ESG: The Social Responsibility of Business, UBI, Climate Action, New Thinking and the Future of Multi-Stakeholder Capitalism
Our economic system of Capitalism is at a dire crossroads and is being questioned and under fire from all sides. This should be abundantly clear in the midst of the global pandemic, where small businesses are shutting down right, left and center, while a select few large corporations have stock prices that are smashing record highs, while unemployment is surging, income inequality and the gap between the top 1% and the rest is widening, mental illness is increasing because of these multiple calamities stacking far faster than we can effectively respond, AI and algorithms are increasing dramatically in scope, scale and deployment and causing threats of increasing automation and polarization in America. Wildfires have shown us the very early innings of the severe impacts that unmitigated climate change will have on our planet and people. To say that things are bad in 2020 is an understatement.
Over the past decade, economists, business people (from Employees to CEOs and Shareholders), politicians and activists have been really asking more and more questions about the longevity, sustainability and integrity of a system that rewards big businesses, CEOs, wealthy shareholders and Wall Street but punishes the middle class, small businesses and Main Street.
Before I talk about the cons of Capitalism and the shortcomings of the system we live in I want to talk about some of the pros.
Capitalism has positively
Brought us tremendous advances in Science, Technology, Innovation and STEM related fields
Raised the standards of living and quality of life for billions of people around the world and reduced global poverty by half
Served as the greatest engine of economic growth, entrepreneurship and innovation that we have ever had
However, there are some very serious problems with capitalism today.
The gap between the ultrarich or top 1% and the rest is growing massively. Wall Street, Megacorporations and Wealthy Shareholders have gained a disproportionate amount of economic, political and social power in our world. Robert Reich, the former Secretary of Labor under President Obama has said that capitalism in its current form is unsustainable because “we are lurching toward a capitalism so top-heavy it cannot be sustained.”
The negative externalities of big businesses cause too many social, economic and environmental problems (such as Big Tech being accused of having massive Monopoly/AntiTrust power in today’s digital economy, causing a misinformation crisis, and contributing to declining mental health through addictive social media products). It’s also caused or contributed to the crisis of liberal democracy which led to the rise of Trumpism and even fascist movements globally. Climate change has also accelerated significantly in the past year and is becoming destabilizing in the world.
Most Americans own little to no stock and are not included in the metrics of the stock market and have little to no say thus in our financial markets
Another problem is the growing threat of automation or technological-related unemployment that can further exacerbate problems of income inequality as well as social media algorithms dividing and polarizing our society further. The Pope has urged that AI and robots is used to unite and serve people rather than further divide them and exacerbate inequalities. Tristan Harris, former Google Design Ethicist and star of the 2020 Sundance Festival Film — The Social Dilemma has talked at length about the problems with modern technology companies and social media products as well as the negative externalities algorithms and technology are having on modern society in terms of increasing political, social and economic polarization.
Anand Giridharadas the author of Winners Take All: The Elite Charade of Changing the World argues that many of the people that claim to be saving the world are solving many of the problems they created and many of the wealthy shareholders at the top of the economic food chain stay there through political lobbying and enjoying low taxes.
Michael O’Leary, the author of Accountable: The Rise of Citizen Capitalism says that corporate accountability is at all time lows because “CEOs claim they’re not responsible, because they’re following orders. Shareholders claim they’re not responsible, because they’re too far removed from the actual actions. You have an economy where the buck is passed around and around and around until, poof, it disappears.”.
And there are countless examples in modern business where things become so obscure and so convoluted that they unfortunately become exploited by the shareholders at the expense of stakeholders and where people suffer. The great thing about the digital age however is that true injustices are often brought to light and there is no hiding from the truth especially in the age of hyper-media we find ourselves in. And we can call these out sometimes, to try to change the arc of progress. It won’t happen all at once, it won’t be perfect, but if we all work together and voice our concerns respectfully, then we have a much better chance of building a better world than if we stay quiet.
What Michael O’Leary is also trying to convey is a darker picture of how CEOs and Large Corporations may try to say they work for stakeholders and the broader long-term social purpose of their business but are under constant pressure from shareholders to have good Quarterly Earnings Reports. This constant pressure for short-term profits however often comes at the expense of longer-term purpose and impact.
Luckily, there are alot of CEOs, business leaders and spiritual leaders who are fed up and who care more about stakeholders and the longer-term, broader impact that they have on the world than just short-term profits for shareholders, and QE reports for Wall Street.
Dan Price, the contrarian CEO of Gravity Payments was so sick of low wages for his own employees that he mandated a $70,000 minimum wage and slashed his own salary from $1.1 million to $70,000 to fund it. During the Covid pandemic, when revenues started taking a hit, the thought about doing layoffs crossed his mind, but then he asked his team for a possible solution instead of deciding by himself. They volunteered half a million dollars off their monthly salaries in order to extend runway for several months of the business. And they ended up surviving, and then getting their full salaries back again. If that’s not the definition of stakeholder capitalism and servant leadership, I don’t know what is.
Microsoft and its Chief Executive Satya Nadella have also inspired me alot. Satya Nadella has called for a referendum on capitalism and says that “companies like Microsoft should be measured by the number of jobs and revenue created outside of the company and the economic impact they have on the markets where they operate, as opposed to surpluses generated within a company.” Microsoft also recently announced that it will be carbon negative by 2030 — a bolder promise than most companies who are barely promising to be carbon neutral by then.
Andrew Ross Sorkin, the co-anchor of CNBC’s Squawk Box and Editor of NYT DealBook wrote a great piece on how to holistically think about fixing America from many different perspectives.
Brian Deese, BlackRock’s Global Head of Sustainable Investing and the incoming National Economic Council Director in the incoming Biden Administration, came on Morning Brew’s Business Casual Podcast and talked about institutional reform in ESG and sustainable investing, particularly around climate change and climate risk. Its probably ironic that it’s an example of Wall Street trying to look good in the situation, but Large Asset Managers like BlackRock do have the ability to invest at scale that individuals might not be able to so it’s a start in the right direction, and I expect a tidal wave of ESG investments to be made in the coming few months and years.
Because of the severity of the climate crisis we are dealing with and the societal and economic risks associated with it will be far worse than coronavirus if not dealt with swiftly as Bill Gates has said as well. Bill Gates talks about the technological innovations, business investments, government policies and consumer shifts needed to achieve net zero in carbon emissions in his upcoming 2021 book How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need and podcast with Rashida Jones.
Al Gore talks about how to increase investments and financing in clean and sustainable energy to tackle climate change and warns of greenwashing from oil and gas companies.
Bernie Sanders also talks about the importance of taking bold action on climate change and creating a green new deal, creating high pay jobs in the clean energy sector.
It’s already very late on a lot of fronts, however swift and large investments in ESG and climate investing now can mitigate the effects of climate change and change the course of our future in terms of having more renewable energy, decarbonizing and cleaning up our environment. I’m glad to see major F500 Companies and many Tech Giants pledging to reach Net Zero and Reduce GHG and Carbon Emissions in their supply chains in the next decade and beyond.
There are even many billionaires who are now outspoken about their mixed feelings about capitalism as an economic system and the fault lines within our current system.
Chamath Palihapitiya, an early senior executive at Facebook and current Venture Capitalist of Social Capital has talked at length about the problems of capitalism at large, the technology and venture capital industry. He has said that Facebook is largely having a negative impact on the social fabric of how society functions and has said that capitalism is having many negative externalities and market failures which are unsustainable.
He is now trying to figure out how to deploy capital into certain technologies (like clean energy and artificial intelligence) to serve certain underserved markets to solve the social problems which plague us such as climate change, healthcare and education so we can have longer-term sustainable stakeholder capitalism rather than the short-term profit-driven, cut-throat, winner-take all economy we have currently.
Ray Dalio, the Billionaire Hedge Fund Manager of Bridgewater has also said that “Capitalists know how to increase the pie, but they don’t know how to divide the pie very well”. Bill Gates and Michael Dell are similar successful technology veteran superstars and in that they both believe that capitalism isn’t perfect but no other system comes close to delivering the innovations and economic growth that capitalism has sparked around the world. Jack Dorsey, a younger tech legend and Founder and CEO of Twitter and Square said in a recent interview with Andrew Yang that automation is becoming a serious problem and that Artificial Intelligence will threaten many software engineering jobs as well as it becomes more advanced and that Google and the algorithms and AI running behind its scenes already have a better understanding of us humans than we do.
And Deepak Chopra, a prominent figure in alternative medicine talks about and advocates for above all else healing ourselves through practices such as meditation and becoming the strongest we can be mentally and spiritually because it will allow us to heal others and ultimately build things back much better and more sustainably than we have had in the past with a long-term and values-infused mindset.
The World Economic Forum has The Great Reset Podcast which I highly recommend as well in which they talk about how to build a more inclusive capitalism and build a longer-term sustainable world which works for all stakeholders and not just shareholders. They also talk about short-term challenges we are facing now and the great reset that is occurring because of the Coronavirus pandemic while keeping in mind other challenges on the horizon such as Automation and Climate Change.
Simon Sinek, the Author of The Infinite Game often talks about the leadership and the emotional intelligence that is missing is many leadership roles particularly in the corporate world. However, he talks about the importance of infusing emotional intelligence into leadership in today’s digital age now more than ever because people are becoming more disconnected and losing purpose and meaning. Business should not just be all about shareholder value, KPIs, Revenues or QE reports for Wall Street. And we cannot keep measuring the wealth of nations and our people by the GDP that is largely just controlled by a very marginal elite. This is very difficult, because today we live in a hyperdigitalized and hyperautomated world in which relationships especially in business can feel more transactional and shallow rather than deep and meaningful. We can also all get caught in the hype and glamour of the modern Mad Men techno-business universe in which we only idolize tech elites. Its also difficult because with further globalization and digitalization because of the internet and new economy we find ourselves in, the pace of change is soaring faster than anyone can meaningfully keep up and tech elites are disproportionately rewarded in the modern knowledge economy.
Many of the incentives for the CEOs of the corporations in today’s fast-paced Hi-Tech Business world are forced to invest in more digital technologies for further digitalization, automation and convenience, however the flip side of these incentives is the costs to our own humanity. We are coming under more performance pressure than ever before because of the very technologies we are investing in and we are ending up more polarized, isolated, lonelier and disconnected now than ever before as a result. The technology is just technology, it’s not supposed to turn us into machines or robots meant to serve capitalism. It’s supposed to empower us and make us happier, healthier, so we can pursue our passions and work less. We are supposed to become more human in the machine age and we need to start thinking about what we are doing to people, because many people are getting caught in the crossfire of intensifying competition from automation and globalization.
Leaders must practice servant leadership in which they lead without authority and give more power to their employees and in which they serve and rejuvenate all their stakeholders rather than exploit them for the shareholders. And we are learning ironically, that what’s good for the stakeholders is also often good for the shareholders more often that not. We all just must constantly remember that with humility and empathy otherwise we will not be able to close many of the gaps we see today in terms of equity, social justice, poor mental health and wealth inequalities. We can’t just have one-dimensional leadership in today’s world because that doesn’t cut it anymore. The world is becoming an extremely complex place, and we need new types of spiritual leaders to lead the path forward.
Simon Sinek summed up brilliantly in his book as he has done in several of his talks and podcasts which he has given the reason for the types of breakdowns we are seeing in our society and the reasons why certain people can lead better than others. His most important principle in The Infinite Game is simple - having a Just Cause.
That’s right, simply asking “Why” and questioning more often than not why we make certain decisions and asking ourselves why we choose to do certain things is the most empowering principles. Thinking independently from first principles and questioning, asking why am I doing this, why am I joining this, why is this done this way, why is this other person making that decision. This type of thinking may seem annoying and time-consuming and can be in a world that is very hyper-paced, but it very liberating to do this in a world that is mostly filled with Finite Players playing Finite Games. People do need a sense of purpose, empowerment and belonging not just in their lives but in their work as well because work fills a large part of people’s lives and so the community is also critical because a good community with good leaders creates belonging.
I think its worth it to revisit what Simon Sinek has to say especially in 2021 where we are seeing many of the same problems, fierce polarization, fierce partisanship, fierce tensions and where we are facing many existential problems apart from dealing with the economy to dealing with climate change, and cooperating on handling the coronavirus pandemic response properly, as well as how to navigate our new digital world without losing our connection and empathy to and for one another.
Leaders must practice servant leadership in which they lead without authority and give more power to their employees and in which they serve and rejuvenate all their stakeholders rather than exploit them for the shareholders. And we are learning ironically, that what’s good for the stakeholders is also often good for the shareholders more often that not. We all just must constantly remember that with humility and empathy otherwise we will not be able to close many of the gaps we see today in terms of equity, social justice, poor mental health and wealth inequalities.
Andrew Yang, the 2020 Democratic Presidential Candidate and Podcast Host of Yang Speaks has been advocating for a human-centered form of capitalism, a universal basic income, and a data dividend for the past few years now.
Andrew Yang was really one of the first political candidates to truly understand the transformational impacts that emerging technologies from the 4th Industrial Revolution such as Artificial Intelligence would have on our economy and society from automation to increasing income inequality. He has also previously said that GDP and stock market metrics cannot be the way we measure our economy since they only serve a handful of 1%-ers and we should instead focus on metrics such as wellbeing and mental health which have been declining over the decades for much of the American middle and lower class.
I believe we have definitely reached a paradigm shift during the coronavirus pandemic where large corporations and the wealthy are getting wealthier and the middle class and bottom is getting completely crushed as businesses are forced to rapidly adapt or die under immense pressure.
We need to take his ideas much more seriously because we are still just at the early innings of the 4th Industrial Revolution and we need better ways to create a more fair economic system that doesn’t leave vast swaths of Americans and the population locked out of the economy. Andrew Yang argues that technology companies should be taxed and the dividends should be paid to people so they are able to profitshare from the 4th industrial revolution.
He also says that trickle down economics fails many times and the free markets don’t work in the 21st century because technology has changed the game and skewed it completely to reward only a handful of companies, capitalists and shareholders primarily in the emerging fields of Artificial Intelligence, Robotics and advanced technologies. He has also said that the government has missed the ball on the speed and advancement of technologies such as artificial intelligence and the profound consequences automation is having and is yet to have on the job market and deforming capitalism.
We should invest directly and put money in the form of UBI directly in the hands of people so that they can become entrepreneurs, have more income, invest and build wealth bottom-up.
Scott Galloway, a Professor of Marketing at NYU argues that Big Tech companies which have become monopolies such as Amazon, Facebook, Google and Apple need to be broken up to unleash a new wave of innovation, better technology products, entrepreneurship and create more jobs as well as creating a healthier marketplace.
Futurist Gerd Leonhard has talked at length not only about the pace of change we are going through in regards to technology, but also about the problems that modern capitalism is creating from climate change to wealth inequality. He also says that we need to move our system from just short-term focus on Profits to the prosperity of people and the wellbeing of our planet in a more holistic sense and the only way to do that is to shift our thinking towards more wisdom. We can’t just think about profits anymore or shareholders, we need to think about all stakeholders and we need to very seriously think about our collective future and wellbeing as one human species.