Re-Thinking Capitalism: Best-Selling Author Espouses Higher Calling for Boards

“Society needs financial wealth … but it matters how you make the money,” said Rajendra Sisodia, co-founder and co-chair of Conscious Capitalism Inc., and director of the Container Store Group. “Businesses not only create, they can destroy financial wealth, as well.”

Sisodia, a marketing professor at Babson University whose published books include Conscious Capitalism and Firms of Endearment, delivered a keynote address on capitalism’s transformative power Tuesday at NACD’s Global Board Leaders’ Summit. The four-day summit convened more than 1,300 attendees—the world’s largest gathering of corporate directors—in Washington, D.C. from Sept. 17-20.

Roots of Capitalism

One of the most significant conclusions of Scottish moral philosopher Adam Smith’s seminal 1776 book, An Inquiry Into the Nature and Causes of the Wealth of Nations (often referred to as The Wealth of Nations), was that places rooted in freedom tend to be more prosperous. Smith’s work became a foundational text on how capitalist markets work.

“That same year—an extraordinary historic coincident in some ways—the United States was born as a country, but more importantly, an idea. [It was] the only country born out of a set of ideas,” Sisodia said. “The ideas all revolved around liberty and freedom.” Entire segments of the American population, however, were not initially given access to that freedom—including African-Americans, native populations, and women—but the nation has extended freedoms steadily over the course of its nearly 250-year history.

“What is capitalism? Political and economic freedom,” Sisodia proclaimed. It’s rooted in the idea that free markets—or economic growth driven by individuals, rather than a centrally planned economy directed by the government or a political system—help people collectively elevate their material living conditions and boost prosperity, he said.

Poverty and Capitalism

A misperception about capitalism, Sisodia said, is that it exploits people of lower income brackets, locking them into poverty. Research, though, suggests that as capitalist markets have expanded, poverty rates have declined.

Data from the World Bank show that rates of extreme poverty have decreased considerably over the past three decades. More than half of people in the developing world lived on less than $1.25 per day in 1981, compared with 21 percent living on that amount per day in 2010.

Sisodia credited that decrease to prosperity derived from capitalism, saying that the key challenge for lifting the rest of the world out of poverty is not the unequal distribution of income, but the unequal distribution of freedom.

How the World Is Changing

“What will it take for companies to flourish in the future—and not just flourish for the purpose of making a lot of money, but actually be agents of flourishing in society?” Sisodia asked. The simple answer, he continued, is that you must be in harmony with the fact that people have changed over time to become, among other things, more:

• There are now more mobile devices on Earth than there are people. The internet and use of social media have further connected the world. Facebook now claims 1.6 billion users.
• The rate of serious violent crimes in U.S. public schools has dropped significantly to about one-third of what it was in 1994. Europe, Sisodia said, had experienced 1,200 wars in 600 years, but since 1945, inter-state wars on the continent have disappeared.
• Sisodia described the so-called Flynn Effect, which suggests that there has been a consistent increase in IQ scores from 1930 to the present.
• Embracing of “feminine” values. “I think the great story of this century is … the end of the suppression of the feminine [side of humanity],” Sisodia said. Women now earn more college degrees than men in the United States, and as a result, the expectation is that women will rise in positions of leadership—particularly in white-collar work settings. That will naturally mean that so-called feminine values, which he described as including cooperation, empathy, and compassion, will gain more traction in society.

Tenets of Conscious Capitalism

Accepting that the world is changing, Sisodia advised that businesses embrace the four tenets of conscious capitalism. That means to act with:

• A higher purpose, or more specifically, a purpose beyond generating profits. Sisodia’s website provides a further explanation by quoting University of Virginia Darden School of Business professor and Conscious Capitalism, Inc. trustee, Ed Freeman: “We need red blood cells to live (the same way a business needs profits to live), but the purpose of life is more than to make red blood cells (the same way the purpose of business is more than simply to generate profits).”
• A stakeholder orientation. Conscious businesses exist not only to maximize ROI for shareholders, but also seek to enhance value for all stakeholders, leading to a more resilient business.
• Conscious leadership that demonstrates care for purpose and people; and
• Conscious culture built on trust, care, and transparency—not rooted in fear and stress (the risk of having a heart attack is 20% higher on Mondays for men, 15% for women, and most research blames the stress of returning to work for these statistics).

Boards: Stewards of Well-Being

Sisodia offered several considerations aimed at helping boards—and companies—become more conscious overseers:

• The primary duty of the board is to the corporation—which has its own significant role in society—rather than shareholders.
• Understand and shape the company’s higher purpose. Ask your board to reflect on why the company would be missed if it were to disappear tomorrow.
• Consciously seek to create value for all stakeholders.
• Appoint strong leaders with a capacity for love and care. It is not healthy to appoint leaders who are analytically smart but lack empathy and other forms of emotional intelligence.
• Build a culture of “full-spectrum” consciousness, meaning that you are not only concerned with service to people and a higher purpose, but also efficiency, effectiveness, and success.
• Ensure youth and feminine perspectives are heeded when making business decisions.

Humanity is more aware of its challenges and problems than ever before, Sisodia said in closing, and the individual and collective capacity to respond to those challenges has never been higher. “We have to create the organizational forms and philosophies and build business on [the ideals of] purpose and caring. … [A]ll of those answers that we need to our crises are out there inside somebody. We just have to figure out how to liberate that.”