From the earliest days of capital- ism, there has been a struggle over the purpose of leadership: who does the capitalist leader serve? Do leaders serve themselves or the community? The fundamental battle is whether good leaders are simply effective or whether good leaders are virtuous. Ideally, good leaders are both effective and virtuous. Ideally, there would not be war, famine, disease and poverty. As leaders we may strive for the ideal but meanwhile we have to deal with reality.
The brilliant success of capitalism in creating wealth has dark foundations. President Roosevelt raged against the “malefactors of great wealth”. These are the leaders who built the dark satanic mills of the Industrial Revolu- tion, and made great fortunes in the process.
In 1835 Balzac wrote: “behind every great fortune lies a great crime”, a phrase repeated in The Godfather. The rage against the rich is not a new phenomenon.
The “greed is good” form of lead- ership continues. It is given ample justification by the shareholder value revolution started in the 1980s by Professor Alfred Rappaport of Kellogg GSM. Originally, this was intended to align leaders’ and shareholders’ incen- tives. It supported the legal fiction that leaders serve shareholders.
In many firms, leaders serve themselves. They may not build dark satanic mills any more, but they will do what it takes to maximise their own wealth. They will happily make taxable profits disap- pear into tax havens and grind zero hour employees down with algorithms that make old fashioned time and motion managers look benign.
But capitalism has also always had ‘enlightened’ leaders who looked beyond money to moral purpose. The great Quaker families of the 19th century are prime examples. The Fry, Rowntree and Cadbury dynasties all set up chocolate businesses as part of the temperance drive: being a chocoholic was deemed to be better than being an alcoholic. Their moral purpose extended to the way they treated their workers by creating model towns such as Bourneville.
In the 21st century the battle between effectiveness and virtue has intensified for three reasons. Each reason has consequences for the future of leadership and business.
Externalities Society is becoming less tolerant of the problem of ‘private profit, public loss’. This ranges from bailing out bankers from the public purse to remediating the problems of pollution. The result is, inevitably, ever more regulation to control these excesses.
You can regulate compli- ance, not virtue. Inequality Fifty years ago CEOs of S&P 500 firms earned 20 times as much as the average worker; now they earn 270 times as much. If real average earnings were rising fast this might not have mattered: there was more cake for all. Now it looks like the few are eating the cake of the many.
This greed contributes to grievance politics and populism, which can have very dangerous consequences.Trust The IPSOS MORI veracity index shows that business leaders are trusted as much as estate agents, but considerably less than hair- dressers. A workplace in which there is low trust is rarely a happy or effective workplace.
Capitalism remains the most effective wealth creation machine ever devised. It also remains prone to wild excesses. To be sustainable, it has to find ways of mitigating its own excesses. Capitalism must be saved from itself. That is a real leadership challenge. As a leader you cannot change capitalism by yourself. But you can lead in such away as to be a role model for others.
Run your business to avoid imposing externalities on society; avoid excessive greed; and build real trust within and beyond your organisation. If you can do all this, you may achieve the unique feat of being both effective and virtu- ous. You will be a good leader for the 21st century.
Jo Owen is an author, a keynote speaker and the founder of eight NGOs. His latest book is The Tribal Code (Auvian Press)