The Idea in Brief
The financial and economic crisis may have eased, but the foundations of capitalism are still shaky. Governments feel pressured to involve themselves ever more deeply in the affairs of business so that another system-shattering event doesn’t occur. Rising income inequality, high unemployment, and spiraling budget deficits are exacerbating public antagonism toward business. And the shifting balance of power between East and West promises to feed the tensions.
But perhaps the biggest danger to capitalism is that short-term approaches to running and investing in companies—the “quarterly capitalism” responsible for the near-meltdown of the financial system—still reign.
Business leaders have a choice: They can take the initiative to reform the system, or the system will be reformed for them. In particular, there are three concrete steps they should consider: jettisoning their organization’s short-term orientation and changing its structure and incentives to focus on the long term; infusing their organizations with the perspective that serving the interests of all major stakeholders is not at odds with the goal of maximizing corporate value; and bolstering boards’ ability to govern like owners.
These steps will not only make the capitalist system stronger and more trusted; they will also spur innovation and fuel sustainable economic growth.
The near meltdown of the financial system and the ensuing Great Recession have been, and will remain, the defining issue for the current generation of executives. Now that the worst seems to be behind us, it’s tempting to feel deep relief—and a strong desire to return to the comfort of business as usual. But that is simply not an option. In the past three years we’ve already seen a dramatic acceleration in the shifting balance of power between the developed West and the emerging East, a rise in populist politics and social stresses in a number of countries, and significant strains on global governance systems. As the fallout from the crisis continues, we’re likely to see increased geopolitical rivalries, new international security challenges, and rising tensions from trade, migration, and resource competition. For business leaders, however, the most consequential outcome of the crisis is the challenge to capitalism itself.