Tuesday, April 17, 2007

"We should measure corporations by their impact on all their constituencies."

As someone who has long maintained that an enterprise is sustainable so long as all its stakeholders are satisfied, I was delighted to read this from the Nation, "The Establishment Re-Thinks Globalization," which comments on Ralph Gomory's book, "Global Trade and Conflicting National Interests.

"Gomory's vision of reformation actually goes beyond the trading system and America's economic deterioration. He wants to re-create an understanding of the corporation's obligations to society, the social perspective that flourished for a time in the last century but is now nearly extinct. The old idea was that the corporation is a trust, not only for shareholders but for the benefit of the country, the employees and the people who use the product. "That attitude was the attitude I grew up on in IBM," Gomory explains. "That's the way we thought--good for the country, good for the people, good for the shareholders--and I hope we will get back to it.... We should measure corporations by their impact on all their constituencies."

I found two item of good news in this piece. One is a challenge to the wisdom of "free trade" as an inevitable good and the other is the recognition of the necessity to include all constituencies or, as I described them, all stakeholders.

The specific problem Gormory is addressing and for which he is proposing solutions, is America's loss of economic strength and the general impoverishment that occurs when corporations acting globally fail to support the needs of their local stakeholders. In the context of leadership, these leaders who (un)consciously ignore a constituency have a narrowed vision and (un)consciously externalize costs to the neglected constituency. As can be seen in the first figure, any stakeholder that is excluded has no part in improvising, structuring and realizing solutions.

The general phenomenon is the same whether the externalized costs appear as auto industry unemployment and subsequent family and community dislocation, Enron employees' lost pensions or the pain of the Iraqi population. The institutions and their leaders lose these stakeholders' respect, their interest in conforming and willingness to respond. The second figure underscores how these potentially enthusiastic followers are excluded from the organization, are thus unable to contribute or collaborate with other stakeholders in finding solutions.

There appears to be a growing population who consider factors beyond stock price in their assessment of corporations as potential employers, good citizens and investment vehicles. This re-examination of Ralph Gomory's work is very timely.

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