Conscious Capitalism is Driving Durable Change
by Mike Troupos
If you think of the major news stories of the past two years, some that come to mind include The Great Resignation, supply chain problems, chaotic energy prices, and genuine push for companies to be sustainable. Despite these stories being seemingly unrelated, there is a theme across all of them: Conscious Capitalism. If you are not familiar with that term, Conscious Capitalism is the pursuit of all business stakeholders instead of just focusing on the shareholders. Instead of diminishing shareholders, it instead lifts other stakeholders like employees, vendors, customers, government, the environment, etc., to the same level of importance in decision making. The concept was made popular by John Mackey and Raj Sisodia in their book Conscious Capitalism published in 2013.
Is Conscious Capitalism Socialism?
In one of my speaking engagements, I discussed Conscious Capitalism and how it is shifting business and sustainability. One of the audience members commented that what I was talking about sounded “an awful lot like socialism”. Some of you reading may be thinking the same thing. My response was simply that John Macky founded Whole Foods and sold it to Amazon for over $13 billion a few decades later, making John Macky a lot of money; that doesn’t sound like socialism to me. Despite that, many old-school disciples of Milton Friedman find stakeholder capitalism disorienting. How can a business be successful if it is not solely focused on shareholders?
Why Missional & Conscious Capitalist Companies are Thriving
There is a confluence of events driving the success of companies that embrace conscious capitalism. Most significantly is the level of transparency ushered in by the internet. If you own a factory farm and are mistreating animals, videos of these grizzly working conditions can get out and ruin your reputation. The internet has exposed factory conditions in Asia, conflict mineral risk in Africa, and oil spills in bodies of water. All of these events can instantly devastate your brand that you took decades to build. The internet brought a new level of transparency and accountability to stakeholders – and it’s a good thing. The Great Resignation has proved that if a company is not investing in employees (a stakeholder), they will leave, and the company will struggle to attract top talent in the future. Twenty years ago, offshoring was popular because it brought wealth to the shareholders but decimated US manufacturing cities. Now, companies are scrambling to do onshore work because of broken supply chains and quality issues. Wealthy shareholders are not a symbol of a company’s long-term, holistic health and success. It is becoming more evident that companies who have lived into Conscious Capitalism over the past twenty years are enjoying more success than their shareholder supremacist competitors.
The Market Has Taken Note
Companies rooted in principles of Conscious Capitalism have now caught the attention of Wall Street. Wall Street is notorious for investing in companies it believes will maximize financial returns. BlackRock is the biggest asset manager globally with a portfolio of over $9.5 trillion (you read that correctly: trillion with a “T”). Most of us have some sort of retirement account like a 401k, and BlackRock likely is the one managing those funds in your account. Like every other company, their job is to ensure the greatest financial return possible. Every year, the CEO of BlackRock, Larry Fink, writes a letter to CEOs they invest with outlining their strategy, expectations, and hopes for the investment market. The global impact of BlackRock’s investment choices is paramount. This year, Mr. Fink was very explicit in his belief that companies who embraced Conscious Capitalism will be the most successful in the long run.
The Details of Larry Fink's Letter to CEOs
Larry was explicit that, in a rapidly evolving world, if you are unable or unwilling to reinvent/disrupt your business, then you will likely not be around in the long term. He addressed the “Great Resignation”, noting that talent is a competitive advantage and smart companies invest in their employees. While he acknowledged the value of a company’s people, the most significant portion of the letter focused on sustainability. Two years ago, Larry proclaimed that “climate risk is investment risk”. In this year’s letter, he doubles down on that, saying, “Every company and every industry will be transformed by the transition to a net-zero world”. This is a bold and visionary statement. Businesses are realizing that capital is flowing into the companies who offer a similar vision and can articulate how their business fits into that future, Tesla being the most straightforward example. In 2021, Tesla delivered fewer than a million cars. Companies like Toyota, Volkswagen & General Motors each delivered between 7 and 15 million vehicles. However, Tesla has a larger market cap than those three companies combined. Think about that last sentence for a moment. Tesla delivers only 10% of the number of cars as the other three but is worth more because they cast a vision of the future where they are central; the legacy car companies haven’t. Now, the legacy car companies are scrambling to catch up, and the jury is out if they can. Tesla is flush with capital and not weighed down by a century of liabilities.
Conclusion
Take some time to read Larry Fink’s letter to CEOs, and ask yourself, what is the future vision of your industry, and how does your company fit into it? Are you going to be ahead of the curve or scrambling to keep up?