Corporations and the 21st Century:
How Do Today’s Companies Need to Change to Meet Tomorrow’s Needs?1
Sandra Waddock
Boston College Carroll School of Management
Chestnut Hill, MA 02467
617-552-0477
waddock@bc.edu
Allen White
Tellus Institute
11 Arlington Street, Boston, MA
Co-Founder: Corporation 20/20
awhite@tellus.org
Mark Goyder
Tomorrow’s Company
IOC House 4 Victoria Street
London SW1H 0NE United Kingdom
+44 (0)20 7222 7443
Fax +44 (0)20 7222 7585
Jane Nelson
CSR Initiative, Kennedy School of Government
Harvard University
Cambridge, MA 02138
(617)496-7706
Jane_Nelson@harvard.edu
Peter Lacy, Managing Director
European Academy of Business in Society
78-80 Rue Defacqz
1060 Brussels, Belgium
Tel:+32 2 541 1610
Fax: +32 2 502 845
James E. Post
Boston University School of Management
Boston, MA 02215
617-353-4162
jepost@bu.edu
1
This note is based on a conversation that took place at the Academy of Management Annual meeting,
August 2007, Philadelphia, PA, in an All Academy Symposium session entitled “Corporations and the 21 st
Century: How Do Today’s Companies Need to Change to Meet Tomorrow’s Needs?”
Corporations and the 21st Century:
How Do Today’s Companies Need to Change to Meet Tomorrow’s Needs?
When corporations were first developed on a large scale in the late 19th century, their
charters designated that they were only to remain incorporated as long as they served
what the US Constitution termed the general welfare. Thus, at least in theory,
corporations would remain incorporated only as long as they continued to serve the
interests of society, as well as providing goods and services that resulted in profits for
their owners (Greenfield, 2005; Derber, 1998). In part, the embeddedness of social
purpose in corporations resulted from the fear that many people had about the power that
large-scale corporations might accumulate (see Derber, 1998). Many critics and anticorporate NGO (non-governmental organization) activists would argue today that these
original social purposes of the firm have been lost or certainly greatly diminished in the
current context of almost single-minded attention to short-term shareholder returns
(Korten, 1995). Indeed, one critic has strongly argued that as currently structured
corporations are nothing less than pathological, in part because of their apparent singleminded focus on shareholders (Bakan, 2004). The implication is that it is impossible for
corporations to do both well and (social/ecological) good.
Despite or perhaps because of these concerns, in the last decade of the 20th and the first
years of the 21st centuries, we have witnessed a virtual explosion of company and public
interest in corporate responsibility, corporate citizenship, and corporate social
responsibility, particularly from large multinational enterprises. This interest evolved as
companies attempted to demonstrate publicly their commitment to “doing good” in
addition to “doing well” for shareholders. An argument could be made that the interest in
corporate responsibility arose partly to allay some of the criticisms large companies were
facing, particularly for policies related to globalization, power, and economic reach, and
even help prevent future regulation of corporate activities. In some respects, the rapid
emergence of themes of corporate responsibility (CR)2 represents an effort by companies
themselves to ‘do good’ in society, as a way of balancing out the ills that numerous
critics claim they have inflicted on societies and nature.
Years of research on the link between social and financial performance has similarly
attempted to demonstrate the business case for greater corporate responsibility, also
sometimes called the instrumental approach (Jones, 1995; Donaldson & Preston, 1995),
i.e., that companies can ‘Do Well by Doing Good’ (for extensive reviews, see Margolis &
Walsh, 2003; Orlitzky, Schmidt & Rynes, 2003). But these CR efforts are frequently
claimed by corporate critics to be nothing more than window dressing or public relations
activities that attempt to cover up the problems of globalization, power and resource
imbalance, and erosion of democratic institutions related to business models rooted in
shareholder interests as opposed to broader stakeholder interests.
2
For shorthand, we will use the term corporate responsibility to reflect all three terms.
Critics of capitalism charge that modern corporations, particularly multinationals, have
too much power and influence over everyday life in ways that are not contributing to
better human health or welfare and indeed may be harming it in many ways (e.g.,
Crossly, 2003). One prominent critic has even claimed that as currently structured,
corporations are nothing less than pathological and that without significant structural
changes, they are likely to remain so (Bakan, 2004). Criticisms of corporate activity by
NGOs and in popular media range from companies’ negative impacts on the ecology,
including contributions to global warming, pollution, species extinction, deforestation,
desertification, and overuse of natural resources. Other critiques focus on the impacts of
corporate practices and selling techniques on societies, and in creating an apparently
growing gap between rich and poor nations and individuals on a global scale. Global
companies, in particular, have faced numerous criticisms for supply chain practices in
developing nations that involve poor wages even relative to local wage scales,
mistreatment and even abuse of workers, use of child labor, failure to pay overtime or a
living wage, sweatshops, among numerous other charges. The list could go on, but the
point is clear: many people in the world are not happy with the current state of affairs
with respect to the power, influence, and impacts of large corporations. And many of
these problems derive from the very successes of the strategies employed by well-known
companies (Waddock, 2007).
Indeed, even CEOs (see Blowfield & Googins, 2006) (in rare reflective moments) are
sometimes willing to acknowledge the limitations that pressure for short-term
performance place on their ability to truly guide their companies toward effective longterm performance that might serve both shareholders and societal interests. As a result,
some opinion leaders have begun to argue that the current constitution of corporations
has created systemic structural problems that prevent corporations from really focusing
on “doing good” or even that they are inherently pathological (Bakan, 2004). Because
their primary obligations under current (US) law are to shareholders, the manifestation of
those obligations in capital markets has tended in recent years to be unrelenting pressure
to meet quarterly earnings expectations of analysts and to deliver ever increasing share
price increases, .
Numerous US states have passed stakeholder laws that officially permit some
consideration of other stakeholders’ interests and US law does not actually require
maximization of shareholder returns (Greenfield, 2005; Savitz, 2006). Further, the
historical European social contract has favored more emphasis on the regulation of
business activities with a broader social safety net (based largely on a communitarian
attitude embedded in societies) (see Lodge & Vogel, 1987; Rifkin, 2004), though some
observers claim that Europe too is moving toward the US model. Still, it is likely that the
fundamental problem can be resolved only by actually changing the legal and regulatory
constitutions that grant companies the right to exist and to do business in a form that
better serve society’s and stakeholders’ interests (Post, Preston & Sachs, 2002).
Some people in fact are asking the even tougher and fundamentally systemic question: if
we could design corporations from scratch, what would they look like if they are to meet
societies’ needs in the 21st century and if long-term ecological and social sustainability is
to be achieved? What follows are summary comments from some of these individuals
presented at an All-Academy Symposium session at the Academy of Management 2007
annual meeting in Philadelphia, PA.
Called by Marjorie Kelly, former editor of Business Ethics magazine (and co-founder
with Allen White of Corporation 20/20) (after Betty Friedan) ‘the problem that has no
name’ (Kelly, 2006), the central issue that the panel tackled was ‘What should be the
future of the corporation so that it can better contribute to societies’ needs?’ The
symposium was keynoted by representatives of two forward-looking initiatives that are
dealing directly and deliberatively with this central challenge about the future of the
corporation, Allen White, co-founder of Corporation 20/20 (and the Global Reporting
Initiative) in the United States (and senior fellow and vice president at Tellus Institute in
Boston), and Mark Goyder, founder of Tomorrow’s Company in the United Kingdom.
Commentators were Jane Nelson, director of the CSR Initiative at Harvard University’s
Kennedy School of Government, Peter Lacy, managing director of the European
Academy of Business in Society (EABIS), and James E. Post, professor of management
and public policy, Boston University, with Sandra Waddock, professor of management at
Boston College as organizer and facilitator of the conversation.
Corporation 2020: Allen White
There is an important question that is going largely unasked: ‘Are corporations equipped
for the 21st century?’ Corporations face a time of unprecedented turbulence and
uncertainty in terms of their future architecture. At the same time, the ascendance of the
corporation as the primary global economic engine makes their future form too too
important to be left to the vagaries of the market. The corporate future, in this view, must
be a matter of intentional choices developed through public discourse, and subject to
policy debates and a political process, just like any other important public policy issue
such as health, education or global security..
Significant emerging academic interest exists in this arena, for instance, Sumantra
Ghoshal’s (2005) article ‘Bad Management Theory is Destroying Good Management
Practice.’ This line of inquiry points to the implicit, and injurious assumptions, of much
of contemporary management theory: that employees need to be controlled and
monitored, and cannot be trusted;, that according to notions of competitive advantage,
shareholder interests compete with rather than complement those of other stakeholders—
suppliers, customers, communities; and that managers’ interests must be aligned with
those of shareholders to control agency costs, for example, through stock options.
However, the team production model of the firm offered by Blair and Stout (1999), points
out that everyone takes risks in providing financial, human, natural and social capital .
Shouldn’t these interests be represented in roughly equitable fashion as we think about
the future form of the corporation?
There is a missing public policy debate on “corporate redesign.” This debate suggests
that we should strive to elevate the question of corporate design to the level of other
pressing global issues, such as trade policy, immigration, climate change. This missing
corporate design issue is the root of the prevailing approach to corporate responsibility in
which various issues are too often viewed as isolated and disconnected: labor standards
in contract factories, governance misconduct, climate change, outsourcing, and income
disparities, for example.
To think about corporate redesign, we need to go beyond the narrow boundaries of
corporate social responsibility (CSR) to a post-CSR world where social mission is not
optional but embedded in the core purpose and architecture of corporations. Only in this
way will the unparalleled capabilities of the corporation for innovation and problemsolving be harnessed to serve the public interest. This shift, in turn, will require
challenging conventional wisdom around the fundamentals f corporate form: e.g.,
purpose, nature, ownership, shareholder primacy, fiduciary duty, internal incentives and
rewards, board composition, and interface with capital markets.
The “intelligent” design of corporations of the future is too important to be left to the
markets and points toward certain attributes that we might wish to promote in shaping
future corporate forms. There are already examples we might point to, such as Grupo
Nueva (which is owned by the VIVA trust), is focused on leadership development and
leadership development in Latin America.. The New York Times views itself as a public
trust whose core mission is for an informed citizenry and electorate. Hindustan Unilever
has vowed to end childhood malnutrition in India, and is working with UNICEF and
Synergos on this issue. The John Lewis Partnership has as its mission to “serve the
happiness of employees.” And Grameen Bank and Groupe Danone have established the
Grameen Danone Foods Social Business Enterprise in Bangladesh, which will create a
new business in partnership with local communities, to strengthen nutrition and alleviate
poverty.
These social mission companies blur the boundaries between public and private purpose
in new ways, and suggested a need for 1) principles to guide future “corporate designs,”
and 2) integrated models of corporate forms that adhere to such principles. Since 2004, a
group of nearly 200 individuals have been exploring the purpose of the corporation in
light of 21st needs and expectations in an initiative called Corporation 2020. Through
workshops, electronic dialogue and research, Corporation 2020 has developed six design
principles that focus on corporate purpose, capital, sustainability, wealth, governance,
and polity. The principles, with short explanations, are:
Principle 1, Purpose: The purpose of the corporation is to harness private interests to
serve the public interest.
Corporate design starts with purpose. Why does society allow corporations to exist? To
serve the public good. Why do individuals start corporations? To serve their own
interests. Effective design knits these two together. Principle 1 articulates an emerging
social consensus: corporations have social responsibilities, and when those conflict with
profit-making, the public good comes first.
Principle 2, Capital: Corporations shall accrue fair returns for shareholders, but not at
the expense of the legitimate interests of other stakeholders.
This principle recognizes the need to reward capital with a fair return on investment, but
with one critical caveat: such returns shall not be achieved by externalizing costs onto
other legitimate stakeholders such as employees, communities, the environment, and
future generations. How can corporations attract capital without handing control of the
organization to capital, and thereby inducing such externalization? The answer lies in
rethinking the corporate-capital interface. One lever, for example, might be slowing
short-termism: requiring investors to hold shares for a year before gaining voting rights,
or enacting strong capital gains taxes on short-term trades. Similarly, compensation
incentives might be changed to modify or outlaw stock options, or make bonuses
contingent on achieving social and environmental performance targets. Another lever
might be new kinds of stock exchanges or new forms of corporations that rebalance
capital control in innovative ways, through dual-class voting or creating holding
companies with designed-in social mission.
Principle 3, Sustainability: Corporations shall operate sustainably, meeting the needs of
the present generation without compromising the ability of future generations to meet
their needs.
This principle speaks to the inter-generational obligations of corporations. It is not
sufficient to operate a corporation purely for near-term profits. Society expects and
deserves organizations that take the long view, which is the essence of sustainability. In
the case of ecological sustainability, the role of government is to set broad environmental
policy–such as carbon limits–and the role of business is to adapt in flexible ways.
Sustainability should also be embedded in the corporation’s governance structure, for
example, through board-level expertise created with training in sustainability concepts,
creation of sustainability committees, or setting environmental performance targets for
the CEO. Boards might designate a seat for an environmental specialist, or government
could require this for sectors like mining and timber. Companies should be required to
produce annual sustainability reports, as several thousand already do. Sustainability
ratings for companies might be used as a benchmark for awarding government contracts.
Principle 4, Wealth: Corporations shall distribute their wealth equitably among those
who contribute to such wealth creation.
Wealth should flow to those who create it. That implies an equitable distribution among
the parties who jointly and inseparably contribute to the wealth creation process. Boards
might conduct an annual review of the sources of company wealth–for example,
weighing the relative contributions of capital and labor, and the successes of various
departments–and make profit distributions accordingly. Government could make
widespread employee ownership a goal on par with the post-World War II goal of
widespread home ownership, perhaps via a government-chartered financing vehicle
similar to Fannie Mae, which was chartered by the federal government to create financing
for widespread home ownership. Employee profit-sharing should also become routine.
And all of this should be undergirded with a society-wide commitment to a living wage.
Principle 5, Governance: Corporations shall be governed in a manner that is
participatory, transparent, ethical, and accountable.
Governance is a central lever by which purpose is enacted at the level of the firm. And
governance is about who holds the levers of power: who owns the company, who gets to
vote, who’s on the board, and what the board focuses on. It’s about articulating a vision
of company success that includes but goes beyond financial measures. And it’s about
tracking progress toward that vision with measurement and reporting, pay incentives, and
mission review.
Principle 6, Polity: Corporations shall not infringe on the right of natural persons to
govern themselves, nor infringe on other universal human rights.
Internally, corporations must recognize that the rights of corporations are constrained by
a higher social imperative: that government is the ultimate arbiter of societal
accountability. In that role, one matter is unequivocal: government is accountable to the
people, not to corporations. That means creating transparency for and limits on lobbying
and campaign contributions at the level of both company policy and governmental
regulation. Companies must also recognize that human rights take precedence over
company rights, and that human dignity must not be compromised for profit. This might
mean companies embrace the concept of a compact describing the human rights
obligations of companies. Discussions of such a compact have been active for at least
five years under the auspices of the United Nations.
Going forward, we need to create a forum for like minded, diverse stakeholders on the
issue of corporate redesign, build consensus around corporate redesign and core
principles, and create an action agenda for the mid- and long-term. This is the core
mission of Corporation 2020 (www.corporation2020.org)3 is doing, along with a Summit
on the Future of the Corporation (www.summit2020.org) that will convene in Boston’s
historic Faneuil Hall in November 2007.
Tomorrow’s Company: Mark Goyder4
Tomorrow’s Company5 is a business led think tank. Our vision is to create a business
future that makes equal sense to staff, shareholders and society. Our major projects take
the form of business led inquiries. We have successively ‘done’ the Role of Business in a
Changing World (1995), the Future of the Annual Report (1998), Redefining CSR
3
Website: www.corporation2020.org, viewed 8/10/07.
Mark Goyder is Founder Director of Tomorrow’s Company, a business-led think tank founded in 1996.
For further information on the work of Tomorrow’s Company and its publications contact
info@tomorrowscompany.com.
5
Website: http://www.tomorrowscompany.com/, viewed 8/10/07.
4
(2003), the Future of our Investment System (2004), and, in 2007, Tomorrow’ Global
Company . Each time the method is the same: we get a group of business leaders, ask
them a really difficult question that go to heart of the whole business system, and help
them find their own answer. You could say our method is a bit of a fusion of Senge
(1990, 2006) and Socrates. Publicly, the reports we publish have authority because of
who is talking in them, that is, corporate CEOs and leaders. Privately, the experience of
forming their conclusions often has a powerful effect on the leaders who help to develop
them…and so they tend to lead to action.
The Unipart Example
One of my recent tasks in the United Kingdom was to fulfill my duty as a judge for the
internal customer service awards for a company called Unipart, which has been a member
of Tomorrow’s Company since our foundation in 1995 and whose CEO, John Neill,
helped us shape the groundbreaking Tomorrow’s Company report of 1995. Unipart
started life as the car parts division of the old now defunct British Leyland carmaker.
Eventually under the leadership of their CEO, John Neill, they did a combination of a
private equity deal and an employee buy-out, and they went independent. Still more than
80% of their business came from one contract–the Rover contract.
With a business franchise like that you would have expected them to have gone under
when Rover went under. But John Neill and his team had a vision. They pursued a
relentless leadership approach based on continuous learning and what he called ‘shared
destiny’ relationships. He went out to Japan and he sat at the feet of Toyota and Honda.
He eventually badgered them into giving him contracts and teaching his company how to
be a globally competitive parts supplier. The business went lean. It turned its expertise
in warehousing and supply into a world glass logistics business handling parts and
warehousing for other companies such as Vodafone, the National Health Service.
Unipart developed a culture in which everyone took responsibility for their own learning.
They created a Unipart University in 1994. By 2000 this had morphed into ‘The faculty
on the floor.’ Everyone learned problem solving techniques and diagnostic skills and did
not wait for permission to apply them. The internal award schemes, on which I am a
judge, serve as reinforcement to this process. They are called (no pun intended) the ‘Mark
in Action’ awards: they celebrate people like Eddie, the warehouseman, who had the
idea of personally adopting a particular Jaguar dealer in Chicago, setting an example that
dozens of his colleagues followed. I approve awards for invoice clerks who see and act
on an opportunity to design better processes for their departments; customer liaison staff
who work beyond their designated role in devising new training programs for their
customers, and IT staff who have, on occasion, rolled up their sleeves and helped
warehouse staff manually pick a parts order and ship it when many competitors would
have said there was nothing they could do because ‘the system was down.’
Unipart is continually codifying and re-apply what has been learned. And do you know
the latest? They have been working with HM Revenue and Customers–the UK’s tax
authority–and at a pilot on the south coast, they have shown how only seven minutes in
every hour are actually productive in the processing of tax forms. They are showing the
tax office how they can reduce manpower levels by over 20 % and make other massive
savings.
So what does this story tell us? First, it does not prove, but it illustrates the fundamental
truth that business is ultimately about leadership, values and relationships. Other things
being equal, a business whose people truly believe in it and bring their whole selves to
work will beat the pants off a business that relies on financial incentives alone. In 1995
John Neill was one of a group of business leaders who in the first Tomorrow’s Company
inquiry set out an inclusive approach to sustainable business success. Every business
needs to start by being clear about what it is for–its purpose--what it stands for—its
values; which are the key relationships that will make it or break it; and what is its license
to operate.
After the publication of the report in the UK there was an intense debate about the
report’s findings. One of its key insights was that Company Law governing the directors
of directors should be both clarified and changed. Existing directors, the Inquiry found,
thought that they owed their duty to shareholders. This is wrong: they actually owed and
still owe their duty to the company. They are accountable to shareholders for the
fulfillment of that duty. But the only way properly to fulfill that duty is by ensuring that
all of a company’s key relationships with stakeholders are flourishing. Hence the
reformulation of UK company law, finally introduced in November 2006, 11 years after
it was recommended by the Tomorrow’s Company inquiry.
This inclusive approach to enduring success is not new. It is common sense. You see it
over the centuries at the heart of the success of businesses like Toyota, John Lewis
Partnership in the UK, or Herman Miller or Hewlett Packard in the USA. We all know
these things to be fundamental differentiators between success and failure. But there is a
market failure. Capital markets are unsystematic and sloppy in the tools they use to
assess the leadership of the business, its culture and its future capacity to succeed.
Shareholder value on its own is a good measure of a company’s progress. But it is a bad
theology.
If you really want to understand the risks and opportunities that underlie a company’s
current performance and future prospects, you need an inclusive approach as the basis for
a rigorous analysis of the company’s purpose, values, key relationships and license to
operate. If the board of Enron had seriously followed the advice to boards given them in
that 1995 Tomorrow’s Company report, they would have focused more on the values of
the company and asked for assurance that the way people were recruited, rewarded and
promoted was in fact in line with those values. If investors in Enron had had a focus on
values, the gap between rhetoric and reality could have been rapidly sniffed out: this is
what I describe as the ‘behavioral audit trail’ (see Lessons from Enron Tomorrow’s
Company, 2002).
This is one conclusion from the Unipart story. But I think this story tells us something
else as well – something highly pertinent to this debate. As John Neill used to tell the
inquiry team of UK CEOs when they developed their 1995 inquiry report on the role of
business in a changing world, “You cannot think your way into a new way of acting. You
have to think your way into a new way of thinking. “
That’s why I think we have been successful in changing company law in the UK. The
word design, which is so central to Allen White’s case, is misleading. You don’t achieve
change by preparing a new theoretical concept and wheeling it onto the stage. It emerges
from the real struggles of businesses to adapt to the changing expectations of society and
the needs of the planet on which they depend. Of course I would accept that it helps to
have a clear concept of the corporation to guide those struggles, and that is the value of
the concept of an inclusive approach, which became known in the UK debate about
company law as enlightened shareholder value.
Some Distinctions
Let me turn now to a number of important distinctions which we can make which will
help clear the ground for this welcome debate.
There is, first of all, a distinction between the corporate perspective and the societal
perspective. Corporation 2020 comes at the question primarily from the societal
perspective. Tomorrow’s Company, from its earliest report through to the one just
published on Tomorrow’s Global Company (TGC), starts with the corporation and then
asks what will be its role and the conditions for its success. So, while Tomorrow’s
Company and Corporation 2020 have different starting points, we are moving towards
one another; we both see the world changing and the way a company sees its purpose
having to change as a result. In the TGC report you will find senior people from
companies saying that the market is not giving the right signals and we need to set the
market up better.
Secondly, there is the distinction between the sustainability of the enterprise and the
sustainability of the planet. I prefer to use the term sustainability to refer to the latter. I
think it is confusing when companies use it to apply to the former.
Thirdly, there is a vital distinction to be made between what I described in my book,
(Living Tomorrow’s Company, 1998) as the belief system of the company and that of the
firm. A company is a band, a group of people with a common objective. Its Latin origins
are about sharing. In its original use the word suggests a business that starts with people
and relationships. The origins of the word “firm” are also Latin. Firmare in late Latin
meant to confirm the signature. The firm was literally the imprint–the style under which
the firm conducts business.
From Wall Street to university classroom, we can see examples of the great divide
between these two belief systems. To people who think company: the corporation is a
living organism--a bundle of values and relationships–and it has its own character and
personality; assets are there to be stewarded; and profits are necessary to enable you to
fulfill your purpose
To people who think firm: the corporation is machine--a bundle of contracts and
transactions; assets are there to be sweated; and profits are the reason for its existence In
Tomorrow’s Company we see ourselves as champions of the first of these two belief
systems. I see someone like Joel Bakan (2004), author of The Corporation, and Naomi
Klein (2000), author of No Logo, as being like most of Wall Street in the way they
subscribe to the second of these viewpoints.
Let me turn to the propositions that Allen White makes on behalf of Corporation 2020.
1) “To harness private interests to serve the public interest.”
I do not see this as the purpose of the corporation. Nor would the group of CEOs and
others involved in Tomorrow’s Global Company accept this. It may be an accurate
description of the role of the company but as a statement of purpose it completely misses
the entrepreneurial essence of a business. There is no argument between us that business
ultimately functions as a subset of society. Business has to recognize that it needs the
protection of society and the common services that society provides.
2) “To accrue fair returns for shareholders but not at the expense of legitimate interests
of other stakeholders.”
The words fair and legitimate render this statement open to any number of
interpretations. The proposition concentrates on distribution but says nothing about
encouraging the generation of that wealth in the first place. Before the business can
begin to be fair or legitimate it first has to finds a basis on which it can be viable. To
state a principle like this without acknowledging the competitive and economic context
within which entrepreneurs operate is deny the realities of the marketplace. No-one is
against fairness or legitimacy but all the difficult questions start when you put them up
against concerns of competitiveness and viability.
3) To operate sustainably
No argument–but be careful how you define this heavily stretched term.
4) Corporations shall distribute their wealth equitably among those who contribute to its
creation
Really? What about the enterprise economy? I think we want to encourage a
marketplace in which some people–like the Bill Gates of this world–can create new
business breakthroughs and earn extraordinary returns. I think the logic that drives
returns from a capitalist economy is risk and reward and not fairness. This is a
mechanism that is starting to lift billions of people out of poverty. As it happens the most
successful corporations will show a concern for equitable distribution to their people
because of the central place that their values play in their success, but this is not
something to impose from without.
5) Corporations shall be governed in a way that is participatory, transparent, ethical and
accountable
Of course… but this says nothing about how they should be led, and more important than
transparent governance is effective leadership, which means clear purpose, strong values,
clarity about where success comes from. In fact I don’t see the word leadership anywhere
in these 2020 propositions and this makes them seem removed from business reality..
Without values-based leadership accountability becomes mere box-ticking.
6) Corporations shall not infringe the right of natural persons to govern themselves, nor
infringe other universal human rights. This calls for a whole debate on its own!
So while there is very little that Allen White says with which I would disagree, I believe
the difference between us is that I would be keener to start the rethinking process rather
closer to the beating heart of the entrepreneur, and less concerned with big coalitions
making statements about the purpose of business as seen from outside. It’s a tactical
thing. The change that lasts is the change that starts from within.
Finally I would say to Allen that the debate about the future of the corporation needs to
be rooted in the understanding of how the world is changing. That’s why we in
Tomorrow’s Company are such strong believers in the inquiry methodology.
So much of the future of our planet will be shaped by the actions of the next generation of
global companies, the exciting new global businesses that are emerging out of China,
India, Brazil, and elsewhere. There are two of those companies, Dr Reddy's
Pharmaceuticals and Infosys Technologies in the 15 strong inquiry team that produced
our latest report on Tomorrow’s Global Company--The Challenges and Choices. At the
insistence of the business leaders involved, the inquiry team also included experience
people who represent or are grappling with the civil society issues. Near the start of this
report you will find a very strong statement from this Inquiry team–a statement that
recognizes that blind reliance upon market disciplines will lead us into trouble. Here the
leaders of global businesses originating from as far apart as North America, Europe,
South Africa and Asia offer their 2020 statement–and notice that they do not say that the
purpose of business is to create shareholder value:
“The survival and success of tomorrow’s global company is bound up with the
health of a complex global system made up of three interdependent sub-systems –
the natural environment, the social and political system and the global economy.
Global companies play a role in all three and they need all three to flourish.
“We believe in a strong market economy. The market economy has driven human
progress and growth, lifting the living standards of many people. But the world is
now undergoing a period of unprecedented change and it is becoming clear that
the current frameworks in which the market operates are leading to unsustainable
outcomes. There are major issues which the market and the political systems have
not resolved - particularly climate change, areas of persistent poverty and abuses
of human rights.
“Global companies can be a force for good and are uniquely placed to deliver the
practical solutions that are urgently required to address these issues.
“We believe that the purpose of tomorrow's global company is “To provide ever
better goods and services in a way that is profitable, ethical and respects the
environment, individuals and the communities in which it operates.”
Read the report. It argues that this will mean changes in the leadership of global
companies. To fulfill this purpose, global companies will need to expand the space within
which they operate. This starts with the refining of success, to align the success of the
corporation with the longer term needs of the society it serves. It continues with the
reassertion of values as the centerpiece of global organizations. Finally, because of the
global governance vacuum, the onus is on the global company to play a positive part,
working with governments, civil society and others in creating the frameworks within
which the market system can operate sustainably. Contact Tomorrow’s company and we
will be happy to provide the details. (www.tomorrowscompany.com)
To conclude, I agree that the debate about the purpose of the corporation is vital to the
health both of business and society. I would urge Corporation 2020 to ground such a
debate in the fertile rethinking that is already well advanced in the corporate world, and is
articulated in the TGC report. Please balance your focus upon the external accountability
of the corporation with more acknowledgement of the importance of an internallygenerated, leadership driven emphasis on values. Otherwise we will end up in the
insincere world of business compliance and box ticking – the world of Sarbanes-Oxley
and 300 page sustainability reports! Think of the corporation as a company, a social
organism and a bundle of values and relationships, and not as a mere bundle of
transactions over which society must exercise stronger policing!
New Networks for a Changing Corporation: Jane Nelson
As we can see from the previous comments, we clearly need values-based leadership and
sound relationships, both within companies and externally, to organize new structures
that foster institutional innovation in how corporations actually achieve societal and
stakeholder goals. In observing the intersection of businesses with other parts of society
over the past years, I have witnessed the emergence of three new types of alliances or
coalitions for change, often focused on solving particular problems. These structures are
much more dynamic and networked than traditional hierarchical structures, and they
reflect the new type of thinking that both Allen White and Mark Goyder are offering.
First, there are what I would call ‘Agenda Setting Coalitions’ like Tomorrow’s Company
or the relatively recently-formed U.S. Climate Action Partnership, which brings together
some of America’s largest corporations and environmental groups to advocate for more
progressive public policy on this issue. Another example would be the Aspen Institute’s
Corporate Values Strategy Group, which has developed a set of principles on long-term
value creation and increased executive accountability, called Long Term Value Creation:
Principles for Corporations and Investors. These were signed by an interesting
combination of the Business Roundtable, the Council of Institutional Investors, the AFLCIO, CEOs of several major corporations, and some leading lawyers.
The second type of network I would call ‘Accountability Coalitions’. These types of
initiatives are either industry-led or multi-stakeholder coalitions, and focus on jointly
improving corporate accountability in situations where there are governance gaps and
institutional or market failures. Most of them are currently voluntary in nature, but some,
such as Responsible Care in the chemical sector, have become requirements for
membership of industry associations and others, such as the Equator Principles, have
been signed by many of the top project finance banks accounting for some 80% of major
project finance deals in developing countries. Arguably, it would have taken governments
a lot longer to achieve this level of coverage on a global scale. Another recent example is
the Alliance for a Healthier Generation here in the United States, which has brought
together the Clinton Foundation, the American Heart Association, Coca-Cola, PepsiCo
and Cadbury Schweppes to jointly implement a set of guidelines for the sale of soft
drinks in schools. Basically, these entities structure mutual accountability frameworks
for their signatories.
The third type of evolving network is what I call ‘Resource Mobilization Coalitions’.
These bring together groups of companies, often with foundations and governments to
mobilize a combination of financial and in-kind resources to address a particular social or
environmental challenge that no one actor or even sector can tackle on its own. Examples
at the international level include the Global Alliance for Improved Nutrition, the Global
Fund Against HIV, TB and Malaria, and the Global Environmental Facility, while there
are also a growing number of national initiatives aimed at delivering public and private
resources to support key development goals.
In addition to the development of new industry-wide or multi-sector alliances external to
individual companies, another institutional or corporate design issue I think we need to
seriously review is the structure and composition of corporate boards or the creation of
new types of executive-level advisory mechanisms, aimed at including more diverse
stakeholder input into corporate strategy and purpose. Most board diversity discussions in
the United States focus on gender and race. Both of these are important, but what about
the need to bring in more non-American or international perspectives on the boards of
U.S. corporations which are earning a growing percentage of their revenues outside the
United States? Or the potential to have people around the boardroom table who
understand business and industry, but also have strong experience on environmental,
labor or human rights issues? If such voices are not within the Board of Directors, what
potential is there to design new types of stakeholder engagement mechanisms or
permanent advisory structures that ensure such views are heard on a regular and
systematic basis by senior executives in different ways. DuPont’s Biotechnology
Advisory Council or PepsiCo’s Blue Ribbon Committee on Health and Wellness are two
examples of such mechanisms.
In summary, there is enormous potential even within current corporate structures and
market systems, to think about fundamentally new types of mechanisms and alliances
that can serve to increase corporate accountability, set progressive new policy agendas,
mobilize both public and private resources to tackle key development challenges, and
increase the level of board and executive engagement with more diverse, but increasingly
relevant stakeholders views.
Corporations and the 21st Century: Peter Lacy
Input at a Glance: Response to Allen White and Mark Goyder
1. We can already see some indicators of the ‘Corporation of the Future’ in the ways
pioneering executives and companies are reshaping the rules of competition and
collaboration to incorporate social, environmental, political and economic issues as a
result of rising societal expectations and natural and human resource realities.
Moreover, we observe changing attitudes amongst business leaders and the way
companies are creating value through new business opportunities, operational
efficiencies or risk management We are also seeing the blurring of boundaries
between the public, private and not-for-profit sectors, as well as in organizational
forms (social entrepreneurship, new models of public-private partnership etc). In all
these ways, we may be witnessing a ‘history of the present’ in terms of elements of
what Allen calls the ‘Great Transition.’
Evidence.
A recent study conducted by McKinsey & Co. surveyed and interviewed 400 CEOs
worldwide about emergent trends and new demands in their operating environment.
Against a backdrop of growing expectations for corporate action on societal problems,
over 90% stated that their firms were doing more than 5 years ago to bring
environmental, social and governance (ESG) issues into core strategy.
Before one gets carried away, it is also worth noting that the CEOs perceived a
significant gap between intention and delivery. There was an estimated 22% differential
in strategic embedding of these issues, a 24% split in terms of boards accepting
responsibility, and a 32% gap over integration into supply chains.
Some firms have nevertheless gone into new partnerships that help to sustain profit and
protect their investments. One such example is Rio Tinto, who reached agreement with
the World Bank to jointly fund a huge long-term mining infrastructure project, primarily
on the grounds of its social, environmental and economic benefits to a heavily
impoverished region of Madagascar.
2. Nevertheless, huge challenges still exist. Not least in terms of a lack of trust in
business and increasing discomfort with the perceived direction of globalization.
Although rethinking the way a firm sets and implements strategy or governs itself are
crucial, they are not enough, in and of themselves, enough. Fundamental problems
exist in terms of a lack of global governance [e.g. the downsides of a global market
system without a matching political mechanism] and a lack of individual leadership
amongst the majority of executives and politicians
Evidence.
In July, the Financial Times and Harris published a poll conducted in Europe’s five
wealthiest economies and the US. Remarkably, over 50% of all respondents thought
globalization had had a negative effect on their country, with a further 30% on average
undecided.
Corporate leaders fare just as poorly. In the UK, Italy, France and Spain, 60% of those
surveyed wanted a cap on CEO pay, while in Britain some 40% said they had no
admiration for executives in charge of multinational companies.
3. In order to meet growing societal expectations and at the same time remain
competitive amidst intensifying commercial pressures, in addition to thinking through
corporate strategy and organizational design for the Company of the 21st Century, we
need a concerted effort across different sectors:
a) Partnerships must be forged with policy-makers to address global governance
weaknesses
Evidence.
To expand a limited knowledge base on best practice, the 2007 EABIS Colloquium
examines the subject from a number of different angles. Leveraging inputs from 100 top
researchers, business executives, policy makers and civil society representatives, it
identifies the main priorities for business, governments and stakeholders to tackle
together in the years ahead.
By and large, this debate is still in its preliminary stages. Thought leaders such as Simon
Zadek, Anthony Giddens and John Ruggie have laid important foundations through their
work on collaborative governance, social democracy and the ‘global public domain,’ not
least through the work of Jane Nelson and the Harvard Kennedy School Initiative on
CSR. But more and better interdisciplinary collaboration is needed between business,
government and researchers from IR, political science, economics, law and of course
management. It remains to be seen how easily the traditional barriers separating these
communities will fall.
b) Management development must equip current and future leaders with the knowledge,
skills, mindset and values to manage the risk and opportunities of sustainability for
companies, industries and society as a whole.
Evidence:
A 2006 EABIS research project led by Ashridge Business School outlined a framework
of values common to “responsible management” but suggested a lack of “big picture”
understanding in many managers. Some 76% of interviewees said that honesty and ethics
were ‘very important’ to them, but fewer than 30% gave the same answer about their firm
surpassing minimum legal compliance standards.
Management educators have much to contribute here, developing and teaching new
frameworks, metrics and value systems based on these new levels of complexity for
business. EABIS’ Annual Education & Training Exchange on Corporate Responsibility
has profiled over 120 examples of how business schools, companies and training
providers are producing cutting edge programs and tools aimed at developing a new
breed of ‘societally aware’ manager. Descriptions of these are compiled and widely
disseminated every year to promote better uptake and inspire others towards internal
change. Even so, many schools have yet to embed business in society issues in their core
disciplines. Until we cross that Rubicon, tomorrow’s “responsible manager” is likely to
remain a mirage.
(Note: Please see Peter Lacy’s Additional Selected Sources at the end of this document
for further information.)
Corporations and 21st Century Needs: James E. Post
As you have gathered from Allen White and Mark Goyder, we have good grounds to be
pessimists or optimists, or in a schizophrenic way, both. This underscores my first point
--that corporate social responsibility (CSR) stands at a crossroad today, with abundant
evidence to support both the pessimistic and optimistic points of view.
1. A New Gilded Age
In the summer of 2007, the Sunday New York Times ran an extensive front page story
about the “New Gilded Age” of hedge funds, private equity, and conspicuous wealth. At
about the same time, I talked with a CNN reporter in London who asked why the private
equity community in the U.S. wasn’t promoting philanthropic giving as a response to
calls for taxation of income (so-called ‘carried interest’) derived from private equity
activities. Her question hearkened back to the first Gilded Age when robber barons used
philanthropy and charitable giving to illustrate their largesse and demonstrate their social
responsibility. Today, as corporations grow in number and size, they become more
extended networks, and, ultimately, the number of stakeholders increases greatly. The
corporation has to take the roles and existence of these stakeholders into account. As
Allen White says, ‘they matter.’
2. Purpose is Process
One of Mark Goyder’s colleagues has made the point that ‘purpose is process.’ In
reality, corporate purpose is always evolving. As discussions among executives and
stakeholders take place, the chances improve that corporate purpose will reflect –and
embrace—stakeholder concerns.
3. Leadership
To conduct this process well, of course, requires capable leadership. Leadership is, I
think, the essential determinant of whether the future of the corporation will be one of
transition, transformation, or revolution. Fifty years ago, Philip Selznick (1957), the
sociologist of organizations, who is credited with helping to found the institutional school
of thought, wrote his influential book, Leadership in Administration. In this book,
Selznick suggested that organizations are mere instruments to accomplish some task.
When an organization is infused with values, however, it becomes an institution, with
aspirations and mission that reaches beyond the purely instrumental. Leaders infuse
values into organizations and turn them into institutions. It is leaders who determine
whether, and how, the institution will do well and do good. The corporation of the early
21st century is an instrument that can be used for many ends. Our shared concern is that
the today’s corporation becomes an institution, filled with social, value-driven purpose.
4. Business Education
This discussion has important meaning for business educators. Leaders must be trained
to become the reflective decision makers who understand the importance of values.
Selznick described such leaders as men and women with a “long run view.”
“Leadership,” he wrote, “is the art of institution-building, the reworking of human and
technological materials to fashion an organism that embodies new and enduring values.”
“It means shaping the character of the organization ….”
These challenges are not new but we are addressing them in new ways. In the past year,
we have studied the curriculum of 30 leading U.S. and international business schools to
see what they are doing in teaching CSR. What impressed me is the fact that CSR has
morphed into five distinct foci for teaching and research. They are: 1) ethics, 2)
governance, 3) CSR as corporate citizenship, 4) sustainability, and 5) social
entrepreneurship. Individual schools differ as to priorities, but all of the leading business
schools are teaching, doing research, and outreach in one or more of these areas as part of
the process of educating future leaders.
There is a sense of what the always-quotable Yogi Berra called ‘déjà vu all over again.’
Consider this statement by a prominent business leader.
Management’s duty is “to conduct the affairs of the enterprise to maintain an
equitable and workable balance among the claims of the various directly
interested groups, a harmonious balance among stockholders, employees,
customers, and the public at large.” Since “business firms are man-made
instruments of society,” management should see itself as a good citizen acting in
socially responsible ways. “Business managers can more effectively contribute
to the solution of the many complex social problems of our times. There is no
higher responsibility, there is no higher duty of professional management.”
Those words may sound like early 21st century wisdom, but they were actually written by
Frank Abrams, CEO of Standard Oil of New Jersey, in a Harvard Business Review article
published in 1951.
6. Conclusion
In thinking about a title for this conversation, it occurred to me that the title could be
either ‘The Future of the Corporation’ or, alternatively, ‘The Corporation of the Future.’
There are clear differences. But, I concluded we could not possibly discuss one without
the other.
Thus, my concluding thought is that corporate purpose must be continuously discussed,
and massaged if you will, into something that society can endorse and support. In this
respect, I agree with Allen White that we need to have this conversation. We are talking
about legitimacy, and much as we admire the instrumental success of the corporation, we
are troubled by the values –or lack of values- that seem too often the case.
I also agree with Mark Goyder that tomorrow’s company needs to be guided by leaders
who embrace both the business mission and the social mission. Just as the narrow
purpose corporation of the 19th century gave way to the general purpose corporation of
the 20th century, so too can the mission of the modern corporation evolve from one fixed
on economic results to one concentrated on economic and social results. This is the
vision that many of the leaders in Tomorrow’s Company share, and we can be grateful
for their leadership.
Leadership matters because we live in times that are complicated and dangerous. As
Philip Selznick aptly noted fifty years ago, ‘The more uncharted the waters, the more
necessary the leader.’
Conclusion
The discussion above is meant to start a new conversation about what the appropriate role
of the corporation is and should be in the world as it exists today. The commentators
have argued, collectively, that because the world has changed so dramatically over the
past century, so too the corporation needs to change to reflect the new demands that
societies are placing on it—and to better serve those societies. Corporations are, after,
instruments created by and for the use of human beings operating in societies. As such,
they need to serve those societies’ interests at least as much as they serve their own
interests. Just how that can best be done in a world where sustainability, equity, peace
and security, and creating good livelihoods are both problematic and imperative is and
needs to be the subject of much good conversation and debate. It is our hope that this
dialogue provides a starting point for that debate.
References
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Additional Selected Sources
1. On Reshaping the Rules of Competition:
Oppenheim, J., Bonini, S., Bielak, D., Kehm, T. and Lacy P. ‘Shaping the New Rules of
Competition’, McKinsey & Company Report for the UN Global Compact, July 2007
Download www.unglobalcompact.org/docs/summit2007/mckinsey_embargoed_until020707.pdf
2. On Growing Discontent with Globalisation, Inequality and Business Leaders:
Financial Times / Harris Poll on Public Opinion of ‘Globalisation, Inequality and
Business Leaders’, August 2007
Download www.harrisinteractive.com/news/FTHarrisPoll/HI_FinancialTimes_HarrisPoll_July2007.
pdf
3. On Rethinking Global Governance and the Role of Business in Society:
Lenssen, G., Arenas, D. and Lacy, P. ‘Global Governance and the Role of Business’ Call
for Papers, EABIS 6th Annual Colloquium, September 2007
Download –
http://itemsweb.esade.es/wi/invierte/EABIS%20Colloquium%202007%20Call%20for%2
0Contributions.pdf
Website - www.esade.edu/research/eabis
4. On Advancing Thinking on Leadership and Management Development:
Wilson, A., Hind, P. and Lenssen G. ‘Leadership Qualities and Management
Competencies on Corporate Responsibility’ Final Report as part of an Ashridge Business
School-led EABIS Research Project
Download - www.eabis.org/training/ResponsibleLeadership/
5. On Ways in Which Some Management Educators are Tackling These Challenges
Lacy P. Introduction to Education and Training Exchange Catalogues and various authors
of case examples December 2005 and Sept 2006
Download –
http://www.eabis.org/csrplatform/colloquium/2006/2006programme/2006EducationTrain
ingExchange
http://www.eabis.org/csrplatform/colloquium/2005/EducationTrainingExchange/
Further Information
For more information on the European Academy of Business in Society please see
www.eabis.org or contact Simon Pickard, Deputy Director +32 254 11 623 /
simon.pickard@eabis.org. To contact Peter Lacy directly: peter.lacy@eabis.org