Thursday, April 16, 2015

Conscious Capitalism: Liberating the Heroic Spirit of Business

Book Review: Conscious Capitalism: Liberating the Heroic Spirit of Business – by John Mackey (Co-CEO of Whole Foods Market) and Raj Sisodia (Harvard Business School Press 2014 Kindle Edition.)

This is an important book that delves into what a business could and should be and as the authors think, what businesses will be in the future as conscious capitalism businesses and principles become more widespread due to their success. I think they are right but time will tell.
The forward by Bill George, business writer and former CEO of Medtronic, tells of a debate between John Mackey and the famed capitalist Milton Friedman. Friedman argued that the only social responsibility of business is to increase profits for shareholders. Friedman did try to incorporate some of Mackey’s ideas before his death but only as aids to profitability. While Mackey greatly admired Friedman he considered it the other way around – that profitability aids the socially responsible purposes of a company, at least in a company like his Whole Foods Market, where the health of the customer is a key goal, but profits can be made along the way. Mackey and Sisodia show that flexible qualities rather than rigid ones can be better for business success. They also emphasize and demonstrate that creating long-term sustainable value for all stakeholders can be superior to focusing on short-term goals strictly for shareholders. Business leaders are considered untrustworthy these days and they need to re-earn that trust through conscious leadership, say the authors. Companies large and small are incorporating these principals not only to improve their reputations but to improve their bottom line. The preface gives several examples and there are many throughout the book. These ideas have universal appeal, say the authors.

Mackey recounts the humble beginnings of Whole Foods as Safer Way Market. He notes that his education which contained no business classes was probably an advantage in that there would be nothing to unlearn, yet later he studied business extensively on his own. He started out favoring the co-op movement which emphasized cooperation but then noted that since every decision was politicized there was little room for entrepreneurial creativity. He discovered that business is based on cooperation and voluntary exchange. All stakeholders are faced with “competitive alternatives.” If cooperation is fostered between stakeholders (employees, management, suppliers, investors, community, and environment) then more value can be created for all. But this is challenging and prices and pay must be negotiated. However, with a good and just business model, success can be achieved. After losing about half of their investment in the first year and taking miniscule salaries they were accused by the co-op folk of gouging customers with high prices and being greedy. This experience discouraged Mackey’s faith in social democracy as a business model and led him to pursue business philosophy. He learned that:

“… voluntary exchange for mutual benefit has led to unprecedented prosperity for humanity.”
He also learned that: “free enterprise, when combined with property rights, innovation, the rule of law, and constitutionally limited democratic government, results in societies that maximize societal prosperity and establish conditions that promote human happiness and well-being… {for all}”  

Mackey next discovered first hand that stakeholders really matter. When they had just one store as Whole Foods in 1981 and it was getting successful, there was a major flood there in Austin, Texas. The store was destroyed and there was nearly half a million in losses. They thought it was over for them but what happened was that many loyal customers appeared ready to help. This spurred them to work harder and get things going again. Not only their customers helped but also their employees (working for free to be paid back later), their suppliers (giving them credit), and their investors (then a local bank). Getting through such an experience also drew all these factions together and galvanized the idea for Mackey and others that stakeholders matter.

The authors describe free-enterprise capitalism as “the greatest system for innovation and social cooperation that has ever existed.” They note that in the 20th century economic philosophy war between free-market capitalism and government-control communism, free-market capitalism has won by nearly every measure. Poverty has been drastically reduced and standards of living have been drastically raised. The creative forces of innovation and entrepreneurialism have arisen from the foundations of free-market capitalism. The authors see these business and technological innovators as heroes. However, many see capitalism as being inspired by greed. The injustices to workers in the early Industrial Revolution are often cited as an example and indeed from such injustices the ideology of communism has arisen. Of course, much of the criticism of crooked capitalism is justified. The authors think that capitalism needs a new narrative and a new ethical foundation. Becoming more conscious (of relationships and consequences) is the antidote. Overly focusing on profits in both business and among academics has led to more selfish orientations among business leaders. Often regulations have had the effect of creating conditions for the spread of “crony capitalism” where those who are politically well-connected can become quite advantaged.

Adam Smith first portrayed capitalism in his Wealth of Nations, as concerned with self-interest. However, in a previous book, The Theory of Moral Sentiments, he emphasized developing the ability to empathize with others and care about their concerns. According to the authors Smith had great insight into both economics and ethics. Perhaps if his economic and ethical ideas had been integrated from the beginning the injustices of the early Industrial Age could have been mitigated. However, that did not happen and ethical challenges to the brutality of capitalist economics spurred reactionary movements like communism. The authors here speak much of the negative consequences of “trade-off thinking.” Nowadays we realize that worker happiness and company reputations regarding social and environmental concerns are important to their bottom line. The myth of profit maximization is based on a narrow view of both human nature and the nature of business success. Profit is very important of course but not at the expense of other values. According to the authors, profits were rare before the Industrial Revolution. There were rich and poor according to social class but not much mobility. Now we realize that many entrepreneurs are inspired by a desire to help the world or to fulfill a societal need they discover. Profit is of course a motive but often not the sole or even the major one.

Crony capitalism allows certain connected business people to avoid accountability and discipline. This is one cause of the current economic disparity as the pay of CEOs grows disproportionately to that of workers. Another cause is greed and “unconscious” capitalism. Crony capitalists are propped up not by market forces but by governments and certain regulations. Indeed, this cronyism is what has given capitalism a bad name.

Capitalism has succeeded in lifting people out of poverty through voluntary exchange while communism has done it mostly through coercion and so capitalism has been far more successful. Even so, this lifting of people out of poverty was merely of a by-product to the profit motive. With conscious capitalism it can be done better by expanding business motives to helping all stakeholders. The authors say capitalism needs a new narrative, a conscious one rather than old ones concerned with self-interest and perceived by others as greed.

In the modern age we no longer accept injustices that were commonplace in the past like slavery and exploitation of workers. People are more educated. We are inundated with information. Such things contribute to our “rising consciousness” say the authors.

The four tenets of Conscious Capitalism are given as: 1) higher purpose, 2) stakeholder integration, 3) conscious leadership, and 4) conscious culture and management. Higher purpose (beyond mere profit maximization) needs to be sought out and then worked out. Stakeholder integration needs to be worked to favor win-win situations, or in terms of all major stakeholders, a win-win-win-win-win-win, or Win6 situation. Conscious leadership is vital and avoids trade-off mentality and carrot-and-stick approaches to management. Conscious culture is based on “decentralization, empowerment, and collaboration.” One goal is to harmonize the interest of the business with the interests of society.

The authors include an appendix devoted to the financial performance of conscious businesses and conclude that conscious businesses are generally among the most successful financially as well as providing benefits to all stakeholders. Caring for others also aids in creating value.

The authors go to some length to distinguish conscious capitalism from corporate social responsibility. Traditional businesses tend to graft corporate social responsibility onto their model as means to enhance their reputation or ward off criticism, ie. “greenwashing,” while conscious businesses incorporate responsibility toward all stakeholders including society and the environment. Such responsibility is a part of their core purpose. 

The authors insist that purpose matters for companies as it energizes them. A higher purpose indicates a purpose beyond self-interest. If all stakeholders can share in such a purpose then value can be created for all and it is a multi-win. Examples of statements of core values of conscious companies are given. “A firm’s purpose is the glue that holds the organization together,…” The authors distinguish purpose from mission and vision:

“Purpose is the difference you are trying to make in the world, mission is the core strategy that must be undertaken to fulfill that purpose, and vision is a vivid, imaginative conception or view of how the world will look once your purpose has been largely realized.”

The authors emphasize the importance of purpose and of not losing the sense of purpose. They give the example of the pharmaceutical industry as one that once had an admired purpose of devising miracle drugs to save lives, but lately has been overly influenced by profit motives and is now not so highly regarded. Another is the financial sector, once key to benefiting society, is now seen as profit-obsessed and short-term oriented. Focusing on such short-term goals has benefited CEOs but not so much the whole companies and society and so reputations have fallen.

The authors note the conclusion of Austrian psychologist Viktor Frankl that one way to happiness, meaning, and purpose is “doing work that matters.” They note that profits, like happiness, are ideally not “pursued” but aimed for indirectly, in the process of working for benefit. Most profit-oriented businesses, they note, are competing with other profit-oriented businesses and so are successful in those terms. But when conscious businesses enter the picture they are harder to compete with because they engage all stakeholders – they have a ‘bigger picture’ outlook.  Absence of purpose is a problem with many workers as they suffer through the drudgery to get their paychecks. People are often indifferent and even apathetic to the companies they work for and this is the fault of the companies, say the authors. They favor purpose maximization over profit maximization and point out that all workers can contribute to maximizing purpose. Aligning one’s passions with one’s work is a challenge. I work in science and enjoy working with data and interpreting it, revealing the hidden, as it were. The authors note that many companies have made the mistake of bringing in highly paid, high profile leaders who don’t align with the core values of the company with big problems including resentment and reduced profits being the outcome.

An example given of purpose is the company Waste Management, Inc. They took a cue from the sustainability movement and found innovative ways to extract value from the waste stream in terms of both energy and materials. They consult to help large companies reduce waste. They work in product recycling. They have many waste-to-energy projects. Most of their profit is in the waste itself rather than merely in the disposal of it.

The authors give four categories of purpose right from the ideals of Plato: 1) The Good – service to others and improving health, education, and the quality of life, 2) The True – discovery and increase of knowledge, 3) The Beautiful – excellence and aesthetics, 4) The Heroic – courage to do what’s right and improve the world.

The second tenet of conscious capitalism, stakeholder integration, is very important. For a conscious business, looking out for the needs of stakeholders is more an end rather than a means. Seeking and discovering synergies rather than trade-offs is encouraged. Shared goals among stakeholders can lead to less friction inhibiting the path toward those goals. Thus, the interdependence of stakeholders can be advantageous to business success. Stakeholders include customers, team members, suppliers, investors, industry partners, the community, and the environment. Customers are a key stakeholder. Loyal and educated customers can be fantastic aids to success. Companies have a responsibility to their customers. Whole Foods advocates “customer-focused innovation” where new products and improved quality can be found by assessing the needs of customers.

I found interesting the section about the conscious business approach to marketing. Rather than having large advertising budgets these companies focus on stakeholder integration to get the word out for them. Satisfied customers, team members, and suppliers can amount to good marketing. The authors criticize traditional marketing as predatory and full of hype and of course, people are reasonably suspicious of many marketing ploys. The relationship between team members and customers is critical, especially in service-based companies. If team members are happy then customers will see that. If customers are happy they will buy more and return. Innovative and creative work cultures generally generate more meaning and fun for team members. Team member engagement can lead to competitive advantage. Intrinsic motivation through enjoyment of one’s job is likely more useful than extrinsic motivation through reward and punishment. For management, hiring and retention, are important considerations. Finding the right people, those that fit with the company purpose, is important, and if they are motivated to stay, even better. The authors mention fear as motivation, as when Jack Welch, CEO of General Electric until 2001, had a policy of firing the lowest 10% of the work force. The idea was that people would be motivated to work harder to avoid getting fired. Apparently, Enron had a similar policy. The authors acknowledge fear as an effective short-term motivator but they point out that it is a poor motivator in the long-term and that former team members can also be seen as stakeholders of a sort. People laid off during downturns may be motivated to return during better times.

Compensation is another important issue addressed differently in the conscious capitalism model. At Whole Foods the top seven executives, including the CEOs get the same pay and perks. This avoids resentments and promotes transparency. They have a cap where all cash pay including bonuses is 19 times the avg. of all team members. In some companies it is as high as 400-500 times. Income disparity and outlandish CEO pay is a major issue these days and should be addressed by companies in a similar manner. The authors give the argument in terms of internal equity vs. external equity. Internal equity means the pay is deemed fair internally rather than competing with the external market – where since pay has risen dramatically for most executives it is argued that it should rise for all executives. Salary caps may have to rise to be somewhat competitive to the external market. Of course, so-called top talent may have to be sacrificed as they would be less likely to accept such a salary cap – but if their sole motivation is pay then they may not fit in with the conscious purpose of the firm. The authors also suggest that benefits be egalitarian, rather than having special benefits for executives. This reduces corporate classism. They say it also promotes solidarity within the company. Of course, company tenure, can still be associated with vacation time and a few other perks. They also suggest that some benefits can be voted on by team members. Internal health and wellness programs can also complement health care benefits.

The authors mention three types of capital: 1) venture capital – money for new ventures that are usually risky, 2) debt capital – loans from banks and investors that must be paid back with interest so that equity ownership is not diluted, and 3) equity capital – investments made for a percentage of ownership in the business. Venture capital helps provide equity capital for new businesses. Wall Street is known for cashing in on short-term wealth creation. Businesses do have ethical and financial responsibility to make money for their investors. They mention Warren Buffet and his firm Berkshire Hathaway as an example of good relations between a leader and investors where transparency and communication are emphasized. Buffet’s approach is open and long-term. Short-term speculators and traders, who have manipulated the system to some extent, have probably tainted the financial sector more than anyone. The average shareholding period for investors has dropped from 12 years in the 1940s to less than a year today. The “exit strategy” has been over-emphasized. An investor invests for the long-term while a speculator invests for the short-term. The authors give the example of the effect of the financial crisis of 2008-2009 on Whole Foods where the stock price dropped from $79 to $8 but the long-term investors stuck with them even buying more stock and the price then improved dramatically.

The authors also note that financial analysts often miss the nuances of companies since the only data they have and utilize are the numbers. Often, CEOs will react to analysts’ models to try and satisfy them rather than the company purpose, which can result in overly focusing on short-term gain at the expense of long-term gain. There are other incentives to do that as well – higher pay and bonuses for executives being one. Many companies offer incentives in the form of bonuses and stock options for meeting short-term goals which orients the focus on to those short-term gains, often at the expense of long-term gains.

Labor costs are another issue dealt with differently by conscious companies. Well paid employees can have better morale, better productivity, less turnover, better customer service, less training costs, and lead to better overall company reputation. All of these factors can enhance competitiveness.  

The authors note that both private and public companies can practice conscious capitalism and they give many examples of both. Polls have shown that Americans have greater trust in small businesses than in large public corporations. The authors think that all companies can become conscious if their leadership leads the way.

Suppliers are another valuable stakeholder, often overlooked. Suppliers include landlords, service providers (phone, trash removal, etc.), and utilities, as well as suppliers of goods. Team members supply labor. Investors supply capital. Innovation can be discovered through optimizing the capabilities of suppliers. Suppliers create much of the value for companies, particularly retailers. Thus, they should be treated fairly, openly, and collaboratively. Key suppliers should be seen as partners. This facilitates better communication so that new needs can be met faster. Companies need to be aware of over-“squeezing” their suppliers. Deeply collaborative and long-term contracts with trusted suppliers can enhance both businesses. The buyer business is better off when their suppliers are also flourishing. The buyer company ideally needs to look out for their interests as well, possibly helping them survive in downturn times. They can even invest in their suppliers. Win-win relationships with suppliers can be vital to the success of both companies. Another goal can be to promote the benefits conscious capitalism principles to one’s suppliers and to other stakeholders as well, for mutual benefit.

Social responsibility includes philanthropy and a conscious business considers a reasonable amount of philanthropy to be a part of its purpose. This could involve donations of money, time, community service, and other unique capabilities. Milton Friedman declared in 1970 that philanthropy could be seen as theft from investors. However, smart philanthropy can ultimately benefit investors as it promotes the corporate reputation, as well as employee morale and sense of purpose. Of course, degree of philanthropy should be approved by investors. The authors see a conscious business as resembling a responsible citizen. They think it is best if community service is done on a work day rather than on a weekend because it is better for the employees to plan for and leads to less resentment. Another issue is what non-profits to work with. They note that businesses should not be tools of social activists or the government. Whole Foods has a policy where on 3 or 4 days a year each store donates 5% of gross profits to charities. Members of those charities are encouraged to shop there that day and good will is created. The authors give the story of the Tata Group in India who owns the hotel that was bombed in a terrorist attack where many people were killed, including hotel workers who stayed around to help and protect people. CEO Ratan Tata and the executives went to great lengths and financial cost to compensate victims and their families, of both employees and guests. The authors also point out that there are creative ways to incorporate philanthropy that can include customers and suppliers as well. They also recommend coordinating with non-profit orgs. Non-profit orgs are mission-based and work well with the purpose component of conscious businesses.

Environmental responsibility is also important for businesses. Energy efficiency, waste reduction, promoting non-harming and sustainable practices, and knowing and reducing environmental impact are some ways businesses can be responsible. Businesses can take major roles in solving environmental problems. The authors also point out that nearly all businesses are fundamentally caring of the environment, even if often depicted as greedy and uncaring. Efficiency and waste reduction measures have the added benefit of saving money. Innovative use of technology can also reduce environmental impact and save money. Surprisingly, the authors highlight Walmart as initiating many innovative sustainability practices such as packaging reduction, energy efficient lighting and refrigeration, waste reduction, innovative plastic recycling and repurposing, and composting. The authors criticize fear-based and guilt-based environmentalism and suggest replacing it with love-based environmentalism, highlighting the successes already achieved in cleaning up the environment to spur more progress there.

The outer circle of stakeholders includes competitors, activists, critics, unions, the media, and government. Businesses encounter these factions all the time, sometimes in negative ways. Competitors can be seen as “allies in striving for mutual excellence.” Competitors often come up with innovations that are passed on to all in an industry. Activists and critics can also be seen as competitors, putting forth competing ideas of how things should be done. Mackey points out that it was an unpleasant situation with animal welfare activists that led Whole Foods to become better informed about animal welfare and incorporate better policies. Labor unions have also had a history of adversarial relationships with businesses. Whole Foods is not unionized in an industry that is highly unionized. They think they can avoid unionization by providing team members with excellent care, benefits, and pay. They do mention other companies that must engage with unions and note that businesses should not see unions as adversaries and should seek win-win situations with them. Whole Foods has apparently had quite a bit of issue with outsiders who wanted their employees to unionize. Employees of one store voted to unionize but it was later learned to be a setup. However, it was a wake-up call for Mackey and he visited every store having meetings to determine how to better employee situations. He learned there was a need for better health insurance and some other services that were implemented except for the store that was negotiating with the union was not allowed to participate. Eventually, that store voted not to unionize. The media is another outer stakeholder. They tend to report on “the three Cs: controversy, conflict, and change.” Whole Foods tends to focus more on social media and bloggers rather than traditional media. This allows them to engage directly with stakeholders rather than through the “middlemen” of traditional media, who can often put spins on stories to enhance any of the three Cs. Government is another outer stakeholder for all businesses. How much governmental regulation and input is needed is often a point of contention. The authors see the role of government as an impartial umpire in order to keep things fair. Some rules and regs are useful and protective while others are unnecessary and unfairly promote the interests of some factions over others. Some are wasteful or overly costly. Government is often wooed by special interests and those interests often involve setting up or avoiding regulations. Such activity can lead to corruption and cronyism in some cases.

Stakeholder interdependence can encourage virtuous circles. Overly focusing on profit for shareholders can lead to poor employee motivation and poor customer service, and so actually erode profits. Relationships between stakeholders can be seen as the mortar that holds the bricks (stakeholders) together. Understanding stakeholder relationships requires systems intelligence, say the authors. They suggest looking for hidden synergies rather than trade-offs. The focus should be on creating more value – making a bigger pie rather than chopping it up differently. They use cancer as a metaphor for lack of cooperation in a business or between a business and its stakeholders. A case in point is the recent financial crisis where so much focus was on short-term profits for one stakeholder, the investors, that the whole system was crippled. The selfishness of senior management in pursuing short-term gains can lead to similar results as can team members occasionally as when unions become too powerful, avoiding market discipline, at the expense of other stakeholders. Owners and investors must have legal control of the company, say the authors, as they are paid last. They also say that stockholders should have the power to fire management if necessary.

Conscious leadership is vital to conscious capitalism. The best leaders are motivated by service to the higher purpose of the business.

“Leadership and management are not synonymous. Leadership is mostly about change and transformation. Management is about efficiency and implementation.”

Generally speaking, the authors say that companies need more leadership and less management, but both in the right measure and in harmony. Leaders need versatility in intelligence: intelligence (IQ), emotional intelligence (EQ), spiritual intelligence (EQ), and systems intelligence (SYQ). Emotional intelligence is based on both understanding oneself and on understanding others. Empathy is important for EQ and EQ may well be more important than IQ. Spiritual intelligence refers to the ability to manifest goodness, truth, beauty, and compassion. It is also moral intelligence. Systems intelligence can be vital to feeling out complex relationships in the business world. Prevention and health in business relationships is sought by systems thinkers over short-term fixes to problems. Having a purpose related to service is important for leaders. Albert Schweitzer and Buckminster Fuller are given as examples. Integrity, as a synthesis of virtues is important for conscious leaders. Goals of a conscious leader include making a positive difference, embedding a shared purpose for those in the group, helping people to grow and evolve, and making tough moral choices when necessary. Some leaders are charismatic, but that is not a necessity, say the authors, and can be problematic. Role models, coaches, and mentors can be very important and Mackey gives a  very telling story about his father as a long-time mentor in his business. SYQ involves developing the habit of thinking in terms of all stakeholders, of contemplating how decisions will affect them. Mackey notes that a crisis can be an opportunity for growth. He notes one when Whole Foods merged with Wild Oats in 2007 when he was personally investigated by the SEC, including his personal emails. He was cleared of any wrongdoing but it was very stressful for him as he learned he was now a ‘public figure.’ Being a leader entails lots of responsibility so there is a need for a leader to be at his or her best physically, emotionally, mentally, etc.

Evolving a conscious culture and management is important also. Decentralization, empowerment of all team members, and collaboration are all vital to a conscious business culture, and they foster innovation. Culture is more vital than strategy, say some conscious management advocates. Seven characteristics of conscious cultures are given in the acronym TACTILE: trust, accountability, caring, transparency, integrity, loyalty, and egalitarianism. Many of these qualities must be built up over time. Trust is very important and the other qualities given support it. More transparency often equates to less fear within the company and more trust. Cultivating a sense of fairness throughout an organization is also essential. Love and caring have generally been ignored by corporate culture, which favors more survival-of-the-fittest motifs like paranoia, selfishness, competition, and motivation through fear. The authors give some interesting strategies for downsizing, outsourcing, recycling failed promotions, when necessary and in such a way that resentments are minimized. The authors point out that the role of management in a conscious culture is limited and that traditional management will tend to fail in a conscious culture – the two must be harmonious which requires less control by management. A sense of autonomy is best developed among team members. The role of management is to “create, sustain, and strengthen the conditions whereby team members operate primarily from intrinsic motivation.” This starts with hiring the right people – those who can be motivated from within and those who fit with the company purpose. Tapping into “collective intelligence” is one goal of conscious management. This often involves trying to locate decision-making at the lowest possible level unless necessary. Of course, there needs to be a balance between decentralization and centralization as some global decisions need to be centralized. Empowerment allows people to try new ideas, some of which will fail. While failures must be acknowledged and fixed, there will also be successes and those are what fuels innovation. Companies that depend on a few people at the top and outside consultants to come up with their innovations are far less empowered than those who rely on their own team members. Collaboration is also very important as it allows good ideas to spread and to become even better ideas as they are refined.

Developing a stakeholder mindset is a key to setting up a conscious business. Understanding and anticipating stakeholder needs can lead to success. In traditional business a customer is a means to profit but in a conscious business customer satisfaction by itself is also an important goal. The authors emphasize that business is not fundamentally flawed and in need of redemption. They say that business is fundamentally good and ethical because it creates value for people. Yet is creates more value and taps into higher purposes when done consciously. They think that conscious capitalism is on the way to becoming the dominant business paradigm, though it may take some time. Throughout this book many companies that utilize conscious principles to one degree or another are noted: Costco, Google, The Container Store, Tata Group, POSCO, Amazon, Whole Foods, Nordstrom, Panera Bread, Trader Joe’s, Patagonia, Southwest Airlines, Home Depot, UPS, Jordan’s Furniture, Starbucks, Wegmans, and many others.

Appendix A gives data tables and supporting info that shows quite clearly that conscious businesses are not only competitive but highly successful in terms of financial performance.

Appendix B gives previous ideas related to conscious capitalism and compares them. First is the notion of Natural Capitalism formulated in the book by Paul Hawken, Amory Lovins, and Hunter Lovins. The notion there is that traditional industrial capitalism is unsustainable since it ignores important inputs and costs such as natural resources, ecosystem services, living systems, and human and social capital. Conscious capitalism acknowledges those principles and extends beyond by emphasizing human creativity to solve problems. Another idea is that of the Triple Bottom Line: economic, social, and environmental. Conscious capitalism adopts the same ideas, not with a tack-on CSR approach as has been usual, but built into the core principles of the company. Another idea is Shared-Value Capitalism. This involves broadening the definition of value to include benefits to society. Here profits which also provide social benefits are seen as more valuable than those that do not. Another idea is the Creative Capitalism described by Bill Gates which involves businesses expanding the reach of market forces to more people, particularly those in poor and undeveloped places, in order to benefit them and the business. That idea utilizes variable pricing to make products available and affordable to those in new markets and also enhances the reputation of the companies. The goal is impact maximization rather than profit maximization. The authors note that while this is good, it is only applicable to certain industries such as pharmaceutical and biotech which can utilize variable pricing for low-income customers. Another idea is that of B Corporations, or benefit corporations. Such companies are chartered to explicitly address social and environmental problems and so resemble non-profits in some ways. Such companies are certified and get discounts form other companies in the network. While this can be a useful system the authors think that it is less viable as companies of this sort are more controlled by managers than owners (which include investors). Thus, management becomes protected from owners and their influence, which gives them less accountability. B Corps are and will only be a small niche in the whole business system, say the authors, and so are less important overall than companies who adopt conscious capitalism principles. Also, non-profits have a bit of a competitive advantage over B Corps in that donations to them are tax deductible.

Appendix C addresses some misconceptions about conscious capitalism. Most of these are fairly obvious and play on the intuitive or indoctrinated idea that profits are incompatible with societal benefits and sustainability. The financial performance data clearly show that conscious businesses are not only viable but often top tier performers.

Overall, this is a great book and one that should be read and studied by anyone interested in business and leadership.


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