This blog post is part of the HBR Online Forum The CEO’s Role in Fixing the System.
The most transformative thing CEOs can do to fix the system is to nurture the seeds of a new capitalism that’s already emerging.
Capitalism has been incredibly effective at creating prosperity and improving the standard of living for many, but its current form is on the brink of extinction. Its weaknesses, like short-termism, speculative trading, absentee ownership, profit- and shareholder-centric orientation, inability to account for non-monetary value, exploitation of labour, and extractive use of natural resources are creating too many disruptions across the globe for the model to survive. Climate change, natural resource shortages, the growing gap between haves and have nots, and the fragility of financial systems are but a few of the critical problems it has spawned, and these are conspiring to become a perfect storm. We need to respond urgently, and the choices before us range from dramatic course correction on one extreme, to facing “overshoot-and-collapse” on the other.
The Heart of the Problem
Over the past few decades, countless approaches to course correction have been advanced. They include corporate social responsibility, sustainability, shareholder advocacy, social assessment and auditing, consumer action, government regulation, leadership development, ethics, realignment of incentives, attracting long-term investors, creating shared value, and more. While these are all constructive strategies, they don’t go far enough to challenge one fundamental assumption at the core of capitalism: that the for-profit firm is the only vehicle for organising economic activity.
Yes, there are other varieties, like nonprofit firms and government-sponsored enterprises, but for-profit firms are assumed to be the centre of the economic system. CEOs manage them, employees work for them, customers buy from them, suppliers sell to them, investors buy their shares, and governments regulate their activities.
To cure capitalism’s ills, therefore, schemes tend to be advanced to modify the behaviour of stakeholders relative to the for-profit firm (e.g. getting investors to think long-term) or to modify the interaction between the for-profit firm and its stakeholders (e.g. treating suppliers as partners). But, for some baffling reason, we persistently stop short of questioning the underlying structure of the firm itself. That structure is at the heart of the problem—it’s the DNA of capitalism. Until we address it, we’re just treating symptoms, and our reform efforts will not reach the scale and speed required to avert the looming storm.
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