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Aug 28, 2015

The Dangers of the Status Quo: Why Conscious Capitalism Matters by Jeff Cherry

Jeff Cherry posted an excellent blog that argues the capitalism-good versus capitalism-bad dialogue is not just unproductive, it is misleading.  His views are important because he comes not from the nonprofit sector, but from the for-profit business consulting sector.  And he has been very successful.  An important voice on how the market mechanism can be channeled to address social issues.  From my perspective, social enterprises are all conscious capitalists who bring an even stronger focus on social impact.

Here is his blog:

I was having a discussion with an old friend, who’s a very accomplished businessman, about the notion of Conscious Capitalism and what we do at the Conscious Venture Lab. As many of you know my spiel is that we are trying to change the way that capitalism is practiced in America. My friend said something interesting to me at the time “Capitalism isn’t the problem Jeff, capitalists are,” he said.   I’m not sure I agree with this sentient completely but I get his meaning. To be clear, I certainly agree that there is nothing inherently bad about free markets and voluntary exchange. In fact I truly believe that businesses and capitalism is the greatest force for improving the human condition ever known to man.

But in reading a recent commentary piece by Clive Crook of Bloomberg in the Chicago Tribune entitled “Stop Viewing Capitalism as the Problem” I really needed to do some reflection to understand why his thoughts made me uncomfortable. I mean, essentially he is saying that capitalism is inherently ethical because it is based on voluntary exchange. Of course I agree with this because as Raj Sisodia has written, this idea is one of the foundational premises of Conscious Capitalism. After a few readings, the thing that strikes me is how we as citizens, and particularly when it comes to social opinions, are unable to “live in the grey” (love these guys!). We try to make everything so absolute, so black and white, as to conflate things that are not in fact akin to one another in order to make our political point.

In the article Mr. Crook is responding to a talk that Anand Giridharadas, A Henry Crown Fellow of the Aspen Institute, gave at the Institute about capitalism and doing good in the world. Mr. Crook starts with the idea that there’s no need to apologize for being successful. Well of course there isn’t, unless of course the way you became successful was through exploitation, fraud and deceit.

Mr. Giridharadas for his part starts out on similarly solid ground when he talks of the “Aspen Consensus”: IE making money in the “all usual ways” and then “giving back” is indeed a perverse way to think about how capitalism can elevate society and humanity – In the restaurant business we often talk about “Clean as you go”. Meaning whenever possible clean your station as you work so at the end of the night it will be much easier to close the kitchen – I always think this is a good way to think about business as well, don’t do “business as usual” and then throw money at all the problems you’ve created. Try not to create the problems in the first place. Or better yet, solve the problems as a part of your business model. But Mr. Giridharadas then lumps in investing for impact and social entrepreneurship, as being just another one of the “usual ways” of doing business, when in fact this is generally pretty far from the truth. In fact the future of capitalism is a messy both-and world. Not a utopian either / or end to the struggle.

The capitalists that will win in the future will be those that understand how to craft an operating model that simultaneously does more good while also doing less harm. The notion of doing good while doing well is indeed being replaced by doing well as a direct consequence of doing good.

Capitalism isn’t a “morally tainted” idea. The only people who think that are those who fail to do the hard work to understand the world around them. But, how we as a society have chosen of late to define capitalism, as being only about serving the needs of shareholders, has created a narrative that teaches almost anything is acceptable as long as the result is increased shareholder value. This myth has become so ingrained in our thinking that those among us who hold this to be a self-evident truth can’t even see when it doesn’t serve it’s stated purpose. A 2005 Study conducted at Emory University found that 75% of financial managers would sacrifice economic value in exchange for smooth earnings reports. It also concluded that more shareholder value was destroyed in the early 2000s by striving to hit earnings than was lost in all the high-profile fraud cases of the same period. Mr. Crook sets up a straw-man that portends we have to make a choice between capitalism and socialism and given that choice, of course we should choose capitalism in all it’s perfection. There’s a fear it seems to me, in realizing and giving voice to the fact that like any other complex system, how we practice capitalism needs to change in large part because of what we have wrought by adhering to this shareholder centric narrative. However as Darden professor Ed Freeman has eloquently stated, the alternative to capitalism isn’t socialism, it’s a better form of capitalism.

I agree with Mr. Crook in that the mistake of the Brooklyn Consensus is that it doesn’t realize capitalism is morally incomplete, not morally tainted. But to separate making money, from what capitalists can and should do about social justice, opportunity, inequality and the quality of life on the planet (it’s not personal, it’s business?) is to live in the same old paradigm that separates business from life! How we operate our businesses has a tremendous impact on all of those issues and we must recognize that. We are all in this together and we all have to do our part to make the world the place we want it to be. The secret that the “corporatists” miss is that this notion of broader societal purpose will indeed be the key to creating financial value in the future.