Before starting the field guide proper, we begin in this chapter with a brief review of the history of Conscious Capitalism for those who are new to the ideas or who would like a refresher. Here, you’ll find the background historical and contemporary contexts that gave birth to the idea of Conscious Capitalism; the four tenets that comprise both the intellectual foundation and the blueprint for practicing Conscious Capitalism; and the business case for Conscious Capitalism. The chapter ends with some things to keep in mind as you start—or continue—your journey to Conscious Capitalism.
The Context
Free-Market Capitalism
So-called modern free-market capitalism or industrial capitalism was born from three seminal events that occurred within a quarter century of each other. The first, the beginning of the Industrial Revolution around 1750, was perhaps the greatest single advance in the history of human civilization, elevating our productive capacity and thus material living standards dramatically. The second event, the 1776 publication of An Inquiry into the Nature and Causes of the Wealth of Nations, explained the power of free markets. And the US Declaration of Independence, also in 1776, was the first time a country came into existence purely because of a set of ideas, all of which revolved around personal freedom: religious, political, and economic.
This potent combination of events proved to be transformative for humankind: the technological revolution of the Industrial Revolution; the intellectual breakthrough of The Wealth of Nations; and the oxygen of freedom that existed first in the United States (though it was restricted to white males). Life for ordinary human beings improved on an almost vertical trajectory. After millennia in which average people saw very little improvement in the duration and quality of their existence, the last two centuries have seen extraordinary gains. Capitalism has lifted far more people out of poverty than has any other idea or institution in history—by orders of magnitude. Since 1800, per-capita incomes worldwide have risen fifteenfold in real terms (adjusted for inflation); the percentage of people living in extreme poverty has dropped from 90 percent to around 9 percent. Life expectancy has more than doubled, our population has risen sevenfold, and literacy has gone from 12 percent to 86 percent worldwide.1
At a Crossroads
Despite all that extraordinary progress, we stand today at a perilous crossroads. The institution of capitalism is being threatened by its own excesses and myopic interpretation. Many people today are cynical, discouraged, and divided. Facing a crisis of confidence, business is no longer seen by many as a force for good in society but rather is seen as a core part of the problem. The rising skepticism about business leads to a questioning of the legitimacy of businesses to operate in society when the wealth and other benefits created by businesses seem so strikingly unevenly distributed. This disconnect raises serious questions about the business models that exist today.
To understand this disconnect, we need to go back to capitalism’s birth. In The Wealth of Nations, Scottish moral philosopher Adam Smith established that individuals’ pursuit of self-interest was the foundation for how societies rooted in personal freedom can harness the self-organizing power of markets to elevate living standards. Seventeen years earlier, Smith also wrote The Theory of Moral Sentiments, a book about the human disposition to care about others, without regard to self-interest. Most people have ignored or forgotten this earlier book. If we had integrated those two dimensions—the human need to care and the drive for self-interest—into the practice of business, we would have created a much richer humanistic and intellectual foundation for capitalism than what we ended up with. Resting on the single pillar of self-interest alone, capitalism evolved into a powerful and dynamic system that, unfortunately, hurt the well-being of many workers and the environment, even as it generated great material prosperity.
The pursuit of self-interest and the need to care—these two qualities should have been the two engines of capitalism. But for too long, the plane of capitalism has been flying with just one engine.
The fundamentals of capitalism—the rule of law, private property rights, and the voluntary exchange of goods, services, and ideas—remain as important as ever. But we need to bring in what has been missing: the human dimension.
Searching for a Better Way
To a large extent, businesses are still operating under the ideals of the Industrial Revolution and are using an operating system that was developed in the industrial age, using the military as the organizing metaphor. Little has changed in this way of thinking. The idea that the sole purpose of business is to make profits for shareholders and that everything else is a means to that end remains the dominant mental model for business. We still teach this in business schools.
But the traditional narrative of business and capitalism—that it is exclusively about maximizing profits—is increasingly being recognized as inadequate, uninspiring, and often toxic. Particularly in the West, there is a broad reform movement around capitalism, with terms like creative capitalism, inclusive capitalism, breakthrough capitalism, sustainable capitalism, capitalism 2.0 and 3.0, to mention a few. Conscious Capitalism, part of a growing movement that recognizes the tremendous value and potential of capitalism, is seeking to elevate this powerful force for potential good to a new level. We, and you in reading this book, are a part of an effort to reframe the dialogue around business and capitalism as a force for good in the world.
Today we are at a tipping point, where the old model is rapidly collapsing. As exemplified by companies like Southwest Airlines, Patagonia, Google, Unilever, Danone, and Zappos, business is becoming more conscious about the many impacts that commerce has on people’s lives and on the planet. These and other companies are recognizing that the decisions they make affect more than the bottom line.
Conscious Capitalism is a response to these concerns, suggesting that there is a better way for businesses to operate—a way for organizations to be as human as the people who work in them. It offers a new model that can help society move forward in a harmonious and productive way to bring about broad-based flourishing for all.
The Concept
To many, the terms conscious and capitalism are unlikely bedfellows.
Thinking in terms of psychologist Abraham Maslow’s classic hierarchy-of-needs framework, business and capitalism have mostly operated at the lower levels, which have to do with survival, safety and security, and self-esteem. But we humans are capable of and care about so much more than that. Many more of us are now driven by higher-level needs such as building community, finding meaning and purpose, and serving humanity.
In choosing the phrase Conscious Capitalism, we are very deliberately leaning in to a more basic form of entrepreneurial capitalism, where the entrepreneur acts to create value and address issues that people care about and that make a difference in the world. When we refer to Conscious Capitalism, we are looking at the heroic potential of business and entrepreneurs to do well and to do good in the world.
When conducted with higher consciousness, business is the ultimate win-win-win game in the world. Businesses’ potential to create value is extraordinary, and it does not come at the expense of our health or the health of our planet.
The conscious part of Conscious Capitalism refers to businesses’ and their leaders’ growing awareness of commerce’s potential to do far more than make money and of mindsets and business models they choose to operate with. Conscious Capitalism means being aware of your purpose as an organization, seeing the interconnectedness of all stakeholders, and striving to create workplaces infused with dignity, meaning, and joy.
Conscious Capitalism has four key pillars or tenets: higher purpose beyond profit, creating value for all stakeholders and integrating their interests, conscious leadership, and conscious culture. These tenets work together and reinforce each other.
- Higher purpose: As suggested by Simon Sinek’s book title Start with Why, every business should have a higher purpose that transcends making money. A company’s higher purpose is the difference the firm is trying to make in the world. By focusing on its higher purpose, a business inspires, engages, and energizes its stakeholders. Profit is not the purpose, although it is one of the many important measures of a business’s functioning and is necessary to enable a business to achieve its purpose. The business does not exist merely to generate profits, but also aims to generate multiple kinds of value for all its stakeholders (profit is a specific value for one of its stakeholders, the shareholder).
- Stakeholder orientation: Recognizing the interdependent nature of life and the human foundations of business, a business needs to consciously create value with and for all its stakeholders (customers, employees, suppliers, investors, communities, the environment, etc.). We need to shed the trade-off mentality and look for synergies, for simultaneous wins for each stakeholder. Creating win-win-win relationships between stakeholders becomes the modus operandi of the business.
- Conscious leadership: Conscious leaders transcend narrow self-interest; they are primarily motivated by purpose and service to people rather than by power and personal enrichment. They mentor and motivate, develop and inspire people. A firm that uses financial incentives alone to attract and motivate leaders will get precisely what it pays for: leaders who are primarily motivated by money. Such leaders are far less capable of inspiring their employees to extraordinary levels of engagement, creativity, and performance.
- Conscious culture: Most businesses run on fear and unhealthy levels of stress. They pay little attention to their culture, allowing it to evolve on its own. Conscious organizations intentionally foster cultures with high levels of trust, authenticity, transparency, and genuine caring.
Conscious Capitalism represents a comprehensive rethinking of what business can and should be. The movement seeks to change the narrative of business in accordance with these principles.
The tenets of Conscious Capitalism reflect universal human values, transcending any differences in history, language, religion, and culture. At their core, these ideas are rooted in human dignity, freedom, and caring. They speak to the deep inner striving toward meaning and purpose that is a hallmark of the contemporary zeitgeist. The ideas reflect the hunger and determination of enlightened leaders to not be confined by the tired “dogmas of the quiet past” (in Abraham Lincoln’s elegant phrase), especially when it comes to how we should think about and practice business.
The Case
In the end, Conscious Capitalism is simply a better way to do business. This approach includes but is not limited to generating superior financial returns over the long run. A conscious business is still a business; it must have a good business model, sound competitive strategies, and the discipline to execute and run the business well. To these basic good business practices, Conscious Capitalism adds the four tenets described earlier. The combination of good business practices and the four pillars of consciousness elevates businesses to greater operational success and makes them agents of societal flourishing.
There is strong and growing evidence that conscious companies significantly outperform the market financially. For example, the first edition of Firms of Endearment: How World-Class Companies Profit from Passion and Purpose (2007) reported that conscious companies outperformed the S&P 500 index by nearly nine to one over a ten-year period. In the second edition (2014), the ratio was fourteen to one over a fifteen-year period for an expanded set of companies. Table 1-1 shows updated financial performance numbers for those companies as of June 30, 2017.2
The financial dimension of corporate performance depends on a company’s ability to increase its revenue and efficiency. Conscious businesses are superior on both these dimensions, because they are better aligned with the true needs of customers and are focused on investing money where it makes a difference (such as on rank-and-file employees and high-quality suppliers) and saving money in non-value-adding areas (such as excessive marketing costs and high employee turnover).
The consequences of being a truly conscious company are many. These include much greater employee engagement, passion, and commitment; delighted and loyal customers who are advocates of the company; and suppliers that are loyal and innovative. Conscious firms also enjoy a strong reputa...
