You may have noticed that there’s a movement afoot to persuade capitalists to behave better. Persuade is the operative word. The agitators I’m talking about aren’t socialists. They tend not to put a huge amount of faith in regulation. They celebrate entrepreneurship and innovation. But they think something has gone wrong with the way businesses and financial markets behave, and that it has to somehow be put right for the world to prosper again.
Umair Haque and Roger Martin here at hbr.org serve as excellent proxies for the movement. But there are lots of other champions, including seemingly unlikely ones like Michael Jensen, the former hard-nosed champion of shareholder value who now travels the world preaching the indispensability of integrity in business.
As for me, I’m definitely a fellow traveler. But I do have occasional doubts, and they’ve been rising to the surface as I read another example of the genre, Matthew Bishop and Michael Green’s The Road from Ruin: How to Revive Capitalism and Put America Back on Top (full disclosure: Matthew is a friend). The book offers a wonderfully clear and comprehensive account of the economic and financial history of the past half century, and the forces that led to near-disaster in the past decade. But when it comes to the prescriptions, while I don’t disagree with them, I do wonder: is that really going to do the trick?
Consider the list of “10 ways you can fix the economy and build popular capitalism” that Green recently listed on HuffingtonPost: Move your money into a community bank! Put your money in a socially responsible mutual fund! Sign a management oath! Agitate to get TV networks to include campaign-finance disclosures when politicians appear air! Avoid “companies that are all about short-term greed”!
Okay, sign me up for all of that. (In fact, I’m in the midst of applying for a mortgage from Wainwright Bank here in Boston after deciding I didn’t want to go through a mortgage broker who would likely hook me up with some disembodied servicer thousands of miles away.) Still, it’s a bit underwhelming. Can a bit of bottom-up activism here and a touch there really bring a big shift in business behavior?
Yes, you can make the case that good business practices lead to better long-run results than scuzzy ones (although in the long run we’re all dead, or at least laid off). Also, in the April issue of HBR, Chris Meyer and Julia Kirby argue compellingly that, for a variety of reasons, it has become harder for businesses to get away with bad behavior. And as Craig Newmark described the other day, it’s getting harder for individuals to escape bad reputations too.
But I don’t think anyone has come up with an argument for or description of better business behavior that has anything like the elegance and power of the economists’ “incentives matter.” As long as it remains possible to get rich via less-than-upstanding behavior, and enjoy those riches, a lot of people in business will choose that path. That’s an argument for laws, and regulation. Of course, lawmakers and regulators have their own perverse incentives, which is why so many of us are dubious of more laws or regulation. Plus, having too many rules to follow can make us focus more on the rules than right vs. wrong. Clearly, I’m stuck here. Can somebody help me out?
Charlie Rose: Matthew Bishop Interview
Time: 23:24
Improving the Let’s-Persuade-Business-to-Improve Movement
By Justin Fox
Visit Fox’s blog at the Harvard Business Review
You may have noticed that there’s a movement afoot to persuade capitalists to behave better. Persuade is the operative word. The agitators I’m talking about aren’t socialists. They tend not to put a huge amount of faith in regulation. They celebrate entrepreneurship and innovation. But they think something has gone wrong with the way businesses and financial markets behave, and that it has to somehow be put right for the world to prosper again.
Umair Haque and Roger Martin here at hbr.org serve as excellent proxies for the movement. But there are lots of other champions, including seemingly unlikely ones like Michael Jensen, the former hard-nosed champion of shareholder value who now travels the world preaching the indispensability of integrity in business.
As for me, I’m definitely a fellow traveler. But I do have occasional doubts, and they’ve been rising to the surface as I read another example of the genre, Matthew Bishop and Michael Green’s The Road from Ruin: How to Revive Capitalism and Put America Back on Top (full disclosure: Matthew is a friend). The book offers a wonderfully clear and comprehensive account of the economic and financial history of the past half century, and the forces that led to near-disaster in the past decade. But when it comes to the prescriptions, while I don’t disagree with them, I do wonder: is that really going to do the trick?
Consider the list of “10 ways you can fix the economy and build popular capitalism” that Green recently listed on HuffingtonPost: Move your money into a community bank! Put your money in a socially responsible mutual fund! Sign a management oath! Agitate to get TV networks to include campaign-finance disclosures when politicians appear air! Avoid “companies that are all about short-term greed”!
Okay, sign me up for all of that. (In fact, I’m in the midst of applying for a mortgage from Wainwright Bank here in Boston after deciding I didn’t want to go through a mortgage broker who would likely hook me up with some disembodied servicer thousands of miles away.) Still, it’s a bit underwhelming. Can a bit of bottom-up activism here and a touch there really bring a big shift in business behavior?
Yes, you can make the case that good business practices lead to better long-run results than scuzzy ones (although in the long run we’re all dead, or at least laid off). Also, in the April issue of HBR, Chris Meyer and Julia Kirby argue compellingly that, for a variety of reasons, it has become harder for businesses to get away with bad behavior. And as Craig Newmark described the other day, it’s getting harder for individuals to escape bad reputations too.
But I don’t think anyone has come up with an argument for or description of better business behavior that has anything like the elegance and power of the economists’ “incentives matter.” As long as it remains possible to get rich via less-than-upstanding behavior, and enjoy those riches, a lot of people in business will choose that path. That’s an argument for laws, and regulation. Of course, lawmakers and regulators have their own perverse incentives, which is why so many of us are dubious of more laws or regulation. Plus, having too many rules to follow can make us focus more on the rules than right vs. wrong. Clearly, I’m stuck here. Can somebody help me out?