Capitalists must alter way they do business
• Transformation of white monopoly should bring the most disenfranchised into the economy via shared value
Capitalism needs an answer for poverty and inequality, because socialism has one. The problems facing SA are not unique. The rise of income inequality and its close friend poverty is a worldwide phenomenon.
All too often business is regarded as part of the problem because its purpose is believed to be “Maximise shareholder value”. This is short-term thinking, where profit is placed above all at the expense of communities, the environment, customers and, eventually, some businesses.
This was evident in the financial crisis of 2008, the Winelands worker revolt of 2012 and all too graphically at a place called Marikana. These crises were not anomalies of the capitalist system. They were caused by a system that put profit above everything else.
The effect on disempowered communities is that they can make rash decisions out of anger when they go to the polls — as happened in the UK and US, where they had a dramatic impact on the future of their nations.
If not tackled, these issues will find ways of addressing themselves to the world. All too often it will not be a lucid response, but one tinged with anger and disillusionment.
Capitalism needs an answer for the ills it helped, in part, to create. If it does not, capitalists will become easy fodder for populists in red berets or people hired to tweet for a living.
Capital in SA is under even more pressure to “do good” as it was built on immoral, unfair and institutionalised racism. It is labelled white monopoly capital for good reason.
The boards, executives and supply chains of many of these companies are stubbornly untransformed. Only 8.5% of the population — white people — have more influence and financial clout than the rest of the population. Capitalism in the hands of the few is a problem if it does not help the whole.
Transformation should be used as a tool to bring the most disenfranchised into the economy. For transformation to take root and thrive, it needs to be more than a nice corporate social investment programme. It needs to be more than “giving back” or team building. It has to fundamentally change the way it does business.
South African companies do give back. One mining company gave more to poor communities than it gave its shareholders in dividends. Even the muchmaligned Lonmin built very impressive science schools for the community of Marikana.
But the sad truth is that whatever they are giving, it is not nearly enough to make a dent in the tsunami of poverty washing over the nation.
This does not mean they have to give more, but they definitely have to change the way they do business.
They have to be creative and look for ways to bring people into the economy. This should not just be part of the values and vision statements that plaster their walls; it should be part of their business model.
Targets and metrics in organisations should be used to align transformation to remuneration and bonuses. Only then will transformation be driven throughout the company.
This is not hippy thinking. It comes from the minds of business management rock stars Michael Porter (of Porter’s Five Forces fame) and Mark R Kramer at Harvard University, who devised a concept called shared value.
“Shared value is not social responsibility, philanthropy or sustainability, but a new way for companies to achieve economic success,” the two experts wrote in an article titled Creating Shared Value in Harvard Business Review.
They argue that creating shared value is a tool for longterm prosperity. Businesses that do not use it are bound to struggle in a more integrated world. The only way wealth is created is through business, they say. Governments and nonprofit organisations can tax and spend and redistribute the wealth, but only business can create it.
Transformation driven by the market is scalable. It works where retailers provide freerange eggs, even though they are more expensive. Manufacturers of antiperspirants had to remove fluorocarbons from their cans
THE LONGER WE STALL, THE FARTHER WE KICK 8-MILLION UNEMPLOYED YOUNG PEOPLE DOWN THE ROAD
when it was discovered that they were creating a hole in the ozone layer.
These changes were made possible by pressure from consumers, who turned it into a market force, which, in turn, became an ecosystem of shared value.
The way in which wealth is created and distributed has to change. But Porter and Kramer are silent on how to communicate to investors that they will be getting less now so they can get more in the long term.
Some farmers in the Western Cape are discovering that if they give their workers part ownership and ask them to help manage, there are better outcomes for everybody.
Investors are not known for their patience and their interest in making the world a nicer and kinder place, which means that business models need to be reexamined. Executives have to tell the people whose money they hold in trust: “We can’t go on like this. It has to change.”
Porter and Kramer see creating shared value as a huge opportunity to create more markets and build more value.
It unlocks potential within communities and creates goodwill. For them, this is a business model that is better for everyone, shareholders included.
The longer we stall, the longer we take to tackle the issue, the farther we kick the 8-million unemployed young people down the road.
Businesses will lose opportunities if they do not adopt the shared value model. The seething anger will build up and it will not be rational.
It will lash out at anyone or any institution that appears to have maintained the status quo and kept them out.
Change needs to happen and it needs to happen now.