Capitalism’s Challenges | Sign of the Times

In the face of challenges faced by a capitalist system, there’s a call for the need to “rewire the way you govern, manage and lead …. ” It highlights the issues that calls for a rethink in the way businesses are run and who it serves.

It was Peter Drucker who made the statement about business that ran against conventional definition, he defined business as “an organ of society” and therefore apart from that, something which does not have a purpose in itself.

Peter Drucker’s insight into the purpose of business addresses capitalism’s key flaws. Designed to maximize corporate value, the engine is driven on the fuel of profit maximization to serve shareholders’ interest. In the current design, there is a conflict of interest in the role of business which begs the fundamental question, who is it suppose to really serve? The larger interests of Society or shareholders’ interest?

The type of “prosperity” produced by the current engine comes at a price that disadvantages other ‘stakeholder groups’ in the supply chain. Its design is essentially flawed. The reformation has got to address the problem at its root, that’s where we should be looking. We should even re-look the assumptions we have adopted in business.

The McKinsey article highlights the challenges of the capitalist system but the solutions offered are clearly still very much within the box. We need a major re-haul in our thinking at a systemic level, not a cosmetic tweaking of the system.


To view on the Web:

Capitalism for the long term

McKinsey global managing director Dominic Barton issues an urgent call to business leaders in an article from the March 2011 Harvard Business Review titled “Capitalism for the long term”: rewire the way you govern, manage, and lead corporations to restore the public’s trust in a capitalist system jeopardized by the financial crisis and ongoing social anxiety. The choice, he writes, is between reforming a system that has been the greatest engine of prosperity ever devised or allowing it to be revamped by political measures and the pressures of an angry public.

The necessary reforms have three essential elements, Barton explains. First, business must jettison its short-term orientation in favor of a longer-term focus. Executives must also infuse organizations with the perspective thatserving all major stakeholders is not at odds with maximizing corporate value. Finally, companies must bolster the power of boards to cure the ills stemming from dispersed and disengaged ownership.

As a supplement to the article, we offer a Quarterly special-topics page devoted to capitalism’s challenges. Explore background articles from our archives plus a video interview with CEOs addressing topics such as long-term planning, stakeholder management, and the need for social responsibility.

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