The End of Money as Power

Posted on Posted in Corporate Culture, Lean Management, Strategy Execution

_LMD3983How many times have we heard that “money is power?” It is one of those clichés that has been spoken so many times that one assumes it must be true. Perhaps it was. In both the political and the business world there is a tectonic shift that is proving that what may have been true at some time in the past, is no longer true today. Understanding the on-going shift to other forms of power is essential to successful business and political strategy, now and into the future.

The Failure of Money in Politics

As of December 31st, Hillary Clinton’s campaign had raised $163.5 million in contributions and had spent approximately 90 million. Bernie Sander’s campaign had raised $75.1 and had spent $46.7. The net effect was that in the Iowa caucuses, where Clinton had a 30 pt. lead in the polls some months before, she ended in a virtual tie. She is projected to lose in New Hampshire by a considerable margin. 

These facts go counter to one of the primary assumptions of the Sander’s campaign and to his oft repeated argument that politics is now controlled by corporate money, super-pacs and greedy corporations. Really? The facts prove the opposite, that money is not in control at all.

On the Republican side the same trend is evident. Jeb Bush raised $155.6 million, almost twice that raised by Rubio ($77.2) or Cruz ($89.7). Donald Trump, leading in most polls, had raised only $19.4 million. While claiming to self-finance his own campaign, the amount Trump has spent is much less than many imagine. Jeb Bush and his super-pacs have the distinction of having far outspent any other candidate of either party – $88 million and the result is a standing of a grand three percent in the most recent national poll. This makes those contributing to Bush’s campaign the worst investors in the history of politics! So much for the power of money!

It should be noted that a much better case can be made for the power of money in Congressional races, although it is not nearly as visible.

The Declining Power of Financial Capital in Business

Fortune Magazine, in their February 1st issue, published an article by Geoff Colvin, “Heavy Hitters Travel Light.” The “light” refered to is the amount of financial capital invested in a business relative to its market value. If you compare Wal-Mart to Amazon, they are about equal in market capitalization (250 billion). However, Wal-Mart employs $154 billion in financial capital to achieve the same result as Amazon’s $35 billion in financial capital. Fortune’s point is that…

“The 21st century corporation is forming a new relationship to capital. Traditionally defined capital, the financial and physical kind, is losing importance as the economy evolves. Today’s best performing companies – Amazon, Alphabet (Google), Facebook – use little of it relative to their size. Some, such as Uber and Airbnb, use practically none.”

Fortune then points to the growing power of other forms of capital, but does little to explain their nature or how to employ them.

I am ashamed to admit this: about five years ago I completed a manuscript of a book titled Sustainable Wealth in which I define five forms of capital – spiritual, social, human, innovation and financial capital and their relationship to one another. I put the manuscript aside for other books and projects.

All non-financial capital can be attributed to the preceding four forms of capital which we can call “cultural capital.” In other words, if the market cap of a company is $100 billion, and the financial and material capital (cash, plant and equipment, etc.) is valued at $40 billion, there is $60 billion of capital value divided between spiritual, social, human and innovation capital. The market is assuming you possess this value and assuming it will result in future earnings. A company is valued based on the perception of its ability to create future profits and future profits are not the results of financial assets, but rather cultural assets. If one understands just how real this value is, one would pay considerable more attention to developing strategy to create and sustain these forms of capital which, in turn, will produce financial capital.

Money is nolonger the source of power
The Flow of Cultural and Material Capital

Unfortunately, most senior executives and board members do not take seriously the development of non-material assets. This is a form of “materialism” that cripples our companies.

I believe that value in our personal lives, as well as value in a corporation, follow a similar sequence.

It begins with spiritual capital, not to be confused with religion. Religion may be an incubator of spiritual capital, but this form of capital stands on its own merit. Spiritual capital is a belief and adherence to a set of shared values that guide behavior within the firm, or culture, and a worthy purpose to which the members of the firm  can dedicated themselves.

Cultural Capital and the Creation of Value

Spiritual capital is like the keel of a sailboat, holding it upright and creating resistance to forces that would pull it off course. You can trust your vessel to weather storms and get you to your destination if the keel is strong and secure. The result is trust.

Social capital is the degree of trust internally, between members of the firm, and externally, with customers in the marketplace. External social capital is “brand equity” and it is one of the best predictors of future sales. Too little attention is paid to internal social capital which is displayed in teamwork, problem solving, and innovation. I have seen too many companies that have destroyed trust between members of the firm across units or from top to bottom. This distrust is a cancer that destroys the ability to innovate and respond to market shifts.

Human capital is often mistaken for all forms of cultural capital, but I would rather be more precise and define human capital as the sum of human competencies – knowledge and skill – as well as motivation. In large measure, human capital follows from social capital.

Innovation in both process and product or service is the outcome of cultural capital. You can’t stimulate innovation without addressing the three forms of cultural capital that are its antecedents.

Internal and External Strategy
The Alignment, or Mis-Alignment, of Internal and External Strategy

As part of my Agile Strategy Course I have included three assessments. One is an assessment of the five forms of capital. This assessment is one input into what I believe should be the development of a strategy execution process to build the culture and capabilities, the internal strategy, that will result in achieving the external or market strategy.

The Fortune Magazine article concludes that…

As the role of traditional capital fades, nontraditional capital, especially the human kind, grows more important. Leaders of the 21st-century corporation will confront the question of whose capital is most valuable. Financiers, the kings of capitalism since it began, may find that mere money buys only a minority stake in today’s companies, which will be owned mainly by their most essential employees…. The consequences for capital markets could be mind-bending. Thanks to monetary stimulus and high savings rates, the world is awash in financial capital, but increasingly, that isn’t what corporations need most.”

And, what corporations now need most is an understanding of cultural capital and a strategy to create and sustain that capital.

I better get that book published!

2 thoughts on “The End of Money as Power

  1. Thank you Larry, I was thinking the other day, that I would like your take on how this world is doing, and the USA in particular, at this time. It is has been very discouraging since I returned from China. Then I came across this. I plan to share it with an American friend deeply involved with a Chinese enterprise. ’nuff said.
    Always warm thoughts for you and yours, Jene

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