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CHAPTER 2

Conscious Capitalism and the Heroic Spirit of Business

What does it mean to become more conscious as individuals and as businesses? Consider one of nature’s many small miracles: a caterpillar transforming into a butterfly through the seemingly magical process of metamorphosis. For its brief existence, a caterpillar does little more than eat; that is seemingly its only purpose. Some caterpillars eat so much that they grow to one hundred times their original size. However, eventually the amazing process of metamorphosis begins. When the time is right, certain cells become activated in the caterpillar and it enters the cocoon phase, from which it emerges a few weeks later unrecognizably transformed into a creature of enchanting beauty, one that also serves an invaluable function in nature through its role in the pollination of plants and thus the production of food for others to live by.

This analogy can be applied to human beings as well as to the institutions that we have created in our own image—corporations. We humans can choose to exist at a caterpillar level, consuming all we can, taking as much as possible from the world and giving little back. We are also capable of evolving to a degree that is no less dramatic than what happens to a caterpillar, transforming ourselves into beings who create value for others and help make the world more beautiful. The same is true for corporations. They too can exist at a caterpillar level, where they strive only to maximize their own profits, extracting resources from nature and from human beings to do so. Or they can reinvent themselves as agents of creation and collaboration, magnificent entities capable of cross-pollinating human potentials in ways that nothing else can, creating multiple kinds of value for everyone they touch.

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.

A New Chapter in Human History

We human beings did not stop evolving when we became Homo sapiens; our evolution continued, but became more culturally and internally driven. The changes are most manifest in an increase in different types of intelligence and a rise in consciousness.

It may not seem obvious at first glance, but we are becoming smarter as a species. The Flynn effect shows that overall human analytical intelligence has been rising at an average rate of about 4 percent every decade for the past several decades.¹ In other words, a person testing at an average IQ of 100 today would have tested at close to 130 sixty years ago.

People are also far better educated worldwide. Literacy rates have risen rapidly, but the larger story is access to higher education. In the year 1910, only 9 percent of Americans had a high school diploma; today, about 85 percent do, and over 40 percent of Americans over the age of twenty-five have college degrees. Coupled with our overall higher collective intelligence, this means that many more of us are capable of comprehending and acting on greater complexity than ever before.

We will discuss the rise in consciousness momentarily, but first, let’s take a look at a significant recent turning point in our history.

1989: The World Changes

An extraordinary historical coincidence occurred when Adam Smith’s Wealth of Nations was published in 1776, the same year that the United States issued its Declaration of Independence. The world soon witnessed the incredible power of free people and free markets coming together, especially in the United States. 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.

Another almost equally historic year occurred more recently in 1989, which marked several epochal changes in society and technology. Consider three momentous events that took place that year.

The Fall of the Wall

Preceded by the dramatic but failed Chinese uprising in Tiananmen Square in June, the fall of the Berlin Wall on November 9, 1989, triggered the collapse of communist regimes all over Europe, something that was unthinkable just a few years before. Without a shot being fired, the defining ideological debate of the twentieth century between competing systems for organizing human society was suddenly over. Capitalism and democracy decidedly won that epic battle, and the debates that remained were about the types of democracy and the degree of economic freedom that worked best.

The Birth of the Web

Working in Switzerland at CERN (the European Organization for Nuclear Research), British physicist Tim Berners-Lee invented the World Wide Web in 1989.² His creation has rapidly transformed the world in myriad ways. 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. In an extraordinarily short time, the Web has evolved into a shared nervous system that links much of humanity. We now enjoy an unprecedented level of information egalitarianism; ordinary people today have access to virtually limitless information on any subject, anytime, anyplace, instantly at almost zero cost.³ The richest billionaire in the world did not have such access twenty years ago. We have entered an era of extraordinary transparency, in which most corporate and governmental actions and policies can easily become public knowledge, particularly if they are controversial. We are far more connected, through the Web (especially through social media such as Facebook, which will soon have over one billion members worldwide) and through mobile technologies. There are now more phone connections in the world than there are people; we have zoomed from two billion phone connections in the world in 2001 to over seven billion now.⁴

The United States Enters Midlife

The median age of adults is rising rapidly in most countries as birth rates fall and life expectancies increase. For the United States, the year 1989 marked a major turning point: for the first time, there were more adults over the age of forty than below.⁵ The “psychological center of gravity” for society as a whole shifted into midlife and beyond.⁶ This silent passage marked a gradual but significant transformation of the zeitgeist toward midlife values such as caring and compassion, a greater desire for meaning and purpose, and concern for one’s community and legacy. Even young people started to exhibit these characteristics; by many accounts, the millennials (the generational cohort born approximately between 1980 and 2000) are the most socially and environmentally conscious generation we have ever seen. The median age of adults continues to rise virtually everywhere in the world. It is now about forty-four in the United States, in the high forties throughout Europe, and in the fifties in Japan.⁷ Midlife values are ascendant and will soon become dominant throughout much of the world.

These factors have dramatically changed society and created a transformed landscape for business. We care about many different things because our value systems are shifting, we have much more information, we are better equipped intellectually to process that information, and we can quickly connect with others who are similarly inclined and galvanize them into shared action.

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. Unfortunately, most companies have not evolved to keep pace with all these changes and are still doing business using mind-sets and practices that were appropriate for a very different world. It is now time to change that.

Our Rising Consciousness

Perhaps the greatest change that we humans are experiencing is our rising consciousness. To be conscious means to be fully awake and mindful, to see reality more clearly, and to more fully understand all the consequences—short term and long term—of our actions. It means we have a greater awareness of our inner self, our external reality, and the impacts we have on the world. It also means having a greater commitment to the truth and to acting more responsibly according to what we know to be true.

One indication of our rising consciousness is that many practices that we found acceptable in the past are unthinkable today. Consider the following: Until 150 years ago, slavery was widely accepted by a large number of people around the world and was the law of the land in many countries; 100 years ago, most people (including many women) thought it acceptable to deny women the right to vote; 75 years ago, colonialism was still widespread and generally accepted; 50 years ago, most people accepted racial segregation as a way of life; 40 years ago, few people knew much or cared about environmental issues; 25 years ago, communism was still seen by many as a viable way to organize our economic and political lives.⁸

One key indicator of rising consciousness is declining violence. As Steven Pinker documents in his recent book, the present era is “less violent, less cruel and more peaceful” than any other in human history. There is less violence in families, in neighborhoods, and among countries. The probability of dying violently, through war, terrorism, attacks by animals, or murder, is lower than any time previously. People are also less likely than in the past to experience cruelty at the hands of others.⁹ Values like caring, nurturing relationships, and compassion are ascendant throughout society. Billions of us have consciously expanded our circles of concern for whom we feel empathy.

Of course, we still have plenty of room for improvement. Decades from now, we will no doubt look back on many practices that are commonplace today (such as the treatment of livestock animals) in disbelief. On this journey of constantly rising and evolving consciousness, the scope of our concerns keeps growing wider but also somehow simpler. 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.

In a vastly different time and context, Abraham Lincoln said, “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise—with the occasion. As our case is new, so we must think anew, and act anew.”¹⁰ All of these changes and challenges offer great business opportunities, but they cannot be effectively addressed if we use the same mental models we have operated with in the past. “Business as usual” will not work anymore. We need a new paradigm for business, a new philosophy to lead and work by.

Imagine …

Imagine a business that is born out of a dream about how the world could be and should be. The founders are on fire to create something of relevance, resonance, and permanence—a business that will far outlive them, that delivers real value of multiple kinds to everyone it touches. They want to create a business that their parents and children will be proud of, that aspires to so much more than making money—a force for good that enhances the health and well-being of society. They dream of creating a business that enriches the world by its existence and brings joy, fulfillment, and a sense of meaning to all who are touched by it.

Picture a business built on love and care rather than stress and fear, whose team members are passionate and committed to their work. Their days race by in a blur of focused intensity, collaboration, and camaraderie. Far from becoming depleted and burned out, they find themselves at the end of each day newly inspired and freshly committed to what brought them to the business in the first place—the opportunity to be part of something larger than themselves, to make a difference, to craft a purposeful life while earning a living.

Think of a business that cares profoundly about the well-being of its customers, seeing them not as consumers but as flesh-and-blood human beings whom it is privileged to serve. It would no more mislead, mistreat, or ignore its customers than any thoughtful person would exploit loved ones at home. Its team members experience the joy of service, of enriching the lives of others.

Envision a business that embraces outsiders as insiders, inviting its suppliers into the family circle and treating them with the same love and care it showers on its customers and team members. Imagine a business that is a committed and caring citizen of every community it inhabits, elevating its civic life and contributing in multiple ways to its betterment. Imagine a business that views its competitors not as enemies to be crushed but as teachers to learn from and fellow travelers on a journey toward excellence. Visualize a business that genuinely cares about the planet and all the sentient beings that live on it, that celebrates the glories of nature, that thinks beyond carbon and neutrality to become a healing force that nurses the ecosphere back to sustained vitality.

Imagine a business that exercises great care in whom it hires, where hardly anyone ever leaves once he or she joins. Imagine a business with fewer managers, because it doesn’t need anyone to look over peoples’ shoulders to make sure they are working or know what to do, a business that is self-managing, self-motivating, self-organizing, and self-healing like any evolved, sentient being.

See in your mind’s eye a business that chooses and promotes leaders because of their wisdom and capacity for love and care, individuals who lead by mentoring and inspiring people rather than commanding them or using carrots and sticks. These leaders care passionately about their people and the purpose of their business and little for power or personal enrichment.

Imagine a business that exists in a virtuous cycle of multifaceted value creation, generating social, intellectual, emotional, spiritual, cultural, physical, and ecological wealth and well-being for everyone it touches, while also delivering superior financial results year after year, decade after decade. Imagine a business that recognizes that while our planetary resources are limited, human creativity is unlimited and continually fosters the conditions in which its people can rise to their extraordinary, almost miraculous potential.

Such businesses—suffused with higher purpose, leavened with authentic caring, influential and inspirational, egalitarian and committed to excellence, trustworthy and transparent, admired and emulated, loved and respected—are not imaginary entities in some fictional utopia. They exist in the real world, by the dozens today but soon to be by the hundreds and thousands. Examples of such companies today include Whole Foods Market, The Container Store, Patagonia, Eaton, the Tata Group, Google, Panera Bread, Southwest Airlines, Bright Horizons, Starbucks, UPS, Costco, Wegmans, REI, Twitter, POSCO, and many others. In the decades ahead, companies such as these will transform the world and lift humanity to new heights of emotional and spiritual well-being, physical vitality, and material abundance.

Welcome to the heroic new world of Conscious Capitalism.

The Tenets of Conscious Capitalism

Conscious Capitalism is an evolving paradigm for business that simultaneously creates multiple kinds of value and well-being for all stakeholders: financial, intellectual, physical, ecological, social, cultural, emotional, ethical, and even spiritual. This new operating system for business is in far greater harmony with the ethos of our times and the essence of our evolving beings.

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.

FIGURE 2-1

The four tenets of Conscious Capitalism

Conscious Capitalism has four tenets: higher purpose, stakeholder integration, conscious leadership, and conscious culture and management (figure 2-1). The four are interconnected and mutually reinforcing. We refer to these as tenets because 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.

Higher Purpose

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. A compelling sense of higher purpose creates an extraordinary degree of engagement among all stakeholders and catalyzes creativity, innovation, and organizational commitment.¹¹

Purposeful companies ask questions such as these: Why does our business exist? Why does it need to exist? What core values animate the enterprise and unite all of our stakeholders? 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. As the figure shows, higher purpose and core values are central to a conscious business; all the other tenets connect back to these foundational ideas.

Stakeholder Integration

Stakeholders are all the entities that impact or are impacted by a business. 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. All the stakeholders of a conscious business are motivated by a shared sense of purpose and core values. When conflicts and potential trade-offs arise between major stakeholders, conscious businesses engage the limitless power of human creativity to create 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 Leadership

You cannot have a conscious business without conscious leadership. 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.

In addition to high levels of analytical, emotional, and spiritual intelligence, leaders of conscious businesses have a finely developed systems intelligence that understands the relationships between all of the interdependent stakeholders. Their fundamentally more sophisticated and complex way of thinking about business transcends the limitations of the analytical mind that focuses on differences, conflicts, and trade-offs.

Conscious Culture and Management

The culture of a conscious business is a source of great strength and stability for the firm, ensuring that its purpose and core values endure over time and through leadership transitions. Conscious cultures naturally evolve from the enterprise’s commitments to higher purpose, stakeholder interdependence, and conscious leadership. While such cultures can vary quite a bit, they usually share many traits, such as trust, accountability, transparency, integrity, loyalty, egalitarianism, fairness, personal growth, and love and care.

Conscious businesses use an approach to management that is consistent with their culture and is based on decentralization, empowerment, and collaboration. This amplifies the organization’s ability to innovate continually and create multiple kinds of value for all stakeholders.

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 Capitalism provides an ethical foundation that is essential but has been largely lacking in business. We believe that businesses should lead the way in raising consciousness in the world. The larger the company, the greater its footprint and therefore its responsibility to the world. Our friend Kip Tindell, cofounder and CEO of The Container Store, refers to this as the “power of the wake.”¹² Just as a ship leaves behind it a large body of turbulent water, so too do individuals and companies leave a wake behind them. However, most of us are so focused on our destination that we never look around to appreciate the full impact we have on the world.

The Financial Performance of Conscious Businesses

Like all businesses, conscious businesses are subject to the discipline of the market, and they need to deliver strong financial results. Appendix A addresses the important issue of the financial performance of conscious businesses in detail, but here is a preview. In addition to creating social, cultural, intellectual, physical, ecological, emotional, and spiritual value for all stakeholders, conscious businesses also excel at delivering exceptional financial performance over the long term. For example, a representative sample of conscious firms outperformed the overall stock market by a ratio of 10.5:1 over a fifteen-year period, delivering more than 1,600 percent total returns when the market was up just over 150 percent for the same period.

As Bill George, former CEO of Medtronic and one of the foremost conscious leaders of our times, puts it, “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 Conscious businesses win, but they do so in a way that is far richer and more multifaceted than the traditional definition of winning, in which others must lose for someone to win.

Doing What Is Right Because It Is Right

Conscious businesses have a simple but powerful belief: the right actions undertaken for the right reasons generally lead to good outcomes over time. If we allow ourselves to become too attached to what the Buddha called a “cherished outcome,” we become more likely to engage in actions that seem to work in the short term, but may have harmful long-term consequences. Conscious businesses do what is right because they believe it is 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.

We never actually fully control outcomes in our lives, but in business, we have created a deep-seated illusion that we do. What we can do is learn to control our actions and reactions. Traditional businesses give their managers hard targets for metrics like market share, profit margins, and earnings per share. Such metrics confuse cause and effect. To achieve those numbers—which are just abstractions—managers often knowingly undertake actions that are harmful to stakeholders, including, ultimately, shareholders. For example, managers might squeeze their team members or their suppliers. These actions may deliver the desired numbers in the next quarter, but they also plant the seeds for much bigger problems in the future. This is what happened to Toyota a few years ago, when the company started to set numerical goals for sales growth and market share. Managers throughout the organization soon shifted their focus to meeting the numbers and away from creating safe and reliable cars. The result: a spate of quality and safety problems that greatly tarnished the hard-won reputation of the company.

The lesson is to focus on the things we can control, which are our actions and our reactions, and trust that the right actions will lead to positive outcomes, not always immediately but in the long term. The positive outcomes may not be exactly what we had in mind. Depending on the quality of our actions and external factors, they could be different but far better.

Conscious Capitalism Is Not Corporate Social Responsibility

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.

By contrast, firms that are primarily profit-driven tend to graft social and environmental programs onto a traditional business profit-maximization model, usually to enhance the firm’s reputation or as defensive measures to ward off criticism. Many such efforts are really about public relations and have rightly been dismissed as “green-washing.” 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 Table 2-1 summarizes the key differences between Conscious Capitalism and CSR.

TABLE 2-1

How Conscious Capitalism differs from Corporate Social Responsibility

Corporate Social Responsibility	Conscious Capitalism
Shareholders must sacrifice for society	Integrates the interests of all stakeholders
Independent of corporate purpose or culture	Incorporates higher purpose and a caring culture
Adds an ethical burden to business goals	Reconciles caring and profitability through higher synergies
Reflects a mechanistic view of business	Views business as a complex, adaptive system
Often grafted onto traditional business model, usually as a separate department or part of public relations	Social responsibility is at the core of the business through the higher purpose and viewing the community and environment as key stakeholders
Sees limited overlap between business and society, and between business and the planet	Recognizes that business is a subset of society and that society is a subset of the planet
Easy to meet as a charitable gesture; often seen as “green-washing”	Requires genuine transformation through commitment to the four tenets
Assumes all good deeds are desirable	Requires that good deeds also advance the company’s core purpose and create value for the whole system
Implications for business performance unclear	Significantly outperforms traditional business model on financial and other criteria
Compatible with traditional leadership	Requires conscious leadership

A Way Forward

Every human being is born relatively undeveloped, but holds the potential for virtually unlimited personal growth. Likewise, business and free-enterprise capitalism can also evolve to richer purposes and extraordinary positive impact. Conscious Capitalism brings our rapidly evolving consciousness together with a keen appreciation for the core principles that animate capitalism. It enables us to better use this great system of social cooperation in ways that will transform our lives for the better and bring opportunity and hope to the billions on the planet still living with poverty and deprivation.

In the early years of the twenty-first century, we are becoming acutely aware that our natural resources are finite. But we are also coming to realize that there is no limit to our entrepreneurial creativity. When we learn how to manifest our creativity on a mass scale, when many more of the seven billion of us are enabled to blossom and empowered to create, we will discover there is no problem on earth that we cannot solve, no obstacle we cannot overcome.

Just as splitting the atom unleashed the awesome power hidden inside that seemingly inconsequential particle, Conscious Capitalism offers the promise of tapping into human potential in ways that few companies have been able to do. 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. There is no more powerful source of creative energy in the world than a turned-on, empowered human being. A conscious business energizes and empowers people and engages their best contribution in service of its noble higher purposes. By doing so, a business has a profoundly positive net impact on the world.

We believe that the way forward for humankind is to liberate the heroic spirit of business and our collective entrepreneurial creativity so they can be free to solve the many daunting challenges we face. Our world does not lack for business opportunities: there are billions of people whose basic needs are not being adequately met, and we need to rethink how we can continue to meet the needs of the already-prosperous in a more sustainable manner. Companies that recognize this and unlock the natural human creative spirit to address these challenges and capitalize on these opportunities will flourish for a long time.

This journey starts with the discovery of a company’s unique higher purpose, an idea that we will explore in the next two chapters.