Conscious Capitalism

Concious Capitalism

Mackendy Pierre-Louis


Economic Development

Introduction

Gil (2012) explains, “No movement has done more for mankind in such a short time than

capitalism. In a little of 100 years life expectancy grew from under 50 to almost 80 in the United

States and from 30 to almost 70 worldwide. It has lifted millions out of poverty, reduced

mortality rate. It has fed mouths. It has educated people. It has made medical and technological

advances that have challenged what we deemed possible. Yet capitalism has also created for it

a very poor reputation.” Diehard opponents and critics of capitalism (e.g., Marxists and

socialist advocates) usually speak of it as the worst thing that has ever happened to humanity

and mankind. Popular perception often portrayed capitalism as greedy, corrupt and

exploitative, cold and unconcerned about the ecosystem and society. Conscious Capitalism is

a movement away from traditional capitalism which seeks to give new purpose and meaning

to business. Scholars that endorse the idea are in a quest to alter the old way of doing business

or “capitalism” as we know it by making it more virtuous, conscious-oriented and responsive

to current environmental and socio-economic concerns. In short, the movement seeks to create

an entirely new superstructure for business and its reason for existing (Sisodia, 2011). The

intent of this paper is to analyze the concept of conscious capitalism, its intent to create shared

values, and gives a whole new purpose and meaning to business.

Conscious Capitalism

When the industrial revolution started, education was still a privilege of the few or the elite.

Stories of abuses in the workplace, exploitation of children, unsafe work environment,

pollution, long work hours, low wages and hopelessness were current. The masses and the

working class did not have the education or brain sophistication to be aware of their conditions.

People who could empower them, as Karl Marx (1848) puts it in the communist manifesto,

were the bourgeoisie wage laborers “the bourgeoisie has converted the physician, the man of

science, the priest, the lawyer into its paid wage laborer.” They were rather enforcers of the

status quo. Early economists, for instance, routinely teach that the purpose of business is to

maximize profits for the investors, and they actually took it one step further and concluded that

maximizing profits is the only goal that business should seek (Mackey, 2010). Frederick

Taylor, an engineer by training, pioneered “The Principles of Scientific Management” with the

unique goal of maximizing profits for firms at the expense of the workers.

Concious Capitalism


As times change, people’s understandings of the world around them have incrementally

changed. Education, technology, communication and globalization have made people aware of

their surroundings. Now people are trying to understand and make sense of the world they live

in. People are aware that socio-economic and ecological factors such as hunger, poverty,

pollution, environmental degradation and diseases can have bad consequences on society,

and/or on the planet. According to Schawbel (2013), a Forbes contributor, “research show that

millennials want to work for a company that is driven by a higher purpose beyond profits or in

other term a company that gives back to the community.”

In his article Conscious capitalism: Creating a New Paradigm for Business, Mackey

makes an interesting argument that pertains to modern and popular belief about corporations

and capitalism. He argues “increasingly, many people believe there must be something wrong

with corporations and capitalism. The anti-globalization movement is primarily an anti-

corporations movement. Many people have come to the conclusion that corporations want to

dominate the world (Mackey, 2007).” Unfortunate events often helped to reinforce the

perception that the main purpose of business is to maximize profits at the expense of society.

For example, as the housing market crisis unfolded to give rise to the worst recession since

after the great depression, many citizens were laid off and could not afford to pay for their

mortgage (s). As a result, many citizens lost their houses and the number of Americans living

in destitution has increased. On the other side, big corporations have prospered and have

continued to prosper as their annual gross profits have continued to surge. The recent protests

calling to an end to wall-street domination were aimed at big corporations and

capitalism. Corporations are often viewed as producing negative externalities (e.g., pollution)

and destroying the environment without any concerns for society. Conscious capitalism is an

emerging philosophy based on the belief that businesses can enhance corporate performance

while simultaneously improving the quality of life of all stakeholders (Legault, 2012).

Among the many responsibilities of government is to protect the public. To protect

citizens, government often takes measures. Concerned of the impact that climate change is

having on the planet, government has shaped economic development strategies that address

these concerns by setting up environmental standards to protect the ozone, the air that citizens

breathe and the water that they drink. For the past few decades, government has been engaged

in a quest to encourage citizens to change their lifestyle. It has embraced new ways of doing

business that reduce dependence on carbon-based resources to minimize the impact of climate

change by promoting sustainable development, technology and innovation (Blakely & Leigh,

2010). Moreover, conscious of abuses and potential safety violations in the workplace,

Concious Capitalism


government creates legislation and safety guidelines to protect workers against abuses and

safety hazards. Government is to institute respect, trust and confidence in the heart and mind

of its stakeholders.” To make this feasible, government should operate in transparency and

integrity.

McLaren (2012) states “many argue that capitalism as a concept still works, but only

with fair competition, truly voluntary exchanges, information symmetry and the absence of

externalities.” Like government Proponents of Conscious Capitalism believe that business

leaders should be an advocate for all stakeholders and should ally their interest with society’s

interests. The movement has called upon business to work to bettering the lives of its

stakeholders and to operate in transparency and integrity. In short, the movement has basically

appealed to business leaders to think like government. Company like BP started integrating

transparency and integrity in its operation by taking independent action to respond and tackle

global issue such as climate change. Instead of waiting for the government to mandate to reduce

greenhouse gases, British Petroleum (BP) has acknowledged the risks of climate change and

has decided to tackle the problem by taking independent steps (Schwerin, 2004). The company

has met its original goal of reducing operational emissions to 10% below 1990 levels and has

set a more aggressive target for future years to come (Schwerin, 2004).

Creating Shared Values

In recent years, a number of business leaders have called for a greater inclusion of a higher

purpose, recognition of society, transparency and integrity in the practice of American business

(Britton and Martinez, 2012). Conscious Capitalism has called for a greater involvement of the

business sector in what affect days to days life of individuals. Proponents of the philosophy

described it has having three assumptions: 1) Inter-connectedness among individuals, business

and the global society; 2) Wealth has a holistically understood state and 3) relevant time frames

spanning multiple generations (Britton and Martinez, 2012). Britton and Martinez (2012)

define inter-connectedness as the idea that individuals are interested in the impact they have on

people inside and outside the company. Many corporations (i.e., Costco, The Whole Foods

Market, The Container Store, Starbucks, JetBlue and so forth) have already transitioned to

embrace the tenets of Conscious Capitalism. Starbucks, for instance, is trying to create shared

value between customers and coffee farmers living miles apart by promoting a fair trade-based

initiative. Whole Foods’ concerns on the other hand take in consideration the health of its

stakeholders by producing healthy organic foods and by promoting healthy eating habits. Other

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companies, Apple, E-bay, Microsoft and General Electric, to name a few, are all gradually

moving toward a more conscious way of being (Sisodia, 2011).

Companies that embraced the tenets of Conscious Capitalism are engaged in the

business of creating shared values between society, partners, investors, customers and

employees (thus the acronym SPICE) mainly because these companies believe that creating

shared values among stakeholders will lead to customers’ loyalty, which in turn will trickle

down, making it possible for these companies to prosper in the long term. Firms that endorse

Conscious Capitalism often make benefits available to all their employees, treat them with

fairness, and more importantly, provide them with the opportunity to find meaning and purpose

in their work. Conscious companies, through experience, came to realize that firms that treat

their employees unfairly cannot prosper in the long term in the transparent and incredible

modern and inter-connected world we now inhabit (Sisodia, 2011). Firms that treat their

employees unfairly and do not engage them not only have higher employee turnover, but they

also cannot offer attractive, sustainable and innovative products (Sisodia, 2011). The idea

behind all of these is that loyal employees tend to be more experienced, more productive, more

services oriented, more responsive to customers’ concerns and more willing to share their parts

of burden with the company that they work for in time of difficulties. Proponents of the

ideology believe that shared values and/or inter-connectedness will create prosperity in the

long-term for companies that practice Conscious Capitalism.

Moving toward Virtuosity through the Creation of Shared value

Mackey argues that the entrepreneur who creates a business is the first person who can

determine what the purpose of the business is. Any firms can create shared values; it is all

depends on the passion, conscience, resilience, willingness and ability of business leaders to

resist internal pressures. Creating shared values can help ameliorate relationships between

businesses and society. Creating shared values through the adoption of Conscious Capitalism’s

principles can help a company prosper in the long-term by reducing costs significantly on

marketing, advertising, hiring, training, as well as administrative and legal costs. Sisodia (2011)

provides details and reasons of these facts. As examples, he point outs “1) conscious businesses

typically have to spend little on marketing because they have legions of satisfy and delighted

customers who are loyal and passionate advocates for the company; 2) Because conscious

businesses usually operate with extremely low levels of employees turnover they save greatly

on new employees hiring and training; 3) they have lower administrative cost because they

continuously strive to eliminate non-value adding expenses, gathering ideas from their

Concious Capitalism


employees and suppliers about how to do so; 4) conscious companies operate in a system of

high trust between all stakeholders thus reducing their legal costs (Sisodia, 2011).”

Conscious Capitalism is not a luxury nor a privilege limited to a handful of companies.

It is a movement aimed at ameliorating the smeared image and reputation that has been ascribed

to capitalism over the years. Any companies or firms can embrace the principles or take part in

the movement. John Markey (2007) states that he believes the purpose of any business can

evolve over time. This dynamic evolution he pursues is the result of the vibrant interaction of

the various interdependent stakeholders with each other and with the business itself (Mackey,

2007). Customers, employees, investors, suppliers and the community all influence business

purpose overtime (Markey, 2007). Any company can become virtuous or have a net positive

impact on the world if it is willing to integrate the principles of Conscious Capitalism in its

operations. Michael porter and Mark Kramer highlight three potential tactics that companies

that want to adopt Conscious Capitalism can use to create shared-value: 1) It is important that

firms reconceived their products and market; 2) they should redefine productivity in their value

chain; 3) they should build industry clusters in location that are beneficial to the company

(Davenport, 2011). These businesses can move toward becoming virtuous by altering their

products mix so that they once again are on the right side of society (Sisodia, 2011). In other

words, they should refine their productivity by becoming more socially conscious and focusing

on providing good and services that are affordable and beneficial to society (Davenport,

2011).

Companies such as McDonalds and PepsiCo for instance are incrementally moving

toward virtuosity and consciousness. They are both moving to add more healthy food options

to their menus. Sidodia (2011) explains that this reflects a rising consciousness that the need

of society today have shifted from what they were when these companies were first established.

It is important for these companies to alter their product mix and to offer healthier menu choices

because when these companies were first established neither obesity nor diabetes were an issue

in America. These days, obesity and diabetes pose great health concerns as millions of

Americans are becoming obese and diabetic. Therefore, proponents of Conscious Capitalism

basically maintain that in situations like these, consciousness and morality should take

precedence over short-term profits. Businesses instead of exclusively focusing on short-term

profits should take in consideration the long-term effects that their behavior can have on society

and take steps to address them. Businesses should participate in society efforts to combat issues

that their behavior help introduced. Also, by redefining their purpose, regulating their own

Concious Capitalism


behavior and promoting more healthy eating habits these businesses can create a generation of

healthy and loyal customers which will eventually lead to long-term profits.

Conscious Capitalists believe that businesses can reconceive their products and market

by re-evaluating their relationships with customers through the incorporation of shared values.

The introduction and improvement of shared-value in the development and distribution of

goods and services have the potential not only to ameliorate business in-print on society, but

also their competitive advantages in their respective industries (Davenport, 2011). Sisodia

(2011) sustains that much of the growth of conscious businesses comes at the expense of their

less-conscious competitors. The incorporation of shared values in the development and

distribution of goods and services can motivate customers to become more selective in their

consumption choices and increase awareness by influencing socially conscious customers to

refrain from purchasing goods and services from firms that are not engaging in corporate shared

values (Davenport, 2011). This in turn will give these conscious firms a competitive edge on

their less-conscious competitors. These competitors, on the other hand, will be forced to alter

their position on the market to be able to compete or ran the risk of going out of business. If

their competitors also become conscious businesses, such companies can still find healthy ways

to grow by creating additional value through meeting the higher-level needs of their customers

(Sisodia, 2011).

Critics’ Arguments

As previously discussed, proponents believe that entrepreneurs who adopt the tenets of

Conscious Capitalism may not immediately see its impact on their companies, but it will pay

off in the long-term. As examples, it will lead to long-term profits and successes and it will

help resolves many problems that affect society or the planet as a whole. Furthermore, in the

long-term companies that practice, Conscious Capitalism will outperform those that don’t and

so on and so forth. In contrast, despite acknowledging that Conscious Capitalism is a very

seductive vision, critics bring multiples arguments expressing their doubts. They contend that

it raises unrealistic questions for performance and is hard to sustain and that companies can

only practice Conscious Capitalism as long as they are profitable (Sisodia, 2011).

They question whether Conscious Capitalism is universally applicable and they doubt

whether regular customers with limited means can ever become conscious enough to ally

themselves with the movement. They maintain that Conscious Capitalism seems to work for

companies selling products to affluent and socially or health conscious customers (Sisodia,

Concious Capitalism


2011). Furthermore, they uphold that there are business models that have been equally

successful without espousing or practicing Conscious Capitalism. For example, they highlight

that many successful companies treat their employees poorly, pay high salaries to CEOs, focus

primarily on producing great products, outsources production to take advantage of lower labor

costs and/or lay off employees to benefits shareholders, but these companies still manage to be

successful (Sisodia, 2011).

All the questions that these critics raise do in fact make sense. There are many

circumstances that can lead business leaders to be apprehensive and resistant to changes such

as internal pressures, the fear of failures or they are simply driven by the unique desire to please

shareholders through the maximization of profits. Advocates of Conscious Capitalism believe

that business is a force for powerful changes and services to humanity. They believe that in this

modern and globalized world, business leaders should detach and distance themselves to the

old ways of practicing business. Business leaders should resort to a new culture in order to give

business a whole new meaning and purpose. They should create values that ally business

interests to stakeholders and society’s interests and concerns.

To address the critics, Sisodia (2011) relies on his own experience with Conscious

Capitalism. He stipulates that businesses that practice Conscious Capitalism are able to operate

with superior financial results than those that do not (Sisodia, 2011). He states “We have been

working to understand how conscious businesses are able to operate with superior financial

results while creating other forms of wealth and well-being for all stakeholders, including

society (Sisodia, 2011).” The Whole Foods Market is one of the companies that pioneered the

concept and movement for instance is among the fastest growing and most profitable, public

food retailers in the country (Mackey, 2007). Moreover, the company has been named by

Fortune Magazine as one of the 100 best companies for nine consecutive years (Mackey, 2007)

Conscious Capitalism advocates that businesses can produce affordable goods, can

reduce production costs and be socially conscious at the same time. As previously mentioned,

consciously oriented businesses operate with lower gross margin by enjoying a great deal of

saving on marketing, on new employees hiring and training costs, on administrative and legal

costs (Sisodia, 2011). Conscious businesses lower their costs and offer attractive prices to

customers by eliminating wasteful spending, not by unfairly treating or squeezing their

employees or suppliers (Sisodia, 2011). Instead, conscious companies focus their attention on

promoting stakeholders’ orientation by trying to engage and integrate them to better tackle

long-term visioning and planning. For example, the JetBlue CEO flies with the airline once a

Concious Capitalism


week to show passion for customers and Google’s providing free gourmet meals around the

clock for all employees (Gil, 2012).

Sisodia (2011) also acknowledges the argument brought by critics that companies

outsource productions to reduce costs. They also outsource operations to countries where

environmental laws and regulations are slack, loosely enforced or inexistent to increase their

outputs and evade penalties. Counter-actively, he upholds that outsourcing creates

opportunities in developing countries and helps lift millions of people out of poverty. For that

reason, he sustains “outsourcing is not necessarily a bad thing if it is done in a righteous and

conscious manner (Sisodia, 2011)”. Conscious companies that outsource productions or have

suppliers in developing countries can still contribute to the common good of the community

within which they operate. For example, the clothing company Patagonia exemplifies this

orientation in requiring that its suppliers in other countries comply with the high environmental

standards that the company sets for itself (Britton & Martinez, 2012).

Limitations

Although Conscious Capitalism is a progressive movement with great prospects, it has its

limitations, not because it creates these limitations for itself, but because they are a natural

cycle of the market itself. Authors and Critics such as O’Toole and Vogel assess that Conscious

Capitalism cannot address all the defects of traditional capitalism (Sisodia, 2011). Many

supporters of Conscious Capitalism also admit that it cannot address all the challenges that the

free markets face “we make no claim as to its ability to do away with economic boom and bust

cycles, completely eliminate market defects or affects the distribution of wealth of nations

(Sisodia, 2011).” Conscious Capitalism is more altruistic-oriented, which means it is more

preoccupied on making a positive impact on the world at large. Its goals are to promote a

species of capitalism that is consciously aware of its power to create a better world by mean of

authentic value creation (Elstrott, 2010). This suggests those conscious businesses that

outsource production or operate plants in less developed countries may not pay their workers

there the same wage that they pay would pay to American workers. But, they still can find

means to promote the principles of Conscious Capitalism in these developing countries. Those

conscious companies can still treat their employees fairly and pay them a fair wage, abide to

environmental standards, produce affordable and quality goods, and improve the lives of the

people in these developing countries by raising their living standards

Conscious Businesses’ Success

Concious Capitalism


The movement claims that the adoption of its principles will lead to long-term

successes, will help resolve many problems that affect global society, and companies that

practice conscious capitalism will outperform those that don’t in the long-term. You can see it

manifested in companies such as foreign car manufacturers like Toyota and Honda. These

companies realized that sustained prosperity is not possible unless stakeholders are fairly

considered (Schwerin, 2004). Based on analyzing how much it costs to produce each

component, Honda, for example, set cost targets. When negotiating price, the company does

not force suppliers to operate at these pricing levels regardless of profitability, but work to

identify inefficiencies that might preventing them from meeting these targets (Gil, 2012).

Honda’s costs fall apart as the supplier gains efficiency, increasing Honda’s overall

productivity and quality (Gil, 2012).

The test of a truly conscious business is its ability to learn and grow from past

experiences and to emerge even stronger and more committed to a conscious way of being

(Sisodia, 2011). No companies are perfect, some companies identify as conscious business

have stumbled in recent years (e.g., Toyota), but has managed to get back on track. Today

Toyota and Honda are the most profitable car manufacturers in the world and they have out-

performed many domestic manufacturers such as General Motors (GM). Now-a-days Toyota

and Honda produce some of the most affordable, most reliable, most efficient, most popular

and most sold cars in the world. This has compelled American car manufacturers like Ford,

and German manufacturers like Volkswagens to take steps to improve their productivity,

quality and gas millage to be able to compete against their most competitive Japanese

counterparts in the world market. After GM declared bankruptcy and closed plants worldwide,

the American federal government had to intervene to set up values and minimum goal standards

for the company to encourage it to improve its competitiveness on the domestic as well as the

international market.

What Can Government and Business Do?

There are lots of things conscious companies that buy from suppliers in developing countries

and conscious governments can do to encourage or compel foreign companies or suppliers to

behave more consciously. For examples, conscious companies can simply stop doing business

with suppliers that do not abide to their principles and look for alternative suppliers that are

willing to endorse and comply with their rules. Conscious governments can prevent foreign

companies suspected of abuses, employees/customers safety violation, pollution, illegal

dumping or any form of externalities from exporting their goods in their countries. In addition,

Concious Capitalism


governments can impose fines on domestic companies caught doing business with suppliers

that do not abide to domestic regulations. We are living in a competitive and globalized world.

Big corporations in more developed countries should take the lead and serve as exemplary

models so the developing world can mimic them.

Conclusion

As an emerging movement, Conscious Capitalism is a quest to alter the old way of

doing business, or “capitalism” as we know it, by giving a purpose, making it more virtuous,

conscious-oriented and responsive to current environmental and socio-economic concerns. The

movement seeks to create shared values to help ameliorate relationships between businesses

and society. Proponents of Conscious Capitalism advocate that the purpose of business should

not be based purely on maximizing profits, and that business should take in consideration the

interests and concerns of all stakeholders. Becoming conscious is not a threat to profits, a firm

can produce affordable goods, can reduce production costs and be socially conscious at the

same time.

The creation of shared values through the adoption of Conscious Capitalism can lead

to prosperity in the long-term by reducing costs significantly on marketing, advertising, hiring,

training, as well as administrative and legal costs. The transition from unconscious to conscious

maybe a challenging process for business, but will pay off in the long-term. There are evidences

to prove it. For example, evidences have shown Conscious Companies usually outperform

their non-conscious competitors. The Whole Foods Market, Toyota, Honda and JetBlue are

illustrations of these facts. Global society is changing; business leaders should not stand as

mere bystanders. They should get involved. Business is a powerful instrument for changes;

therefore, business should take the lead in this new global movement to alter the old order and

to help fight the new challenges that global society is facing.

References

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(April, 2013)

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from http://www.stthomas.edu/cathstudies/cst/conferences/Dayton/daytondocs/BrittonMartin

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Schawbel D. (2013). John Mackey: “Why Companies Should Embrace Conscious

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Mackendy Piere-Louis

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