Reimagining Capitalism in a World on Fire

by Rebecca Henderson

We are destroying the world and the social fabric in the service of a quick buck, and we need to move beyond the simple maximization of shareholder value before we bring the whole system crashing down around our heads.

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Tanks example

The first is that recognizing and responding to architectural innovation is hard but not impossible. Phil Knight had trouble—perhaps precisely because he was so successful—but Lipton, Walmart, and CLP were all able to use the creation of shared value as a route to significant competitive advantage. The second is that those firms that manage to take advantage of these kinds of transitions—that have the courage to invest before their competition and to invest in the skills and people required to build entirely different ways of approaching a market—have the potential to reap enormous returns. The third is that organizational purpose is the key to change. Those firms that have a clearly defined purpose beyond profit maximization, where it is clearly understood that the purpose of the firm is not to make shareholders rich, but to build great products in the service of the social good—

Being authentically purpose driven can be a powerful business strategy. But you can’t decide to be authentic because it will be good business. That wouldn’t be authentic. Becoming authentically purpose driven is all about exploring the boundary between purpose and profit—about choosing to do the right thing and then fighting hard to find the business case to make it possible. Mark made important strides in remaking

The reason purpose-driven management is not universal or at least more common is because it is in itself an architectural innovation of the first order—requiring managers to think about themselves, their employees, and the structure of the firm in entirely new ways. And unfortunately, many managers are prisoners of a worldview—and with it a view of employees and a method of management—that is over a hundred years old.

“Taylorism” became the conventional wisdom, and Taylor’s The Principles of Scientific Management became the best-selling business book of the first half of the twentieth century. Taylor’s ideas became so widely accepted that the early evidence that embracing a purpose could significantly improve performance was widely dismissed—and even when it was finally acknowledged, firms found it enormously difficult to implement the new ways of working. Take, for example, GM’s struggle to respond to Toyota’s success.

Tavistock Institute, a group of researchers that stressed the importance of human relations in shaping work. Douglas McGregor’s work at MIT influenced the work of his colleague Ed Schein, who became the world’s foremost expert on organizational culture. Scholars like Michael Beer at Harvard continued to write about high-performing firms whose success was rooted in purpose-driven leadership and respect for employees. But for decades the purpose-driven organization was an outlier, more the exception than the rule.

The world is also changing in ways that make the need for purpose increasingly evident. Public expectations are shifting, with 73 percent of the world’s population now expecting business to address the big problems of our time.51 The millennials and their successors are actively seeking jobs that support a sense of meaning and purpose. At the same time, the trust gap between business and the general public is accelerating. A third of employees don’t trust their employer, and while 82 percent of the elite trusts business, only 72 percent of the general public do.52

It turns out that reimagining capitalism requires reimagining accounting.

Triodos Bank

the give and take of the political process in combination with a focus on the public good rather than on private profit will always mean that governments look less “efficient” than the private sector. But efficiency is not the right criterion. The right criteria are whether the government is clean, responsive, transparent, and democratic.

the alternative to strong, democratically controlled government is not the free market triumphant. The alternative to democratically controlled government is extraction—the rule by the very few for the very few. Extractive elites are not fans of the free market. They cannot resist the temptation to write the rules in their own favor, to shut down innovation, and to suppress dissent. They let infrastructure rot, underinvesting in roads, R&D, hospitals, and schools. If democracy dies, so—in the end—will liberty, the free market, and the prosperity it brings. Business must demand that the rules of the game are determined democratically.

I learned that it is not death that is the tragedy. It is failing to live that is the tragedy. Everybody dies. But not everybody lives.