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Can Trust and Shared Values Rescue Capitalism?

Updated: Oct 11, 2018

“That governance is more about the soul than spun-up public pronouncements. Governance is derived from the conscious and unconscious attitudes of management and is therefore a reflection of their soul. The temptations of money and power, which are the essence of corporate governance issues, do not change what the company is; they only unmask its true identity.” The New Business Normal" (2005)

Today management has been driven away from serving markets to serving shareholders with buybacks, cutbacks, relocations and the prioritization of EPS (short term earnings per share…aka ‘shareholder value’) over longevity and community. Leaders today must deal with the rampant stratification of regulatory and policy bodies as they ignore global business realities and let short term tax/spend politicized and uninformed thinking determine entire strategic business moves by companies out of one region and into another.

Has Capitalism Reached a Point of Departure: Character and Values or Oligarchies and Greed?

Today’s oligarchic shareholders are global, therefore begging the question: Is a global company, obligated under its fiduciary responsibilities to those multi-national shareholders, necessarily also obligated to remain in its country of origin? If nationalistic shareholder restrictions are in place (e.g., China) they probably are, but in their absence are we in a whole new ball game of chasing the lowest cost home for headquarters? Is creating shared values realistic or will symbiotic greed or position protection continue to rule the boards of today and tomorrow?

Solutions are lost in the bureaucracies that are caught up in the cycle that global executives live every day. As they make decisions about which assets to deploy and redeploy and where to position them on the most favorable terms, they must make strategic business decisions that are driven largely by tax rates and regulations. Not shared values or a well thought out understanding of how things ramify through community, regional, national and global economies.

Included in the challenge of making shared value creation a meaningful generator of corporate social capital is the degree of trust within a society. I think Michael Porter in his HBR article proposing corporate shared values, touched on the role of trust but he didn’t do a deep dive, leaving it up to the readers to pursue that vein on their own. There is no one size fits all when it comes to trust, so you can’t communicate it as easily as a concept like the five forces of competition.

Many of us, who have served on public and private boards, and experienced board wars all too close and personal, have not always successfully dealt with retired-in-place directors from an age of global non-competition. And we have battled lost against paint by the numbers analysts’ imaginations and wall street driven short term-itis. We have witnessed what corporations in general, and US companies specifically, have done in terms of unfathomable damage to stakeholders who are growing angrier with accelerating costs and token wage increases. And in retrospect we have observed that the journey to a loss of trust has been painfully obvious since the early 70’s and the introduction of ‘shareholder’ value. The absurd adoption, exclusive pursuit and now oligarchic control of ‘shareholder value’ has destroyed the basis for shared values, and ramified to a growing and possibly irreversible loss of trust. 

In the absence of local, regional or national shared values, trust is the common missing piece and government typically grows disproportionately to fill the gap. Litigation, regulation, policy are all substitutes for ‘good faith’ negotiations between people. 

Shared Values are not as easy to define without setting out stronger, clearer frameworks that acknowledge cultural differences and societal constructs dealing with values at their core and the concept of ‘trust’ which underpins all societal values. According to Meriam Webster trust is the assured reliance on the character, ability, strength, or truth of someone or something. If a corporation is treated as an individual under the law is it not also to be expected to have character and embody trust to deserve that treatment? 

Trust is intrinsic to values. Shared values therefore are the result of a society’s trust level. How can a value be truly shared without it? What forms do values take given the structure of trust in a society? As an example trust in the Chinese culture starts and stops with family. That makes scaling very difficult. A closer examination of the ‘party’ in China reveals the tight ties across family and closely related players. Long and deep relationships are needed to build trust, recognize shared values and build a currency around them. Often the relationships come with interesting promises of exclusivity and survival. 

Common belief systems, Jewish, Mormon, Baptist, Catholic, Muslim, etc., create trust across faith based tribes. Theocracies go one step further and create member trust across nations with little variation in values tolerated in the membership. That makes shared value creation easier and more cost effective; it also makes it easier for abuse to run rampant at the hands of a few intransigent participants. 

In 1995 Francis Fukuyama of the Rand Corporation wrote a book entitled “Trust’, The Social Virtues and The Creation of Prosperity”. Harvard’s Michael Porter’s shared values creation idea, was noble but missed the intertwining threads of trust outlined by Fukuyama. Fukuyama points out that given the complexity of values and their adoption, values needed to be dealt with more adroitly. In overly simplified terms the many threads that make up culturally based differences in how trust is defined and inculcated within societies determines the interplay of people and organizations between government, business and society. Porter’s voice was long overdue in raising awareness for the urgent need for reassessment of the oligarchic domination of industries and capital markets that are supported by the myopic, greed driven mantra built over the last half-century and absurdly known as ‘shareholder value’.

Greed by definition is distrust personified and it is independent from magnitude. It denotes a character flaw in the bearer, an inherit lack of trust in that entity’s (or person’s) shared cultural/societal values which are not always universal. (e.g., some human tribes had a slightly different view of ‘stealing’; if you got your horse stolen, you didn’t care enough about your horse!). Corporations can’t ‘create shared societal based values’ they can only produce products and services that align and resonate with them. If the functionality delivered creates perceived value (the experience with the company) that has resonance with societal values (electric cars for transportation, light rail, solar and wind energy, etc. are in essence ‘good functionality’) it becomes embraced by society in part or as a whole, and then the shared values ‘stick’. 

A topical example: An electric car is perceived as environmentally good and burning more coal is environmentally bad. Widespread adoption of electric cars (good) could require more coal generated electricity be consumed before non-coal alternatives can supplant the increased burning of coal. As a result society gets handed a values dilemma that potentially creates the potential for the creation of an enormous friction of adoption. If the ‘bad’ image of coal wins the resonance battle (the outcome of which is independent of facts), such that anything that can be coupled with the consumption of coal is also deemed bad, then driving an electric car can be linked to an association with increased coal burning, and therefore is also bad. 

The ‘good’ image of Tesla and others lose in that scenario as they become portrayed as economically naïve progressives. (The electric car folks were just trying to ‘make a buck off the tree huggers and making us pollute more’ would be a headline…think bio-fuels like corn based ethanol being associated with increasing corn based food costs). This implies the language of shared value (product functionality creating a societally valued experience) has to change to resonate with the societal norms of the markets served. Cheaper, better, faster, new, gives way to cleaner, reusable/renewable/sustainable, and lower cost, more stakeholder beneficial cost of ownership and greater creation of corporate social capital.

For a corporation to accrue social capital it must resonate with shared values at a local level, be that by delivering on a global brand promise through its products and services, aided by market positioning (aka cause marketing), or participating in a market inherently perceived as a shared value market by default, e.g., alternative energy. The big oil companies are doing that daily now. 

Another example is how do corporations in the semiconductor industry create an affinity with globally shared values for AI (artificial intelligence- see like those proposed by Isaac Asimov for robots which are intrinsically based on imbedded chip technology… principles like ‘do no harm to humans’.

To illustrate: Semiconductor chips are the basic building blocks of technology, creating and enabling ‘shared values based products/services’ from medical diagnostic instruments and devices, to chips in communications products and imbedded software programs that are re-connecting remotely located families and friends, to the ever improving performances of dedicated chips configured as AI networks that are saving people’s lives and reducing healthcare costs. With increasing efficiencies, chips are making alternative energy accessible, accelerating IoT into a reality, enabling smart grid networks, and creating new beneficial applications for humanity like portable testing for diseases, etc. Chips are not an ’everything to everyone’ but they are enabling everything that is useful to everyone. 

Is it still possible in semiconductors to position shared values where the technologies we experience start? The semiconductor industry has a chance if it can lead the pack in the technology space with the right values and a very carefully built and maintained social trust. Every device you own or interface with and depend on is driven at its core by chips making you dependent on the values and principles of chip manufacturers. As a contrast without a complete values-based governance overhaul banks, which are also ubiquitous, may be past the point of no return on the trust curve. 

A quick aside: During my time building and simultaneously serving on the CAG (competitive analysis group) at DARPA/SEMATECH when comparing a ‘green’ alternative manufacturing approach (ESH prioritized) to a standard operating process (SOP)we discovered that whenever we were able to capture the complete cost of ownership, the true costs to go ‘green’ (good for all stakeholders) were invariably operationally cheaper. To Porter’s point however the cost savings were often achieved as responses to government regulatory policies versus a desire to ‘not do harm’ on the part of the company or process under study. (E.g. using a dry process instead of a wet to avoid long term storage, disposal and liability costs based on government regulations protecting the environment). Another observation was the unwillingness of many managements to adopt the ‘lower cost of ownership’ path if it was beyond the time horizon of their personal employment. In effect short term shareholder value trumped long term stakeholder (customer, employee, community, region, state, nation, world) shared values. 

One could argue that the leadership of corporations at one point in time had trust with society as a whole and were welcomed into the communities they served or engaged. They may not have had the computational ability or foresight to understand how their decisions would ramify at scale (any more than we do regarding new technologies like AI and IoT) nor predict the eventual outcomes of those decisions (climate change, etc.) but they did demonstrate shared values with the community through trust-based mechanisms like character and philanthropy. This intentionally generated trust started with leaders who comprehended and attempted to exhibit character and who allowed themselves to be quickly succeeded by the values-based organizations they created. 

Organizations that became dedicated to aligning and promoting shared values corporate wide with long-term benefit and distributed wealth creation for a large and viable middle class lasting decades. For us to get there from here requires a return to taking the long view in the development, cultivation and exhibition of corporate character that is trustworthy and stakeholder centric. Some examples today are Mayo, Salesforce and Medtronic.

In the age of sound bite agitation and rage baiting as marketing tools, wealth creation has become synonymous with oligarchic corporate greed because the disproportionate distribution of wealth has gone unchecked and destroyed trust in the capitalist world. Wealth inequality has created a very unfortunate turn of events because the number of words we have to describe the capitalist system and its intrinsic benefits to society at large are currently limited. We need a Google era word for beneficial stakeholder centric capitalism encompassing the moral character of corporations at scale delivering shared values built on trust.

In the US, as common belief systems have dissipated a growing trust gap has developed and government has stepped in to regulate and officiate how ‘trust’ is administered. If corporations can actually step into this enormous trust gap and credibly begin doing the right things by leveraging their enormous assets aligned with shared values, then an alternative form of sophisticated character and values based capitalism (stakeholder capitalism that is inclusive of the community, employees, environment and shareholders), that understands and takes responsibility for the ramifications of its decisions, can truly be created. It can start within market eco-systems in which the players tacitly agree to establish trust based on character based moral capitalism and achieve shared value creation in and for their communities. Starting there makes the most sense if capitalism is to survive.

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