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On Adam Smith, Gordon Gecko and controls on self-interest
22 September 2009:
Maybe it’s due to technology, maybe the global economy or maybe the revelations about corporate behaviour as one company after another, melting down and asking for taxpayer aid, laid bare the truth behind their balance sheets. Layman and businessman alike have come to realise that the old taboos surrounding ways of behaviour in the business world no longer work – or perhaps worked inefficiently at best.
The way of life that modelled itself on Gordon Gecko in the movie ‘Wall Street’ and adopted his clarion call of “greed is good,” is all but gone.
H. Landis Gabel, Emeritus Professor of Economics and Management at INSEAD, explains there used to be two models of social responsibility, “one in which the company is good to its employees, is well-regarded by society, and makes lots of money for its main stakeholder – the shareholders. This would have made Milton Friedman happy. In the second model, the CEO allocates resources – that is, wealth – to the various stakeholders and the shareholders are just one part of that group; the others might be the employees, the suppliers, etc. But I don’t know of any CEO who could stand up at an annual meeting and say he’s reducing the value of his company in this way.”
Gabel has a third model: voluntary compliance with social codes – the use of socially-aware groups to bring about corporate social responsibility (CSR). Not hard laws and regulations, but rules of behaviour. “The kind you learned at your mother’s knee,” he says.
“Corporate social responsibility is moving into an area where laws and regulations are ineffective or do not even exist to handle circumstances,” says Gabel. “Because of globalisation and the past two decades or more of de-regulation, there are more and more interrelationships between companies and countries that don’t fall into existing legal codes.” This creates a strong case for socially responsible interest groups that can galvanise corporations into taking the right actions, often using shame as a weapon – not unlike the “shunning” used as a behavioural tool in colonial America and elsewhere.
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Source: INSEAD
