Last week, BlackRock CEO Laurence Fink issued a letter to CEOs titled “A Sense of Purpose.” It was heralded by The New York Times DealBook columnist Andrew Ross Sorkin as what “could be a watershed moment on Wall Street, one that raises all sorts of questions about the very nature of capitalism.”
This watershed moment couldn’t have come at a more symbolic time.
This week marks the fifth anniversary of Harvard Business Review’s publishing of Conscious Capitalism: Liberating the Heroic Spirit of Business. Written by Whole Foods Market co-founder and CEO, John Mackey, and F.W. Olin distinguished professor of Global Business at Babson College, Raj Sisodia, Conscious Capitalism was the catalyst to accelerate a nascent movement aimed at proving business as a force for good.
At the time of the book’s publishing, the concept of Conscious Capitalism wasn’t new. Grameen Bank co-founder Muhammad Yunnus coined the term “socially conscious capitalist enterprise” during a 1995 interview with The Atlantic about expanding the benefits of capitalism to those who needed it the most through a novel approach to microcredit and microfinance in developing nations.
Mackey had also laid out the rationale for businesses being purpose-driven and oriented toward all stakeholders during a 2005 debate with Nobel laureate economist Milton Friedman. Mackey argued against Friedman’s stance that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits…” with his opinion that “”the enlightened corporation should try to create value for all of its constituencies.”
Mr. Fink’s central point is encouraging as it echoes what Conscious Capitalism has long held: “Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.”
The first tenet of Conscious Capitalism is Higher Purpose. Profit is not an end in itself. Profit is a means to achieve something greater, a value or ideal that the business turns into reality. For example, at Studio Movie Grill, “We exist to open hearts and minds, one story at a time.” While at Greyston Bakery, they fulfill the purpose of “Changing Lives, One Job at a Time” with their Open Hiring™ model. Look at successful companies that have one way or another been advocates of a more conscious practice of capitalism (Starbucks, REI, Patagonia, Southwest Airlines, The Container Store, just to name a few), and you’ll see purpose at their core.
The second tenet of Conscious Capitalism is Stakeholder Orientation. While shareholders, as the owners of a company, are important, they are not the only ones who depend upon a company. Those companies that only pay attention to shareholders to the detriment of other stakeholder groups, do so at the risk of all stakeholders, including shareholders, who are themselves becoming more and more conscious about the impact of their investments.
It is a shame, but necessary, for Mr. Fink to write, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Too often, there is a difference between financial performance and contribution to society. It is not that financial performance is bad. Profits are good, they are the red blood cells of a company, which ensure its survival. But when they are separated from the concept of value-creation, they lose meaning. Operating on the principles of Higher Purpose and Stakeholder Orientation unifies these concepts.
Along with an understanding of the higher purpose of business comes the need to embrace the greater role of business as a leader in society. Businesses are not just vehicles for monetary returns. Businesses are value centers and key drivers of future success for all people. Mr. Fink writes, “We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges.” This is a call for business leaders to be a driving voice of reason, ethics, and optimism in the world.
While Mr. Fink does not specifically call his recommendations “Conscious Capitalism,” it is worth applauding his call from the Conscious Capitalist perspective. Though some may hold firmly to the idea that the sole purpose of business is to maximizes profit, we agree with Mr. Fink’s opinion that, in 2018, things are different. There is a growing tidal force of business leaders adopting a more conscious approach to their work. It is encouraging to see capital doing the same.