Four Principles for Successful "Conscious Capitalism"

Question: What is "Conscious Capitalism?"
John Mackey:  From a macro perspective conscious capitalism is becoming conscious of the framework that capitalism has to exist in, in order to be successful, in order to flourish.  There are certain key principles that have to be in place and we have to nurture those principles or we won’t have a capitalistic order.  It’s not something that automatically exists.  It has to have principles.  It has to be grounded in those principles. And some of those principles include property rights: that we have to have the right for people to be able own property.  At the same time there needs to be the freedom to exchange property.  We need to be able to trade it.  We need to be able to create something and then trade it or sell it to someone else.  We need a rule of law.  There needs to be laws that are just and laws that are predictable and laws that apply to everyone in the society, including the government.  A rule of law is essential.  You cannot have a capitalistic order without the rule of law. And whenever that comes into doubt or if there are not stable property rights you don’t really have the basis for the capitalistic order.

And finally you need a freedom to trade.  Usually the greater the... the fewer restrictions on the freedom to trade across the… between people, but also between people in different states, people in different countries, the greater value creation that occurs. So anytime you see a society that is beginning to restrict the ability to trade, you see a society that is going to lessen its prosperity.  It tends to happen when people get preoccupied with the loss of jobs, not understanding that you may lose some jobs to a foreign country if you allow freedom to trade, but you’re gaining jobs at the same time.  You gain more net jobs because the people won’t give you their goods for free.  They want to trade with you as well and so those jobs and the goods that they want to trade for are the goods and services they want.  That will create greater employment at home. But that is very hard for the average person to understand.

But anyway, conscious capitalism is understanding these basic core economic values and becoming more conscious of them. Conscious business, there are certain principles behind that and one principle is that business has the potential for higher purpose, that maximizing profits...  If you ask people what the purpose of business is they usually say... if you go to a cocktail party and ask that question they’ll generally say "Well, everybody knows that, the purpose of business is to maximize profits, it’s to maximize shareholder value." But that is a very odd answer because that is not the answer we would give is you ask what the purpose of a doctor is—it would be to heal the sick. Or what the purpose of a teacher is, to educate people. Or what the purpose of a lawyer is or what the purpose of an architect is or what the purpose of an engineer is, so why is that we would come to this odd answer that the purpose of business is to maximize profits when I have known literally hundreds of entrepreneurs in my life and with very few exceptions very few of them actually created their businesses to try to maximize profits.  Of course they need to make money, but that is I need to eat in order to live.  I need to breathe in order to live.  I need to create red blood cells in order to live, but that is not the purpose of my life to eat, to breathe, to create red blood cells.  I have a much more transcendent purpose in my life that gives my life meaning and value to it.  Business is no different.  A business has the potential for a higher and deeper purpose and that is the first principle of a conscious business. 

The second principle is that there is a variety of stakeholders that are interdependent, that are connected together, customers, employees, suppliers, investors, communities—both local and larger communities—and then the larger environment that we’re part of.  Those are the most important stakeholders.  There are other stakeholders that form a wider circle such as the government, labor unions, the media, activists of various kinds, but the idea being that these stakeholders are interdependent on one another and that the conscious business attempts to create value simultaneously for all of these interdependent stakeholders. It seeks the win, win, win business strategy that…  Maybe a way to explain that in a simple model version is a retail business—which Whole Foods is—is that management’s job is to help our... is to hire good people, train them well and help them to be happy and fulfilled in their workplace, in their work, in their jobs. And then the team member’s job is to satisfy our customers, help the customers to be happy in their exchanges with the business.

So happy team members leads to happy customers and happy customers do more business with the company and that leads to happy investors. So you have a virtuous circle of happy team members, happy customers, happy investors.  That reflects in a simplified version this idea of the interdependent nature of the stakeholders and why you can’t just focus on creating value for the investors alone because you must create value for the team members who then create value for the customers who then create value for the investors, so the conscious business recognizes this, is conscious of it and works to optimize value for all of the key interdependent stakeholders.

The third principle of the conscious business is what we call a conscious leadership, or you might also think of it as servant leadership. That the leaders of the organization they’re not there to line their pockets and try to maximize their own personal gain.  Instead, their job is to fulfill the higher purpose of the business, recognize and fulfill the interdependent stakeholder model, and, in a sense, to serve the organization, to sublimate their own ego and their own ambitions for the good of the organization. And again, it’s not self-sacrificial or I'm not talking about altruism.  I'm talking about recognizing that in the long term they will also gain the most through the flourishing of the business and through the flourishing of all the stakeholders.  They too will flourish.  That their identity is linked and their own gain is linked to the gain of all these other stakeholders.

And then the fourth principle is that to realize these first three principles you have to create a culture, a conscious culture that has strategies, structures and processes that create a culture that optimizes the stakeholder model, fulfills the purpose and allows the conscious leadership to do their jobs. So the culture provides that background and the processes and structures that the conscious business needs in order to achieve its highest potential.

So when you add those four principles together you have a conscious business.  When you add the conscious business with the key principles of conscious capitalism you truly have the larger ecosystem of the conscious capitalistic society, one with conscious businesses that are exchanging in a consciously capitalistic way.

Recorded on October 28, 2010
Interviewed by Peter Hopkins

Stakeholder-based "conscious capitalism" realigns the short-term profit model of capitalism that has undervalued employees, customers, and suppliers.

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