Measuring diverse capitals. Re-making stakeholder participation and market oversight


Increasingly interested in what I think is a salient and as far as I can tell under-explored question, which to my mind is central to evolving beyond current neo-liberal market orthodoxies at the levels of individual, firm, mrkt and economy. Essentially . . .

How to credibly measure/assess at scale, with consistency and relevance, the emerging “balanced stakeholder” goals and performance against them, of individual firms and of aggregated markets? . . . . Avoiding (1) moral hazards entailed in closed-loop regulation: CEO/Board sets rules for own performance and/or procures independent validation via consultants; think “Arthur Anderson”, or (2) imposition on firms of overbearing costs to prove virtue and veracity, thereby stifling value-creating commercial activity?

Before, I lose you to claims of boiling oceans even as they rise, think of existing market indices like VIX which provides a measure of volatility or fear at large among actors. That’s a fairly nefarious concept, made legitimate (then there’s this, volfefe. Less said the better). Think also of the structures we’ve built to provide information on company performance; the FTSE, NYSE, DAX, MSCI, Russell Index . . . etc. This ecosystem of instruments and interested actors provides a form of “discipline” on firms, mainly via the share price, to keep them attentive to shareholder concerns.

How do we develop for non-traditional capitals a similar degree of oversight, information sharing, and informed, active interest to hold firms and markets to account?

Context. As firms increasingly debate expanding their capitals beyond economic/shareholder return (US Business Round Table, at first blush an encouraging sign until one ponders the stark admission this is of just how far from their agenda have been considerations of customer/employee/community etc. But let’s not trifle . . ), the onus of what this expansion means currently falls to Boards, CEOs, and shareholders of influence. Probably by way of declaration or charter or statement of intent.

All well and good but, as business have been saying to activist and civil society in the pejorative for decades, ‘kumbaya’. ‘Weasels-words’ and more recently ‘ESG green-washing’ and ‘impact-washing’ are terms often used to describe progressive overtures on the part of the commercial sector.

Seems self-evident that at same point soon, we will need to establish a broad and comprehensive re-making of the structures and conventions of firm and market oversight to account for non-traditional measures of value creation. Without such a new consensus CEOs and boards will tell their own stories about their intent and their practice. Consulting will dutifully provide sign-off. Most investors, certainly the forever hapless Mums & Dads, will be none the wiser. And in the front rows of AGMs around the world fund managers will look knowingly to the right and deliver a cross-armed, brow-arching, eye-roll. And, the true market makers? Same as it ever was.

I know this is a freighted subject; contentious and multi-faceted. The ardency and force of objections from conventional thought and thinkers is easy to imagine. Calling for any new impositions, compliance, costs or constrains on business and markets is the durian in the fruit-bowl of political ideologies within our liberal democracies. Is it wise or timely to talk to business of unpalatable truths just as it may at last be recognising realities such as the safe and just places Kate has articulated in the doughnut model? Maybe, a good first step is to grasp the durian of multi-stakeholder capitals dilute, sugar-coat, mash, and dye it, and sneak it into the plats de jour of price/book, P/E, EPS etc?

Love to learn of people working on these sorts of questions.

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Hi Beddy,

What is the aim of being able to measure organisations and markets in this manner; if it is to value them so that they can be traded, should we not be going back a step further and asking if that is a goal that we should be striving for?

It seems to me that having, or indeed striving for, blanket solutions of this nature may be a part of the histroic problem that we would do well to avoid. Instead perhaps we should aim for a set of principles (including transparency, clarity and simpicity) that underlie how such goals should be selected and then reported and thus how they can be reviewed and evaluated but crucially that the goals selected are more sector specific.

Another point that perhaps you could clarify for me, if we want to decide how to measure something, do we not need to know what it is we are measuring? Whilst there may have been some acceptance of the types of goals that it would be more productive to be assessing, these have not begun to really be cemented in place as the common measurable objectives (in the way financial goals were long ago).

Would the way goals are measured and the subsequent comparitative evaluation evolve from what is being measured? Would we want it to (would it just revert to we what we know rather than what we want)?

Perhaps we do need to consider how we can measure goals and objectives before we settle on which goals and objectives should be focussed on, in order that they can be usefully evaluated, however we do need to consider why we are measuring and evaluating before starting along that path.

Hello. Forgive my late response. Travelling and its consequences. Conscious I’ve entered into a discussion beyond my pay-grade. However . . .

For the conversation to progress, I guess we need to agree that market-based capitalism, and the economic “rules” constituent firms and their cohabitors follow, will continue to operate broadly within the language, structures, and mechanisms we currently have (regulatory, legal,social, technical . . .). We work with what we’ve got. Traders, profit seekers and all.

Acknowledge and address weaknesses and failures in existing models while simultaneously articulating and mounting “new” models.

Stating measures at this level of conversation is futile. (Unless we’re talking about broad regulation at the level of firms-don’t want to go there just now!). This detail plays out across the multiplicity of firms as quality of oversight, info sharing and participation increases. And that’s the piece that puzzles me most. How new actors whose interests convey and represent balanced stakeholder objectives (safe and just) are brought into some consequential oversight/engagement at the level of individual firm and market? And to do so with enough alignment of interest, knowledge, intention to balance private profit with public good (safe/just)?

You can see how mutual funds are responding to “market signals” by creating various shades of green/ethical/ESG investment vehicles. On balance, this seems encouraging. ESG funds are responding to consumer signals expressing social preferences beyond self-interest or profit maximisation. How to push this development further and have private enterprise respond to safe and just market signals is my question? And critically, how to improve the quality of the engagement btwn firm and stakeholder to strike a balance btwn objective, incentive and outcome that is relevant depending on context, market, industry, firm . . . without imposing stultifying rigidity or laissez faire self-regulation or militant activism (if that makes sense?)

Principles, yes. But doubt principles will cut mustard or influence board and executive behaviour in trade-offs btwn incentive and statement of intent.

Thanks for engaging.