The Ownership Disconnect – Managers, Shareholders, Risk and Markets

Or a case of: Absent owners,  managers that act as if they own and get paid as if they take all the risks

Since the banking crisis that became a sovereign debt crisis, the world has begun to focus on the huge salaries and bonuses that are paid to bankers and top business people. In the last week, Barclays Bank announced that over 400 of their staff earned over £1 million in the last financial year.

Whereas those who place their financial lives on the line by building their own businesses and then, if successful, reap the financial rewards – but, if not successful, may lose everything – remain in high esteem amongst most people, those that risk no financial penalties whatsoever (but take massive salaries) have slipped further and further down in the public’s esteem quotient.

Senior managers and directors of major companies (including banks) and sales staff that take home huge bonuses (especially in banking and finance) are no longer lauded for any value they bring amidst a view that their rewards are far too high bearing in mind the lack of risk that they have. This has resulted in the EU plans to limit the bonus payments to bankers – an extraordinary intervention in the marketplace.

Does the marketplace work?

Stock markets are deemed to be the best place to see demand and supply at work. There is more data collected on stock prices than anything else and it goes back hundreds of years. Constant pressure on transparency and liquidity means that markets like the US (DOW, S&P, Nasdaq) and the London Stock Exchange (and others of similar size and liquidity) ensure that supply and demand usually results in a price that means something.

While this has changed markedly with the intervention of computer-driven buying and selling as well as the fact that around 70% of stock is owned by institutions, nevertheless stock markets appear to be mainly market driven. That never means the price is “right” – markets provide a price on any day that may be driven by a myriad of reasons. However, the market price is the price and buyers and sellers are able to take legitimate decisions whether to buy or sell.

Secondary markets

The owners of stocks and shares have, in the vast majority of cases, bought those stocks and shares in a secondary market – long after the IPO. While the majority of today’s owners of Facebook may be IPO buyers, this is only because the company had its IPO just months ago. For the rest of the publicly traded corporate sector, buying shares has little to do with the company involved.

Ownership of a share means potential increase in capital value and dividends growth – and some ownership rights which are rarely used by the individual buyer (although Martin Sorrell is facing some pressure from recently voluble fund holders). Shareholders are primarily interested in the value of the stock – almost unrelated to the company.

Robert Beckman, a well-known business writer from the 1990’s, estimated that 70% of a share’s value related to the way the market was going, 20% related to the industry and only 10% related to the individual stock. If true, this means that ownership of shares in the quoted sector is almost unrelated to the individual stock and owner responsibilities are negligible and rarely used.

In addition, the development of the joint stock company limits the risk to just the loss of the investment and no more (unless buying stocks through leveraged schemes or option trading).

Ownership means almost nothing these days when that ownership is in a publicly traded company.

Staff acting as owners

Lack of ownership in publicly traded companies (the understandable move away from the 19th Century where owners were managers), means that senior managers now act as owners. While it is absolutely true that managers spend considerable time talking to representatives of shareholders (pension funds and similar) and to others who write on their stocks (such as journalists), this is to keep the price up in the market relative to other stocks in the secondary market. It is part of the process of market transparency. Today, that is the main connection between management and owners (at least in terms of the value placed on the stock).

The Board  (with non-execs here to represent the shareholders) carries out primarily a governance role and has, usually, a compensation committee. Their job is to see that senior staff are paid a salary commensurate with the market or whatever and to secure senior staff in their jobs. This crucial role has, of course, been shown to be spurious in recent years.

The banking crisis has shown that there is no such thing as market rates for top staff in major corporations. Has it been just a way of jockeying for position that seeks to provide pay at the highest levels possible? CEO’s claim that they need to be paid international salaries to stay in their UK jobs no matter how poorly their companies’ share price performs.

Recent comments from those involved in the industry show how few CEO’s move abroad or from abroad to the UK. This basic tenet is mistaken, let alone the requirement to pay huge commissions to banking staff when their risk – like those of CEO’s – is no more than to keep their basic pay (already substantial) or in the worst case lose their job. This is completely unlike the entrepreneur, who has both management and ownership, and the heaviest of financial risks – the potential to lose his / her financial assets as well as their job. Both get potentially great rewards, but their risks are completely different.

Market rates of pay are notoriously difficult to derive. Where there is a vast statistical database, then it is possible – although here the markets are driven in different directions by groups of people getting together in unions to drive up market rates (and other forms of benefits).

The shareholder / manager dilemma

 

This can be stated for modern corporate life (in publicly traded companies) as:

Owners that stand back too far leaving managers that act as if they own companies and get paid as if they take all the risks

The issue is important for many reasons. We now have huge and dominant multinational corporations. We have shareholders that seek high and constant returns but have no affinity to the companies they “own”. We have managers that are (too?) highly paid and have wrestled a much higher share of the companies’ income to themselves than ever could have been envisaged and (in the UK and the USA at least) with over-dominant banking and financial centres which have tended to suck the life out of the entrepreneurial sectors rather than giving it life.

Can Shareholder Activism be Re-ignited?

As the West sinks dismally into austerity and behind the newly developing economies of China and India, where corporate ownership is complicated by government (intervention or direct ownership), we need a rebalancing away not just from banking and finance to areas of real value creation. We also need incentives for owners to own and managers to understand and accept real risk before they can access the type of returns that real entrepreneurs can access.

This will (if it is possible) drive any massive returns to the holders of real risk – those who can lose everything or gain massively. This is not the lot of managers – whose risk profile is slanted to the positive and whose manipulative skills are far greater than the quasi-shareowners buying their ownership in secondary marketplace.

Entrepreneurship is at the heart of business and growth of any economy. But, it is stifled by the rise of the manager in publicly traded companies where that rise absorbs far too much of the value created.

Shareholders are slow to act as they are, in the main, too far from the action, unknowing or a manager themselves – as in pension funds.

Now, the UK coalition government will be giving shareholders the right in annual general meetings to reject senior Directors’ pay proposals. The EU is considering the same thing. So, the pendulum is swinging in the direction of shareholder activism after many years of drift and decay. On both sides of the Atlantic, it is necessary for shareholders – who actually, in law, own companies, to assert themselves in pay and other issues. Economies in the West are dividing between those who are in control of an unrealistic share of corporate income (and in 2011, FTSE Directors pay rose 49% while average pay in the UK rose just 2%) and others. The others are shareholders and other employees.

A true market can only operate where monopolies fear to exist. It is apparent that quoted company directors have been able to set their salaries within a close market situation. In a long recession that we have seen in the West since 2008, it would be remarkable for there not to be a kick-back against the ability of one sector of society to benefit so much. Asking for constraint is insufficient. Markets have to be enabled and the recent moves to encourage shareholders to be more active and to give some powers that actually work are in the right direction.

Now it is up to the shareholders (basically, the senior staff of fund-holders like pension funds) to bare their teeth – like they are doing at WPP – and show that just because they go to the same clubs and come from the same schools, shareholders can be properly represented and the market for top directors’ pay can be made efficient.

A Proposal or Three

With stocks bought in a secondary market where ultimate owners have little or no real understanding of the business or ownership responsibilities, it seems reasonable to require large owners of shares to take their responsibilities more seriously – how should secondary market shareholder activism become real? Some suggestions:

Proposal 1: all owners of more than 1% of shares of any traded company should be required to nominate a non-executive director or actively support the nomination of one proposed by another such organization.

Proposal 2: such organizations, who normally buy shares on behalf of others (pension funds, hedge funds or similar) should ask their own investors (mainly those who put their savings into those companies – not just their own shareholders) to vote on their proposals.

Proposal 3: all such organizations have to register as “major shareholders” when they accrue over 1% of stock in a company and the FSA / Stock Exchanges should monitor the job they individually do to actively monitor companies – in the same way that organizations monitor MP’s voting.

All the above relies on making this easy – e.g. online only voting within pension funds and similar (i.e. no computer access, no vote) but, in an age of digitization and where companies and owners are so disconnected, secondary markets need to become activated.

 

Institutionalized!

Will Self’s excellent new book “Umbrella” (http://www.amazon.co.uk/Umbrella-Will-Self/dp/1408820145/ref=sr_1_1?ie=UTF8&qid=1348396331&sr=8-1) brilliantly describes the torture of individuals put into “mental institutions” and how (until very recently in the UK) they were appallingly treated.

 

Old people in Care Homes have similarly been shown (one example had a miniature camera secured in the room of a care home) to have been malnourished, beaten and generally abused.

 

Maybe it is improper to use these examples of Institutions that have become uncaring and out of control to symbolize the problems faced regularly by all of us, but it is no coincidence. We have all become “Institutionalized” by the edifices that society has created to carry out the basic functions of society. This is not new. Ossification of institutions is a regular occurrence in society. The reason that monarchs are overthrown, for example, is because the institution of monarchy – the rule of society by one person or clique – becomes, eventually, intolerable to society in general.

 

Cracks in the Institutional Wall

 

We are all confronted by Institutions throughout our lives. From hospitals to school, from government departments to businesses, individuals live their lives working in and being confronted by Institutions.

 

Institutions have been defined as: “An institution is a system of rules, beliefs, norms and organizations that together generate a regularity of (social) behavior” (Greif, Institutions and the Path to the Modern Economy: Lessons from Medieval Trade).

 

They provide “equilibria” to society as a method or ordering our behavior. Greif also developed notions of dynamic institutions to show how institutions change through time.

 

Common Threads’ focus is that the institutions developed in the 19th Century for politics, economics, education and other key areas of society don’t work well in the 21st Century. The aim has been to generate some discussion of where the problems may be and look at some potential solutions rather than try to develop a theoretical analysis (when this is being done elsewhere – for example, in the area of economics at ESNIE (European School on New Institutional Economics – http://esnie.org/).

 

Major economic dislocations as we have seen since 2007 in the West – the banking disasters leading to huge debt problems leading to depression in Greece and the potential for this throughout Europe – could presage major changes in the way institutions develop. Often, the cracks in the wall have to be very large before we either build a new wall or try to fill in the cracks – which is what is being done now.

 

The changes in our institutions that are being made – small changes in banking (mainly in terms of individuals) are akin to deck chairs being moved around on the Titanic. Whether in our political institutions or our economic ones (or wherever large organizations have been set up to provide societal equilibrium) the danger is that they do not change enough to enable society to prosper – rather, built on the foundations of the 19th Century, they fail to deal with the issues that face them (and us) today.

 

Building Order out of Chaos – Challenging Entropy?

 

Just like the walls of Jericho were built to keep out intruders (subject to the odd trumpet) and we build firewalls in our computer systems to keep our systems secure, society builds our Institutions also to have effective walls against change and to build ourselves a cover against the outside world. Maybe we are genetically primed – our cells work within walls that allow us to withstand the chaos that would otherwise ensue. The Second Law of Thermodynamics essentially describes entropy – the natural tendency for good energy to dissipate into bad (useless) energy. Our life on this planet is a constant grind against the power of entropy and, maybe, our desire to build this equilibrium is a natural and instinctive drive for order within chaos.

 

This natural tendency to build order exists throughout civilization and can produce stability and contentment. But, as Darwin wrote: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” (Origin of Species).

 

The key is that Institutions cannot be left to ossify but have to change to meet the changes in environment that exist externally. New order has to be developed constantly.

 

In business, in relatively free markets, businesses come and go on a regular basis. The FTSE 100 started in 1984 and today only three companies from those 100 remain in the FTSE 100 – GKN, Rolls Royce and Imperial Tobacco. This is because the FTSE 100 reconstitutes itself every three months. The Dow Jones started in 1896 – who remembers American Cotton Oil or National Lead or United States Rubber? That is not to belittle business – there is a tough economic law that works hard to reward success and punish failure. Companies that don’t work hard to change to meet the needs of the external environment simply fail. Apple is a great example of a company that was close to collapse in the 1980’s but (under Jobs) completely redirected itself so that it is now the highest valued company in the world. But, for how long? Most companies fail (70% in the first three years).

 

Taking Down the Walls

 

Within the rest of society, change is harder. In our fight against the ravages of chaos, we allow pressure to build up, often learning the wrong lessons. This so often leads to an explosion as pressure gets too much. Society is not very good at understanding where the pressure is building. We defend the status quo for too long and then find ourselves unable to contain the whirlwind that attacks us.

 

In the UK, we have prided ourselves on our ability to change gradually so as to release the pressure before it gets too much. Not since the middle of the 17th Century has England fought a Civil War. This is held up to be the result of the changing democratic scene – from Magna Carta through rule by nobles to rule by the Commons (elected nobles); constant enlargement of the vote from 1832 onwards to women in 1918 (as long as they were over 30 and lived in a decent house) to 18 year-olds in 1969.

 

The walls have been dismantled brick by brick and most democracies follow a similar path.

 

The challenge now is that, in an age where developed societies have reached a decent level of economic wealth, politicians are losing any connection with those they are supposed to represent. Only around 50% of the voting population bothers to vote in general elections. More are now linking up with one-issue groups who they believe will push agendas on their behalf rather than hope that a political party will (by the mere casting of a vote every five years) carry out a manifesto that cannot meet most aspirations.

 

This means that the one issue lobbyists are getting greater powers to influence. Their techniques and ability to make change happen is developing constantly. Originally, such groups were primarily labour organizations (Trades Unions) and, in the UK, this developed into the Labour Party. Now, there are groups within the Third Sector that campaign on any range of issues from the environment to health, from taxation to education, from peace campaigners and human rights to fox-hunting (both sides). Organized campaign groups now operate as a key part of society so that individuals are now useful only at elections.

 

This means that more Institutions have been developed to challenge the political parties (it happens throughout the world). This is not a challenge to the political process – it may even solidify it by shoring up the political process within a wall of campaigning institutions.

 

What role for Society?

 

It is in this context that several have questioned the future in which we grow Institutions to work with other Institutions to govern (or run other aspects of our lives). This response to the walls around politics and government may be a natural one but is questionable as the new Institutions (of the campaigners and lobbyers) are run by a small number of people and funded in many ways. They are not accountable in the same way as political parties are supposed to be (and continue as long as they are funded). Their funds come from a variety of sources and confusion exists amongst society in separating out charitable work from campaigning and lobbying. In the UK, there is no register of lobbying so there is no transparency that is at least attempted in the US (which has its own problems owing to funding regulations that allow companies to fund to whatever level).

 

There is a real danger that the way we are evolving the democratic process is anti-democratic. Democracy is supposed to be government by the people. We have a three-tier system now whereby professional politicians are influenced by a small number (relative to the population) of professionally-run organizations throughout a term of office – remembering the individual citizens only when elections loom.

 

Is this the best we can do?

 

Building the Walls from the Bottom Up

 

In Australia (as I have mentioned in an earlier post), The Centre for Civil Society (under Vern Hughes) – http://www.civilsociety.org.au/ – has developed some new insights and a challenge to the norm in http://www.civilsociety.org.au/CivilSocietyPolitics.htm.

 

This is worthy of investigation as one means of providing greater involvement in our own future.

 

Also critical is the use of technology. Changes in the means of communication have always brought with them the means to radically change society. The printing press, the telegraph, the telephone, the TV, the computer and the internet, the mobile phone, wireless comms – all lead to more and faster information and an enabling of the individual.

 

This is a critical cause of concern for leaders of legalist states such as in China but also offers challenges (and opportunities) to so-called democracies.

 

Individuals are now empowered by technology by dis-empowered by institutions. This means that empowerment is taken up by online shopping or social networking rather much more than for social change or betterment. It means that civil society will continue to be badly served by national and international institutions that meet lobbyists in the corridors of power but are insufficiently grappling with society itself (rather the funneling through funded organizations).

 

Yet, power exists. Libya is a exciting example. Just recently, armed militia groups (a powerful central non-government organization) were ousted by people – civil society coming together to say, “thanks for toppling Gaddafi, your work is done!” In Egypt, Tahrir Square was the centre of civil society’s success to overthrow a dictator. Here, the Military Institutions delayed the correct response and we will have to wait to see if the elected President, Morsi, will serve his citizens or other Institutions (including religious).

 

Civil society (we, the people) should see the 21st Century as one where we are allowed to deliver. The forces for 19th Century equilibria often stand in the way of progress – and are standing in the way of serious climate change policies on an international scale. Institutions set up to effect change may be set up for the right reasons but we are now institutionalized and should seriously re-evaluate our reaction to the new Institutions just as we challenge the old ones. If we need a wall, then we should be blowing that trumpet to unsettle the existing ones.

 

Middle East – repression and rigor mortis

Four Franciscan monks shouted in al-Aqsa that “Mohammad was a libertine, murderer, glutton,” who believed in “whoring”! The qadi offered them the chance to recant. When they refused, they were tortured and beaten almost to death. A bonfire was built in the courtyard of the Church where “almost drunk with rage” the mob hacked them into pieces “so that not even a human shape remained”.

Simon Sebag Montefiore, “Jerusalem”

The assault on the American consulate in Libya consisted of two separate attacks that forced the Americans from the consulate and then besieged them in a second building in a gun battle that lasted four and half hours, according to a detailed timeline from a senior administration official.

The bloody offensive by extremists killed Ambassador Christopher Stevens and three other Americans. In addition, three more U.S. personnel were wounded.

ABC NEWS

We know that the second quote above happened just days ago. The first was in 1391 – 621 years ago.

The first was direct – but, even then, the four monks were given a chance to repent and were the instigators of the attacks themselves.

The second was the result of a second-rate short film that was made by people totally unconnected to those that died in the US Embassy in Libya.

621 years separates the two examples – 621 years of great technological and wealth advancements across the world. But, 621 years where, in some places, there has been regression, not progress, and where repression (of freedom, freedom of thought, of economic progress and education) has left in its wake a mind-system that is mired in the 14th Century or before.

Lessons unlearned

The break-up of Yugoslavia (a state held together under the iron-grip of Tito) provided lessons that we ignore to today.  Thousand-year-old conflicts and hatreds which had been suppressed since communism’s rule came to the surface and yielded to bloodshed and ethnic cleansing.

So, the Arab Spring has erupted in tensions coming to the surface in the one location that has, for many years, been seen as the powder keg of the world. No surprise, surely?

Repression in the Middle East has been there for thousands of years. We don’t expect democracy and freedom of thought to suddenly erupt in China (or most don’t) but a few despots are overthrown in Tunisia and Libya and rejoicing takes place. We ignore the simmering tensions that such societies have endured for centuries as we assume that democracy will fix everything.  The West kept many regimes in place, drew many of the borders ourselves (often, borders which made no sense and instilled more tensions – such as in Sudan), sought oil supplies and the propping up of regimes to see to it that our energy supplies continued, tolerated the bribery and corruption and power that elites gave to themselves and enabled companies to make those bribes for the last 100 years.

Tony Blair was on BBC Radio 4’s Today programme earlier today. He said that he had travelled 87 times in the last few years to the Middle East and that it would “take a generation” for countries to settle into new institutions and systems that would prevent such tensions. While he has enormous knowledge of this area, a “generation” is no time at all – but, while a lot can be done in that time, the tensions are not just on the surface but deep.

Education and opportunity

The Middle East and North Africa have not just opened up to our version of the 21st Century. In our new global economy, we have focused our attention on to the newly developing nations of China, India, Brazil and others and have tended to ignore these deeply repressed regions. War and repression have characterized them for two thousand years. Elites have conquered their way to glory and wealth where religion has been used as an excuse. Religious extremism has been embedded for so long that we see it as the core issue. But, extremism in Christianity was common in the thirteenth Century and before – the Crusades were rooted in violence and death.

The changes that took place in Christianity (which was, in its earlier days, not wedded to the “turn the other cheek” dictum) have been profound but took centuries as first rulers broke away from theocracies, began to rule on behalf of their subjects (rather than being above the law) and allowed the dissemination of justice and then economic progress to be shared amongst the population. As this happened, the repression of one’s own subjects ceased to be the norm (although fascism, Nazi-ism and Stalinist and Maoist Communism attempted to break the deal).

Elsewhere, theocracies or dictatorships continue. Overthrowing despotism does not overthrow the belief systems underneath.

This is the core of the issue – the longer that institutions are allowed to fester, the worse the situation erupts when change takes place. Ossified institutions repress change and thought. The Middle East is worse – the institutions are in a state of rigor mortis. Beneath, the potential for unrest is striking – even with the numbers of liberal-minded, the mass of the populations are poor – in terms of education and wealth.

Chances

In the West, we talk about wanting to give our kids the best chance in life through education. In the Middle East, where we tolerate and even support regimes in Saudi Arabia and Bahrain because of their oil, we are relatively powerless to the onslaughts of hatred.

But, in a global society, we have to ask ourselves some serious questions. Can we help the Middle East and Africa, so long under the repression of dictators and theocracies, to not just overthrow those elites that bind them but to also embrace a culture that we believe works? Can Western ideals of freedom of thought, religious tolerance (or tolerance of no religion), economic freedom and wealth creation shared amongst the population be brought into the thinking of these countries? Can institutions and sclerotic minds be changed?

As we battle economically with the Chinese (and hope that the repressed emotions between the Chinese and Japanese does not get out of control over Diaoyu / Senkaku), we have to battle with the repressed institutions of Saudi Arabia and Bahrain as much as Syria, Libya and Somalia or DRC. This is a never-ending battle of ideas and betterment – the belief that whatever one’s views on the afterlife, ensuring that this life should be a good one is as important and that no individual (or elite) deserves to capture all the chances. Chances have to be spread to as wide a sector of the population as possible.

This is not the culture of 1000 AD – it is the culture of the 21st Century – and a battle that is worth waging. We live in a global economy but also a close-knit world beyond economics – fuelled by communication systems that work to inform and dis-inform – fast and furious.

Opportunities

Old and outdated institutions will, eventually, explode under the weight of their inadequacy. But, explosions can hurt. Just as our own institutions need to be overhauled when they don’t work (and there are many instances of this in the West – where we continuously run the risk of institutional failure) so we should help where it is clear that repression exists through institutional rigor mortis.

Recent moves to support the new opportunities being created in countries like Tunisia and Libya should not be stopped because some of the repressed have not been given chances to improve their understanding of reality and have over-reacted to a film made to incite.  We should now support those like Mohamed Morsi in Egypt who has said: “We Egyptians reject any kind of assault or insult against our prophet, but it is our duty to protect our guests and visitors from abroad.”

This is an act of bridging – between the repressed and the future – which we should now be supporting. Opportunities have to be developed and out of the super-charged environment, so reminiscent of that which operated over 600 years ago, the West should react positively. Changes may take a long time and we may find that other disasters (such as to our environment) may well get in the way. But, Blair is right on this one. We have to keep engaging.

Government, Society and Business – People Organisations

Dominic Lawson, writing in today’s Sunday Times, has a good go at attacking Corporate Social Responsibility – CSR. His claim is that business (to paraphrase Milton Friedman) is there to make profits and reward shareholders and it is to Government (through the taking and use of taxation) that goes the rigors of social responsibility.

Lawson’s simplistic assessment of business in society (the article is a reaction to David Cameron’s speech at the Business in the Community awards last week) fails to understand the complexity of the economy and society and the role of the three main parties involved in making the economy and society work.

From his article, anyone would think that there are only two parties in charge – Government (hopefully, elected) and business. Underneath, there appears the mass of the population – deriving their income from either one or the other and buying the means to life and living from one or the other.

What is forgotten in this simplistic overview (and a short article is all Lawson has to work with, so some excuse there, I guess) is that society is not just made up of the two leaders and the proletariat underneath. Society is a complex mix of individuals, groups, associations, lobby groups, small businesses, medium-size businesses, large / multinational businesses, local government, regional government, national government, export markets, importers, international governments – the list goes on.

Lawson’s simple simulation of reality misunderstands society in the same way that economics misunderstands economics. Macro and micro-economics stand uneasily in the same story (for economics is more a story that a science) and have never coalesced.

Business in itself is complex. Recent arguments over bonuses have shown how managers (in a business world where ownership and management are widely separate) have managed so often to take the profits out of the business before shareholders (now operating primarily through a secondary marketplace or via agents such as pension plans – themselves run by managers, themselves divorced from ownership and direct responsibilities) can obtain what Milton Friedman may have believed was rightfully theirs.

This complexity is expanded hugely in relation to business’s relationship with the society that provides them with their reason to exist. Market economics (and I am pro the market economy – any centrally driven economy is doomed) required businesses to be within a complex national and international environment and for governments (operating on behalf of the people) to ensure that they act properly.

This means that government have to ensure that pressures on business allow them to be competitive nationally and internationally BUT that society’s needs are properly considered as part of the trade-off for all the other protections and benefits offered. The latter includes education, infrastructure (roads, railways and the like), banking system, laws that work.

So, while outside the City of London businesses don’t get a vote (the fact that they still do in the City is not just a 19th Century throwback but one much older) they get a huge lobby through trade associations like the CBI. This influences governments of all types and makes the Dominic Lawsons of this world lose sight of the complex, adaptive world in which we live.

The fact that certain companies or their leaders cozy up to the CSR community is rather a cheap, anecdotal simplification in a complex world where businesses, like all “living” things, have to continuously adapt to meet the changing environment and conditions they find themselves in. Society is highly complex and the over-simplification (which we all love to do because we can then mislead ourselves into thinking we understand the issue as a result) too often leads to decisions that are completely wrong.

We live in a complex society where we have to make changes that reflect the complex mix of the various parties involved. There is no such thing as “business” – it is made up of many strands and people and interactions. Governments set the laws and implementation, only people can work within them. Businesses are mere technical constructions that people form – people then have to live with other people. They have to make the decisions not some artificial construct called a business – no matter how we construct its form in law.

Lawson seems to believe that people don’t exist – or, if they do, that major organisations have a precedence. For so many reasons, he misses the complexity. CSR may not be the answer, but it is an attempt to develop relationships between organisations of people (businesses) with others (local communities, consumers or whatever). People and people – not some simulation of them.