The first of May: Power, Legitimacy and Urgency

It’s the first of May and I am sitting in my office even though we have the day off. To get into my building I had to step over several union banners laying on the ground, ready to be taken to the official annual rally. I felt something like pride when I saw these committed people waiting to start announcing their demands. They could have just stayed at home and had a lazy morning, drinking coffee but they decided to put themselves out there. And I did feel a bit bad that I was ignoring this “Labor Day” and going to work but I am just not the rallying type. Apart from all the vandalism and violence that usually co-occurs on this day, I think it is good that workers use this day to say what they think they are entitled to. For at least one day a year it gives total legitimacy and power to the stakeholder employee and the “worker” in general. I think it is also a kind of celebration of the rights we do have here: Right of unions, freedom of association, right to strike, freedom of speech and so on.

 

When glancing over to Bangladesh, globally there is still an extremely long way to go. The claims workers have in Dhaka are not only legitimate but also very urgent. When a house is actually built on sand, shows obvious cracks, workers knowing about this danger but still going to work because they are worried to lose their job they are so dependent on, the disastrous absence of their power is evident. Yesterday the people of Dhaka went out on the street to demonstrate their anger. Demonstration and strike is their only means to counteract on their lack of power in hope to find leverage of their claims through other parties.

Looking out of the window I can see all the different concerns the people have. The concerns are not just about work, but about people living together as a society in general. Even though I don’t share all of the opinions and many demands are much too extreme for my taste, I want to go along. Here is my demonstration: People should take responsibility for what they do. Businesses should take responsibility for what they do. Not only power and urgency, but also legitimacy of claims should guide the way. Only by respecting and treating others as human beings and not as abstract figures in a long value chain can we work together to mutually create value for people.

Vanessa McSorley

Looking back

While clearing up my library recently, I came upon a book by K.R. Andrews, "The Concept of Corporate Strategy" (1971). Looking through the text over 40 years later, I am amazed how current Andrews’ considerations are. Andrews was Professor for Strategic Management at the Harvard Business School. He became well known for a number of things, among them a case study on the Swiss watch industry. In this study he demonstrated how a small firm can compete with larger ones strategically, sustainably and successfully.

In his Concept of Strategy, Andrews argued on the basis of the SWOT analysis - which is his “invention" by the way - that a firm always needs to seek an economic strategy that is aligned to the moral concepts of its leaders (p.38): "Personal values, aspirations, and ideals do, and in our judgment quite properly should, influence the final choice of purpose". In this way the manager’s sense of responsibility as human being and not as homo oeconomicus is addressed ("his own standards of right and wrong") (p.118). For Andrews, strategy is always "a human construction; it must be responsive to human needs" (p.117). Andrews goes even further and argues in the spirit of modern Stakeholder Theory that strategic decisions also need to always have the well being of society as a whole in mind. He writes: "By ‘social responsibility’ we mean the intelligent and objective concern for the welfare of society that restrains individual and corporate behavior from ultimately destructive activities, no matter how immediately profitable, and leads in the direction of positive contributions to human betterment, variously as the latter may be defined." (p. 120) Unfortunately this thinking, on Strategy Theory and the practice of strategic action, was completely buried in the 80s by narrow and inflexible economic thinking. Ironically, his colleagues Porter and Jensen, also at the Harvard Business School, were forceful promoters of the economic model. Decisive factors were Shareholder Value as the primary goal and hard competition; homo oeconomicus determined practices. This led to unreal abstractions with dangerous consequences. For these reasons, the “ultimately destructive activities” that Andrews addresses in the above quote came about in the financial crisis of 2008. And the subsequent debt crisis confirms his warning: "Business cannot remain healthy in a sick community; ultimately no corporation is an island."

Today scientific work in Strategic Theory places great emphasis on the latest literature. However, sometimes it would also be good to refer to old classics; they often challenge “modern” theories and accepted practice! In any case, Andrews can be regarded as a forerunner of a stakeholder-oriented view of strategy.

 Edwin Rühli

 

 

 

A different kind of customer

Switzerland is one of the many European countries with a growing percentage of elderly people, as the baby boomer generation will be retired in the period 2015 - 2035. This year 2012 is the European Year for Active Aging. To overcome the barriers for an active life for older people, we have to improve our understanding of their most frequent illnesses and raise awareness of their impact on society at large.

Between the ages of 70 to 80 the risk of becoming dement is 5 - 7 %; up to the age of 90, 12 - 15 %; after 90 every third person is dement. Dementia is an illness that first slows down the pace of activities of an older person. Later, in a more severe stage, it makes difficult challenges out of simple activities. Therefore, we need to understand how dement people can have dignified lives and still be an active part of our society. As an example, this implies empowering them as customers.   

Only in recent years have we started to realize that due to the growing number of people with dementia, employees in shops, restaurants, banks etc. are confronted on the job with dement customers. Until now due to a lack of information and training, the employees are often not prepared for this situation, and in particular fail to understand the behavior of dement customers.

To raise awareness for such situations, the Alzheimer Association of Switzerland has published guidelines to support employees, who are in contact with people suffering from dementia (www.alz.ch). Especially employees in the service industry often have contact with dement customers. Hairdressers for instance are quite often persons of trust for elderly people. Due to the guidelines of the Alzheimer Association they learn how to interact with these customers, and even how to help them realize that they might need additional help.

In these guidelines also employees of banks can learn to understand which symptoms might be a sign of dementia. For instance, dement people have troubles with appointments, they have problems to articulate themselves, they show up several times on the same day to get money, they have difficulties filling out documents etc. In each of these cases, it is important to approach these customers with respect and understanding. Sometimes such employees are the only contact they have and they place trust in them. As the illness of dementia progresses, it is important to recognize that these relationships of trust are an opportunity for elderly persons to receive support and understanding.

The guidelines of the Alzheimer Association are first steps to keep dement people better involved in an active life. Based on this, firms should systematically train and support those employees who interact with dement customers. Corporate proactive behavior will reduce costs as transactions will be more successful, but most importantly the quality of life for dement people will be better.

 Sybille Sachs

Walmart – Civilizing the Chinese?

Your first reaction to reading this title may well be one of bafflement (what does Walmart have to do with civilizing anything?!), or if you happen to be Chinese, of likely indignation (how can a fifty year old American retail megastore contribute anything to our august, thousand year old civilization?!). But – as preposterous as it may seem – there is indeed a kernel of truth in this proposition. Let me explain.

The word “civilize” has its etymological roots in the French word “civilité”, which initially denoted the refined manners and decorum at French aristocratic courts. With repeated initiatives to – yes, “civilize” – the Chinese (as in their “no spitting on the street” campaign), the Chinese leadership is keen at molding the behavior of its citizens for the better. Recent outrage involving food manufacturers deliberately fortifying food with poisonous substances in order to cut costs, with employee unrest and even suicides (such as at Foxconn) in response to poor working conditions, as well as the omnipresent environmental pollution scandals, has the Chinese regime become increasingly edgy and aware that things need to change.

Enter Walmart.

Much as the Chinese regime, Walmart has seen itself confronted by a customer base ever more bent on better quality food, disgruntled employees (as with a high publicity class-action suit by female employees) and a questionable environmental record driven by aggressive rock bottom pricing on many of its throw-away products. So starting in 2004, Walmart’s then CEO Lee Scott proactively contacted environmentalist NGOs such as the Rocky Mountain Institute and the Environmental Defense Fund for assistance as to how to better manage its environmental track record.

What resulted is no less than remarkable. Wall-Mart has, since its entry to the Chinese market in 1996, become the leader in China as pertains to food quality, implementing rigorous food quality standards for its suppliers and launching an ambitious – and well received – organic food initiative. Moreover, the company has significantly reduced its packaging material volume and pressured its suppliers to cut energy consumption and pollution. The Chinese suppliers, while at first skeptical, are now keen to advertise their environmental objectives and successes. The Chinese shoppers, for their part, are delighted to get better quality food and organic produce, trusting a big company like Walmart more than smaller shops which are – in their eyes – more prone to cheat them and offer inferior quality products. And the Chinese regime is pleased to have such a potent partner in addressing these pressing problems and “civilizing” its companies and citizens. In sum, we have an excellent example of numerous stakeholders working in sync to achieve a win-win situation for all.

So all is good that ends well? Well, it may be too soon to bring out all the trumpets. While Walmart in China serves de facto as an extension of the Chinese government’s regulatory efforts and as a “civilizing” factor for its citizens, it is legitimate to question the long-term sustainability of such an in the end effect still purely instrumental objective. Nonetheless, there is reasonable hope that at least parts of it may be sustainable due to an interesting insight that the sociologist Norbert Elias outlined as part of any civilizing process. Therein, he posits that to become “civilized” entails individuals to restrain their drives and affects. In a first phase, this is achieved through a permanent outside authority and on pain of punishment. With time, however, in a second stage, there arises a moral code that is upheld by individuals even in absence of the threat of punishment, driven by people suffering from a bad conscience in light of failure to adhere to these mores. In the last phase, then, even such self-constraints dissipate, and individuals are intrinsically motivated in a very natural manner to adhere to the involved normative standards.

This is, in essence, what is beginning to occur in China in part with the help of Walmart (and also other parts of the world in other contexts), where social and environmental responsibility by corporations and individuals is becoming ever more part of the discussion, part of the regulatory and legal fabric and as well as public awareness in form of a normative “should”. Normative change, while it may initially have to be forced upon individuals and corporations, may in due time become second nature to them. We as a global civilization, as is apparent also in China, seem to be “primed” for a major normative paradigm change towards greater social and environmental responsibility. And, as we have seen, even a major multinational corporation such as Walmart can play a significant role in this “civilizing” process, if the necessary extrinsic motivation is there and a society is ready to reward such a change.

Manuel Heer Dawson

 For a fascinating and detailed account of Walmart’s social and environmental impact in China, read the “How Walmart is Changing China”, by Orville Schell in The Atlantic: http://tinyurl.com/bopuxsa

Regulations or More Moral Minds: Which Way to go concerning Global Issues?

In comments about the global economy we often can read that we need responsible capitalism today but not new regulations. But what is meant by a responsible capitalism without new regulations? One often heard answer is that such capitalism can be established through a change of mind towards more moral thinking. But it is rather unlikely that this change of mind would be so fundamental and action-guiding that the global problems, which for example became obvious with the financial crisis, can be solved in this way alone.

Let us do a short analysis of the global situation: Today there are many issues that know no boundaries (transboundary), such as the global financial crisis, climate change, migration, trade etc. The territorially bound nation-states can’t solve these issues on their own. Therefore, in the world of international relations where anarchy still rules (the monopoly of power is still on the level of the nation state: there is no ‘world-government’ or state over the nation-state) states often come together to coordinate activities and cooperate concerning global issues. But cooperation between states is insufficient today. In the concept of “global governance” of political science not only state-actors but also stakeholders from the societal sectors of business and civil society are considered to be important political actors in contributing to solutions of transboundary or global issues.

Such new global governance systems exist already (e.g. Climate-Conferences, WTO, ILO, ISO14000 or private regulation-standards in different consumer-goods industries like e.g. ETI [Ethical Trade Initiative] etc.). Although they vary widely as to the specific issues, structure, actor participation and success, there is no other way in a politically still anarchic but globalised world to try to solve global issues.

Of course, it is difficult to bring together the relevant stakeholders of an issue and it is even more difficult to achieve a constructive dialogue, cooperation and meaningful coordination among them. It is already a significant success when regulatory designs can be established and when implementation and evaluation of effectiveness of the rules is seriously done. And it is also obvious that a certain change of mind is a precondition to bring the stakeholders together. These components are all parts of building-up global institutions, and regulatory designs are one integral part thereof.

But, to propagate the development of highly skilled moral competencies of humankind which make regulations unnecessary may indeed be a noble demand but won’t work in reality. Moreover, to let a global issue drift around in an anarchic environment without trying to manage it actively is simply irresponsible. There is no way to circumvent the building-up of global institutions including regulations. On the national level states have also established rules to solve issues, i.e. to provide common goods (e.g. protecting property rights, legal certainty).

Global institutions have not the aim to restrict individual rights or freedom but to provide common goods (e.g. protection of property rights, clean air). Of course, to fight the right of the stronger, which identifies the anarchic space, it is necessary to reduce the possibilities of powerful actors to exhaust certain individual freedoms by power exclusively for their private gains and at the costs of all others. Regulatory designs thus help to provide common goods by aiming to substitute the rule of the jungle through a ‘rule of regulation’. In this way, also innovative individual freedom can be protected from anarchic arbitrariness. The building up of global institutions, based on stakeholder cooperation establishing regulatory designs, is unavoidable for a responsible handling and solving of global issues. Another question, of course – not considered here – is the democratic legitimacy of such global institutions.

Claude Meier

The Great Transformation 2.0

This year’s World Economic Forum WEF is headlined: “The Great Transformation: Shaping New Models”.  However, the term “The Great Transformation” does not seem to be all new to us. It has not been invented by Klaus Schwab, Founder of the WEF, but by the Austro-Hungarian philosopher Karl Polanyi. As early as 1944 he described what he understood as the “Great Transformation”: The transformation of traditional societies into market societies, characterized by the subordination of the substance of society to the laws of the market.[1]

For many years, the World Economic Forum was almost a synonym of this development, and to big business; and politicians who attended the forum seemed to understand economy as “the continuation of politics by other means.” As opposed to Clausewitz, who understood war as “the continuation of politics by other means”, they certainly shaped a more peaceful process. Nevertheless, the WEF was one of the most important forums and market places of “The Great Transformation”: The subordination of all realms of society under the laws of economy. Those were the days when protests against the WEF mobilized thousands of “anti-globalization activists”, and the critics of capitalism were suspected to be reactionary communists.

Today, there are just a few dozen protesters, and Klaus Schwab himself publishes the following sentence on the front page of the WEF website: “Capitalism, in its current form, no longer fits the world around us. We have failed to learn the lessons from the financial crisis of 2009. A global transformation is urgently needed and it must start with reinstating a global sense of social responsibility,” (http://www.weforum.org/). What a remarkable shift! Are the illustrious attendees of the forum willing and able to work towards a second “Great Transformation?” Do they understand what has been wrong with “Capitalism in its current form?”

I dare to doubt. I dare to doubt that “Capitalism in its current form” is capitalism at all! I haven’t heard any better analysis of what we have seen during the last couple of years than the one of Marc Chesney, Professor of Finance at the University of Zurich, who said this was not capitalism but “betrayal of capitalism”[2]. According to him, capitalism is based on an elementary principle: Those who are taking entrepreneurial risks, are entitled to reaping the benefits of their endeavors. However, “Capitalism in its current form” has been the art of separating risks from benefits, of creating “absolute return” to owners of capital, no matter which way the markets would develop. Governments, tax payers, unemployed people, society at large are paying the bill today and in the future.

Thus the problem is not with capitalism, but with its abuse by those who created – or tried to create – private wealth at the cost of society, and legitimized their action by referring to mainstream economics. Stakeholder theory is about value creation through fair exchange of risk and benefit potentials in stakeholder networks. This has been described and explained by many scholars from Freeman’s seminal Book in 1984 (Freeman, R. Edward, 1984: Strategic management: A stakeholder approach. Boston: Pitman) to the latest publication of my colleagues Sybille Sachs and Edwin Rühli at HWZ (Sachs Sybille / Rühli Edwin, 2011: Stakeholders Matter, Cambridge: Cambridge University Press).  

We may call it capitalism; we may call it anything else: I do agree with Schwab, a “Great Transformation” is needed. However, I would call it “The Great Transformation 2.0”, towards true leadership and management in the service of a peaceful and prosperous global society. Do we need the WEF for this insight? Not really: We could have known earlier – at least since 1944 – and we could have known better – at least since 1984. Let’s hope the attendees of the World Economic Forum 2012 are wise enough and fast enough – not to turn back the wheel, but to make credible steps forward towards a fair and more stable economic system in the service of humans around the globe.  

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[1] Polanyi Karl, 1944: The great transformation. New York: Rinehart

[2] Chesney Marc, 2009: La finance trahit-elle le capitalisme? In: Revue Finance & Bien Commun, Genève, Mai/Juin 2009