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The Capitalist Manifesto: Changing Business for Good

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To some, WorldCentric, a Petaluma, CA – based company that makes and sells compostable products, might look as though it were trying to put itself out of business. It started out in 2004 as a not for profit dedicated to raising awareness about environmental and humanitarian problems. In 2009, it converted to a for profit corporation and then to a certified B Corporation. Today a core element of its business model is to give a minimum of 25% of its annual gross profits to grassroots social and environmental organizations. Actually, in 2011 WorldCentric gave away 38%; in 2012, 90%. But that’s still not enough. The company says its ultimate target is “to give 100% of our net profits over the coming years to positively affect our world and environment.” For comparison, the average rate of corporate giving in America, according to the National Center for Charitable Statistics, is 6.5%.

WorldCentric is a striking example of what Harvard Business School Professor Michael Porter calls shared value: it creates social and economic benefits simultaneously. In a 2011 article in the Harvard Business Review, Porter explains that classical economics assumes that social progress and economic efficiency are fundamentally opposed: spending money on the former imposes a constraint on the latter. It’s true that many companies have established worthwhile corporate social responsibility programs. No matter how beneficial these may be, however, they tend to be peripheral to the company’s main business, and are typically managed, evaluated and funded primarily as PR efforts.

A matter of scale

As reported in Part 1 of this article, governments, NGOs and philanthropies simply don’t have the scale to mount an effective response to such global problems as poor nutrition, access to water, climate change, deforestation, lack of skills, insecurity, not enough food, not enough healthcare, pollution, etc. Only business does, argues Porter. But before it can begin to make a real impact, it needs to be convinced that combining mission-driven and profit-driven represents a huge business opportunity – and possibly the most important one we’ll ever see.

Porter is not alone in advancing this argument. A growing number of organizations are working to help corporations marry purpose and profit. They include B Lab, creator of the Certified B Corporation; The B Team, backed by Richard Branson; Conscious Capitalism, backed by John Mackey of Whole Foods, and even the august World Economic Forum. And don’t forget the Vatican. Believers and deniers alike anxiously await the encyclical on climate change Pope Francis has promised to release later this year.

Even the combined talents and resources of such powerful allies will not bring about results overnight. But signs of change are evident in three broad trends.

1. Consumers

The first of these involves consumers. The more they insist on buying socially responsible goods and services, the more of a force for change they’ll become. Research indicates that “conscious consumerism” is on the rise. In a study conducted by Good.Must.Grow, a marketing consulting firm, 62% of the sample of 1,010 Americans said that buying from socially responsible companies was important. At the same time, though, 45% of respondents said that the biggest obstacle — outranking availability, price, quality, selection and trust — is that it’s hard to know which products and services actually qualify. The proliferation of labels and badges that certify organic, humane, recycled, renewable, compostable, and minority-owned, among numerous other attributes, may not be entirely helpful. Combined with all the social media buttons increasingly seen on packaging, advertising and websites, those endorsements may make products as colorful as a NASCAR racer but don’t help consumers distinguish between greenwash and the real thing.

Indeed, the clearest indication coming from current consumer research is that shoppers don’t trust business. According to the latest Harris Reputation Survey, only 1 in 5 Americans feels the reputation of Corporate America has improved in the past year. The 2015 edition of the Edelman Trust Barometer echoes that sentiment and finds a “profound concern” on the part of consumers about the pace of new developments in business, particularly hydraulic fracturing and genetically modified foods. The APCO Worldwide Champion Brand Survey shows clearly that consumers take a company’s practices and policies into account before deciding whether or not to buy a product. To help consumers make purchase decisions aligned with their values, a company called Spend Consciously recently launched its BuyPartisan mobile app. BuyPartisan scans the bar code of dozens of popular supermarket products and produces a report on the user’s smartphone detailing the political spending of the company’s CEO, Board of Directors, PAC and employees.

2. Millennials

Millennials, born between 1980 and 2000, undoubtedly comprise a portion of the conscious consumer segment, but their growing impact in the workplace offers an even stronger promise of transformations to come. Although the press may hyperbolize this generation into creatures that represent a wholly new species of human, there’s nevertheless plenty of evidence that Millennials have ideas of their own. “At Facebook, Boss Is A Dirty Word,” headlined the Wall Street Journal, for instance, in an article describing the management techniques the social media company has developed for its 8,000 mostly 30-and-under employees.

“The message is clear,” says Deloitte in its 2015 Millennial Survey of 7,900 respondents around the world: “when looking at their career goals, today’s Millennials are just as interested in how a business develops its people and its contribution to society as they are in its products and profits.” Deloitte reports that 75% of Millennials believe businesses are too fixated on their own agendas and not focused enough on helping to improve society. Other surveys, ranging from The 2014 Millennial Impact Report to the 2015 Leadership Report from the U.K. creative and strategy consultants Wolff Olins (‘How Leaders Are Creating The Uncorporation”) point in a similar direction. 

Particularly striking are the findings from a study conducted by the London Business School. Annually for five years LBS asked Millennials enrolled in one of its executive development programs to indicate which of five general options they would focus on if they were CEOs. Results: 

How do I make my organization and the world a better place: 43%

Thinking entrepreneurially: 33%

Minding the core business: 11.5%

The global impact of the business: 11.5%

Maximizing return to shareholders: 1%

As Weber Shandwick’s chief reputation strategist Leslie Gaines-Ross observes, “Purpose is going to be hard core for this population segment.”

3. Investors

The indifference shown by these future business leaders to shareholder value points to the third trend, which revolves around what is probably the most influential driver of business behavior: how the capital markets measure – and reward — performance. For nearly 50 years, managers and investors alike have viewed the creation of wealth for stockholders as a company’s only social responsibility. Many have considered it an actual legal requirement, and still do. But it’s not, argues Lynn Stout, a Distinguished Professor at Cornell Law School and author of an influential book published in 2012 called, unambiguously, The Shareholder Value Myth. “Contrary to what many believe,” she has written, “U.S. corporate law does not impose any enforceable legal duty on corporate directors or executives of public corporations to maximize profits or share price.”

Theoretically, liberating corporate managers from the relentless pursuit of share price increases is potentially a giant leap in the direction of shared value. Pragmatically, though, if shareholder value alone isn’t the right metric for encouraging and measuring responsible corporate performance, what is? For socially conscious companies trying to raise capital, as well as for the individuals, institutions and funds that have already committed nearly $6.6 trillion to socially responsible investments in the U.S., this is not a trivial question. Numerous efforts are currently underway worldwide to establish, among other things, common definitions, data collection tools and standards, regulations and reporting requirements, rating and weighting systems, models, metrics and analytics – and ways to make all these work harmoniously across markets, asset classes and geographic boundaries.

“The model is still quite new,” says Michael van Patten, Founder and President of Mission Markets, a certified B Corporation and pioneer in the mission-focused investments arena. “Today it’s dominated by the very wealthy, it’s highly illiquid and risky, and information is limited.” Attracting mainstream investors and service providers is important, he adds, but there’s currently no infrastructure that would allow that to
happen in a meaningful way.

The Start of A New Era

“In a sense, all investing is impact investing,” says Erika Karp, founder and CEO of Cornerstone Capital, an advisory and research firm and a leading voice in the field of sustainable investing and finance. “It’s just that not all of it is conscious.” The question, according to Steve Lydenberg, a partner at Domini Social Investments who spoke recently at a meeting hosted by Cornerstone, is whether impact investing is merely a change of degrees – a new technique – or whether it’s part of a more fundamental shift in our financial system.

As scientists consider switching the name of our current geological era from “Holocene” to “Anthropocene,” to indicate that human activity is now the dominant force affecting life on our planet (and not for the better), impact investing needs to do more than beat the market. In fact, says Lydenberg, thinking in those terms is like “burning your house to stay warm in the winter.” What’s urgently needed, observes Karp, is a new benchmark to replace the short-term timescale focus that has driven investment managers for so long. “We need to act now and with fierce urgency,” she says. “The time has come to do capitalism right.”

 

 

 

 

 

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