Updated: Mar 5, 2021
Photo by Tony Macías
Regular readers of what I write will be familiar with my argument that we need to evolve beyond the current form of capitalism which is focused on value extraction rather than value creation - or rent seeking as economists call it. Martin Wolf. Chief Economics Correspondent at the Financial Times calls the current form “Rentier Capitalism” for this reason.
Everyone I have ever spoken to agrees that value creation should be the focus of any business or organisation. And in the next breath they ask, “what do you mean by value?” It is a great question.
Yesterday I had a long conversation with a senior partner of one of the biggest consulting firms. We both agreed that in any business conversation it is likely that people will quickly talk about “value” or “value creation”, but rarely will they be able to define what they mean by it, or their default meaning is monetary value and the creation of profits….to be extracted for shareholders most likely.
To emphasise the last point, research shows that in the USA total pay to shareholders increased from around 10 per cent of internal cashflow in the 1970s to 60 percent by 2015, and with the rampant practice of share buybacks recently that trend is likely to have continued. But questions are now being asked because extreme inequality is generating great concern. And because of the rapid decline in levels of social cohesion.
Two questions need to be asked. What do we mean by value, and value for who? These questions are at the heart of the debate we will be having in a series of four online conferences starting on March 15th. The program will grapple with the big issue that has produced heated debates since the 1930s, “who should the corporation serve?” I am referring to the shareholder v stakeholder debate. It is a debate premised on an entirely false dichotomy, in my view. Hence the title of the program as a whole “Beyond the False Dichotomy”, and of the first of the four conferences “Beyond the False Dichotomy: Ending the Shareholder v Stakeholder Nonsense.”
In my opinion primacy should not be given to shareholders, nor any other stakeholder group. The primary focus should be the long-term success of the business. That requires a sustainable business model, based on a clear understanding of what value needs to be created, who for, and by what means. For it to be a sustainable business model it has to create value for all stakeholders including shareholders, of course. But the focus is re-directed, and shareholder value is maximised as a byproduct, as it should be.
To create enough value to satisfy all stakeholders, and to do so profitably - to enable the business to reinvest, innovate, and grow - requires a very clear understanding of what we mean by value. Or, more importantly, what each stakeholder group means by value, as they articulate it. It requires that they be treated equitably, which does not mean equally. The idea of reciprocity and reciprocal relationships is useful in understanding this. It means ensuring relationships are strengthened by ensuring they are mutually beneficial.
That brings us right back to the question “what do you mean by value?”. To date, when speaking about Valueism, which I introduced in an article for the London School of Economics. I have defined value as contributions to sustainable widely shared prosperity, where prosperity is measured in terms of human flourishing and wellbeing. At a macro level that works. It is more difficult to see how that works at the level of a stakeholder group - employees, for example.
As the partner of the consulting firm said to me in our conversation, “there are so many dimensions to value. That makes it hard to grapple with”. He is correct, and economists have been grappling with this since the days of Adam Smith over two and a half centuries ago. He offered the “labour theory of value”. Later economists replaced that with the “market price theory of value”. Neither are satisfactory and, as Marianna Muzzucato stated in her book, The Value of Everything, we really need a new theory of value debate.
As Founder and CEO of the Enlightened Enterprise Academy, I think this is one of the most important issues we need to address to be able to meet the challenges we face today. So, we will soon launch an inquiry to try and establish a “Twenty First Century Theory of Value.”
One idea I want to contribute to this inquiry I call “The Dignity Theory of Value”. The core argument is that the thing we humans’ value most is our inherent sense of self-worth, which is the meaning of dignity. It is strongly related to the idea of “identity”, as noted in the first Chapter of the book Identity by Francis Fukuyama. As such, it is very closely linked to our sense of “being.” It is the thing we most fear losing, or having it taken away. And, it is the thing that gives human rights campaigners their strength to fight for what is theirs, for example.
It is for all these reasons, the notion of dignity is a core concept in every major world religion. And it is for that reason, it was made the first and foundational right in the United Nations Universal Declaration of Human Rights, which almost every nation on earth ratified.
Now that I have made clear the importance of dignity, and the value we attach to it, let me suggest that the Dignity Theory of Value is quite easy to explain. Using it also makes it easy to understand the meaning of value in relation to employees, for example.
Until now, I have argued that value should be defined as contributions to sustainable widely prosperity, and I have defined prosperity in terms of human flourishing and wellbeing. Aristotle called this eudaimonia. I now realise these are just necessary conditions for us to live a life of dignity – to be able to fully realise our inherent worth. And for the realisation of the inherent worth of anything to be realised (human, animal, the planet etc), there need to exist the conditions in which they can flourish.
So, in this context, what I mean by value and value creation is to respect and enhance the dignity (inherent worth) of another (person or being) and to contribute to their wellbeing and their ability to flourish.
What I mean by value and value creation is to respect and enhance the dignity (inherent worth) of another (person or being) and to contribute to their wellbeing and their ability to flourish.
Dignity is the first and foundational human right for a reason. All the other rights concern access to the means and conditions deemed necessary to live a dignified life – access to food, water, shelter, security etc. The link with the Sustainable Development Goals as the means of guaranteeing these rights is clear. But they are all concerned with meeting only the minimum needs for sustainability. They are necessary, but they do not give someone wellbeing or allow them to flourish. They do not allow them to live a life of dignity, but instead provide merely the means to survive, to subsist.
My thinking is partly inspired by some of the ideas in the books Dignity and Leading with Dignity, both by Harvard Professor Dr Donna Hicks with whom I have just developed and delivered an online course in Leading with Dignity. And with whom I am working to establish The Hicks Institute.
Donna speaks of the need for greater Dignity Consciousness. Our levels of ignorance about the concept are surprising given all the importance we attach to it, as I have evidenced above. I hope that in proposing we consider the Dignity Theory of Value as a contribution to the inquiry to establish a twenty first century theory of value, I will stimulate a discussion and greater awareness of its importance of it when defining value.