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- [00:00]
A
Hello, everybody. This is Marshall Po. I'm the founder and editor of the New Books Network. And if you're listening to this, you know that the NBN is the largest academic podcast network in the world. We reach a worldwide audience of 2 million people. You may have a podcast or you may be thinking about starting a podcast. As you probably know, there are challenges basically of two kinds. One is technical. There are things you have to know in order to get your podcast produced and distributed. And the second is, and this is the biggest problem, you need to get an audience. Building an audience in podcasting is the hardest thing to do today. With this in mind, we at the NBM have started a service called NBN Productions. What we do is help you create a podcast, produce your podcast, distribute your podcast, and we host your podcast. Most importantly, what we do is we distribute your podcast to the NBN audience. We've done this many times with many academic podcasts and we would like to help you. If you would be interested in talking to us about how we can help you with your podcast, please contact us. Just go to the front page of the New Books Network and you will see a link to NBN Productions. Click that, fill out the form and we can talk. Welcome to the New Books Network.
- [01:08]
B
Welcome to the New Books Network. I'm Alfred Marcus Edson Spencer professor of Strategy and Technological Leadership at the University of Minnesota's Carlson School of Management, and this is on the cusp where we explore how strategy, ethics and governance intersect in shaping organizations and society. Today I'm speaking with Colin Meyer, Emeritus professor of Management Studies at the Said Business School at Oxford University and one of the leading voices in the global debate about the purpose of the corporation and the future of capitalism. His new book, Capitalism and How to Fix Them, argues that our current model of capitalism is generating repeated economic, social and environmental crises and that the solution lies in re anchoring corporations, law, finance and public policy around a different conception of purpose. Firms that produce profitable solutions to the problems of people and planet, rather than profiting from creating these problems. Professor Mayer, I guess welcome and thank you for joining us. Can you tell us a little bit more about your background, your prior works, and what motivated you to write Capitalism Crisis now and how it fits in and contributes to the ongoing debate about the role of the corporation in society.
- [02:41]
C
Well, Alfie, thank you very much indeed for inviting me to participate in this podcast. It's a great pleasure to do it. I'm a financial economist by background. I was the first professor at the side business school in Oxford in 1994 and a former dean of the business school. Over the last 15 or so years, I focused in particular on issues around reforming business for the 21st century. And I led the British Academy program on the future of the Corporation and chaired the first Government Commission on Corporate Purpose, which was convened by the Scottish government at the beginning of this decade. I've been involved in one form or another in setting up and founding companies, one of the largest economic consultancies in Eurobox era and an energy research company called Aurora. And I've written three books on reforming business. The first one, Firm Commitment, why the Corporation is Failing Us and How to Restore trust in it. The second was called Prosperity, Better Business Makes the Greater Good and the third one, and the one that we're discussing today, Capitalism and Crisis, how to Fix Them. It is the third and I've described it as being final one in the trilogy, if only because my wife insists that it's the end of the trilogy. I wrote this book because both Prosperity and the British Academy program on the future of the Corporation did have a significant impact in promoting a radical change in business. In particular towards the end of the last decade when basically every business was getting a corporate purpose, corporate purpose essentially went mainstream. But what emerged very quickly was that by getting a purpose, what they meant was that they were getting something that was being used as a marketing slogan and campaign for looking good by a company. It wasn't therefore something that was authentic to the business. Turned out that often companies had adopted so called corporate purposes without even getting their board's consent to doing that. And in the process it created a worse problem of erosion of trust and cynicism and skepticism than it even existed before. Skepticism of a form of woke capitalism and purpose washing. And what Capitalism and Crisis attempts to do is to really explain why this is happening and how to solve the problem.
- [06:00]
B
Early in the book you introduce what you call the moral law, a reformulation of the Golden Rule that centers on not profiting at the expense of others. Could you explain the moral law and how is it different from traditional shareholder value thinking and also from more recent stakeholder capitalism language?
- [06:21]
C
Yes. So I believe that a recognition of the relevant moral principles that underpin business is really essential. And the way in which I attempt to do this in Capitalism and crisis is in the context of what is probably the most widely accepted moral principle that features in virtually every religion around the world. It's the Golden Rule. The modern Christian form of the Golden Rule is do unto others what would be done unto you. Now, the original or earlier Confucian and Judaic versions were the negative version. Do not do unto others what you would not be done unto you. And it is this version that I think is in many respects particularly relevant to business and particularly relevant to the arguments that I make in capitalism and crisis. And indeed, I use a somewhat extended version of it, which is sometimes described as being the platinum version of do not do unto others what they would not be done unto them. Now, in the context of business, the way in which I translate this golden or platinum rule is in terms of what I regard as being the fundamental principle that needs to drive how business behaves and that I summarize as being profit without harm. Profit without harm is what I regard as being the business equivalent of the Hippocratic oath in medicine. Do no harm. Now, do no harm is impossible in business because business is doing harm all the time in one form or another. It's having to make hard choices. For example, it's having to make choices between going on being able to retain employees or paying them a higher wage, and having to raise prices to consumers, or about closing down a plant in one part of the world, thereby laying off people and making them redundant to open up a plant somewhere else in the world and employing people there. So business is making hard choices all of the time, which in one form or another, involve imposing harm on some party. But what I'm arguing is that in the process of imposing that harm on some party, business should not profit from doing, should incur the costs of avoiding, as far as is possible, the harm that it's creating, and where it does create harm, than to do as much as it can in terms of cleaning up the mess that it's created. Now, one of the reasons why I think this is an important principle is, in essence, it is the minimum condition that has to be imposed on business to ensure that markets and economies actually function. And a way to think about this is that we advocate the importance of competition in promoting the functioning of markets. But actually competition doesn't function if one doesn't have a profit without harm condition. And that's very simply illustrated by thinking about a company that is seeking to do good in some form or another by incurring the costs of avoiding inflicting harm on others or incurring the costs of cleaning up the mess it's creating. Now, that company cannot compete against another company which is not incurring those costs and inflicting harm which it's not seeking to rectify or remedy. And businesses complain all of the time. About the fact that in practice it's very hard for them to compete against companies that do not operate in a similar principled form. So to ensure that markets do what they're supposed to do and not cause a run to the bottom by which good firms are driven out by bad firms, it is essential that there is an underlying principle that applies in economies and markets around the world that requires companies to profit from solving, not creating, problems for others. Otherwise, it gives rise to a sort of Gresham's law of bad firms driving out the good. So one of the reasons why I think it's extremely important to ensure that a principle of profit without harm prevails is that it then leads naturally to the notion that companies have an incentive to profit from solving, not creating, problems. For people like you and me and societies and the natural world, I think.
- [12:20]
B
It'D be worth talking about specific companies and examples. One that comes to mind is Google, because I think Google Original at one point in time said that do no harm was its slogan. I don't know if it's lived up to that slogan entirely. I'd like to hear your evaluation. And I'd also like to get in a little more into this issue of stakeholders and stakeholder trade offs. He talks about customers, low prices versus wages to employees and how that plays in. And then another thing, when you talk about the race to the bottom, it seems to me that it requires governments to make companies pay for the externalities that they cause. And if there's a lack of enforcement, then companies are encouraged to race to the bottom because there's no consequences for them doing harm and they don't face the costs. So those are a lot of comments, so you can take up one at a time.
- [13:29]
C
Okay, well, let me start off with your first one about examples of companies doing good or harm and Google and indeed I think what are often termed the magnificent seven, the trillion dollar companies industrial, what I'm talking about here. Extremely well. So indeed all of those companies were established by founders who had very ambitious objectives for their company. So let's take the example that you mentioned of Google or Alphabet as it is now founded by Larry Page, Sergey Brin and Eric Schmidt. And they had the ambition of not just creating another Internet search engine at the beginning of this century, but enabling people from around the world to be able to access information from around the world. Now that's an extremely ambitious agenda. And basically what they've been seeking to do over the last couple of decades is to fulfill that. And the latest manifestation of it is basically to make AI forms of access to information available on its various search engines. Now that I think is illustrative of what I'm talking about in terms of seeking to create companies that are solving significant challenges and problems. But the Magnificent Seven also illustrate very well what I'm talking about in terms of the issue and problem of those companies also benefiting from creating problems, rating problems, for example, in the case of Google and Alphabet, where it's being accused of having dominant positions in certain parts of the markets, or in the case of Microsoft or Apple, how it's sourcing some of the resources that it needs to produce its products and be it emitting global warming gases, et cetera, or the one that I particularly want to focus on, namely Facebook matter, I was.
- [16:08]
B
Going to thinking about that myself, which.
- [16:13]
C
I think illustrates this particularly well, because again, when Mark Zuckerberg set up Facebook, he had a very ambitious agenda of trying to allow people to socially network around the world. And Facebook is obviously, and its other manifestations has obviously contributed significantly to that. But in the process, it's also obviously created tremendous problems, not least in terms of the way in which it accesses people's information, uses it without gaining their permission in advance or paying for the use of that data. And more seriously, in terms of the terrible examples there have been of how social networks are creating mental harm and illness for especially young children now, allowing.
- [17:11]
B
Hate speech to be.
- [17:14]
C
And yes, and allowing hate speech to occur on the social networks. Now the issue that all of these examples illustrate is that in terms of creating solutions to major problems, companies inevitably create other problems. That is virtually always what is involved in developing a company. But the critical element of what I'm talking about is to recognize that what a purpose of a business is about is not a sort of state of nirvana. It's a process. It's a process by which companies identify problems to be solved, set about solving them, profiting from doing that, in the process of doing that, recognizing that they are creating other problems, acknowledging that they are creating those other problems and taking responsibility for resolving those problems by incurring the costs of cleaning up the mess of what they're doing. Now, in some of the companies of the Magnificent Seven, there have been precisely those sorts of processes at work. So, for example, Jeff Bezos again had a very ambitious agenda of making consumer products available to everyone around the world through the Internet. And the process of doing that imposed some really very unacceptable working conditions on their employees. Now, that issue Amazon has given serious consideration to addressing. Microsoft is giving serious consideration to how to address the global warming problem and CO2 emissions associated with the demands in particular of AI now. But in the case of Facebook and matter, there's been little if any acknowledgement by the company of the problems that it's occurring and acceptance of its responsibility for cleaning up the mess that it's creating. So what I'm talking about here is a notion of a purpose by which there is an acknowledgement and acceptance and a realization of the responsibilities associated with avoiding inflicting harm on others.
- [19:57]
B
I've done some work with an ex PhD student on this idea of moral development and learning over time that companies reflect upon and have their employees reflect upon episodes that occur and they develop a capacity in the future to learn so to deal with things better so that it isn't just a one time thing. And I wonder also about, and also in my own work I've been thinking a lot about this, but whether companies will do this voluntarily. And that goes back to my original question. There really needs to be strong government regulation to make the consequences apparent so that there's no inclination to try to get away with it. So with balancing, how do you view the balancing of companies efforts on their own and initiative versus the importance of the legal system and the regulatory system to enforce costs when companies betray moral purpose?
- [21:11]
C
Yep, a very important question, and the simple answer to this is that companies will not do this sort of thing unless there is either an incentive for doing them or a repercussion from them not doing it. And so there has to be a form in which there's an alignment of interest within a company to profit without harm and profit from solving problems. Now there are two ways obviously in which one can impose that, either through the use of sticks or carrots. So the immediate response that normally is put forward is to say, well what do you need is regulation? You've got to regulate companies and stop them from doing harm. And of course no regulation has to a certain degree got an important role to play in this. But we now realize all too well that regulation on its own is not an adequate tool. We've been observing how in particular in the United States, but more generally around the world, regulation is regarded as being extremely controversial. With those on the political left saying we need more regulation, we need better enforcement of regulation, and people on the political right saying no, no, no, that's an infringement of liberty and freedom and it undermines jobs, investment and growth. And so a lot of the polarization that we see around the world is a reflection of that controversy and diversity of, of opinion that's observed in societies around the world. So regulation on its own is not going to solve the problems. And as I mentioned earlier on competition and just promoting the operation of markets on its own is not going to solve the problem. So one element that needs to be promoted more is thinking in terms of carrots as well as sticks. And I'll give you some illustrations of how this can be used very effectively. Governments around the world are on average procurers of goods and services from the private sector to an amount of around approximately 15% of gross domestic product. So government procurement is an incredibly important aspect of companies revenues and performance. And it would not be beyond the wit of governments to establish a condition that said that those who want to be on the potential list of providers of public procurement have to establish that as part of the articles of association, the legal obligation on the boards of the companies they set out that their basic purpose is to profit from solving, not creating problems for others. Furthermore, not only can this be done through public procurement, it can be done in the form of public private partnerships, co investments between the public and the private sector. In particular in relation to utilities, it can be part of the charters and licenses of utilities that they have an obligation to ensure that in delivering services to customers and communities that they do not profit from imposing detriments on those communities or, or on the environment and the natural world. So there are a lot of incentives that can be used to achieve this. But there's one element that is absolutely critical in thinking about its adoption by companies. Because it's not just a matter of saying that the board of a company has to be aligned with fulfilling this. That will not happen if at the end of the day, the owners of the company, the shareholders of the company, do not also see this as part of their fundamental objective. And so thinking about what are the ownership structures of companies that really promote an alignment of interest of firms with profiting from solving, not creating problems is an essential element of this. And we might now perhaps go on to discuss how this has been effectively done in some parts of the world. And what sorts of ownership patterns are particularly well suited to promoting precisely what I'm talking about.
- [26:25]
B
Talk about that, because that seems to be a major obstacle even personally as a shareholder and as I'm aging and I think about my assets and what I invest in, it becomes very critical for a person like me to think about wanting to maximize my returns rather than simply thinking about what the company is doing that I'm investing in. Although I'm very sensitive to that. I had Stuart Hart. I don't know if you know about Stuart. I did a podcast with him about this and he brought up that conflict as well. I guess because we're all aging and we face it very directly. Yes, I really like to hear what you say about shareholders.
- [27:19]
C
So one of the features of shareholding around the world is that the nature of the ownership of companies varies appreciably. If one picks up a finance textbook, in particular a US or a UK finance taxbook, one might be excused for thinking that basically all corporations around the world are listed and traded on stock market, owned by little shareholders like you and me as individuals, or by these asset management firms that have vast portfolios of of shareholdings, highly diversified across companies and dispersed amongst many investors in those asset management firms. Now that to a large extent is an accurate description of my country, the UK and to a somewhat lesser extent of your country, the us.
- [28:23]
B
The Anglo Saxon model.
- [28:25]
C
It's essentially the Anglo Saxon model, but it is certainly not the most common or widespread form of ownership of companies around the world. By far and away, the most common form of ownership of even the largest listed companies around the world is that they have dominant shareholders, shareholders that have substantial blocks of shares of 25% or majority shareholdings in companies. And the most common holders of those blocks of shares are families. Family ownership of even the largest firms is the most dominant form of ownership around the world. And state ownership is another form of block shareholding in some parts of the world. Now, the important aspect of that is it means that actually the sorts of objectives that you and I might have in terms of investing in Vanguard or Blackrock, et cetera, are in terms of simply earning the highest possible rate of return at the lowest level of risk is not necessarily the dominant objective of those who are controlling the largest companies around the world. And in particular, it's frequently suggested that family owners have a particular focus on the long term performance of their companies, because the nature of ownership of family companies is that they're intergenerational in nature. And that then gives them a natural focus on viewing financial value creation over a long term, a multi generational horizon. Now that's one illustration of how the objective of a firm can be significantly influenced by the nature of, of its ownership. But there's one particular example that I'd like to focus on as being, I think, particularly relevant to addressing precisely the issue that we're talking about, and it happens to be associated or most commonly found in one of the most successful countries in the world. It's a country which happens to have one of the highest levels of GDP per capita, one of the lowest levels of inequality, one of the best employee relations, lowest levels of corruption. And it's one of the happiest countries in the world. And the country happens to be Denmark. Denmark, okay. And one of the reasons for that is the nature of, of its ownership structure, the ownership of its companies. It's not just that it has family owners. In particular, it has a form of ownership that is known as enterprise foundations. Those are companies that not only have foundations, many companies have foundations that are used for charitable purposes. Those enterprise foundations are actually owned by or have a controlling shareholding, that is a foundation. They're in essence owned by a charity. Now, the reason why that is important is that it means that those companies not only have a focus on the long term because they have a large stable shelving, namely the foundation that controls the business over the long term, but also the objective of that owner is not simply to promote the well being of the family, as in a family business, it's to promote the charitable objective of the foundation. So that gives a natural alignment between the purpose of a business and in terms of solving problems and what the main owner of the business is seeking to do. So that creates precisely the sort of alignment that I'm talking about between a purpose of profiting from solving problems with the interests of us as individuals, societies and the natural world.
- [33:05]
B
There'd be so many questions arising in my mind, but what about Novo Nordisk? Is that owned by a foundation?
- [33:13]
C
It is indeed. It's the largest example of an enterprise foundation. And its success is in part illustrated by the fact that Novo Nordisk foundation is one of the largest foundations in the world, alongside for example, the Bill and Gates, Bill and Linda Gates foundation and the Wellcome Foundation. And it's also reflected in the fact that Novo Nordisk is an incredibly successful company. It has as its objective or its primary objective to defeat diabetes. It's a producer of insulin that's used in the treatment of diabetes. And it's recognized that its purpose should be to solve the serious chronic diseases of the world, of which diabetes is one example. Its purpose includes trying to deal with obesity. And you may well be aware of the fact that upheld Novo Nordisk to being one of the most valuable companies in the world and for a period the most valuable company on the stock market. It's yours.
- [34:45]
B
It slipped a bit recently.
- [34:47]
C
Was it weight losing drug? Now, as you're suggesting its stock market performance from those heady days of being the most valuable company in Europe gone somewhat awry insofar as its stock market value since then has diminished by some 70%. 70%?
- [35:16]
B
Yeah. I'm an investor, I've experienced this.
- [35:19]
C
You've experienced this? Absolutely. Now the interesting thing about this is does this disprove the benefits of having a foundation as an owner of the company? The answer is exactly the opposite. Because any widely held UK US company that had suffered a 70% decline in its stock market value would not exist in its current form today. It would have been subject to a hostile bid, a hedge fund activist coming along, basically cleaning out the board, et cetera, or it would have gone bankrupt. That has not happened. In the case of Nordvin Nordisk, on the contrary, the company still very much exists and it's coming out with innovative ways of resolving the issues that have arisen and finding ways of powering its fundamental purpose of solving chronic diseases. In other words, what that ownership does is to give the company a North Star. A North Star that helps to see it through the toughest of times. Times where other companies would simply be knocked completely off stream in terms of that underlying purpose. And that's the very important aspect of what I'm talking about here. The notion that a purpose is something that overlays the strategy of a company and gives it a long term realization as to why it exists, why it's created and its reason for being, and not losing sight of that. And it is that which drives the most successful companies in the world.
- [37:18]
B
This may also depend a great deal upon the laws that are in place for incorporation. So in the United States, the classic Milton Friedman formulation of maximize shareholder returns, everybody forgets that he also said, within the constraints of line ethics, which he never really completely develops very well. But the laws in the United States I don't think encourage that kind of ownership as much. Classically, for example, in Europe, in Germany, as I understand it, there's this idea of co determination and there's representatives of labor on and within corporate governance. For this to be realized, I think in the United States you would have to have a fundamental change in corporate law. And secondly in the United States, I think there's trends going on right now towards private equity. So the number of firms that are actually transparent and are traded publicly has gone down, I think by about a half. I think the numbers that I recall when private equity takes over companies, they're even less regulated than they are when they are public. So you'll probably see all that.
- [38:42]
C
So I mean, the first thing to bear in mind is that foundation owned firms are by no means unknown in the US. Indeed, they were very dominant in the US until the 1960s. And there's one very prominent one that still survives to this day, namely Hershey. And the reason why they disappeared in the US is not that corporate law was fundamentally inconsistent with the existence of, of enterprise foundations, but that they had not got an appropriate regulatory structure around them that ensured that they didn't do what they ended up doing. And that is simply using this as a tax avoidance vehicle. And that's what then led to the undermining of these enterprise foundations in the us. Now, the nature of the Danish example illustrates that actually it's not the ownership structure that's the problem, it's that you need to ensure, of course, that there's a proper mechanism for ensuring that those who set up enterprise foundations do not abuse their privileged position. Exactly as you have a system that ensures that foundations, charitable foundations in general, do not abuse their privileged position. So what Denmark illustrates is the use of corporate law, which is no different from how it is basically in the UK and the us, but with a form of ensuring that when companies actually use vehicles such as foundations, that those foundations are appropriately regulated. Now, in the case of the US and the uk, there's nothing within the laws in either of those countries to prevent companies from really establishing purposes and putting in their articles of association that state that their objectives are to profit from solving, not creating, problems for others and to set up the governance structure and stewardship arrangements for ensuring that's the case. That's not the issue. The issue is, is this something that is regarded as being a desirable objective for companies to have? And that is where Denmark and many other European countries that are now seriously looking into adopting this more generally as being a model for European companies. To what extent is this being promoted as being a desirable objective for companies to have? And in the case of the UK and to a certain somewhat lesser extent in the us, the emphasis has not been on that. The emphasis in both our countries, but particularly in the UK has been on something else, and that is protecting minority investors. And protecting minority investors has been confused with the idea that having blockholders is in conflict with protection of minority shareholders. To give you an illustration, for example, in the UK it was impossible for a company to be what was termed a premium listed company on the stock market and have a controlling shareholding that was thought to be inconsistent with the objective of, of protecting minority shareholders. What one has to recognize is that the right way of protecting Minority shareholders is not to prevent companies from having the right form of ownership. It is to realize that actually the way in which companies that are well run do this is to ensure that those dominant shareholders have an interest in, in promoting profitability on behalf of all of their shareholders, including their minority shareholders, but through solving, not creating, problems for others. That is exactly what Novo Nordisk is seeking to do. That is precisely why it has been so successful in creating financial returns for its shareholders.
- [43:51]
B
I understand in the United States there's huge amounts of different among publicly traded companies and the degree to which they have concentrated ownership or they don't have concentrated ownership. And oftentimes if somebody, if a company has like 5% concentrated ownership, that's considered very high. But the question I would like you to address though is like, what about pension funds? And even like university endowments, which oftentimes do constitute a higher percentage of the ownership of publicly owned and traded firms in the United States, but they also have this conflict, like a university endowment today has. There's tremendous pressure on them to maximize returns on a yearly basis. And you could even say that that's an appropriate goal for them to have because they are carrying out important functions. How does that all work? And the other question I want to get back to is like the film, the dissolution of even the publicly traded company in the United States, the private equity becoming so dominant. And private equity seems to me, by and large operates with, with fewer constraints than even publicly traded companies, at least with regard to transparency and how they, let's say, approach workers in general and the layoffs that they cause and the disruption in communities and so on. So where are these broader system issues that are taking place right now?
- [45:31]
C
Okay, let me start off with your question about pension funds and then come on to the issue.
- [45:36]
B
Yeah, right. I threw a lot out there.
- [45:40]
C
So, in regard to pension funds, they obviously illustrate what I'm talking about extremely well, because pension funds have beneficiaries like you and me who have a very long term horizon. And we're looking to create long term value from the investment that the pension funds manage on our behalf to fund us during our retirement. So the natural focus of a pension fund is to create returns for their shareholders, but to ensure that the returns that they're creating are indeed over the long term. And the one thing that a university endowment, particularly at the present time, is seeking to avoid is a significant crash in the value of their assets. And so the notion of a pension fund seeking to create long term returns that are sustainable in nature and not Subject to the risks associated with the revelation of problems is absolutely critical to the way in which a properly managed pension fund manages its activities. And indeed many of the pension funds do an excellent job of doing that. And you talked about university endowments. I happened to sit for quite an extended period of time on the valuation committee of the OXO pension fund. And that was absolutely essential, objective and concern of the trustees of that pension fund, that they were seeking to generate returns that were as high as they could be, but in the context of them being sustainable long term returns for the beneficiaries of those pension funds. And in the US a feature of the pension fund industry is that it's a combination of both private pension funds and publicly owned pension funds such as CalPERS, which are in a particularly good position to take, if you like, a contrarian view about investment strategies that might perhaps focus on what are termed universal owners, that's to say, investors that hold global portfolios essentially of shares around the world and to impose stronger stewardship and governance standards on their investee companies. In many respects, that's what Culpers has been seeking to do. So I think in many respects the pension fund industry illustrates extremely well the nature of the issues that I'm talking about. Now let me turn to your point about private equity and public equity university.
- [49:05]
B
Endowments, which are separate from their pension funds. The Wall Street Journal and the Financial Times always report how well they do in comparison to each other. And they're paying a lot of high priced analysts to maximize returns. They're sort of in a competition. It's often very short term oriented. I think today.
- [49:26]
C
Okay, okay, sorry. When I was talking about Oxford University, I was actually talking about sitting on the valuation committee of the endowment of the endowment.
- [49:37]
B
Okay, okay, yeah.
- [49:39]
C
And. And that really was a feature of what the university wanted for its endowments. Because it's no good if the endowment of US or UK universities suddenly collapsed. So this focus on the long term returns and sustainable returns is as much a feature of university endowments as it is of pension funds. So I fully take the point that they're advised by asset managers. And indeed there were a whole set of asset management and private equity investors that were advising. But that is in the context of the trustees of those endowments, really looking to create long term sustainable returns for their universities.
- [50:41]
B
Yeah, but that's real value. But what about private equity? This gigantic move towards private equity that's occurring and really fundamentally changing the nature of, I think, capitalism in the United States? I don't know the exact Numbers as to how much is. But the numbers of companies now that are privately held has gone up, yeah.
- [51:06]
C
Dramatically in many countries around the world, including in the uk, Europe more generally, and recently particularly in Japan. And private equity.
- [51:20]
B
Is.
- [51:22]
C
An important component of the way in which our financial markets now operate. Private and public ownership. And public ownership, I mean in the sense of listed companies, not in the sense of state ownership. So both private companies and public ownership are extremely important. Private companies are established by, as I was describing in the case of how some of the Magnificent Seven started off, by very purposeful founders who have a very serious sense of purpose. And so the private corporate sector is an extremely important element in terms of establishing and identifying the purpose of a business. Typically what happens is that as the company grows, it sells off some of the shares the founders sell out and it begins to lose that sense of purpose. Now, private equity companies, in the sense of those companies that take large blocks of shares into in companies, frequently have as their objective to restructure either existing private companies or publicly listed companies. And in some cases they're performing a very important function in terms of doing that. In some cases they are heavily focused on short term returns at the expense of, of the long term objective. And one of the concerns that exists in relation to hedge fund activists is precisely that that in essence what they're doing is to generate high returns for shareholders that may come at the expense of the long term purpose of business. That is exactly why the parallel types of ownership that I was describing in relation to both family companies that are listed and also these enterprise foundation companies like Novo Nordisk that are also listed on stock market, but in both cases have long term stable shareholders in the guise of families or foundations are extremely important because it's saying that the stock market is not unimportant. The stock market is incredibly important in raising capital and providing mechanisms for incentivizing people within businesses and therefore allowing problem solving to occur at scale. Now a major problem that companies that do not have access to stock markets have is in terms of really scaling up. So an access to a stock market is critically important, but in the context of where a company can retain its focus on its long term purpose, the most successful companies in the world are those that combine the benefits of being publicly listed on the stock market with having a private dominant owner in the firm. Form of a family of foundations which combine the benefits of stock market's access with that of a long term purposeful business. That is the sort of model that I believe is emerging that is increasingly being realized to be the most effective way of running a business and a way that is conducive to. To creating benefits that are in line with what at least some of the more enlightened governments around the world are seeking to do.
- [55:33]
B
In terms of timing. And I'd like to get off to another subject, and I guess there's one other question I could ask about. What about reputational damage and the ratings that are often done of companies? Do you think that. How much does that really affect companies and can that play an important role? I guess it's really. Ultimately what will lead companies down a better direction is a combination of factors. It's really a system. So it's not simply ownership and it's not simply regulation. And there are a host of factors. What do you think of ratings as a tool?
- [56:16]
C
So let me just emphasize that reputation is an absolutely critical area. One of the greatest concerns that afflicts boardroom discussions is the risk of a social media campaign against a company that can erode immense amounts of stock market value overnight. And so regulation may have a role to play, but increasingly, what is having a much more significant influence is concerns about social media campaigns that could appear from nowhere. Now, that is having a dramatic impact on focusing companies, on trying to predict where such problems can arise. And this notion of ensuring that you're not profiting at the expense of others is a key element in terms of preempting the risk of a social media campaign being launched against a firm. So it's a very good illustration of how regulation and the traditional tools are being superseded by the way in which technology is allowing people to really evaluate what companies are doing and to be able to influence what they're doing through making their opinions known. So technology, for example, is now making it possible to use satellites as a way of identifying the state of an individual tree or plant on earth to determine the extent to which it's being afflicted by pollution, to determine where that pollution is coming from, and to be able to synthesize all of that data in a form of. That allows one to attribute what a company is doing to the impact that it's having on the natural world around us. Going forward, we're going to be seeing that sort of technology combined with blockchain technology, which allows one to really identify what's going on throughout the supply chain of a company, together with social media, which will allow companies to determine what their employees really think about them. And for employees to be able to. To use their knowledge of companies to influence how companies Behave. We're going to see those technologies transforming the incentives of a company to ensure that they are creating value from solving, not creating problems.
- [59:13]
B
Rather, I want to get probably three more questions someone asks. One is have you followed Bayer and Monsanto? I followed Monsanto for a really long time. I think that that's what would you advise the top management team of BEAR at this point in time. Because on the one hand you have this incredible corporate purpose of feeding mankind and reducing hunger and food insecurity and having the technology to do that. But on the other hand you've had this incredible social media campaign and activist campaign against Monsanto from almost its inception. And now Bayer owns the company and Bayer owns all the liability that's accumulated the court liability from the roundup cases. How does it explain itself and how does it proceed given this? The both the extreme positives that a company like Monsanto has in the anime extreme negative reception it is received for, you know, since the 1990s, really since it started getting into biotechnology and in a serious way.
- [60:28]
C
So food is really perhaps one of the best illustrations of what I'm talking about because we're increasingly recognizing that the food companies of the world in many cases are through ultra processed foods potentially causing serious detrimental health consequences for all of us. And the food industry is increasingly realizing that it risks becoming the next cigarette industry.
- [61:07]
B
Yeah, Pepsi is a big company like that. Snacks, sugar, salt and fats. That's what it sells.
- [61:15]
C
Yeah, exactly. Those are precisely the types of products that are most at risk. And this is a very good illustration of how companies that were doing things that a few years ago would be regarded as being highly desirable, they're allowing us to snack, to enjoy foods quickly and cheaply and often associated with some form of social interaction are now being vilified for essentially poisoning us. And the cigarette case illustrates precisely how not to handle this. And that is to essentially deny that there's a problem and spend vast amounts of money trying to demonstrate that there isn't a problem instead of really recognizing that there is a serious issue that needs to be addressed and a way needs to be found of solving this problem. Now these types of foods and things like alcohol and gambling fall into a general class of products known as the sin stocks. Companies that are profiting from creating serious detriments. Now the response to those examples is not to say that they should simply be banned or they don't have a reason for existing. They are trying to serve a market through providing access to cheap, enjoyable, often social enhancing activities like gambling or drinking. But they're also creating immense harms. And those are precisely the best illustrations of companies that need to recognize that there are benefits that they are conferring, but they're also profiting from creating immense harms. And they cannot do that. They have to incur the costs of finding ways of being able to provide the benefits, the enjoyment, the socializing, et cetera, associated with their products, but without the harms that they're inflicting. And that is precisely, like it or not, what the food industry is going to have to do in this regard going forward. And unless it does that, it will suffer exactly the consequences that the cigarette industry has suffered.
- [64:00]
B
Many of the food companies now are doing poorly on the stock market. They've had a really bad run the last, I think, 18 months or so. Let's go on to There are two things I want to get at. And then what about business schools themselves? And I've been a business school educator for more than 40 years. I don't know how long you've probably been been physics school educator for a similar amount of period. What can we do within business schools to change curriculums, to change the way we approach it? What do you have any ideas and that you were the dean?
- [64:40]
C
Yeah. So I helped to set up the business school in Oxford from three of us to know an organization that's got about 600 in it.
- [64:49]
B
And so it's a wonderful reputation too. Right now. It's really become a great business school.
- [64:56]
C
Yes. But to answer your question about business schools in general, the problem that business education has had is that it should really be at the vanguard of bringing forward ideas as to how to address these issues and how to promote the types of businesses that I've been talking about. But for the most part has been at the rear guard. It's been very much lagging in terms of its response to what's been going on in the world. And there are a whole series of reasons for this which I won't go into. But as a consequence, it's still largely the case that business school courses start off by saying the purpose of business is to maximize shareholder value. And everything accounting, finance, marketing strategy, operations management, et cetera, follows from that. Now, that, I think, is precisely the wrong way of structuring a business education. It should start off by posing the question, what is the purpose of business? Why do we create businesses? Why do they exist? What is their reason for being? And everything should follow from that. And if businesses do that, they don't undermine their ability to be able to attract students or to place them in the highest paying jobs, they do exactly the opposite. Now just think about an entrepreneurial education. An entrepreneurial education is all about how to build a business around its purpose. If you haven't got a purpose when you start off, you're not going to create a very successful business. And then it's a matter of how do you manage and finance to create a growing, thriving business that creates value for its investors by solving, not producing, problems for others. So it's very much a driver of what creates successful businesses and also the types of people that businesses are now seeking to recruit. Because increasingly around the world, in particular in Europe and the Far east, there's a recognition that the nature of business is changing, needs to reflect what's going on in the world and the future business leaders are going to be able to be expected to manage those companies and to lead them. So the notion of a problem solving purpose that oversees the strategies of a business is precisely what the CEOs and the CFOs of companies, not CSOs, just the CSOs the corporate sustainability offices are looking for. Because it's increasingly being realized that the purpose of profiting from solving problems is the way in which they get the attention of their investors. Because investors are looking for companies that are going to create long term financial value from solving, not creating, problems for others. So this is a way of creating business schools that are really relevant to what students are looking for, what businesses are increasingly looking for, what the leaders of businesses are looking for, because that's what their investors want to have.
- [68:45]
B
Solving problems is a beautiful way of conceiving of what the corporate purpose should be. I really like that a lot. What are you working on right now? You said this is the last of the trilogy, but you must have ongoing projects. Want to talk a little bit about that?
- [69:04]
C
Yeah. So indeed I have many ongoing projects and indeed my primary objective at this stage is really to promote the implementation of these ideas by businesses, governments, policymakers, investors and thought leaders. I'm increasingly finding that the most successful and most enlightened businesses around the world really get this and understand why it is so important for them. And I want every business and every investor around the world to get it as well, so that all of those businesses and investors are also the most successful and useful businesses and investors we can have. That's my current objective.
- [70:01]
B
Are you optimistic in the current environment or sometimes I get very pessimistic.
- [70:07]
C
I'm extremely optimistic, if only because for the reasons that I was mentioning earlier, on the direction of travel in terms of what people see as being the objectives are shifting very much in this direction. Secondly, that, as I mentioned, technology is really helping rapidly to make this a reality. And thirdly, because what's happening in America at the moment is only having the effect of making other countries around the world realize all the more how important this agenda really is. And it's opening up precisely the space in this area which previously the US was occupying and now the rest of the world really recognizes as a fantastic opportunity to occupy. When I say the rest of the world, I'm speaking not least of, for example, China and Europe, that recognize that as America moves out of this space, they can move into it.
- [71:19]
B
I'm often these days very impressed by China, though I have no sympathy whatsoever for its authoritarian elements, but with the way they've transformed their society and solved problems is just fantastic. There's a book out that just came out that I think has a very provocative and interesting thesis, you've probably heard about it, that the Chinese elite is governed by engineers, and for every problem, it's a simple solution. Let's build something in the United States where our elites are lawyers. And for every problem is how can we stop anything from happening? Because there's some kind of legal precedent that stands in the way. How do you approach China? Because I think there is. Is it a benevolent dictatorship? Is that what we should. How we should characterize it in some way? Because a lot of what it's done is extremely impressive.
- [72:25]
C
I don't regard eliminating democracy as the solution to our problems.
- [72:34]
B
Neither do I, by the way.
- [72:36]
C
What I am seeking to do is to provide a mechanism by which capitalism can ensure that democracies survive. And indeed, one of the reasons for human rights.
- [72:50]
B
Yeah, go ahead.
- [72:51]
C
One of the reasons for promoting this agenda is that I think that the way in which business is currently being run is posing immense problems for our democratic system. It's putting almost uncontrollable demands on democracy, as illustrated by what I was talking about earlier on in terms of the polarization of society, the rise of populism in large part prompted by what business has been doing to societies and the environment around the world and the levels of inequality that have arisen. Democracies are simply not in the place to deal with or in many cases, fund the consequences of that. So I regard this as being an absolutely essential way of ensuring that we can have the sorts of prosperity and problem solving that is associated with countries like China, together with the type of political systems that we've had and should go on having in the West.
- [74:06]
B
I hope that your dreams come true and that my worst fears do not. Thank you very much, Professor Mayer. Thank you for this wide ranging conversation about capitalism's crises and how we might fix them. Capitalism and Crises how to Fix Them offers not only a powerful diagnosis of why our systems are failing, but also a detailed blueprint for a problem solving capitalism grounded in purpose, law and institutional design. For listeners, I'm Alfred Mark and this has been on the cusp on the New Business Network where we explore how strategy, ethics and governance intersect in shaping organizations and societies. If you have comments or suggestions for future podcasts, please be in touch. My email is amarcusmn.edu. amarcusmn.edu. Until then, stay curious and keep learning.
- [75:02]
C
Thank you very much indeed, Alfie, for inviting.
- [75:05]
B
Thank you for doing this.