(Notes) Conscious Capitalism: Liberating the Heroic Spirit of Business, by John Mackey

Foreword: Getting Capitalism Back on Track, by Bill George

We share a much broader view of the role of the corporation in society.

…society has experienced an historic loss in trust in business leaders.

“While Friedman believes that taking care of customers, employees, and business philanthropy are means to the end of increasing investor profits, I take the exact opposite view: Making high profits is the means to the end of fulfilling Whole Foods’ core business mission. We want to improve the health and well-being of everyone on the planet through higher-quality foods and better nutrition, and we can’t fulfill this mission unless we are highly profitable. Just as people cannot live without eating, so a business cannot live without profits. But most people don’t live to eat, and neither must businesses live just to make profits.”

…business should start with its purpose and its values and use them to inspire employees to innovate and provide superior service, while creating sustainable increases in revenues and profits.

…how to integrate all the company’s constituencies for the long-term benefit of creating sustainable organizations that serve society’s interests simultaneously with their own.

Introduction: Awakenings

I ultimately became disillusioned with the co-op movement because there seemed to be little room for entrepreneurial creativity; virtually every decision was politicized. The most politically active members controlled the co-op with their own personal agendas, and much more energy was focused on deciding which companies to boycott than on how to improve the quality of products and services for customers. I thought I could create a better store than any of the co-ops I had belonged to, and decided to become an entrepreneur to prove it.

…cooperation and voluntary exchange. People trade voluntarily for mutual gain. No one is forced to trade with a business. Customers have competitive alternatives in the marketplace, team members have competitive alternatives for their labor, investors have numerous alternatives to invest their capital, and suppliers have plenty of alternative customers for their products and services.

Investors, labor, management, suppliers — they all need to cooperate to create value for customers. If they do, the joint value created is divided fairly among the creators of the value through competitive market processes based approximately on the overall contribution each stakeholder makes. In other words, business is not a zero-sum game with a winner and loser. It is a win, win, win, win game — and I really like that.

I learned that voluntary exchange for mutual benefit has led to unprecedented prosperity for humanity.

That is one of the reasons we understand so well the importance of stakeholders and the power of love in business, because they made us realize how important they were to our success. Not only would we not be successful without them, but we wouldn’t have even survived. What more proof did we need that stakeholders matter, that they embody the heart, soul, and lifeblood of an enterprise?

…the world urgently needs a richer, more holistic, and more humanistic philosophy and narrative about business.

The most exciting but unheralded change human society has experienced in a long time may be that we are beginning to collectively awaken to the incredible potential of business and capitalism being conducted much more consciously!

…businesses galvanized by higher purposes that serve and align the interests of all their major stakeholders; businesses with conscious leaders who exist in service to the company’s purpose, the people it touches, and the planet; and businesses with resilient, caring cultures that make working there a source of great joy and fulfillment.

1. Capitalism: Marvelous, Misunderstood, Maligned

In the long arc of history, no human creation has had a greater positive impact on more people more rapidly than free-enterprise capitalism. It is unquestionably the greatest system for innovation and social cooperation that has ever existed.

…much of the Western world has benefited from the fruits of free-enterprise capitalism for about two centuries now. The success of free-enterprise capitalism in improving the quality of our lives in countless ways is the most extraordinary but poorly understood story of the past two hundred years. It has enabled humankind to progress at a rate unprecedented in all of history.

…argues persuasively that the most important factors in free-enterprise capitalism’s success have been entrepreneurship and innovation, combined with freedom and dignity for businesspeople.

“Ultimately, the hero is the representative of the new — the founder of a new age, a new religion, a new city, the founder of a new way of life or a new way of protecting the village against harm; the founder of processes or products that make people in their communities and the world better off. What I will contend here is that in our modern world, the wealth creators — the entrepreneurs — actually travel the heroic path and are every bit as bold and daring as the heroes who fought dragons or overcame…

Capitalism needs both a new narrative and a new ethical foundation, one that accurately reflects its intrinsic goodness and virtue.

Too many businesses have operated with a low level of consciousness about their true purpose and overall impact on the world.

…the myth that business is and must be about maximization of profits has taken root in academia as well as among business leaders. This has robbed most businesses of the ability to engage and connect with people at their deepest levels.

crony capitalism,

Economists, social critics, and business leaders largely disregarded the second and often more powerful aspect of human nature: the desire and need to care for others and for ideals and causes that transcend one’s self-interest.

Smith’s views on ethics were largely ignored, and capitalism developed in a stunted way, missing the more human half of its identity. This created fertile conditions for ethical challenges to capitalism, which were not long in coming.

These descriptions ignored the higher-level human aspirations and capabilities that free-enterprise capitalism potentially taps into so well.

Another factor that fed distrust of capitalism was a failure to distinguish between the fixed-pie or zero-sum concept of mercantilism and the expanding-pie concept of free-enterprise capitalism.

The poor can become wealthier without requiring the well-off to become poorer. The pie grows, and there is more for everyone. This idea is at the core of capitalism’s extraordinary and unique ability to generate wealth.

…a narrow view of human nature and an inadequate explanation of the causes of business success.

Without profits, entrepreneurs cannot make the necessary investments to replace their depreciating buildings and equipment or to adapt to the always-evolving and competitive marketplace. The need for profit is universal for all businesses in a healthy market economy.

Unfortunately, early economists went far beyond merely describing how entrepreneurs always seek profits as an important goal, to concluding that maximizing profits is the only important goal of business.

The principle of profit maximization even became codified into corporate law as the de facto definition of fiduciary responsibility.

…capitalism used the ideas as powerful points of attack on the ethical basis of capitalism, to great effect. But with few exceptions, entrepreneurs who start successful businesses don’t do so to maximize profits. Of course, they want to make money, but that is not what drives most of them. They are inspired to do something that they believe needs doing. The heroic story of free-enterprise capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary value for customers, team members, suppliers, society, and investors.

The myth that profit maximization is the sole purpose of business has done enormous damage to the reputation of capitalism and the legitimacy of business in society. We need to recapture the narrative and restore it to its true essence: that the purpose of business is to improve our lives and to create value for stakeholders.

True free-enterprise capitalism imposes strict accountability and strong internal discipline on businesses.

While free-enterprise capitalism is inherently virtuous and vitally necessary for democracy and prosperity, crony capitalism is intrinsically unethical and poses a grave threat to our freedom and well-being. Unfortunately, our current system has the effect of corrupting many honorable businesspeople, pushing them into becoming reluctant crony capitalists as a matter of survival.

business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence, and it is heroic because it lifts people out of poverty and creates prosperity.

The great majority of companies are involved in doing pretty exciting work where people are having vital, exciting careers, earning a livelihood for their families and making a difference for their communities. That’s a story that is worth telling.

It must be defended not just on the basis of the profits it generates but also on the basis of its fundamental morality. Free-enterprise capitalism must be grounded in an ethical system based on value creation for all stakeholders.

levels: by ending the physical oppression of poverty, and by opening a gateway for human beings to be able to grow emotionally, morally, spiritually, and socially. Lifting people out of poverty was never the conscious intention of business; it was the by-product of a business well-enacted. Now business is awakening to itself and becoming conscious. It is recognizing that it is a force with enormous power and responsibility. By becoming conscious, it can do what it does even better. It can create more community, more mutuality, and paradoxically, more profit, by engaging everyone in the system.

“Business is not about making as much money as possible. It is about creating value for stakeholders. It is important to say this and to enable business people to enact the story. We need to hold up the numerous companies, large and small, that are out there trying to do the right thing for the stakeholders, as the real paradigm of business, rather than deeply flawed companies like Enron.”19

When people realize that they are part of the largest force for positive social transformation in history, their self-perception changes.20

2. Conscious Capitalism and the Heroic Spirit of Business

The difference is intent. Unlike caterpillars, we cannot wait for nature to trigger our evolution to higher consciousness. Instead, we must work to raise our own consciousness and make deliberate choices that further our personal and organizational growth and development.

This was unprecedented in human history; for the first time, ordinary people were masters of their own destiny as a matter of law, and could through diligence and enterprise rise from nothing to great heights of material prosperity and social esteem.

You could argue that Berners-Lee did more to transform the world than any single individual in the past hundred years, including Churchill, Roosevelt, Gandhi, and Einstein. His invention is at least as dramatically culture changing as Guttenberg’s printing press was over five hundred years ago.

Because people today care about different things and are better informed, better educated, and better connected than in the past, their expectations from businesses in their roles as customers, team members, suppliers, investors, and community members are rapidly changing.

Perhaps the greatest change that we humans are experiencing is our rising consciousness.

We are gradually becoming more caring, holistic, and long term in our thinking. Many of us now see and feel the essential interdependence of all people and of all other living things. We recognize more clearly that we are all in the same boat; we must act both individually and collectively to plug the many leaks that our shared boat has sprung. This is a never-ending journey; we will continue to evolve in this way because it represents the evolutionary imperative for us as the most sentient of beings on this planet. The future of life on our planet and the fate of generations yet unborn will be greatly affected by the choices we make today.

“Business as usual” will not work anymore. We need a new paradigm for business, a new philosophy to lead and work by.

Conscious Capitalism is an evolving paradigm for business that simultaneously creates multiple kinds of value and well-being for all stakeholders:

Conscious Capitalism is not about being virtuous or doing well by doing good. It is a way of thinking about business that is more conscious of its higher purpose, its impacts on the world, and the relationships it has with its various constituencies and stakeholders.

It reflects a deeper consciousness about why businesses exist and how they can create more value.

…they are foundational; they are not tactics or strategies. They represent the essential elements of an integrated business philosophy that must be understood holistically to be effectively manifested.

Business has a much broader positive impact on the world when it is based on a higher purpose that goes beyond only generating profits and creating shareholder value. Purpose is the reason a company exists.

Higher purpose and shared core values unify the enterprise and elevate it to higher degrees of motivation, performance, and ethical commitment at the same time.

Conscious businesses recognize that each of their stakeholders is important and all are connected and interdependent, and that the business must seek to optimize value creation for all of them.

win-win-win-win-win-win (what we will refer to henceforth as Win6) solutions that transcend those conflicts and create a harmony of interests among the interdependent stakeholders.

Conscious leaders are motivated primarily by service to the firm’s higher purpose and creating value for all stakeholders. They reject a zero-sum, trade-off-oriented view of business and look for creative, synergistic Win6 approaches that deliver multiple kinds of value simultaneously.

Conscious businesses use an approach to management that is consistent with their culture and is based on decentralization, empowerment, and collaboration.

By embracing the principles of Conscious Capitalism, businesses can bring themselves into close harmony with the interests of society as a whole and align themselves with the evolutionary changes that we humans have been experiencing.

conscious businesses also excel at delivering exceptional financial performance over the long term.

“Some people may interpret the phrase Conscious Capitalism to be soft. But it is not soft at all. It is tough; it is challenging. You’ve got to do both. You have to perform, and you perform for a purpose. It’s like a sports team. You really care about working together as a team, but at the end of the game, you still want to win.”13

the right actions undertaken for the right reasons generally lead to good outcomes over time.

right.14 They treat all their stakeholders well because that is the right, humane, and sensible thing to do — and because it is also smart business practice to do so. They operate with a sense of higher purpose because that is what gets their people excited about coming to work. The leaders of conscious businesses care about service to others because that is ultimately what leads to fulfillment and value creation.

A good business doesn’t need to do anything special to be socially responsible. When it creates value for its major stakeholders, it is acting in a socially responsible way.

Collectively, ordinary business exchanges are the greatest creator of value in the entire world. This value creation is the most important aspect of business social responsibility. The whole idea of corporate social responsibility (CSR) is based on the fallacy that the underlying structure of business is either tainted or at best ethically neutral. This is simply not the case. As we showed in chapter 1, free-enterprise capitalism has helped improve our world in numerous ways. While businesses do not need to redeem themselves by doing good works in the world, there is nothing wrong with businesses focusing some of their attention on social and environmental challenges.

Conscious businesses believe that creating value for all their stakeholders is intrinsic to the success of their business, and they consider both communities and the environment to be important stakeholders.

Creating value for these stakeholders is thus an organic part of the business philosophy and operating model of a conscious business.

What is needed is a holistic view that includes responsible behavior toward all stakeholders as a core element of the business philosophy and strategy. Rather than being bolted on with a CSR mind-set, an orientation toward citizenship and society needs to be built in to the core of the business.15

Every human being is born relatively undeveloped, but holds the potential for virtually unlimited personal growth.

Businesses must view people not as resources but as sources.16 A resource is like a lump of coal; you use it and it’s gone. A source is like the sun — virtually inexhaustible and continually generating energy, light, and warmth.

Part One: The First Tenet: Higher Purpose

Meaning and purpose have always mattered to people, but they have taken on more urgent resonance with a growing proportion of us in the present times and will continue to grow in importance as society ages and we collectively become more conscious.

For companies, purpose matters because it energizes them and allows them to transcend the parochial concerns of individual stakeholders. When all stakeholders are aligned around a common higher purpose, they are less likely to care only about their immediate, narrowly defined self-interest. Having a higher purpose is the starting point of what it means to be a conscious business: being self-aware, recognizing what makes the company truly unique, and discovering how the company can best serve.

When all stakeholders are aligned around a common higher purpose, they are less likely to care only about their immediate, narrowly defined self-interest.

Having a higher purpose is the starting point of what it means to be a conscious business: being self-aware, recognizing what makes the company truly unique, and discovering how the company can best serve.

Core values constitute the guiding principles the business uses to realize its purpose.

…selling the highest-quality natural and organic products available, satisfying and delighting our customers, supporting team member happiness and excellence, creating wealth through profits and growth, caring about our communities and the environment, creating ongoing win-win partnerships with our suppliers, and promoting the health of our stakeholders through healthy eating education.

No matter its specific intent (see the sidebar “Examples of Higher Purpose”), a compelling purpose reduces friction within the organization and its ecosystem because it gets everybody pointed in the same direction and moving together in harmony.

Purpose must come before formulating a strategy.

Purpose refers to the difference you’re trying to make in the world, mission is the core strategy that must be undertaken to fulfill that purpose, and vision is a vivid, imaginative conception or view of how the world will look once your purpose has been largely realized.

…happiness cannot be pursued; it ensues as the result of living a life of meaning and purpose.10

…by doing work that matters, by loving others unconditionally, and by finding meaning in their suffering.

…it is socially irresponsible to run a business that does not consistently generate profits.

Just as happiness is best experienced by not aiming for it directly, profits are best achieved by not making them the primary goal of the business.

They are the outcome when companies do business with a sense of higher purpose, build their businesses on love and caring instead of fear and stress, and grow from adversity — Frankl’s principles reinterpreted for business. The paradox of profits is that, like happiness, they are best achieved by not aiming directly for them.

…neglecting or abusing the other constituencies in the interdependent system will eventually create negative feedback loops that will end up harming the long-term interests of the investors and shareholders, resulting in sub-optimization of the entire system.

They will also begin to see that the best way to maximize long-term profits is to create value for the entire interdependent business system. Once enough business leaders come to understand and accept this new business paradigm, Conscious Capitalism will reach a take-off point and the hostility toward business will start to dissipate.

“It is about the search, too, for daily meaning as well as daily bread, for recognition as well as for cash, for astonishment rather than torpor; in short, for a sort of life rather than a Monday through Friday sort of dying.”

Purpose-driven motivation is intrinsic motivation and is far more effective and powerful than extrinsic financial incentives.

People are most fulfilled and happiest when their work is aligned with their own inner passions.

It is therefore critical for purpose-driven organizations to hire, at every level of the company, people who align strongly with the purpose of the enterprise.

There’s no intrinsic reason why business should be different from any other human endeavor. The same enduring ideals that animate art, science, education, and many nonprofit organizations can and should also animate business.

We want to help make Conscious Capitalism the dominant economic and business paradigm in the world to spread human flourishing.

There is always unity within the diversity if our minds are able to see the integration.

As a company grows, the founding entrepreneurs sometimes make the purpose explicit and articulate the company’s core values. That is part of becoming a more conscious business, business that gradually becomes aware of its reason for being.

Once the purpose is articulated, it must live and breathe in the organization. This does not happen automatically; it requires strong determination by the senior leadership of the organization, especially the CEO.

Part Two: The Second Tenet: Stakeholder Integration

They treat satisfying the needs of all their major stakeholders as ends in themselves,

Conscious businesses understand that if we look for trade-offs, we always will find them. If we look for synergies across stakeholders, we can usually find those too.

Conscious Capitalism recognizes that business is the ultimate positive-sum game, in which it is possible to create a Win6 for all the stakeholders of the business. No one has to lose, not even competitors;

Adam Smith’s “invisible hand” works fairly well at the market level to align what companies do with what people need. At the company level, however, it is essential that the “conscious mind” of management create a system in which all major stakeholders are aligned with the purpose of the organization and with each other.

The purpose of every business ultimately revolves around creating value for customers.