Enterprise in a new reality calls for a kinder, gentler capitalism — a free enterprise system in which employees are engaged in decision-making and where business decisions balance the allure of making money with the need for social good.
In 1957 I got a glimpse of capitalism’s dark side — from a kid’s perspective.
When I was 11 years old Walter O’Malley, the owner of the Brooklyn Dodgers, moved the team to California because New York wouldn’t help him build a new stadium and Los Angeles would.
I was devastated by the heartless decision-making of free market capitalism — although a government buying a new stadium for a private baseball team is not really free market capitalism.
Walter O’Malley moved his team because he felt it was to his financial benefit to do so.
That’s what capitalists are supposed to do.
The disappointed fans have no say.
Unless they are shareholders of the Green Bay Packers football team, the only professional sports team in America owned by its fans.
On August 18,1923, the Hungry Five, so named because they were always begging for money to keep the Packers alive, persuaded the football league to make an exception to the rule that a team must be owned by an individual or a small group of owners.
Today over 360,000 shareholders own more than five million shares of nonprofit corporate stock.
However, during the last stock offering in 2012 a Wall Street Journal headline asked, “Are the Green Bay Packers the Worst Stock in America?”
Despite the fact that a share cost $250, “pays no dividends, benefits from no earnings, isn’t tradeable and has no securities-law protection…buyers can’t get enough.”
A purchase of stock doesn’t even allow stockholders a discount on team T-shirts or move them up the 90,000-strong waiting list for tickets.
A tax expert on Wall Street remarked, “I’ve never seen a stock offering where people pay so much and get so little.”
While nonprofit corporations must be just as business-like as their profit-making counterparts, they have different motives and behaviors than for-profit corporations.
The Packers are the only American major-league sports franchise to release its financial balance sheet every year.
The board of directors, except for the elected CEO, all serve without pay.
If the team dissolves, all profits and assets go to community programs and charities.
Nonprofits are not obligated by law to maximize profits for the benefit of shareholders.
I have helped start and run charitable nonprofit corporations in several countries to conserve and protect open land from development, to provide services for delinquent and at-risk youth, to teach public schools how to reduce violence and to offer master’s degrees in “restorative practices,” a new social science.
An investment group inquired about buying the nonprofit graduate school I had founded but quickly backed off when the investors realized that we had spent eleven years getting approved and accredited and were still building student enrollment to cover all our costs.
That’s what nonprofit corporations accomplish: they do things that people want done but that profit-making corporations would not likely undertake nor sustain.
The concept of a company not operated for profit was once a novel idea.
In 1741 the Foundling Hospital of London was one of the first charitable companies.
Nonprofits in the U.S. got a boost from the Revenue Act of 1917 that allowed taxpayers to deduct charitable contributions to nonprofits from their income tax.
Nonprofit corporations are now responsible for organizing almost all U.S. amateur sports programs.
Since the 1970s U.S. charitable nonprofits have expanded their range of activities, operating social service programs at a local level that are often subsidized by state and federal government monies.
Our own CSF and Buxmont youth service programs were founded in that era.
The growth of nonprofit organizations has created a third sector in the economy, the first and second sectors are profit-making organizations and government organizations.
Nonprofits employ ten percent of the non-governmental workforce in the U.S.
So, what would happen if every local professional sports team became a nonprofit corporation?
Nonprofits are not intended as a replacement for all profit-making businesses, but in the case of professional sports, they provide a good way to run a business that is accountable to the local community.
And that is why the Packers are still playing in Green Bay, Wisconsin, a city of only a hundred thousand, while Brooklyn, with a couple of million people, is no longer home to the Dodgers.
The left criticizes free market capitalism and the right defends it.
Ironically, real free market capitalism is getting harder and harder to find.
What is often called free market capitalism might better be called “crony capitalism.”
Wealthy and powerful individuals and corporations use their money and influence to get special favors from their friends in local, state and federal governments that distort the so-called free market.
Politicians provide tax breaks, zoning exceptions, favorable regulations, protective tariffs, no-bid contracts, financial subsidies, use of eminent domain and even infrastructure projects that favor certain companies or individuals — like support for a new stadium.
In return, crony capitalists support certain politicians with campaign donations.
Corrupt governance corrupts the free market.
The free market, after all, is simply a democratic decision-making mechanism in which people vote with their money.
Their collective purchases, sales and investments influence what is produced, how much of it and how much it costs.
Profit-making corporations that operate with integrity in the free market make significant contributions to the well-being of society.
Besides their obvious contribution of jobs, goods, services and taxes that support society, they often contribute voluntarily to worthy civic causes.
Sometimes they do so because it is good public relations and marketing.
Although they may be part of a growing movement called “caring capitalism.”
Among its pioneers is Ben & Jerry’s Ice Cream.
In 1978, after taking a $5 correspondence course on ice cream-making, Ben Cohen and Jerry Greenfield opened their first store in a renovated gas station in Burlington, Vermont.
Today Ben and Jerry’s Ice Cream is one of the world’s largest ice cream producers.
Since 1985 Ben & Jerry’s has donated 7.5 percent of its profits to charities and provides its employees with good salaries, profit-sharing, health club memberships, day-care service and college tuition aid.
The company seeks organic suppliers, uses environmentally friendly packaging and creates opportunities for economically depressed areas and disadvantaged people.
However, in 2000 the “caring corporation” feared a challenge to its way of doing business when Unilever, the huge Anglo-Dutch conglomerate, decided to buy the company.
Although the founders were reluctant to sell, they felt duty bound to maximize the financial benefit to their stockholders.
In fact, under existing law, corporate leaders are vulnerable to stockholder lawsuits and hostile takeovers if they don’t make the stockholder their sole priority.
That is, until the nonprofit “B Lab” was created to help corporations balance social responsibility and profit.
Several successful entrepreneurs founded B Lab, a nonprofit corporation to serve a global movement of people using business as a force for good.”
B Lab has developed self-assessment tools and a certification process for companies who want to meet high standards of ethical governance and positive social impact.
In 2012, with Unilever’s support, Ben and Jerry’s went through B Lab’s certification process and in doing so, formally joined the caring capitalism movement that the ice cream company itself had inspired.
In the meantime, B Lab invented the benefit corporation — a hybrid corporation merging the social goals of the traditional nonprofit with the financial goals of a profit-making corporation.
The benefit corporation can set goals, in addition to making a profit, and shareholders know this before they buy the stock.
Some critics see the benefit corporation as a threat to shareholder property rights—claiming that it’s socialism.
But all the ownership and decision-making stays in private hands and, in the spirit of the free market, investors now have another choice.
Consumers also have a choice.
Many would prefer to buy from what they consider ethical companies.
Some people believe that all capitalists are inherently greedy.
But that attitude is contradicted by the growing interest in benefit corporations and in B Lab certification, which suggests that caring capitalism may be coming our way.
In 2010 Maryland authorized the first benefit corporation in the United States.
35 states now offer the option.
B Lab Europe launched in 2015.
There are now over 4000 certified B corporations in 74 countries and 150 industries.
And more than 150,000 companies worldwide are using B Lab’s free assessment tool.
So, for businesspeople who are interested in building a new reality for free market capitalism, to “B” or not to “B,” that is the question.
One of the primary themes in emerging organizational management and restorative practices thinking was first expressed in a 1997 Harvard Business Review article: Fair process: Managing in the knowledge economy.
Although the concept arose in a business context, fair process relates to how leaders handle their authority in all kinds of roles, from parents and teachers to managers and administrators.
Professors Chan Kim and Renée Maugborne wrote, “Individuals are most likely to trust and cooperate freely with systems—whether they themselves win or lose by those systems—when fair process is observed.
The three principles of fair process are:
• Engagement – involving individuals in decisions that affect them, by listening to their views and genuinely taking their opinions into account
• Explanation – explaining the reasoning behind a decision to everyone who has been involved or who is affected by it
• Expectation clarity – making sure that everyone clearly understands a decision and what is expected of them in the future
Two contrasting business case studies illustrate the significance of fair process in organizations:
In the summer of 1992, at Volkswagen’s Puebla Mexico manufacturing facility, workers turned down a contract recommended both by their union and the company, despite a generous 20 percent wage increase offer.
The “union’s leaders had not involved employees in discussions about the contract’s terms,” especially a number of unexplained work rule changes that the workers feared.
A massive walkout cost the company about 10 million dollars per day, and disrupted its optimistic plans for growth in the U.S. market.
On the other hand, troubled Siemens Nixdorf Information systems had cut 17,000 jobs by 1994, when Gerhard Schulmeyer, the new CEO, held a series of urgent meetings, large and small.
In these, he personally explained to 11,000 of the company’s remaining 32,000 employees the bleak outlook and the need to make deep cuts.
He asked for volunteers to come up with ideas to save the company.
The initial group of 30 volunteers grew to 9,000 employees and managers who met mostly after business hours, often until midnight.
They offered their ideas to executives, who could choose to fund them or not.
Although 20 to 30 percent of their ideas were rejected, the executives explained the reasons for their decisions, so people felt the process was fair.
By the next year, the company was operating in the black again and employee satisfaction had doubled, despite the drastic changes underway.
It was one of the most remarkable company turnarounds in European business history.
These two contrasting case studies illustrate the advantages of engaging the collective intelligence of large groups of ordinary people in the decision-making process.
We typically think about enterprises where bosses manage by telling people what to do.
However, there is growing evidence that when everyone in an organization has more voice, choice and shared responsibility, the enterprise achieves better outcomes than through top-down management and decision-making.
Morning Star, the world’s largest tomato processing company, has taken the most radical approach to decentralizing authority in enterprise—employees have no bosses.
The company’s centrally located administration relies on staff at every facility to make their own decisions, including hiring people, buying new equipment and dealing with problems.
There are no middle managers.
Reinventing Organizations, a book by Frederic Laloux, a former management consultant, explains key concepts related to Morning Star and similar organizations, which function with “no bosses.”
Laloux highlights the fact that in today’s economy, high levels of trust and decentralized organizational decision-making are advantageous.
Of course, there are many ideas for reforming capitalism, from consumer co-ops to worker-owned companies — all entrepreneurial possibilities that people throughout the world are exploring.
However, the growing innovative spirit within enterprise cannot alone bring about a kinder, gentler capitalism.
Capitalism without democracy is a danger onto itself.
Gains in productivity must be shared, not hoarded by the wealthy few.
Simply look at the numbers
Real wages for the typical worker from 1978 to 2019 grew 13.7 percent.
Compensation for corporate CEOs during those same 42 years grew 1,167 percent.
Since 1949 the wealthiest one percent of Americans have more than doubled their share of the nation’s wealth from 21 percent to 43 percent.
The wealthy pay federal capital gains taxes of only 15 or 20 percent on their investment income while wage earners pay up to 37 percent on their earned income.
These disparities are outrageous and unjust.
Ray Dalio, founder of the largest hedge fund in the world, Bridgewater Associates, warns that “capitalism basically is not working for the majority of people.”
But we know that partisan politicians are not gonna fix it.
We are either stuck with the current disparities or we begin to rely on what is known as the wisdom of crowds.
