The other day I came across an interview on the CEO Forum website with Professor Raj Sisodia, the author of Firms of Endearment and co-author of Conscious Capitalism, and thought I’d share with you an excerpt of some of his answers. You can read the full article here.
MR [CEO Forum]: What is conscious capitalism?
RS: Conscious capitalism means thinking about business in a different way than we have done in the past. Traditionally, the purpose of business has been seen as maximizing profits and/or shareholder value, with pretty much everything else being secondary. We believe that the time is right for a richer narrative that can better describe the purposes of great businesses – profits are essential for business, but they are not the entire picture. There should be a broader purpose in the business that will serve to engage and energise the different stakeholders in the business.
This brings us to a key principle in conscious capitalism – stakeholder integration. Businesses need to create value for all their stakeholders, treating them as ends in themselves and not merely as a means to greater profits. The interests of customers, employees, and suppliers are also important, and the interests of stakeholders need to be aligned so that decisions benefit multiple stakeholders, rather than one group at the expense of the other. You are aiming to create a harmony of interests, and, if you have a strong overriding purpose for your business, you are well on the way to doing that.
MR: How did you get interested in the concept of ‘conscious capitalism’, and the related ideas in your book Firms of Endearment?
RS: In my earlier research over the 1990s and early 2000s, I had noticed an interesting paradox: on average, companies were spending more and more on marketing, but the results, in terms of profits, customer satisfaction, customer loyalty and so on were getting less. In essence, marketing spend was becoming both less efficient and less effective – not a sustainable trend for any company.
This got me interested in identifying and analyzing companies that were bucking this trend, i.e. they were not spending a lot on marketing as such, but had very strong customer loyalty and trust. We soon discovered that it wasn’t just their customers who were loyal – these companies also had very strong engagement from their employees, suppliers and other stakeholders, including the communities within which they operated. Looking further at these standout companies, we found all of them had a very strong sense of purpose, as well as the other factors in conscious capitalism I identified above.
When we identified these companies in the first instance, we were not looking at their financial performance as such, but when we did the analysis, we found that they did outperform their peers over the longer term, confirming that these principles of conscious capitalism were also fundamental to strong performance – there is a value-creation engine that is very powerful. I guess this also suggests that, just like happiness, profits are best pursued obliquely – if you create a business where everyone is aligned and engaged, the profits will ensue. Over the last 15 years, for instance, the companies I identified, for instance, in Firms of Endearment collectively outperformed companies identified as excellent by more conventional means – such as the landmark book Good to Great – by a factor of five or more. We believe that, in the future, the principles of conscious capitalism will be essential for sustained financial success by almost any company.
MR: What makes the principles of conscious capitalism particularly relevant at this time?
RS: There are a number of long-term trends over the last few decades I would highlight. First, the ideas of capitalism, markets and freedom are more widespread than ever, following the ending of the Cold War in 1989. Second, businesses are operating more and more in an environment of total transparency, thanks to the Internet and the communications revolution. Third, the average age of people in industrialised societies is getting older, and it is when you are older that questions of meaning and purpose loom larger. Fourth, education levels and even IQ are higher, meaning people are more aware of what is going on, and are less accepting of some of the things done in the name of business in the past. Finally, I would say that our collective consciousness is evolving, and that feminine values are also rising. In the US, the majority of employees are now women, women are the majority of graduates, and I believe this will lead to a rise of traditional feminine values like cooperation and compassion. All of these factors suggest the world is fundamentally a different place than it was a couple of decades ago, and organisations need to adapt accordingly.
MR: Why are the principles of conscious capitalism and firms of endearment particularly relevant for multinational companies?
RS: We are finding that the principles of conscious capitalism have a very wide appeal across very different societies and economies. This is, perhaps, due to the greater global connectivity, which is driving something of a convergence of values and aspirations across previously different societies. We used to talk a lot about Japanese capitalism versus European capitalism versus American capitalism, and there is some sense in which that is still true. I would say, however, that now we seem to be converging on a more global model of capitalism, based on increasingly universal values and aspirations. If you want to create an organisational culture that has wide appeal across very different societies, these emerging values and aspirations would seem to be a very sound basis on which to do that.