Sunday, May 26, 2013

Ruthless pursuit of profit at all cost is an excess that can't last by Ross Gittins

Ruthless Pursuit of Profit at All Cost is an Excess That Can't Last
by Ross Gittins, Sydney Morning Herald

Individuals and companies have strayed too far from recognizing the importance of human relationships.


I get to meet a lot of famous and interesting people in my job, but few have had more influence on me than Dr. Michael Schluter, the social thinker, social entrepreneur and founder of Britain's Relationships Foundation.

They say genius is being the first person to say the obvious. If so, Schluter is one. I'm sure Socrates or Aristotle beat him to it, but in our time Schluter is the first to forcefully remind us of something we all know: the importance of our human relationships. We are, above all, social animals. After we have secured our physical survival, the most important thing in each of our lives is our relationships: with friends, neighbors, workmates and, above all, with our families - our parents, siblings, spouse and children.

Even if we've avoided speaking to them for years, even if they're dead and gone, we can't stop thinking about them. If we have cut ourselves off from our family, be sure we've sought to fill the vacuum with other relationships. Take away all our relationships and who would have much reason to keep living?

So much for stating the obvious. But here's Schluter's simple, unarguably telling point: if our relationships are so fundamental to our well-being, why do we keep forgetting to take account of them in our strivings? Wouldn't we be better off if we got into the habit of viewing all our endeavors through a lens that focused on their implications for our relationships?

How often do divorce lawyers advise people to avoid all attempts at reconciliation with their estranged spouse for fear of weakening their legal position? How often do doctors treat physical symptoms that are not what's really troubling their patient?

How often do politicians loudly proclaim their support for the family, then consider 101 policy proposals without a thought as to their implications for people's relationships? As for economists, their model is so narrowly focused on the individual that they become oblivious to the potential effects of the policies they advocate on the relationships that sustain all individuals. The truth is that much of our ever-increasing material affluence over the past 200 years has been achieved at the expense of our relationships - by making the workings of the economy ever bigger, more complex and impersonal. And by encouraging economic transactions between people who have never met, let alone had a relationship.

Back to Schluter's insistent reminder: aren't we paying a price for ignoring the relational implications of all this? Wouldn't we be better off if we put the protection and promotion of our relationships back into the formula? So far have we strayed from recognizing the primacy of our relationships that the proposals of the mild-mannered, respectable, God-fearing Schluter sound positively radical.
About 150 years ago the invention of the limited-liability company allowed people with money to invest to become owners of companies without taking any part in their management. The development of stock exchanges allowed people to buy and sell their shares in a company as easily and often as they liked. From these innovations came the huge corporations that dominate the economy today.

Economists see them as milestones on our path to prosperity. Schluter sees the downside. So last month in troubled Britain he and a colleague, Jonathan Rushworth, launched the plan ''Transforming Capitalism from Within: a relational approach to the purpose, performance and assessment of companies''.

He proposes that enlightened companies submit themselves to the discipline of a 10-step ''relational business charter''. Step one is for a company to include in its articles of association its goal of becoming a profitable and sustainable business for the benefit of ALL its stakeholders - owners, directors, managers, employees, suppliers, customers and the wider society.

Step two is to promote dialogue between the stakeholders, preferably through regular, face-to-face meetings. Step three seeks to reduce ''relational distance'' between shareholders and employees and other stakeholders by promoting share ownership by named individuals and family trusts rather than institutional investors such as pension funds.

The goal could be 25 per cent direct ownership, pursued partly by encouraging employees to own shares. Ideally, a growing proportion of shareholders will live close to the company's main base.
Next, to achieve commitment, involvement and responsibility by shareholders, relational firms should encourage long-term ownership, perhaps by issuing additional shares to those who hold their shares for long periods. Step five is for companies to help their employees achieve work-life balance by minimizing long working hours and work at unsociable hours (including weekends) wherever possible.

These things have a direct effect on the families of employees, particularly if the employee will not be present to share the bringing up of children.

Then firms will seek to respect the dignity of all employees by minimizing remuneration differentials within the business. A ratio of 20:1 between top and bottom would be a good benchmark.
Relational companies will treat their suppliers fairly and with respect, paying them promptly and giving them support to develop their businesses.

Relational companies will treat their customers and the local community fairly, respecting their concerns about reasonable payment terms and adequate service.

Step nine involves companies protecting their business and stakeholders by minimizing the risk of financial instability, limiting their ''gearing'' - ratio of borrowings to shareholders' funds.
Finally, relational companies will fulfill their obligations to the wider society by paying a reasonable proportion of profits in tax in the country where those profits were earned and spending a reasonable proportion of profits on corporate social responsibility.

The musings of a hopeless dreamer? I think our companies' present ruthless pursuit of profit at any cost is an excess that can't last. Schluter is a prophet pointing the way back to more sensible capitalism.

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