Photo by Markus Spiske on Unsplash
The Changing Role of Firms
The most pressing issue facing the economy today is the role of the firm. In past decades and periods of resurgence throughout the history of the United States, the role of the firm was to increase shareholder value. Firms were beings that had rights, duties and legally were separate from the people who ran them. This was in an effort to attain economies of scale to create goods and services at a cheaper monetary value to the masses, thus increasing the quality of life. Access to capital was critical in achieving economies of scale and lifting our society to a position in which it had the liberty and luxury of helping others (not every economy has this luxury). This is the most pressing issue in the economy because the firm has enough power to wield tangible change to societal issues that we currently face more so than other structures.
Outside of GAAP accounting standards, there are very few obligations that the modern-day firm adheres to. It, of course, must follow the law like every other being, but its responsibility for those around it is changing as well. Greed has never been good and has unfortunately been synonymous with capitalism. Greed stems from the idea that profits must increase to please shareholders interests, so there is only one goal. Shareholders goals are now changing and are creating the demand for firms to be accountable- which at its core is a capitalist principle. This basic principle of demand is creating the change that people want to see in the world sparking a market feedback loop that can create a sustainable enterprise that couples profit with impact in the business model. It starts with having new priorities, goals, hopes, and dreams that lead to holding firms to a higher standard. This is still capitalism- but it’s evolved based on what we as consumers and shareholders demand- we have control and want something new.
This is powerful. Our changing ideas support firms that intend to do good around them, thus increasing their value (both monetary and intrinsic) over the long term. The value of quantifying impact is allowing firms to thus report impact and positive additionality like it would with quarterly returns. This accountability is a solution that allow firms to evolve so that they can create equal opportunity and invest in programs and products that give everyone a chance without being penalized by conflicting interests. Firms’ changing role within the ecosystem where they operate is changing not only the way business is done and where capital flows, but how people live. It also changes how we view philanthropy as well. Philanthropy has been notoriously difficult to sustain because of its reliance on donor-funded programs and the inability to sustain them over the long term. As firms change into hybrid NGOs/businesses, they are evolving into a new structure that mitigates the risk of greed, upholds financial sustainability and strengthens the importance of purpose.
We can’t see them or touch them, but firms affect our lives in more ways than we consciously understand. Their role within our economy today is changing not only in how organizations interact but how citizens live. This new revolution of accountability and truth starts with the basic principle of citizen demand which is what the US was based on. If the status quo of the firm is maintained, our generation will be missing an incredible opportunity to positively affect the change we say we so desperately want.
Published by
Kyle Flick
Impact Investing Fellow | Co-founder at Trek Coalition
Published • 4mo
3 articles
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For a recent job application, the company requested I write an essay on 'the most pressing issue in our economy today.' With a broad prompt, this is what I came up with.
As we look at the changing interests of all stakeholders, we must understand the value of a new model of business that is taking shape in impact investing. Incentives are still intact with good people trying to create more good in the world.
#impactinvesting #venturecapital #capitalism
Kyle Flick ... Impact Investing Fellow | Co-founder at Trek Coalition
Published on September 6, 2019
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