The glue that holds a corporate structure together | Managing Leadership

Fire and Brimstone

In the past few sessions we have been examining a new movement in the management field, styled “Karma Capitalism,” reported in an excellent overview of the trend published on BusinessWeek.com. We identified the key tenets and characteristics of the approach, and began subjecting them to critical examination using two questions posed for that purpose. The first question is:

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

In the last two posts, we used this question to examine the solidity of the foundation upon which rests the Karma Capitalist philosophy, and found it wanting. It lacks a clearly enunciated statement of its starting position and goal, satisfying itself with substance-less platitudes such as “social justice” in order to move directly to a set of behaviors and guidelines for managers to use to perceive themselves and direct their actions. We concluded that in the absence of a strong and sensible foundation (that is, one the substantial, meaningful presence of which can be continuously felt by those relying on it), the edifice was doomed to fall at the first shock, or ultimately of its own accord.

But that’s not the only problem. Unfortunately, Karma Capitalism suffers from an additional and equally serious shortcoming. Let’s use the second question to elaborate this:

What and where is the keystone that maintains the integrity and stability of that structure (whatever it is)?

As a system rises to whatever height of eminence it may be able to attain, it needs a keystone to help it maintain itself, to retain its philosophical identity. Lacking both theoretical and structural discipline, efforts to give expression to it are likely to simply crumble into an unrecognizable jumble of disconnected ideas and practices.

In classical liberal capitalism, the owner of capital guides its use. As practiced today, owners – directly in privately held companies, indirectly through boards of directors in publicly held companies – allocate their capital and direct its management. They establish strategic policy, hire managers, and direct them in its expression. Owners have the theoretical and practical authority, in other words, to discipline the management of their capital.

Inasmuch as they are positioned atop a structure built on a capitalist foundation, the entire economic and commercial environment in which they operate will further act to discipline their own directorial thinking and actions in a self-interestedly rational manner. Thus, the system’s integrity is elegantly reinforced both from below and above by the natural extension in both directions of a naturally reinforcing and interacting structural theory. The foundation and keystone are complementary elements of a single piece, which holds together of its own accord under their influence. (We all know it’s not that simple, and we’ll discuss some reasons why in future posts; nevertheless, the theory is sufficiently robust to hold together even in the face of its imperfect comprehension and expression.)

What does Karma Capitalism have to offer as a keystone, maintaining the practical unity of expression in the real world of its foundation theory? Where is the disciplinary element arising naturally out of the philosophy that will ensure this outcome?

Unfortunately, there is none. Just as there is imperfect understanding and no agreement on what the putative cornerstone concepts of Karma Capitalism are, there is no natural structural extension of the cornerstone of the edifice at its foundation into a keystone at its apex.

We all know who owns capital, what motivates individuals according to capitalist theory, and what the result will be: owners who work to maintain control over and direction of their own capital. But who owns the Karma Capitalist cornerstone principals of “social justice” or “higher purpose,” and who will determine what they mean and enforce their expression according to that meaning? What will motivate such people, and what will be the result?

Unlike with classic liberal capitalism, there are no obvious answers to these questions, and the result, as well, of any answers that rush in to fill the practical vacuum may not be acceptable or even comprehensible to many of the very stakeholder groups that Karma Capitalism purports to support.

Such systems, then, are left only able to harangue, chasten, and shame executives into behaving in the managerially moral manner they propound, using imprecisely defined but widely-feared imprecations about their otherwise sinking into bottomless pits of corporate scandal and failure.

It doesn’t work. It is, at bottom, merely another well-intentioned effort to address real problems, but, unfortunately, in an unrealistic way. A major failure, in addition to those addressed in this and the previous posts in this series, is the system’s focus on the thinking, character, and behavior of managers. This is of indisputable importance, but it is not really the core reason for the corporate scandals the system hopes to remedy: that core reason is the willful or practical impotence of boards. We will continue to discuss that in future posts, as we have in the past.

For now, we will close this series in the next post with a brief discussion of some of the presumed failings that efforts such as Karma Capitalism suggest are inherent in classical liberal capitalism.

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

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