Conscious Capitalism (CC) Conscious Business (CB)

1. Conscious Capitalism (CC)Conscious Business (CB) GoodWay to do Business or False Ideal?

2. Lecture today “The Role of the Media in the National Carnival” by Mark Leibovich 3:10 pm GGB 123

3. Two and a half cheers for CCJames O’Toole & David Vogel • In business “…it is often difficult to do well by doing good.” • O&V cite IrivingKristel(Two Cheers for Capitalism, 1978): “…despite all its advantages over a centrally planned economy, an unregulated market is prone to boom and bust cycles, rewards short-termism, does not internalize environmental costs nor provide for public goods, and can lead to grossly uneven distributions of wealth both between nations and, internally, among the populations of capitalist countries.”

4. Why not three cheers? • “We also can't give the movement three cheers because we are concerned that the Conscious Capitalism movement is creating unrealistic expectations for corporate performance that could serve to undermine other strategies that are needed to reconcile corporate practices and social needs.” • “…virtuous capitalism is difficult to sustain.” • Fall from virtue: J&J; Toyota; BP (Did these companies really “fall from virtue?”)

5. Virtue in business is generally not sustainable • “Doubtless, virtue can be sustained: witness Southwest Airlines, Nucor, SRC Holdings, and Gore. However, for the vast majority of socially responsible companies, a change in leadership, in technology, or in competitive pressures and, almost always, a takeover will undermine the kinds of behaviors promoted by Conscious Capitalists. ” (emphasis added) • Cf. the case of Robert Owen

6. CC not the only viable business model • Limited applicability of CC model • “The problem is not that Conscious Capitalism isn't a viable business model; it clearly is. Rather, it is not the only viable business model. Scores of business books claim to have discovered the key to business success, but none has actually discovered this holy grail for the simple reason that no one business strategy or model is always, or continually, superior to every other one.” • “Because the number of successful business strategies and models is infinite, no one is, or can always be, superior to all the others.”

7. Is CC “getting religion”? (or is this a straw man or red herring?) • “…many firms have and will continue to prosper that do not subscribe to the principles and practices of Conscious Capitalism. That is why we are not convinced that Mackey, Hirshberg, and others will be any more successful than Owen was two hundred years ago in convincing other executives to “get religion” and change the way they conduct their businesses.” (emphasis added)

8. Doing good does not mean a firm will necessarily do well. • “…some firms succeed by doing well, some that do good do not do well, some that don't do good do well, and some who don't do good don't do well!” (But how many firms in each category?) • “We also are skeptical of the commitment of Conscious Capitalism firms to treat all their stakeholders equally and fairly.” (Does CC really argue for this?) • Outsourcing? Restructuring? Layoffs? – hurt some stakeholders, benefit others

9. Firms have limited opportunities to do well by doing good. • “In short, the “consciousness” of capitalists, or the values they bring to their business activities, do matter; it can enable them to uncover opportunities for virtuous behavior that more conventional owners or managers whose only focus is on the “bottom-line” are more likely to overlook…. Yet, as we discuss below, the number of such “win-win” business opportunities is also limited.” • Re. Wal-mart innovations: Isn’t this just good business practice?

10. “…if all business activities were to potentially fit into Cell One, then advocates of Conscious Capitalism would have a strong, even compelling, case. Unfortunately, most do not. In fact, Cells Two and Three are now, and are likely to remain, much larger.

11. Need Government to solve social problems • E.g.: health care • “The fact is that some problems are so large, or systemic, that they cannot be solved solely by the actions of individual businesses” • E.g.: catalytic converters • For example, the problem of urban air pollution in the 1970s could not have been addressed effectively by any one auto company virtuously installing costly catalytic converters in their vehicles. To do so would have put that company at a significant price disadvantage against its converter-less competitors. So Congress passed the Clean Air Act mandating such equipment

12. What is the positive contribution of CC? • “The singular fresh contribution of Conscious Capitalism is its philosophical squaring of free-market principles with progressive business practices by stressing the profit-making potential of responsible, ethical, and sustainable corporate behavior. Since no corporate managers want to be accused of taking advantage of shareholders, this re-branding is significant because it legitimates a wide range of more responsible corporate practices.” • “Clearly, Conscious Capitalism can inspire the improvement of many corporate practices, which is an objective we applaud and wish to encourage. However, its adherents need to develop a more realistic understanding of what even the most socially conscious capitalists can and cannot accomplish.”

13. Recommendations… • “A good first step for the movement's advocates would be to make clearer distinctions between “shoulds,” “cans,” and “wills;” otherwise they risk continually engaging in the fallacy of composition: to wit, “because many virtuous companies are profitable, all are, or can be.” • “It is hard to imagine how a coal company could embrace the principles and practices of environmental sustainability.”

14. Therefore… • “…we must warn the most enthusiastic of our fellow travelers that they may be over-promising what business can realistically deliver by promoting a false sense of complacency about the capacity of business to solve the world's problems.”

15. John MackeyWhat Conscious Capitalism Really is… • Response to O’Toole & Vogel’s (O&V) “Two and a half Cheers…” • O&V Fail to understand CC; Mackey thinks they are really referring to Corporate Social Responsibility

16. V&O miss the point:CC is not CSR • “Their primary mistake is to fail to understand what CC really is. In so far as their critique is valid, it is not actually referring to Conscious Capitalism, but rather to Corporate Social Responsibility (CSR). As I will explain, these are not synonyms, but represent distinct philosophies of business.”

17. Basic Principles of CC • 4 key principles of Conscious Business (CB) • 1. Higher purpose than maximizing profits • Good, True, Beautiful, Heroic • video • 2. Stakeholder Interdependence • Customer, employees, suppliers, society, environment • video • 3. Conscious Leadership • Importance of CEO and senior leadership • video • 4. Conscious culture • self-managing teams, empowerment, transparency, authenticity, a commitment to fairness, personal growth, and love and care • video

18. Qualities of CB cultures • “While CB cultures can vary tremendously they tend to have a number of similar qualities. These often include self-managing teams, empowerment, transparency, authenticity, a commitment to fairness, personal growth, and love and care. “ • “…voluntary exchange for mutual benefit is itself an ethical process.” (Is business fundamentally ethical?)

19. According to Mackey… • Depicting business by pairing profitability and virtue (as O&V do) is misleading • most businesses are already virtuous • “Ordinary business exchanges are inherently virtuous. • “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.” • CC/CB not CSR • Re Stakeholder equality: Mackey: I never said that