Triple Bottom Line Investing Conference

Rotterdam, 2 November 2000

(conference at Erasmus University, sponsored by United Nations Environment Programme and various financial companies)

Keynote Address: Capitalism - Suicide or Survival?

Sir Geoffrey Chandler

Chair, Amnesty International UK Business Group

I suspect that the question I have been posed is incapable of being answered.  Let me therefore approach it obliquely. 

If a man or woman from outer space were to descend to view this planet objectively, what would they see?     I say man or woman on the assumption that such an enjoyable if contentious thing as gender difference exists out there.   But in order to side-step linguistic booby traps of political correctness I will assume two visitors. 

They would immediately perceive, as we do not, that it is a world unsustainable politically, socially, economically and environmentally.  Politically they would see many countries presided over by governments with no legitimacy, their peoples plagued by civil war and afflicted by human rights violations.   They would see social deprivation for the vast majority of the world population - people in poverty, people ill and hungry, people oppressed, even - in this 21st century - enslaved. 

Economically they would see huge inequalities of wealth, nationally and internationally, a potentially explosive contrast.   Finally, they would see a physical environment increasingly ravaged by the destruction of habitat and climate to an extent that seemed already irreversible. 

This would be gloomy stuff for the visitors. 

But then they would perceive a quite remarkable mechanism.  This was described to them as ‘capitalism’ or ‘the market economy’, its chief instrument being the public limited company.   What this mechanism could do was astonishing to them.   It could deliver goods and services that people needed and wanted on a continuous basis - an endless and bottomless cornucopia.    It dazzled with its technological advances.   It created the financial wealth of nations.   It provided a basis for economic rights.   By its own standards it was an outstanding success. 

But on closer examination they saw it presented a paradox.   In its operations it damaged other forms of wealth; it harmed other rights; it did damage to the human, physical and social fabric in which it worked.    In other words its standards were extremely narrow and appeared to be based simply on money.    Whether it constituted a net benefit to the world seemed questionable. 

So they interrogated me.  “Don’t you care?   Doesn’t your society have any values, any universal standards?   Any principles?” 

“Well, actually, yes”, I replied, “We have a Universal Declaration of Human Rights, now 52 years old.  We have a Convention on the Rights of the Child.  We have an International Labour Organisation with a series of core conventions based on accepted values.   We even have attempts to measure the application of these principles through something called the Triple Bottom Line, or some such name”. 

Being optimists, the visitors immediately saw the answer.    “You’ve got it made” they said.   “You have a marvellous mechanism which works.   You have a set of universal standards.   Just join the two up.   Of course, you had better do something about these wretched governments; but if the mechanism you call capitalism matches society’s values in its operations, while it can’t on its own change your world, it can hugely help it.  So where’s your problem?” 

“For God’s sake” I said in exasperation “Don’t you know any history?   From the moment society accorded companies the privilege of limited liability, those same companies have been resisting the values that society legitimately asks of them.  In my own country companies fought against the abolition of the slave trade and the ending of child labour.

Over the past 20 years or more companies throughout the world have resisted responsibility for their impact on the physical environment.  Every improvement for stakeholders other than shareholders has been forced on companies from without - be it employee rights such as health and safety or environmental protection.  Today, with very few exceptions, companies refuse to acknowledge any responsibility for their impact on human rights, although, as a result of something we call globalisation, their geographical reach and economic and political influence have immensely grown.   Sure, companies ultimately react under pressure; but they don’t initiate change.  That’s why no one trusts companies any more than they do journalists or politicians”. 

“You must all be mad,” said the visitors “And your companies madder than most.  You had better find out why this happens and, when you have, perhaps we will come back and see what you are doing about it”. 

With that they departed, leaving the question Why? on my plate. 

So, why do some of the world’s most sophisticated organisations have to be forced to adopt society’s values, losing reputation and public confidence in the process?    Why today does it need external pressure to make companies adopt policies on human rights which, as with the protection of the environment, they will undoubtedly eventually adopt? 

The first answer must lie in management myopia or tunnel vision - a corporate vision narrowed by living in corporate palaces and talking almost exclusively to fellow executives.   It is a tunnel vision underpinned by a myth and a fallacy.   It is underpinned by the myth of the so-called ‘free’ market - something that must not be tampered with.   The market is of course not free.  It has been constrained over time by the values of society.  These determine the market’s parameters without damaging its basic strength and utility.   And if good companies had the wit and wisdom to see it, they would realise that law and regulation can curb the irresponsible and diminish the danger of undercutting by unprincipled competitors, and the market will then measure things other than money.   Yet corporate leaders, and the institutions that represent them collectively, have a hostile knee-jerk reaction to extending what is already an established principle - a market with moral boundaries enforced in law. 

Tunnel vision is also re-inforced by a fallacy - by a false and misleading perception of the purpose of a company, by a confusion of ends and means which has led to money being the sole measure of performance.  Many business schools teach, many company directors affirm that the purpose of the company is ‘to maximise value to shareholders’.   The satisfaction of shareholders is of course an essential condition of corporate success and survival, but it is a manifest nonsense both in practice and in principle to consider it a purpose.   It is a hopeless guide to ethical behaviour in the complex situations that practising managers meet in the real world.   It is demonstrably unjustifiable to claim that the pursuit of long-term shareholder interest leads to ethical behaviour throughout a company’s operations.   But it is this misapprehension of corporate purpose that lies at the heart of the company’s problem today.   Any thoughtful manager would define the purpose of a company as being to provide a product or service profitably and ethically. 

So long as shareholder interest is the only measure of corporate accountability; so long as financial profit is the only measure of success; so long as money is the only measure of value, business will carry within itself the seeds of its own destruction.  It will prove unacceptable to a contemporary society which has proclaimed its values and expects its institutions to respect them. 

Any answer to the question of the suicide or survival of capitalism will be unclear.  But what I believe is clear is that the seeds of its destruction do not lie in the principle of capitalism, as the demonstrators in Seattle, Washington and Prague would have us believe, but in the manner of its practice.  If it fails to survive, it will have been killed not by forces from without, but from within - by those who most profit from it, that is the companies.   But we as a society will also be responsible for acquiescing in this. 

The challenge to the corporate world is to ensure that its responsibilities match its influence and impact, and to see that the exercise of these responsibilities is monitored and measured.   It requires a new paradigm of thought initiating change from within, rather than responding to pressure from without.  Companies cannot and should not be expected to change the world on their own or to be its moral arbiter.  But if they do harm in the pursuit of profit, if they fail to contribute the good they legitimately can, if they fail to match the values of society, they will be condemned.   They are today a bigger influence than they have ever been.  They shape their own future; they influence the policy of national governments; they influence international economic institutions.  They can either do this selfishly in what they think their own financial interest, or they can do it in a manner which contributes to the general good and so to their own. 

Prosperous companies, profiting a small minority, in a world of exploitation, inequality and human rights violations, whose evils those companies can legitimately help to diminish, is not a sustainable scenario. 

So if our visitors return to see where we have got to, I would say that we are beginning to understand what is required, if all too slowly.   The issues are today on the agenda and this conference is witness to this.  But the terminology still suggests a business philosophy which sees social responsibility as an add-on or an afterthought, not a point of departure.   We have heard of socially responsible investment as a ‘business strategy’ and of ‘the business case’.   Both concepts are amoral, implying you don’t do right because it is right but because it pays.  It may do; but the majority still act as though it does not.  Indeed, the expression ‘corporate social responsibility’ differentiates business from other activities which believe their utility and social responsibility to be inherent in their purpose. 

But let us be grateful for the emergence of the debate.  Let us also recognise the growing engagement between non-governmental organisations (NGOs) and companies as an encouraging development.  NGOs do not uniquely hold the moral high ground.   But if they are any good, NGOs articulate the values of society and offer expertise in areas where companies increasingly face problems, but lack the expertise themselves.    The corporate world needs NGOs.   So too do NGOs need companies which have the capacity to influence change across the world.   It may not be a comfortable relationship and it follows a history of mutual ignorance and suspicion.   It is a learning process for both, but it is vital to the future. 

But I am no nearer to giving a definitive answer to the question posed because both suicide and survival are possibilities and the answer lies in our hands.  So let me sum up and come to an end. 

Capitalism is in principle wonderfully productive.  As practised today by companies it is profoundly parasitic.  It has barely begun to internalise its environmental costs.  It has not even started to internalise its social costs.  It therefore parasitises the weak and poor, not the rich and strong.  This is clearly unsustainable.   If we go on as we are, then suicide is its destination. 

But it doesn’t have to be so.  Survival will lie in the marriage of the corporate sector’s technical effectiveness with society’s values within an international framework of legislation, with a standardised system of reporting which allows the market to judge the total performance of a company.  

We are of course a long way from that goal.   In this most civilised country, in the sophisticated surroundings of a university, it may seem unrealistic to talk of crisis.  But I believe that the emergence of world crisis and the survival of capitalism will both depend on who wins the race between on the one hand the anger of the dispossessed who are the great majority of the world, and on the other hand the ability of business leaders to acquire the wisdom to apply in practice the values that could avert such crisis. 

I am not a betting man.  But history suggests I would be unwise to put my money on the latter.  But we do not have to repeat history.  We cannot change the past, but we can shape the future.   And it is in order to try and avoid the repetition of history that I have felt it worth while standing here this evening, at the cost of my appetite and your digestion, to try and persuade you that we all have a part to play in this. 

But time is not on our side.

end