Capitalism at Risk: How Companies Can Lead

Joseph L. Bower; Dutch  Leonard; Lynn S. Paine

Book | 2020

Capitalism at Risk: How Companies Can Lead

by Joseph L. Bower, Dutch Leonard and Lynn S. Paine

Abstract

Who should take the lead in fixing market capitalism? Business—not government alone. The spread of capitalism worldwide has made people wealthier than ever before. But capitalism's future is far from assured. Pandemics, income inequality, resource depletion, mass migrations from poor to rich countries, religious fundamentalism, the misuse of social media, and cyberattacks—these are just a few of the threats to continuing prosperity that we see dominating the headlines every day. How can capitalism be sustained? And who should spearhead the effort? Critics turn to government. In their groundbreaking book, Capitalism at Risk, Harvard Business School professors Joseph Bower, Herman Leonard, and Lynn Paine argue that while robust governments must play a role, leadership by business is essential. For enterprising companies—whether large multinationals, established regional players, or small startups—the current threats to market capitalism present important opportunities. In this updated and expanded edition of Capitalism at Risk, Bower, Leonard, and Paine set forth a renewed and more urgent call to action. With three additional chapters and a new preface, the authors explain how the eleven original disruptors of the global market system clash with the digital age, and they provide lessons on how to take action. Presenting examples of companies already making a difference, Bower, Leonard, and Paine show how business must serve both as innovator and activist—developing corporate strategies that effect change at the community, national, and international levels. Filled with rich insights, this new edition of Capitalism at Risk presents a compelling and constructive vision for the future of market capitalism.

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Bower, Joseph L., Dutch Leonard, and Lynn S. Paine. Capitalism at Risk: How Companies Can Lead. 2nd ed. Boston: Harvard Business Review Press, 2020.

The case concerns the sale of Mãe Terra, one of Brazil's leading brands for packaged organic foods, to the consumer goods giant Unilever in 2017. Working with Unilever management, Mãe Terra’s CEO Alexandre Borges must determine whether and how to keep Mãe Terra's B Certification, which attests to its commitment to having a positive social and environmental impact, and what internal governance mechanisms will enable Mãe Terra to maintain its mission, values, and practices even as it is integrated into a large volume-driven multinational whose governance follows standard listed company principles.

The Dutch East India Company’s board of directors must decide what to do about an impending legal requirement to liquidate the company’s assets and return to shareholders their capital and any profits earned during a ten-year lock-up period. The charter granted to the company in 1602 by the Dutch Estates General (legislature) required the liquidation and accounting to shareholders after the initial ten-year period and again at the end of a second ten-year period. However, the company’s directors believe that more time is needed to reap the benefits of shareholders’ initial investments and that liquidating the company’s assets after the initial ten-year lock-up would make it impossible to raise capital for the second ten-year term. The case describes the origins of the Dutch East India Company, the world’s first publicly-traded multinational company, and traces key aspects of the company’s governance and development during its first ten years, including the emergence of disagreement among shareholders about corporate strategy and dividend policy.

All organizations practice some form of risk management to identify and assess routine risks in their operations, supply chains, strategy, and external environment. These risk management policies, however, fail in the presence of novelty. Novel risks arise from unforeseen events, from complex combinations of apparently routine events, and from apparently familiar events occurring at unprecedented scale and speed. Mobilizing routine risk management to novel events will be ineffective, and, more seriously, delude management into thinking that risks have been mitigated when they may already have escalated to serious consequences. Based on best practices from the private and public sector, the paper describes structures and processes to identify and respond to novel risks. A critical incident management team makes assessments and develops options in the event’s uncertain and volatile environment. The team’s decision-making process has to be rapid, improvisational, iterative, and humble since not every action taken will work as intended.

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Capitalism at Risk: How Companies Can Lead

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