Managing Leadership^®

In last Thursday’s post, we reviewed the key elements of “Karma Capitalism” as identified by its proponents. They were, in brief, that:

• Corporations should pursue social justice as well as profits
• Corporate “leaders” should put purpose before self
• “Social justice” and “purpose” refer to a redirection of managerial focus from shareholders to stakeholders, the latter group including constituencies ranging from employees to the environment

While there is abundant material for discussion here, we will focus only on the proposition that this doctrine actually acts to perpetuate the corporate failings and scandals it presumes to allay. In order to do this, I offered two questions, an examination of which should help us determine the validity of either the claims and hopes of the Karma Capitalists, or of the proposition that it is an inherently unstable system. We will start, today, with the first question:

• In “Karma Capitalism,” what is the philosophical cornerstone used to set the starting point and to discipline the construction of corporate structure and governance?

A system of management theory, like any other edifice, requires a solid foundation, or it will fall. The foundation should establish a clear reference point from which everything else is measured and built. Using this, we can simultaneously test the theoretical and practical viability of our progress.

In Karma Capitalism, this cornerstone appears to be purpose, or social justice. But what, exactly, are those? Who can define them in a manner that everyone else can accept? Surely, we all want ethical behavior in our corporations that redounds to the benefit of us all as individuals and as a community. It’s easy enough to generate agreement that far. But it’s right on the other side of that homily that things get tough.

What is social justice for you, or for a Karma Capitalist, may be anything from irrelevant to oppressively unjust to others. Characterizing the issue as focusing on a higher purpose before base money distracts us from what is really being proposed: the shifting of corporate attention and activity to stakeholders the satisfaction of whose needs presumably represents social justice, or a purpose greater than that served by discharging managers’ fiduciary duties to shareholders.

Who are these stakeholders? We are told that they are everyone from employees to the environment. But do they really deserve to take pride of place over shareholders - or to distract any corporate attention at all away from them?

Employees, vendors, and customers all legitimately warrant corporate consideration, in the discharge of normal fiduciary duties, without being conferred a special status with its own independent claims on management. Similarly, paying meaningful attention to local communities and educational institutions can also be an important part of the primary duty of a business to maximize shareholder return, inasmuch as it may represent a thoughtful and hardnosed investment in long-term sustainability and growth. Social, charitable, and environmental causes (beyond compliance with laws and regulations required of any real or legal person) are certainly more difficult to justify on these terms; although many firms invest in them simply to avoid harassment and bad PR.

The brief examples above are of corporate attention to these interests justified on the basis of its direct or indirect contribution to the primary pursuit of shareholder interests. But establishing a separate right to the consideration of management is an entirely different matter. On what basis could such a claim be made? How could a corporation be compelled to comply with it in the absence of the informed consent of owners? Who, exactly, would comprise these stakeholders, what would be the extent of their claims against and rights to the assets of a corporation, who would determine these, and who would enforce them? How will we know when these putatively laudable goals are being achieved, or even approached?

The problem is that immediately beyond the inviting portal to the universally attractive goals of social justice and higher purpose is a wasteland of ill-defined principles on the basis of which a withering crossfire of viscerally righteous claims and counterclaims is released by groups whose only common denominator is that they have no natural right in the law to those claims - and the proponents of social justice are among the combatants angrily negotiating this minefield.

There is no firm footing here. We don’t know where we’re starting, or where we’re going. We are being asked merely to accept the authority of these philosophers for their answers to those questions, and their teachings as to how to attain them.

That, of course, isn’t good enough. It is an insubstantial foundation that will bear the weight of neither scrutiny nor practice. The definition in this system, such as it is, is in the method, in the specific prescriptions of its proponents for managerial behavior. It fails to attain even this degree of consensus and clarity - including among its adherents - about either the starting point or the goal.

Classic liberal capitalism, on the other hand, is the opposite of this. It defines the starting point and the goal quite clearly, and attracts agreement amounting to working consensus. As for the means, there is no definition in that, at all. And that, really, is the beauty of it. We’ll look at that, next.

See you soon.

—

Please be sure to see all the posts in this series:

1. Management as a priesthood
2. Same faith, new robes
3. To the devil with the details
4. Fire and Brimstone
5. Salvation without the sermon

—

Did you know you can click on the green “Share This” icon below and uplink this post to any of the major social content sites, or email it to your friends and colleagues - give it a try right now!

And, while you’re at it, don’t forget to subscribe, and encourage your friends and colleagues to do so, as well!

Similar Posts:

• To the devil with the details
• Fire and Brimstone
• The stakeholder
• Salvation without the sermon
• See you at the polls

Technorati Tags: Corporation, social justice, profit, leader, purpose, shareholder, stakeholder, employee, environment, governance, management, theory, manager, vendor, customer, investment, sustainability, liberal, capitalism