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Responsible Capitalism

by Vincent Neate, Partner, KPMG There are many many initiatives out there about the broad subject of Responsible Capitalism. Some are very general, others focus on a specific subject.  Some fundamentally start from outside the establishment (and see themselves anti-establishment), others engage with the establishment proactively; and others still are firmly part of it. The language of Responsible Capitalism is not well defined.  ‘Responsible’ gets put in front of lots of things – Capitalism, Finance, Investment, Business, Government.  Other epithets are also used – conscious capitalism, spiritual capitalism,  etc. Then there are a lot of other ‘topics’ – ESG, Sustainability, Corporate Social Responsibility, ethic ability and so on.  Add in ‘Purpose', 'Culture’, ‘Values’ and the fact that we all need to earn a living; and run our businesses. This last is hard enough in itself and it is hardly surprising that leaders find it difficult to decide what to privilege. I choose to use the term ‘privilege’ as my verb very deliberately. What you choose to privilege is essentially that which you put at the heart of all decision making. In the 90’s this was ‘Values’.  I don't know how much you know about values theory but in psychology there is thought to be a clear link between values and behaviour.  Your values determine what you choose to do and how you evaluate the results you get. So for a while this was very effective in business.  By publicly declaring the intangibles they wanted to determine behaviours; and that they would use to evaluate performance, business leaders created something that was immensely powerful. It had so many good ingredients – it was emotional, not rational, it could be tailored to an individual business and it was actionable. I would never say that business should abandon talking about and committing to a core set of values. Indeed it is not possible to have no values so it must be better to try to instil in any organisation those which provide long term sustainable value. However what the Global Financial crisis shows us is that privileging values has three fundamental flaws:

  1. It is not resilient. When the crisis came a large number of leaders and their organisations completely forgot their values;

  2. It does not improve productivity.  Productivity is not the same as efficiency because it also implies continued improvement in quality.  In many sectors, especially services, embedded values had produced over-staffing which in turn led to redundancies and exacerbated the lack of resilience; and

  3. It is not predictive. No leaders, even those most clearly living their corporate values, foresaw the danger that lay ahead. Now we must deal with this and I would assert that whatever we choose to privilege next must as a minimum absolutely deal with these three challenges:

  4. It must build resilience;

  5. It must improve productivity; and

  6. It must introduce an element of predictability. In any system the point of failure will always be where the system relies on a component that has reached the limits of its flexibility. In any system the productivity of the system as a whole is always determined by the productive capacity of whatever component is most important at that point in time and space. Our ability to predict how a system will react and behave is dependent on the quality of the knowledge loops that inform our observations. In all human systems the elastic that creates the flexibility is relationship, the productive capacity of any one component is contributed through relationship with other components and it is through relationship that we create the knowledge loops that inform not just our observations but our decisions and thereby give us some insight into how our organisation will respond and behave. I therefore strongly recommend that we privilege relationship. There are amazing benefits to privileging relationship and it takes its place in all great world religions and in the existentialist humanist tradition.  If there is one thing I know I can defend metaphysically, epistemologically, rationally, ethically and emotional it is that I begin to sink into bad faith when I treat an “other” as a means to my ends. To treat every human being as an end in their own right – that is what it means to have a relationship with them. Before I hand over to Jonathan let me just share with you two short, very practical examples of what this thinking can do for you in your business.  I have been working with Jonathan and his co-author Michael Schluter for two years now.  I did not start out thinking this was something of such profound social value.  I started thinking it could improve business relationships. I have seen it work in a team, where traditional models focus on me and the role I play rather than us and the way we relate to each other. I have seen it work in a joint venture where our organisations are intricately bound together and can only succeed through common purpose, the best of communication and a fair sharing of risk and reward.

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