In the 18th century, Adam Smith revolutionized economic systems with his theories on the division of labor and the invisible hand. His ideas laid the groundwork for modern capitalism, emphasizing specialization and market dynamics controlled through competition. This led to unprecedented efficiency and productivity.
Fast-forward to the 19th and early 20th centuries. Max Weber introduced the concept of bureaucracy, advocating for organizational hierarchical structures to ensure efficiency and predictability. Frederick Taylor furthered this by developing the principles of scientific management, breaking tasks into simple steps to enhance productivity, often at the expense of worker well-being. These frameworks shaped the industrial era, driving massive growth and profit.
However, as industries grew, the financialization of business took root, led by economists like Milton Friedman. Companies like General Electric transitioned from industrial innovation powerhouse to financial conglomerate, prioritizing profits over customer value. The focus shifted from creating excellent products and services to maximizing shareholder value through economic leverage. This change was stark; productivity gains stagnated post-1980s, and financial metrics became the primary drivers of business decisions.
This shift led to significant adverse impacts, including environmental degradation and social inequities. The relentless pursuit of profit often resulted in unsustainable practices, exploiting natural resources and human capital without regard for long-term consequences. The 2008 financial crisis starkly highlighted these issues, exposing the fragility and irresponsibility within the financial sector.
Despite the Business Roundtable‘s recent proclamations to prioritize stakeholder health over shareholder value, actions have not matched words. Research shows that most corporations focus on maximizing shareholder returns, often neglecting broader stakeholder interests. This persistent imbalance underscores the need for a profound shift in business paradigms.
RoundMap® was conceived as a response to these challenges. We advocate for a holistic approach to business, emphasizing the interconnectedness of all stakeholders. This means recognizing the law of causation—every action has consequences. Therefore, companies must be accountable and responsible, prioritizing positive impact while mitigating adverse effects.
Insights from Mavericks and Military Tactics
Early in my career, I learned from Ricardo Semler‘s book Maverick that there is a more inclusive, empowered, and equitable way of organizing business. Semler’s approach demonstrates that companies can thrive by prioritizing employee empowerment and equitable practices over profit. These practices yield significant benefits, far surpassing those driven by profit at the expense of employees and resources. Unlike profit-focused companies that prey on employees and waste precious materials, Semler’s model shows the value of inclusive and transparent business practices.
Moreover, the principles outlined in One Mission and Team of Teams reveal that the traditional role of middle management, seen as an information pump, is unsustainable in a complex world due to the enormous amount of information that may be relevant to the organization. While applicable to an ideal, predictable world, the ideas launched by Smith, Taylor, and Weber no longer suffice. The books describe how the US Army initially failed to respond effectively to Al Qaeda’s seemingly uncoordinated attacks, causing the US always to be one step behind. By activating the whole system, the Army got a grip on the events, keeping the top structure in place while allowing teams to become more self-controlling and empowered. Coordination was put in the hands of teams, and information was no longer shared on a need-to-know basis but was disseminated throughout all involved.
This approach aligns with RoundMap’s Consentricity model. However, in our model, the central structure isn’t just executive leadership but a roundtable where all stakeholders sit. This ensures that decisions are made inclusively and equitably, reflecting the diverse interests and expertise of all involved.
The Scaling Trap: From Purpose to Profit
The journey of startups exemplifies the financialization trap. Startups typically begin with a singular purpose—to make a meaningful impact. This is particularly evident in the medical, biomedical, IT, and AI-related sectors, where innovation drives initial growth. These startups often start with a collaborative spirit, driven by iterative development and lean methodologies. Early on, teams share ideas and concerns in dynamic, demand-driven meetings, naturally leading to improved products.
However, as these startups grow, they attract significant funding, which often comes with increased pressure to scale rapidly. Enter process managers. Their role is to formalize operations through processes, policies, and procedures to reduce costs, improve consistency, and boost productivity. While these changes can lead to higher sales and organizational growth, they also mark the beginning of the financialization process.
As processes become more rigid and profit-driven, the original purpose often gets overshadowed. The once collaborative and purpose-driven startup undergoes a significant transformation, becoming a profit-focused entity prioritizing financial metrics over impact. The iterative and lean development methods give way to stringent protocols, and the organization’s core mission can become diluted.
The Inequities in Work Compensation
Data from the Economic Policy Institute have starkly highlighted the disparity in work compensation. Between 1965 and 2023, the bottom 90% of the workforce saw a mere 26% increase in income. In stark contrast, CEO compensation grew by 343.2% over the same period, a difference of 317.2%. To put this into perspective, if an average worker’s salary increased by $100, CEO compensation increased by $1317. This vast inequality underscores CEOs’ influence, as they are typically appointed by shareholders and naturally inclined to prioritize those who hire them, thus focusing on maximizing shareholder returns.
Additionally, data from the Federal Reserve Economic Data (FRED) demonstrates a continuous decline in the labor share over the decades. This decline translates to more yields on capital for shareholders and banks. Banks, in particular, have emerged as the top predators of value. When a company fails to meet its projections, banks are the first to demand explanations and often withdraw funding if dissatisfied, posing an immediate threat to the business. While shareholders may be motivated by greed, banks act as sharks, preying on the vulnerability of companies.
Organizational Disconnect Due to Siloization
Both Gillian Tett, author of The Silo Effect, and Patrick Lencioni, author of Silos, Politics, and Turf Wars, illustrate how organizational silos cause a disconnect between the whole and the parts. Silos, whether horizontal or vertical, fragment organizations and hinder communication and collaboration. A prime example is Sony’s failure to launch a successor to the Walkman due to internal competition and lack of coordination, leading to three incompatible digital successors. This story exemplifies the detrimental impact of silos on modern organizations.
The RoundMap® Difference
- By fostering wholeness, RoundMap® aims to create inclusive and collaborative business environments.
- By demanding equitable profit distribution, RoundMap® aims to ensure fair compensation and benefits for all stakeholders.
- By prioritizing impact, RoundMap® aims to steer businesses away from the pitfalls of financialization.
- By calling for an Equitable Business Roundtable, RoundMap® aims to promote collective decision-making and accountability.
- By steering toward a Marcus Aurelius Oath, RoundMap® aims to demand greater accountability from business executives.
