Capitalism is broken.
According to Rebecca Henderson, Harvard Professor and author of Reimagining Capitalism in a World on Fire, “Corporate America has been hollowed out” by the financial industry.
Deregulation of the financial industry has contributed to the rapid growth of GDP for several decades but the benefits have been partially offset by the massive cost to society and the environment.
The main issue is the excessive focus on short term value extraction. Without value creation in equal measure, capitalism dies. I liken it to the story of the Golden Goose.
We all benefit by rebalancing the equation of value extraction and value creation.
How to fix capitalism?
It’s something that I’ve been obsessed with in the last few years. Working on point solutions for the healthcare industry has felt pointless because the foundation of the industry is continuing to erode.
Professional Economists have a clear understanding of the problems but there is not enough political will to address the issues. There is a lack of understanding due to the amount of disinformation and unwillingness of leaders to acknowledge the harm done.
David Rubenstein interviewed Jamie Diamond, CEO of Chase for How to Lead. He is clearly blind to everything but the positive aspects of capitalism. It explains why Robert Reich, economist and former US Secretary of Labor, wrote the book called The System and directed it at Jamie.
It was starting to feel like a gravity problem to me. Gravity problems are what Bill Burnett, author of Designing your Life, calls too big and systemic to fix. In his book, the paths for gravity problems are marked with a big “no go”.
B the Change
The title is not a spelling error. B the Change is the tagline for B Corps, otherwise known as Benefit Corporations.
These corporation embrace stakeholder capitalism and have a formal process in place for assessing their social and environmental impact. Interestingly, many are outperforming their competitors while delivering a broader benefit to all constituents.
B Corps pay employees a living wage, offer health and wellness benefits, invest in the professional development of their employees, take diversity measures seriously and continually look for ways to reduce their environmental footprint. In return, they are rewarded with increased employee engagement and loyalty.
The number of B Corps is growing and attracting investors, including some of the most prominent Silicon Valley Venture Capitalists, even though the legal structure of B Corps cannot be circumvented.
B Corp Legal Structure vs. Corporate Values
Some companies are taking the first step by using the B Corp assessment to evaluate their internal policies. It’s a good first step but still it leaves the company open to activist investors focused on short term results.
John Mackey, CEO of Whole Foods, unfortunately ended up with activist investors because his company was not structure as a B Corp. He shares his experience in the book, The B Corp Handbook.
B Corps and Healthcare
B Corps are a great option for the healthcare industry because the structure eliminates the need to debate whether healthcare is a right or a privilege.
The structure would also relieve common issues such as: non-profits generating too much profit to maintain their non-profit status and private equity backed organizations engaging in value extraction focused practices that erode trust.
The industry needs to rebuild trust and to enhance cooperation and collaboration to support the future of healthcare. Restructuring organizations now would send a clear message about the intent of the industry while honoring the professional values of physicians and others working in the industry.
Role of Accountants
While many talk about the novelty and importance of data-driven decisions, accountants have always utilized data-driven practices in their work.
In fact, Rebecca Henderson in her book Reimagining Capitalism in a World On Fire acknowledges that it has been the accountants who have been writing about the problems with Capitalism and providing the insights needed to fix it.
Long before starting my deep dive on Capitalism, I was connecting the dots that others were not and didn’t understand why. Now I attribute it to my accounting background.