Second Annual Corporate Law Reform Workshop
George Washington University Law School
June 26th & 27th, 2006

Participant Papers

Working Group Paper #1
Framing for Corporate Redesign
Corporation 20/20, Tellus Institute, Boston.

The Problem That Has No Name
Why corporate redesign is the unnamed, missing public policy issue of our day - and how effective framing can bring this issue wide public acceptance.

By Marjorie Kelly

It was a comment that lingered in my mind for days. In a private conversation, a business journalist spoke of the "general sense of anxiety without resolution in the air," and the sense that "industrial civilization is at a threshold still not fully understood." I was struck by how common this feeling is, yet how inarticulate it remains: this palpable sense of enormous change in the air for our economy - a sense of new terrain looming dimly ahead. If it's hard to grasp precisely what change is coming, the forces propelling it are clear. One can mention global warming, whose consequences are so far-reaching they stun the mind. One can speak of the mass extinction of species, the increasing wealth divide, the unprecedented capture of government by business. These are forces that by their nature cannot continue to grow. Yet we don't understand what drives them. People point to CEO power, greed, lack of ethics, globalization. A more convincing framework eludes our collective grasp. Policy proposals grow daily in profusion, but they lack a unifying framework. We face "a problem that has no name."

The phrase is from Betty Friedan's 1963 book, The Feminine Mystique, which first described an inarticulate discontent among women, launching the feminist movement. In its essence, feminism was a cultural conversation that resulted in a collective change of mind. It was a conversation about making the unconscious, conscious - about creating widespread awareness of sexism: that vague, pervasive, inarticulate attitude that men were somehow central and women peripheral. Feminism replaced it with the simple realization that women are people too. Today, sexism may not be entirely extinguished in behavior, but its legitimacy is gone. That's the accomplishment of cultural conversation.

Today we need a new cultural conversation about the corporation, for we again face a vague, unnamed, inarticulate form of unconscious bias. Amid the many ideas for corporate reform, we lack the unifying central insight that feminism had. As I wrote in The Divine Right of Capital:

It would not have been enough to see poor funding for girls' athletics as one problem, unequal wages for women as a separate problem, and harassment in the workplace as still a different problem. These battles became one when their common source in sex discrimination was recognized. Yet today we chase after corporate pollution as one problem, low wages as another problem, and corporate welfare as still a third problem.¹

When the public can see the common issue at the heart of these issues, they will become one. And change will gain momentum.

That central issue is corporate design. Instead of believing we face dozens of problems - from excessive CEO pay and out-of-control corporate lobbying to depressed wages and global warming - we must see we face one problem. The problem is corporations are designed to do precisely what they do: deliver profits and downplay social and environmental consequences. If we want different outcomes, we can redesign corporations to deliver them.

Corporate redesign is the focus of Corporation 20/20, an initiative to draft corporate designs that integrate both social and financial concerns, which involves 100 leaders in business, finance, law, government, and civil society. It's also the focus of other emerging reform efforts - including the legal theorists gathering for discussion in the D.C. Roundtable, and the civil society groups united in the Strategic Corporate Initiative led by Corporate Ethics International. It's a focus embraced by legislators in the UK, Minnesota, and Hawaii, who have introduced corporate redesign legislation. And it's a concept taking tangible shape in new corporate forms designed by entrepreneurs, like the socially responsible holding company Upstream 21.

In this emerging movement, corporate redesign is recognized as the central rallying point for economic transformation. But cultural change isn't as simple as delivering a solution to the public. We need a public conversation. Exploring how to launch it is this paper's aim.

In part I, the paper outlines central themes for corporate redesign discussions, drawing on the Framing Working Group of Corporation 20/20, particularly on exercises led by Carol Atwood, founder of Spartacus Media, who does marketing work with Fortune 500 firms.

In part II, the paper floats a hypothesis about the core insight at the root of corporate design. Its theory is that corporations are organized around the metaphor of "property," leading to a focus on maximum short-term gain for a few. The coming transformation - the looming change we can only dimly perceive - is about reorganizing around "life," which is about broad well-being and long-term sustainability. Drawing on the work of cognitive linguist George Lakoff of the University of California-Berkeley, the paper will discuss how these economic metaphors are largely unconscious, and thus the change we seek rests largely on a change of mind.

*     *     *

Part I
Framing the public conversation

The conversation we hope to start is one people are hungry for, but afraid of at the same time. If it begins by addressing anxiety, it ends with hope - with a new and unexpected sense of direction showing a fruitful way forward that will be better for all of us, for all of life. What this conversation is not about - and here's the salient point - is technical talk about corporate board seats, directors' duties, or regulation. It's also not about anti-globalization, fighting corporate power, or ending greed. It's about what matters to the heart, what will make our own lives and those of our grandchildren better. Most importantly, it's about inspiration - about calling forth the leaders to help transformation happen.

While there have been early discussions, the large conversation has yet to begin. We have a chance now - as we never will again - to offer an initial definition of a policy issue. As Robert Reich, secretary of labor under President Bill Clinton, observes in The Power of Public Ideas, this initial definition often determines the final outcome:

The act of raising the salient public question - how to overcome welfare dependency or Soviet aggression, how to improve American competitiveness or reduce the budget deficit - is often the key step, because it subsumes the value judgments that declare something to be a problem, focuses public attention on the issue, and frames the ensuing public debate.²

In defining the problem and possible solutions, we're not salespeople pushing an agenda. We're partners in a common dilemma. As Reich reminds us, even before the question is asked, the public is "already searching for ways to pose it - to give shape and coherence to events that seem random and unsettling." With a well-crafted proposal, Reich says, we are "giving voice to these half-articulated fears and hopes, and embodying them in convincing stories about their sources and the choices they represent."³

*     *     *

There are wrong and right ways to start a public conversation. Some examples of conversations that got off with a resounding thud:

* In one public discussion about a Minnesota bill to change corporate purpose - proposing the voluntary Socially Responsible Corporation (SRC Corp.) framework - the focus was on board seats for employees. Creating these, one consultant said, would restrict companies from making necessary choices like sending production overseas, which could cripple companies. This led Sen. John Marty to strip employee representation out of the draft legislation, putting it back only after advisory board members protested.

* When similar legislation was introduced in Hawaii by House Majority Leader Marcus Oshiro, the Honolulu Advertiser on March 29 published an opinion piece calling the bill "silly and unproductive." The bill's contemplated tax incentives were characterized as a "loophole" through which tax revenue could "leak needlessly." The writer added that "it's the duty of government, not corporations, to serve the public interest." Defending the bill, Oshiro said it was creating a new for-profit/nonprofit "hybrid."

While these legislators should be saluted for taking the lead, policy wonks like myself have failed to provide them good frameworks for discussion. Board seats and tax breaks have become the point. And they're not the point.

The framing working group suggests the right conversations might look more like the following:

We begin by knowing our audience, and recognizing areas of common agreement. We can say, for example, that the current challenges we face - climate change, mass species extinction, and growing wealth inequality - are enormous and unprecedented. The corporate form is obsolete, an antique from the horse and buggy era, not adequate to the challenges of the 21st century. Past approaches to corporate reform - including voluntary corporate social responsibility initiatives, and command-and-control regulation - are not sufficient to the larger task at hand. They haven't touched the core issue, which is that corporate purpose is too narrow. The dominant institution in a democratic economy must serve the public good. But corporations are captive to short-term speculative pressures, leaving executives little ability to think broadly and long term. We're all caught in this inadvertent design - investors and executives as much as employees and citizens. And here's the good news: corporations that escape this vice grip - that are redesigned so they can be fully alive, intimately responsive to the needs of long-term investors, employees, the community, and the planet - these companies will prosper over the long run. Evidence shows they'll be more enduring, more healthy on every measure. And society and the environment will be healthier too.

There is a way out. It's about rethinking the role of corporations in society, and redesigning their governance architecture to reduce speculative pressure, and enhance responsiveness to social and environmental concerns. A new corporate architecture can enhance investor well-being, helping us escape the bone-rattling roller coaster of the recent stock market, with portfolios up 15 percent one year and down 5 percent the next. By turning down the thermostat on speculation, it can bring investors lower risk. Reducing speculative pressures, and enhancing environmental responsiveness, can also help us out of our planetary dilemma, where companies must grow so relentlessly we're using up more planet than we have. A new corporate architecture can bring working people relief from the pressure cooker of the modern workplace, where there's little time for leisure and family life. A new corporate architecture can be the pivot point moving society toward planetary sustainability and broader human well-being.

That's a taste of what corporate redesign conversations might look like. For business, we need to describe the burning issues, making the case that corporate redesign is not a choice but an imperative. We should assume business people want to do the right thing, showing them how redesign can help them do so. We also need to develop the burning issues for civil society, helping them see this is the central issue of the day.

We need to connect redesign to tangible issues people care about, like a healthy ecosystem, good jobs, strong local economies, and prosperous companies. We need to make our message bold enough to distinguish it from socially responsible investing (SRI) and corporate social responsibility (CSR). And we should not blame, because blaming doesn't motivate action but alienates.

Key messages:

1. The current corporate form is obsolete. The corporate form was invented for the machine age, yet we're in a new era of the knowledge economy and ecological limits. Innovation is the greatest competitive advantage today, and it resides in a company's living essence, its employees - yet their knowledge is not formally valued by the current design. And as Peter Barnes writes in Capitalism 3.0: "When capitalism started, nature was abundant and capital was scarce; it thus made sense to reward capital above all else. Today we're awash in capital and literally running out of nature." Companies will function better when governed in a way that fits reality.

2. Corporate redesign is the missing public policy issue of the day. It lies at the root of nearly every major economic issue: the working poor, the shrinking middle class, the Enron crisis, the lobbying crisis, antitrust, wealth concentration, environmental degradation, and more. None of these problems can be fully solved as long as corporations are organized to be indifferent to or at odds with the public good. When executives face a choice between protecting endangered species or increasing quarterly earnings, they choose earnings. If the question is paying fair wages or cutting costs, executives cut costs. When corporate purpose is too narrow, wealth inequality and environmental indifference are not accidents - they are outcomes built into the design.

3. Current approaches to change aren't working. Piecemeal approaches to corporate reform - like antitrust, minimum wage, and clean air and water laws - have proven insufficient. It's time for a systemic approach, changing what corporations are, not just what they do.

4. Business leaders are in a vice grip of short-term capital pressures, and reducing this pressure will enable better management. The president of the Chamber of Commerce decried short-termism in a recent speech. John Reed, former CEO of Citigroup, has shown a PowerPoint slide describing how business is in the grip of an "iron triangle" of short-term pressure: hedge funds, stock analysts, and CEO stock options. There's growing recognition that system pressures have reached an absurd extreme.

5. Companies will be healthier on every measure when they can come fully alive. Studies show employee-owned firms have lower turnover and faster revenue growth. Family controlled firms have a record of longevity other firms envy. Environmentally conscious firms outperform their peers. Management by human beings rather than adding machines is simply better management. This is all but impossible for publicly held companies, unless we as a society change the rules to embrace stakeholder governance.

6. Corporate redesign is not about left versus right. It's about denial versus reality. Life is in trouble. Global warming is real. Thirty million Americans are working hard but unable to lift their families out of poverty. Business as usual got us here, and business as usual is no longer an option.

These are among the themes that can carry corporate redesign to public awareness. But it's not enough to offer design elements wrapped in compelling stories, for then corporate redesign is simply one among countless policy options. In truth, it represents the fundamental seed of economic transformation. We haven't seen this because even reformers remain in the grip of the unconscious bias that is itself the root of the problem.

*     *     *

Part II
In search of the core issue

In corporate redesign work, it's easy to believe designing new corporate structures is the real work, and framing is incidental, like putting a coat of paint on a finished house. But framing is not a coat of paint: It is the idea of the house itself. It is the underlying concept of a house as opposed to say, a cave, or a barn, or a cathedral.

The frame - the core concept - is more fundamental than the size of a doorway, the pitch of a roof, or the length of a wall. Yet in defending employee board seats in Minnesota, the issue was, essentially, the length of the wall: why 20 percent vs. 0 percent employee representation was important. In Hawaii, the dialogue was about a doorway: whether tax breaks were helpful, or a tax revenue "loophole."

Such conversational missteps happen when we see our task as designing technical solutions. But the real task is shifting the public mindset. Architectural designs are of little use if we only build a few hybrid corporation, like so many geodesic domes. But if a widespread shift occurs in what people think corporations are, companies might adopt architectural forms we never dreamed of.

We should recall the fight for the Equal Rights Amendment, which at one time seemed the essential architecture for female equality. ERA didn't pass, yet feminism achieved a cultural shift. In a sense, the ERA was enacted not as a law but as an idea.

If corporate redesign were adopted as an idea, what would it be? Articulating a commonly agreed upon core idea has been difficult, because it lies not in concepts we hold consciously, but in unthinking assumptions we make about the nature of reality itself.

*     *     *

The unconscious power of metaphor

As George Lakoff explains, "human thought processes are largely metaphorical." They rely upon what cognitive scientists term the "cognitive unconscious," a deep level of mind to which we lack direct access, but which contains the frames by which we understand the world. Frames are activated through language. "Thinking differently requires speaking differently," Lakoff writes. To reframe how the public thinks about corporations, we must, first, understand the current core metaphor and, second, deliberately cultivate a new metaphor.⁴

This new metaphor must be not merely clever but accurate, helping us not to win arguments but to see the world more clearly. What is the truth we are missing? How do we see corporations now, and what is a more accurate metaphor?

The current metaphor, I suggest, is this:

We conceptualize corporations as property, as pieces of property owned by shareholders, with a purpose of creating wealth for their owners.

This assumption gives rise to the unconscious bias at the heart of corporate design. We can call it "capital bias" - the notion that returns to capital are the primary aim of company activity. It's an invisible bias that informs what companies focus on, which is increased share price, and what they consider peripheral, which includes environmental and employee well-being. We don't think of this as bias, we think of it as simply the way firms are - much as we once thought sexist behavior was the way men were. Capital bias is so pervasive as to be invisible. Company income statements define income to labor as a "cost," to be driven down, and define income to stockholders as "profit," to be driven up. That's capital bias. When stock price movement is reported daily in the news, yet the public lacks regular and reliable measurements of increasing environmental damage, that's capital bias. When international treaties safeguard investor rights, yet ignore environmental and labor rights, that's capital bias.

It's hard to talk about capital bias directly without sounding argumentative. The reason is that it's uncomfortable to have one's fundamental frame of the world challenged.

To directly question the idea that shareholders "own" corporations sounds threatening. We're accustomed to thinking of property - in our homes and retirement savings - not as a problem but as our security. Many useful conventions in business are built around property. It's helpful for companies to be bought and sold like property. It's useful to issue equity, with value based on earnings, which is the basis of the stock market.

If the property metaphor is useful, it's also incomplete. And deadening. Something that is "property" has no life or dignity of its own. The owner is the locus of meaning, and "property" exists to enrich its owner. Thus employees become second-class citizens, whose function is to create shareholder wealth, and whose low wages serve that end. When property-holders are the center of the economic universe, the environment becomes a source of "raw materials" for production, and a sink for waste. Government becomes an impediment to private enterprise. These associations are activated by the property frame.

Property is about self. It's a concept infants understand - the instinct of "mine, not yours." Ownership is key to a moral system that celebrates individual liberty and devalues government and community.

Property is the original system condition of corporations, and the root of economics. As political economist and historian Gar Alperovitz writes:

The truly defining characteristics of any political-economic system centers always on the issue of property: In the feudal era, massive land ownership was central to who had power. In 19th-century capitalism, modest-size enterprise ownership (of farms as well as businesses) was central. In modern capitalism, corporate and elite ownership is key. In socialism, state ownership is the hallmark.⁵

As British legal theorist William Blackstone wrote in the eighteenth century, property confers a right to "sole and despotic dominion."⁶ If you own something, you do with it as you will. Outside norms have no validity in "your" domain, just as one king had no power in another's kingdom.

The property metaphor is the animating concept behind corporate design and governance. The metaphor of shareholder ownership is held in place by several structural elements:

1. "Agency theory" in common law, which conceives of directors and executives as agents of shareholders, who are the principals.
2. Directors' duties in state law, which mandate loyalty to shareholder interests.
3. The structure of the board, where only shareholders vote for board representatives.
4. CEO incentives, particularly stock options, which directly tie CEO income to shareholder income.
5. Financial statements, which are structured to measure gains to shareholders as the end goal of corporate functioning.

By these mechanisms, the property metaphor becomes a pervasive, invisible, unquestioned governing philosophy - not only for corporations, but for the economy they dominate.

*     *     *

Businesses as living systems

Our aim - as we embrace a new worldview - is not to negate this older concept but to contain it within a broader, more accurate view of corporations as living systems. The alternative metaphor:

Corporations are living systems, intimately connected to larger living systems like communities and nations. All of these are part of a single living system which is the planet, upon which all life depends.

This notion is not a new one. In the 1950s, Peter Drucker spoke of the corporation as a human community, built on respect for workers, rather than a profit-making machine.⁷ Management theorist Peter Senge - developer of the "learning organization" - wrote about alternate views of the corporation as a "living being" versus a "machine for making money." Arie de Geus, former coordinator of planning for Royal Dutch/Shell, in his 1997 book The Living Company documented that "living companies" manage for survival and longevity and live longer than "economic companies," which manage for profit.⁸

When the underlying metaphor shifts, everything shifts. If we begin with living systems, our first concern is planetary health. As biologist Harold Morowtiz says, "Sustained life is a property of an ecological system rather than a single organism or species."⁹ Living systems are inherently about sustainability and interconnection. They're about common governance through systems responsive to many voices.

Mike Thomas, former vice president of human resources and corporate social responsibility at Granite Construction, a $2.6 billion firm in Watsonville, Calif., gives voice to this view. "We have to stop thinking of corporations as machines and think of them as living systems," he says. "And as living systems, they're part of the larger system of the earth, which we have pushed beyond its capacity. Once we see this, we can rediscover the purpose of corporations, which is to serve many stakeholders."

Thomas believes that corporations managing themselves as living systems will prosper. "Companies that serve a larger good will have the most engaged workforce," he says, which will be critical in the coming era of labor shortages, when the number of 35 to 44 year olds will decline 15 percent by 2010.¹⁰ Showing the benefits from managing companies as living systems will pull companies "through the eye of the needle" of transformation, Thomas says.¹¹

The living system metaphor allows us to tap the insights of systems thinking. One example is the notion of feedback loops. Currently, corporate governance feedback loops are attuned to capital feedback, and less sensitive to feedback from employees, the community, or the environment. A hedge fund manager on the board of Continental Airlines forced out the CEO overnight. Yet tomato pickers in Mexico had to protest against Taco Bell for 10 years to raise their income by one penny per quart.

Another concept is that of "emergence" - order emerging spontaneously at critical points of instability, which is part of how systems evolve.¹² New corporate forms have already emerged that embed social mission in governance, such as the employee-owned firm BNA, the fair trade firm Equal Exchange, a family-controlled public company like the New York Times, and a producer cooperative like Organic Valley. These show how corporations can be organized in ways that don't put capital returns at the center, and their stories demonstrate new forms are viable.

Evoking new frames through language

If stories are vital, so too is the careful selection of language. For example, when corporate governance scholars argue that stockholders are not owners, they inadvertently reinforce the old property frame. "When we negate a frame, we evoke the frame," Lakoff writes. Nixon found this out when he famously said, "I am not a crook."

If we must touch the ownership point, we should do so lightly - and dwell on solutions. For example, we can point out that corporate ownership has been hollowed out as a real governing force, with the separation of ownership and control, and that this has allowed CEOs to gain unaccountable power. CEO pay is a symptom of an accountability vacuum. The solution is not to cap CEO pay, which has never worked. Nor is the solution what some institutional investors argue for, which is to have stockholders as the "real owners" regain control - that's seeking a return to horse and buggy days. The solution is designing systems of accountability that include vital concerns not present in the 19th century - the knowledge base of the company (employees), and the ecosystem.

Our aim should always be to talk about what we care about: human well-being, the living planet and the need to protect it because our own lives depend upon it, about the life of our extended family which is employees and the community. We can talk to managers about how employees come alive when treated with respect. We can talk to shareholders about the living legacy they're leaving their grandchildren. The point is not to use the word life, but to evoke the associations of all that is alive.

Shifting the public frame for corporations is about honing our language. Another example: We may be wise to limit our use of the word stakeholders. Its origin is as a clever inversion of the word stockholder, so it is metaphorically connected to the property metaphor. In some subliminal sense, stakeholders are "fake" or "disguised" stockholders - other parties cloaking themselves in the legitimacy of stockholders. The word stakeholders implicitly leaves corporations as the center of the economic universe. Speaking of the public good puts public life at the center, and it lends implicit strength to government, which must be restored to legitimacy if we are to balance corporate power. Stakeholders is useful as a bridging concept - it has the feel of a business concept - but as an ultimate justification it offers weak ground to stand on.

Life, on the other hand, is the genuine ground that everything stands on - including property. This was the lesson of Hurricane Katrina in New Orleans. "Every dollar that we think of as private property is contingent on something larger," says Jonathan Rowe, a journalist with the Tomales Bay Institute in Pt. Reyes, Calif. "In New Orleans the social context was the levees - no levees, no New Orleans. The ecological context was the wetlands - no wetlands, no New Orleans." When living systems fall apart, property can become worthless

We can emphasize that the threat of the ecological crisis - combined with the ownership vacuum from absentee ownership - creates a need for a new governance design. Rather than saying stockholders aren't owners, we can acknowledge that corporation have aspects of property, but they are fundamentally living systems, and must be governed as such.

We cannot succeed by attacking people's current frame. "To be accepted, the truth must fit people's frames," Lakoff writes. "If the facts do not fit a frame, the frame stays and the facts bounce off."¹³ But neither can we succeed if we remain unconsciously captive to the property frame. We need to evoke new frames connected to life, and use these to explain why corporate redesign is the core solution for economic transformation.

"Reframing is changing the way the public sees the world," Lakoff writes. Frames "shape the goals we seek, the plans we make, the way we act, and what counts as a good or bad outcome of our actions." Through careful cultivation of new frames, we can rewrite the deep conceptual maps of the world that hold in place the current corporate design - opening a space where the public can embrace the task of redesigning the corporation. As Lakoff puts it, "Reframing is social change."¹⁴

Footnotes:

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