Prof Colin Mayer was the Peter Moores Professor of Management Studies at the University of Oxford. He was the first professor at the Saïd School of Business, and was dean of the school from 2006-2011. He is a Fellow of the British Academy, where he led their 2017 research program into the Future of the Corporation and he is a Fellow of the European Corporate Governance Institute. This book is the third in a series of books looking at the role of the corporation in the economy and society. The first ‘Firm Commitment: why the corporation is failing us and how to restore trust‘ was published in 2012 and explores that role; the second ‘Prosperity: better business makes the greater good‘ (2019) suggests a comprehensive new agenda for establishing the corporation as a unique and powerful force for promoting economic and social wellbeing. This is the third in the series on this topic.
It is no news that the world is facing a wide variety of extreme crises. The UN Sustainable Development Goals offer a shorthand for most of these – they are not all environmental, though those are clearly the most existential ones, and the ones with the loudest clock-ticking. For resolution to these issues, be they poverty, poor health, gender inequality or climate change, we tend to look to governments and multi-national institutions such as the UN, the World Bank and NGOs to bring the answers. But we also know that, outside of the extremes (warfare), it is the large corporations that are the drivers of most change, that have the deepest pockets to invest, and can mobilize the largest workforces – without big corporate on side, real change is not going to occur.
It is against this backdrop that Prof Mayer has written this third book on the subject of the role and shape of the corporation. Governments set the rules in which corporations operate, and the financial markets and the investors (themselves predominantly large corporations) that will influence the direction and decisions of the companies invested in. If we are going to achieve the changes we need to achieve – quickly. Then we need to leverage the power of the big corporations as a force for good.
Few people have a better understanding of the role corporations play in society than Prof Mayer who has been honing his thinking on the issue for over two decades. While this book sees that there is an urgent need for reform, and highlights plenty of areas where the current model of capitalism is failing humanity and the wider environment Mayer is certainly not advocating pivoting away from capitalism; he is a firm believer in the necessity of generating profit, and the efficacy of the corporate model at its broadest.
What he does promote is a significant revision of how profit is defined and measured. His principle point is that corporations are frequently earning profit at the expense of others – whether that is by depressing wages, avoiding taxes and damaging communities and the environment.
He states that “the misrepresentation of profit results in a fundamental misallocation of resources, the rewarding of failure as well as success, environmental degradation….and has led to an erosion of trust in organizations and political systems worldwide.”
Mayer recommends an ethical basis for what is legally and profitably acceptable. The fundamental challenge is to align profit with creating benefits from solving problems, and not with creating detriments while solving problems. Currently profit is largely aligned with the benefits of problem-solving, but as Prof Mayer said in conversation with Ideas for Leaders “the bit that is really missing from the way in which we’ve structured business in the capitalist system to date is to exclude the notion of profit as deriving from creating detriment.” He explains this by tracing a thread of reasoning back to Adam Smith and too much faith in the invisible hand of markets to deliver social benefits. In the 18th century that collective sense may have been possible – today the ultra-competitiveness and thin margins of the global economy mean that, in practice, the financial markets and executive remuneration schemes demand every marginal slice of profit to be grasped, and to be done so within a short-term horizon. The next investor or executive can deal with the consequences.
The book is divided into five parts – and this third volume of the series is more focused on solutions than problem and context – most of the parts are proffering solutions. Part two looks at ‘the Moral Law’ and the avoidance of ‘unjust enrichment’. Part three shines the spotlight on corporate ownership and how it needs to be structured to best enable positive problem-solving. Part four explores the metrics we require to assess organizations and how the problems they create stack-up against those they resolve – at an institutional, national and international level. The final part looks at financing of corporations, which is ultimately where the solution lies.
How much of an appetite for change is there though? If you are on the poverty line in the global south, walking two or more hours a day to get poor quality water for your family, as your livestock die from climate change enduced drought, the time for change is now. For most executives in the global north, life remains pretty good, and the detriment that Mayer describes their companies bringing about in their pursuit of profit is not experienced by them.
In order to actively pursue transformation will require that detriment to be felt closer to home. That will happen in one of two ways – some environmental change that brings disaster to the doors of the well-protected, or regime-change in the form of new regulations and incentives. Clearly, the latter is the more attractive option, and Mayer sets out some clear pathways to achieve those. Are the right people listening? What can you do to foster change?
Title: Capitalism and Crises: How to Fix Them
Author/s Name/s: Colin Mayer
Publisher: OUP Oxford
Publishing Date: January, 2024
Number of Pages: 336