The Business Case for Social Capital

The past several days have been a whirlwind of inspiration around the idea of social capital. On Sunday our Effective Management, Communication and Action class stated world cafe style that the structure of a sustainable, socially just organization looks less like a triangle and more like a molecule, with ownership and authority distributed locally rather than concentrated hierarchically. Then yesterday I got into an energetic hour-long discussion with Jim Hartzfeld of Interface Raise about the overlap between the “green” of environmental sustainability and the “blue” of social sustainability. We struggled to articulate a business case for the social side that is as powerful as the business case for the environmental side, orbiting around idea that people in socially sustainable organizations are more engaged, more creative, and therefore considerably more productive. Today I sat down to finish the last pages of Natural Capitalism, and couldn’t shake the incredible similarities between Chapter 13, which is on markets and Chapter 14, which is on social capital. It goes a little like this:

Chapter 14 answered the question that has been burning in my for the entire book: if profitable environmental solutions abound, why hasn’t the market bothered to implement them yet? Aren’t capitalist markets supposed to automatically do things that make money? No no no, says chapter 14. Markets only make money when the right people REALIZE that they can make money. Markets do their job to the extent that people have the information that they need to make good decisions; the skill to interpret that information and the authority to make those decisions. Hunter Lovins dropped a term in class which sums those three things (information, skill and authority) up beautifully: “management capacity.”

The exact sentence that she used was something like, “In a collapse, the number of problems exceed the management capacity to deal with them.” Yikes. Management capacity is the ability of an organization or society to effectively realize opportunities, which makes it important whether you’re looking for opportunities to mitigate a crisis or opportunities to green an economy. We aren’t going green because we don’t have enough management capacity focused on going green. We can expect organizations with a high management capacity to outperform organizations with a low one, since they’ll be recognizing and acting on opportunities as a much faster rate. 

So how do we get more of this magic stuff? Just build systems where information, skill, and authority are combined as efficiently as possible. Strict hierarchies, like the ones we dismissed in EMCA, do this very poorly. Authority is placed way up the chain where a small group of executives have an extremely limited ability to digest information and often lack the specialized skill required to interpret that information effectively. If you find innovative ways to break up that authority and ship it off to the places where people have localized skill and information then the management capacity of the organization improves dramatically. Opportunities to increase efficiency and move towards sustainable operations can start quickly churning through (provided the necessary information about them is communicated.)

So increased management capacity=organizational effectiveness=going green, but that’s not all. There’s another word for distributing power broadly across an organization or a society: equity. It just so happens that systems with high management capacity are also socially just. If I have the information, skill and authority to make decisions then you could say that I’m empowered, and widespread empowerment is the hallmark of a just society. Effectively, social capital IS management capacity, and vice versa. When we degrade indigenous cultures, we eliminate an important body of skill, diminishing social capital and our collective management capacity. When we fight heterosexism we give queer people greater authority over their lives, increasing social capital and our collective management capacity.

How’s this for an equation: Natural capital determines the number of opportunities that we, as a species, have available. Social capital determines our ability to realize those opportunities, and financial capital determines our ability to act on those opportunities. By focusing exclusively on financial capital we have greatly enhanced our ability to act while gutting our social ability to act intelligently and our natural options for action. We’re becoming all muscle, no brain and no food. Companies that focus exclusively on their fiscal bottom line are passing up the opportunities of today (realized by the untapped social capital in their employees, customers and other stakeholders) and killing the opportunities of tomorrow (by killing the natural systems that produce them.) Companies that balance the three are destined to succeed.


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One response to “The Business Case for Social Capital

  1. Andrew jensen

    One potential contradiction exists here, and it involves the reason people WANT money.

    Essentially, People want money because it gives them the power to convince others to do things their way. In one sense, money is just concentrated power. So what you are saying here is that a business person could get more profit from a system if he empowers his employees. To one way of viewing it this makes perfect sense: if you distribute the power you generate more power. If it was about making money, then this would be obvious.

    But the other, subtly different way of putting it is that it is about accumulating wealth. That wealth is banked power, power for the person who holds that wealth. In this sense, you are asking them to give up their real power, the power to tell their employees what to do, in exchange for (potentially) more economic power. It’s not the money they want in the first place, it’s the position on top, and they use the money to get there and keep score.

    I’m imagining a king, who’s treasury is kind of empty from frivolous living, pointless wars, and reckless abuses of his kingly power. He’d like to do more of the same, but lately it puts too much strain on the vaults. Some people come to him, and say “We’ll refill your coffers to full, provided you step down from your kingship adn instate a democracy.” This would solve his budget to be sure, but he only cares about the amount in the vault to the extent that it allows or prevents him to be an irresponsible king.

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