OK

Is the wave of anti-corporate anger equal to a rejection of business?  For most folks, I don't think so.  I've posted several anti-corporate diaries here but I'm within spitting distance of being in the top 1% of income earners--is it schizophrenic, disengenous or dishonest to decry the abuses of corporations while feeding at their trough?

Maybe, but it's seemed to me that something has changed in corporateland.  Something has gone rotten.  I think business has great power to do good and to do well, but it has gone astray.  A recent article in the Harvard Business Reviewput it all in perspective and provides a path forwards.

Business has changed over time in fundamental ways and we can't deal with reality well if we view business in an outdated way.  I tried to capture this in a recent diary.

I've also argued that

The purpose of corporations is is to concentrate wealth and power while diffusing responsibility for negative outcomes.

Democracies are the ultimate decentalization of power.  Their nature is to link rights with duties and freedom of action with responsibility.

Democracies and Corporations are therefore enemies.

The author of the HBR article, Roger Martin, dean of the Rotman School of Management at the University of Toronto highlights a corporate transition I missed and shows a way for democracies and corporations to be something other than enemies.

Ages of Capitalism
The first age of capitalism was that of the entrepreneur.  This is the romatic notion of capitalism where we have a hero whose better idea, stronger work ethic, etc., leads to her success.  She builds a business and her employees and customers profit along with her.

The modern age of capitalism began in 1932 with Managerial Capitalism and the idea that these passionate and romatic figures might be good at starting a business, but that dispassionate managers will do a better job over time.

The second modern age of captialism began in 1976 with Shareholder Value Capitalism and the notion that businesses should optimize for Shareholder value.  This is the rot in modern corporations.  This is the premise that drives much of the bad corporate behavior we see.

Here's the author's own summary

The Idea in Brief

The big idea: It’s time to discard the popular belief that corporations must focus first and foremost on maximizing value for shareholders. That idea is inherently, and tragically, flawed.

The argument: It’s impossible to continually increase shareholder value, because stock prices are driven by shareholders’ expectations about the future, which cannot be raised indefinitely.

What the data show: The focus on shareholder value hasn’t done shareholders any favors. They have actually earned lower returns since corporations adopted it as their guiding principle.

A better approach: Make customer value the top priority, as Johnson & Johnson and Procter & Gamble have done. These two companies have generated shareholder returns that are at least as high as, if not higher than, those of leading shareholder-focused companies.

This is a revelation to me.  My whole working life has been in the Shareholder Value era and it's always seemed like there could be a better way, that we are not damned to the excesses of the current era.

The bubbles our economy has experienced tie directly to the flaws in optimizing for shareholder value.

The problems with our healthcare system too stem largely from this flawed approach to generating value.

If you love business but hate the excesses you've seen, please read the complete article.  

Also in that edition is another great piece that advocates organizing the marketing of a firm toward building customer relationships and maximizing customer lifetime value to the company rather than pushing products and measuring product profitability.  Both are promoting more sustainable business models that better align the needs of the customer, the businesses and the countries they inhabit.

I think if we can take Lakoff's advice earlier today and make the discussion about democracy and about eliminating the conflicts between democracy and corporations by ending the flawed focus on shareholder value, we'll be on our way to long standing democratic majorities that can change our world.

Originally posted to Mosquito Pilot on Mon Jan 25, 2010 at 12:46 PM PST.

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