Conscious Capitalism: Liberating the Heroic Spirit of Business (2013) is a bestselling book written by John Mackey, former CEO of Whole Foods (now acquired by Amazon); and Rajendra Sisodia, a management professor at Babson College. A major tenet of the book states, “Conscious capitalism is an evolving paradigm for business that simultaneously creates multiple kinds of value and well-being for all stakeholders: financial, intellectual, physical, ecological, social, cultural, emotional, ethical and even spiritual. This new operating system for business is in far greater harmony with the ethos of our times and the essence of our evolving beings” (Sisodia, et al., 2014). The four core tenets underlying the business practices of conscious capitalism include “higher purpose and core values, stakeholder integration, conscious leadership and conscious culture and management” (ibid.). Mackey’s, and now Amazon’s, Whole Foods business still strives to embody these principles, as do several other selected companies that the book exemplifies. This case presents the purpose, goal, and need for conscious capitalism that, since the publication of the book, has now become a movement.

Why Conscious Capitalism?

Mackey and Sisodia’s book is not the first to initiate a change in the ways businesses should change. In his review of Conscious Capitalism, Alan Murray states that “capitalist guilt is nearly as old as capitalism itself, but it has seen a resurgence since the financial crises of 2007.” Bill Gates called for a new system of “creative capitalism” in 2008 at a World Economic Forum in Davos, Switzerland. He was upset that pharmaceuticals paid more attention to baldness than curing global diseases like malaria. Michael Porter, a Harvard Business School professor, in 2011 called for “shared value capitalism,” arguing that business leaders were too occupied by short-term financial profits, more so than “the well-being of customers, the depletion of natural resources, the viability of suppliers, and the concerns of the communities in which they produce and sell.” Mackey and Sisodia continue in this tradition, writing that “with few exceptions, entrepreneurs who start successful businesses don’t do so to maximize profits. Of course they want to make money, but that is not what drives most of them. They are inspired to do something that they believe needs doing. The heroic story of free-enterprise capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary value for customers, team members, suppliers, society, and investors.”

Since the fall of the Berlin Wall in 1989, it has been undisputed in business circles that capitalism and free markets are the best way to promote prosperity and grow economies internationally. Significant progress has been made since the inception of free-enterprise capitalism. Many believe that most of the world’s problems today, such as poverty, education inequality, and problems in undeveloped nations, can be solved through innovations brought about by free markets and free-enterprise capitalism. The poorest nations might be encouraged to embrace the ideas of free-enterprise capitalism to achieve similar successes as the developed countries, such as the United States, Japan, and others. 

Free-enterprise capitalism is approximately 200 years old. Below is a partial list of accomplishments during the past two centuries, attributed to free-enterprise capitalism. 

• Average income per capita on a global level has increased by over 1,000 percent since 1800.

• Average life expectancy globally has increased to 68 years, much greater than the historical average of 30 years.

• Two hundred years ago, 85 percent of the world’s population lived on less than $1 a day in today’s terms. Today that number is 16 percent.

• In just the last 40 years, undernourished people globally have decreased from 26 percent to 13 percent; if the current trend continues, it is estimated hunger will be virtually eliminated in the twenty-first century.

• Two hundred years ago, the world was almost completely illiterate; today, 84 percent of adults have the ability to read.

• With economic freedom has come political freedom: 53 percent of people currently live in countries that have democratic governments elected by universal suffrage, compared to zero people 120 years ago.

• Two key factors that have led to the success of free-enterprise capitalism have been entrepreneurship and innovation, combined with the freedom and dignity of those transacting business. Both are necessary for capitalism’s continued progress going forward. Entrepreneurs are also to be admired in an economy devoted to free-enterprise capitalism because they are the drivers of innovation that improve our lives, companies’ competitive positions, and economies.

Why Is Capitalism under Attack?

Despite the achievements of free-market capitalism, it is criticized by many around the world. Capitalism has a branding problem, in which its image has been tarnished for various reasons. Entrepreneurs driving capitalism should be admired, yet so many are vilified. Capitalism by many around the world is depicted as a zero-sum game, in which workers are exploited and consumers are cheated by business owners. Critics of capitalism argue that this alleged, intentional process results in greater inequality between the rich and the poor, fragmentation among communities, and environmental degradation, all with the motivation of making a profit. In this portrayal, business owners and entrepreneurs are depicted as being motivated by greed, seeking profit maximization as a way of doing business, since ethical theory claims that people will only pursue their self-interest at the expense of others.

Underlying reasons of capitalism’s branding problem stem, in part, from the corporate scandals that rocked the United States in the 2000–2002 period. Some of the more well-known scandals include Enron, WorldCom, Tyco, and Adelphia Cable, all of which involved executive mischief, causing widespread losses for investors, partners, and communities alike. The latest widespread scandal in the United States—the subprime-lending crisis in 2008—led to the longest recession since the Great Depression. This crisis was caused by illegal and unethical actions of large corporations and companies across all levels of the financial sector. Many of the major banks were lending to those who did not qualify, and then securitizing those loans for sale to other banks and consumers. The rating agencies, which were getting paid fees by the major banks, evaluated all of these securitized mortgage products as AAA (risk-free). Consumers during that time were overwhelmed by debt that they could not afford. These actions resulted in a continuing widespread financial crisis that further divided Main Street from Wall Street, and society in general from capitalism. 

Mackey and Sisodia believe there are several reasons for the attacks on capitalism. First, they argue that there has been an intellectual hijacking of capitalism by economists and critics. These parties have placed capitalism in a narrow, self-serving identity helping to paint capitalism as a profit-maximizing machine. Second, many businesses are operating at a low level of consciousness regarding their purpose and the large impact they have on the world. Third, the industrial era that gave rise to a mechanistic view of business, in which employees were seen as resources of production, embraced the goal of receiving the most output from as little input as possible. And finally, expanding regulations and the size of the government has produced a mutant form of capitalism, dubbed “crony capitalism.” 

This biased thinking is prevalent in the consciousness of many today. Wall Street analysts must meet quarterly earnings projections for all public companies. Many of these analysts tend to view any stakeholder (other than stockholders) as net drainers of value; that is, if you pay employees more, you will earn less in profits. This is a misunderstanding among many today about business in general, which dates back to the turn of the twentieth century when so-called robber barons wielded vast sums of wealth and were not ashamed to flaunt it. For example, Cornelius Vanderbilt, when he was warned about violating the law, was alleged to have said: “Law? Who cares about the law? Hain’t I got the power?”

This dated way of thinking, although seemingly still practiced by some (as evidenced in the corporate scandals between 2000 and 2002), shows a low consciousness and moral concern for stakeholders, which can lead to unintended consequences that affect stockholders as well as stakeholders—and, in fact, the entire global economy. This zero-sum concept leads to short-term thinking and can inadvertently support reckless risk-taking among those driven only by short-term profits. If a company seeks only or mainly to maximize profits, it will pressure its entire supply chain to disregard real-time data and constraints. For example, suppliers who are continually dictated to provide product and services to meet unrealistic goals may be rewarded for a few quarters, but in the long-term, such suppliers will do one of three things: go out of business, do business elsewhere, or provide products of lower quality, all of which cause havoc to a company’s supply chain. Other consequences, such as disregard for the environment and low employee engagement, have led to the public perception of corporations as greedy, selfish, exploitative, and untrustworthy. Mackey and Sisodia write that “business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it lifts people out of poverty and creates prosperity.” Capitalism is therefore challenged to become more “conscious” of its heroic nature.

In 2002, a Gallup poll delineated problems with the perceptions of corporations. The poll found that “90 percent of Americans felt that people running corporations could not be trusted to look after the interests of their employees, and only 18 percent thought that corporations looked after their shareholders. Fortythree percent believed senior executives were only in it for themselves.” The New York Times was also quoted, stating “the majority of the public . . . believes that executives are bent on destroying the environment, cooking the books, and lining their own pockets.” One reason for distrust of executives, in addition to the 2000–2002 scandals, is exorbitant executive pay. The Institute of Policy Studies showed that the ratio of CEO to average employee salaries in 1980 was 42 to 1; in 1990 it was 107 to 1; and in 2000 it was 525 to 1. In recent years, the ratio has declined to 325 to 1, but the discrepancy is still too large, even outrageous compared to all other professional pay-scale comparisons.

The public image spurred by corporate crises such as Enron and large banks “too big to fail”—crises caused by greed and reckless practices—have tainted trust of businesses and even capitalism. Chris Meyer and Julia Kirby stated the following in a keynote address at Bentley University (Waltham, Massachusetts) on the future of capitalism: “We capitalists are stuck in two deep ruts right now. One of those ruts is an overemphasis on return on equity, as it has become one of the primary (if not the primary) barometer of success for a company.” Meyer and Kirby argue that a fixture on return on equity alone is not an appropriate proxy of the value a company provides, and that by fixating on a single metric, business is committing social suicide. Meyer and Kirby also assert that businesses in general are obsessed with competition, which can be just as harmful as helpful. Competition in free markets has driven innovation in the past, as companies seek out competitive advantages with new products and ways to improve the world; but an infatuation with competition, simply for its own sake, will not help drive the innovation needed if people and companies are hindered from being collaborative and inspiring productive change. Former Dupont CEO Charles Holliday has stated that “Dupont’s long history has shown us that no company, however strong and competitive, can go it alone. Involvement in outside organizations and endeavors is a way of learning and leading.”

So, where do we go from here? Jack Immelt, one-time CEO of General Electric, is quoted in Rajendra Sisodia’s book Firms of Endearment as saying, “To be a great company today, you have to be a good company.” Under conscious capitalism, good businesses make money by creating value for others, not only by maximizing profits. It is essential for free-enterprise capitalism to be grounded in an ethical system based on shared value creation for all stakeholders. To prosper, companies will have to shift mind-sets and practices by listening to and learning from today’s customers. This shift represents a change not only in what people want but also in how products should be designed both aesthetically and functionally. For businesses to reach full potential, a new paradigm must be created to move beyond the simplistic models toward a higher purpose and value creation for all parties. Conscious capitalism is one step in that direction......

Questions for Discussion

1. What are the reasons conscious capitalism resurfaced as an important topic in the press?

2. What are the basic principles and tenets of Mackey and Sisodia’s book and the conscious capitalism movement that make it different from other related movements and similar topics?

3. What does ethics have to do with conscious capitalism as presented by Mackey and Sisodia?

4. Why is conscious capitalism not just a theory?

5. What do research results from the updated study in the article show?