• 06 Feb 2013
  • What Do You Think?

Is ‘Conscious Capitalism’ an Antidote to Income Inequality?

 
 
Summing-Up If capitalism creates unacceptable income inequality, what can be done about it? asks Jim Heskett. Whole Foods Market offers one possible solution, and now Jim's readers offer their own.
 
 
by James Heskett

Summing Up

Can "Conscious Capitalism" Become a Viable Antidote to Income Inequality?


Conscious capitalism as an antidote to income inequality apparently is an idea that attracts the attention of a diverse community, judging from respondents to this month's column. It will also require a great deal more thought if responses are an indicator. But as Wallace Earner puts it, "A long, strong struggle with a good question is much better than quick, smart answers."

Many took an "it would be nice if …" stance. Among them, Clifford Brown commented that "The fundamental nature of capitalism will always foster income inequality… That being said, … the collective corporate hierarchy (needs to) make the long needed effort to voluntarily minimize … the gross inequality that now exists." Desiree Halse, after quoting verses memorized as a child from the Bible, said "I … wish all shepherds of capitalism well … never mind narcissism and all the disorders of greed … We can't fix the world with economic systems … too big a job … all we tiny ones have is our love and conscience."

Etienne Douaze maintains that the concept is alive and well in Germany's Mittelstand: "… (an) ethos of social usefulness (job creation, customer satisfaction and product excellence … at least as important as profitability), a collaborative spirit between employers and employees …, a long-term view …, and a close relationship with suppliers."

Several respondents voiced serious doubts. As Darryl D'Sa put it, "I contend that this is old wine with a new name… The ideas are feel good and to be desired but will fail in the market place which gives capital the primary (and therefore only) stake in the outcome of social human enterprise." Jan Fersubg said, "Whole Foods (an example put forth for conscious capitalism) is successful, to be sure, but it is all too easy to fill in the 'facts' after history takes place, and then very difficult to duplicate in another arena." Gerald Nanninga added "…capitalism has a bias for making money… Hence, one needs to make social good more profitable than not, and that is a tricky path full of potholes."

Kapil Kumar Sopory raised a caution: "The idea of developing a conscious culture with shared values that reflect the higher purpose is very laudable, but it needs a lot of close attention to what sort of high values are to be focused on …" Howard Behar's response was similarly nuanced: "Although I am an absolute believer as well as an amateur practitioner of Conscious Capitalism and its sister concept of Servant Leadership, I do not think that either concept solves the problem by itself. What they can do is create the opportunity and environment for the dialogue that can help us deal with the issue."

Just how the idea might be implemented more widely was a concern of several. As Michael Hogan put it, "… absent a revival of the organized labor movement … it is boards who are best positioned to reverse this ultimately fatal trend in compensation." Aaron Barlow brought the discussion closer to home by asking, "As HBS alumni, don't we have an obligation to lead out on this topic and set an example? We must encourage, cajole and inspire each other to make the American dream available to all. But we must also be free to choose."

Can "conscious capitalism" become a viable antidote to income inequality? What do you think?

Original Article

A natural result of capitalism and the free market is income inequality. Advocates of capitalism argue that inequality, to the extent that it recognizes differences in effort and results, is good. But a frequently asked question these days is: Are we exceeding the optimal point of inequality and descending into an era of a vanishing middle class and, with it, the spending power and inclination with which it fuels an economy?

A growing number of observers are saying yes, pointing to the fact that investors and managers have co-opted more than 100 percent of the economic gains of the past 30 years in the United States, other developed economies, and even the BRIC countries.

Assuming for a moment that all of this is correct, what's the answer? First, is executive pay too high, or is the problem, as compensation and governance consultant Donald Delves says, "that most people are paid so little?" How can inequality be reduced to optimal levels? Is this the responsibility of government? Or is it the responsibility of the private sector?

John Mackey, cofounder and co-CEO of Whole Foods Market, is no fan of big government and the "crony capitalism" he believes it fosters. He thinks private sector responsibility is the answer and his prescription is described in a new book, Conscious Capitalism, that he coauthored.

Conscious capitalism is made up of four elements:

  • a purpose higher than merely generating profits and shareholder value;
  • integration of all stakeholders in that sense of purpose;
  • conscious leadership devoted to the higher purpose and stakeholder integration;
  • a conscious culture with shared values that reflect the higher purpose.

Organizations that meet Mackey's criteria (in addition to his own) include Starbucks, the Tata Group, Google, REI, and UPS. All of this sounds like an answer to a "trickle down" philosophy of economics fueled by government favoritism for the most affluent.

My introduction to the concept occurred long before I read the book. On a visit to a local Whole Foods Market, I casually remarked to the person checking my groceries that the company appeared to be doing well, noting that it had just reported significantly better earnings than expected. The checker beamed, commenting that the stock price had reached a record high the day before. Then the person bagging my groceries added, "And the stock went up 10 percent in the first hour after the market closed and the earnings were announced."

This is a product of a philosophy that employees are critical, because they basically run the business. Working in teams in the company's stores, they buy some of the produce and merchandise they sell; they hire, train, and fire team members; and they're paid a salary plus a gainsharing-based bonus based on their ability to meet or exceed plan. Everyone is eligible for stock options. Everyone can know what everyone else is earning, and the highest compensated person cannot earn more than 19 times the average for all.

Is this an important answer to the inequality now thought to be burdening economies from the US to India and even China? Or is it an exercise in self-indulgence associated with a retailing strategy that would succeed in any case? If it is so promising, why do so few organizations practice it, as evidenced by macroeconomic trends? Is the basic premise even correct, given evidence from Europe, where less inequality prevails alongside slow growth? What do you think?

To Read More

:

Don Delves, The Pay Problem, The Conference Board Review, Winter, 2013.

John Mackey and Raj Sisodia, Conscious Capitalism: Liberating the Heroic Spirit of Business (Boston: Harvard Business Review Press, 2013).