Rethinking Business Culture: The Need for New Paradigms in a Changing World

Rethinking Business Culture: The Need for New Paradigms in a Changing World

Cunningham’s Law states, “The best way to get the right answer on the internet is not to ask a question, it’s to post the wrong answer.” People feel almost compelled to correct each other’s wrongs. Yet, there might not be a right or wrong answer in this case as I’m pondering the question: Do we need a new business culture?

What’s the next big story on the horizon?

First published in 1993, Wired Magazine reported on the impact of new technology on culture, economics, and politics. After achieving their original goal, one of Wired’s founders, John Battelle, pondered:

What’s the next big story on the horizon, the narrative most people are missing that will shape our future just as technology has for the past 30 years?

This was his answer:

“I think the answer lies in the reinvention of capitalism. We’re on the brink of an entirely new approach to business, one built on shared principles of integrity, transparency, and sustainability. If we succeed, the world could become a far better place. At Wired, we believed that technology would build that world for us. But I’ve come to a longer view of positive change, and I now believe technology alone won’t get us there. Tech is a fundamental force in our society, but as Douglas Rushkoff puts it, business is our core operating system. If we are going to pay off the fantastic visions of our early tech dreams, we’ve got to consolidate what we’ve learned from the tech revolution and apply it to building a new kind of business culture.”

The question that Rushkoff had posed in his book Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity was intriguing:

“Why doesn’t the explosive growth of companies like Facebook and Uber deliver more prosperity for everyone? What systemic problem sets the rich against the poor and the technologists against everybody else?”

Indeed, what happened to the premise of growth leading to more prosperity? Mark Zuckerberg’s estimated net worth is $97 billion. Given that Facebook may have intentionally ‘put the company’s profits above the public good,’ at least according to a recent whistleblower, the question arises: Is tech fair to society?

The Business Roundtable

In 1962, Nobel Prize-winning economist Milton Friedman wrote in his book Capitalism and Freedom

“There is one and only one social responsibility of business ─ to use its resources and engage in activities designed to increase its profits [..]”. 

Many years later, the most influential lobbying body for U.S. business interests, the Business Roundtable, established Friedman’s doctrine in their 1997 statement by confirming that the main objective of a business enterprise was to generate economic returns for its owners.

While each version of the document since 1997 has endorsed what is called the principle of “shareholder primacy,” meaning that corporations exist principally to serve shareholders, on August 19th, 2019, the Business Roundtable issued a new statement that was nothing short of radical in its near-unanimous endorsement:

“While each of our companies serves its corporate purpose, we share a fundamental commitment to all our stakeholders. We commit to delivering value to our customers, investing in our employees, dealing fairly and ethically with our suppliers, supporting the communities in which we work, and generating long-term value for shareholders.”

Has anything changed since the 2019 statement? According to Senator Elizabeth Warren, it was just a publicity stunt. The Business Roundtable responded. Do they deserve a fair chance?

Equitability

Reflecting on the compensation regime over time, particularly the salary disparity between a CEO and an average worker, raises important questions about fairness and equity. 

Plato believed that a leader’s pay should be no more than six times that of an average worker which starkly contrasts with today’s reality, where a CEO might earn 320 times more than an average worker’s wage. 

This disparity prompts a deeper examination of what constitutes fair compensation and how modern business practices align with or diverge from historical and ethical perspectives on income equality.

ROUNDMAP_Average_CEO_Compensation_320_times[1]

Meet The Fairest CEO

In 2014, Dan Price, CEO of Gravity Payments, gave everyone a minimum pay grade of 70.000 USD after taking a million-dollar pay cut. Other CEOs believed this would become a textbook example of failed leadership, leading the company to bankruptcy. Other CEOs labeled Dan Price as an idiot, a socialist, an enemy of capitalism, a lunatic of all lunatics, and other unflattering characterizations.

However, Gravity Payments since then doubled the number of employees and tripled business earnings six years later, while employee turnover was cut in half. When the company took a 55% revenue hit due to the pandemic, employees voluntarily accepted a 60% pay cut to help the company survive. After the company rebounded, the employees were fully compensated and bought Dan Price a new company car. It is truly a priceless story.

ROUNDMAP_Slide_Four_Horsemen_Quote_Copyright_Protected_2021[1]

The Promise of Shared Value

Michael E. Porter and Mark R. Kramer wrote an article for Harvard, suggesting the business could profit from shared value. I believe it may be an essential piece, so I copied the entire abstract:
“The capitalist system is under siege. In recent years, businesses have been criticized as a major cause of social, environmental, and economic problems. Companies are widely thought to be prospering at the expense of their communities. Trust in business has fallen to new lows, leading government officials to set policies that undermine competitiveness and sap economic growth. Business is caught in a vicious circle. A big part of the problem lies with companies themselves, which remain trapped in an outdated, narrow approach to value creation. Focused on optimizing short-term financial performance, they overlook the greatest unmet needs in the market and broader influences on their long-term success. Why else would companies ignore the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of suppliers, and the economic distress of the communities in which they produce and sell? It doesn’t have to be this way, says Porter of Harvard Business School and Kramer, the managing director of the social impact advisory firm FSG. Companies could bring business and society back together if they redefined their purpose as creating “shared value”—generating economic value in a way that also produces value for society by addressing its challenges. A shared value approach reconnects company success with social progress. Firms can do this in three ways: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company’s locations. Several companies known for their hard-nosed approach to business—including GE, Wal-Mart, Nestlé, Johnson & Johnson, and Unilever—have already embarked on important initiatives. Nestlé, for example, redesigned its coffee procurement processes, working intensively with small farmers in impoverished areas trapped in a cycle of low productivity, poor quality, and environmental degradation. Nestlé provided advice on farming practices, helped growers secure plant stock, fertilizers, and pesticides, and began directly paying them a premium for better beans. Higher yields and quality increased the growers’ incomes, the environmental impact of farms shrank, and Nestlé’s reliable supply of good coffee grew significantly. Shared value was created. Shared Value could reshape capitalism and its relationship to society. It could also drive the next wave of innovation and productivity growth in the global economy as it opens managers’ eyes to immense human needs that must be met, large new markets to be served, and the internal costs of social deficits—as well as the competitive advantages available from addressing them. But our understanding of shared value is still in its genesis. Attaining it will require managers to develop new skills and knowledge and governments to learn how to regulate in ways that enable shared value, rather than work against it.”

Author

  • Edwin Korver

    Edwin Korver is a polymath celebrated for his mastery of systems thinking and integral philosophy, particularly in intricate business transformations. His company, CROSS-SILO, embodies his unwavering belief in the interdependence of stakeholders and the pivotal role of value creation in fostering growth, complemented by the power of storytelling to convey that value. Edwin pioneered the RoundMap®, an all-encompassing business framework. He envisions a future where business harmonizes profit with compassion, common sense, and EQuitability, a vision he explores further in his forthcoming book, "Leading from the Whole."

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