Wednesday, August 22, 2012

Moral capitalism?

One thing is for sure in life - everything is changing all the time, a constant state of flux. It is only humans that are fighting against the flow of nature, and think that current structures, ways of doing things, relationships, or throughts are immutable. Well, let's face it. They are not. It is natural that we are constatly challenging our believes, systems and tools to see if they are still working in our best interests: and if they are still supporting our values, if they are still helping us to create a sustainable life for ourselves, and for future generations.
Capitalism is one of those structures that has been around for a long time and has started to show some serious defects, mostly based on moral and ethical stances that have little to do with our established environment. It has everything to do with the fundations of modern civilisation, human dignity and the true essense of a human being: as an emotional, intelligent, holistic and concious participant on the planet Earth.
From those basic precepts a thesis of a "moral capitalism" has been derived. It is in its infancy, and I can only hope that it will hit a wave of a global discussion and open up a new dimension of social awarness. These are the initial thoughts, shared with us by Stephan B. Young, the global director of the CRT organization that has been the first to challenge the business community by addressing the core challanges of capitalism and searching for future solutions.
Short CV
Stephen B. Young is the Global Executive Director of the
Caux Round Table. Steve has published Moral Capitalism,
a well-received book written as a guide to use of the Caux
Round Table ethical and socially responsible Principles for
Business. In her 2008 book, The Difference Makers, Prof.
Sandra Waddock listed Young among the 23 persons who
created the corporate social responsibility movement.
Steve was educated at Harvard College and Harvard
Law School
. He served as an Assistant Dean at the
Harvard Law School and as the third dean of the Hamline
University School of Law. He has taught at the University
of Minnesota
and at the SASIN Graduate School of
Management in Bangkok
and spoken at many workshops
and conferences on corporate social responsibility and
business ethics.
Young has also taught at the University of Minnesota Law
School, Carlson School of Business, the College of Liberal
Arts, and Minnesota State University – Mankato. He has
written numerous opinion articles for the Pioneer Press,
the Minnesota Journal on Law and Politics, the Saint Paul
Legal Ledger and has been published in the Wall Street
Journal, the New York Times and the Washington Post.

V: From where did the concept of moral capitalism derive?
At first the idea was only to provoke thought; It was considered an "oxymoron" concept, one that had no inherent sense. But it worked wonderfully to open people's minds to the possibility that capitalism does not have to be exclusively selfish and exploitative, yet, that a moral sense can play a role in capitalism, that business decision-makers can be responsible.

V: What is moral capitalism? What is the basic intention behind it?
Moral capitalism is making business decisions for the long run, in order to enhance the value of that business. It is mindfulness of how to manage stakeholder relationships to build their asset value for the company.
The intention is two-fold: to respect the interests of stakeholders and, simultaneously, to build the asset value of a business around its capacity to improve our quality of life.

Photo: Stephan B. Young and Violeta Bulc
Source: Vibacom archive, Switzerland 2012
V: Which are the most challenging issues of capitalism, as we know it today?
There are two negative features of today's market capitalism which are mutually supportive. One is calculating values based on short term cash profits only, and not on long term asset appreciation.  This approach misprices future risk and leads to financial irrationality and prevents companies from internalizing the full social and environmental costs flowing from their business model. Second, today's rationalization of capitalism uses a wrong understanding of human motivation. It assumes people have no sense of moral responsibility and only seek selfish monetary profit in life.  This assumption drives the modern financial and portfolio theory, and pricing of financial assets such as derivatives and it calls for companies to serve only the short term profit interests of owners.

Photo:  View from the conference center - Caux House, Switzerland
Source: Vibacom archive, Switzerland 2012

V: How is the Caux Round Table addressing these issues?
We have created new management metrics and guidelines and have suggested new ways to value companies, including a new understanding of what people value in life.
V: The activities and concerns of the CRT group can be folowed through the e-publication Pegasus.
Our VISION is for a free, fair and prosperous global society built on the twin pillars of moral capitalism and responsible government
Our MISSION is to put moral capitalism to work by ensuring business contributes to greater prosperity, sustainability and fairness
Our unifying PURPOSE is Moral Capitalism for a Better World
The Caux Round Table PRINCIPLES support our vision, mission and purpose:
  • Principles for Responsible Business
  • Principles for Governments
  • Principles for NGOs
  • Principles for Ownership of Wealth

V: What were the most important conclusions/lessons to come from the CRT meeting in Switzerland?
That a variety of business professionals agree with the CRT approach. We are not isolated, marginal thinkers but at the cutting edge of sound strategic planning for the future of capitalism.
The Caux Round Table (CRT) recently concluded its 27th Global Dialogue in Caux, Switzerland, and has resolved upon four major reforms to restart sustainable global growth.  These four recommendations will permit capitalism to overcome its current crisis of mediocre, financial performance, combined with systemic, ongoing, ecological and demographic imbalances.
The CRT Global Dialogue resolved that, first, the U.N. General Assembly should adopt a charter of responsible practices for sovereign nations to maintain sound and sustainable financial intermediation at a reasonable cost to society.
Second, sound and sustainable financial intermediation requires changes in banking practices.  Compensation systems, except in small privately held firms, should be aligned with levels of moderate leverage, moderate risk and professional prudence. Trading and speculation, as a business model, should be separated from commercial banking and lending, as a business model, and should be supported by industry- financed reserve funds. “Too big to fail” financial institutions should be broken up under anti-monopoly laws.
Third, sound and sustainable financial intermediation requires non-negligent ratings of securities and their issuers, both private firms and governments.  Credit ratings are market information that is a public good.  Therefore, more competition in providing ratings is necessary and the issuer paid business model of providing ratings should be supplemented with non-profit or publicly funded alternatives.
Fourth, sound and sustainable financial intermediation requires an academic theory of individual and firm motivation that rejects the erroneous assumption that rational, self-interest, measured by extrinsic monetary rewards, will lead to perpetually accurate market pricing.  Business schools should teach an alternate theory of business behavior which is grounded in the norms of fiduciary stewardship.

V: What is the key message for the financial community?
Revise your theories and methodologies of valuation of a firm to include stakeholder relationships as assets of the business.

V: What is the key message for corporate owners and managers?
The same.

Source: Vibacom archive, Switzerland 2012
V: What is the key message for the citizens of Planet Earth?
Do not look to today's politicians, academics, investors and manager for solving the current crisis of capitalism. Speak up and reward those who will dare to think original thoughts.

V: What is going to be the next CTR step?
Launching a global journal of thought leadership to bring this new ideas to a wide audience of workers in financial, banking, politics, civil society and academics.

V: Thank you.

I hope that these brief  but concise answers are a good encouragement for you to formulate your own thoughts on the political system we live in and on changes that can lead to a more sustainable and moral society. Everyone counts. There is always a first step, a first thought and later, when there are thousands of them it will become clear to everyone. Let us be part of these first steps, thoughts, actions. Let us quietly but firmly change the direction that will lead to a thrivable planet, within us. within our community, organization, our worlds. I am doing it. It is hard but really rewarding. i hope you will be the next.


Additional links and publications: