Why is conscious capitalism important? How does conscious capitalism benefit businesses and society?
In Conscious Capitalism, John Mackey and Rajendra Sisodia discuss how conscious capitalism benefits all interested parties in businesses. They further explain why each party is important to business to emphasize why this economic system is so crucial.
Keep reading to learn how conscious capitalism takes everyone into account.
Why Everyone Must Win
Why is conscious capitalism important? Mackey and Sisodia argue that the everyone-wins approach inherent in conscious capitalism is necessary because every interested party is vital to a business’s success—you can’t run a business without customers or employees, for example—which means that satisfying them all makes businesses more sustainable and more profitable.
The authors explain that often, businesses value satisfying one interested party over all others—for example, they might unfairly mark up product prices because they prioritize investors’ profits over customer satisfaction. When that happens, other interested parties suffer and, in the long run, become unhappy with the business. If one interested party pulls out because they’re unhappy, the business will suffer or even fail. On the other hand, if all interested parties are satisfied by your business, your business will be more profitable in the long run—the authors say that according to market evidence, conscious companies outperform other kinds of businesses.
|Stakeholder Capitalism Versus Shareholder Capitalism: Priorities and Profits
The notion that all interested parties should benefit from a business’s existence is controversial. Shareholder capitalism (defined earlier as a form of capitalism that gives shareholders primacy over other interested parties) was popularized by the economist Milton Friedman in Capitalism and Freedom and has reigned supreme since the 1970s. Friedman argued that “socially responsible” company initiatives detract from shareholders’ profits and threaten economic freedom (as well as political freedom, since he saw these as inextricably tied).
According to Friedman’s view, any form of capitalism that doesn’t prioritize shareholder profits is a less sustainable and profitable way of doing business. But while stakeholder capitalism and shareholder capitalism are usually represented as conflicting ideas, experts note that there may be some overlap between Friedman’s version of capitalism and versions like conscious capitalism: Friedman acknowledged that the most profitable way to do business is by meeting stakeholders’ needs—not by exploiting any other stakeholder for shareholders’ financial gain. He explained that if a company doesn’t meet its stakeholders needs, it might lose out on profits and shortchange stakeholders. This is similar to what Mackey and Sisodia are arguing for here.
Data suggest it’s true that companies that meet stakeholders’ needs are more profitable in the long run. For example, a 2022 report found that both shareholder-oriented and stakeholder-oriented companies perform well in the short term, but stakeholder-oriented companies generate greater profits and more growth over longer periods. Experts explain, though, that it’s not always possible to maximize shareholder profit and meet the needs of other stakeholders at the same time—and that when companies base their stakeholder-oriented actions on the potential that they’ll generate profits for shareholders, other stakeholders may suffer.
Who Is “Everyone”?
The authors describe each interested party and how they’re essential to your business:
Investors invest in your business because they trust that they’ll eventually profit from doing so. Since they’re trusting you to turn their money into more money, Mackey and Sisodia say that you have a responsibility to ensure that your investors profit.
(Shortform note: Experts explain that there are several types of investors. These include personal investors (people who invest their own money in hopes of turning a profit), institutional investors (business entities that pool other people’s money to be invested in more substantial assets), angel investors (who put money into new, high-risk business ventures to get them started), and venture capitalists (who invest money into promising businesses to help them expand and then sell their stocks when they become more valuable). In exchange for your investors’ trust and money, experts note that you have a fiduciary duty—a legal obligation—to handle their money responsibly by demonstrating care, loyalty, obedience, and honesty.)
Suppliers are integral to a company’s success, since you couldn’t provide a good or service for your customers without first purchasing a supplier’s goods or services. Because of this, you have a responsibility to ensure that your suppliers benefit from doing business with you. If you do, they’ll be more devoted to ensuring that you get the best goods and services at the best price. If you don’t, Mackey and Sisodia warn that they may stop doing business with you—or charge you exorbitant prices, which will undercut your investors’ profits.
(Shortform note: Experts note that the Covid-19 pandemic radically transformed the relationship between suppliers and buyers. The pandemic caused unprecedented supply chain issues, as supply and demand shocks occurred and manufacturing, labor, and shipping factors were all simultaneously affected. As a result, businesses became more willing to be transparent and strategize with suppliers to overcome supply chain disruptions.)
Employees create or provide the goods or services your customers purchase—as such, they’re integral to your business’s success. Mackey and Sisodia say that in return for their contributions, you have a responsibility to ensure that employees find their work inherently rewarding.
(Shortform note: Some employees have qualities that make them more essential to your business’s success than others; these include an eagerness to go above and beyond minimal expectations, stellar communication skills, and enthusiasm for work. Employees’ enthusiasm for work increases when the work is inherently rewarding, as Mackey and Sisodia suggest—to make your employees’ jobs more rewarding, encourage them to look for and share meaningful moments, recognize their contributions, and make them feel like they belong at your workplace.)
Customers are the most important interested party because without them, your business wouldn’t make money or have any reason to exist. Since customers are so integral to your business’s success, you have a responsibility to offer a product or service that truly improves their lives—like healthy food, beautiful and long-lasting clothing, or safe and efficient transportation. The authors argue that customers can tell the difference between helpful and exploitative goods and services, and that when customers are happy with what a business offers them, they offer feedback to help the company improve and advertise their products/services via word of mouth.
(Shortform note: Most businesses have a target market—a group of customers who share certain traits that make them more likely to buy your goods or services. You likely can’t meet everyone’s needs, so you tailor your business to your target market—for example, Whole Foods tends to be pricier than other grocery stores, so its target market is higher-earning individuals. As a result, Whole Foods tends to open new locations in wealthier areas, while dollar stores dominate in low-income markets due to their relative affordability. Experts say that in addition to garnering feedback and word-of-mouth advertising, treating your target market well helps you keep repeat customers—which is cheaper and easier to sustain than acquiring new customers.)
Your company can’t function if society (which includes the general public, the media, the government, and other entities like activists and unions) disapproves of it—ultimately, your profits will suffer and you’ll be forced out of business. Since society’s approval is essential to your company’s sustainability, Mackey and Sisodia argue that you have a responsibility to ensure that your business makes society healthier.
(Shortform note: The need for societal approval of a business is known as the “social license to operate.” To have a social license to operate, a business must meet three standards: It must follow the laws and sociocultural conventions of the society it’s operating in, communicate honestly and keep its promises, and gain and maintain society’s trust. Because American values are becoming increasingly polarized, it can be difficult for companies to please every segment of society—for example, companies that try to address social issues, like LGBT acceptance, have faced backlash.)
Finally, we all depend on a healthy environment for continued life—so Mackey and Sisodia argue that it’s counterproductive for your company to harm the environment and that you have a responsibility to make your business environmentally friendly.
(Shortform note: Experts note that businesses started concerning themselves with environmental issues during the third wave of environmentalism in the 1990s— when businesses followed the advice of green organizations to reduce their negative environmental impacts. The third wave was preceded by the second and first waves of environmentalism, whose aims were to conserve land and minimize pollution. In the late 2010s, society entered a fourth wave of environmentalism, which is focused on creating new technologies and strategies to solve existing environmental problems.)