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Social Contract 2.

0: Institutional Survival in the New Era
of Accountability
Jacob Harold and Lee Drutman

The shift to a new social contract is underway. Businesses, governments,
and civil society face a rapidly-changing world characterized by multi-
dimensional accountability. Profound technological, demographic, and
economic changes—plus the ever-increasing expectations of a new
accountability class—have forever rewritten the rules of institutional
governance and strategy. In this new social contact, institutions must adopt
four behaviors in exchange for legitimacy and survival: (1) embrace
transparency, (2) track multiple bottom lines, (3) proactively engage with
stakeholders, and (4) collaborate with other institutions to solve shared
problems. Institutions who cannot adapt will fail.

Section I: The End of Social Contract 1.0

On or about January 1st, 2000, the first social contract came to an end. In
retrospect we see that that 2000 was more than just the turning of the
millennium -- it also marked a turning point in the very structure of our
society. In December of 1999, the World Trade Organization Conference in
Seattle collapsed beneath the weight of We live in a networked world…In
50,000 protesters. Two years later, the World this world, the measure of power
Trade Center collapsed beneath the weight of is connectedness.
airplane fuel and hate. Even as symbols of --Anne-Marie Slaughter
globalization fell, the interconnectivity of the
While all organizations attempt to
world was made permanent: the Internet create value of one kind or
became mainstream, global supply chains another…that value is itself a
swelled, new powers rose. A decade later we combination, a “blend” of
now see that 2000 was not, as some economic, environmental and
predicted, the end of history. It was the social factors, and that
maximizing value requires taking
beginning of a new chapter of the human all three elements into account.
story. The painful and freeing transition to --Jed Emerson and Sheila Bonini
Social Contract 2.0 had begun.
…a complex, multicultural
Social Contract 1.0 had a long run. Forged out landscape filled with
of the twin political and industrial revolutions transnational challenges from
of the late 18th and early 19th century, Social terrorism to global warming is
completely unmanageable by a
Contract 1.0 described a (then) radical new single authority, whether the
world in which governments were only United States or the United
legitimate to the extent that they Nations. Globalization resists
democratically maintained the consent of the centralization of almost any kind.
--Parag Khanna
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governed through periodic elections, and in which such things as free
markets functioned independently with limited rules and regulations based
on the choices of countless individuals. This fundamental idea thrived in
different countries and at different times, with variations involving the
church, business, and political parties.

The essential bargain beneath Social Contract 1.0 was that citizens give up
some rights to government in exchange for security and stability, with a
Lockean “right to revolt” in case of dissatisfaction. This bargain will stay with
us, but it is no longer enough to explain a complex world. It assumes a top-
down, hierarchical society with relatively few centers of power. In the era of
Social Contract 1.0, almost all communication was one-to-many: first
pamphlets and newspapers, then radio, then television. Politicians and
businesses spent much more time selling and telling than they did listening.
Citizens voted on candidates and politicians, and consumers either bought or
did not buy products. But these were blunt instruments of feedback.
Moreover, for most of this period, the concerns of most citizen-consumers
were largely parochial, focused mainly on the economic security of families
and communities, and often with little
Potential manifestations of
interest a broader world.
a social contract in flux
But the last few decades have seen sea
change upon sea change: rapid technology • Google’s famously simple
growth and shifting demographics have guiding moral principle,
transformed the world, creating multiple “Don’t be evil”, will collide
interlinked nodes of power. This polynodal with the sheer scale its
world is the shifting ground beneath our famously simple mission:
feet. In particular, four interrelated to organize all of the
phenomena are transforming the rules of world’s information.
institutional behavior:
• Education will increasingly
Low cost of information. Information is move online. How many
becoming progressively cheaper to gather, colleges and universities
copy, share, and access. This means that can charge $30,000 a year
people, if they choose, can be much more in tuition when most of
informed with much less effort about the
MIT’s curriculum is now
institutions with which they interact.
available for free through
Consumers now have instant access to
its OpenCourseWare
everything from comparative user reviews to
program?
supply chain data. The availability of
systematic social and environmental
• Other powerful but poorly-
indicators allows the King of Bhutan to
understood institutions like
measure his country’s Gross National
hedge funds and private
Happiness, not just Gross National Product.
foundations will be
The click of a button reveals a country’s
carbon emissions, employment numbers, or dragged from the shadows
maternal mortality rates. by new forms of
transparency and face 2
inevitable scrutiny,
criticism, and regulation.
Information availability now also means that accountability is not just
political. It can be economic. Purchase of a pound of ground coffee will
never be the same after the introduction of fair trade labeling. Certification
campaigns have spread to chocolate, diamonds, and wood products. The
global marketplace runs less and less on simple price signals.

Low cost of collaboration. Search engines make it possible to find like-
minded people almost instantly. Social networking tools allow connection to
turn into community. Mobile phones allow that community to mobilize in real
time. Such a drop in cost qualitatively shifts the character and potential of
community—from Wikipedia to the 2008 Iranian election protests. This new
collaboration is built upon technological change, though as Clay Shirky has
said, “these tools don’t get socially interesting until they get technologically
boring.”
Collaboration is rising not just among individuals, it is among institutions. An
entire infrastructure of associations binds together the interests of
organizations in the political sphere, and now more than ever, individual
association members have more power to shape and engage the association,
rather than responding to top-down directives. Cross-institutional
collaboration is expanding not just within individual categories of institutions,
but also across categories—most prominently with the World Economic
Forum.

Low barriers to entry. A.J. Leibling said “Freedom of the press is
guaranteed only to those who own one.” There is no need to explain how
that is no longer true. (What better sign that things are changing than the
fact that truisms are no longer true?) Nowadays, anybody can put up a
website and enter the going-viral sweepstakes. And last round’s winners can
expand very quickly. Barriers to entry are also dropping for non-virtual
enterprises as well. An ever-stronger infrastructure for outsourcing leads to
modular supply chains—no need to build the factory when you can make a
few phone calls.

New institutions not only can enter easily—they can quickly rise to compete
with existing organizations in both the physical and virtual worlds: in politics,
business, and culture. As Michael Porter has outlined in detail, the
competitive dynamics of an industry are fundamentally determined by its
barriers to entry. As those barrier fade, industries—and communities, and
political discourse—can and will be re-imagined. But low barriers to entry
and the ease of collaboration also create a tragedy of the attention
commons. With every new entrant it gets harder to rise above the ever-
increasing din.

Rising expectations of a new accountability class. Thousands upon
thousands of people are now employed full-time to hold other institutions
accountable. In addition to time-tested mechanisms like lawsuits, boycotts,
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ratings, and advertising, they also have the emerging power of new tools like
shareholder resolutions, viral marketing campaigns, user reviews, and
coordinated global civil disobedience. Technology has also empowered an
even bigger group of amateur campaigners, activist investors, whistle-
blowers, and bloggers. Big Brother has been replaced by thousands of
observant and trigger-happy cousins.

Networks of civil society organizations lead massive global campaigns, both
for good and for evil. The Bill and Melinda Gates Foundation now controls
$65 billion, dedicated to help the poor. The capital held by Gates and other
foundations is the freest in the modern world, offering the chance for
creativity and strategic focus but carrying little formal accountability. An
emerging set of what Harvard political scientist Sanjeev Khagram has called
“global action networks” are working at the intersection of sectors to tackle
the world’s biggest challenges: the $3 billion Global Fund for AIDS, Malaria,
and Tuberculosis is the dominant player in confronting infectious disease;
Transparency International has become a key platform in the battle to
improve governance; the Forest Stewardship Council is a cross-sector
partnership that is transforming the market for forest products

While many members of new accountability class are activists with social
and environmental goals, the category is far wider and more complex.
Private equity firms and hedge funds engage in “activist” interventions with
no goal but profit. Politics has long had opposition research, but it has
become its own industry, one enabled and accelerated by easy access to
information. User reviews have decentralized the critic and made everyone
a member of the consumer accountability class.

The new accountability class offers profound advantages in our decentralized
world. With traditional accountability mechanisms (government regulation,
newspaper journalism) weakened, society should count itself lucky to have
robust defenders. But we are also wise to face the great irony of the
accountability class: it is itself unaccountable. And we cannot doubt that the
accountability din—perhaps most evident on cable news—can very easily
debase politics and leave behind incapacitating cynicism.

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These new structural forces both concentrate and devolve power. They
accelerate change and multiply both threats and opportunities. In the face
of this change, all institutions will remain subject to organizational inertia. At
heart, institutions are little more than bundles of routines and rules, and
routines and rules are sticky. They get codified by habit and language. But
occasionally—like right now—the ground shifts so much that old ways of
doing business (and politics and culture) face a fundamental challenge.

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Section II: The Polynodal World

The world has seeing an explosion in the number of centers of power. There
are both more and more types of power centers. More countries than ever
are independent and influential. More companies have a global footprint.
New types of powerful institutions have emerged: hedge funds, search
engine companies, blogs, and international advocacy networks.

This transformation is most immediately obvious in the realm of international
relations. The overwhelmingly bipolar relations among nation-states that
characterized the Cold War have, over the course of two decades, all but
dissolved. The EU has—in a miracle inconceivable 60 years ago—settled into
a role as a diverse but coherent center of power. The BRIC nations—Brazil,
Russia, India, China—compose half the world’s population, control immense
natural resources, and increasingly project economic, political, and cultural
power. Japan, despite its Lost Decade, remains the world’s second-largest
economy. A tier of mid-level powers—Indonesia, Canada, South Africa,
Egypt, Saudi Arabia, Mexico, Australia, South Korea—have stepped into
critical roles in the global discourse.

But even to speak of nations is increasingly meaningless. Capital flows are
not particularly concerned with geographic boundaries. The corporate giants
of the Global North—whether ExxonMobil, Nestlé, or Toyota—have become
authentically global institutions, with production and markets on every
continent and political power to match. But we should not forget that the
world’s biggest company—PetroChina—is Chinese, and some of the most
dynamic—Tata, Reliance, Wipro—are Indian. Corporate innovation and scale
now emerges far beyond the business capitals of the US, Europe, and Japan.

We are left with the term “civil society” to describe everything else—the
massive and growing set of millions of organizations meant to advance the
interests or beliefs of freely associated members. Networks of civil society
organizations lead massive global campaigns. In the US alone, 87,000
foundations control hundreds of billions of dollars devoted to using civil
society as a mechanism for social good.

The profusion of power centers also has a dark side. The same tight global
interlinkages that allow “global action networks” to be so effective also make
the world increasingly vulnerable to other voluntary groups, like Al-Qaeda or
Hezbollah or Lashkar-e-Taiba, who make remarkable use of modern
technology in their attempt to subvert it. In parallel, global organized crime
now wields immense power in the global economy and compromises
governments from Mexico to Italy to Japan—there’s a reason (unfortunate as
it may be) that Forbes recently named Joaquin Guzman, the head of the
Sinaloa Cartel, as more powerful than Nicolas Sarkozy.

The existence of so many centers of power changes the rules of engagement
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for all institutions. First, it complicates governance by bringing in more and
different mechanisms of accountability. The entry of each new power center
reduces the relative power of existing institutions. It increases the cost of
governance by driving up the number potential influential stakeholders.
Second, it complicates strategy by destabilizing context. In a world where
the context is already changing faster because of technology, multiple power
centers offer more moving parts and more sources of disruption.

Section III: The Laws of Social Contract 2.0?

What is a leader to do? Ever-more power centers, new entrants, and the
growing accountability class all complicate governance and strategy. We
cannot predict the consequences of such a shift in the world order. But, we
can posit the behaviors that are more likely to succeed in this wild and
dynamic polynodal world. Moreover, we suggest that these behaviors are
not just instrumentally important to help evolve in a changing context. With
the rise of the accountability class and multi-dimensional accountability,
these four behaviors are necessary for any institution to maintain legitimacy.
Implicitly, society will grant institutions the right to exist if and only if they
meet their part of this emerging bargain.

First, successful institutions will default to transparency. The low cost
of storage and copying mean that a single disenchanted individual can now
share massive amount of information with the world with a few mouse clicks.
And, if organizations somehow are successful in keeping information hidden,
someone from the new accountability class will either demand it, or, worse,
make something up. As a general rule (the only enduring rule is that all
rules have exceptions), organizations will be better-served in the long term
to share information. Collaboration requires that institutions understand
what other institutions are doing. There will continue to be good reasons for
institutions to not share some types of information (military intelligence,
patient data, some competitive secrets). But in most cases there is no good
reason not to share. Transparency may have started as a moral imperative
but it has in many cases become a practical aid to results. It facilitates
collaboration and increases legitimacy – it can also attract consumers,
voters, and stakeholders.

Second, institutions will track multiple bottom lines. Gone are the
days when a business executive could simply focus on quarterly earnings
and expect to be left alone. Companies are now asked to track and manage
multiple metrics—from carbon footprint to net job creation to lobbying
expenditures. Nonprofits cannot be content with a low overhead ratio;
donors demand lasting results. National governments cannot merely track
GDP growth; multi-dimensional quality of life measures are the only way to
paint a complete picture of the success of a city, state, or nation.
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At its best, this information will go beyond the “soft” transparency of
reporting—tell the world so they’ll get off your back. Information is powerful
when it is the “hard” transparency of internal management systems. The
maxim says that what gets measured gets managed—but even more
powerful is what gets managed gets shared.

Third, institutions will proactively engage with stakeholders. In this
new social contract every institution reports to multiple stakeholders.
National governments may be directly responsive to voters, but they must
engage with individuals and institutions inside—and outside—of their
borders. A corporate CEO may formally report to her board of directors—but
she increasingly has to pay attention to groups representing customers,
shareholders, employees, vendors, and advocates. In nonprofit
organizations the “buyer” (donor) is not the “customer” (final beneficiary)—
but both must be served if the organization hopes to succeed. Outside
stakeholders have been empowered with more available information and
new technology tools to facilitate collaboration. This power gives them
leverage, which only enhances the connections across the networked
accountability of Social Contract 2.0.

It is expensive for an institution to proactively engage stakeholders during
planning, execution, and evaluation. It takes time, money, and attention.
But it is cheaper than doing so reactively or retroactively. In a polynodal
world, where contexts shift rapidly, proactive engagement is the only way to
get feedback, uncover trends, and ultimately to build the collaboration and
find the innovations necessary to survive.

Fourth, will collaborate to solve shared problems. Wicked problems
like climate change simply cannot be addressed by only one sector. Success
requires the flexibility of civil society, the mandate of government, and the
scalability of business. In any one issue, sub-sectors will be called upon in
different ways—whether foundations to provide flexible capital or the media
to enrich the public’s understanding. As a society, we need institutions to
collaborate to solve our big problems. As institutions, we need to collaborate
to survive in a world too complex for any one set of competencies.

In a changing context, institutions experiment. Universities use tools from
business to monetize intellectual property from faculty research. Nonprofits
increasingly look to earned-income strategies to increase their social or
environmental impact—with a universe of microfinance, social enterprise,
and program-related investing offering a new set of tools for both bleeding
hearts and Wall Street. The business world trumpets techniques of intrinsic
employee motivation pioneered by nonprofits. Institutions will not survive
without drawing lessons from others. More importantly, we will not survive
the challenges of our time without the capabilities of all of our best
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institutions.

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These four behaviors offer the outlines of the implicit, emerging bargain of
Social Contract 2.0: institutions survive and thrive by engaging in the above
four behaviors. Those that do will have the legitimacy, flexibility, and
resilience. Those that do not will burn out or fade away.

The great issues of the 21st century demand humanity’s full attention and
effort. While the transition to Social Contract 2.0 is and will continue to be
painful, we can only succeed with common purpose manifest in new, open,
decentralized models.

Things may fall apart, but Social Contract 2.0 is no widening gyre. Our social
order rises to match the challenges of our time.

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