Conscious Capitalism – pardon me?

Prof. Raj Sisodia, Founder of the Conscious Capitalism Institute, with publisher Bettina Gordon on the principles of Conscious Capitalism

With Passion and Purpose toward Profit

Nobel Peace Prize recipient Muhammad Yunus introduced the term to society, now it is on business leaders’ lips around the country: Conscious Capitalism. Bettina Gordon met the founder of the Conscious Capitalism Institute, Prof. Rajendra S. Sisodia for an interview on the new Capitalism 2.0.

By Bettina M. Gordon, publisher
(c) Photos by Nathalie Schueller

Prof. Rajendra Sisodia hurries across campus with quick steps. The professor of Marketing and co-founder of the Center for Marketing Technology at the renowned Bentley College, the Elite Business School near Boston, has a calendar as full as that of a Fortune 500 CEO even in the summer months. However, that has more to do with the new position that Prof. Sisodia took two years ago and which makes him a popular lecturer around the globe: He is the founder of the Conscious Capitalist Institute and thus at the front of a new capitalism, which is slowly but surely becoming socially acceptable on ever more floors of the business leaders. Based loosely on the motto: Unleashing the Power of Passion and Purpose!

The job of the institute is to study the facts about Conscious Capitalism, to collect the thoughts and suggestions of the CEOs of the new capitalism and to forward the processed knowledge to an academic consortium which will teach Conscious Capitalism at the business schools around the world in the future. “We are concentrating on research, education and training of Best Practice Models,“ explains Sisodia, “We want to introduce students to the foundations of the new capitalism and assist business people in mastering the transition to Conscious Capitalism.“

Sisodia already dealt with the parameters of the new capitalism intensively in his 2007 bestseller Firms of Endearment. The corporations that have subscribed to the new capitalism and have implemented solid management (neither morals nor correctness can save poorly managed companies from ruin) share specific values, business systems, and corporate culture.

Bettina Gordon: Prof. Sisodia, what is this Conscious Capitalism that’s generating a buzz in America?

Raj Sisodia: It’s a capitalism that firmly says “no more” to the old paradigm. The old capitalism focused solely on the well-being of the stockholders and the increase of profit, which undeniably did much damage in the world. The new Conscious Capitalism is driven by companies that not only are profitable but have a purpose as well and pursue said purpose with a passion.

Bettina: What do these companies have in common?

Companies, that pursue Conscious Capitalism, have three parameters in common. First, as mentioned, they pursue a purpose, a higher goal which transcends maximizing profit. The company and the managers are fully conscious of this purpose and pursue it energetically. Second, these companies are stakeholder and not just shareholder oriented. They have the interests and needs of the customers, employees, partners, investors, vendors, community and the environment in mind and don’t place the interests of one group above those of another.

And third, the CEOs and top managers of such companies are people who aren’t solely concerned with their own well-being and want to enrich themselves, as we have seen countless times before, from the Enron scandal up to the current financial crisis. We all know companies that, while having created wealth and jobs, caused damage at the same time, either to their employees, the environment, to society or others. Conscious leaders are mature people who act on a long-term vision. They keep the well-being of all stakeholders in mind and pursue a goal passionately that results in positive outcomes.

Doesn’t that sound a lot like CSR, like Corporate Social Responsibility?

Conscious Capitalism is much more than social responsibility. Innumerable companies today have a CSR department or have at least nominated a CSR expert, because it is in vogue at the moment and not necessarily because it fits with their inner attitude and the company culture. Often companies study the negative effects of their industry and then invest a lot of money to mitigate these negative effects instead of creating a new business model, so that these negative effects don’t occur to begin with. Many corporations have a significant investment in CSR without integrating it into the existing business model. Conscious Capitalism is solid business management and not just a CSR department.

Is a new capitalism necessary and appropriate?

Absolutely. Companies are the most powerful institutions in the world today with the greatest influence on the future. At the same time a majority of the population does not believe anymore, that corporations can be trusted. Corporations are described as greedy, self-serving, exploitative and indifferent. Especially in the first years of the 21st century we have seen countless examples of how scandalously business is conducted in numerous corporations. According to the New York Times only two percent of all investors still believe that CEOs are very trustworthy, 72% are of the opinion that improper dealings are the order of the day. More and more people are of the opinion that much is going wrong with corporations as well as with capitalism. The entire anti-globalization movement is primarily an anti-corporation wave. Things cannot continue like this.

In his bestseller “Firms of Endearment” the author high-lightet 28 conscious corporations

Bettina: In your bestseller “Firms of Endearment“ you carefully examined 28 corporations that have subscribed to Conscious Capitalism. Could you give some examples of a higher purpose that corporations are pursuing?

Let’s take Whole Foods, the grocery chain specializing in organic and high-grade food products. Whole Foods‘s goal and purpose is not just to sell food products, but to inform people that whatever they ingest in their body has an effect on their own health, on the health of the food system and further down the road on the health of the planet. In times like these, in which countless corporations are bringing products to market, that harm people and cause extreme overweight, diabetes, heart diseases and cancer, Whole Foods is focused on teaching how to heal a sick body and a sick system with new decisions.

John Mackey, the CEO of Whole Foods and pioneer of Conscious Capitalism, issued the declaration of interdependence to all employees years ago. All of us are interconnected and conscious founders and top managers are aware of their responsibility. In terms of a corporation this means, that customers, vendors, the environment etc. are not to be viewed as individual pieces, but as parts of the whole system and can only sustainably win, if everyone wins. Whole Foods sees it as their goal to educate people, so they can live healthier and longer and can influence the system positively with their decisions.

Bettina: What kind of purpose does an airline have, such as Southwest Airlines who you mentioned in your book?

The motto of Southwest Airlines is `Bringing Freedom to the Skies`. When the airline first took off into the sky, only 15% of Americans flew, because flying was expensive and only the large cities were served by the airlines. Today 85 – 88% of all Americans fly regularly, which can also be credited to Southwest Airlines, because the airline specialized on small cities early on and offered flights at affordable prices. They remain true to this day to this higher purpose, to bring the freedom of the skies to less affluent customers through affordable tickets. A current example: Even now that practically all competitors are currently charging an extra 15 and 25 dollars for each suitcase, Southwest Airlines has remained firm. `That does not fit our goal`, with that statement, management decided against the suitcase fee, even though external corporate advisors calculated that the airline loses about 400 million dollars in the process.

That is great news for the customers, but the Southwest investors certainly weren’t thrilled. What do the corporate profits look like? How have the stock prices of these companies faired when the CEOs prefer to focus on the purpose and well-being of everyone, rather than the profit?

That was the greatest surprise we had, when we finished the research for “Firms of Endearment”. We had selected the 28 corporations for humanitarian considerations – level of pay, employee loyalty, satisfaction of vendors etc. – and only examined the finances at the very end. And even though these companies frequently pay twice as much in salaries as is customary in their sector and offer very good insurance benefits, even though they pay more in taxes and let a lot of money flow into their communities, on the bottom line they are still much more profitable than the majority of their competitors. The stock prices of the corporations selected by us even outperformed the S&P 500 index in the 10 year comparison by 9 to 1! That was a pleasant surprise.

Conscious Corporations are more profitable than the competitors? How is that possible?

Exactly because these corporations have the well-being of everyone in mind, they function more efficiently and save in other areas. Conscious corporations, for example, only have about one tenth to one fourth of the marketing costs of their competitors. If as a corporation you do good and have good products and the employees love to do their jobs, then the market will react positively. Satisfied employees and customers are the best word of mouth advertisers, as well as the vendors, the community, even the media contribute to the name recognition of these corporations when they do good in the world. Expensive marketing strategies are often obsolete here.

These corporations save in some areas or alternatively expand in others and are thereby more profitable than the competition. Southwest Airlines, for example, may have forfeited 400 million dollars. Yet, exactly because they remained true to their motto and did not charge an extra suitcase fee, Southwest Airlines was able to expand their market share so significantly that they achieved over a billion dollars more in revenue. The net profit was higher than if they would have chosen to become more expensive for the customers. When corporations stay true to their purpose, then it pays off in most cases even if it is in a roundabout way.

A big point of criticism of many CEOs is the self-enrichment and the incredible wages that managers collect. How do the conscious CEOs fare here?

Whole Foods, for example, has an income limit which may not be exceeded. Even the high ranking managers may not earn more than 19-fold the average income. That is a voluntary limit that upper management decided upon and many conscious companies follow a similar example. Such an upper limit has proven to be very good for business, because the business management now consists of people who actually want to realize the mission and higher task of the corporation and didn’t just accept the job for the money. Especially the current financial crisis has delivered many examples of managers who were primarily financially motivated and made poor decisions or were not effective, in particular, because they primarily chased after the money. They thought in quarterly reports and not in years and that hurts many corporations in the end.

Earlier you mentioned employees who love their work. You don’t hear that often these days. Is that a characteristic of Conscious Capitalism?

Absolutely. The large majority of corporations today does not offer its employees the opportunity to grow reasonably. The predominant opinion is that employees need to be controlled. You have to supervise them, control them and tell them exactly what needs to be done. This attitude harks back to the Industrial Revolution, when people were viewed more like machines and they had to perform the same task day in and day out.

This paradigm has changed sharply, especially in the developed countries work has become much more creative and demands a certain amount of thinking outside of the box. For this kind of work it is not enough to want to motivate with a carrot and stick. According to several studies motivation even decreases when this punishment-reward mentality predominates at the workplace. The result is worse performance by the employees and less happiness.

How do conscious CEOs and managers lead their employees and why are these happier and more productive than others?

Do you know when the most patients with heart problems are admitted into emergency rooms? On Monday morning, when the new week starts. Our work and how we think about it will be the death of us. John Mackey has been saying since the beginning that he wants to found a corporation with Whole Foods that is based on love and not fear. Conscious Capitalists are prudent right from the start with the choice of employees. Employees aren’t merely selected based on their capabilities, but also measured by whether their inner attitude and their personal values match those of the corporation. Whole Foods employees are not just interested in food. They are fans of organic eating, a healthy life style and feel connected to the environment. Every employee shares the mission of the corporation to want to improve the well-being of the customers, the food industry and the environment. With that the daily work gains significance and becomes a task, instead of a burden. That motivates, fosters creativity and often gives the employees the sense of being called to do what they are doing.

Conscious corporations also give their employees more freedom and autonomy for decisions. All that results in more efficient employees with high performance and lowers the rotation and training costs for new hires. The Container Store, also a conscious corporation, and Whole Foods have both been ranked as one of the Top 10 best employers in America for years, both of them were number one – THE best place to work in the US – multiple times.

And how have the conscious business people dealt with the current economic crisis? Were there many layoffs?

The loyalty between conscious corporations and their employees is enormous in some cases. The Container Store, for example, felt the crisis sharply, because sales collapsed by up to 40%. They had to save drastically to survive. Nevertheless, they did not want to lay off any employees and also wanted to protect the part time employees who work during peak hours. All part time (or prime time, as they call them) employees stayed on and the full time employees took a temporary pay cut and a freeze on pay raises in order to prevent layoffs. In addition instead of simply cutting the margins for vendors, the managers and vendors studied the system and eliminated weaknesses and inefficiency, which drastically reduced costs. Employees and vendors are today even more passionately connected to the Container Store than before the sales collapse and all of them emerged stronger from the crisis.

You speak of love, sensitivity, intuition, compassion in Conscious Corporations – all characteristics that up to now were not prevalent in the business world and are often construed as weakness. Is the time ripe for such approaches?

We chose the term Conscious Capitalism very consciously, because it reflects the depth and complexity of the necessary changes in the business world and shows that ever more people in business perceive themselves and their environment more consciously. That can partially be credited to the fact that the population is getting older and we change when we age. In 1990 for the first time there were more Americans at an age of 40 years and above than below that, in Europa it looks similar.

When we get older, our values and our personality change as well. In our 20s and 30s the focus often lies on wealth, power and prestige, while we later increasingly contemplate the welfare of our children, the planet and what legacy we will leave behind one day. Love, understanding and compassion are part of an elevated consciousness and more and more people are willing to live and act accordingly, in the business world as well. The explosive growth of the internet has only strengthened this trend and connected millions of conscious people who are now putting pressure on corporations and demanding transparency.

Bettina: Does this development also have to do with ever more women taking high positions in the business world?

Definitely. The management style of women like Hillary Clinton, the former Ex Xerox Boss Anne Mulcahy, REIs Boss Sally Jewell or PepsiCos CEO Indra Nooyi shows how consciously numerous managers and politicians act. According to Forbes Magazine Nooyi was the most powerful woman in the business world in 2009. She no doubt is a particularly strong woman who at the same time has no problem showing emotions and cultivates an especially humane kind of leadership. For example, she writes personal letters to the parents and spouses of her managers and gives them recognition and praise. Nooyi leads with strength and love, a perfect example of Conscious Leadership of which we will see more and more in the future.

Here are a few highlights of a conscious enterprise:

• Business models have the simultaneous good of all stakeholders as a goal and do not prefer any individual group
• Manager salaries are relatively moderate
• Even the top managers cultivate open door politics
• Wages and insurance coverage of the employees lies significantly above the sector average
• Much lower marketing costs with higher satisfaction and loyalty of customers
• Careful selection of employees who passionately share the corporate mission
• Employee turnover is markedly lower than the industry standard
• Employees have more autonomy and decision making power
• Dealing with customers is consciously structured more “humanely” and emotionally ties them to the corporation
• The corporate culture counts as capital and the greatest advantage over the competition


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Category: Awesome Biz & Life Interviews

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