Volkswagen Cheating, Peanut Butter Salmonella, and Challenges to Conscious Capitalism

October 4, 2015

Business Ethics, Capitalism and Freedom, Climate Change, Free Markets, Latest Thinking, Natural Responsibilities, Political Philosophy, Social Enterprise

I’ve been pondering several different paradigms for thinking about the growing movement to combine business activity with social good and social purpose, a movement I support. The tension between these very different models arose as I was hearing news about Volkswagen’s cheating scheme on emissions testing at the same time I was reading a book called Conscious Capitalism, written by John Mackey, a co-founder of Whole Foods, and Rajendra Sisodia, a Professor of Global Business and a founder of the Conscious Capitalism movement.

The recent Volkswagen scandal is a good example from which to question the core thesis of Conscious Capitalism, which argues that capitalism, when it operates as it should, is at its core a positive, creative and deeply ethical human enterprise. We don’t know all the details yet about how the Volkswagen cheating scheme arose. But we do know that VW has admitted to installing software that let its diesel cars detect when they were being checked for emissions and cheat on the test.

The Volkswagen scandal, among other recent ones, such as the Peanut Corporation knowingly shipping salmonella tainted peanut butter into the food supply, killing nine people and sickening more than 700 others and General Motors concealing a deadly ignition-switch defect linked to the deaths of 124 people, pose an interesting contrast to Conscious Capitalism’s thesis.

It is not that Mackey and Sisodia think unbridled capitalism is good, a position that might characterize the Koch brothers or libertarian leaning political folks.  It is rather that the authors think that unbridled capitalism is a perversion of capitalism. They are arguing, then, about what the true nature of capitalism and business really is or at least should be.  As we consider the scandals of VW, the Peanut Corporation, GM and so many more, the question naturally arises as to whether capitalism is inherently a force for good, a force for destruction, or both, and what ultimately to do about it.

Mckey and Sisodia contend that we have forgotten that at essence capitalism is a value creating enterprise that is moral and heroic. At least one of their purposes is to redeem the negative caricature of business as evil, based on greed, selfishness and exploitation for the purpose of maximizing profits.  Mackey is eloquent about his own individual transformation as a young man, first believing capitalism needed to be reformed but then coming to understand how the negative stereotypes about business are wrong. Through his experiences with the co-founding of Whole Foods, and its near early failure, he came to understand that business is not based on exploitation (or at least does not have to be) and that purpose and stakeholders are critical to the ends of business. Both authors eloquently remind us of all the ways in which the forces of capitalism has improved human lives by helping millions of people out of poverty, creating prosperity for billions of people, extending the life expectancy across the world,  reducing the number of undernourished people, increasing literacy, freedom, and levels of life satisfaction. Their first chapter is entitled, “Capitalism: Marvelous, Misunderstood, Maligned.”

One  of the purposes of their book, then, is correcting the stereotype of capitalism as destructive and unethical. The authors thus should not be confused with those who argue that business and markets are good when they are left to themselves to pursue profit, or with those who endorse Milton Friedman’s view that “the social responsibility of business is to increase its profits” and that any business that pays attention to social responsibilities beyond that goal is “preaching pure and unadulterated socialism.”1)Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits.” [original New York Times Magazine, Sept 13, 1970. Reprinted in Ethical Issues in Business: A Philosophical Approach, 33-38.  Ed. By Thomas Donaldson, Patricia H. Werhane, and Margaret Cording. Upper Saddle Reiver, New Jersey, Prentice Hall, 2002 The authors of Conscious Capitalism consciously take on Milton Friedman’s view, arguing that businesses that focus only on the shareholder value represent a perversion of capitalism.

Mackey and Sisodia are not new or unique in arguing that there is more to business than shareholder value and that a business has a much broader responsibility to a wider set of stakeholders. There have been numerous books, articles, and business leaders that over the last twenty to thirty years that have argued that the responsibility of the business and the business executive is to a much broader set of stakeholders and not simply a fiduciary responsibility to shareholders. This trend to expand the responsibilities of business is arguably, at least in significant part, an outgrowth of the environmental movement itself.

One might think here of earlier books such as Natural Capitalism, one of the first great books I read on the topic, which was originally published in 1999 and is subtitled “Creating the Next Industrial Revolution.”2)Natural Capitalism was written by Paul Hawken, Amory Lovins, and L. Hunter Lovins and originally published by Little, Brown, and Company Similarly, the academic discussion of “stakeholder theory,” which argued that businesses had responsibilities to a set of stakeholders, broader than just shareholders, had already begun to emerge in the work of Edward R. Freeman, as early as 1984.3)See his Strategic Management: A Stakeholder Approach. Boston: Pitman.  A later version is available in “Stakeholder Theory of the Modern Corporation” In Donaldson, et. al. The development of corporate social responsibility (CSR) programs, a term which apparently reaches back to the 1960’s, also reflects corporations’ growing recognition that business has responsibility beyond their shareholders to other constituents, if not because it is right, then because it is profitable.

This growing emphasis on types of responsibilities beside the fiduciary one was recognized in the growing attention to what has been called the “triple bottom line” and the three P’s (people, planet and profit).  More recently, the emergence of the new styled “social enterprises” and “B corporations” point to a new phase in this convergence of business and social good.  All of these trends have in similar ways rejected the view of Milton Friedman, and business leaders that endorsed his view, that taking account of social responsibilities beyond profit is a perversion of business.

Conscious Capitalism, the book, the philosophy, and movement, stands in this same developing tradition but gives it a new name and a particular philosophical slant.  What stands out in Conscious Capitalism to me is the overtly positive spin that Mackey and Sisodia put on capitalism itself. They are essentially arguing, at least at times, that business which is not conscious is a perversion of business. They thus see their own position as not only different from Milton Friedman’s or other free market economists and libertarians, such Hayek, Mises or the Koch brothers, but also contesting other approaches to the social good of business.

Most large businesses today have a corporate social responsibility organization whose mission it is to help address the triple bottom line, or the three pillars of sustainability. But corporate social responsibility programs, the authors of Conscious Capitalism argue, are essentially an afterthought and essentially graft a social mission onto a business without integrating the mission into the core of the business. This is a fair critique of CSR, even though corporate social responsibility programs do a great deal of positive work for stakeholders of the corporation. But when the responsibility to stakeholders and the environment is delegated (one might say marginalized in CSR departments), the driving forces of the business, which lies elsewhere, often takes front seat to those pillars of social good. This is one of the many points of Mackey and Sisodia with which I agree. They are eloquent about the need for a business to have a “higher purpose” that infuses the business. Whole Foods is a good example and they point to others, such as Metronic, The Container Store, Home Depot,  and others. The book is an eloquent statement about what a conscious business looks like and offers a framework for becoming one.

Yet the larger question that emerges for me about Mackey and Sisodia’s position is whether capitalism is by its very nature “conscious” or whether it is now becoming that way because of deep and troubling changes in how human beings understand their world and their values. The question is not merely an idle theoretical and historical one, but a very urgent pragmatic question. How we define business and its relationship to social good will shape a variety of other positions we hold about both the responsibilities of business and their possible relationship to other institutions such as government and nonprofits.

We can easily grant, I think, Mackey and Sisodia’s position that capitalism has been of great benefit to humankind in countless ways. But what they fail to talk about very much is the dark and destructive side of capitalism and business. Why does this arise and when? Why are so many businesses not conscious? Why do so many put profit ahead of people? What kinds of values and frameworks must be in place for conscious businesses to arise and thrive?  The avoidance of these questions seems quite conscious, as Mackey is quite eloquent in telling the story of how he came to abandon a critical view of capitalism. And yet the nagging question is whether they are putting too pretty a spin on capitalism and business by trying to define the phenomenon by only what has been good or could be good about it.

This brings us back to the examples of Volkwagen, the Peanut Corporation of America, General Motors, and a host of other examples documented in earlier business ethics case studies 4)One of my favorites is Ethical Issues in Business. Ed. Donaldson, Werhane, and Cording, that remind us that business as the agent  of capital has the power to be morally corrupt, to ruin and end lives, to create destruction of the environment, to exploit children, to put profit before all else, as it chases profits.

Mackey and Sisodia don’t really talk much about this darker side of business and capitalism because in part their purposes are elsewhere. They want to identify and cultivate what they see as a new consciousness that is restoring business to higher purposes. And that ultimately is what their book is about, offering a framework that business leaders can adopt to ensure that their companies are not focused on profit only and have their stakeholders more clearly in mind.

One can be moved and inspired by the stories that Mackey and Sisodia tell, and one can celebrate the movement in which businesses transform themselves and becoming conscious. And yet, as the recent headlines with Volkswagen remind us, one does not want to be Pollyannish about this. There are structural forces at work in capitalism that put extraordinary pressure on individuals to put profit ahead of people and the environment. The business system is still structured to reward short term behavior. People continue to be killed by products whose defects are known. Businesses continue to put profits ahead of  the climate change. We continue to hear stories of dangerous conditions in clothing manufacturing and products that involve slave and child labor. It is not easy to claim that capitalism or business is at heart or in essence a positive purpose driven enterprise, in and of itself.

That optimistic positive view, which informs Mackey and Sisodia’s book, seems to hide the potential for evil and morally problematic behaviors that not only can be present but can be encouraged by the structures of capitalism. The institutions of the market still reward the short term incentives. Those who resist these built in incentives have to be morally courageous. They have to have a moral center that does not cave to the short term pressures.  And this is one part of Conscious Capitalism that I love. It encourages business leaders to be such moral heroes, to resist the call of the market and shareholder, and to believe that it is possible to resist the zero-sum game of choosing profits or people. One can only hope Conscious Capitalism will continue its expansion and become the dominant business paradigm in this and following centuries. We certainly sorely need it.

But perhaps because I am a pessimist, and see the darker side of people and institutions, I feel we need something more than just “conscious capitalism,” at least as it is currently defined. Conscious Capitalism puts so much of the solution on the moral leader and the moral corporate board. And while the heroic and moral CEO has the most potential to reshape a business, the problem is leaders come and go. One example of this is provided by Christine Bader who recounts her own personal cautionary tale in a book called The Evolution of a Corporate Idealist: When Girl Meets Oil.

Christine, an MBA from Yale, tells the story of her experiences as a passionate young idealist working in British Petroleum under an inspiring CEO, one who was the first to talk about climate change and focused the company on human rights of local community, before this was even fashionable. But a shift in leadership occurred to a new CEO, who abandoned the focus on rights and climate, and  focused exclusively on safety. That change coupled with the subsequent Deepwater Horizon explosion called into question Bader’s perceptions of her experiences and opened up larger questions about how tenuous is a business culture that derives from the moral vision of the CEO.  At least that is one theme that arose from the book for me. Bader’s book provides an interesting counterpoint to Conscious Capitalism, because it tells both sides of the story: not only the power of moral transformation under a conscious leader, but the ways in which everything that was once accomplished can be undone by a new leader, who has a different sensibility, and less of a moral vision. It is worth reading Conscious Capitalism together with The Evolutionist of a Corporate Idealist for this reason.

The fact that moral leadership can change is one of the reasons that I find so intriguing the new legal entity called the Benefits Corporation, a legal class of corporation that voluntarily meets different standards of corporate purpose, accountability and transparency.5)Information about the Benefits Corporation can be found here: http://benefitcorp.net/businesses. Most if not all Benefit Corporations would probably recognize themselves as “conscious businesses.” But not all conscious businesses are Benefits Corporations. Benefits Corporations differ in making their corporate mission and accountability standards part of their legally defined structure. This makes it difficult if not impossible for the mission and focus on core values to be ignored in a change of management or ownership. One might say that legally the business has to remain conscious no matter who runs it.

In the end, I am a big fan of Conscious Capitalism, the book, the movement and the philosophy. And while I hope the movement continues to expand and grow, and we can cultivate more MBA’s with the moral passion and vision to run conscious businesses, I also believe we can’t rely only on the consciousness of businesses to do the right thing. We need something more to ensure that businesses comply with a higher purpose. But that is a discussion for another time.

References   [ + ]

1.Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits.” [original New York Times Magazine, Sept 13, 1970. Reprinted in Ethical Issues in Business: A Philosophical Approach, 33-38.  Ed. By Thomas Donaldson, Patricia H. Werhane, and Margaret Cording. Upper Saddle Reiver, New Jersey, Prentice Hall, 2002
2.Natural Capitalism was written by Paul Hawken, Amory Lovins, and L. Hunter Lovins and originally published by Little, Brown, and Company
3.See his Strategic Management: A Stakeholder Approach. Boston: Pitman.  A later version is available in “Stakeholder Theory of the Modern Corporation” In Donaldson, et. al.
4.One of my favorites is Ethical Issues in Business. Ed. Donaldson, Werhane, and Cording
5.Information about the Benefits Corporation can be found here: http://benefitcorp.net/businesses.

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