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What are the principles of conscious capitalism and how do they affect how a firm should operate?
the answer 1 page
Synonymous with strategic CSR, conscious capitalism is based on four principles that encourage the development of values-based businesses: higher purpose, stakeholder interdependence, conscious leadership, and conscious culture.
Conscious Capitalism is a way of thinking about capitalism and business that better reflects . . . the innate potential of business to make a positive impact on the world. Conscious businesses are galvanized by higher purposes that serve, align, and integrate the interests of all their major stakeholders.
John Mackey, founder and co-CEO of Whole Foods Market, is the leading business proponent of conscious capitalism. In his view, there are four main principles that define conscious capitalism: higher purpose (“Why does the business exist?”), stakeholder interdependence (“the six major stakeholders are interdependent and the business is managed . . . to optimize value creation for all of them”), conscious leadership (“the quality and commitment of the leadership at all levels of the organization”), and conscious culture (“this naturally evolves from the enterprise’s commitments to higher purpose, stakeholder interdependence, and conscious leadership”). As Mackey reaffirms, “while there is nothing wrong with making money, indeed it is absolutely necessary for the enterprise to flourish; it is not by itself a very inspiring purpose for the enterprise.” Instead, he argues that firms exist to solve problems using capitalist principles:
Conscious capitalism is not primarily about virtue or “doing good.” . . . Ordinary business exchanges are inherently virtuous. Business creates value for all of its major stakeholders that are exchanging with it and these acts of value creation are “good.” . . . I believe the argument can be successfully made that ordinary business exchanges aggregated collectively are the greatest creator of value in the entire world and that this value creation is the source of “business virtue.”
The goal is to build companies that are ethical and responsible—organizations that are profitable because they inspire the stakeholders with whom they interact. As such, “companies that abide by the tenets of conscious capitalism have generated handsome returns for investors.” An investor in Starbucks the day it went public (June 26, 1992), for example, would have received a return that “outperformed the S&P 500 by 1,944 percent” over the same time frame. Similarly, “in recent years [Patagonia] has doubled the size of its operations and tripled its profitability.” This has occurred in spite of the firm launching a marketing campaign that “tells customers not to buy its clothes.”
Strategic CSR argues that success in business is correlated highly with responsible, ethical, and inspiring behavior that is aligned with the values of the firm’s stakeholders. Firms that respond to stakeholder needs and concerns in ways that appeal to them, and continue to do so in an ongoing, virtuous cycle of positive exchange, will be the firms that define the 21st century. A central component of a conscious capitalist system, therefore, is firms that reflect core principles—in other words, values-based businesses.