The age of responsibility

Citation

Ali, A.J. (2009), "The age of responsibility", International Journal of Commerce and Management, Vol. 19 No. 2. https://doi.org/10.1108/ijcoma.2009.34819baa.001

The age of responsibility

Article Type: Editorial From: International Journal of Commerce and Management, Volume 19, Issue 2

Scandalous activities and frauds and recent economic meltdowns have profoundly changed the view of business practices and the economic system. Both ordinary people and the elite, within and across nations, have pondered the causes and remedies, as the unfolding economic crisis has become severe and has had an immediate impact on people’s welfare. Indeed, the scope and depth of the current economic problem accentuates the necessity to look for a thoughtful workable answer beyond the typical and familiar, while attempting to provide immediate relief from the current calamity.

Since the turn of the twentieth century, there have been five major financial and economic crises. These crises have differed in their causes, scope, and consequences. Nevertheless, all have resulted in losing millions of jobs and personal savings; increasing anxiety, despair, uncertainty; and a loss of faith in existing economic and political institutions. The first crisis began at the end of the nineteenth century and continued until the beginning of WWI. During that time, the UK was the singular source of financial flows into most parts of the world. Though the fall of commodity prices was a factor in the deteriorating economic situation, there was a strong argument that the British withdrawal of capital from US banks led to panic in the US and eventually spread to other nations.

The second wave was the debt crisis in the 1920s. The USA was the center of the financial market and money in bonds and in equities had gone to Latin America and to Southern and Eastern Europe as the debt crisis induced many countries to turn inwards. For about 40 years the flow of international investing did not resume. The increase in oil prices in 1973 set the stage for the third wave. There were huge amounts of petrodollars available for banks to lend. Thus, there was a significant increase in lending to developing countries and an immense expansion of the Euromarket. Consequently, many countries, especially developing ones, experienced a serious debt crisis. The fourth wave (1997-1998) started in South Asia and caused investors to panic and abruptly move their money out of that region.

The depth and intensity of the current wave, though it began as a credit and financial problem, has caused an unimaginable and swift panic compounded by falling commodity prices and large-scale layoffs of blue and white collar employees around the globe. The International Labor Organization reported that worldwide job losses from the recession that started in the USA in December 2007 are expected to reach a staggering 50 million by the end of 2009. Furthermore, the crisis has led to political unrest in many countries, changes in governments, and a dramatic rethinking of political and economic priorities as governments across the globe attempt to project a sense of normality, contain economic damages, limit panic, and maintain stability. Indeed, the intensity of this crisis and its worldwide spread has caused people to lose faith not only in the political and regulatory institutions but also in capitalism and its ability, as a system, to cope creatively with unfolding calamity and absorb sudden shocks. These two developments underscore the severity of the crisis and, more importantly, the need to critically and creatively challenge prevailing economic assumptions.

Three major voices within the proponents of free market economy have emerged. There are those who believe that corruption and deficiencies are embodied in capitalism itself and that either there is nothing that can be done about it or vigorous regulatory mechanisms must be in place to deter or punish wrongdoing. Others question the ability of capitalism to cope with emerging challenges resulting from globalization, fierce competition, consumerism, and the complexity of a larger market. Those voices seem to imply that there is a need for revolutionary changes in the fundamentals of capitalism. That is, the principles of a free market may sound fine but in practice and in a complex world they lead not only to wide-spread deception but to outcomes which are inherently contradictory to its primary assumptions. The third stream of thought calls for a new partnership between government and the private sector. The nationalization of banks and other financial institutions which took place, for example, in the USA and Britain in late 2008 and the infusing of huge public funds in an ailing economy and in institutions are just the beginning of this trend. The advocates of this approach underscore the severity of the crisis and suggest that nationalization is a short-term strategy and by no means a substitute for a vital and fruitful cooperation between the state and the private sector.

The validity of any of the mentioned approaches is impossible to verify without applications. Nevertheless, it is certain that these approaches, despite their sound perspectives, ignore one fact; capitalism and socialism systems, in their variations, have all produced outcomes contrary to their professed intention, and in practice both systems have led to disappointments, be they inefficient distribution of wealth, concentration and abuse of power, limited access to opportunities, or thriving corruption and fraud. Worse, in many situations, like in Russia, Indonesia, Thailand, and some democracies, this has led to the emergence of powerful groups who have influence and can pull strings; the oligarchs (Johnson, 2009).

Handy (1999) rightly recognized that under both capitalism and socialism there is always uncertainty. He argued that socialism has a “heart” but lacks mechanism, while capitalism has mechanism but lacks purpose. His prescription is for individuals and organizations to have a purpose beyond the self, stating that “if the purpose is only for you, it rapidly dissipates”. Indeed, the unfolding economic crisis demonstrates that individuals and organizations, alike, in order to be responsible actors, have no alternative but to devise a purpose much broader than selfish interests and increasing the owners’ wealth.

In 2000, we called for aligning corporate and societal interests. This was based on the assumption that a firm exists to satisfy societal needs and that its vitality derives primarily from optimally serving the society. In a free market economy, this must top the list of corporation’s priorities. Later, in 2006, we proposed that there must be no dichotomy between competitiveness of the firm and its societal non-economic role, profit motive and human dignity, and between customers and employees. That is, corporations as economic, social, and political actors, have to strike a balance between their market and social responsibilities. These must not be viewed as independent and unrelated activities. In fact, there is an increasing awareness that business and societal issues are highly interwoven and should not be treated separately, and that globalization benefits and responsibilities go hand in hand. Therefore, safeguarding human dignity and protecting the environment while pursuing economic activities becomes a strategic concern for corporations which seek to position themselves as competitive and responsible organizations.

In “Rethinking competition”, we underscored the need for corporations to be flexible and adaptive to emerging circumstances, and that senior managers must understand that in today’s world moral clarity and individual responsibility toward society and the organization are instrumental in minimizing deception and corporate fraud. This is possible only when individuals and corporations look beyond their immediate interests and closely align economic activities with societal goals. Perhaps this broader role and purpose could give firms and their senior executives a requisite kind of flexibility and transparency, strengthen their sense of self, and safeguard against market temptations, be they monopoly, deception, or breaking laws and regulations.

In his Inaugural Address, President Obama stated that there is a need for a new era of responsibility where:

[…] a recognition on the part of every American that we have duties to ourselves, our nation and the world; duties that we do not grudgingly accept, but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task.

Obama appears to challenge organizations and individuals to espouse a wider goal, assume responsibility, shun temptations, and create the future; a future where entitlements and obligations go hand in hand and civic duties compliment business operations.

Responsibility has both practical and spiritual dimensions. The practical aspects include, among others, the courage to confront wrongdoings, being transparent, mapping and pondering possibilities, acknowledging mistakes, meeting obligations and promises, guarding societal interests while promoting those of the organization, and championing the causes of those who are disadvantageous. The spiritual dimension places emphasis on self confidence, optimism, humbleness, morality, and a belief that the future is promising. Both dimensions underscore that neither individuals nor organizations exist independent of the society, that what happens in life is one’s own making, and that salvation is possible through cultivation of virtues.

The current economic crisis, like the previous ones, appears to have been induced by deception, greed, manipulation, a disregard of public interests by individuals and business organizations, by government policies that celebrate and promote inflationary programs, a weak regulatory regime, foreign borrowing, and the squandering of national wealth by creating and relentlessly pursuing war. The underlining cause of these behaviors and actions is a lack of responsibility toward organization and society.

There are those who postulate that there is a conflict between profitability and responsible conduct, efficiency and commitment to the society, and that in competitive global environment concerns for societal goals are an impediment to growth. These propositions are based on the assumptions that firms have to maximize profit, CEOs’ know what is best for shareholders, and that morality is a personal matter that must be viewed exclusively by self interests.

Perhaps, the translation of these propositions into action has led to social and economic catastrophes. Events since the early twentieth century demonstrate that these premises are false and acting upon them has led to widespread suffering and hardship and endangered the worth of economic institutions. Increasingly, it has become clear that the legitimacy of business organizations stems primarily from societal approval. Indeed, in the long-run, survival and growth of firms are possible only when these organizations are driven by compassion and purpose. At the end, this is the only measure for a firm’s vitality.

Abbas J. Ali