a number of reports, for the importance of accountability to more than just shareholders, and for an inclusive approach. [viii]  This resonated with other commentators, talking about ‘triple bottom line’ accounting, and the responsibility of a company to create financial, environmental and social returns, an approach set out in the work of John Elkington and SustainAbility [ix].

So where in all this did I go wrong?  I think it was that idea of ‘inclusiveness’.  I even wrote a book with Brian Hirsh called ‘Inclusive Leadership’ [x], now hopefully forgotten, full of advice on stakeholders, inclusiveness, and new approaches to accountability.  In my enthusiasm, I hadn’t noticed that wasn’t what Charles Handy was proposing.  He had argued that a company has to respond to each of the ring holders in that bounded space around the company, but not that any ‘owned’ the company.  A company is responsible to itself, and external accounting is put in place to meet the requirements that go with having a ‘licence to operate’.  Now, looking back, I can see I missed an even more fundamental issue.  I realised what I had got wrong when I read about conscious capitalism.  Having eloquently (well adequately) supported the importance of the triple bottom line, it would have been a short step for me to agree to claims like these:

“we believe that business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence, and it is heroic because it lifts people out of poverty and creates prosperity. Free enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived.  It is one of the most compelling ideas we humans have ever had.  But we can aspire to something even greater.  What we collectively envision, we can create and bring into reality.” [xi]

That rang some warning bells.  Voluntary exchange?  Elevating our existence?  Nice words from John Mackey, who is the co-founder of the Conscious Capitalism Institute, together with Raj Sisodia.  Mackey is also the CEO of Whole Foods Market (Whole Foods for the rest of this blog). Nice words “butter no parsnips”, or in this case nice words gloss over the nature of capitalism.

For its advocates, free enterprise capitalism is built on some powerful and apparently persuasive ideas.  First, there is the free market, where “coordination through voluntary cooperation rests on the elementary – yet frequently denied – proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed” (author’s emphasis). [xii]  Exactly, Milton Friedman, there are two rather important conditions there!  In ‘Capitalism and Freedom’, Friedman went on to explain the virtues of the free market and its essential underpinning of democracy: “Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color the majority want and then, if he is in the minority, submit.”  I guess the problem is obvious.  First, I can’t buy any colour of tie I want, as I am constrained by those the manufacturer will make.  In the store, the colours are those that sell, determined by the majority, and profitability. [xiii]  As for any nonsense about minorities avoiding the pressure to submit, well just look at the mess in the Federal Government right now.

I could say more about voluntary and informed transactions, but it is an old argument.  In the marketplace, interactions are seldom voluntary:  try getting a job to discover the truth about that.  Informed?  I suggest you go along to Whole Foods and try to seek the truth about many of the ‘organic’ products you see:  where they were grown, what controls and requirements were met; what the growers were paid; how they were transported, at what environmental cost, etc.

Making fun of Friedman is easy.  However, the second topic in conscious capitalism’s credo, ‘elevating our existence’, really gets to the heart of the matter, and he second powerful idea on which free market capitalism depends.  This has to do with value.  In order for the free market to work, we must live in a world where almost everything is reduced to its ‘exchange value’.

We have two, often conflicting, measures of value.  ‘Use value’ is how something contributes to the things I want to do; exchange value is how that same something is measured as an item to buy or sell, in other words its value measured in dollars.  I often think about this in terms of the building I inhabit.  In terms of its use, it gives me shelter, warmth, a place to sleep; it’s a place where I work, hiding inside a study with my books and my computer; it’s a place for visitors to come and talk, to entertain, a place where I lead a key part of my emotional life with the partner I love; it is part of my self, contributing to who I am seen, my status, my role in society:  in short, it is my ‘home’.  At the same time, this building is a ‘house’, of a certain size and layout, on a block of land.  This is impersonal now, a house is a physical object which has an exchange value:  through this lens it is worth, let’s say $300,000.

The fundamental building block of capitalism is exchange value.  In commenting on the bourgeoisie as the driving force behind the capitalist system, Marx pithily – and accurately – observed: “The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers.  The bourgeoisie has torn away from the family its sentimental veil, and has reduced the family relation to a mere money relation.” [xiv]

How does conscious capitalism address this fundamental feature of capitalism that reduces everything to its dollar value?  If we are to believe its boosters it will elevate our existence, as a system for social cooperation and social progress. It is tempting to look at Whole Foods as an example of conscious capitalism at work.  I’m sure you know the basic story.  Whole Foods was the company that gave organic produce visibility from the early 1980’s.  Since then, its growth has been impressive, both through expansion, and the acquisition of competitors.  The journey has not been without bumps and challenges.  Its credentials in organic food have been challenged; its labour practices have often been criticised; and, as it became bigger, it transformed into another ‘big box’ store.  As competing major stores saw the value in organic food, so Whole Food’s growth has slowed.  At the beginning of this year, it had to close some stores, before being acquired by Amazon.[xv]  Despite the words, it has proved to be another, familiar business story.

While an easy way to criticise conscious capitalism, the Whole Food’s saga rather misses the point.  Whether good or bad in some of its aspirations and strategies, it is still an example of capitalism at work.  Whole Foods keeps wage costs as low as possible, sources produce from countries were labour costs are low.  It plays the game like any other business, even if there are some nice touches, like keeping senior executive salaries out of the stratosphere!  It is in the business of exploitation, seeking market control, and making profits.  It is all about exchange value.

Capitalism and the ‘free market’ works by equating value to dollars, and maximising the returns to the owners of capital.  Charles Handy sought a world in which companies were only interested in making a profit in order to continue to do or make things, better and more abundantly.  He was rethinking the purpose of companies, but still within the capitalist system.  I was enthusiastic about his approach, though I hadn’t understood it as well as I should.  But now I can see I was wrong.  Ameliorating practice is nothing more than that.  The free market system itself is rotten: if we are measured by our incomes, if “the family relation [changes] to a mere money relation”, then our world is reduced to exchange values, to everything judged by the “mighty dollar”.

Am I a closet Marxist?  I don’t think so, but I do think we are in real trouble.  A world dominated by exchange value is an impoverished place to live.  Trump, Congress, racism, sexism, guns and hatred, they are all the epiphenomena of something rotten at the core.  Who is going to save us?  I often think it has to be writers, artists, composers.  Even they are being dragged into this world of money, judged by the dollar value of their work, yet they may be our last hope of redemption.

And yet.  And yet I think about some of the people with whom I work.  The CEO of the small biotech start-up I am helping has taken no salary for two years now.  He cares about what he is doing.  He hopes to be rewarded eventually, of course, but his driver is helping addicts overcome addiction.  Many millennials reject the capitalism of today: thank goodness.  We have to encourage, support and help the young people who want to make a better world; yes, I think we have to, because it’s almost too late!

 

[i]  More correctly the Royal Society for the Encouragement of the Arts, Manufactures and Commerce, a charity founded by William Shipley in London in 1754, at Rawthmell’s Coffee House.  That last part is important, as it was, and still is, a central part of the RSA to encourage ‘coffee shop discussions’.

[ii]  The address is reprinted in Charles Handy, Beyond Certainty, Random House, 1995: page 61

[iii] Ibid, page 63

[iv] Ibid, pages 69-70

[v]  Harvard Business Review, May-June 2017, pp 50-60

[vi] Ibid, page 53.

[vii] After all, Charles Handy acknowledged that George Goyder had said it before him, in his 1987 book, The Just Enterprise, Deutsch, and I am certain there many before him.  It’s a hard view to change.

[viii] Now known as Tomorrow’s Company, a charity seeking to develop an “inclusive approach”, and to enable business to be a force for good in society, <http://tomorrowscompany.com/>

[ix] John Elkington, Cannibals with forks, New Society Publishers, 1998.  The title was based on a question: if cannibals start using forks, is this progress?  He argued it was!

[x]  Published by Information Australia in 2000, with the modest subtitle ‘Rethinking the World of Business to Generate the Dynamics of Lasting Success’!

[xi] From John Mackey and Raj Sisodia, Conscious Capitalism, HBR Press, 2013, Intro and page 174

[xii] Milton Friedman, Capitalism and Freedom, Univ. of Chicago Press, 1962, 2002 Edn., page 13

[xiii] And yes, if was rich, I could go to a manufacturer and get one made for me, if I was willing to ‘pay the price’.

[xiv] Karl Marx and Friedrich Engels, The Communist Manifesto, 1848: page 2

[xv] A good summary of the story is in Wikipedia <https://en.wikipedia.org/wiki/Whole_Foods_Market>

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