The conscious capitalism movement is inspiring leaders to rethink their approach to profit-making and become more socially aware, writes Kath Walters.
A higher purpose
A global movement is challenging companies to subscribe to a purpose higher than profit. It demands a deeper commitment from companies than triple bottom line reporting and corporate social responsibility, both of which have descended into a cynical smoke-and-mirrors marketing tactic.
Conscious capitalism, a term coined by Raj Sisodia, the American marketing professor and author of Firms of Endearment, engages leaders to rethink their approach to the business of profit making.
Do we need such a rethink? Look no further than the scandalous practices used to deny claims by the insurance arm of the Commonwealth Bank, CommInsure. Or consider the treatment of former Essendon footballer, Hal Hunter, who is taking legal action against the Essendon Football Club in the wake of its 2012 injection program.
Compare this with the approach taken by Bank Australia, a member-owned bank that has built its whole business model on a stated value of responsible banking, which delivered a $24 million net profit in the 2015 financial year. Or the global carpet-tile maker, Interface Carpets, which is transforming its manufacturing processes to eliminate any negative impact on the environment by 2020.
Directors, in their role as custodians of corporate strategy and governance, have the opportunity to shift the course of their companies towards a higher purpose. And the evidence shows that doing so is in the best interest of shareholders. Sisodia’s research over the 15 years reveals a group of companies that embody conscious capitalism principles and are outperforming others by a factor of 10.5 to one in terms of cumulative shareholder value, when compared against benchmark indices.
Conscious leadership is not new; Sisodia’s research found it was common among companies over 100 years ago. But in recent years, a few companies hijacked the “narrative of capitalism” to focus on greed and self-interest. But Sisodia is an advocate for capitalism: he says it fosters our innate creativity and potential with the right leadership. Among the companies Sisodia studied – including Google, Ikea, Johnson & Johnson and Starbucks – leaders take home lower pay, do more mentoring, and often “grow up” in the company. They see themselves as “servants” of a community that is wider than their employees, and includes suppliers, customers, society and the environment. Conscious leaders embrace multiple forms of value – social, cultural, emotional, spiritual, intellectual – and financial.
How can directors help to influence such a rethink or a return to corporate values? It’s a matter of asking new questions of ourselves, our customers, staff and suppliers. A purpose must embody a positive vision of the future. But often we only find that vision when we are honest about our own shortcomings, those of the companies we lead, and those of the industry in which we work.
Conscious leadership is not new: it was common among companies over 100 years ago.
For companies that want to foster a sense of purpose, Carolyn Tate, author of Conscious Marketing and founder of Melbourne’s Slow School of Business, advises answering four important questions: What are you good at? What do you love? What does the world need? What makes you money?
Can every company become “conscious”? No. A tobacco company that becomes conscious of its social and environmental responsibility would certainly close down when faced with the scientific evidence of the harm its products do. However, miners and other industrial companies can apply the higher-purpose test. Sisodia studied steel-making company, Posco, in South Korea, and found it makes a positive environmental contribution wherever it works. Other “conscious” industrial companies include Eaton, a power management company and the Indian conglomerate, Tata Group.
Companies are in a powerful position to help address the world’s challenges. Each company should ask: “How will the world be better off because we exist?” But governance is also a personal matter. We need to ask ourselves the same question. Poor governance has human consequences.
Company directors are responsible for creating shareholder wealth, but also for protecting the mental and physical health of those who work for and with them. Honesty and integrity are not challenging enough values to aspire to; they are a baseline from which companies must operate to achieve an inspiring higher purpose.
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