Conscious Capitalism: Doing Well by Doing Good

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John Mackey founded Whole Foods Market in 1978.
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Benefit Corporations (B Corps) seek to serve society as well as shareholders.
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"Conscious Capitalism" authors John Mackey and Raj Sisodia make a strong case for principled business practices. 

<p>John Mackey is an evangelist for capitalism. There’s no better word to describe him. </p>
<p>Mackey believes capitalism can save the world. In fact, he thinks it already has to some extent.</p>
<p>In his new book, <a title=”Conscious Capitalism: Liberating the Heroic Spirit of Business” href=”” target=”_blank”>Conscious Capitalism: Liberating the Heroic Spirit&nbsp;<em>
</em>of Business</a>, Mackey argues that if we believe in the &ldquo;heroic&rdquo; potential of free enterprise, then free enterprise can solve most human problems. His mission is to make people believe in that heroic potential.</p>
<p>If this sounds uncomfortably messianic coming from a businessman, well, perhaps that&rsquo;s Mackey&rsquo;s style. He dismisses the excesses of traditional capitalism &mdash; slavery, environmental catastrophe, the eradication of indigenous cultures, mindless expansion &mdash; the way a Christian might pass off the Spanish Inquisition as an example of the potential of power to corrupt any human endeavor. </p>
<p>Fair enough. </p>
<p>But looking at capitalism&rsquo;s track record, you may come to believe, as Mackey does, that socially responsible businesses have the power to do a lot of good in the world. </p>
<p>In 1978, Mackey and one of his friends opened Safer Way, a tiny health food store in downtown Austin, Texas. They slept in the office above the store and took &ldquo;showers&rdquo; in the store&rsquo;s walk-in dishwasher. They paid themselves about $200 a month. A couple of years later, they renamed that little store. They called it Whole Foods Market.</p>
<p>Today, Whole Foods Market owns more than 340 stores in three countries, is the world&rsquo;s leading retailer focused on healthy food, and still has Mackey at the helm. Last year, the company sold about $12 billion worth of health-conscious products. The company employs more than 70,000 people, and for 15 consecutive years has been ranked as one of <em>Fortune</em> magazine&rsquo;s &ldquo;100 Best Companies to Work For.&rdquo;</p>
<p>But the inspirations for Mackey&rsquo;s evangelism go far beyond his personal success.</p>
<p>In <em>Conscious Capitalism</em>, Mackey and his co-author, Raj Sisodia, make a compelling case for capitalism as the most powerful means in the history of the world for organizing human cooperation. In their view, well-run businesses have been responsible for a host of dramatic improvements in human life over the past 200 years. They believe the machinery of capitalism &mdash; voluntary exchange in a competitive marketplace &mdash; has fostered spectacular improvements in the quality of human life. Some examples from Mackey&rsquo;s book:</p>
<p>&bull; Two centuries ago, 85 percent of the world&rsquo;s population lived in extreme poverty (earning less than $1 per day, adjusted for inflation and region), compared with only 16 percent of the world&rsquo;s population living in such dire straits today.</p>
<p>&bull; In 200 years, human life expectancy worldwide has grown from about 30 years to 68 years. </p>
<span style=”line-height: 1.5; font-size: 12px;”>
</span>&bull;<span style=”line-height: 1.5; font-size: 12px;”>
</span>In just the past 40 years, the percentage of undernourished people in the world has dropped from 26 percent to 13 percent in spite of rapid population growth over the same time period.</p>
<span style=”line-height: 1.5; font-size: 12px;”>
</span>&bull;<span style=”line-height: 1.5; font-size: 12px;”>&nbsp;</span>Worldwide literacy rates were estimated to have been in the single digits in 1800. Today, 84 percent of adults in the world can read.</p>
<span style=”line-height: 1.5; font-size: 12px;”>
</span>&bull;<span style=”line-height: 1.5; font-size: 12px;”>&nbsp;</span>About 53 percent of human beings now live in true democracies, compared with zero people just 120 years ago, when even nominal democracies denied the vote to women or minorities, or both.</p>
<p>Mackey and Sisodia track these improvements back to free enterprise and capitalist economics &mdash; sets of principles that make the exchange of value a voluntary act and liberate markets to respond to innovation. Inspired by opportunity, individuals educate themselves, start businesses and improve their communities. Companies recognize the power of consumers and must improve their processes and products in order to compete effectively. In contrast to centrally controlled societies, which tend to protect the established power bases, capitalistic societies with open markets encourage adaptation and foster creativity.</p>
<p>Strong societies are built on free markets, in the view of Mackey and Sisodia. To buy their perspective, of course, you have to accept a modern, Western definition of a strong society: democratic, affluent and innovative. If that matches your definition, they make a good case. </p>
<p>But it&rsquo;s tough to convincingly play the role of the &ldquo;heroic&rdquo; capitalist. There&rsquo;s a preachy tone to the authors&rsquo; argument that disrupts the flow of useful information, and they dismiss various other advocates for conscientious business far too blithely. The businesses the authors admire &mdash; including those they work for &mdash; are described as nearly perfect, which undermines the book&rsquo;s credibility. Neither the businesses nor their chief executives are quite as shiny as the book makes them out to be. Still, it&rsquo;s the most important book on the subject so far and will likely be the most successful. </p>
<p>By the end of the book, many readers will likely be convinced of capitalism&rsquo;s potential for &ldquo;heroic&rdquo; achievements, even if they remain skeptical about the specific examples cited.</p>
<p>We can think of some pretty shiny examples of capitalism&rsquo;s benefits ourselves. The magazine you&rsquo;re holding in your hands was brought to you by capitalism. When John and Jane Shuttleworth started MOTHER EARTH NEWS in 1970, they depended on the dollars flowing in from readers like you. They needed to create something that you found valuable. MOTHER EARTH NEWS has had her ups and downs since then, but she&rsquo;s going strong today thanks to free enterprise.</p>
<p>Thank you for keeping us going.</p>
<p>We still depend on you, and we still need a free market in which to operate successfully. We&rsquo;ve been fortunate recently. For the past several years, we&rsquo;ve been one of the fastest-growing magazines in North America. </p>
<p>One of the reasons we&rsquo;ve grown is that some other media have declined, leaving space for MOTHER EARTH NEWS on the newsstand and in the reader&rsquo;s schedule. The free market has been good to us.</p>
<p>Of course, forces are at work to limit capitalism&rsquo;s potential. As the book puts it:</p>
<span style=”color: #000000;”>&bull; Capitalism </span>
<span style=”color: #a52a2a;”>
</span>was &ldquo;hijacked&rdquo; early in its history by people who believed that businesses were founded only to serve the shareholder&rsquo;s self-interest (short-term profit), a definition the authors call &ldquo;narrow, self-serving and inaccurate.&rdquo; As a result, so-called &ldquo;capitalists&rdquo; have done a lot of harm in the world &mdash; to communities, individuals and the natural environment. Mackey and Sisodia argue for a broader goal of serving all the business&rsquo; stakeholders &mdash; including employees, communities, customers and suppliers, as well as shareholders. A business is not successful, in their view, unless it creates value for all of its stakeholders, including the communities where it operates.</p>
<p>&bull;<span style=”line-height: 1.5; font-size: 12px;”>
</span>Partially as a reaction to corrupt capitalism, government regulates and taxes businesses in counterproductive ways. Mackey says regulation inhibits innovation and competition while serving the interests of large, established corporations. The book labels this &ldquo;unholy&rdquo; union between big government and big business &ldquo;crony capitalism,&rdquo; and accuses the power-mongers of &ldquo;elevating the narrow, self-serving interests of the few over the well-being of the many.&rdquo; Bureaucrats and crony capitalists &ldquo;use the coercive power of government to secure advantages not enjoyed by others: regulations that favor them but hinder competitors, laws that prevent market entry, and government-sanctioned cartels.&rdquo;</p>
<p>By contrast, Mackey says companies such as Patagonia, UPS, Medtronic and, of course, Whole Foods Market, have far outperformed their competitors while creating healthier environments, healthier communities and more prosperous stakeholders in the process. Businesses in nearly every sector of the economy are adopting the new model. They are designing themselves to do good in the world &mdash; not just for their shareholders, but for everyone who is touched by their activities. In the process, the businesses are making themselves more lucrative enterprises. Conscientiousness, it seems, is a competitive advantage. (I&rsquo;m going to call it &ldquo;conscientiousness,&rdquo; because &ldquo;consciousness&rdquo; &mdash; at least as the term is commonly used &mdash; seems quite a low bar.)</p>
<p>To underline the point about the conscientious advantage, Mackey and Sisodia look at 28 companies found in Sisodia&rsquo;s previous book, <em>Firms of Endearment: How World-Class Companies Profit From Passion and Purpose</em>, and compare them with more conventional competitors. Here&rsquo;s how they describe these 28 firms:</p>
<p>&ldquo;First, the companies did not state their goal as &lsquo;maximizing shareholder returns.&rsquo; Second, most of these companies pay their team members well and provide generous benefits. … Third, these companies paid taxes at a much higher rate than that paid by most other companies. Fourth, the selected companies did not squeeze their suppliers to secure the lowest possible price, and their suppliers were innovative and profitable.&rdquo;</p>
<p>So what about their profits? Over the course of 15 years, the Firms of Endearment returned 10 times more money to their shareholders than those in the S&amp;P 500 did. In other words, they were 10 times better investments than the average company. Wow.</p>
<p>Mackey&rsquo;s book enumerates several good reasons why conscientious businesses make more money:</p>
<p>&bull; Consumers gravitate toward the products and services of companies they respect.</p>
<span style=”line-height: 1.5; font-size: 12px;”>
</span>&bull;<span style=”line-height: 1.5; font-size: 12px;”>
</span>Companies that respect their suppliers and pay them fairly create and sustain collaborators who are more reliable and more innovative.</p>
<span style=”line-height: 1.5; font-size: 12px;”>
</span>&bull;<span style=”line-height: 1.5; font-size: 12px;”>&nbsp;</span>Truly conscientious companies save money on marketing, because their stories tell themselves.</p>
<span style=”line-height: 1.5; font-size: 12px;”>
</span>&bull;<span style=”line-height: 1.5; font-size: 12px;”>&nbsp;</span>Companies with high principles attract principled employees who are more honest, work harder and are less likely to leave.</p>
<p>The Firms of Endearment list includes BMW, Starbucks, Southwest Airlines, LL Bean and Google. We would add to that list our friends at Ben &amp; Jerry&rsquo;s, Stonyfield Farm, Organic Valley, Seventh Generation, Eileen Fisher and CLIF Bar. We&rsquo;d include the leading lights among our fellow B Corporations: Dansko, King Arthur Flour, Indigenous Designs, Method Products and Sungevity. Also worthy of attention are extraordinary business collaborators such as Bob&rsquo;s Red Mill, Deltec Homes, Country Home Products and Eden Foods, all of which support MOTHER EARTH NEWS in significant ways.</p>
<em>Conscious Capitalism</em> perhaps fails to delineate the most important conditions necessary to provide a receptive environment for conscientious businesses: Consumers need to care, they need to have access to complete information about companies in the marketplace, and they need to shop with their own consciences engaged. Consumers &mdash; not entrepreneurs or authors &mdash; are responsible for the success of conscientious companies.</p>
<p>Mackey calls conscientious capitalism a &ldquo;better way to win.&rdquo; </p>
<p>Does <em>Conscious Capitalism: Liberating the Heroic Spirit of Business</em> tailor its statistics to sell a point of view? Sure, to some extent. But the underlying premise appears to be true: If consumers favor conscientious companies, then capitalism will reward the good guys.</p>
<hr />
<em>MOTHER EARTH NEWS Publisher and Editorial Director </em>
<a title=”Bryan Welch” href=”” target=”_self”>Bryan Welch</a>
<em> runs Ogden Publications, which also owns </em>
<a title=”Mother Earth Living” href=”” target=”_blank”>Mother Earth Living</a>
<em>, </em>
<a title=”Utne Reader” href=”” target=”_blank”>Utne Reader</a>
<em>, </em>
<a title=”GRIT” href=”” target=”_blank”>Grit</a>
<em>, and several other media brands focused on sustainability, natural health and rural lifestyles. Ogden Publications is a certified B Corporation and winner of multiple awards for corporate environmental stewardship. Welch&rsquo;s award-winning book,&nbsp;</em>
<a title=”Beautiful and Abundant: Building the World We Want” href=”” target=”_blank”>Beautiful and Abundant: Building the World We Want</a>
<em>, was published in 2010.</em>
<em>Connect with him on</em>&nbsp;<a title=”Google+” href=”″ target=”_blank” rel=”author”>Google+<em>