What Is Conscious Capitalism?
The term conscious capitalism refers to a socially responsible economic and political philosophy. The premise behind conscious capitalism is that businesses should operate ethically while they pursue profits. This means they should consider serving all stakeholders involved including their employees, humanity, and the environment—not just their management teams and shareholders. The idea of conscious capital was created by Whole Foods co-founder John Mackey and marketing professor Raj Sisodia.
- Conscious capitalism is a socially responsible economic and political philosophy created by John Mackey and Raj Sisodia.
- Proponents believe businesses should operate ethically by serving the interests of all stakeholders involved—not just corporate management and shareholders.
- The four guiding principles behind conscious capitalism include a higher purpose, stakeholder orientation, conscious leadership, and conscious culture.
Understanding Conscious Capitalism
The concept of conscious capitalism was coined and popularized by Whole Foods co-founder and co-CEO John Mackey and marketing professor and speaker Raj Sisodia in their book Conscious Capitalism: Liberating the Heroic Spirit of Business. Sisodia, who now teaches at Babson College, was a professor at Bentley University at the time. The two are also co-founders of Conscious Capitalism, a nonprofit organization that has chapters in more than two dozen U.S. cities and 10 other countries.
The conscious capitalism credo acknowledges that while free-market capitalism is the most powerful system for social cooperation and human progress, people can aspire to achieve more. It does not minimize profit-seeking but encourages the assimilation of all common interests into the company's business plan.
The credo includes competition, entrepreneurship, freedom to trade, the rule of law, and voluntary exchange. But it also builds on this foundation of traditional capitalism by adding elements like trust, compassion, collaboration, and value creation to the formula. Although profits don't take a backseat in conscious capitalism, the philosophy emphasizes doing so in a manner that integrates the interests of all major stakeholders in a company.
There are four guiding principles behind the concept:
- Higher Purpose: A business that adheres to the principles of conscious capitalism focuses on a purpose beyond pure profits. In doing so, it inspires and engages its key stakeholders.
- Stakeholder Orientation: Businesses have multiple stakeholders including customers, employees, suppliers, investors, among others. Some companies focus on their shareholders to the exclusion of everything else. A conscious business, on the other hand, concentrates on the whole business ecosystem to create and optimize value for all of its stakeholders.
- Conscious Leadership: Conscious leaders emphasize a "we" rather than a "me" mentality to drive the business. By doing so, they work to cultivate a culture of conscious capitalism in the enterprise.
- Conscious Culture: Corporate culture is the sum of the values and principles that constitute the social and moral fabric of a business. A conscious culture is one where the policies of conscious capitalism permeate the enterprise, fostering a spirit of trust and cooperation among all stakeholders.
Benefits of Conscious Capitalism
Conscious capitalism has become an increasingly popular concept in the business world. A growing number of businesses have adopted its principles, including Whole Foods Market, Starbucks (SBUX), The Container Store, and Trader Joe's. Corporations that reject the philosophy may see their positions adversely impact both revenues and profits.
Because of the increasing popularity of socially responsible investing, companies that reject conscious capitalism may see a negative impact on their profits and revenue.
Firms that adopt this philosophy reap significant rewards. Many consumers and investors consider the impact businesses have on the environment. These stakeholders seek businesses that align moral principles with corporate values. A 2019 survey of 1,000 U.S. consumers found that 37% of U.S. consumers seek out environmentally-friendly products, and are willing to pay up to 5% more for them.
Criticism of Conscious Capitalism
Although there may be generally favorable sentiment toward the idea of conscious capitalism, that doesn't mean there isn't some criticism.
One of the most common misconceptions that critics draw is that proponents of conscious capitalism believe it can fix problems within the corporate structure. But those who are opposed to the philosophy say the opposite. They also state that adopting this ideal may not necessarily bode well with investors who, for the most part, are after good returns.
Other critics say that the onus shouldn't necessarily fall only on the business sphere—notably the private sector. These critics say that the responsibility to enable change comes through public policy from the collective efforts of leaders.
Is Conscious Capitalism Profitable?
While conscious capitalism does not neglect the importance of generating profits, many corporations have used the concept to successfully brand themselves as socially-beneficial companies. Examples include Whole Foods, Starbucks, and Trader Joe's, which have leveraged their reputations to appeal to ethically-minded consumers.
How Is Conscious Capitalism Different From Impact Investing?
Conscious capitalism shares many themes with the related concept of impact investing, an investment style that seeks to accomplish social benefits as well as returns. However, the two concepts are not identical. Conscious capitalism refers to specific business practices that might be adopted by an individual company, such as sourcing sustainable materials or adopting fair labor practices. Impact investing is an investment style that seeks out companies with social or environmental benefits, that may include "conscious capitalist" firms.
How Is Conscious Capitalism Related to Corporate Social Responsibility?
Corporate social responsibility (CSR) shares many themes with the idea of conscious capitalism envisioned by Mackey and Sisodia. Many companies with strong CSR programs also follow the ideas of conscious capitalism. However, conscious capitalism differs from the traditional understanding of CSR by focusing on self-awareness within the company leadership to understand how their business practices may affect other stakeholders.
The Bottom Line
The conscious capitalism movement is an acknowledgment by some entrepreneurs that their companies can help promote social good in their communities. Although most corporations continue to place profits first, some businesses are also taking responsibility for the well-being of their employees, local communities, and the environment.