July 1, 2008
Creative capitalism: a conversation
Mike Kinsley and Conor Clarke have outsourced production of a book on “creative capitalism”–the subject of a much-noted speech by Bill Gates earlier this year–to the internet. Gates, if you recall, jumped on the corporate social responsibility bandwagon and argued that ordinary capitalism will no longer do. We need a new kind. The new website invites posts and comments on the subject, and the discussion appears to be thriving. I recently posted a note with my own first take on the issue.
When somebody says “Microsoft,” my first thought is unlikely ever to be “good corporate citizen.” I am more likely to think, “world-transforming innovator,” “awesome creator of wealth,” and “ruthless competitor.” (Sorry, Bill, no disrespect.) One wonders what would have become of this company if in its first decade or two its founder had spent significant time and effort—as he urged his audience at Davos—on good works not directly related to his goals for the enterprise. My main reaction to Bill’s speech was that it was a comical instance of “Do as I say, not as I did.” Microsoft’s shareholders and the world at large can thank their lucky stars that Bill did not follow his own advice.
You can read the rest of that post, and all the others, here.
Pure capitalism follows a simple rule: maximise shareholder wealth. But there is no simple rule that would lead to the ‘best’ allocation of that accumulated wealth on ‘good works’ philanthropy. Furthermore, different outcomes would be achieved depending on whether shares are widely distributed or highly concentrated: most small shareholders would cling to their wealth; conversely, the greater the concentration, as in Microsoft’s ownership structure, the greater the marginal propensity to donate the accumulated wealth. So, if donations are beneficial to society at large, therein lies a case to concentrate donations at a corporate level.
But is philanthropy the most efficient way to maximise the social welfare function? Would it not be preferable to have a universal shareholder society? Granted, maximally wide ownership would lower donations, but then less donations would not be needed. The best way to maximise welfare would be to widen the net of participants in capitalism’s simple one-rule game of maximising shareholder wealth.
Posted by: RCS | July 1st, 2008 at 8:26 pm | Report this commentCorrection
Line 3, paragraph 2 should read: “…but then less donations WOULD be needed.”
Posted by: RCS | July 1st, 2008 at 8:29 pm | Report this commentClive is as dismissive of Corporate Social Responsibility (CSR) in his post on the Creative Capitalism as he has consistently been over the past 3+ years, most notably as the author of the Economist’s 2005 survey on CSR.
Any assessment of the CSR landscape shows that there is indeed plenty to be dismissive about: bolt-on programmes offering spin over substance, and poorly considered philanthropic donations being just two examples. Yet there is also a great deal of substantive innovation which can not be credibly dismissed so easily.
In his analysis, Clive is guilty of two faults. First, judging CSR based on its worst manifestations while ignoring the best that the field has to offer; this suggests a personal bias on his behalf, as his journalism is usually much more rigorous. Second, setting up a false strawman to knock down.
Re the first fault, ‘proper CSR’ focuses squarely on the value drivers businesses face, framed in a broader and longer-term context than was typical in business practice historically. It then seeks to inter alia mitigate legal, operational and reputational risks; improve operational efficiency (environmentally and financially); identify new business opportunities; and improve the quality of relationships and trust with key stakeholder groups including customers, business partners and governments. All of these activities have a clear business rationale.
Re the second fault, Clive is fond of equating CSR with philanthropy, often with the poorest examples of philanthropy. A case in point is his shrill pronouncement in the Creative Capitalism site about some philanthropy being tantamount to theft. Let’s be clear: philanthropy is one small part of CSR, the largest part being focused on how a company’s money is earned rather than spent. Moreover, while his point about donations-as-theft is valid in some cases, taking this as a starting point in a discussion of CSR is akin to assessing the global mortgage lending industry based on the misdeeds of the worst lenders in the subprime debacle – tempting to many pundits, but hardly rigorous or balanced.
There is a real arrogance in Clive’s take on CSR, which implies that he knows best, while the C-suite executives and middle managers responsible for authorising/implementing their CSR activities don’t understand what’s in the best interests of their shareholders. It is telling the Economist’s 2008 survey on CSR (www.economist.com/specialreports/displaystory.cfm?story_id=10491077) strikes a much more positive and balanced tone than Clive’s. It would be good to see his fine intellect and engaging writing more constructively engaged on this topic.
Posted by: DKM | July 2nd, 2008 at 9:56 pm | Report this comment