Conscious Capitalism: Business success through social good.

2011 CEO Summit Highlights from Conscious Capitalism on Vimeo.

In brief:

Conscious Capitalism is a new ‘operating system’ for radical social entrepreneurs to reach their goals. Profit, sustainability, and achieving social good are not opposed to one another. Radical social entrepreneurs maximize value for all stakeholders in a project – including the broader community, team members, suppliers, partners, shareholders or funders, and the environment. By viewing their business holistically, and as part of a larger ecosystem of Conscious Capitalism, radical social entrepreneurs have a competitive edge over traditional entrepreneurs.

What is it?

Radical social entrepreneurs recognize the power of social entrepreneurship to innovate while achieving social good. While NGO’s, charities, and other social projects are important, many RSE’s will want to use business to improve the world.

Unfortunately, much of what is written about business has created a false divide between achieving social good and running a profitable, sustainable enterprise. Conscious Capitalism is a new paradigm which shows that a prosperous business need not sacrifice its social mission. Rather, maintaining an allegiance to a deeper mission in the world is a key component to succeeding in the marketplace.

Conscious Business is based on four primary principles:

  1. The business has a deeper purpose beyond maximizing profits and shareholder value.
  2. The business is managed to optimize value for all interdependent stakeholders.
  3. The business is managed by Conscious Leadership with a holistic outlook that moves beyond traditional ‘machine’ metaphors for business.
  4. The business has a tangible, Conscious Culture with TACTILE feature (see below).

Maximizing profits is an old-fashioned view taken from 19th century economists. These economists correctly observed that successful businesses were profitable, while those which did not make profits did not survive long in the market place. The observation of profit eventually was perverted into the primary ‘goal’ of business.

Economists in later years also used ‘profit maximization’ as the goal of firms so that they could model markets. The metaphors of businesses as ‘machines’ churning out ‘output’ and profit from ‘inputs’ left little room for the human element of entrepreneurship.

Even if profit maximization was a useful proxy for the real purposes of business in models (and we ought to be skeptical of some of these older models anyway), it does not mean that business should strive for profits alone.

“A business is best not thought of as a machine with various factors of production working in tandem to maximize profits,” Whole Foods CEOs and Conscious Capitalist John Mackey writes, “A business model more in touch with our complex, post-modern, information-rich world is that of a complex self-adaptive system of interdependent constituencies.”

By ‘constituencies’ Mackey is arguing for a broader view of a projects’ investor base. A Conscious Business creates value for customers, team members, suppliers, investors, and the community and environment alike.

This creates a continuous feedback loop which evolves the business towards the social goal. It creates a Conscious Culture of happy team members, satisfied investors, and loyal communities, giving Conscious Businesses a competitive edge.

A higher purpose brings profits naturally. A more transcendent purpose than mere profit energizes a businesses stakeholders.

A Conscious Business is not a ‘machine,’ just as an entrepreneur cannot be replaced with a computer. Rather, a Conscious Business is the expression of the outlook of a social entrepreneur. A good project is imbued with the purpose of the entrepreneur – with their personality and their aspirations.

The Conscious Business formula delivers. Southwest Airlines, the Container Store, and Whole Foods are all highly profitable businesses. “Although it may sound counterintuitive,” Mackey writes, “the best way to maximize profits over the long term is to not make them the primary goal of the business.”

These businesses achieved their market standing by adhering to a Conscious Business philosophy. At Mackey’s Whole Foods, his salary is capped as a function of average employee pay. His employees enjoy innovative benefits like health savings plans, and report high levels of happiness in the workplace.

The Container Store pays well above industry average (50-100 percent!). This has not hurt their bottom line — it has helped it. CEO Kip Tindell says, “We put the employee first because we think that if you take better care of employees than anybody else, she’s going to take better care of the customer than anybody else. If those two people are ecstatic, then wonderfully enough, your shareholder’s going to be ecstatic too.”

Conscious Businesses have cultures that are TACTILE — full of trust, authenticity, caring transparency, integrity, learning, and empowerment. These features should be tangible, people should feel them within the business as soon as they enter a store or arrive at work. These businesses also views suppliers as partners and works closely with them, since they are a crucial link in achieving the entrepreneur’s purpose.

Conscious Business builds value across constituencies by reinvesting in their communities. By supporting philanthropy and other projects which help solve social problems, Conscious Businesses breed goodwill and loyalty to their brands and mission.

For example, in 2006 Whole Foods took the lead as the largest corporate purchaser of wind energy credits in the nation, with 100% of their building energy needs covered. They also refuse to stock products harvested from endangered species and habitats and have even worked to develop pioneering Animal Compassion standards for other Conscious Businesses to use to evaluate their supply chains.

Southwest Airlines leads the industry in environmental consciousness and debuted their Green Plane, a “flying laboratory” for environmentally-friendly products.

By working with other projects and standards’ agencies, Conscious Businesses can ensure that their entire network is evolving towards the RSE’s deeper purpose, whether social or environmental.

Finally, Conscious Capitalism blurs the line between NGO’s and standard ‘business firms.’ Too often NGO’s and businesses are viewed as opposites: one operating on altruism and social good, the other on selfishness and greed. A Conscious Business is competitive precisely because it adheres closely to a social mission – not short-term, selfish thinking.

This is the key to their advantage, profits, and long-term sustainability. NGOs, which already try to fulfill a social purpose, sometimes struggle to be effective because they are unable to sustain themselves financially. Relying purely on donors and endowments can be exhausting and unpredictable, impeding an NGO’s ability to achieve their goal.

Reconciling the powerful motivation of an NGO with the sustainable model of a business is the power of Conscious Capitalism. The tools of business become the tools of social progress.

What does Conscious Capitalism mean for radical social entrepreneurs?

Conscious Business is a paradigm which empowers radical social entrepreneurs. While shareholders (investors) maintain legal control over a business, a legal claim to residual profits does not define the purpose of a business.

Whole Foods CEO John Mackey writes, “In most cases the original purpose of a business is decided prior to any capital being received from investors… there is one participant in business who has the right to define what the purpose(s) of the business will be: the entrepreneur who creates the business in the first place.”

The entrepreneur’s purpose may evolve over time, as they interact with different stakeholders and the project takes flight. What’s important is that the project stay true to the deeper purpose, however it may evolve.

RSE’s must be honest and engage in fair trade and collaboration with suppliers and partners. They must build Conscious Cultures in their workplaces by treating employees well and listening to their needs. They must be responsive to customers and dedicated to good service and fair-dealing. These are simple maxims for good business.

But they must also find opportunities to solve world problems and integrate their deeper purpose into each step of their business’ evolution. This includes creative innovations by the RSE like Mackey’s Animal Compassion Standards as well as supporting existing projects which are solving problems close to the business’ purpose.

Dynamic and healthy communities require philanthropy and support, and RSE’s can build their businesses while also providing community and environmental uplift. By lifting all boats, RSE’s expand their brand and customer base. The holistic Conscious Business approach, with an eye to all stakeholders, is the key to their success.

Since Conscious Business practices lead to profits and the achievement of social good, RSE’s can be trend-setters in their markets. To compete, other firms must emulate their superior Conscious practices or perish. This means that an RSE can shift entire markets towards social good merely by building an effective Conscious Business. Their own project changes the economic ecosystem towards Conscious Capitalism.

Conscious change in our economic ecosystem changes the world.

Further reading:
Conscious Capitalism: Learn More
John Mackey on Conscious Capitalism
Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems by Michael Strong