Humanity is in crisis.
This Friday we saw the largest US government bailout of business in history.
The very next day, European leaders met in Paris to deal with the newly acknowledged global economic crisis.
Setting aside the larger societal problems of global warming, pollution, drinking water shortages, terrorism, war, genocide, ethnic cleansing, poverty and disease; serious financial troubles have begun to affect the richest countries in the world, and we are deeply divided about what to do.
There is good news.
The way out of this mess has already been shown. Business must become the leading agent of world benefit.
To achieve long-term sustainable success, business leaders must shift their focus to the common good. They must consider all stakeholders, not just shareholders. This larger vision of the role of business has already been proven profitable by the leaders of virtually every business sector. And, thanks to the Harvard Business Review and other business researchers and authors, the superior results of this approach are well documented. Study after study has pointed out that companies with this greater vision consistently and dramatically out-perform their competition.
So why do we find ourselves in this current predicament? It can be traced all the way back to Adam Smith. Smith was a pioneer of modern political economics back in the 1700’s. He was among the first to state that greed was good (sorry Gordon Gekko), and that the invisible hand of the market would maximize the total revenue of society as a whole. More recently, American Nobel Laureate economist Milton Freidman championed the advantages of the unfettered marketplace and the disadvantages of government intervention and regulation. According to Wikipedia, Friedman’s “views of monetary policy, taxation, privatization and deregulation informed the policy of governments around the globe, especially the administrations of Ronald Reagan in the U.S., Brian Mulroney in Canada, Margaret Thatcher in Britain, and Augusto Pinochet in Chile, and (after 1989) in Eastern Europe.”
Hopefully, this latest systematic failure will once and for all expose Smith’s and Freidman’s philosophy as fatally flawed in its’ narrow focus on greed and self-interest. After all, it was the deregulation of electricity that preceded the Enron scandal. In the 80’s & 90’s, the savings and loan crisis was preceded by deregulation of savings and loan industry combined with imprudent real estate lending. It’s not hard to see the similarities to the current Wall Street melt down and its’ precedent of further financial deregulation and unchecked financial “innovation”.
Unfortunately, rules and regulations are insufficient to solving the root problem. We often legislate morality, but that alone does not ensure ethical behavior. Famously, even Enron had an ethics code that was widely and ironically distributed on the internet. Enron’s in-house “Code of Ethics” was a 64-page booklet distributed to employees along with an introductory letter from Chairman Kenneth Lay noting the “moral and honest manner” in which the energy firm’s business affairs should be conducted.
Moreover, Sarbanes-Oxley, the legislative response to Enron, Worldcom, & Tyco International et. al., did nothing to stop the current Wall Street meltdown and its’ concomitant mortgage and securities shenanigans. 6 years ago these scandals cost investors billions of dollars and shook public confidence in the nation’s securities markets. Yet, here we are, in the same place all over again.
To get out of this devolving cycle, we must address the root problem of trust, confidence and ethical behavior. This will be accomplished as leaders of business and industry embrace the larger vision of the greater good, backed up by living out the values expressed in their corporate codes of conduct. Those espoused values will include the concerns of multiple stakeholders, not just shareholders. Employee engagement, customer satisfaction, vendor collaboration and the good of the local and global community will be important as measures of sustainable success. When this larger vision is backed up by leadership behavior, business will become the transformative agent needed so badly right now.
As leaders begin to really walk the talk, employees become energized and engaged. In part this comes from the inspiring new business vision that now includes the greater good. And, if leaders further encourage employees to express their own unique passion and talents through the company’s vision and values, truly sustainable success is assured.
Ethical breakdowns in this preferred future business culture will be smaller and less frequent.
They will be the occasional cheats and embezzlements of individual bad actors, not the devastating results of systematic breakdowns.
As the most powerful force in the modern world, business can quickly become the most effective agent of world benefit. Now, more than ever, we need business leaders of vision and values to step out of the destructive spiral set in motion by Adam Smith and move us towards a future that defines success as the triumph of the common good, not the privileged few.