The latest issue of the RSA Journal includes a lead article by Gillian Tett entitled “Making a Good Impression – how cultural shifts are driving radical change in enterprise”. The article can be found in the pdf download here. I encourage all business leaders to lead it, particularly with a focus on the “S” in ESG (Environmental, Social and Governance), as in this piece Gillian Tett, once a social anthropologist before becoming a leader at the FT, focussed upon cultural and social changes and the role of the corporation.
What Gillian has written about is absolutely what I focus upon in all my work with leaders and have done for years, though her long-read article brings great depth and clarity to the reasons for the need for leadership to change to one that goes beyond raw shareholder returns.
I will share two passages from the article that are key, but first, in January 2019 I wrote “Beautiful Leadership – Purpose and the Corporation“, including the image above that captures the model I espouse, then this written section.
Profit as Ugly Leadership and what Adam Smith really meant
In 1970, Milton Friedman famously said:
“There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.”
Whilst I can understand any Economist working as an academic taking polarising views such as this, my opinion is that this is ugly leadership in our modern world.
Friedman’s views have broadly been at the centre of capitalist thinking for approaching five decades, and, I argue, has fostered a growing lack of connection to society and planet that has led to symptoms such as radically growing income inequality as well as loss of faith in capitalism as a model and so the rise of ugly populism across the world.
Now, Friedman is thought in this statement to reference the views of the founder of modern Economics, Adam Smith, yet as I outlined in “CEO Pay and Ugly Leadership“, Adam Smith’s work on such concepts as self-interest in “The Wealth of Nations” must always be taken alongside his other great work, “The Theory of Moral Sentiments”.
I consider the absolutist Friedman to be someone who clearly largely apes Smith’s economic thinking while ignoring his moral and societal thinking.
Now, in 2018, Jesse Norman wrote: “Adam Smith: What He Thought, and Why it Matters“, attempting to create a broader sense of how all of Smith’s written works integrate.
In “How Adam Smith would fix capitalism” in the FT in June 2018, Norman wrote of Smith’s philosophies :
“markets constitute a socially constructed and evolving order that exists and must exist not by divine right but because it serves the public good.”
Now to Gillian’s article. Early on, she anchors it with this section on Friedman:
Rise of the shareholder
To understand these changes, it pays to consider a historical figure central to the creation myth upon which modern business schools are founded: the American economist Milton Friedman, best known for his pioneering free-market economic theories. In September 1970, Friedman published what was arguably his most influential idea, an essay in The New York Times Magazine which argued that “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits” for the benefits of its owners, ie its shareholders. To focus on anything other than maximising shareholder profits was a dereliction of duty, according to Friedman, if not a downright subversion of capitalism.
She then closes the article with this:
Perhaps Adam Smith’s vision of how markets should work is finally being properly realised. In decades past, economists such as Friedman celebrated Smith’s Wealth of Nations, which extolled competition, but ignored his Theory of Moral Sentiments, which argues that commerce functions best amid a shared social and moral framework. It may finally be that these two ideas are being united. We can call this the rise of stakeholderism or – perhaps more accurately – the embrace of Images by Greg Meeson lateral vision.
Thank you Gillian!
In closing, supporting leaders on this journey is my work, if you are ready to look seriously at this, please book a video call with me on my site here.