Video Friday: Bartley J. Madden on Capitalism

Guest Post: Bartley J. Madden. After a career in money management and related investment research that included the founding of Callard Madden & Associates, Madden retired as a Managing Director of Credit Suisse/Holt.  During his career he developed the CFROI valuation framework which is used today by money management firms worldwide.  He is currently an independent researcher and a Senior Fellow at the National Center for Policy Analysis (NCPA).  His research focuses on knowledge building and wealth creation as opposite sides of the same coin, and also on the application of systems thinking to public policy. 

Madden on Crony Capitalism

We are increasingly following a path of crony capitalism which eventually leads to a social environment like Italy or Greece. In contrast, free-market capitalism enables consumer choice and competition to work to the benefit of all, especially the least well off. As to the purpose of capitalism, there is a never-ending debate about the role of maximizing shareholder value. Better to shift attention to management’s core responsibilities. Running their businesses in ways consistent with the recommended five core responsibilities would enable management to both create wealth and earn the moral high ground.

Large Asset Owners Can Save Free-Market Capitalism

1. We are increasingly following a path of crony capitalism which eventually leads to a social environment like Italy or Greece.  In contrast, free-market capitalism enables consumer choice and competition to work to the benefit of all, especially the least well off.
2. There is a wall of miscommunication, with words having strikingly different meanings, between those in favor of maximizing shareholder value and those opposed—better to shift attention to management’s core responsibilities.
3. Running their businesses in ways consistent with the recommended five core responsibilities would enable management to both create wealth and earn the moral high ground.
4. Analysis of firms’ historical track records provides a lens to understand capitalism from the ground up; i.e., customers, employees, and shareholders have mutual, long-term interests.  This is illustrated via three company examples using Credit Suisse/HOLT company data used by worldwide money management firms and by Barron’s for the annual Barron’s 500 Scorecard.
5. The public’s low level of trust in corporations results in a lack of faith in capitalism.  Who can lead in moving the corporate world to better deliver on their core responsibilities—one of which is to promote free-market capitalism?  Large asset owners (pension funds, sovereign wealth funds, endowment funds, and the like) have a vested interest in the long-term success of free-market capitalism and are in a unique position to reorient how firms are managed to create long-term wealth that benefits all stakeholders.

Watch the video on YouTube. See previous guest posts from Madden, Video Friday Double Feature: The Interconnected World of Bartley J. Madden & Mr. Burns Explains the Fiscal Cliff and Maximizing Shareholder Value: The Workaround from Bartley J. Madden