Just Business, The American Dream and Valueism
JUST Capital is an American non-profit organisation registered as a charity. It’s mission, “to build an economy that works for all Americans by helping companies improve how they serve all their stakeholders – workers, customers, communities, the environment, and shareholders”. Over the past year it has surveyed close to 100,000 Americans to find out "what they want from corporate America today. What do they value? What issues would they like companies to prioritize?” The report says they found “The response has been clear and consistent. Americans want corporations to stop prioritizing shareholders and instead put workers, customers, communities, and the environment at the heart of just business practices”.
They have also just announced their “2020 Rankings of America’s Most JUST Companies”, which is their way of “demonstrating which companies are leading the way on the issues that matter most in the stakeholder economy”. They tracked, analysed, and ranked 922 companies from the Russell 1000, across five stakeholder groups (Workers, Customers, Communities, the Environment, and Shareholders), based on 29 Issues related to 400 data points, "from paid parental leave to veteran hiring and supplier policies".
To arrive at the 29 issues they, “asked a representative sample of more than 4,000 Americans to compare 29 different business issues on a head-to-head basis, producing a reliable hierarchy of issues ranked in order of priority. We then assigned each issue to the stakeholder it most impacts”. Here are the results:
The 29 issues were also grouped into the following broad categories: “worker treatment (which received a 35% weighting in the data analysis), customer treatment (which got a 24% weighting), community support (18%), environmental impact (11%) and leadership behaviour (11%)”.
A recent declaration in the Statement on the Purpose of a Corporation, by the Business Roundtable - an organisation representing the leaders of almost 100 of the largest businesses in America - said “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity.” It is hardly surprising that 95% the 4000 people polled agreed. But, demonstrating how far off the goal businesses are in the eyes of the 4000, just 49% thought corporations are doing well in building an economy that allows all Americans to succeed through hard work and creativity”, and only “45% think large corporations are doing well in promoting an economy that serves all Americans”.
These questions are closely related to the idea of ‘The American Dream’. So it is clear, for more than half of all Americans the dream is dead. Further evidence of this view is found in the report’s statement, “For three years running we’ve found that four out of five Americans (79%) agree that employees don’t share enough in their companies’ success, and that a majority believes that companies prioritize their shareholders above both employees and customers”. So 'customer-focused', which is what most companies claim to be, is also a lie.
Those polled were also asked “whether they believe companies are having a positive or negative impact on society”, and in 2019, "overall perceptions become more negative”. Less than half trust corporations, or view the impact of corporations on society as positive overall. And, “perceptions around the impact business is having on work-life balance, jobs, the environment, and local communities dropped between 8% and 12% in 2019”, compared to the previous year.
Just Capital concludes, “Americans want to see companies shift from a focus on shareholders toward supporting all the stakeholders impacted by their business: including their workers, customers, communities, the environment, and their shareholders”.
The good news for companies that score well is, they are more likely to win the ‘war for talent’, with 75% of Americans saying, “they would choose to work for the more just company – even if it paid less”. The top 100 performing firms also managed a 6% higher return on equity compared to the Russell 1000 index - the largest companies in the U.S. equity market.
Analysis
Here is what I make of all of this. The research does not only tell us that 'The American Dream' is dead, or to put it another way, that the social contract is broken. It also explains the breakdown of social cohesion in American society and the rise of populism. Furthermore, it explains why younger Americans have lost faith in capitalism and increasingly favour socialism, according to research by Harvard University.
The loss of trust in business, and capitalism’s lost legitimacy, at least in its current form, also explain why the Business Roundtable turned the tables on neo-liberal economic ideas that gave rise to this situation. The organisation has now abandoned the foundational principles of neo-liberal economics or, at least dropped their verbal support. But changing their thinking and practices will take much longer.
Recently, all serious thinkers and commentators have been recognising the need for a new form of capitalism, a new economic order, a system that will address the inequality problem and restore some meritocracy. Low growth in most developed nations, a productivity crisis in several, and persistently low levels of employee engagement for more than a decade. All are symptoms of a failed version of capitalism, but not of capitalism per say.
A form of capitalism designed to serve all stakeholders is the model people are talking about, to replace the one that puts shareholders first. But achieving it will be more of a challenge. It will require simultaneous changes to economic thinking, accounting standards and business theory, both as they are taught and practiced.
In each of these areas neo-liberalism remains the dominant ideology, because it is a comprehensive and well entrenched way of thinking. It will only be replaced by an equally comprehensive alternative, and the entrenchment of that. With this in mind I have been putting forward the concept of Valueism as a possible next evolution of capitalism. It brings together progressive ideas from various sources covering multiple disciplines.
Valueism is based on the idea that any business or organisation in any part of the economy exists to create value of some kind, and value creation should be their primary focus. It measures value in both monetary and non-monetary terms, and in relation to their contribution to the prosperity of society. Prosperity measured in terms of human flourishing and wellbeing that is. Valueism would help restore trust in business, restore The American Dream and repair the broken social contract.
A better way to define the a company's commitment to the goal of a prosperous society can be articulated using the idea of the social contract, making it explicit rather than implicit, and linking it to a Social Contract Accounting standard.
An early prototype of the social contract I have in mind is the Johnson & Johnson Credo which, until recently, had largely served it well. Had they kept to it they would not have been embroiled in the opioid crisis, but they can still use it to get the business back on the right path. It articulates its responsibilities to each of its stakeholders including society. It is a values-based ‘mission statement’ of sorts, first defined in the 1950's.
For business, of course, it has always been the case that the primary stakeholder group to focus on must be the customer. It was stupid to ever think it was the shareholder. But, all other stakeholders must also benefit if delivering customer value is to be sustainable. The benefits to all other stakeholders are a byproduct of a customer’s willingness to pay for a product or service at a level that earns the business a profit, which it can then share. To believe otherwise is just delusional.
A business is nothing more than a customer value creation system, or a platform as some prefer to call a system these days. It must design and operate an efficient and hard to copy Value Scheme, then continuously and iteratively innovate to add more customer value, and grow the number of customers it serves if it wishes to thrive and expand.
The challenge faced by the vast majority of businesses is their inability to answer three very basic questions: what value they create, who for or how. They are too focused on performance, efficiency and cost control with the aim of extracting value from customers to benefit shareholder and meet market expectations. A Value Scheme helps companies answer the three questions, address the issues and keep the right focus.
Defining value is the first challenge and, it’s not what you offer. It is what the customer perceives it to be. And it comes in many forms. The 29 factors listed above give some clue as the forms of value as they are perceived by the five stakeholder groups, and the 400 datapoints referred to would indicate the sources in finer detail. Rather than ‘issues’ and ‘factors’ we might regard them as ‘needs’, and Maslow’s hierarchy of needs offers some additional insight.
On this last point I think it is fair to say. most needs are universal, and what Americans want and expect of business is what the citizens of every nation want and hope for. Every person, and all peoples, seek the opportunity to live well and flourish, to be prosperous. For this reason, Valueism, the Value Scheme and Social Contract Accounting can be applied universally. This is hardly surprising; they are all rooted in the ancient wisdom of philosophers such as Aristotle and his concept of Eudaimonia which meant human flourishing and wellbeing.
For a further introduction to Valueism and Social Contract Acconting read this article I wrote for the London School of Economic
If you are interested in becoming a Valueist or applying Valueism, the Value Scheme and / or Social Contract Accounting in your organisation I'd love to hear from you: paul@thesmfglobal.com