Capital is largely defined as an instrument of economics that seeks to productively shift monetary resources from a pocket of surplus to a pocket of deficit for a meaningful economic and value creation objective. It is important to remember here that capital is to be seen as an enabler in the larger context of perpetuating purposeful economic growth and not as an instrument of influence, control and power.
Beginning with the economic cycle of industrial revolution, capital acquired a very definitive and narrow description of its objective – use monetary instruments to acquire assets (land, plant, machinery and labour) for producing goods and services. This initial thinking has resulted in a deeply embedded philosophy that monetary flows alone significantly determine the process of allocation, decisions and controls in enterprises.
This imprint has only got further branded in our collective psychology in the past few decades, so much so that it has spawned a new tribe of ‘capitalist cabal’, who seek to exert disproportionate influence, control and access to the highest levels of enterprise leadership. This has given birth and ceded space to the travails of modern day capitalism.
Modern day capitalism is reflective of the excesses, greed, hubris and paronia that seem to have gripped the collective consciousness of business leaders. Capitalism today has come to describe control over enterprise decisions, influencing policy matters, subverting free market principles and creating / distributing wealth for a chosen few. We need not look too far back into history to understand why storied institutions have gone bust and bitten the dust. The remnants of the 2008 global market crisis is still fresh in our minds.
In order to have a more meaningful conversation around the merits of capitalism, it is vital to start shifting the narrative back to purpose, trust and community oriented thinking for sustainable development and creating shared value. This thinking is driving the objectives of Institution Design Group and for leading a conversation through its path breaking enterprise architecture framework for endurance, sustainability and long term value creation.
Capital Formation is an efficient process designed to enable Public-Private Partnerships. Partnerships that are meant to drive collaboration and co-create sustainable economic models for the larger community good. In the process seek to generate long term, reasonable, fair returns to the entire stakeholder community.
In the long road of purposeful capital formation, role of our market specialists becomes crucial. It is imperative they willingly accept and promote a market order / structure that puts premium on “Capitalism With Conscience”. Sooner we bring change to our mental models, the better – it is always desirable to bring in voluntary change rather being forced to make changes.
Capital Formation needs to be viewed through the optics of the broader community orientation. Without considering the interests of all principal stakeholders in the enterprise ecosystem, leadership often make the cardinal error of taking decisions that are short sighted and detrimental to the long term interest of the institution’s stakeholders. There needs to be greater vigilance and awareness of keeping capital with dubious character or misaligned interests, out of an enterprise’s economic system.
At the heart of the narrative for purposeful capital formation, is the growing need to design and develop sustainable economic models. Sustainability is not just about deference to environment and appearing to do good. This is about retaining balance between community good, value creation and the need to generate profits. It is only when broad stakeholder community get invited, involved and connected with enterprise growth that sustainability issues out in its purest form.
Sustainable economic models are about building meaningful connections between various capital pools - Social Capital (Purpose), Existential Capital (Sustainability), Leadership Capital (Value) and Shareholder Capital (Profits) of an enterprise. This defined, meaningful and purposeful capital formation structure leads to establishment of “Capitalism With Conscience”.
How do Ethics connect to Economics? Are there defined methods through which leadership teams can meaningfully establish strong economic models? Do ethical practices and approach create deviation in leadership attention from more pressing economic issues?
It is imperative Boards & Leadership team design, practice and exhibit ethical and meaningful business behaviour for the collective community good. To understand the symbiotic connection between Ethics & Economics, one needs to take a step back to understand the principle role of leadership as it should be.
Leadership is about Trust, Integrity, Governance and Character – you take away these and what is left is an empty shell that seeks to actively promote “conscious deception”. Leadership needs to be seen through the lens of Stewardship, Trusteeship and Guidepost.
When leadership starts to discover its true purpose and stewardship role, it lends greater purpose and support to the enterprise in building internal alignment, deeper engagement and purposeful commitment from all stakeholders. This leads to creation of a rhythm in its operating model that unlocks and bring to forth the true potential of an enterprise. Establishing a continuum in the operating principles of the institution results in culture of excellence and therefore, exponential value creation.
Business and Leadership need to go back to the roots of capitalism to connect “ethics to economics” and promote a culture of Purpose Led Business Architecture that rewards and values long term sustainable growth of enterprises. That means, taking the lead in aligning incentive and linking compensation structures at the highest levels to encourage ethical practices and behaviour.