Beyond economics: business as a social institution

Citation

Brown, A. (2001), "Beyond economics: business as a social institution", Strategy & Leadership, Vol. 29 No. 3. https://doi.org/10.1108/sl.2001.26129cae.001

Beyond economics: business as a social institution

Beyond economics: business as a social institution

Arnold Brown

The New Rules of Corporate Conduct: Rewriting the Social Charter by Ian Wilson (Westport, Conn., Quorum Books, 2000).

Unfortunately, the plethora of books on how to manage effectively in today's volatile business climate does not necessarily mean that there is also a plethora of good advice. The P.T. Barnum principle – "There's a sucker born every minute" – practically guarantees that people desperately seeking advice will buy just about anything that's made to seem both plausible and appealing.

One difficulty with many management how-to books is their superficiality. Many of them do not adequately explain the new business context we face today, nor do they explain why this new environment requires new understandings and new approaches by executives. Now, however, a distinguished, long-time observer of the business scene has written a book that really does help.

Ian Wilson led GE's pioneering approach to analyzing the business environment over 30 years ago and went on to become an esteemed advisor to top management around the world. In his new book, The New Rules of Corporate Conduct: Rewriting the Social Charter, Wilson explains how "pervasive, tumultuous, and continuous" change has profoundly altered the business environment. Social, economic, political, and technological changes have deeply affected businesses and their context. And, as Wilson astutely observes, some of the major changes have been induced, oftentimes unknowingly, by businesses themselves.

Wilson believes that these happenings are more than changes; they are environmental restructurings. Consequently, they require more than mere adaptation; they require business restructuring in response. Failure to respond appropriately will lead inexorably to disaster, especially in today's increasingly competitive environment. And businesses must respond within this decade, says Wilson, because competition will intensify, and none of the other contributing conditions will go away; indeed, all the issues these conditions raise will also intensify.

Wilson sees four "formative forces" that will shape expectations of business performance over the coming ten years. They are:

1. 1.

   the power shift arising from the continuing trend to democratization;

2. 2.

   globalization – and what that means;

3. 3.

   economic restructuring;

4. 4.

   the impacts of information technology.

He sees these forces leading to four possible futures, each dependent on developments both inside and outside of business. For, as he points out, trend is not destiny. Businesses, by their actions, can affect and even shape the future.

The four possible scenarios for the future, which he describes clearly and logically, are:

1. 1.

   Transformation, in which businesses act as agents of social change.

2. 2.

   Reregulation, in which businesses become, in effect, regulated utilities.

3. 3.

   Neomercantilism, in which businesses serve as their countries' competitive weapons.

4. 4.

   Turbulence, in which populist forces exert growing pressure on business.

One of the important areas Wilson explores is corporate social responsibility – long a contentious idea but one that is becoming increasingly subscribed to by thoughtful business leaders. As the author points out from the beginning, a business, in spite of what many very traditional conservatives believe, is not just an economic institution; it is, as well, a social institution, whether it thinks it is or not. It has more than just an economic impact on the lives of people, communities, and nations, and it is affected by more than just the economic factors that affect these people, communities, and nations. For example, no business today can succeed without an adequately educated workforce. If the local school system does not produce such people, the local businesses will suffer. They must, therefore, contribute to the improvement of public education.

According to Wilson, business leaders must understand the importance of one of the intriguing phenomena so characteristic of these changing times – accelerating public expectations. What people expected from business yesterday is not necessarily what they want today and is highly unlikely to be what they will want tomorrow. Like everything else these days, expectations are changing far more rapidly than they used to. (This, by the way, applies not just to corporate social responsibility. It is a key to keeping ahead with products and services, too.)

Out of his cogent analysis of what has been and is currently happening, Wilson develops seven new rules that will enable businesses to not only survive but thrive in the complex new world of tomorrow. His first new rule is: "To earn and retain social legitimacy, the corporation must define its basic mission in terms of the social purpose it is designed to serve rather than as the maximization of profit." The might of their organizations has deluded many business leaders into believing that they are immortal, but even the mightiest can fall, as we have seen in recent years. All institutions in a democratic society, including businesses, exist only with the consent of the people. That consent is not permanently bestowed; it must be constantly re-earned.

Other rules deal with governance, equity, concern for the environment, the social contract between employer and employee, relationships with government, and ethics. In all of them, Wilson combines astute analysis of the external and internal changes that are bringing about the need for change with specific examples of how leading businesses are responding. In the past, executives could proudly say that their company's mission was "to grow earnings per share at 15 percent a year," and they would do so to universal approval. Wilson compares that old approach to the newer one, such as that expressed by the British supermarket chain, J. Sainsbury: "To discharge the responsibility as leaders in our trade by acting with complete integrity, by carrying out our work to the highest standards, and by contributing to the public good and to the quality of life in the community." Another expression of this approach is seen in a recent advertisement from the Ford Motor Company in which the company's chairman, William Ford, is quoted: "A good company delivers excellent products and services; a great one delivers excellent products and services and strives to make the world a better place." Take that, Milton Friedman!

Among the many businesses whose practices Wilson examines are General Electric, Johnson & Johnson, Cisco Systems, General Motors, Pitney Bowes, and Royal Dutch Shell. The company whose practices he most intensively explores is GE. There is probably no better example of a company that has succeeded greatly through an enormous capacity for seeing, understanding, and effectively responding to change.

The book concludes with a blueprint for effective responsiveness, beginning with the role of leadership. Here, Wilson briefly and pertinently points out the true essence of leadership today; "An ability to see where the future lies and how it might differ from the present, and an ability to translate that vision into needed corporate response." No one has said it better.

What the leader must do is lay out an agenda for change, and Wilson details a set of six guidelines for doing so:

1. 1.

   establish priorities;

2. 2.

   factor the new rules into strategic planning;

3. 3.

   be prepared, and be proactive;

4. 4.

   broaden the environmental monitoring/scanning systems;

5. 5.

   consider the broader implications of corporate actions;

6. 6.

   recognize the critical role of measurement.

Like everything else in this timely book, the final how-to section combines astute analysis, genuine insights, and real wisdom. Looking at it from the perspective of my own 30-plus years of working with planners in business, the book can go a long way to help plug existing gaps in corporate and strategic planning. Wilson's prescriptions carry the weight of his long and broad experience in helping organizations of just about every size and nationality. Add his wisdom and his eloquence, and you have what is indeed an authoritative and very useful book for top executives.