The dominant system of global private economic ordering, grounded in classical liberal economic theory and based on robust private markets and a limited state regulatory role, has come under attack. That attack has been sharpened over the last several decades as the development of many poor states has failed to accelerate and as a consequence of the economic crisis of developed states that began to be felt in earnest in 2008. Like legal systems, economic systems grounded solely on rational activity without a foundation in normative value systems, are either incomplete or subject to perversion. The systems built on this grounding in the material (that is in materialist systems) are concerned with the attainment of the foundational object, and are indifferent to the means to those ends, except to the extent that the means are more or less efficient in the attainment of that objective. Like the great 19th century systems of constitutional law, these systems privilege process and not the normative values that underlie them. They look to Rechtsstaat and not Sozialstaat constructions of value, efficiency, and the right. Just as in constitutional law value systems provide the critical element in constructing legal systems, so in the law of economics, normative systems are vital for the construction of those values that necessarily infuse rationality. Economics itself, in the West, has sought to engage in these notions.
The corporate social responsibility movement is, to some extent, built on these notions. It seeks, sometimes in an unstructured and unsystematic way, to build "values" into the process of welfare maximization that continues to serve as the ordering basis of human activity (especially in the commercial sphere). But that tentativeness suggests forward movement. A recent post by Jim Kelly in Global Governance Watch describes a number of different emerging approaches to developing normative values frameworks for corporate governance. Jim Kelly, Vatican Joins Transnational Elites in Devising New Forms of Capitalism, Corporate Governance Watch June 30, 2010. Kelly identifies the following schools:
1. Moral capitalism. Steve Young, the author of Moral Capitalism: Reconciling Private Interest with the Public Good, is the Global Executive Director of the Caux Round Table ("CRT"). The CRT's 2009 Principles for Responsible Business (updated in 2010) comprise seven principles and more detailed Stakeholder Management Guidelines covering each of the key stakeholder dimensions of ethical business practices: customers, employees, shareholders, suppliers, competitors, and communities.
2. Co-op capitalism. Noreena Hertz, Professor of Globalisation, Sustainability and Finance at the Duisenberg School of Finance, promotes the concept of "co-op capitalism," which, according to a 2009 FastCompany.com article, "calls for businesses, governments, NGOs, and the public to experiment together to design new, more-adaptive business models and financial structures that take both profit and larger social goals into account."
3. Creative capitalism. As Bill Gates, the former Chairman of Microsoft Corporation, explained in a January 2008 speech delivered at the World Economic Forum in Davos, Switzerland, "creative capitalism" is "an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world's inequities."
4. Connected capitalism. In a March 2009 speech delivered at a program sponsored by the Council on Foreign Relations, Neville Isdell, then the Chairman of the Board of the Coca Cola Company, introduced "connected capitalism," as "a new model of how businesses must engage with society across four platforms: communities, institutions, social challenges and values." According to Isdell, connected capitalism requires business leaders to "connect your business to the communities that you serve;" "connect your business with civil society and governments to address relevant large-scale problems;" "connect your philanthropy, your sustainability agenda, with the core of your business;" and "connect your business with the values of your own employees."
5. Cohesive capitalism. As Ben J. Verwaayen, Chief Executive Officer of Alcatel-Lucent, France, explained in a panel discussion held on January 28, 2010 during the 2010 Annual Meeting of the World Economic Forum in Davos, Switzerland, and in an online posting the next day, "cohesive capitalism" is a capitalism that "has to show its contribution to strengthen the cohesion of society at large." Organizations must challenge individuals "to contribute to society in which they operate," what Verwaayen refers to as a "cohesive society."
6. Sustainable capitalism. In a June 24, 2010 opinion piece in The Wall Street Journal, former U.S. Vice-President Al Gore and David Blood reminded readers that "before the crises and since, we (and others) have called for a more long-term and responsible form of capitalism-what we call ‘sustainable capitalism.'" According to the pair, sustainable capitalism "explicitly integrates environmental, social and governance (ESG) factors into strategy, the measurement of outputs, and the assessment of both risks and opportunities." While Gore and Blood opined that "the rising inequality in our society is clearly unacceptable," they "do not support government-mandated compensation caps or other prescribed compensation policies." However, "if the business and investment communities do not act, governments may." (emphasis added).
7. Social capitalism. For Kevin Rudd, Prime Minister of Australia from December 2007 until June 24, 2010, government action is at the center of what he referred to as "social capitalism" in an article he authored for the February 2009 issue of The Monthly. For Rudd, whether the new regime is called "social capitalism," or "social-democratic capitalism," or "social democracy," "the concept is clear: a system of open markets, unambiguously regulated by an activist state, and one in which the state intervenes to reduce the greater inequalities that competitive markets will inevitably generate."
8. Humane capitalism. As Pope Benedict XVI explained in paragraph 46 of his third encyclical, Caritas in Veritate ("Charity in Truth"), "the traditional valid distinction between profit-based companies and non-profit organizations can no longer do full justice to reality, or offer practical direction for the future."
Id. Mr. Kelly criticizes the current application of Humane capitalism by representatives of Pope Benedict XVI. "At face value, Pope Benedict XVI's vision for the pursuit of humane capitalism at the national level, with respect for the rule of law and the subsidiarity principle, is a positive and hopeful one. However, disappointingly, an address delivered on June 8, 2010 at the 14th regular session of the Human Rights Council by Archbishop Tomasi, the Holy See's permanent observer at the United Nations offices in Geneva, evidences a complete disregard for the spirit and practical application of Pope Benedict XVI's call for humane capitalism." Id.
Mr. Kelly argues for what he terms "constructive capitalism" as a better values based alternative . "Ultimately, the evolution of capitalism should be rooted in the democratic process and rule of law at the national level, specifically in the context of the organic development of human rights. This calls for what this author refers to as "constructive capitalism." Constructive capitalism is capitalism that, in addition to focusing on increasing shareholder value, promotes improvement and development, both internally within businesses and externally within society. " Id. And he describes what he terms the seven phases of constructive capitalism: attitude, awareness, assessments, acknowledgment, alliances, adjustment, and advocacy. Id.
Left off the list are normative value systems that do not derive from out of conventional economics--principally the Marxist inspired values systems that, while dismissed as anachronisms within developed states, still finds a ready audience within least developed states and among elites still tied to Marxist theories of social and politician ordering. They are also worth considering, if only because of potential to affect global discussion of values in economics and its consequences for corporate governance. The problems of values economics, and its growing importance within conventional economics, Marxist and religion based alternatives (and principally within Catholic social thought) are explored in some detail in Larry Catá Backer, "Values Economics and Theology: The Contribution of Catholic Social Thought and Its Implications for Legal Regulatory Systems," Economics, Management, and Financial Markets 5(2):-- (2010).
The move to values economics has significant implications for corporate governance. These effects are consequential--they derive from an application of values notions to modify the understanding of shareholder or corporate institutional welfare maximization. That, in turn, can substantially alter the way in which directors approach an understanding of their duty to manage the corporation, officers to run the day to day operations of the entity and shareholders to approach the best mix between the income, property and control values of their shares. This reworking can have significant effects on current efforts to change the way in which corporations engage in business with human rights implications consistent with their paramount duty to maximize value. For a discussion of impediments under current models, see, e.g., Larry Catá Backer, Using Corporate Law to Encourage Respect for Human Rights in Economic Transactions: Considering the November 2009 Summary Report on Corporate Law and Human Rights Under the UN SRSG Mandate, Law at the End of the Day, Jan. 14, 2010.