A short history of conscious capitalism

From Victorian industrialists to 21st-century sportswear brands, the pursuit of pure profit has never been quite enough.

Back in the noughties, it was so simple. The purpose of a company was to make money for shareholders. That was it. The boss could behave like Patrick Bateman channelling Jeffrey Epstein but if shareholders were happy, everyone was happy.

That, thankfully, is no longer the case. In 2019, Business Roundtable, a powerful US lobbying group, issued a new definition of the purpose of a corporation. They declared that responsibilities to customers, employees, suppliers and the environment are now just as important as its responsibility to shareholders.

It was a big moment, and the 181 CEOs who signed the statement weren’t sandal-wearing utopians. They included the CEOs of Amazon, Walmart, Exxon, BP, Fox News’s parent company, and two arms manufacturers.

In the 2020s, businesses that can’t articulate their purpose and how they benefit society and the environment are struggling. Customers are asking tough questions, and expect serious answers. Even high-end brands are finding shoppers as demanding about sustainability and ethics as they once were about materials and fit. “An unsatisfactory answer leads to the customer immediately abandoning his or her purchase,” says luxury consultant Daniel Lager. “People will turn around and leave the store and never come back.”

The new kind of capitalist

New ways to rewrite capitalism’s social contract have emerged. These ideas expand the scope of business beyond profit-making enterprises to engines that can drive positive social change.

Inclusive capitalism centres on building a better society and improving people’s lives while also creating value for shareholders. Some companies have done this for a while: Legal & General is one, taking a long-term ‘slow money’ approach, investing in sustainable assets that benefit everyone. It worked with Fluxx to bring its net-zero strategy to life, and is investing ￡1.5 billion in ID Manchester, a new district that will create jobs and homes.

It echoes the era in which L&G was founded, when Victorian philanthropist industrialists Titus Salt, Joseph Rowntree and George Cadbury built model factories and utopian new towns for their workers. They were inspired by a sense of purpose, religious faith, legacy and, make no mistake, good business sense.

Backlash and B Corps

It was the late 2000s when things started to change. The 2008 financial crash, and the Occupy movement it inspired, showed a broad dissatisfaction with Business As Usual. In 2005, Jay Coen Gilbert made a pile of $$$ by selling his sportswear brand and decided to do something about the short-termism he saw coming from shareholder primacy. He said: “As we go forward in the 21st century, people will look back and say, ‘I can’t believe they tried to run an economy where the only interest that mattered was the interest of shareholders.’”

Jay developed B.Lab, and the idea of a Benefit Corporation — a company with defined goals which include positive impact on society, workers, community and environment, in addition to profit. The B Corp scheme now includes more than 3,700 companies globally.

Employees, too, are more loyal to purposeful organisations. In a recent study, 83% said they’d be more loyal to a company that helps them contribute to social and environmental issues.

But companies have to live their values. Brewdog has climate change at the heart of its purpose, is the first carbon-neutral beer brand, and it pivoted to manufacturing hand sanitiser during the pandemic — but has been accused by staff of toxic work conditions and a culture of fear and bullying. Brewdog denies these claims.

The triple bottom line

The pursuit of societal goals need not — and should not — disregard the importance of profit. But as Michael Porter, Harvard Business School professor, says: “Not all profit is equal. Profits involving a social purpose represent a higher form of capitalism, one that creates a positive cycle of company and community prosperity.”

As companies embrace a higher purpose, conscious leaders face the question of how to track success. A typical P&L only accounts for profit. But differentiating between types of profit is becoming more common. Unilever, Patagonia and Apple have all adopted the Triple Bottom Line approach: people, planet and profit.

It’s an approach that author John Elkington proposed back in 1994. Today, he highlights Unilever as a business that has successfully adopted the concept. The Anglo-Dutch giant documents its non-financial goals right alongside the traditional financial ones.

On people, it is aiming to help more than one billion people improve their health and hygiene, and is becoming a gender-balanced organisation. On planet, it has set a target to halve the greenhouse gas impact of its products by 2030 and for all of its plastic packaging to be reusable, recyclable or compostable by 2025. On profit, it reported a €8.3bn operating profit in 2020.

This year, as a way of comparing performance on measures other than financial, Tortoise launched The Responsibility100 Index, an ambitious project to rank all FTSE100 companies on their commitment to key social, environmental and ethical objectives. The index draws on 5,000 data points from 200 available data sources, inspired by the UN’s 17 sustainable development goals.

Although not perfect, it’s a start in measuring, comparing and incentivising big businesses to do more in the pursuit of these goals. Commercial property firm Landsec currently tops the rankings. The top ten include Lloyds, Unilever, Severn Trent and RSA Insurance Group.

Consumers need to like and trust you

It’s not enough to offer just a great product or service. People want to buy from organisations they like, trust and align with. Being able to successfully compete depends on innovation, which ultimately leads to growth. However, if growth is measured purely by profit, it can have damaging repercussions, ranging from rising inequality to rising sea levels.

Organisations large and small are now playing active roles in creating the society we want to live in — from the inclusive capitalism of L&G to the growing number of B Corps. They are leading with a purpose that contributes to societal change and tracking their progress beyond the financials, in the interest of stakeholders, not just shareholders.

Those that don’t risk greater scrutiny — and more people leaving the store.

This is an excerpt from our latest book?Now for the tricky bit; it’s all about building stronger, happier businesses with purpose.

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