Toward a New Capitalism

Modern capitalism is under fire—even the US political debate rings with it. Questions include what is simply “good business” vs crony capitalism, and what about the interests of the consumer? The business world is being forced to come up with new ways to respond. Whether it’s the public resistance to the autocratic regime in Venezuela or the vehement anti-capitalist rhetoric of Occupy Wall Street and the Sanders movement that took it up, capitalism as we know it is feeling a bit of an earthquake, and the corporate world is feeling some aftershocks. Naturally, there will always be a contingency that blames big business for perpetuating the worst woes of capitalism such as the income gap, global warming, or the economic collapse of 2008. For years, companies have fought long and hard to put to rest any negative associations with terms like “profit,” “corporate,” and “bottom line.” But this approach only enforces the binary. Now, some businesses are taking a more creative approach in which they fully own and embrace the power of capitalism to make money and a positive impact.

I’ve ventured into this territory before in writing about top business executives who are channeling their social and financial capital toward a greater good. Powerful figures like Sheryl Sandberg, Tim Cook, and Marc Benioff, to name a few, are pioneers of this fascinating new trend: the CEO-turned-activist. We’ve seen this in Sheryl Sandberg’s mission to empower women, Howard Shultz’s Race Together Campaign, and Mark Benioff’s protest over the recent “religious freedom” act in North Carolina. The message is evident: this isn’t your father’s capitalism.

This type of activist social change is not the typical corporate responsibility policy we usually see, but instead a scalable business strategy with long-term benefits. Changing the world has become profitable. Fortune seemed to agree when they released “Change the World,” a list recognizing fifty companies with measurable positive social impact in their core business strategies. With corporate behemoths like GlaxoSmithKline, Nike, and Nestle—yes, Nestle—in the top ten, the criteria extend beyond “doing good” and focus on practices that strive towards social change and profit.

The “Change the World” list was formed with the help of Harvard Business School professor Michael E. Porter. In an article originally published in Harvard Business Review, Porter and his colleague Mark R. Kramer introduce the theory of “shared value,” a management strategy focused on creating measurable value by acknowledging and addressing social problems. “Shared value” lays the foundation for Fortune’s “Change the World” list and sheds light on the increasing popularity of CEO activists.

When the article was published in 2011, Porter and Kramer reported that public trust in corporations was extremely low. Tune in to any news cycle and you’ll find the statement still applies today—in spades. Porter and Kramer blame it on businesses’ focus on short-term profit, a move that may delight shareholders in the short run but could also “overlook the greatest unmet needs in the market as well as broader influences on their long-term success.” The charges Porter and Kramer leverage against corporate America rival those of any disgruntled everyday Joe. If companies weren’t blinded by short-term profit and this outdated notion of value creation, they ask, “why else would [they] ignore the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of suppliers, and the economic distress of the communities in which they produce and sell?” Why indeed.

Fortune’s eye-opening “Change the World” list demonstrates that what makes the selected firms’ social impact so valuable is that they did not set out to be do-gooders. In fact, many corporations on the list—such as Mastercard, Coca-Cola, and Bank of America—are of the ilk that make those skeptical of corporations turn away in disgust. For those firms on Fortune’s list, social change is a secondary result of improved business models and realigned visions, which is exactly what Porter and Kramer called for years ago when “shared value” was in its genesis.

Today, smart business leaders and CEOs are recognizing that even after the customer is served, a modern company’s work isn’t done. Socially conscious firms that practice “shared value” have the potential not only to generate profit, and quite a lot of it, but also to reshape modern capitalism’s relationship with society. These changes aren’t taking place through full-scale business transformations. Rather, businesses are taking new approaches to their corporate visions and transforming the ways in which they approach their markets, customers, suppliers, and communities. While these changes often start small, the impact can be huge. If “shared value” becomes what it takes for businesses to get to the top, everybody wins.

On Greed and Goodness

With Thanksgiving this week, the holiday season—in all its chaotic consumerist glory—is officially upon us. REI made headlines earlier this month for its decision to buck the annual retail race to the bottom that is Black Friday, and instead close its doors on the biggest shopping day of the year. The company has received heaps of praise in the wake of the announcement for the perceived kindness to employees, the social good of encouraging its customers to do something healthy, and also for what is an incredibly savvy marketing move. REI has been purposely public about its decision in online, print, and in-store advertising and via its social media campaign #OptOutside. Many will be watching the numbers carefully to see if REI will benefit, but if it does, will that lessen the fact that it’s doing something good? How comfortably can these two things coexist? Looking for purity of intentions with business is wrongheaded, as most companies can only do good when it’s also good for business. The mean men I’ve discussed on this blog rely on the misapprehension that one must be mean to be effective, when, in fact, study after study shows us that empathy and humility makes leaders more effective.

I’ve noticed a similar conundrum being presented as I follow the increasingly profitable and socially acceptable work of “activist investors” as they’re called: venture capitalists who buy large or controlling interests in a company with the intention to effect big changes within it. The investors—once referred to as “vulture capitalists”—used to suffer from a rather villainous reputation and were feared for the sweeping changes they’d make once they were in the driver’s seat of a corporation. But they’ve undergone something of an image makeover in the past several years, and I’m struck by the success their newer strategies have had in changing corporate behavior. Certainly these investors are motivated by profit rather than goodness, but they’ve also shown us how a powerful outsider can bring to light failures of leadership in unprecedented ways. Carl Icahn, Nelson Peltz, Bill Ackman, Dan Loeb, and others have honed their ability over the past decade to use the media for marshalling empathy from the masses for their own self-serving needs. They announce their large stake in the company’s stock and simultaneously make us feel sorry for the everyday shareholder who is getting screwed by inept management. The activist investor nimbly positions himself as the iconic hero on the white horse, ready to save the company in return for a few board seats. If their argument resonates with shareholders, the stock marches up in price, and they ultimately sell for a profit. Again, their motives are profit driven, but when bad CEOs are ousted, or obvious strategic decisions for the good for the firm are ignored, everyone wins.

Rethinking the role of capitalism—from the retail industry to hedge funds in finance—to make it a more robust system for serving societies is a necessary step in undermining ruthless corporate cultures that remain far too present and are just bad for business. William Greider’s The Soul of Capitalism and Bill McKibben’s Deep Economy: The Wealth of Communities and the Durable Future are great road maps for moving in this direction, providing solutions where there becomes little collective tolerance for mean men in power. In these tomes, reform appears in a surprising variety of characters, from conservative business managers to small-town civic leaders, social agitators, and labor activists.

American capitalism can and must be aligned more closely with what people want and need in their lives, with what American society needs for a healthy, balanced, and humane future. Increasingly, there’s greater acknowledgment of the flaws in corporate governance and enforcement models, more pushback against an over-the-top and even ruthless retail-industry culture. We may have a long way to go, but the realignment of our business strategies with our human values is making progress—something to be thankful for.