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by: Sandra Waddock

There is a lot of talk today about bouncing ‘back’ or returning to what passed for normal before the COVID-19 pandemic disrupted the world and everyone’s lives. But there is a huge problem with that idea. 

By the nature of complexity and wicked problems in social systems, complex systems simply cannot return to prior states once change has been triggered. 

Despite many calls to ‘bring back’ the system as it was, and efforts by governments and business leaders to do so, many economic, work, educational, and social systems have already changed in unpredictable ways that make a complete return to pre-pandemic conditions unlikely. 

Something else important is happening, too. The pandemic has raised awareness that the economic drivers that shaped the prior ‘normal’ have created many problems—including existential crises like climate change, species extinction, and inequality. Some observers have even laid the COVID-19 pandemic at the feet of overly aggressive exploitation of nature. 

So the real question is, what will our economic and social systems look like after the pandemic if we can indeed do what WEAll suggests and ‘build back better’ or ‘bounce beyond’ today’s economics? 

Today’s dominant economic drivers include beliefs, or what the late systems theorist Donella Meadows called mindsets, that form an economic paradigm. That paradigm— neoliberalism —has been used to justify growing inequality, ignorance of environmental impacts, and a drive towards ‘efficiency’ that justifies layoffs, abusive conditions in many companies’ global supply chains, and cutthroat competition. The most vocal proponent of this flawed set of beliefs was the late Milton Friedman

Neoliberalism claims that markets are and need to be ‘free’, that people are self-interested profit maximisers—and so are companies. That the best governments are the ones that exert the least regulatory or legal influence on the powers of business. That endless growth is the goal of economies and companies. That companies’ only social responsibility is to maximise profits for one group of stakeholders—the shareholders, as Friedman put it in a famous and influential, yet problematic, New York Times article in 1970

Neoliberalism’s flawed and problematic orthodoxy (a generally accepted theory, doctrine, or practice) remains deeply embedded in both business practice and governmental focus on flawed measures like GDP. The thing is, as my recent paper ‘Reframing and Transforming Economics around Life’ (published in Sustainability) argues, what the world really needs now is not another attempt at reforming the current framing, but a completely new economic orthodoxy.

The world needs an economics that favors life in all its aspects. One that fosters wellbeing for all humans, as well as non-humans. That economics needs to be built on powerful precepts— ‘memes’ or core building blocks of culture—that resonate broadly yet are considerably more holistic than those of neoliberalism.

Such memes support today’s new / next economies initiatives—such as Amsterdam’s recent adoption of Raworth’s ‘doughnut economics’and other wellbeing economies.

My paper argues for six synthesised precepts or building blocks, for Wellbeing Economics, drawn from a wide range of literatures. 

1. Stewardship of the Whole

Stewardship of the whole is foundational. Simply put, this means that leaders, governments, communities, businesses, and other institutions and, indeed, all of us, have shared responsibility for ensuring that the ‘whole’ system, including the planet itself, is healthy and supporting all of life for the foreseeable future. Living systems, including communities, organisations, and Earth itself, are healthy when all of their parts work together productively—when the ‘whole’ is considered, not just the parts. 

2. Co-creating Collective Value

Economic activity can be positive or negative (think the clear cutting of forests). This is why the focus of today’s economics on the growth of money as the sole way of assessing wellbeing is incredibly narrow-minded. Many other values, though perhaps not as readily measured as monetary outcomes, are important to humans, including health, relationships, community, meaningful work, and belonging, among others. Thus, another precept that underpins health, life, and wellbeing is co-creating collective value. Scholars Donaldson and Walsh argue that generating collective value should be the core purpose of businesses. Many important societal values that lend ‘life’ to human systems can be included in such a metric, as the Genuine Progress Indicator demonstrates. 

3. Cosmopolitan-localist Governance

Another core precept is cosmopolitan-localist governance. Given today’s technologically connected world, it is possible to create local governance systems in which citizens can have voice, input, and impact, and connect those to the global system. Cosmo-local governance, as it is sometimes called, relies on this connectivity, while decentralising decision making as much as possible, and allowing for communities to create and share ideas, knowledge, skills, technology, culture, and ecologically sustainable resources. 

4. Regeneration, Reciprocity, and Circularity

Cosmo-localism is complimented by an approach to production of goods and services that emphasises regeneration, reciprocity, and circularity. The idea here is to produce goods and services in alignment with the natural environment’s capacity to regenerate them, to operate in accord with nature’s own principles, in which exchanges are reciprocally balanced as inputs and outputs, and avoid toxic by-products (or products). Circularity avoids the take-make-waste approach too often used today, and instead adopts the idea of ‘waste equals food’, as some ecologists put it— which suggests that what is waste for one part of the system, needs to be reused as ‘food’ (inputs) in another part. 

5. Relationship and Connectedness

In contrast to neoliberalism’s strong bent towards individualism and individual responsibility, economics for all of liferecognises the idea of relationship and connectedness as foundational to what it means to be human—and what it means to exist in a complex world where physicists tell us, everything is connected. Human beings thrive in the context of relationship—and indeed, cannot survive on their own. The South African principle of Ubuntu, the idea that ‘I am because we are’, and the Lakota principle of Mitikuye Oyasin, or the idea that ‘all are related’ (sometimes translated as ‘All my relations’) reflect the core principle of relationships and connectedness. 

6. Equitable Markets and Trade

Since we are all connected, equitable markets and trade needs to replace the flawed idea of free markets and trade—because how we treat each other in markets and trading situations matters. Equitable or fair markets/trade offer fair and fully costed products and services, with all costs internalised, because otherwise, they are absorbed by and harm societies and the natural environment. It also means producing goods and services that are actually needed by customers and recognising the importance of good—and participative—governance over their fairness. 

There’s much more that could be said about each of these principles. 

The key idea here is that to make progress towards a Wellbeing Economy, many more progressive initiatives need to come to agreement about what the core ideas are, that would drive such an economy. 

My paper is intended as a start on that conversation, though by no means is it the end point. 

Dr. Sandra Waddock is the Galligan Chair of Strategy, Carroll School Scholar of Corporate Responsibility and Professor of Management at the Carroll School of Management at Boston College. Sandra has published well over 100 articles on corporate citizenship, sustainable enterprise, difference making, wisdom, stewardship of the future, responsibility management systems, corporate responsibility, management education, and related topics. Her research interests are in the area of macro-system change, intellectual shamanism, stewardship of the future, wisdom, corporate responsibility, management education, and multi-sector collaboration. 

Connect with Sandra on her website, blog and on Twitter: @SandraWaddock and @IntellectShaman

Faces of the Wellbeing Economy Movement is a series highlighting the many informed voices from different specialisms, sectors, demographics, and geographies in the Wellbeing Economy movement. This series will share diverse insights into why a Wellbeing Economy is a desirable and viable goal and the new ways of addressing societal issues, to show us how to get there. This supports WEAll’s mission to move beyond criticisms of the current economic system, towards purposeful action to build a Wellbeing Economy.

by: Erinch Sahan

A fundamental change is sweeping across the business world. Big ideas are spreading, new slogans being echoed, and the very purpose of business being questioned. A host of concepts and initiatives are driving this conversation. From BCorps to Social Enterprise, Cooperatives to Shared Value, the market-place of ideas is heating up.

These are all, by-and-large, positive developments. But how do these enterprise design ideas compare? Here’s an attempt to compare their essential structural features and assess the extent to which shareholder dominance and profit primacy remain embedded in enterprise design. In other words, the framework below compares the minimum in structural design that is required by these concepts.

It’s worth noting that we are comparing a mixture of legal forms, certifications and management concepts. For instance, many jurisdictions allow legal registration as a CooperativeSocial Enterprise or Benefit Corporation. Others are certifications to validate claims of being a Social Enterprise or BCorp. Meanwhile, new concepts like Shared Value or Triple Bottom Line are infiltrating MBA programmes, to guide a new generation of corporate leaders. They all (at least implicitly) deviate from shareholder primacy.

Turning away from Friedman? The answer lies in enterprise design.

In 1970, Milton Friedman penned, in the New York Times Magazine, the article ‘The Social Responsibility of Business is to Increase its Profits’. While proclaiming this today would seem short-sighted (and a public relations own-goal), it is an honest account of shareholder primacy. This remains baked into the DNA of most companies – a persistent straight-jacket that most executives must wear.

The economic imagination has since moved away from this singular obsession with profits for shareholders as the exclusive purpose of business. But enterprise design hasn’t. 

While trapped in shareholder primacy, a growing chorus of business leaders declare their discovery of enlightened self-interest, where their long-term profitability relies on being socially responsible. Inconvenient trade-offs are swept aside and questioning how profits are shared remains taboo (the largest shareholders always get the biggest dividend cheques). Yet, some executives pronounce that the purpose of their company is ‘people and planet before profits’ – a far cry from Friedman’s doctrine and the prevailing corporate model that financial markets hold firmly in place. Nonetheless, the narrative has moved, substantially.

How the narrative has shifted

This means enterprise design has become central as we explore purpose and impact. It has crept up on us all. It probably started a few decades ago, with new corporate goals like minimising or eliminating the worst harms of corporate behaviour (usually where a PR-disaster beckoned). Think sweatshops and poisoned rivers. It then evolved to focus on broader social and environmental impacts: human rights impact assessments, environmental impact reports, or indicators for how a business impacts sustainable development. This focus on impact largely happened over the last decade. 

But positive impact requires practices and investments that actively foster it. Without inclusive trading partnerships, workers in supply chains remain trapped in poverty wages and precarious employment. Without investment into water-treatment plants, local rivers remain polluted. Under shareholder primacy, if the cost-benefit analysis doesn’t add-up, people and planet take a back-seat (unless regulated by government).

To embrace ‘purpose’, a business must be designed to prioritise such investments and practices. 

This means enterprise designs that allow objectives other than profit growth to be a priority, and to give voice and power to stakeholders other than shareholders. Otherwise, doing good is only possible where it grows profits. 

A note here to not confuse profit maximisation with commercial viability. Staying in business is necessary for all businesses. Continuously growing profits isn’t.

Pursuing purpose while in a straight-jacket

The enthusiasm for corporate purpose is evidence that we are joining the right dots. However, unless business is designed to focus on people and planet, it chases ever more profits and ignores social and environmental impacts, where the financial rewards don’t suffice. And it is enterprise design that can unlock the practices and impacts that we all agree business must embrace.

Expectations of dividend growth and boards full of shareholder representatives lock-in the shareholder primacy design. This dominant structure ensures a focus on always increasing profits, and forces extraction of profits for the purpose of growing shareholder wealth. It’s a straight-jacket, within which inclusive and truly sustainable corporate culture is held in check, often relegated to projects and initiatives that don’t threaten the pursuit of growing profits. 

All businesses need to be profitable, but it’s the focus on maximising or growing profits that holds back authentic corporate purpose. Whether an enterprise is designed to deviate from this paradigm is the central question. 

In recognition, an increasing number of businesses are claiming to possess a more evolved design. But how can we know if a business is truly designed to put people and planet before (or alongside) profit? Ideas and movements like Social Enterprise, Triple Bottom Line, BCorp, Shared Value and Cooperatives are attempting to give the answer.

People, Planet & Profit: how far do ideas really go?

While on paternity leave, I’ve had some headspace to grapple with how enterprise design ideas compare. I threw up on Twitter some thoughts, and a discussion unfolded (see thread here):

What emerged is a framework that helps draw key distinctions between concepts like BCorp and Social Enterprise. The focus is on the most fundamental and structural features that determine enterprise design.

Based on my analysis, I believe the following claims are the best way to describe the concepts, certifications and legal forms assessed:

  • Shareholder Primacy: Only Profit Matters
  • Shared Value: People and Planet, if it Helps Profit
  • Triple Bottom Line and BCorp: People and Planet without undermining Profit
  • Social Enterprise and Cooperatives: People and Planet before Profit

There are nuances missing and exceptions within each category. A business with a shareholder primacy structure may be majority controlled by an altruistic shareholder, who uses their power to ensure it behaves like a social enterprise. I don’t account for such optional benevolent use of power. In cooperatives, members (therefore power-holders) could be an already empowered stakeholder (e.g. consumer cooperatives in developed economies) or truly marginalised communities (e.g. low-income workers). My framework doesn’t draw such distinctions. Many BCorps or companies embracing Shared Value will go well beyond what the table implies about their structure. This will not do them justice.

But the framework does help draw key distinctions in comparing the minimum in structural design required by these concepts. The differences are meaningful.

We should all applaud the narrative shift (and positive impacts) all of these ideas are driving. Equally, we need to compare and contrast the ideas that profess to fundamentally transform the business world. I hope this table helps achieve this.

Note to reader: I conducted this analysis in my personal capacity through October 2020 (while on paternity leave). To remain credible, I left out the Fair Trade Enterprise model (the global network I lead as Chief Executive of WFTO – see relevant report here and a talk about it here). Other ideas and concepts were also left out, where they lack concrete enterprise design features relevant to this comparison (e.g. Stakeholder Capitalism, Conscious Capitalism) or are broader concepts that capture multiple ideas (e.g. Fourth Sector/For-Benefit).

Erinch Sahan is Chief Executive of the World Fair Trade Organization. He has spent over a decade on enterprise development, campaigning for responsible business, lecturing on sustainability and researching new business models. His career spans Oxfam, Procter & Gamble and the Australian Government. He holds degrees in law and business, and an honorary Doctorate.

Connect with Erinch on Twitter: @ErinchSahan and on LinkedIn

Faces of the Wellbeing Economy Movement is a series highlighting the many informed voices from different specialisms, sectors, demographics, and geographies in the Wellbeing Economy movement. This series will share diverse insights into why a Wellbeing Economy is a desirable and viable goal and the new ways of addressing societal issues, to show us how to get there. This supports WEAll’s mission to move beyond criticisms of the current economic system, towards purposeful action to build a Wellbeing Economy.