The Caux Round Table (“CRT”), an international network of business professionals advocating a moral capitalism, meeting in its 27th Global Dialogue, resolved upon four major reforms to restart sustainable global growth. These four recommendations will permit capitalism to overcome its current crisis of mediocre, financial performance, combined with systemic, ongoing, ecological and demographic imbalances.
The CRT Global Dialogue resolved that, first, the U.N. General Assembly should adopt a charter of responsible practices for sovereign nations to maintain sound and sustainable financial intermediation at a reasonable cost to society.
Second, sound and sustainable financial intermediation requires changes in banking practices. Compensation systems, except in small privately held firms, should be aligned with levels of moderate leverage, moderate risk and professional prudence. Trading and speculation, as a business model, should be separated from commercial banking and lending, as a business model, and should be supported by industry- financed reserve funds. “Too big to fail” financial institutions should be broken up under anti-monopoly laws.
Third, sound and sustainable financial intermediation requires non-negligent ratings of securities and their issuers, both private firms and governments. Credit ratings are market information that is a public good. Therefore, more competition in providing ratings is necessary and the issuer paid business model of providing ratings should be supplemented with non-profit or publicly funded alternatives.
Fourth, sound and sustainable financial intermediation requires an academic theory of individual and firm motivation that rejects the erroneous assumption that rational, self-interest, measured by extrinsic monetary rewards, will lead to perpetually accurate market pricing. Business schools should teach an alternate theory of business behavior which is grounded in the norms of fiduciary stewardship.
The CRT 2012 Global Dialogue was held at the International Conference Center at Caux, Switzerland, on July 30th and 31st.
