At the beginning of the month, the leadership of the World Economic Forum declared that Milton Friedman was wrong. The purpose of business, they said, is no longer to maximize shareholder profits above all else, but to consider multiple stakeholders and society more broadly. It’s a refrain that has dominated 2019—from Blackrock Chairman and CEO Larry Fink‘s letter to shareholders in January and the Business Roundtable announcement in August, to Salesforce.com founder and co-CEO Marc Benioff‘s New York Times article in October. From this growing chorus has emerged the promise of a more fair, inclusive, and sustainable “new capitalism.”
New capitalism is, without a doubt, an exciting vision for modern business. And yet it’s received a hefty amount of criticism as “purpose-washing”—good PR bark with little bite. These concerns are fair. With little action to date and little incentive to change, loud declarations by large personalities seem to be simply reifying old models in new packages.
Earlier this year, I worked on two books—featuring insights from 40 executives—exploring corporate purpose and impact. A clear theme emerged: To ensure that new capitalism doesn’t look a lot like old capitalism, we need more than just good intentions. We need a radical redesign of business at the structural level. Here are three big design questions that I encourage all leaders to ask themselves if they’re serious about inclusive capitalism:
How might we redesign companies to create value for stakeholders?
Despite its recent buzziness, the stakeholder perspective—a fundamental commitment to all stakeholders, including customers, employees, suppliers, communities, and shareholders—is not a new idea. Many companies already consider multistakeholder interests in their decision-making. But the problem with stakeholder capitalism as it exists today is that it doesn’t offer a clear compass for how to make decisions in complex scenarios where win-win outcomes for all parties are rarely possible. This brings us to the elephant in the room: Not all stakeholders are created equal. Leaders are often forced to pick favorites, and at the end of the day, we know who will always win.
To deliver on its promise, new capitalism must offer new governance models that can accommodate the complexity of decision-making for multistakeholder benefit. This will require a good hard look at how power works in our organizations, along with significant reform of the structures and incentives that continue to benefit some stakeholders and not others.
As we search for inspiration for how to do this, I particularly love The Myth of Capitalism coauthor Denise Hearn’s provocation to emulate win-win, symbiotic structures inherent in natural systems (such as lichen, mycelium networks, and gut bacteria). In these relationships, mutual benefit occurs through exchange, not extraction. Pointing out the viability of exchange-based corporate structures, New Belgium Brewery has shown that when employees own the company they are more mindful of spending and more invested in improving performance. Likewise, B Corp Ben and Jerry’s sourcing partnerships with small farmers have not only revitalized local economies, but grown the company over time. Prosperity between stakeholders, here, is linked.
Creating value for stakeholders is perhaps one of the most challenging design briefs for new capitalism (and the easiest to fake through purpose-washing). A few guiding provocations:
- Who gets to define what it means to win? How can we give stakeholders a seat at the table?
- When profit is pit against purpose, profit tends to win based on the interpretation of shareholder demands. How might we support purpose-led decision-making by reworking the relationships between shareholders and corporate decision-makers, bringing shareholders into the design, strategy, and decision process earlier?
- What new stakeholders might we need to include? With less traditional 9-to-5 working arrangements on the rise, for example, are the only employees included in the stakeholder set the ones who work full-time?
How might we redesign companies for a circular economy?
If the first challenge reconsiders business’s relationship with people, this related prompt reconsiders its relationship with the planet. This goes beyond the moral question of whether companies should care about the fact that their take-make-dispose approach to resources is destroying our earth. The question here is also an existential one for business. The accelerating social, political, and environmental consequences of climate change mean resources might not always be as abundant as we’re used to, and this challenges the long-term viability of the way many companies operate today.
A promising alternative, often called the “circular economy,” is defined by a closed loop, where materials are continuously repurposed. This might sound like a rebrand for sustainability. But where it differs is that circularity goes beyond trying to reduce or reuse resources and instead reimagines how businesses, products, and services are designed altogether. Rather than focusing on a single product lifecycle or a single user, circular innovation thinks about the larger system and creates new value by enabling multiple usages and multiple users.
Many organizations are experimenting with how to transition from a linear to a circular business model: Apple recently announced a goal of a closed-loop supply chain, H&M and Ikea have committed to becoming circular companies by 2030, and Google recently released its circular strategy. As these companies and others work to make the transition, a few promising questions stand out as particularly ripe for continued exploration and experimentation:
- What might new ownership models look like in a circular world?
- How can we derive continuous value from circulating products?
- How might circular distribution and data/information systems work?
- How can new materials unlock opportunities we can’t even imagine today?
- In addition to the regeneration of material resources, what might social regeneration look like?
How might we redesign “corporate social responsibility”?
Popular discussion of business’s evolving role in society tends to center around two ideas of “responsibility.” Either businesses and their moral leaders need to take on greater social responsibility through corporate activism and philanthropy (think Marc Benioff), or people and their governments need to force responsibility onto corporations through taxes and other government policies (think Anand Giridharadas). Both of these approaches are important and needed.
But there is another role emerging for corporations as neither heroes nor villains of society, but as allies in coalitions driving toward social change. The most urgent, complex problems facing our world require systems change to make real progress. From homelessness in San Francisco to climate injustice, these challenges demand unprecedented collaboration across sectors to find creative solutions. The UN Sustainable Development Goals provide one powerful framework to rally around, but there are other emerging partnership models that leverage the capital investment, innovation muscle, and ability for scale that corporate partners often uniquely bring to the table. Take the NextGen Consortium, for example. Managed by Closed Loop Partners and powered by OpenIdeo, some of the most powerful food and beverage companies (including Starbucks, McDonald’s, Wendy’s, the Coca-Cola Company, Yum! Brands, Nestlé, and WWF) are collaborating to create a new cup that will curb the 250 billion fiber cups piling up in landfills each year.
Importantly, this socially minded activity is strategic, not altruistic. There is good reason, even if only a long-term reason, for companies to collaborate to tackle systemic challenges that relate directly to the future of their business. The difficulty is that it requires companies to flex new muscles: a long-term mindset, a systems-thinking lens, collaboration with diverse partners, and a more inclusive approach to innovation. As we continue to explore the power and potential of such collaborations—and how we can better create and sustain them—some starting areas of inquiry might be:
- How might we convene more effective networks to accelerate systems change at scale?
- What new models of corporate leadership and partnership do we need?
- How must we think about investment in innovation differently?
- What opportunities exist for companies to unlock latent potential in their operations by thinking more radically about complex problems in their ecosystem?
These are among some of the biggest creative challenges corporations face as they strive to make good on the new capitalism promise. We have our work cut out for us. Excitingly, there are many courageous companies and leaders experimenting with solutions to these questions—including those featured in Fast Company’s The New Capitalism series. These examples and others make me optimistic that we will rise to the occasion. I hope 2020 sees more companies and leaders follow suit to help design better businesses that meet this century’s needs.
Nina Montgomery is a designer at Ideo and a PhD candidate at the University of Oxford, where she studies business and systems change. Her books Perspectives on Purpose: Leading Voices on Building Brands and Businesses for the Twenty-First Century and Perspectives on Impact: Leading Voices on Making Systemic Change in the Twenty-First Century were published earlier this year.