The recent lapses in corporate behaviour raise serious questions about the future of the democratic capitalist system. The responsibility now, says US secretary of commerce Donald Evans, is on CEOs to show by their actions that responsible corporate stewardship can be a force for good – and that capitalism works. –
Each year, the World Economic Forum in Davos provides an important opportunity for leaders in business, government, academia, and the media to discuss the most pressing issues in the global community.
This year, the theme of “Building Trust” is especially important as corporations, capitalism, and the free market system are coming under fire because of the misdeeds of a few.
It is my hope that this year, the World Economic Forum’s Annual Meeting will focus on the actions that governments, corporations, academics and the media need to take to defend and strengthen the free market system.
President George W Bush summarized well the challenge that the free market system is now facing. He noted:”In the long run, there’s no capitalism without conscience; there is no wealth without character.”
The reasons are obvious. Investors will not trust their money to capital markets if they believe that companies are trying to deceive them. The average citizens of developing and transitioning economies will not embrace liberalized trade and increased investment if they are not convinced that they will benefit.
And workers will not produce at their full strength if their employers have not shown their commitment to the community in which the company operates. The burden to prove the benefits of capitalism lies on all who believe that free markets are a crucial aspect of global development.
We have found in the last year that governments and others in the public sector may set the rules but it is the private sector that plays the game and makes the system work. The charge of our corporate leaders, in that context, is a great one. And in the current environment it is even greater.
Business is a noble calling. Capitalism is at the heart of civil society. Our CEOs are public servants. And the responsibility falls to them to provide workers with the chance to create, to build, to learn and to pursue.
The public is coming to expect firms to act as good corporate citizens, understanding that businesses are responsible for more than simply “the bottom line”. But I would ask that instead of focusing on just corporate governance in accounting and auditing or just corporate citizenship in investing in communities, the leaders in Davos and elsewhere reflect on corporate stewardship and the future of the democratic capitalist system.
If you look through a keyhole, an entire company is viewed through a single individual – the chief executive officer. Great authority is vested in the men and women who run our public corporations, and with such power comes responsibility.
CEOs aren’t simply stewards of their individual companies; they are stewards of capitalism itself. As stewards, they not only protect the freedom and vision of capitalism today but also preserve the future freedom of tomorrow’s generation of entrepreneurs, investors and society.
Corporate stewardship is broader than corporate governance. Governance is about being a responsible leader of your organization and your employees. Good corporate governance is not an option; it is expected and legally mandated.
Responsible leadership, as we know, is not found on a balance sheet, but its hallmark is the trust that a chief executive has with his employees, as well as the trust that the chief executive has with his shareholders.
Trust is essential because ultimately our capacity to deal with corporate deceit has to be about more than passing new laws and setting thresholds. The right statutory and regulatory framework is critical. But our moral character will be determining.
Certainly, for the United States, president Bush has made significant inroads to establishing a system of checks and balances to restore and sustain trust in our public corporations.
He implemented the most aggressive corporate reform agenda in 65 years, and there can be no doubt that this administration will use the full weight of the law to expose and punish corruption.
President Bush acknowledges, however, that regulatory reform is only one part of the process. He called on our corporations and our corporate leaders to set and follow high standards in their business practices. In addition, he provided a mandate for American companies to lead the world towards a new model of corporate stewardship.
Stewardship is also bigger than just good corporate citizenship. Citizenship includes all the investments that companies make in the communities in which they operate, and unlike the expected good governance, citizenship is an opportunity to do more than is required.
Many companies have recognized their ability to promote a greater good and a higher standard than when they conduct business. Citizenship is most often seen in the roads, the schools, the hospitals and all the other infrastructure projects that benefit communities and improve the productivity of workers.
But even though companies are sharing their value in these important projects, their most important contribution will be their values in democracy, openness and free markets.
Corporate stewardship is the successful integration of the economic interests of a corporation and the unique needs and strengths of the communities in which it operates. This integration contributes directly to the long-term growth and success of both the corporation and the community. Business leaders who are good corporate stewards contribute to the vibrancy of democratic capitalism.
The future of free markets lies in the hands of those today who either use it well or abuse it. Many of us consider capitalism to be the best mechanism for allocating resources and generating growth. But there are millions of people who doubt that truth – because we have not been making the case.
I hope that the leaders at Davos will make the case for democratic capitalism. We have to show that CEOs are really focused on reforming capital markets. We have to show that competitors can also cooperate. We have to show that companies are contributing to their communities.
CEOs and government officials must aim to spread prosperity around the globe, through good citizenship programmes or simply through positive examples of good corporate character. This goal is not only good policy but also good business. Smart executives know that increased prosperity leads to greater economic freedom and higher standards of living – which, in turn, create a demand for greater social and political freedoms and a higher quality of life.
Government and the public are calling for better, more socially responsible companies that embrace compassionate capitalism. Now is the time for companies and governments to support a common good through their business activities both at home and abroad.
Donald Evans has been US secretary of commerce since January 2001. A BS and MBA graduate of the University of Texas, he worked for energy company Tom Brown Inc for 25 years, progressing from an oil rig to become CEO. He is active in the Scleroderma Foundation, a nonprofit health organization, and in Native Vision, which provides services to Native American children.