Summary:
The choices companies and their staff make are less determined by the organisation design and their individual values than by the way the company is incorporated. To address today’s global injustices, such as climate change and the SDG, we must incorporate in inclusive ways that deliver equitably on the needs of all stakeholders, including investors, staff, customers and the broader community. In a FairShares company staff, suppliers, customers, any relevant stakeholder group, even perhaps the city and country the company is based in, all qualify for voting rights and a share of the wealth generated. Read first the section most interesting to you 1) I compare the systems of separation in business and apartheid; 2) discuss how separation blocks us from addressing our challenges and; 3) why current solutions and are not sufficient; and 4) describe a way of creating new startups in a fundamentally different way, viable today, using the FairShares Commons incorporation.
1) How modern business has parallels to apartheid
I grew up in apartheid South Africa. I never felt safe, and struggled to see any path out of the morally wrong and socially unstable system to a viable future. I felt powerless to do anything, hopeless about the future, and angry at how South Africa was.
Are you angry about climate change, and other injustices in today’s world, but feel powerless to change the system? Have you joined the Extinction Rebellion, or the school strikes, and want to know what comes next; how do we build a new system that really works? These blogs are a call to action, and four essential steps to building a system that works.
Looking back at South Africa, I can now see clearly how apartheid was like a hidden force, a gravity, pulling at all South Africans. Anyone who tried to act differently was pulled back into the apartheid swamp and a binary choice, of either defending or attacking apartheid.
In 2008 I decided to leave my career in the middle management of Procter and Gamble to focus on figuring out how to harness the power of business for the greater good. I also left because my work no longer felt safe. Not safe for me in the moment, and certainly not safe for future generations. Even though P&G’s clearly stated purpose was, and is, to improve lives, I observed that too many choices were made to improve shareholder returns at the cost of the quality of life today and far into the future.
Is this relevant to you? Do you feel psychologically safe at work? Do you trust your boss with your future? Do you trust the shareholders to vote for what will be good for you, your children, and your grandchildren, even if that might diminish their return on investment this quarter?
My experiences in P&G, and the very similar experiences of my friends in other companies, led me to deeply question the fundamentals: what are the structural foundations of trust, psychological safety, and fiduciary vs. moral responsibility in business? What might the hidden gravities be — gravities pulling well-intentioned people back into the swamp of behaviour contrary to their values?
The foundation of South Africa’s apartheid is also hidden in the foundations of business today, and is one root cause of the global problems we are facing. This common foundation is the legal construct restricting the power to govern, and the right to a share of the wealth generated, to only the investing shareholders, rather than to all stakeholders.
Apartheid as a word means “a context (heid) of separation (apart)”. Such a context of separation was the gravity driving the behaviours that harmed all South Africans, and a context of separation is the gravity driving the behaviours harming us all today.
Apartheid grew out of a worldview that saw having a white skin as the reason for someone to have better capabilities and to deserve more. So only those who had a white skin were eligible to vote for politicians, own land, and enjoy most of the wealth of the country. In reality, a century ago having white skin just meant that you came from Europe, which had just been lucky enough to be the first in the next industrial revolution.
Apartheid was a legal construct allowing only one stakeholder group to have voting rights in elections, and the right to own property, work, education etc. In parallel, business is a legal construct where only the stakeholders investing money have the right to vote and a share of the wealth generated.
Apartheid disenfranchising all other stakeholders, denying them any role in steering the country into the future, denying them a share of the wealth generated from their past labour. All the emotional and physical injustices; the lives lived far short of their potential; and the protests inside and outside South Africa were inevitable consequences of the construct of South African apartheid, and all entirely a choice driven by a few with power.
Does having more money, or financial power, mean today that you are more capable of making the better choice in the annual general meeting of a multinational than any other stakeholder?
We have invented another context of separation in business, and embedded it in the laws we have written. This prevents all but the investors from engaging in steering our companies into the future, and reserves most of the benefits, e.g. the capital gain generated, to those investors. Does having more money today mean you are more capable of making the better choice in the annual general meeting of a multinational, and deserve all the dividends and capital gain? Or does it simply correlate with having the power over others to satisfy one’s short-term emotional drives?
We seldom make it a habit to become truly aware of the context we are in, whether it’s physical gravity or some other kind of gravity pulling at us; and seldom recognise how this pull shapes everyone’s behaviour and our collective responsibility to change it.
2) Why excluding stakeholders has lead to our global crisis
Climate change, and everything else threatening our human civilisation with extinction, is an inevitable consequence of the apartheid-like shareholder context. Excluding most stakeholders — human and non-human — creates a gravity that is pulling us deeper into the swamp of extinction.
When investors have all the decision power in a multinational, and simultaneously the courts mis-interpret company law as saying “shareholder return is the only purpose of a company”, then decisions will be taken based on the worldview, emotional drives and cognitive biases of those investors.
Someone may be a wonderfully loving mother at home with her children. The next day she may sit in an annual general meeting representing the pension fund employing her, and make choices that will harm her grandchildren. In the AGM everyone is inside the context of the financial stakeholders — i.e., the shareholders. None of the other stakeholders are present, none can voice with power the needs of other stakeholder groups, and none has the power to vote.
The financial investors also get all of the rise in capital value of the company, and all of the dividends, i.e., surplus cash. Of course, many of the decisions that lead to how much dividend is issued and the rise in capital value of the company are deeply embedded in the voting at an annual general meeting.
In the general meetings of a typical company today, no-one has the power to defend the needs of the children, grandchildren, or even the insects we all depend on for life. No-one has the power to defend the needs of the staff, customers, suppliers, or any of the other stakeholders. No-one can say “Sorry, that option costs our stakeholder group too much. We vote no.”
This sets the stage for decisions that are contrary to the needs of all the non-financial stakeholders.
Is it any wonder then, that, when faced with a choice between two or more options, all too often the negative consequences are borne by those stakeholders excluded from the decision in the AGM? The staff, customers, suppliers, or future generations?
Now imagine a century of decisions in millions of companies. Each one small and insignificant. But together adding up to the crises threatening humanity today.
I have concluded over the past ten years that the apartheid-like separation of stakeholders is the common factor in South Africa and business. I have hope because I believe we can reapply in business today what worked in the transformation of apartheid South Africa before.
3) Why current solutions cannot solve our challenges
There are many excellent initiatives underway to transform business into a force for good for all. They have changed business far too little in the past ten years, far too little for us to have hope that we can address our global crises in time.
The Economy for the Common Good, Benefit Corporations, Purpose Companies, and b-corps are all essential first steps. Equally, the trend towards developing leadership ethics, transparency, alternate ways of organising like Holacracy, Sociocracy, and Deliberately Developmental Organisations are essential components.
But even the most responsible leader using the most powerful of these tools can, at best, make small, local, and fragile changes. The apartheid-like context of separation of our current incorporation legal constructs will always pull these improvements back to our current status quo, because only investors have legally mandated decision power to decide on the board and other major decisions; the investors have the majority benefit from those decisions; with all others separated from power and benefit.
However, all stakeholders carry many of the costs of those decisions. Sometimes for many generations into the future.
Every gentle attempt to change the system, gentle enough to keep society stable, will get pulled back to the status quo, unless we also remove the root cause of the gravity holding us in the status quo. So the pressure is growing to use forceful change; even though it risks destroying society at the same time. A Pyrrhic victory indeed.
The funding response to Notre Dame proves that there is no shortage of money. All of the examples above show that we know how to develop leaders with the right ethics, and how to organise. Nor is it a lack of political will; sadly the politicians are equally trapped by the same gravity created by our context of separation.
It is a lack of capacity to see the way that the legal constructs our ancestors invented have become a kind of gravity pulling us into a swamp of destructive behaviour. A growing number of people are now seeing this. For example, we are now starting up an incubator to grow startups using the Adaptive Organisation pillars of the new FairShares Commons legal framework, along with self-organising and developmental approaches.
South Africans dismantled much of the source of their gravity, their constitution, in five years. There is nothing stopping us rewriting the legal constructs we build our companies on equally fast.
4) Why FairShares within adaptive organisations and teal may be the minimum viable solution.
Buckminster Fuller said “You never change things by fighting the existing reality. To change something, build a new paradigm that makes the existing paradigm obsolete.” The legal construct we use today is an expression of an old reality, well past its use-by date: the culture, beliefs and actual resource scarcity (money) in the past. High time we used a modern construct expressing today’s reality: the resource scarcity of human innovation and attention, and the inter-dependency of life on planet Earth.
Let’s look at what pragmatic actions we can already take now to build a new business paradigm that addresses climate change and other injustices.
Central to these is adopting inclusive legal incorporation constructs. Those of the Purpose Stiftung, and even more so those of the FairShares Company and the FairShares Commons, are sufficiently proven and ready to be adopted by those forward-looking companies that want to show the way.
These build on proven approaches used for decades, for example by Carl Zeiss, Robert Bosch, Mondragon etc. Even VISA, in its first decade, was able to transform the completely dysfunctional relationships between players in the emerging credit card system because of VISA included all in a democratic, citizenship based governance. And the first CEO, Dee Hock, is clear that the biggest miss he made was failing to convince the banks to include the credit card holders in that governance.
We can do this now in most countries. We do not need to change company law. Using existing company law we can easily create distributed, equitable governance and wealth sharing. For example, in the FairShares Commons Incorporation, governance power and wealth is appropriately distributed between all stakeholders.
In a FairShares company investors still get voting rights and a share of wealth. Anything that separates investors from power and wealth is just another kind of separation, and will likely lead to harmful consequences. Few investors are fundamentally bad, most have value to contribute, but are pulled down by the hidden gravity of the system. Just as everyone in South Africa was pulled by the gravity of apartheid. For any new approach to work investors must have just the right amount of power and reward.
In a FairShares company, staff, suppliers, customers, any relevant stakeholder group, even perhaps the city and country the company is based in, can all qualify for voting rights in the general meetings, and a share of the wealth generated. These rights are not based only on buying shares with money. Rather, these rights can also be earned by being sufficiently engaged as investors, employees, customers, suppliers or similar. In other words, through the investment of all capitals: financial, human and natural.
Every stakeholder group has enough power to keep the costs and benefits of decisions balanced across all stakeholders, including future generations.
You may wonder how you can run a company if so many people have a vote. Just as we already run companies. All operating decisions are still made by the executives, not the shareholders. But big decisions, like selling the company, or shifting to renewable energy, are taken by all stakeholders in the AGM or via the board.
Experience over the centuries shows, without any doubt, that when all people are citizens, when all have rights to freedom, and an equitable share of governance and wealth generated, then people, cities and nations prosper long term. The transformation of city and national governance from an aristocratic elite to a citizenship democracy over the past centuries in much of the world has addressed historical injustices and created much good in our lives. Of course, not all injustices are historical, there are many that we still need to address. And globalisation within capitalism as it is now has created new injustices. I believe that the success of freedom in addressing historical injustices may point at how to address today’s injustices.
Just as the ending of apartheid was the essential step of this trend to freedom in South Africa, I believe we now need to take the next step in companies if we are to address social injustices like climate change.
This brings us to freedom (to be in your full strength), as the pragmatic foundation of an economy free of the injustices of climate change, and all others. Freedom right down to the companies that are the building blocks of our economy.
When all stakeholders participate in governance and wealth sharing, including cities, nations and the natural environment, then it’s a small step to seeing the company as a common good over multiple generations. Which means that the company itself must be free. Free of ownership, free to develop to its full potential as an element of society. (Think of nation states, including all the people in them; nation states can no longer be sold by a king to another king. Yet we still have structures encouraging the shareholders of a company to sell the company. )
Freedom also means the company is free to die when it is too old, or no longer has a niche in the social ecosystem. Which means that healthy evolution can work in the business ecosystems, not the harmful culling we see today.
Some ask me “are you in favour of eliminating regulation of business?” Certainly not; what this does is shift the regulation from the indirect, external, macro regulation of today to direct, internal, micro regulation. Once all stakeholders (from investors, staff etc. to entire regions) affected by a general meeting decision are in the general meeting with power there is far less need for the slow, clumsy regulation of state bodies. All benefit from immediate, internal micro regulation.
Ending apartheid in South Africa could only really begin once all South Africans were free and included in governance. However, South Africa has a long way to still go in addressing all injustices inherited from apartheid. Governance power is still not yet well distributed, and the share of wealth even less so.
We only begin ending the global injustices of today’s capitalism once the full spread of company stakeholders are included in governance and wealth sharing, and the legal being we call a company is as free as the natural beings you and I are.
Even if all companies were FairShares Commons tomorrow, we would have a long way to go before the unjust consequences our current economic and political choices had been addressed. But we’d be going a lot faster than we can now.
There are four lessons from what worked in transforming South Africa to re-apply to business:
- Freedom is the foundation. Each company must be free, not subject to single-class ownership. Then everyone can have the psychological safety that comes with being fully enfranchised and having full information rights. Only then is it really safe to use the full power of Holacracy, Sociocracy and Deliberately Developmental methods.
- Include everyone in the process, in the benefits and the costs, especially those you see as “the other”. Climate change has occurred because we externalise the costs onto others (especially future generations, our children and grandchildren). Once we no see “others” externalising costs becomes visible as self-harm.
- Human beings have written our company statutes, our stories of how things must work. So humans like you and me can rewrite them now.
- Quick successes first. Use existing legal constructs and loopholes creatively to do it now, even if not perfect. The FairShares Commons Incorporation is already being implemented in the UK, many other countries in the EU, Nigeria and the USA.
5) Join us in this work
We already have early success stories. Companies like Evolutesix, UniOne, LocoSoco and Coopexchange are all using variants of the FairShares company, and UniOne is the current best example of a FairShares Commons.
Let’s work together to change the apartheid foundations of business fast enough to create the regenerative economy society needs now. Register here if you want to be kept up to date. Or email us at askevolutesix@evolutesix.com
Photo by Ante Hamersmit on Unsplash