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The Liberation of Khaos

Corporations Unbound

A presentation for Philips


July 22, 2008
(abridged version)
The intention of this presentation is to provide Philips with a vision and illustrative
process to adventure into the company’s potential for new creativity and growth.

This presentation draws from Philips’ strategic documentation, including,


Democratizing the future
Towards a new era of creativity and growth
by Josephine Green

The beginning point for this adventure: a place called ‘Khaos’.


The journey through Khaos will ultimately lead to unparalleled
imagination and inspiration.
Chaos, n., "disorder: a state of complete
disorder and confusion"
Khaos, original Greek: "void, abyss"
Khaos or Chaos?

The not yet known versus disorder. Have we


been operating under inaccurate definitions of
words… and thus, society?
Corporate Khaos or Chaos?

Corporations, by definition, abhor the not yet


known of the void/abyss…

or, do corporations abhor the disorder of Chaos?


Is it totally impossible to escape from the day-
to-day battles of the real world?
… or is it possible for corporations (employees-
shareholders-consumers) to adventure into the
not yet known (Khaos) in a way that is both
constructive and responsible?
The adventure of discovery…
Discovery: a mystical, light dawning experience.

How can a corporation regain its mystical sense


of adventure?
What to consider as a corporation evaluates a new
adventure into Khaos:

• Looking beyond assumptions


• Models & tools
• Seeing the lights & talents
• The Visible & the Trojan horse (wisdom choices)
Part I
Looking beyond assumptions.
Shareholders. The good, bad, and ugly.
Active & passive ownership of corporations.

When Berle and Means published their landmark study, The Modern
Corporation and Private Property (1932), there were, almost literally, no
institutional owners of stocks. Nonetheless, they warned that:

"the position of ownership has changed from that of an active to that of a passive agent,
(with the) 'owner' of industrial wealth left with a mere symbol of ownership, with the
power, the responsibility, and the substance . . . of ownership transferred to a separate
group (the corporate managers) in whose hands lies control."
Institutional investors as a group now own about 66 % of the total of
U.S. stock.

Those individual owners, who held virtually 100 % of all shares when
Berle and Means' book was published in 1932, now constitute just 34
% of the total.

Sea change is an understatement; we have truly witnessed a


revolution in stock ownership.
A remarkably small group of institutional managers now
dominate the ownership scene.

The largest 100 managers alone hold 52 percent of all shares,


$6.8 trillion in U.S. equities.

This relative handful of giant investors have the real—not


merely the theoretical—power to exercise dominion over the
corporations they own.
"Keiretsu" is a Japanese word that refers to a group of businesses
that share an ownership stake in one another as a means of mutual
security.

The accounts managed by Citigroup's money management division


now hold some 42 million shares of Citigroup itself. When combined
with Citigroup shares held by other managers who face the same
conflicts, reinforced by the common ownership of other managers
controlled by these conglomerates, the aggregate is enormous:
institutions own about 65 percent of Citigroup's shares.
What effect does cross-ownership (mutual protection) have on corporate
governance? On the fundamentals of production-consumption?

Financial institutions making money from money rather than from


production-consumption. This may not be wrong in and of itself, but what
are the priorities and movers of the market?

Are there checks and balances? Corporate versus individual shareholding.


• Does the general consumer-employee operate as a
check & balance to institutional investors?
• How does the general consumer-employee exploit
the tool of mutual protection?
• What are the motivations of the individual
investor?
Only 10 years ago, few European households invested in stocks and most of their financial wealth was held in the form of
liquid, safe, but low-return assets. Participation in the stock market was limited to a small segment of the population,
those in the very upper tail of the wealth distribution, relatively well educated and with little exposure to other sources of
risk, except possibly entrepreneurial risk.

By the end of the 1990s, however, although wide differences between countries persist, a much larger proportion of
investors now hold stocks in their portfolio. About 50 percent of households in the US and Sweden, and over one third in
the UK invest directly or indirectly (through mutual funds and other managed investment accounts) in the stock market.
In the Netherlands, Italy, France and Germany the proportion is between 15 and 25 percent.

Household Stockholding in Europe:


Where Do We Stand and Where Do We Go?
Luigi Guiso, Michael Haliassos, Tullio Jappelli
October 14, 2002
Profiles of individual shareholders…
Age profile – Education profile –
Direct & indirect stockholding (in %) Direct & indirect stockholding (in %)
< 30 30-39 40-49 50-59 60-69 > 70 Less than
high school High school College
France 14.3 23.6 25.1 28 23.6 21.3
France 18.1 33.4 36
Germany 18.6 21.8 22 21 17.1 11.7 Germany 16.6 21.8 31.3
Italy 8 10.6 16.6 19 14.3 8.4 Italy 8.7 24.1 37.5
Netherlands 12.1 25.6 33.7 40.1 38.6 35.9 Netherlands 26.6 25 45.6
UK 26 39.6 59
UK 31 46.7 53.8 56.5 47.7 29.2
US 34.3 51.8 58.3 61.4 47.1 32.4
Priorities of individual shareholders…

Insurance technical reserves


% of shareholding stocks
France 23
Germany 28
Italy 13
Netherlands 56
Sweden 29
UK 50
Europe 30
US 7
Shareholding: diverse objectives.
Financial institutions Individuals
Profit seeking Profit seeking
Rationale
Tool for pension benefits
Impact on taxation

Financial institutions Individuals


Profit seeking Age specific
Composition
Education specific
Social priority specific
Looking beyond the assumptions.
• Are individual shareholders active or passive… in relation to institutional
investors?

• Are the motivations for individual shareholders complex (profit-seeking versus


long-term profitability for pensions, versus impact on taxation, etc.)?

• Are individual shareholders conscious of these complexities?

• How is the market… and the corporation… affected by these complexities?


By seeing beyond assumptions, then, inspires us to ask
questions to which we think we already know the answer:
• How does active versus passive ownership define power?

• How and why do corporations truly contribute to the market?

• How and why do employees contribute to the market?

• What is the market?


Capitalistic markets 1.0 (before 1800s)
Farmers selling surplus & artisans selling craft
Capitalistic markets 2.0 (industrialization)
Division of labor. Using the tools of the corporation.
Labor is commodity.
Capitalistic markets 3.0 (military-industrial)
Governments & militaries creating jobs & stable
economies.
Capitalistic markets 4.0 (consumer innovation)
Innovating for utility or luxury?
What are the choices we make?
Loss of stability. Widening gap between rich & poor (winner take all).
Capitalistic markets 5.0
(cross-individual-social & cross-innovation-consumption)

• New definitions of value: value of the mind (*), value of society


• Not divisions of labor, but of alliances of people & their livelihoods.
• "Keiretsu”… sharing an ownership stake in one another as a means of
mutual security. Not exclusively for elites. For all.
• Quantum economics.
In version 5.0, the emerging tools of wealth generation are our very
minds… our imaginations… our experiences… our very dreams and
even nightmares… we now are the direct assets of value.

We are value.

We are markets.

How will this impact shareholding?


Part II
Models & Tools.
The Internet has been a revolutionary force
which ultimately requires the institution
(corporations, governments) to evolve beyond
exclusionary institutions to inclusionary
collaborative networks.
Institutions versus collaborative networks: impact on business
models…
Procter and Gamble relies on collaboration to drive innovation

In 2001 P&G set up a system for collaboration through a Connect and Develop
strategy. This program outsources a large proportion of the company's R&D
capability and internally searches for good ideas to strengthen and capitalize on
P&G's own capabilities. It sources new products, ideas and technologies for P&G
through a network of 70 senior experts scattered around the world who make
contacts within industry and academia, and with suppliers and local markets.

To date the program has brought over 10,000 new products, ideas and technologies
to the attention of P&G.
The ‘new economy’ challenge for corporations:
To evolve beyond the objective of ‘self-
preservation’ to the intention of discovery,
innovation, & sustaining relationships.
Post Cold War business models?
• Disposable versus sustainable
• Utility versus luxury
• Cost versus value
• Institutional versus collaborative
• Single company versus alliances
Emerging tools (obligations?) of corporations:
• Technology transfer
• Alliances
• CSR
Technology transfer is the leveraging of
intellectual property across multiple markets.
Alliances are strategic relationships which
integrate multiple technologies & services to
provide the consumer with ‘seamless’ experiences.
Conventional definition of CSR
Increasingly, society is growing stronger in its insistence that the business sector adopt ‘Corporate Social
Responsibility (CSR)’ obligations in exchange for the consumer’s continued loyalty.

CSR is, in the main, a non-legal obligation entered into by individual corporations—the ethical obligation
being the corporation agrees to abide by sometimes specific and sometimes non-specific standards of ethics
so as to consider the larger interests of society by taking responsibility for the impact of their business
activities, in relation to its customers, employees, shareholders, neighboring communities and the
environment.

Whilst conventional government regulations attempt to legally compel businesses to abide by certain
standards, many legal loopholes to regulations exist, and thus CSR is generally a non-governmental method
to both fill these legal gaps as well as hold businesses accountable throughout the transnational space where
state-specific laws and regulations may not yet be normalized (standardized).
Potential definition of CSR

Transformative opportunity to unleash the latent energy and value of


people, innovation, & markets.
Are corporate divisions divided or
collaborative?
Innovation

CSR Sales

Technology
Alliances
Transfer
Because divisions such as CSR are still viewed, in
the main, as obligations rather than
opportunities… many corporate and social value
relationships go unexplored.

This means that these unexplored relationships


cannot begin to reap monetary value.
It may be possible to consider these unexplored
relationships may hold:
• Extraordinary social value
• Extraordinary monetary value
• The capacity to free the corporation from institutional profit-
seeking shareholders, and to allow the corporation to
establish day-to-day relationships with individual
shareholders focused on a balance between profit-seeking
and social value.
Part III
Seeing the lights & talents
Corporation: not as division but as integration (true for labor
and operations)
The Philips woodstove is a high tech cooking device for cooking in communities
currently relying on less efficient means. It is designed for burning wood very
efficiently and for reducing the smoke and toxic emissions to very low levels.
When properly used the woodstove typically reduces fuel consumption up to
80% compared with traditional, three stone fires. Apart from faster and more
convenient cooking, this energy efficiency means the stove can save the cost of
the time needed to gather fuel, and should also slow deforestation. The Philips
woodstove reduces pollution due to smoke up to 90%, and organic volatile
emissions up to 99% of the level of traditional cooking fires.

Innovation CSR
CSR: mobilizing new shareholders? Lessons from Obama &
Clinton.
The Internet possesses the greatest opportunity for global citizens to identify and mobilize
diverse socio-political and economic resources—with far greater speed and reach than any
government institution or apparatus. A small example of this Internet challenge to
government apparatus orthodoxy is Roger Cohen’s recent article, The Obama Connection,
which observes:

Obama spent only 10 years of his adult life in the split world of the cold war, double that in a
post-Berlin Wall world of growing interconnectedness. MAC — mutually assured
connectivity — has replaced the MAD — mutually assured destruction — of cold-war days.

For Clinton, born in 1947, that ratio is different. Her mental paradigm is division. When her
husband last ran for president in 1996, the Internet was marginal. The thinking and people
from that campaign have proved unable to fast-forward a dozen years. They’ve been left like
deer blinded by the Webcam lights of the Obama juggernaut.

This cultural failure has been devastating for Clinton. As Joshua Green chronicles in an
important piece in The Atlantic, Obama has used social networking and his user-friendly
Web site to develop the money machine, and the youthful engagement, that has swept him
forward.
CSR: mobilizing new global relationships?
According to the Index of Global Philanthropy 2008:
• Private giving and investment now accounts for over 75 percent of donor countries’ entire economic dealings
with developing nations;
• Official Development Assistance (ODA) is a minority shareholder in the growth and development of poor
countries;
• In the U.S., private philanthropy, along with remittances, to developing nations constitutes four and one-half
times official aid abroad.
The Quantum Potential.
Discovering the Quantum Value.
The spark to ignite the latent energy of global production of ideas.
If institutions are focused on self-preservation, then obviously,
employees will be focused on self-preservation…

… but, if institutions were to be focused on their original


intentions of discovery, innovation, & sustaining relationships,
then employees too would be focused on these same
intentions…

Is it possible for corporations to explore the deeper values of


their employees and consumers?
Quantum economics: Latent Energy. Latent Value.
Institutional employees (pigeons in pigeon-holes)
or
Collaborative resources (innovative flight)
Part IV
The Visible & the Trojan horse (wisdom
choices)
Beyond assumptions: transformation.
Each corporation will require unique strategies
& tools to adventure into Khaos:
• Strengths & weaknesses
• Markets (type & geography)
• Various levels of acceptance-resistance
The Visible Horse: diverse groups working
together for transformation.

The Trojan Horse: diverse groups brought together


via a specific project. Once the project is up and
running, diverse groups discover the advantages
of transformation & Khaos.
The ultimate intentions:
• A blending of intuition & reason
• A blending of past, present, & future
• A blending of imagination & tangible results
• A blending of the institution & outside collaboration
• A blending of profit-seeking & social relationships
By viewing an example existing beyond the assumptions (the relationships
between shareholding, CSR, & a quantum view economics), we have
presented Philips herein an underpinning vision and illustrative process to
adventure into the company’s potential for new creativity and growth.

Any specific vision and process for transformation will require evolving
beyond conventional ‘change management’ tools (which conventionally
seeks to change the employees)… to view transformation as an opportunity
for corporation, employees, shareholders, consumers, and communities to
finally view each other as an entangled part of the whole.
We are convinced that by crafting the appropriate strategies and tools,
Philips is particularly positioned to not only transform its business and
product mix, but to also inspire other companies and societies to adventure
into the opportunities of Khaos.

We look forward to a continuing dialogue with Philips so as to determine:


• More specific transformational intentions
• More specific strategies & tools to achieve effective transformation
What future to invent?
Tamara de Callataÿ
has spent 9 years at her position at the Ministry of Defense, the Netherlands, where she has been involved in
developing cultural awareness and political advisory insights. Her own personal insight and spiritual
development were triggered by questioning the true meaning of life.

The transformation as described in Eckhart Tolle’s Power of Now, awakened her to her life’s purpose and
made her return to what she does best: building bridges and inspiring people to exchange human value and
knowledge. She is presently developing more interactive CSR applications delivered via emerging web 2.0
technologies.

She has established oobi in order for society to comprehend and shape the future by understanding the
interconnections and interdependencies between the different challenges and key drivers influencing the
global agenda.
Michael Byrnes
began his strategic advisory career in 1980 as a consultant with the New York and Washington, D.C. firm,
World Affairs, Inc. There, under the tutelage of Martin R. Haley and Daniel Patrick Moynihan, he worked on
multiple ‘big picture’ projects, ranging from defense conversion strategies with the National Economic
Commission to technology transfer processes with multiple stakeholders, including the NSA, U.S. Congress,
and individual technology transfer offices. He also worked with Fortune 500 clients to design and manage
various corporate intelligence and crisis management projects.

While deployed in Europe in the mid-1980s to assist in the design of economic development strategies for
German Reunification, he resided in the Vatican City. There, he studied dialectics and ethics, and later was
ordained.

In April 2008, he completed an economic philosophy treatise, Hands & Brains Unbound: Revealing the Illusion
of World Order & the Revolution Ascending, which assesses the historical, modern, and philosophical
perspectives of world order through the lenses of economic market evolutions and nation-building case
studies. The book then presents a revolutionary model of world order obtainable through economic
interdependencies.
Contact info

Tamara de Callataÿ

Tamara@callatay.be
Skype: tamdeca
Phone: +31 641766376