Right now, denizens of young corporate leaders and entrepreneurs who are fighting the good fight – getting investors and their corporate leaders on board with new and more sustainable ways to view business – are perking up at the recent words from former GE Chairman and CEO, Jack Welch.
If you have been reading my blog, you have followed my discussions of sustainability as a part of corporate consciousness for the past months. Today, I was pointed towards the latest word from Mr. Welch, publicly stating that it was “a dumb idea” for executives to focus so heavily on quarterly profits and share price gains.
Wait, wasn’t it Welch who originally created the “shareholder value movement” in the early 80s? When and where was this statement made? Click here for the full article in the Financial Times. The big quote was this: “It is a dumb idea,” he said. “The idea that shareholder value is a strategy is insane. It is the product of your combined efforts – from the management to the employees.” Welch also says, “our main constituencies are your employees, your customers and your products.”
Welch’s statement fits perfectly within my view that corporations must shift from a shareholder-centric business model to instead embrace a stakeholder-centric model, which values the relationship to employees, customers, vendors, suppliers and community citizens. Back in November, I wrote a blog entry – “Sustainable Strategy Goes Mainstream” – in which I quoted Jeff Immelt, current Chairman and CEO of GE.
I had just seen Immelt speak at the Business for Social Responsibility conference in New York where he said that he believed the modern corporation (or at least GE) has four major tenants for future operation.; the big take away from his talk was his belief that corporations can and should exist to solve social and environmental issues as a result of their operations, products and services. As a point of interest, the person who sent me the FT article was Jeff Klein, executive director of FLOW Idealism.
FLOW was created by a group of corporate leaders (John Mackey, Whole Foods Market Founder included) who believe just what Immelt stated above. This is the concept of Conscious Capitalism. Quite simply, corporations can and will exist to serve the people who keep them in business. After all, aren’t corporations in existence to provide some product or service for humanity, not the other way around?
A great example is Whole Foods Market’s Whole Planet Foundation which provides $200 (or less) microloans for budding entrepreneurs world-wide (many of whom reside in third world communities). I just learned about the program last month when I was in the Whole Foods in Columbus Circle (NYC) and was asked if I wanted to donate $1 to the cause. This type of program is beyond philanthropy; it is a way that our consumerism can shift communities, changing lives and whole countries. With programs such as the Whole Planet fund, we can begin to return to being world citizens from our most recent role of mere consumers.
It is encouraging to see a corporation take inspiration from the brilliance of Professor Muhammad Yunus, the recipient of a 2006 Nobel Peace Prize for his creation of Bangladesh's Grameen Bank – a pioneer of microcredit and a tool to empower the poor. Now, GE just lost their AAA rating, so maybe Welch was brought back in to the media arena in order to restore investor confidence, rather than out a true belief in shifting the corporate model. We shall see.
Regardless of intent, his words are bound to have a ricochet effect throughout the corporate world. I look forwarding to watching and listening. How about you?
PS: for those of you wishing to learn more about the concept of Conscious Capitalism, I suggest you check out Michael Strong’s book Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the Worlds Problems or John Mackey’s audio CD called Passion and Purpose: The Power of Conscious Capitalism.
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Recent Comments | 8 Total
March 27, 2009 at 12:49pm by John Roberts
Exciting stuff when the old gaurd lambasts their own ideas. As I read your article, I couldn't help but think about the amazing research Otto Scharmer of MIT is doing. Everyone should purchase a copy of 'Theory U' (his book) asap. It's a grounbreaking piece of work--and very practical for anyone interested in this topic. The shift towards stakeholder-centric models is part of a deeper unfolding in which corporations are realizing that they need to 'shift the conversational field' in order to solve problems sustainably. The ship has sunk on old school capitalism. Exciting (and rough) seas ahead! Nice job Lewis.
March 27, 2009 at 12:50pm by John Roberts
Exciting stuff when the old gaurd lambasts their own ideas. As I read your article, I couldn't help but think about the amazing research Otto Scharmer of MIT is doing. Everyone should purchase a copy of 'Theory U' (his book) asap. It's a grounbreaking piece of work--and very practical for anyone interested in this topic. The shift towards stakeholder-centric models is part of a deeper unfolding in which corporations are realizing that they need to 'shift the conversational field' in order to solve problems sustainably. The ship has sunk on old school capitalism. Exciting (and rough) seas ahead! Nice job Lewis.
March 28, 2009 at 1:36pm by Joe Beckmann
It's fascinating to see how spin can twist capitalism into socialism from the "right" pen. WTF is the difference between "Conscious Capitalism," wherein the stakeholders displace shareholders in priority, and socialism, wherein they displace them in ownership?
April 1, 2009 at 12:48pm by Lewis Perkins
Joe, thank you for your candid question. I am sure there will be many
people in this country who will be concerned that corporations taking on a more social front to their core business strategy may look like
Socialism. While others may want to chime in here, my opinion is this:
Our country is a Capitalist nation and that free market spirit is what
makes the United States one of the highest quality of living locations
on our planet. The concept of conscious capitalism has been in the
hearts and minds of many, but was most recently collected into a formal
thought by Michael Strong in his book "Be The Solution." What Michael
proposes is a true ability for our corporations to help us (the human
race) achieve self-actualization through our core business strategies or offerings (be that product for service). What is proposed here is NOT a displacement of the shareholder, but rather an integration of his or her role into the overall corporate offering, which simply states that corporations exist to provide something that we (MANKIND) need, not that we (MANKIND) exist to serve the corporation. In that statement we also draw upon the need for all stakeholders to become part of the equation. The company does NOT solely exist to create profits (look where that has most recently gotten us) but to also serve humanity. In doing so, corporate life can also support, grow, nurture, and in many cases heal, individuals and communities. Sometimes it is our customers and sometimes it is our employees. It is also critical to note here that there each member of the equation does not only wear one hat. Employees are also shareholders and shareholders are also customers, and we all live in communities together and benefit from the improvement of those communities. The key to all of this is that through the growth and flourishment of each corporation, abundance is created both in the form of profits as well as human capital. As companies grow, so do programs designed to support and solve social and environmental issues. And these programs should be part of our business offerings, not sit outside of the business as a "tag on" program for marketing benefit or good
will.
Lewis Perkins
April 2, 2009 at 10:11am by Jeff Klein
Thank you Lewis. As I understand it, a Conscious Business recognizes their specific purpose, which may not necessarily be “to serve the greater good” but does represent something other than return to shareholders, though part of the purpose of the business is that (it is not the defining purpose. See Haley Rushing and Roy Spence’s Post at Huffington Postthis week. (http://www.huffingtonpost.com/roy-spence-and-haley-rushing/the-new-era-o...)
And the stakeholder orientation reflects a systems view and a recognition of the reality of interrelation and interdependence. So “taking on a more social front” may not be the best way of viewing this. Rather, perhaps, it is taking on a more complex and sophisticated or evolved perspective. Finally, the third tenet of Conscious Business, as we define it, is servant leadership, which implies that leaders serve the stakeholders and the purpose of the company, which includes serving themselves, but that is subservient or equal to and not above serving the whole. The old model seems to be “serve the shareholders so I can serve myself.”
Again, serving humanity is implied, but pursuing and fulfilling its specific purpose (which will undoubtedly serve human beings in some way for them to engage with the business), and recognizing and serving all of the stakeholders in a dynamic system of interaction to create the highest value for the system in a way that all of the stakeholders stay engaged with the business in its stakeholder system.
Yes. If a business serves its purpose (which delivers some genuine benefit to human beings – so that they engage with it (this can be what some consider vice or frivolity as long as enough human beings are prepared to participate as stakeholders in its system and as long as the community and environmental stakeholders continue to support and sustain it), then consciously managing a stakeholder system will generate appropriate “programs” – including philanthropic activity, employee programs, consumer engagement end education initiatives, that reflect the purpose of the company and serve its stakeholders in a way that sustains the business. CSR is like adding an appendage onto a body (a third leg and all that that implies), versus something natural and integrated into the body and emanating from that integral place.
April 4, 2009 at 2:54pm by Michael Strong
Hi Joe,
The clearest difference between Conscious Capitalism (CC) and socialism is that CC is strictly voluntary, whereas socialism is all about government control of the economy. As long as some subset of consumers, employees, and investors, want to incorporate more purpose and meaning into their consumption, work, and investment decisions, who can complain? And we believe that due to Maslow's hierarchy, a steadily increasing percentage of the population will want to incorporate meaning and purpose into their market decisions. As it turns out, John Mackey, myself, and Ed Freeman, the academic founder of the stakeholder theory of business, all identify as small "l" libertarians; we are all firmly committed to voluntary business transactions rather than government coercion. That said, we are also committed to incorporating meaning and purpose into our market decisions more and more.
April 7, 2009 at 5:07pm by Michael Mercier
When I was an MBA student at The University of Michigan Business School from 1991-1993 we were taught the concept of the corporation being responsible to its "stakeholders" rather than just its shareholders. This certainly isn't a new concept within the business education community.
However, this concept certainly is compartmentalized within the business education curriculum. When I took Finance courses at Michigan, and then in the late '90s when I worked as an editor of MBA Finance textbooks, it became clear that the entire financial community thought nothing at all of the "stakeholder" concept. They clearly subscribed exclusively to the "shareholder" philosophy of corporate responsibility.
That philosophy clearly unsustainable --- as we're all learning. So, I hope that we will see real and sustained change to a stakeholder-centric view.
I reviewed the "Flow" website that you refer to above. I also browsed their book at the local bookstore. It's difficult to argue with their broader view of the role of the corporation. As I write above, this is a broadly-shared view, and it has been around for a while. However, it just strikes me as weird to associate it with something as particular as the "flow" concept. It's sort of random. They could have chosen Jung's concept of "individuation" or the concept of nirvana or enlightenment or self-actualization. They are taking a universal concept and making it very narrow by associating it with an idea that they have a personal affinity for. It mystifies me.