The freedom train has left the station, my friends. If you're a business leader, you better track that train down, leap aboard and learn how to conduct the right type of freedom throughout your business ecosystem. If you don't, your company and your career may soon hurtle off the rails.
We've arrived at a point where free enterprise is on nearly everyone's minds. And, regardless of our politics, there are two thoughts most of us share. The first is that we remain deeply attached to the principles of free enterprise and the ideal of free markets. We continue to view capitalism as the best system for enabling global progress and prosperity. The second thought is that capitalism isn't quite working right; it's broken. As more business and thought leaders recognize that capitalism needs a fix, I want to make sure that we're on the right track. Why? Because there's never before been more riding on getting freedom right in our capitalistic endeavors and markets.
With apologies to Janis Joplin, it turns out that freedom isn't just another word for nothing left to lose. At a time when we have so much to lose, freedom is exactly what we, as business leaders, need to focus on.
Specifically, we need to understand how two distinct forms of freedom -- "Freedom From" and "Freedom To" -- interact and coexist with each other, as they govern our world and our companies. Equipped with this understanding, we should get started on the hard work of establishing the right balance and dynamic between Freedom From and Freedom To so that we can scale them in a way that prevents our institutions from careening into oblivion as our economies lurch more frequently from crisis to crisis.
Rethinking Our Search for Capitalism 2.0
Ever since the financial crisis, we've been trying to re-boot, reset or reform our globally interdependent financial system. Lately, this drive to reboot has focused on capitalism itself. This is good news in that it demonstrates our commitment to capitalism. Despite capitalism's imperfections, no one's clamoring for socialism or a return to feudalism. The bad news is that there's a growing sense that capitalism isn't working. I agree, and want to inject some breaking news into this discussion: resets, reboots and reforms just aren't going to cut it. If you're resetting, reforming or rebooting, you like the system the way it is but you want to make it better, you want to tinker at the margins and improve it. But this is no time to tinker at the margins.
Einstein said to us that if you're in a new era that's discontinuous with the prior era, don't reform, rethink. Have the courage to rethink, even to rethink fundamentals. We need to rethink capitalism from the ground up. Before we can go forward, we should take a couple of steps back -- way back -- to reexamine the fundamentals of our free enterprises. This work requires a profound effort, but judging by the ambition of some current "fix-capitalism" efforts, we have both the stomach and brains for this profound effort.
These endeavors are part of a huge movement already underway to create a better form of capitalism. This movement is evident in many places, including our language. Merriam-Webster Inc., America's top dictionary publisher, selected "capitalism" as its word of the year in 2012 because it was the most searched for word on Merriam-Webster.com. People clearly are seeking to understand capitalism, in many cases so that they can redefine, reinterpret and reconfigure it.
Similarly, phrases like "Capitalism 2.0" and admirable initiatives such as Inclusive Capitalism, which addresses the harmful effects of income inequality and focuses on ensuring that capitalism works for the greatest number, are being discussed with greater frequency. The leaders of the Henry Jackson initiative (which created the Inclusive Capitalism Task Force) understand that capitalism is continually evolving and want to ensure that it evolves in the right way in the coming years.
The driving forces behind this movement have come up with truly commendable modifications of capitalism. I have been especially struck by the leadership provided by the Conscious Capitalism movement that business executives like Whole Foods CEO John Mackey and Conscious Capitalism Inc. Co-Founder and Co-Chairman Raj Sisodia are nurturing.
The Conscious Capitalism credo embraces business as good, ethical, noble and heroic: "Free enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. It is one of the most compelling ideas we humans have ever had. But we can aspire to even more." I'm fully on board with that reasoning. This type of rethinking is animated not only by an ethos of inclusiveness but also by the type of inspirational leadership businesses and people are hungry for today. I'm honored to be invited to participate later this week in Conscious Capitalism 2014 , a gathering with a title that unites two great leaders, Martin Luther King Jr. and Adam Smith, in an illuminating instructive way: "The Fierce Urgency of Now: Building Fully Human Organizations."
Adam Smith, 21st Century CEO
The movement to improve capitalism is fierce, as it should be. What all of these efforts have in common is an underlying desire to make capitalism more human. What I find so essentially right about Conscious Capitalism is that consciousness is all about a certain way of thinking and feeling. And the most effective capitalism fix requires rethinking in the deeply human way capitalism was originally conceived by Mr. Smith.
Mackey, Sisodia and their Conscious Capitalism partners are not alone in their quest for a more human business organization. Smith, free enterprise's founding father and the author of "The Wealth of Nations," espoused a "human organization" a long time ago. Smith saw business as personal and human because it was animated by a "moral sentiment." In fact, Smith was an 18th Century moral philosopher, and he never used the word "capitalism."
Instead, he talked about a system of natural liberties, and trade animated by moral consciousness. By doing so, Smith laid a moral foundation for capitalism. He understood that a company, as a system, would succeed based on its ability to scale and systematize liberty -- the right kind of liberty. That means not just Freedom From tyranny, but the Freedom To innovate, to fail without fear of disproportionate consequences, to dissent in front of the boss, to collaborate with talented colleagues, to be yourself regardless of your religion or sexual orientation.
This is what a free enterprise is all about. And free enterprise is what capitalism, as it was originally intended, is all about. Yes, capitalism still is our best hope for a brighter future. But we should not move on to a new capitalism -- i.e., 2.0 or 3.0 -- until we pause and return to the roots of free enterprise to ask one question: Did we ever get capitalism 1.0 right?
The Fierce Urgency of Freedom From/Freedom To
The answer is "no." Not in the way Smith intended: Just look at how out of whack our freedom-scaling has become in the past decade. We've done an amazing job of scaling one type of freedom, but have largely ignored the other type of freedom altogether.
The form of freedom that has been unleashed in massive amounts almost everywhere we look is "Freedom From." Freedom From eliminates superfluous rule systems, an outdated logic of power, preconceived notions and stereotypes, as well as one-way processes.
Look at all of the Freedom From that has been unleashed throughout the world. DVRs and streaming video have freed consumers from the constraints of scheduled broadcasts. Internet connectivity, e-commerce and smart phones have given consumers Freedom From pricing opacity that traditional retailers previously deployed to "capture" greater market share and more customers. Amazon has freed us from time-consuming trips to the store. Open platforms like Kickstarter have freed innovative entrepreneurs from venture capitalists. LinkedIn has given professionals Freedom From recruiters. Professional athletes are free from old-school field-general coaches. College athletes are free to form unions and seek a share of the profits from their play.
Our world has scaled Freedom From in unprecedented amounts. By doing so, however, we have created a massive and dangerous imbalance that makes income inequality look like a walk in the park.
The problem with Freedom From is that it is negative space; it creates a vacuum in which anything -- good, bad or terrifying -- can and will happen. Freedom From tyranny does not automatically mean Freedom To live in a responsible democracy supported by the rule of law; it only means that the tyrant has been dethroned and the long and difficult work has begun. Eighty million Egyptians can attest to the leadership and governance vacuum Mubarak's ouster created. Or, if a company reduces its layers of control, it must also find a different and more inspiring way to ensure behavioral alignment toward its goals.
This is precisely where Freedom To is needed. Freedom To, a mindful focus on shared values and common principles that bring about behavioral alignment and commitment, is the most effective way to fill in and take advantage of the space created by Freedom From. When employees, customers, partners and other stakeholders are bound to a company's efforts and goals through a common set of values and principles, their resulting commitment and engagement will move past the point of compliance with rules. Extraordinary things are not achieved by giving people a framework that shows what they can do; rather, they are achieved by giving them a framework through which it becomes clear what they should do.
We're in a world where, increasingly, anything can happen and more and more individuals have the power to do good or bad on a grand scale. There's never been so much Freedom From, which is why there has never been a greater need for Freedom To -- for more of the things that show us what we should do for our mutual benefit. This alarming inequality centers squarely on that which we most cherish: Freedom. Many citizens, employees and people have the ability to create Freedom From, but so few operate in a context, community or corporate culture where they truly have the Freedom To do good.
As a result, there is a pressing urgency to not only put freedom back into free enterprise but to do so in a way that restores equilibrium. We've got to get the balance and the reinforcing dynamic between Freedom From and Freedom To right.
Doing so will help all of our institutions, especially our businesses. Getting freedom right leads to greater prosperity overall, and more -- and more sustainable -- shareholder value. LRN is deeply committed to this idea of getting capitalism right, of giving Adam Smith a more rigorous and fair shake, if you will, and of scaling a system of liberties. So committed that we put it to an empirical, statistically rigorous test.
This research looked at what enables and interferes with Freedom From, what animates and fosters Freedom To, and what determines that they are present in the right dynamic (i.e., balanced). The results were remarkable and remarkably consistent, and they indicate that Freedom can be a definitive asset to business growth, economic resilience, and strong stakeholder relationships (at a time when most organizations don't have the right Freedom dynamic). Here are some findings in several key areas of the research:
• Return on Freedom: Companies that build freedom into their relationships are 10 times more likely to outperform traditional organizations in the short-term, and more than 20 times more likely to outperform them in the long-term. Freedom translates into more innovation, better financial performance, and long-term success.
• Freedom Doesn't Come Easily: Only 20 percent of companies exhibit high levels of Freedom in their relationships with all of their stakeholders. Nearly half of all companies still fall in the low-freedom category, making them less equipped to meet growing demands for innovation, new ventures, and global collaboration.
• Human Values Lead to High-Freedom Relationships: Businesses achieve freedom by using values as more than components of a pretty mission statement. But not all values are created equal. The study shows human values (e.g., integrity, purpose, tolerance) are on average 3.7-times more influential in creating freedom for different stakeholders than situational values (efficiency, profit-driven, risk-taking).
• Low-Freedom Companies Have Weaker Trust, Values and Mission: The study found that companies that exhibit low Freedom in their relationships perform poorly when it comes to trust, values-orientation, and mission (-58 percent, -48 percent and -43 percent, respectively). Conversely, high-freedom companies score robustly across these key dimensions (80 percent, 77 percent, and 91 percent, respectively). This is consistent with previous LRN research. In particular, the types of companies found to thrive in the 21st Century, according to LRN's HOW Report, also tend to be high-freedom companies.
These results illustrate the 21st Century table stakes for business. The very source of competitive advantage has shifted. Do you want to want to harness the power of Freedom To, or do you want to contend with the yawning vacuums of Freedom From? Do you want a 10X or 20X performance advantage?
Well, then you better get your Freedom From/Freedom To on the right track.
This post was originally featured on Forbes.
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