Vol 11 (2014) - Issue 5

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Transforming Capitalism from Within: A Relational Approach to Company Management and Operations – Part One

Introduction
We have grown to expect much from the humble limited liability company. As an inanimate legal entity, it can be formed easily or bought ready made off the shelf for a few pounds. Yet this entity, based on a simple but undeniably powerful concept conceived in the mid 19th Century, is expected to attract funding capital in the form of shares and loans, make products and provide services, provide employment, contribute to pensions, buy and sell assets, take on debts and other liabilities, sue and be sued and generate profits to pay shareholders. It may own other companies and may itself be owned by a company or individuals, or have its shares listed on a dealing exchange, domestically or overseas, with a widespread shareholder base. It has been called 'arguably the most important institution in the world' and is the engine for economic growth and prosperity in numerous countries. It provides a vehicle for us to invest in, provides a livelihood for employees and a trading partner for suppliers and customers, pays tax to the Exchequer, and provides many other benefits to society. This is the capitalist model in a nutshell and it has over many years generally served society well.
However, something has gone wrong, in some respects fundamentally wrong. The corporate model has been tested and vigorously challenged by the recent financial crisis and continues to be challenged on a daily basis. Proposed remedies have been piecemeal, disjointed and largely inadequate, and imposed by new law and regulation. In particular, the remedies do not reflect an understanding of the underlying causes of the problems that have been identified.
Part One of this article considers some of the issues which are causing concern and suggests historical and structural reasons for this. It goes on to consider the effectiveness of attempts to address these issues. The article then suggests an alternative approach based on a recognition of the value and importance of relationships between a company and its stakeholders which is increasingly evolving and gaining momentum through academic research, with support from business leaders, Government and regulators.
Part Two develops the relational theme and how this is applied in a company context. It considers how a relational approach can change corporate culture so that companies could be run for the benefit of all stakeholders leading, in turn, to these companies becoming more competitive, flexible, stable and successful. The article outlines a method of assessment, through independent and objective means, to measure the extent to which a company has embraced the relational ethos in its operations and decision-making. Part Two concludes by suggesting ways in which the relational agenda, as explained in the article, can be pursued in a practical way.