Masterclass Getting back to what matters – creating long-term economic and social value Brian Leavy

Citation

Gorrell, C. (2012), "Masterclass Getting back to what matters – creating long-term economic and social value Brian Leavy", Strategy & Leadership, Vol. 40 No. 4. https://doi.org/10.1108/sl.2012.26140daa.004

Masterclass Getting back to what matters – creating long-term economic and social value Brian Leavy

Article Type: Quick takes From: Strategy & Leadership, Volume 40, Issue 4

This “Masterclass” guides executives through three complementary sets of insights into what is fundamentally wrong with the current model of capitalism, and the specific actions that they can take to create long-term economic and social value.

In the book Fixing the Game, Roger Martin tracks the evolution of “shareholder capitalism” during the latter part of the 20th century and explains why it has become so detrimental:

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  CEOs are expected to deliver results in both the “real market” (customers, factories, and products or services) and the “expectations market” (stock exchanges, shareholders and institutional investors). The real market “produces a positive-sum game for society,” where all stakeholders can be better off “as more and more value is created for customers.” In contrast, the expectations market is a “gigantic zero-sum game,” where wealth is redistributed rather than created. The order of priority does matter.

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  A good alignment between shareholder interests and the priorities of management is possible if the primary performance metric is OTSR (Operating Total Shareholder Returns). This is a “value-creation” measure mainly driven by sales growth, margin improvement and asset efficiency, all of which are “real market” variables under the control of management.

In their manifesto “Creating shared value” in Harvard Business Review, noted strategists Michael Porter and Mark Kramer show business leaders how to restore credibility to capitalism by adopting a view of corporate social responsibility:

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  Mismanagement of a company’s social responsibility in the “shareholder value” era has lead to the broad perception that companies prosper at the expense of the broader community. (Example: BP’s oil spill in the Gulf of Mexico.)

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  In contrast, the relationship between business and society can be a “win-win” opportunity to create new wealth based on addressing society’s deepest needs.

In Higher Ambition, Michael Beer and his co-authors explain “why” high performance over time results when business leaders simultaneously create economic and social value in a highly authentic and integrated way:

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  Evidence-based guidance comes from researching the practices of 36-CEOs across the globe. Two examples are Peter Dunn (Steak n’ Shake) and Doug Conant (Campbell Soup Company).

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  The “higher ambition” leaders featured “have been converging on a distinctive way to lead and manage” that delivers “better and more sustainable results in both economic and social terms.”