Some timely thoughts from Con Keating
Last week, as part of its 30th anniversary celebrations, the Institute of Business Ethics held an open discussion, with an eminent panel, on the topic: Responsible Capitalism: what does it mean today?
We might have expected a discussion of the varieties of capitalism; there is a burgeoning academic literature on this and even the most cursory of glances around the world today would reveal a vibrant multiplicity. Instead we were treated to a different and very mixed bag.
Capitalism is an abstract concept; we cannot see, feel, hear, touch or smell such things. Its collective embrace is catholic, and to progress analytically it is necessary specify which of these forms we are considering.
It is a mistake to reify or personify such abstractions, even if common. I wonder if James Carville would still wish to be reincarnated as the bond market today. This renders questions such as: “to whom and for what is capitalism responsible?” nugatory and pointless. Such questions need to be posed of the institutions within a particular capitalist system. It leads easily to such arrant nonsense as the idea that capitalism creates wealth.
There is an associated and now popular notion that is equally mistaken, that of the shamanic entrepreneurial wealth creator. Wealth is actually created by saving the excess of current production; it cannot be magicked into existence. There are interesting discussions to be had around the extent to which increased current consumption is a form of wealth, and over the transient nature of market capitalisation, discounting, as it does, expected future developments.
The idea that the sole purpose of the firm is to generate value for shareholders is similarly mal-founded. Indeed, it is possible to argue that the increasing shareholder empowerment of recent times has contributed to the corporate malaise we currently observe in public markets.
Though never explicitly stated, the idea that companies are obliged only to operate within the law was also evident, with the problem then being simply that the law lags behind social norms and expectations of morality. There are numerous problems with this conception; it is amoral and ethics have no place. They continue with the role of competition; when some gain by breaching these laws, this places competitive pressure on others to follow suit. In such a world, where coercion or regulation alone rules, there is little or no room for trust and co-operation to develop; intrinsic and extrinsic motivation cannot be separated.
It is interesting to note that while competition is the dominant form of organisation among companies, co-operation is the dominant form within. Indeed, the few examples of deliberate internal organisation on a competitive basis have been unmitigated disasters. Merger and acquisition strategies can be seen as an attempt to enhance the external competitive position by increased internal co-operation.
There was a passing mention of a company’s social license to operate, but this seemed to be restricted to the provision of clinics and community facilities for indigenous peoples. The rights associated with juridical personhood are extremely valuable and further augmented by limited liability. These rights come with the implicit obligation to behave in a socially responsible manner.
While it may be possible to agree, in contract, limited liability with all of the counterparties to transactions with the company (customers, creditors, employees, suppliers etc.), this would take time and effort, and there really is no plausible manner by which to limit liability in tort to external persons. Think of the passer-by injured by a poorly maintained company truck. Of course, indemnity assurance might be used to resolve such issues, but that would be costly and come with explicit conditions as to maintenance.
While there may be no set of rules that will induce prosocial behaviour, there are undoubtedly some gains to it; think, for example, of the greater ease of hiring, and retention, of staff. Quite where this leaves the question posed by the IBE, I don’t know, but it may in any case be moot, given the recent statements made by our new Prime Minister, Theresa May.
Since 1 January 2019 the average FTSE 100 CEO has earned:
Income inequality in the UK
Wealth inequality in the UK
- Blog: Where is the ‘social’ wellbeing in ESG reporting?
HPC Head of Policy and Research, Ashley Walsh, blogs on the quality of workforce disclosures among FTSE 100 firms.
- Top Dogs and Fatcats: the debate on high pay
High Pay Centre essay featured in collection published by the Institute of Economic Affairs think tank
- HPC in the media: the myth of shareholder stewardship
Our analysis of shareholder voting patterns makes the case against a corporate governance system policed by dis-engaged investors