Would you give your money to someone who will seek to maximise their returns rather than yours?
The answer is likely ‘No!’ However, as Voltaire warned us, in the corporate world common sense is not very common. Workers, suppliers and lenders provide the corporation with their resources but these are used in the interest of shareholders first. We take the primacy of shareholder value so much for granted that we forget that other and more democratic forms of governance are possible and have, even in our relatively recent history, governed organisations, economies and societies with historic success.
The life of corporations is complex, made of contradictions, power struggles, tensions between different stakeholders, conflicting priorities, and emerging and unforeseen needs and demands. Corporations face Rumsfeldian unknown unknowns, wars, pandemics and black swans. Anyone who has had even minimal exposure to how corporations work knows that, like families, they are political arenas. So, it is very important to consider if shareholders’ value is still a good governing principle.
Recent history is full of commendable attempts to replace shareholders’ value as the organising purpose. One day, the customer is king; another, the stakeholders are, with their defined interests. Lately, other ideas, from the environment to the good of society, have become pressing necessities, as testified by the proliferation of objectives and metrics that corporations have to pursue and disclose: eg, the United Nation’s 17 Sustainable Development Goals (SDGs). The likely outcome of these commendable attempts is an impossible accountability, as addressing the grand challenges of the SDGs and making corporate conduct more attentive to environmental and social issues will bring even greater contradictions, tensions and wicked problems. One forgets that safeguarding the environment is intrinsically in contrast with any form of value production and distribution. We cannot enjoy new cars, clothes, roads, infrastructures if not by consuming natural resources and polluting the environment. It is of course a matter of trade-offs and how we want to tip the scale: there is no magic wand. As the British sociologist John Law said in After Method (2004): ‘if the world is complex and messy, then … we’re going have to give up on simplicities’. Nowhere could benefit more from considering Law’s insight than the world of corporate governance.
The lifespan of corporations on the Standard & Poor’s 500 index has reduced from an average of 60 years in the 1950s to 10 years in the 2000s. I want to argue that the obsession with defining the purpose of the modern corporation in objective and clear terms is killing its ability to engage and persist. It is this obsession that makes it difficult for corporations to respond to ever-changing environmental and societal demands. It also led to growing pressure from public opinion, regulatory bodies, and transnational associations like the UN for measuring clearly defined, static and objective non-financial goals. The problem corporations face though is that it is materially impossible to pursue multiple and contradictory objectives all at once. It is even more difficult to measure them precisely. It is therefore very likely that the new corporate world of SDGs and environmental, social and governance (ESG) concerns will be as plagued with scandals as was the old world of corporate governance. But, this time, it will be at a magnified scale, for the same failure of accuracy that characterised financial disclosure will surely also affect the societal and environmental one. Such current approaches to changing corporate governance lay the ground for greater failure of corporate governance in the future.
Instead, consider a paradox: what if the best way to cope with the complexity of the corporate world is to leave corporate purpose undefined? What if finding purpose in corporate life and work requires, instead of definitions, the creation of opportunities for its continuous exploration and re-invention? What if organising corporations around a simple defined purpose does more harm than good, not just to the world but to the corporation and its strength and durability?
To gain real perspective and understanding, it helps to travel to different spaces and places, times and eras. Corporations and organisations are not new institutional forms. So let’s consider an institution that has persevered for centuries. I want to bring your attention to the world of the Society of Jesus, or the Jesuits, a Catholic Order founded in 1540, then soon expanded across the known world, reaching the Antipodes to first discover the cignus negrus – a medieval expression, symbolising the humanist ability to think the unthinkable, recently popularised by Nassim Taleb’s book The Black Swan (2007). I know that, for many, the Jesuits bring to mind films like The Mission (1986) and the Order’s role in European colonialism. But we can also learn from them. They have survived, after all, for nearly five centuries. They have much to teach us about the corporate need to cope with complexities and radical uncertainties, and to balance often contrasting and impossible-to-align interests.
Rejecting a definitive purpose made corporate organisation more, not less, important
Why the Jesuits? Because, in every sphere of their activities, they dealt with mystery, or the unknown. In their missions, they had to cope with the lack of knowledge of the territories they explored and discovered. In their evangelical efforts, they met people with different cultures, languages and customs. They experienced all kinds of risks, from being killed by never-seen-before animals, to venturing into unmapped territories and seas. In their colleges, they systematised pedagogies to favour learning. We have classes in today’s schools because of their Ratio Studiorum, one of the first pedagogical treatises ever written. In other words, the Jesuits developed a series of very pragmatic and successful practices exactly in the areas where the contemporary corporation seems to struggle. Firstly, they embraced the diversity of their ‘stakeholders’ in their missions. Secondly, they adapted their purpose to changing realities and demands. Thirdly, they could deal with the unknowable – be it the uncertainty of first-ever explorations, or the difficult balance between material financial value and abstract, ambiguous moral values, or the more transcendental mystery of God. The Jesuits as a corporate body have shown remarkable resilience and strength. They were motivated by the need to explore the mystery of knowledge and to shape inquisitive minds. These qualities, of course, also put them at the head of the Inquisition.
The Jesuits however did something very unusual: they formally recognised the absence of a single or defining corporate purpose. To today’s sensibilities, such a move is counterintuitive, if not perverse. It’s an imperative of modern corporate management to organise around a purpose. The debates have all concerned what is or should be that goal. This principle of absence led them to seek novel institutional designs. Jesuits are not anarchists. Rejecting a definitive purpose made corporate organisation more, not less, important. In this spirit, they built an impressive administrative machine that has operated for centuries.
To see the distinctive genius of Jesuit corporate organisation, just look at how they operated their college chest. In some countries, this chest contributed substantially not only to people’s lives, by offering education for free, but also to local and regional economic prosperity. For example, the income of the Jesuit Sicilian Province, one of the richest of the Order, was greater than the tax revenues of the Kingdom of Sicily. But the padlock on the Jesuit college cashbox required two keys. The procurator – the spokesperson for financial matters, equivalent to today’s chief financial officer (CFO) – held one. And the rector – comparable to todays’ chief executive officer (CEO) – held the other. The rector was the spokesperson for everything but finance, including missionary, pedagogical and religious activities, and even those that could eventually fall into the Jesuit realm of administration. This division of power ensured that every cash movement, and its record in the cash account, could happen only after an exploration of the rationale for that transaction from one financial perspective and one that was ‘not-financial’, for which the college rector was the spokesperson. For the Jesuits, everything had to be done as per their motto Ad maiorem Dei gloriam (AMDG), ‘for the greater glory of God’. Both this glory and God could not be reduced or expressed in static terms. Pursuing God’s glory was a transcendental purpose, undefinable, ambiguous and unclear, and still it was a source of reflection and something to be interrogated in order for us to act wisely.
The Jesuits’ two keys for the college cashbox expressed in material form a ‘procedural rationality’. This did not define what was the ‘right’ and ‘appropriate’ action in most circumstances. But it defined procedures as to how to discover what was right in different, emergent and ever-changing circumstances – what was right in Rome could be wrong in China; what could be right in 16th-century Rome (or in a specific network of relationships such as the Roman Curia) could be wrong in the 18th century (and in a different network of relationships, such as the local aristocracy). The two keys required for the Jesuits’ college chest institutionalised in procedural form the formation of different reasons for different purposes.
Modern forms of corporate governance call for an alignment where the CFO is, and has to be, aligned with the CEO. In Jesuit governance, the two officials are in a state of tension. They exemplify the need to always keep the means separate from the dynamic ends. The means, in the cashbox example, are the financial resources of the college, and managed by the finance function. The ends relate to the emergent, dynamic and diverse purpose of the Order, as represented by its rector. In other words, for the Jesuits, one cannot pursue God without money. It is no less true that one loses God if pursuing only money.
In philosophical terms, the procedural governance represents the reality that organisational tensions are inevitable. Disagreement is normal, and it is implausible to hold that alignment should be the guiding principle for organisational action. Rather than being guided by orthodoxy, where divine truth is supposed to be firmly inscribed in texts, the Jesuits’ procedural rationality constituted an ‘orthopraxis’. They sought divine truth by experiencing specific and detailed practices and rituals, such as the opening of the cashbox with two keys. They used the same principle in their spiritual exercises, a set of meditation practices designed to search for God without defining it. As in every truly explorative search, one cannot know what one is looking for until one finds it.
I once invited Graham Ward, a theologian at Christ Church in Oxford, to talk at Edinburgh about the history of economics. Ward demonstrated that economics, from the old Greek oikonomia meaning ‘household mangement’, had always been, until Adam Smith, a religious practice. This was necessarily so because to scrutinise the notion of value and its mysterious nature would fall under the purview of religious authorities. The Jesuits had been aware of this risk long before Smith. They knew that confusing means with ends is a quintessential mistake. Assuming the existence of a single, objective truth that can be measured and reduced to numbers would have been for them the end of the world. It reduced the end to the means. We would have become alienated, forced into pursuing an unquestionable and dogmatic objective set in stone. With this crucial error identified, one the Jesuits avoided, we can begin to see why corporate governance is in crisis.
Since at least the beginning of financialisation of corporate capitalism in the 1980s, corporate governance in the West has mistaken values with value, purpose with goals, means with ends. Defining a target – be it profit or the reduction of CO2 emissions – shouts loud and for miles what is right and what are its intentions. But it also reduces the possibility of adapting in intelligent and necessary ways to changing circumstances. If we define purpose, and then express it in terms of measurable targets, we are reducing the strength and flexibility of the institution. The Jesuits knew this from early modern rhetorical models, and translated the practices into a series of administrative procedures.
For example, not many know that ‘inventory’ is not an accounting term. In fact, it comes from the first canon of rhetoric, inventio: ie, a classification aimed at finding things. Good rhetoricians know that there is no inventio, or good inventory of arguments, if there is no intentio, or purpose. In rhetoric, purpose is always in a state of tension (in-tension), because it is emergent, changing, and interpreted in different ways by the audience. Therefore, the feature of a good orator is not one of remembering the speech. Instead, it is the ability to ‘invent’ answers on the spot to challenging questions that could not be known a priori. But rhetoric as a discipline defines this purpose not as objective truth. Rhetoricians know that, if one defines notions of truth in advance of the speech, one runs the risk of being proven wrong during the talk. The Jesuits meant to capture this tension in corporate form, the same in-tensions that exist between different parties, different views, such as the procurator and the rector of Jesuit memory. Wisdom emerges from the these in-tensions.
In Latin, data means both ‘given’ and ‘attributed’, so thinking in Latin as rhetoricians and Jesuits did pushes us to think ‘in-between’ two symmetric meanings. The Jesuit way takes for granted that knowledge is opaque, grey, mysterious and always changing, and therefore in need of being scrutinised and debated. Defining purposes and goals limits the possibility of such reflection and thought, while the lack of a defined purpose compels debate and scrutiny.
When accounting changed its meaning to pure economic utility is when accounting, and economics, lost their grace
Following the great financial crisis of 2008, the political economist Karel Williams once asked me: ‘Who would give a bank money, knowing that the bank will serve the interest of the shareholders and not mine!’ Williams’s comment reveals the weakness of the modern financial corporation is its reduced ability to cohabit with society and its people. Defining purpose in ‘positive’ terms – ie, filling with meaning empty signifiers such as ‘God’, ‘good’, ‘purpose’ and the like – is naive, arrogant, and guarantees the corporation will be unstable, as well as produce violence. Think of the university, for example. Once called the Universitas Studiorum, where the infinite universe of knowledge could be explored, the university is now redefined in utilitarian terms, equating research (the search into the mystery of knowledge par excellence) with a clear definition of ‘good’. We find the utilitarian university expressed in dry targets such as journal rankings, money raised through grants, and number of citations.
In contrast, the Jesuits considered it important to refrain from defining their corporate purpose as the maximisation of one interest over another. Instead, a good Jesuit argument would call for the continued exploration, critical discussion and balancing of interests. To the rhetoricians, and the Jesuits, this was the original meaning of accounting and being rational. For about a millennium – until it was rewritten in terms of financial rationality and market ideologies in the last decades of the 20th century with the globalisation of international accounting standards – accounting meant this process of continuously exploring and balancing these differences. The world is messy and to order it the Jesuits had to be rational, in the original Latin sense of ‘ratio-nality’, where ratio does not mean ‘reason’, but ‘account’ and ‘proportion’. When accounting changed its meaning to pure economic utility, when Adam Smith reduced value to utility, and utility to market prices, is when accounting, and economics, lost their grace. Worth recalling Ward’s teaching.
Take for example the story of the so-called Italian economic miracle following the Second World War. It was the Istituto per la Ricostruzione Industriale (IRI) – a public holding company operating in various industrial sectors and banking – and some key institutional actors and agents that made this economic miracle possible. Even though the credit often goes to la dolce vita (the sweet life described in Federico Fellini’s 1960 film) and the Fiat 500, it was the IRI – along with other giants such as the energy companies Eni and Enel – that contributed to the reunification of a fragmented postwar Italy though the production of a few points on the gross domestic product (GDP) chart in the 1950s and ’60s.
From 1940, in Via Reno in Rome, not too far from Villa Borghese and Villa Torlonia, a young (and unknown to most Italians, if not for Tiziano Torresi’s beautiful 2017 biography) Sergio Paronetto gathered the Italian Catholic intelligentsia. He brought them together to ascertain the contours of a modern social democracy. Paronetto received the vital support of the Vatican and of a young Giovanni Battista Montini (later Pope Paul VI). Montini led a series of initiatives that included editing an academic journal and organising a movement of young Catholics and many others. People of the calibre of Alcide De Gasperi (the Italian Republic’s first prime minister), Aldo Moro (killed by the Red Brigades in 1978 for seeking the compromesso storico with Enrico Berlinguer’s Communist Party) and Giulio Andreotti (a key figure of Italian political history in the latter 20th century) met regularly in Paronetto’s flat and then in a series of meetings in the Camaldoli monastery in Tuscany.
Their meetings resulted in the so-called Code of Camaldoli. Based on the policies of the country’s Christian Democracy party, this was a code of conduct that inspired the behaviour of the good Catholic in their private and professional life. Many of the code’s principles were later embedded into the Constitution of the Italian Republic, not least because some of those who partook to the meetings at Via Reno and Camaldoli would become members of the Italian Constituent Assembly. It was in the ‘common good’ that the code found the purpose that every single Catholic should not only pursue in their lives but also elevate above any principle that the state could define.
How did the Christian Democrats define common good? Did they fall into the instrumental and narrow tendency to define purpose in clear and objective terms? They did not. As good Catholics, they preferred the preservation of the mystery of value and values, rather than the certainty of definitions. So they defined the common good as ‘those conditions that are needed by citizens to develop the needs and offices of their material, intellectual and religious life’. The code was therefore both an enabler and a constrainer of individual and collective behaviour. It called for examining the space between the pursuit of an individual’s interests with those of others to seek and strike a compromise, where the etymology of the word reveals the practical impossibility of agreement and alignment (from the Latin com, ‘together’, and promittere, ‘promise’). In other words, recognising the impossibility to agree while still affirming the need to find a solution for social cohabitation.
The code’s three main authors were Paronetto, Pasquale Saraceno and Ezio Vanoni. All born in the same small village of Morbegno in Lombardy, all more or less close relatives (Saraceno married Vanoni’s sister), all linked to the IRI, which in the immediate postwar period became one of the institutional engines of Christian Democracy policy and, more specifically, its industrial policy. Why is the IRI so important in our corporate purpose dispute? Why should we look at a public holding, owned by the state, to understand how to think of purpose and how to rethink corporate governance? To answer, we must look at how the IRI became the arm through which the funds of the European Recovery Program (known as the US-sponsored Marshall Plan) were administered.
Money flew to Italy and, with it, management and accounting knowledge. Italians liked the money, but they did not necessarily like the ideology underpinning the management and accounting solutions that the Americans wanted the IRI to implement. Saraceno, the architect of the IRI’s model and of its planning and budgeting procedures, and Vanoni, as finance and budget minister, could not subscribe to the logic of profit maximisation and efficiency. Both the values of profit maximisation and its consequences were unacceptable to them. For example, pursuing efficiency would have meant investing only in Lombardy and a bit more of Italy’s North, which were the most economically productive areas of the country. The rest of Italy would have been left behind, yet it was in desperate need of reunification. After the fascist collapse, a civil war tore the country apart, which at that time had the largest communist party in Europe outside the Soviet Union.
The IRI was established in 1933 by Benito Mussolini, and served his regime until its collapse. Its bureaucratic apparatus was then used to rebuild a country where the fascists were defeated but not entirely powerless. Pursuing the maximisation of profit would have put the IRI to work against the good of southern Italians and many others, against the common good that they had defined in Camaldoli. It would have placed the interests of corporate shareholders above others in Italian society. The trade unions were particularly powerful in Italy, with one union counting more that 5.7 million members in 1947. The IRI’s leadership and the Catholic elite of which they were part had to find another form of management and governance. This search for an alternative required a different form of accounting and a different income statement format.
On 20 March 1945, Paronetto died at home in Via Reno from an incurable disease. Following his death, Saraceno and Vanoni redesigned the IRI’s budgeting and planning procedures. They crafted an income statement that sought to represent the value added, not the profit. Value-added budgeting and planning is still used in all the major economies of the world, to calculate the production and distribution of national income in the national accounts. It aims to represent how various industries and activities (eg, manufacturing, services, infrastructure) produce value. Value that is then distributed among various stakeholders: to workers, through salary; to providers of financial resources, through interest; to the state, through tax; to the shareholders, through profit. The firm also takes its share, through retained earnings, as its persistence is needed, for it constitutes the locus that allows not only the economic activity of producing and distributing value but also the mediation of the opposed interests in tension, allowing the negotiation between different values.
The IRI contributed to national GDP in a relevant measure (for instance, 3.7 per cent in 1962, without counting satellite activities). Its planning and budgeting cycles constituted the guiding principles of national economics, aimed at rebalancing, development and mediation between the fragmented parts of Italian society. At the national level, the value-added approach allowed the mediation between the production and distribution of value, and offered a space to debate how and where to produce and distribute this value. The statement forced questions about how to generate economic value. For example, should we make large infrastructure investment, such as the A1 motorway linking Italy’s South to its North? Invest in the steel industry like the Taranto plants? Boost the automotive sector through Alfa Romeo? Reinforce defence through Finmeccanica? In terms of the distribution of value produced, the statement implied a reflection and a compromise among various stakeholders. In other words, how much should be given back to labour, capital and the state, and how much should be retained for the firm, as the locus where the compromise could happen?
It is never simply a technical matter of measurement – accounting is always a political and social practice
At the IRI, the collective institutional commitment at a national level (through the action of those like Vanoni) and at organisational level (through the work of those like Saraceno) changed the way that people assessed and thought of the economy. More specifically, they sought to create a set of tools and evaluations designed to recognise the transcendental and intrinsic ambiguity of the notion of common good. Such establishment figures as Paronetto, Saraceno and Vanoni, for example, had worked toward these new measures in the Code of Camaldoli. This small group of people committed their entire working lives to the goal of improving the lives of the many. Such a commitment to the common good is a strong justification for the epithet of ‘miracle’, when referring to the extraordinary economic and social development that characterised Italy in the 1950s and ’60s.
The IRI shows us how, beyond its technical role, accounting constitutes a powerful platform for governing the complex social relationships that rotate around the production and distribution of value. It is never simply a technical matter of measurement – accounting is always a political and social practice. The story that I tell here briefly also signals that, if one seriously wants to build communities, in whatever form, one has to refrain from imposing a rigid view, a static purpose and a substantive form of measurement. Once again, the attention to procedures and the lack of definition are the enabling possibilities of social cohabitation.
This is a very Catholic perspective, which spans from the Jesuits to postwar Italy’s Catholic elite. The filmmaker Paolo Sorrentino captures it well in Il divo (2008), his biopic of the former prime minister Andreotti. In one scene, an old Andreotti, already in decline, names one by one all of those friends, colleagues and strangers who died by assassination, the suggestion being that he himself was the instigator of these assassinations. Andreotti lists the victims by first name, then exclaims: ‘All of them thinking that truth is the right thing but, actually, it is the end of the world.’ Their love of truth had to be suppressed in order to allow a continuous compromise, which would be impossible if one knew what was right. For Sorrentino’s Andreotti, a degree of mystery and absence, a negative, can be the key to longer life.
Not many know that, among the approximately 85 organisations still operating in Italy since 1520, 70 are universities, and one is the Roman Catholic Church. Both these institutions never define their purpose very clearly, the latter because God is infinite, mysterious and unknowable; the former because knowledge is infinite, mysterious and always unfolding. The latter because it has become too fundamentalist and rigid; the former because it puts profit (ie, the means) as its primary purpose before knowledge (ie, the end). If our corporations are ever to survive and increase their lifespan, not having a defined and measurable purpose is better than having one or more that are defined. In a line wrongly credited to Albert Einstein, the sociologist William Bruce Cameron states that not everything that can be counted counts, and not everything that counts can be counted. The Jesuits remind us that one can count what is visible to interrogate what is invisible and must remain so. Mixing ends with means is a mortal sin.
Measurement is a means to explore purpose, not the other way around.
In closing, let’s remember the words of Pope Francis, on his first appearance on the Roman basilica balcony in 2013, as the first Jesuit Pope in history, and the 265th successor of St Peter. In his first homily, Pope Francis asks the masses: ‘And now, before I benedict you, I want you to pray for me. Let’s have a few moments of silence … and you pray for your new Bishop.’ Rather than uttering a clear message to the masses, Pope Francis decided to make a difference by embracing the mystery, by remaining in-different, in other words, in the middle of the infinite differences that he faces.
When facing the unknown (eg, a mission into uncharted territory) or the unknowable (ie, the mystery of God), and still having to function, it is best to conduct oneself according to the Jesuit adage perinde ac cadaver, or ‘in the manner of a corpse’, and make a difference by remaining indifferent. Facing the challenge of engaging a multitude of unknowable views and unknown human beings in the mission of the Catholic Church, the Pope creates a space to be filled by the prayers of the faithful. Rather than treating communication as a conduit for a given message, it serves as a container for creating a community that embraces a potentially infinite number of messages in a holy communion. Not surprisingly, the three words share the same root.
When governing means dealing with difference, nothing is more powerful than nothing. To exploit the power of the negative, rather than seeking comfort in positive but useless and transitory definitions of purpose, it is better to turn to rhetoric, religion and accounting, and their exploratory and community-building power. They have played this trick for millennia. Corporate governance has a lot to learn from them, especially because real governance exists only when purpose is contested. If the purpose is defined, we do not need to govern anything; a machine can, and very likely will, do the job.