Business and the new civil economy

I read a great book recently and wanted to share some thoughts on the same. The book is titled ‘The New Capitalists: How Citizen Investors are Reshaping the Corporate Agenda’ and written by Stephen Davis, Jon Lukomnik and David Pitt-Watson.

It is a progressive read in terms of explaining the rise of a new civil economy. It explains the Circle of Accountability to the new capitalists drawing parallels to a civil society. One thing is clear, that this book is published, that there are instances that have triggered this thinking, that there are rules, regulations, standards that are being rewritten, are all signs of progress.

That capital fuels reform is undeniable. Only now, the capital belongs to the working class as opposed to the individual rich. That corporate governance has a direct correlation to higher valuations of the company, other related benefits namely creation of more jobs is undeniable but what I found most interesting was that “momentum" of corporate governance reform at a company is a key influence on equity price performance.

I think the new civil economy affords new ways for investors to be engaged with a company but in the end it could come down to a matter of how many people can you actually have in the driver’s seat as opposed to it being a matter of fair and complete disclosure and even then it might be open to interpretation.

Since the society and shareholder are one and the same, it follows that companies should act in the interests of society at large. These universal owners expect companies to perform a certain way, which is no different from what we know as common sense. For example, creation of value is not a new principle. It still is the appropriate way to behave. That there are myriad of standards to follow is itself a huge deterrent for a company. A possible solution might be the Global Compact, which is but slowly emerging as a standard.

In essence, the individuals who own stock in the biggest corporations of the world have a majority over the individual rich. However, to simplify the concept, I am gong to use an example. An individual A owns 2% GE vs. individuals B through Z who combined own more than 30% of GE. For the B-Z group to make a difference they have to work together and the way they do that is through institutional investors, web collaborative tools such as, Wikis, rating services, investor advocacy tools, independent auditors, audit certifying agencies and the like. These collectively are the new information moguls. The recent fate of activist investor Carl Icahn, who failed to secure a seat on Motorola’s board belies the power of these new information moguls, what with one shareholder advisory firms siding with Carl Icahn and the other with the Motorola management.

The book nicely ends with a memo to the various players in the new economic ecosystem. Whether it is sustained, is to be seen in the future. For now, this book offers a lot of hope to someone who believes business does a lot of good for economies and societies.