Tag Archive: alleviate poverty

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

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“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.”

Raj Sisodia NACD Summit

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.”

In Conversation with Dona Young and Carolyn Miles

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The differences between nonprofit and corporate governance are few and far between when the nonprofit in question has a budget of almost $700 million and operations in more than 120 different countries. But when you are a nonprofit of this size, what should the board’s expectations of management be—and vice versa? Carolyn Miles, president and CEO of Save the Children, and Dona Young, who is a director on the Save the Children board, spoke with NACD Senior Advisor Jeffrey M. Cunningham about how directors can navigate the perils and opportunities of operating around the globe while fostering a top-notch organizational culture.

One of the problems of working in the nonprofit space is controversial topics—for example, immigration, an issue that came to a head with the recent influx of children crossing the U.S. border. For Miles, Save the Children didn’t adopt the attitude of choosing sides, but rather, they chose children. With that mindset, the organization was able to push beyond the immigration debate and focus on the issue of taking care of kids and ensuring their basic human rights. It’s a position that drew criticism but doing otherwise would have been a disservice to the company’s mission.

Both Miles and Young drove home the importance of bringing into the boardroom what’s going on in the field. Young emphasized the need of having a CEO who is continuously communicative with the board. Miles explained a practice she has used of bringing people who are working in the field to attend boardroom meetings and explain their needs to directors. Those lines of communication better inform the board and is a boon to helping the board helping the company accomplish its mission.

Miles also explained how Save the Children’s directors venture out to experience the work that their organization is doing, what she believes is a critical practice. Save the Children’s directors have been to the places that are the toughest—Afghanistan, Liberia, and Iraq. On a recent trip to Liberia, Miles was confronted with about 4,000 cases of Ebola in Liberia, which has created about 2,000 orphans. As a result, Save the Children wanted to consider sending aid, even though the issue at hand was out of the company’s traditional scope.

“We vet the issues together as a board,” Young said. “At the core of our mission, we have to assume risk.” She offered the following process of evaluating resources to ensure that the company can address a certain area of risk.

  • Identify each component of that risk.
  • Identify how each component is to be addressed.
  • Evaluate if the board has the skill sets to attack the issue at hand.

These are tactics that are as relevant for Save the Children as they are for a company such as IBM. Although the traditional scope of Save the Children’s activity did not lie within epidemic disease control, they did, however, know a lot of the pieces of how to assist (e.g., setting up hospital), and the company was able to respond to the Ebola crisis in the ways that it could and in a fashion that was true to its core mission.

Miles also discussed the importance of metrics. From her perspective, it is critical for nonprofits to focus on metrics and not just the “greater good of the cause.” If a company is able to produce palpable results, people who bankroll the organization look to their contributions not as a donation, but as an investment. Young added the importance of the board’s role as a steward of those funds, and the need for discipline and process—if that is not in place, there’s no way company is achieving its goals.

Keynote: Conscious Capitalism with Rajendra Sisodia

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So much has changed, and so quickly. What will it take for businesses to truly flourish in the future? The second keynote of the 2013 NACD Board Leadership Conference was a smooth transition from NACD Chair King’s address on innovation in the boardroom with a presentation from Raj Sisodia. Conscious Capitalism Institute Co-Founder and Chairman Sisodia recently co-authored with Whole Foods Co-Founder John Mackey, Conscious Capitalism: Liberating the Heroic Spirit of Business.

Although capitalism is suffering an image crisis following the global financial crisis, Sisodia focused on its ability to advance society as a whole. He currently consults companies on shifting from a traditional method of operations to a “conscious” one. Based on research on the impact of the industrial revolution on social well-being, Sisodia believes that business is good because it creates value. His method of conscious capitalism is based on four tenets:

1.  Business can and should be done with a higher purpose, not just maximizing profits.

2.  Conscious businesses are explicitly managed for the benefit of all their stakeholders.

3.  Conscious leaders are driven primarily by service to the firm’s purpose and people, rather than by power or money.

4. These leaders create a conscious culture, which enables and empowers employees.

Other takeaways from the session:

  • Capitalism is the most effective method to alleviate poverty. If current trends continue, extreme poverty (world population living on less than $1 a day) will be virtually eliminated in the next 50 years (if free markets are allowed to spread and be the norm).
  • “Have you ever watched a movie in which the business person is a good person?” The lack of trust in capitalism is the result of the world and humanity changing significantly in the last 20 years, yet business has not adapted.
  • In the future, companies will not be able to survive by only focusing on driving shareholder wealth. Ultimately, viewing financial profit as the end result will drive you to do things that destroy value in its path. To this end, Sisodia believes directors should focus on the corporation—not just the shareholders. In doing so, value will be created for all stakeholders.
  • Conscious capitalism is not about trade offs, but they can always be found. Although businesses create wealth, they can also destroy many kinds of wealth, including financial, social, and emotional. It matters how companies make their money.”