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Charles Hampden-Turner
in China by

A new kind of capitalism

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Global experts Charles Hampden-Turner, Tom Cummings and Fons Trompenaars re-conceive the notion of a free enterprise by introducing the growing popularity of recombinant capitalism.

Capitalism has not failed. One kind of capitalism is failing and is being rapidly overhauled by another kind, witness China, India, Brazil and much of the Pacific Rim.

What is going from strength to strength is recombinant capitalism, a series of voluntary shifting alliances among companies, employees, customers, suppliers, investors, banks, educators, the government, the community and the environment.

Such recombination is built on ethical relationships among these parties, which must be fair, equal, trustful, transparent and reciprocal in order to generate wealth effectively.

The continuous improvement and recombination of these relationships develops the entire industrial ecosystem, and the whole network of innovative partnerships.

Jack Welch, the retired head of General Electric, called the maximising of shareholder wealth “the dumbest idea in the world.” He should know! It is what he tried to accomplish with America’s largest engineering company for more than twenty years.

The idea that the more money you give to owners who take it out of a company will somehow benefit all interested parties needs to be examined and challenged.

Jack Welch, the retired head of General Electric, called the maximising of shareholder wealth “the dumbest idea in the world.”

Why recombinant capitalism is better for shareholders 

The power of clustering around stakes in the enterprise is that it pays most attention to the most important groups.

If a company is to improve quality, increase productivity and innovate, then only employees with the help of suppliers and customers can do this. To leave them at the mercy of those buying and selling whole companies so as to make dealing profits can be disastrous.

If we concentrate not on making money but on creating wealth, then we soon discover that this happens, if at all, between clustering stakeholders.

For example, components of silicon and metal are needed to make a silicon chip, but how much more is this worth than its ingredients? It could be one thousand times more!

When the supplier sells it to a car-maker who uses it to prevent brakes locking, or to open the doors of a car during an accident so that occupants can escape, how much more valuable has it become? And when the purchaser of a vehicle finds his/her life has been saved, what is that worth?

But note all this has been created between the supplier, the company’s employees, between the employees and the customer and between the customer and the final consumer, all of whom are parts of the cluster and all of whom better off than before and all of whom can share the wealth they have created in proportion to their skills.

If a company is to improve quality, increase productivity and innovate, then only employees with the help of suppliers and customers can do this.

Or consider a relationship to government. It is fashionable to say we need less. But Britain’s two surviving high technology industries, defense and pharmaceuticals, rely on procurement by the Ministry of Defense and the National Health Service respectively and would not exist without them!

Google grew out of the Internet, another government initiative and all internet providers owe their existence to the net. Governments provide such infrastructure, set the rules by which we compete and help set the agenda for the nation.

ALSO READ: Learning from China’s spectacular growth

Johnson and Johnson is the best known exemplar of recombination. Its credo, first pronounced in 1943 is: “Shareholders come last.” This does not mean that shareholders are least important. It means “last in time.”

First managers must inspire their employees, then employees must delight customers, then customers must buy even more and only then can shareholders get their share. It makes sense to support the activities of other stakeholders.

How big should be their profit becomes a question of strategy, but if they gain by depriving other stake holders they are wrecking their own wealth-creating apparatus.

The whole middle class will begin to wilt, which is what we have been witnessing. We must reward genuine wealth creators rather than gamblers.

This gambling is not even fair. Large institutions with borrowed millions can place speculative bets will move the prices of financial products in their own favour by the very size of their own stakes.

The prices of what they buy will rise and for no better reason than the fact that they have recently bought these. It is a simple matter to sell after the price has spiked and harvest the gains, so that the large investors appropriate the funds of the small, in a game rigged against the latter.

Is conscious capitalism the answer?

A movement has started in America to demonstrate and proclaim a new variety of “conscious capitalism”.

This began with a group of academics at Bentley College in Massachusetts, headed by Raj Sisodia, who researched the strategies of nineteen companies, most of them famous.

The included Southwest Airlines, Jet Blue, Harley Davidson, Costco food markets, LL Bean, Patagonia, IKEA (USA), Honda (USA), Toyota (USA) Johnson and Johnson, Whole Foods, UPS, eBay, Starbucks, Amazon, Google, New Balance, Caterpillar and Commerce Bank.

What all these had in common was “a zen way of conducting business.”

First managers must inspire their employees, then employees must delight customers, then customers must buy even more and only then can shareholders get their share.

Instead of looking primarily at financials they made voluntary ethical commitments to all their stakeholders, paying their employees more than other companies, treating customers and suppliers better, supporting their local communities, helping to clean up the environment but also winning much higher contributions from these parties, so that instead of profits suffering they were all of them way above the industry average.

In short shareholders gained too as did the whole recombinant cluster.

Conscious or better conscience capitalism seems to have become a voluntary commitment among some leading US-based companies to include the larger industrial eco-system in their quest for excellence.

The influence of East Asian stakeholding is seen in the inclusion of Honda and Toyota in the list.

What is most important is that shareholders are prepared to join a cluster of cooperating stakeholders to do better for themselves than when exercising their legal right to priority treatment.

It pays to network and to prosper as an entire ecosystem.

Dr Charles Hampden-Turner is author of the widely acclaimed Vicious & Virtuous Circles, and co-founder of Tropenaars Hampden-Turner which assists Fortune 500 companies in globalisation, M&As, sustainability, training & leadership development and leveraging diversity.

He is also a headline speaker at Talent Management Asia 2015, Asia’s biggest such conference to be held in Kuala Lumpur, Singapore and Hong Kong in mid-April.

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To review the conference’s topics & agenda, check out the stellar speaker list and reserve your seat visit www.talentmanagement.asia before it’s sold out.

For more information please contact Carlo Reston on +65 6423 0329 or carlor@humanresourcesonline.net.

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