Across the West, capitalism is not working as well as it should. Jobs are plentiful, but growth is sluggish, inequality is too high and the environment is suffering. You might hope that governments would enact reforms to deal with this, but politics in many places is gridlocked or unstable. Who, then, is going to ride to the rescue? A growing number of people think the answer is to call on big business to help fix economic and social problems. Even America’s famously ruthless bosses agree. This week more than 180 of them, including the chiefs of Walmart and JPMorgan Chase, overturned three decades of orthodoxy to pledge that their firms’ purpose was no longer to serve their owners alone, but customers, staff, suppliers and communities, too.

The CEOs’ motives are partly tactical. They hope to pre-empt attacks on big business from the left of the Democratic Party. But the shift is also part of an upheaval in attitudes towards business happening on both sides of the Atlantic. Younger staff want to work for firms that take a stand on the moral and political questions of the day. Politicians of various hues want firms to bring jobs and investment home. However well-meaning, this new form of collective capitalism will end up doing more harm than good. It risks entrenching a class of unaccountable ceos who lack legitimacy. And it is a threat to long-term prosperity, which is the basic condition for capitalism to succeed.

Ever since businesses were granted limited liability in Britain and France in the 19th century, there have been arguments about what society can expect in return. In the 1950s and 1960s America and Europe experimented with managerial capitalism, in which giant firms worked with the government and unions and offered workers job security and perks. But after the stagnation of the 1970s shareholder value took hold, as firms sought to maximise the wealth of their owners and, in theory, thereby maximised efficiency. Unions declined, and shareholder value conquered America, then Europe and Japan, where it is still gaining ground. Judged by profits, it has triumphed: in America they have risen from 5% of gdp in 1989 to 8% now. It is this framework that is under assault. Part of the attack is about a perceived decline in business ethics, from bankers demanding bonuses and bail-outs both at the same time, to the sale of billions of opioid pills to addicts. But the main complaint is that shareholder value produces bad economic outcomes. Publicly listed firms are accused of a list of sins, from obsessing about short-term earnings to neglecting investment, exploiting staff, depressing wages and failing to pay for the catastrophic externalities they create, in particular pollution.

Not all these criticisms are accurate. Investment in America is in line with historical levels relative to gdp, and higher than in the 1960s. The time-horizon of America’s stockmarket is as long as it has ever been, judged by the share of its value derived from long-term profits. Jam-tomorrow firms like Amazon and Netflix are all the rage. But some of the criticism rings true. Workers’ share of the value firms create has indeed fallen. Consumers often get a lousy deal and social mobility has sunk. Regardless, the popular and intellectual backlash against shareholder value is already altering corporate decision-making. Bosses are endorsing social causes that are popular with customers and staff. Firms are deploying capital for reasons other than efficiency: Microsoft is financing $500m of new housing in Seattle. President Donald Trump boasts of jawboning bosses on where to build factories. Some politicians hope to go further. Elizabeth Warren, a Democratic contender for the White House, wants firms to be federally chartered so that, if they abuse the interests of staff, customers or communities, their licences can be revoked. All this portends a system in which big business sets and pursues broad social goals, not its narrow self-interest. That sounds nice, but collective capitalism suffers from two pitfalls: a lack of accountability and a lack of dynamism. Consider accountability first. It is not clear how ceos should know what “society” wants from their companies. The chances are that politicians, campaigning groups and the ceos themselves will decide—and that ordinary people will not have a voice. Over the past 20 years industry and finance have become dominated by large firms, so a small number of unrepresentative business leaders will end up with immense power to set goals for society that range far beyond the immediate interests of their company.

The second problem is dynamism. Collective capitalism leans away from change. In a dynamic system firms have to forsake at least some stakeholders: a number need to shrink in order to reallocate capital and workers from obsolete industries to new ones. If, say, climate change is to be tackled, oil firms will face huge job cuts. Fans of the corporate giants of the managerial era in the 1960s often forget that at&t ripped off consumers and that General Motors made out-of-date, unsafe cars. Both firms embodied social values that, even at the time, were uptight. They were sheltered partly because they performed broader social goals, whether jobs-for-life, world-class science or supporting the fabric of Detroit. The way to make capitalism work better for all is not to limit accountability and dynamism, but to enhance them both. This requires that the purpose of companies should be set by their owners, not executives or campaigners. Some may obsess about short-term targets and quarterly results but that is usually because they are badly run. Some may select charitable objectives, and good luck to them. But most owners and firms will opt to maximise long-term value, as that is good business. It also requires firms to adapt to society’s changing preferences. If consumers want fair-trade coffee, they should get it. If university graduates shun unethical companies, employers will have to shape up. A good way of making firms more responsive and accountable would be to broaden ownership. The proportion of American households with exposure to the stockmarket (directly or through funds) is only 50%, and holdings are heavily skewed towards the rich. The tax system ought to encourage more share ownership. The ultimate beneficiaries of pension schemes and investment funds should be able to vote in company elections; this power ought not to be outsourced to a few barons in the asset-management industry.

Accountability works only if there is competition. This lowers prices, boosts productivity and ensures that firms cannot long sustain abnormally high profits. Moreover it encourages companies to anticipate the changing preferences of customers, workers and regulators—for fear that a rival will get there first. Unfortunately, since the 1990s, consolidation has left two-thirds of industries in America more concentrated. The digital economy, meanwhile, seems to tend towards monopoly. Were profits at historically normal levels, and private-sector workers to get the benefit, wages would be 6% higher. If you cast your eye down the list of the 180 American signatories this week, many are in industries that are oligopolies, including credit cards, cable tv, drug retailing and airlines, which overcharge consumers and have abysmal reputations for customer service. Unsurprisingly, none is keen on lowering barriers to entry. Of course a healthy, competitive economy requires an effective government—to enforce antitrust rules, to stamp out today’s excessive lobbying and cronyism, to tackle climate change. That well-functioning polity does not exist today, but empowering the bosses of big businesses to act as an expedient substitute is not the answer. The Western world needs innovation, widely spread ownership and diverse firms that adapt fast to society’s needs. That is the really enlightened kind of capitalism. ■

For starters, the companies that do require large capital investments seem to still have quite a close relationship with government. They beleive that most valuable companies would be those with the most revenue to spend on large capital investments and workforces. For all of them, it meant being supportive of active Keynesian-style demand management by government that kept the economy ticking along.

Underlying assumptions that consumer demand could be easily created through advertising. But two companies in the top 10 today (Google and Facebook) earn virtually all their revenues through advertising. All this advertising is zero-sum, and not adding much to the economy, but the fact that so many businesses continue spending money on it should cause some doubt.

Finally, the big tech companies are able to create large amounts of profit off very little capital expenditure. Yet each and every one of them has been berated for not acting in the interests of shareholders and instead pursuing the personal ambitions of their founders.

What did that mean? First, the owner-manager firms were not possible. Instead, firm ownership was distributed and were divorced from firm managers who had the incentives and skills of bureaucrats, and so created bureaucracy. Second, none of these people liked risk. So, unlike the bold entrepreneur who invested with guile and accepted risk for the promise of a high return, our manager-bureaucrats poured their efforts into risk reduction. They shied away from bold moves with large upside and saw rigidity as a potential goal rather than a problem. Third, because managers were not incentivized to maximize profits, they looked for easier ways to get enough return to cover their costs. ■

In 2024, a global electoral marathon presents both challenges and opportunities for Western corporate chiefs. About 80 countries, including notable markets like India and Mexico, are heading to the polls, affecting business strategies and diplomatic niceties. Narendra Modi's likely re-election in India and Claudia Sheinbaum's expected victory in Mexico necessitate a reevaluation of business approaches due to Modi's protectionist policies and López Obrador's nationalistic tendencies, which have disrupted operations and favoured domestic over foreign enterprises. 

Western executives face additional political quandaries closer to home, with the looming US election fostering anxiety over trade policies and corporate taxation under potential administrations. In Europe, rising nationalism threatens free trade, complicating business operations across the continent. Historical trends show a declining enthusiasm for laissez-faire economic policies among Western politicians, indicating a shift towards expecting businesses to align more closely with governmental agendas rather than merely driving economic growth. 

To navigate this increasingly complex landscape, corporate leaders are turning to political consultants who can provide insights into the subtleties of global and domestic policies. These advisors are crucial for firms to anticipate and mitigate risks associated with geopolitical shifts, such as potential changes in US-China relations or Trump’s protectionist trade measures. Companies are also actively engaging with governments to secure favourable outcomes, whether through lobbying or strategic alliances. 

This involves adapting to the political climate, such as Intel’s alignment with Biden’s semiconductor strategy or Tesla’s negotiations with Mexican officials. However, this interplay between business and politics is fraught with risks. Companies may find themselves vulnerable if political winds shift, potentially reversing any gains made under current regimes. As businesses increasingly "dine" with politicians to avoid being "dinner," the challenge remains balancing influence with the precarious nature of political favor. ■

Despite similar lawyer headcounts, Indian law firms significantly lag behind their international counterparts in financial performance. For instance, KCO, an Indian firm with over 800 lawyers, generates around INR 600+ crores (USD 80 million), while the U.S. firm Davis & Polk, with a similar size, reported USD 1.4 billion in revenues. The highest-grossing law firm, Kirkland, boasts revenues of USD 4.16 billion, overshadowing the total revenue of major Indian law firms combined at USD 1.35 billion. 

In India, where industry leaders in sectors like TMT, BFSI, and Real Estate far surpass a sub-1000 crore revenue, top Indian law firms such as CAM, SAM, AZB, and KCO, each generating around USD 106 million (Rs. 880 crores), represent merely 2.5% of Kirkland’s revenues. However, the unique strength of Indian firms lies in their "access" to powerful decision-makers—judges, ministers, and bureaucrats—positioning them as influential gatekeepers in the legal and business landscape, despite their smaller economic footprint compared to global giants.

• Big Four Professional Services Firms:

  • KPMG

  • Deloitte

  • PricewaterhouseCoopers (PwC)

  • Ernst & Young (EY)

• Big Oil Companies:

  • ExxonMobil

  • Royal Dutch Shell

  • BP (British Petroleum)

  • Chevron

  • Aramco

  • PetroChina

• Big Hotel Chains:

  • Marriott International

  • Hilton Worldwide Holdings Inc.

  • InterContinental Hotels Group

  • AccorHotels

• Big Luxury Brands:

  • LVMH (Louis Vuitton Moët Hennessy)

  • Kering

  • Richemont

  • Estée Lauder Companies

• Big Tech Companies:

  • Apple Inc.

  • Alphabet Inc. (Google)

  • Microsoft Corporation

  • Amazon.com Inc.

• Big Pharmaceutical Companies:

  • Pfizer Inc.

  • Johnson & Johnson

  • Novartis International AG

  • Roche Holding AG

• Big Tobacco Companies:

  • Philip Morris International

  • British American Tobacco

  • Japan Tobacco International

  • Imperial Brands

• Big Liquor Companies:

  • Diageo plc

  • Pernod Ricard SA

  • Anheuser-Busch InBev

  • Brown-Forman Corporation

• Big Retail Companies:

  • Walmart Inc.

  • Amazon.com Inc.

  • Alibaba Group Holding Limited

  • Costco Wholesale Corporation

• Big Automotive Companies:

  • Toyota Motor Corporation

  • Volkswagen AG

  • General Motors Company

  • Ford Motor Company

• Big Aerospace and Defense Companies:

  • Boeing

  • Lockheed Martin Corporation

  • Raytheon Technologies Corporation

  • Northrop Grumman Corporation

• Big Financial Institutions (Banks):

  • JPMorgan Chase & Co.

  • Bank of America Corporation

  • Wells Fargo & Company

  • Citigroup Inc.

• Big Telecommunications Companies:

  • AT&T Inc.

  • Verizon Communications Inc.

  • China Mobile Communications Corporation

  • Vodafone Group Plc

• Big Food and Beverage Companies:

  • Nestlé SA

  • The Coca-Cola Company

  • PepsiCo Inc.

  • Mondelez International Inc.

• Big Renewable Energy Companies:

  • NextEra Energy, Inc.

  • Ørsted A/S

  • Enel SpA

  • Siemens Gamesa Renewable Energy

• Big Consumer Electronics Companies:

  • Samsung Electronics Co., Ltd.

  • Sony Corporation

  • LG Electronics Inc.

  • Xiaomi Corporation

• Big Fast Food Chains:

  • McDonald's Corporation

  • Yum! Brands, Inc. (owns KFC, Taco Bell, Pizza Hut)

  • Subway

  • Burger King Corporation

• Big E-commerce Platforms:

  • Alibaba Group Holding Limited

  • JD.com, Inc.

  • eBay Inc.

  • Shopify Inc.

• Big Social Media Companies:

  • Facebook, Inc. (now Meta Platforms, Inc.)

  • Twitter, Inc.

  • Snap Inc. (Snapchat)

  • TikTok (owned by ByteDance)

• Big Streaming Platforms:

  • Netflix, Inc.

  • Amazon Prime Video

  • Disney+

  • Spotify Technology S.A.

• Big Healthcare Companies:

  • UnitedHealth Group Incorporated

  • Johnson & Johnson

  • CVS Health Corporation

  • Merck & Co., Inc.

• Big Gaming Companies:

  • Tencent Holdings Limited

  • Sony Interactive Entertainment LLC

  • Microsoft Corporation (Xbox division)

  • Nintendo Co., Ltd.

• Big Airlines:

  • Delta Air Lines, Inc.

  • American Airlines Group Inc.

  • United Airlines Holdings, Inc.

  • Lufthansa Group

• Big Fashion Retailers:

  • Inditex (owns Zara)

  • H&M Hennes & Mauritz AB

  • Gap Inc.

  • Fast Retailing Co., Ltd. (owns UNIQLO)

• Big Shipping and Logistics Companies:

  • Maersk Line

  • FedEx Corporation

  • United Parcel Service, Inc. (UPS)

  • DHL International GmbH

• Big Entertainment Studios:

  • The Walt Disney Company

  • WarnerMedia (owned by AT&T Inc.)

  • NBCUniversal (owned by Comcast Corporation)

  • Sony Pictures Entertainment Inc.

• Big Renewable Energy Companies:

  • NextEra Energy, Inc.

  • Ørsted A/S

  • Enel SpA

  • Siemens Gamesa Renewable Energy

• Big Data and Analytics Companies:

  • Palantir Technologies Inc.

  • SAS Institute Inc.

  • Splunk Inc.

  • Tableau Software (owned by Salesforce)

• Big Biotechnology Companies:

  • Amgen Inc.

  • Gilead Sciences, Inc.

  • Biogen Inc.

  • Regeneron Pharmaceuticals, Inc.

• Big Artificial Intelligence Companies:

  • NVIDIA Corporation

  • IBM Corporation

  • Alphabet Inc. (Google)

  • Microsoft Corporation

Imagine your favorite toy store. The people who run the store want to make sure they have all the toys kids love and that they always have enough. Business Intelligence is like a special superhero who helps them do that. This superhero has super eyes and ears to watch and listen to everything happening in the store. It can see which toys kids buy the most, which toys are running out, and even what toys other stores are selling. The superhero then tells the store manager all this important stuff, so they can decide which new toys to get, how many to order, and where to put them in the store.

Business Intelligence (BI) Superheroes: "Remember the superhero who helps the toy store know which toys are popular and how many to order? These are the BI superheroes. They look at all the things happening inside the store, like how many toys are sold, how much money is made, and if the store is doing well. They help the store make smart choices every day."

Internal Auditors: "Now, imagine there are special detectives in the store. These detectives are called internal auditors. They check to make sure everything in the store is working the way it should. They make sure the money is counted correctly, the toys are priced right, and everyone is following the rules. It's like making sure all the toys are in the right place and nothing is missing."

Consulting Firms: "Consulting firms are like wise old wizards who visit the toy store. They don't work there all the time, but they come in to give special advice. They help the store solve big problems or find new ways to be better. It's like asking a wise wizard what new games or toys could make the store even more fun for kids."

Market Researchers: "Market researchers are like friendly explorers who go outside the toy store to find out what other kids like in different places. They talk to kids, parents, and other stores to learn about the coolest new toys and games. They bring back this information so the toy store knows what new toys to get that kids will love."

In summary:

• BI superheroes help the toy store with everyday decisions by looking at what's happening inside.

• Internal auditors are like detectives making sure everything is in order and following the rules.

• Consulting firms are wise wizards who come in to solve special problems and give big advice.

• Market researchers are explorers who find out what's popular outside the store and bring back new ideas.

Beware the free-rider in CA firms: contributing little, gaining much. Whether senior partners resting on past work or juniors dodging skill-building, free-ridership drains motivation and growth. Firms thrive on original roles, not coasting.

The Curse of the Free-Rider: A Silent Menace in CA Firms

The phenomenon of the free-rider is not new to economics, but its subtle infiltration into Chartered Accountant (CA) firms is a cause for concern. By definition, a free-rider contributes little or nothing to collective efforts while reaping the rewards of others' labor. This practice, pervasive in varying degrees, threatens not just productivity but the very ethos of professional firms.

The Senior Partner Dilemma

In many CA firms, senior partners often embody the quintessential free-rider. Having once been the driving force behind their firms, they now rest on their laurels, convinced that past contributions justify current entitlements. Their rationale? The revenue streams of today are the fruits of labor sown years ago. But this argument falters upon scrutiny. Compensation for past work has already been drawn, and practice—unlike intellectual property—is not a royalty business. It thrives on continuous effort, not residual loyalty.

Meanwhile, the real burden falls on younger professionals, who must navigate complex regulations and demanding clients. These newcomers shoulder the weight of assignments that drive revenues, often without receiving due recognition. For a senior partner, being labeled a free-rider may be an unspoken critique, but the specter of this perception can be unsettling—particularly for those who pride themselves on a legacy of hard work.

The Emerging Free-Rider Class

More troubling is the rise of free-riders who are neither partners nor senior figures. Some start as diligent workers but gradually slip into this role, often unintentionally. A failure to acquire new skills, reliance on outdated study materials, or a career overly focused on delegation and management are warning signs. While man-management and strategic oversight are important, they cannot constitute the entirety of one’s job description.

Such individuals may excel in meetings, providing insightful commentary and referencing others' tasks with precision. Yet, they rarely leave the table with actionable responsibilities. They may wax eloquent about artificial intelligence, business intelligence, or robotic process automation, but without tangible expertise or certification in these areas, their contributions remain superficial.

The Impact on Firms

The presence of free-riders is more than just an annoyance; it is a motivation-sapping force that erodes the fabric of a firm. When hardworking employees see nominal contributors rewarded equally, resentment festers. Larger firms are particularly vulnerable, as their sprawling hierarchies often obscure the true extent of free-ridership. The result is a systemic inefficiency that stymies growth and innovation.

Growth, after all, requires two essential ingredients: breadth of practice and depth of expertise. Managing this growth demands experience, but executing it necessitates skill. A firm plagued by free-riders risks falling short on both fronts.

Combating Free-Ridership

The antidote lies in fostering a culture of accountability and meritocracy. Compensation must align with measurable contributions, ensuring that those who carry the firm’s weight feel fairly rewarded. Equally important is encouraging every team member to carve out a unique and meaningful role—one that leverages their strengths and adds value to projects.

Work should not be judged merely by hours logged but by outcomes achieved. Whether it’s a 70-hour workweek or a carefully calibrated effort to balance professional and personal commitments, the metric must always be efficacy.

A Cautionary Tale

CA firms—and indeed all professional organizations—must remain vigilant against the allure of easy riding. Free-ridership is not always intentional, but its effects are invariably corrosive. Firms must introspect, identifying and addressing this risk before it takes root. Larger firms, in particular, must recognize that their size amplifies vulnerabilities.

The message is clear: no one is immune to the temptation of coasting, and no firm is safe from its consequences. Growth, sustainability, and morale depend on ensuring that every individual pulls their weight. After all, in the corridors of professional firms, everyone knows who is just along for the ride.