Conscious Capitalism

Updated on January 25, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Conscious Capitalism Definition

Conscious capitalism is a neo-economic system that takes its roots from capitalism, inculcating entrepreneurialism, freedom of trade, competition, and related elements along with consciousness. It builds free-market enterprises driven by social responsibility. These enterprises have higher purposes other than generating profits.

What is conscious capitalism

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Businesses that practice capitalism consciously include two major elements. These companies have a purpose that goes beyond profit maximization. All companies are managed to benefit stakeholders in the ecosystem, not just the shareholders. Hence, the aim is to go through the path of sustainable success to secure humanity’s and the planet’s future.

Key Takeaways

  • Conscious capitalism is a form of capitalism that looks beyond the ideology of profit maximization. Instead, it teaches the importance of culture, personal and professional goals, and other social obligations.
  • The objective of the conscious capitalism movement is to build enterprises that are dependable, real, creative, and nurturing. In addition, they hope to serve as a resource for their professional and personal development.
  • John Mackey and Rajendra Sisodia are the authors of Conscious Capitalism: Liberating the Heroic Spirit of Business, the book from which the concept evolved.

Conscious Capitalism Explained

Conscious capitalism is simple enough to understand, and the term has two words in it, conscious and capitalism. They convey the essence of capitalism that is consciously taken forward. This refers to the awareness to act according to consciousness is to be mindful of the act. In addition, it is to understand the circumstances and respond in a way that honors the values and goals of the enterprise. A conscious business thus fosters peace and prosperity for the community, not just the business or associated people around it. This concept emerged from the book “Conscious Capitalism Liberating the Heroic Spirit of Business” authored by John Mackey and Rajendra Sisodia.

The conscious capitalist credo describes its vision as creating trustable, authentic, innovative, and nurturing businesses. They aim to provide them with a source of personal and professional growth. They also intend to provide their stakeholders with financial, intellectual, social, cultural, emotional, spiritual, ecological, and physical benefits. In short, businesses work intending to make the world evolve to help people flourish and lead lives filled with compassion, purpose, and passion.

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Purpose

Companies do justice to Conscious capitalism by focusing on many areas, and some of them are listed down below:

Focus Areas of Conscious capitalism

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Diversity, equity, & inclusion:

Create enterprises with cultures that give people a sense of belonging. For example, to fight racism and uplift the section of the population that is traditionally underrepresented in business.

Environment:

Giving importance to sustainable practices and combating climate change through conscious practices.

Health and wellness:

Conscious capitalism give prime importance to the employees’ and their families’ mental and physical health. The provision of high-quality health care ensures this.

Local communities:

Involvement with issues promotes growth and development in the neighborhoods where individuals live and work.

Education:

Support quality learning opportunities for current employees and develop leaders inside and outside the workplace.

Global Poverty:

Granting equal access to the wealth creation made available by capitalism to lift poor communities domestically and internationally.

Human rights:

Preserve everyone’s right to life and liberty, irrespective of race, religion, nationality, ethnicity, language, gender identity, or any other status.

Standard of living:

Building a society where each person can support their family, live happily, and have the freedom to pursue their interests.

Four Tenets

The principles of conscious capitalism are formally known as the four tenants of the philosophy. Let us have a look at them in brief below:

Four Tents of Conscious capitalism

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#1 – Higher Purpose:

Businesses should have other motives apart from making money. Profits do not have to be considered a necessary means to achieve success. In this way, it builds a socially conscious community.

#2 – Stakeholder Orientation:

A conscious business enterprise recognizes the interdependency of life and the foundation of business. It, therefore, should create value within itself and for its shareholders (consumers, employees, laborers, vendors, investors, the business community, etc.).

#3 – Conscious Leadership:

Leaders lead with a vision. Good leaders create human social organizations, guide them to success, and inspire people to follow their path. Conscious leaders understand the importance of being socially conscious and act following it. They create value and harmonize the interests of the various stakeholders involved. They recognize this and therefore cultivate a conscious culture in business enterprises.

#4 – Conscious Culture:

Culture is one of the most significant values of cnscious capitalism. It contributes to the organization’s ethos, practices, and purpose. It helps build these aspects and connects the stakeholders and the business. All companies have a culture; it may be one of growth or toxic. However, conscious companies intentionally develop a culture that promotes enterprise values and purpose.

Examples

Let us consider the following instances to understand what is conscious capitalism and see how it works in a company or enterprise:

Example 1

Food industry ace Farmers Restaurant Group (FRG) reflected its commitment to conscious capitalism wherein it ensures every farmer is recognized and the consumers are aware of where and from whom the food comes from. Being owned by farmers, this restaurant group aims to explore ways in which food sourcing and the role of farmers can be brought to notice. It not only prioritizes conscious consumption, but also focuses on implementing ways to enhance employee well-being, given the later guarantee environmental sustainability.

Example 2

The American grocery chain Wegmans Food Markets, Inc., a privately held firm recorded an employee turnover in 2004 that was comparatively low at 6% compared to a 20% industry rate. The almost a century-old retailer stopped selling tobacco products in 2008. In this way, it sacrificed its profits for social good, for something it believed was good for society. It was established in Rochester in 1916 and now has its headquarters there. Wegmans has over 100+ stores as of 2022. In 2004, Forbes named it the “best place to work” in the United States. The company has its rules, working on the philosophy of good people working towards a common goal. Therefore, it pays its employees more than the industry average wage rates and provides retirement benefits.

Conscious capitalism companies such as the Wegmans Food Markets do not stray from doing business or wanting profits. Social good is one of its objectives, but it does not let it override other company goals. Companies and enterprises have different approaches to reaching that goal. For example, Starbucks’ conscious capitalism included methods of starting the campaign “#RaceTogether,” where they wrote the hashtag under coffee cups to talk about racial discrimination. This focuses on the issues of diversity, equity, and inclusion.

Benefits

Conscious capitalism is a philosophy, which when adopted makes an entity more reliable and trustworthy. This concept exhibits several features that reflect the advantages of it. Let us have a look at some of them:

  • Adopting conscious capitalism as a core value improves the image of a company, thereby making it the most trusted market entity.
  • Many consumers switch brands and prefer associating with the products that support a more sustainable manufacturing or production environment. They do this to support a good cause by buying products or services of the conscious capitalism-driven companies.
  • Investors are willing to invest in companies that adopt this philosophy as it has a positive impact on the environment.

Criticism

Besides having benefits, companies adopting this principle may find themselves facing some limitation, which leads to the criticism of the concept. Listed below are some of them to have a look at:

  • Adopting conscious capitalism to be socially and environmentally good to the atmosphere leads companies to compromise on profit-making.
  • Though there are investors who love to support a firm working in accordance with the environmental requirements and adopting ways to work in line with it, there are groups of investors who chase profits. Less profit would mean losing them for companies.
  • To adopt these principles, sometimes, it becomes mandatory to include some structural changes in organizations, which might not work as expected.

Conscious Capitalism vs CSR

Conscious capitalism and Corporate Social Responsibility (CSR) are terms that are mistakenly considered same, which they are not. Both these concepts differ with respect to their purpose and perception. The difference between them have been listed down:

  • Conscious capitalism is a philosophy that integrates the interests of the stakeholders alongside following the set values. On the contrary, in CSR, the stakeholders are expected to compromise with their interest.
  • The former advocates higher purpose and tend to establish a caring culture, while CSR goes beyond purpose and cultural aspects.
  • While profitability and ethical values go hand in hand in the conscious capitalism concept, profit-making takes a backseat and following ethics becomes a burden in fulfilling CSR.

Frequently Asked Questions (FAQs)

What is conscious capitalism?

It is a practice adopted by companies and enterprises that want to follow the path of capitalism but with ethical, conscious, value-filled practices. These companies want to build an ecosystem that benefits and nurtures its stakeholders.

Why is conscious capitalism important?

Crony capitalism has done more bad than good for humanity and the planet. Capitalism with consciousness aims to reverse the damage done. At least adopt practices that do not contribute to the detrimental factors that degrade the community and the planet.

What characteristics of conscious capitalism are evident?

Policies on employee welfare, gender equality, workplace safety, adopting environmentally sound practices or cutting down emissions, etc., reflect the idea of conscious capitalism.

What companies use conscious capitalism?

Conscious capitalism companies are companies that adopt practices involving goals that are beyond profit-making. Instead, they strive for a better tomorrow. Each company is different. For example, Starbucks’ conscious capitalism involves recruiting refugees. Through this, the company is allowing the grief-stricken community to start over.

This has been a guide to Conscious capitalism and its definition. Here, we explain it along with its examples, benefits, four tenants, criticism, vs CSR. You can learn more from the following articles –

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