When discussing the higher purpose focus of Conscious Capitalism and balancing the needs of all stakeholders questions often come up about measurement of non-measurable “purpose” decisions and how they translate to the bottom line. Parts of my response are as follows. One is to point out the numerous examples of conscious companies that already have mastered the idea that by doing good they will perform better. Another part is to point out that economists’ and analysts’ focus on short term financial returns and performance is not a problem of business but rather a shortcoming of the economics and finance communities.
Awareness of this shortcoming is quickly rising as people and media outlets provide examples of it with more frequency. Time Magazine last Wednesday published a column by Rick Wartzman, executive director of the Drucker Institute, a social enterprise at Claremont Graduate University, whose mission is strengthening organizations to strengthen society. The Long View: Why “Maximizing Shareholder Value” Is On Its Way Out is a call-to-action that we can reverse the damage that short-termism in corporate decision making has caused over the past half century.
In 1986, Peter Drucker warned of a severe threat to our “long-term economic future.” and would be gladdened by today’s positive movements like Conscious Capitalism and others.
The backlash against short-term corporate thinking is becoming more powerful all the time, thanks to the efforts of a broad range of individuals and organizations, including the Aspen Institute, Conscious Capitalism, the Stoos Network, the Management Innovation eXchange, the CFA Institute, the Purpose of the Corporation Project, the Sustainability Accounting Standards Board and many more.
Another challenge that I bring up often and why I believe that Conscious Capitalism Florida’s college outreach is so important, is the teaching of what the purpose of business is in colleges across the country. Wall Street cannot be solely to blame for corporate short-term focus on share price when for past three decades academia has churned out graduates that don’t understand the more complex cooperative nature that public corporations truly are.
First, there are graduate students, many of whom are passionate about changing the world—and not just getting rich. The trouble is that all too many business and law schools undermine this spirit by teaching traditional classes that reinforce a short-term mindset. As Cornell law professor Lynn Stout, one of those at the Claremont gathering, has made abundantly clear, by the time these students hit the job market, they’ve come to falsely believe that the primary purpose of the corporation is to “maximize shareholder value.”
The increasing media, business, academic and public discussion on the subject of stakeholder value over shareholder primacy combined with illustrations of successful examples is a step in the right direction for stabilizing the long term prosperity and sustainability of the American and world economies.