September 4, 2019

from Greater Pacific Capital Newsletter, September 3, 2019

There has been a marked shift over the last several years with both investors and businesses increasingly developing a more holistic approach focused on both profit maximisation and having a positive social impact on various stakeholders including customers, suppliers, employees, and the overall environment.

With the world facing unprecedented risks[1] in terms of rising inequality, environmental degradation[2], national populism[3], the urgency of investors and businesses adopting a more ‘conscious’ approach to capitalism is all the more important.

Michael J. Gelb and Raj Sisodia are two of the leading authorities on how businesses and leaders can evolve towards and benefit from a more comprehensive and caring approach to managing their various stakeholders.  In their upcoming book, The Healing Organization: Awakening the Conscience of Business to Help Save the World, they discuss the need and rationale for businesses to transform, along with various examples of how companies have benefited by adopting such an approach.  Greater Pacific Capital talks to Michael about their journey and what businesses and investors can and should do to make capitalism more conscious and creative.

The Interview

What were the personal experiences that you had that drove you to spend time on evangelizing ‘conscious capitalism’ in the workplace? How did you get to know Raj and decide to work together on this book?

In 1982, with an idealistic dream to help save the world, I moved to Washington, D.C.—a place where it seemed that creative thinking, accelerated learning, and innovative leadership strategies were most desperately needed.  I began offering open-enrolment three-day ‘High Performance Learning’ seminars but was disappointed to discover that there were only a few registrants from government or the political sphere. Fortunately, the programs were popular with business people and this led to many opportunities for me to teach and consult with companies in the D.C. area and beyond.  This was the beginning of my realisation that the dynamism of business made it, rather than government, the greatest point of leverage for making a positive difference in the world.

In 2006, Raj, who became a friend after he had engaged me to teach creative leadership to his Executive MBA students at George Mason University, sent me a copy of the draft manuscript of his seminal book ‘Firms of Endearment: How World Class Companies Profit from Passion and Purpose’. Raj and his co-authors made a compelling business and academic case for what I had dreamed might be possible.  Suddenly, I realised that I wasn’t just a solo practitioner with a Quixotic notion of making a better world through helping businesses become more creative, conscious, and compassionate; I was part of a movement.  I shared with Raj how much his books had inspired me and he said that my books had a similar effect on him.  So it was natural for us to explore the possibility of writing something together.

For forty years, I have worked with visionary leaders around the world to support them in nurturing more innovative and human-centred cultures and to equip them with creative thinking tools and strategies that help translate ideals into reality.  The Healing Organization represents an expansion of my own learning about what’s possible.  Tempered by the decades, the dream with which I began my career is stronger and more vital than ever: I dream that together we can create a new story of business based on awakened conscience, through which we can help save the world.

The Healing Organization provides lots of examples of how, as you put it, “companies can profit from passion and purpose.”  What, in your view, are the best examples of this that you have seen?

There are two that stand out because they inspired us as exemplars of The Healing Organization: Southwest Airlines and Barry-Wehmiller.

Southwest’s stock market symbol is LUV, and it truly does operate with a sense of love and care towards all of its stakeholders.  In its nearly 50-year history, the company has been consistently profitable.  They’ve never had a strike, even though it is the most heavily unionized airline in the United States. They’ve never resorted to layoffs, even after 9/11 when all the other major airlines had massive layoffs. The passion and commitment of Southwest’s employees are phenomenal. It is a reflection of the business philosophy that long-time CEO Herb Kelleher articulated as: “The business of business is people-yesterday, today and forever.”

With nearly $3 billion in revenues in 2018, and a share price compounding at a rate of 17 percent for twenty years, Barry-Wehmiller has been built by Bob Chapman through the acquisition of more than a hundred companies, most of those were struggling or dying businesses, initially concentrated in small industrial towns in Wisconsin, Ohio, and Pennsylvania.  Chapman has never sold one of these businesses, rather he has revitalized them and in the process he has healed the lives of countless stakeholders.  Bob Chapman does not so much acquire companies as adopt them.  His “Truly Human Leadership” formula is simple and is expressed in a statement prominently displayed on the wall at the company’s headquarters in St. Louis: “We measure success by the way we touch the lives of people.”

The Healing Organization makes a compelling ‘business case’ for implementing initiatives to mitigate environmental and stakeholder impact and making a positive contribution to the world. Is it empirically proven that this works and improves profits and other measurable benefits?

Let’s pause and consider the premise of this question.  The traditional, narrow, shareholder-primacy approach to business, focused purely on financial outcomes, is rarely called on to justify itself in the face of blatantly obvious negative consequences in other dimensions.  The burden of proof is always on the more humane approach to business to justify its existence.  The human case and the business case must no longer be viewed as a trade off or compromise.  We need a new way of thinking about business that promotes human flourishing based on a recognition of the essential interconnection and interdependence of all stakeholders.

Moreover, business is not a hard science, like chemistry.  There are too many variables to be able to “prove” anything beyond a sceptical person’s ability and desire to invalidate any findings.  There is, however, plenty of evidence that shows that operating with a clear sense of purpose and having a holistic mindset that includes the well-being of all stakeholders pays off in the long run, not only in financial terms but in many other dimensions.

Businesses create, but can also destroy, at least eight kinds of wealth: financial, intellectual, social, cultural, emotional, spiritual, physical and ecological.  All of these matter.  Traditional businesses focus exclusively on financial outcomes and treat everything else that happens as a side effect or as they say in the military: ‘collateral damage’.  The Healing Organization rejects that idea. There are no side effects; there are only effects.  We do things and there are consequences.  The Healing Organization operates with awareness of the spectrum of effects it creates and aims to make them positive.

There has been a recent ‘trend’ towards adoption of “ESG”[4] practices by firms across sectors, and particularly in our industry (financial services).  You have also seen the rise of “ESG Funds” that invest in what they classify as conscious enterprises.  What do you attribute this shift to?  Do you think a critical mass of enterprises have started taking this seriously?

Yes.  This is now a mega-trend reflecting our growing consciousness of the limitations of the traditional approach to business.  We are at an inflection point, where instead of being viewed as “nice add-ons” ESG criteria will be considered foundational to any business.  In other words, the way we invest our money matters.  By making the decisions that we do, we are choosing to give life to certain things and not give life to other things.  We must invest in businesses that are enhancing the flourishing of life on the planet, in every dimension.  Anything less will soon be deemed simply unacceptable.

What is the best mechanism to implement these initiatives in corporations so that it goes beyond being a ‘tick the box’ exercise?  If the business case is easily provable, is evangelising it even required? Since the change has to be driven by people and business leaders, how do you fundamentally transform the way people behave?

Evangelising is “spreading the gospel” and gospel means good news.  The bad news is that many people are still stuck in an old mental model that assumes that business is all about profit maximization; after all, Milton Friedman said so, so it must be true!  That means selling as much and charging as much as we can, whether customers are benefited or not.  It means paying your employees as little as possible, squeezing your suppliers when you have the ability to do so, externalizing burdens on to society when you can get away with it and pushing many costs into the future for our children and their children to bear.  This way of thinking is habitual and despite the increasing awareness that it is no longer viable many remain stuck in this trap.

Of course, the superior financial performance of conscious businesses is an opportunity but also a trap.  Too many leaders are attracted to this idea simply because they see it as a way of making even more money.  In that case, we warn them that it probably will not work.  Ultimately, you have to do the right things for the right reasons.  Leaders have to believe in their heart and soul that having a positive impact on the lives of all of the stakeholders is inherently important because it is intrinsically the right thing to do, not just because it is likely to result in higher profits.  This requires a shift in consciousness that is not easy to bring about in many who have succeeded very well in financial terms under the old system.

There will always be box-tickers and those who are just waiting to see what is the latest business jargon they need to incorporate in order to get along or assuage their guilt, and then there are leaders with genuine conscience.  The Healing Organization is call to leadership, a call to conscience, an appeal to the best in the human spirit.  And, yes, it’s becoming apparent that companies that operate from a higher purpose beyond just making money will thrive.  These “Firms of Endearment” are not only much healthier places to work, they are loved by their customers and communities and they are more profitable than companies that focus solely on financial return.

Previous generations didn’t know that this was possible.  Once you know that this is possible, why would you consider doing anything else?

There has been a sharp increase in ‘social enterprises’, particularly in the developing world, which are focused on delivering to the bottom of the pyramid, sustainably, while being profitable. How (if at all) is a ‘Healing Organization’ you refer to different from these ‘social enterprises’?

Many of those social enterprises are indeed healing organizations by the very definition of what they are seeking to do.  But healing organizations are not limited to social enterprises focusing on the bottom of the pyramid.  Every business in every sector in every country can and should strive to be a place of healing for the people who work there, a source of healing for those it serves, and a force for healing in society.  Suffering is not the exclusive domain of people at the bottom of the pyramid, though the quality of suffering and the intensity of it obviously varies.

The book notes that “We are at an inflection point, a critical juncture in our history where we must awaken conscience and consciousness to evolve these operating systems [democracy and capitalism] to meet the crises of our time.” Both these ‘operating systems’ themselves are undergoing crisis today and giving rise to more insular attitudes and anxiety due to rising inequality, automation, etc. which in many ways act as barriers to the adoption of some of the initiatives that you propose: how do you address this issue?

We have to wade through the muck and slime to get to the other side.  We are now in a necessary period of taking stock of what has worked and what is not working in our systems of governance and capitalism.  It is the kind of pain that is inherent in transformation, as when a caterpillar dies to itself but eventually emerges as a butterfly.  The difference is that ours has to be a conscious process; we have to choose to evolve.  There are many glaring faults in the way we have practiced democracy and capitalism, but that does not invalidate their fundamental and essential role in shaping the future of humanity.  The Healing Organization proposes a new way of thinking about capitalism and democracy that celebrates and elevates the creative power of these twin operating systems.

The book’s focus is admittedly relatively US-centric. European and Scandinavian enterprises have evolved a model of “social capitalism” which considers a broader array of stakeholder responsibilities (including to the environment).  Europe seems to have gotten there without the ‘savage capitalism’ phase the US went through, which you discuss in the book.  Do you feel the US ended up with an economic advantage because it went through this phase first?

The economic advantage of the US is more to do with the positive elements of its ethos, the proverbial American Dream, that for the first time gave citizens a sense that they could achieve prosperity through creativity, innovation and hard work rather than through class, inheritance and status.  This was a radical, new idea supported by the rule of law, and it has generated the greatest dynamism, opportunity and prosperity the world has ever known. And it has become a global dream as potent in Bangalore and Beijing as it is in Boston and Bangor.   The “savage phase” is a perversion of that ideal, and it also manifested in parts of Europe during the Industrial Revolution, when working conditions at many factories in places like Manchester were horrific.  In Part 1 of the book we aim to show from a historical, philosophical and psychological perspective how capitalism went awry in the US and elsewhere and how it is beginning to self-correct, and how that correction process can accelerate and evolve.

Some may argue that the industrial age of “savage capitalism” in the US was a necessary epoch for it to progress to the information and services driven market that it is today.  Can the same principles be applied in a poorer, pre-industrial market like India, which still needs to go through rapid industrial growth in order to provide a basic standard of living, health and education?  In other words, can poorer markets ‘afford’ this at this stage of their development? Are there good corporate case studies of this in developing markets at scale?

From the top of Maslow’s Pyramid it’s easier to craft visionary ideas that may serve the 50% of the global population who are engaged in a daily struggle for survival.  But, it’s a mistake to imagine that conscious capitalism or the idea of healing businesses is a luxury item that can only be afforded by rich countries.  If anything, there is an even greater need to operate in this manner in poorer countries.  That is because the suffering is more intense and people are closer to the edge.  There are many examples of great conscious, healing companies in the developing world.  One of the best known is the Tata Group of companies in India, which have been operating in this manner for over 130 years.  The Tata Group has always considered society to be its first stakeholder and has seen its role as a steward of our shared resources for our shared prosperity.

Is democracy a necessary condition for implementing conscious capitalism? How could this be implemented in a large non-democratic country like China?

Democracy and capitalism do go hand-in-hand; both are rooted in freedom, dignity and respect for individuals.  But it is still possible, at a company level, to operate as a conscious business, regardless of whether the political system embraces democracy or not.  To the extent that a non-democratic country allows for free enterprise, we still have the opportunity to choose to operate in this way.  We are starting to see this in China with a kind of homegrown conscious capitalism movement that is rooted in China’s pre-communist heritage of Buddhism, Confucianism and Taoism.  The fact is that the consequences of unconscious or lower consciousness capitalism have been extremely dire in countries like China, where the environment has been hugely damaged and an estimated 1 million people a year die from overwork.

What would be your recommendations to the investment management industry?  There is already a large-scale move towards ‘responsible’ or ‘impact’ investing with a focus on environmental impacts, social and labour impact, and governance.  What more can and should the industry do to drive conscious capitalism?

Look for companies with a clearly articulated purpose that aligns with societal imperatives, shared values that are real and meaningful, and impact on the overall quality of life of customers and employees, and a commitment not only to do less harm but to actually restore the environment.

How should GPC, as an ‘impact investor’, think about this, and what should we seek to do differently?

GPC is poised to be a great healing organization.  You are way ahead in terms of global, creative, strategic thinking and you have an inspiring intention to “Succeed in situations that are dynamically shaped by the aspirations of rising peoples, their society, markets and rapidly changing environment – where rules seem to apply but are often rewritten and so require unusual thinking.”   And we propose that you articulate even more clearly the “Moral Sentiments” that guide your investments.

About the Authors

Michael J. Gelb is the world’s leading authority on the application of genius thinking to personal and organizational development, and the author of 16 books, including the bestseller How to Think Like Leonardo da Vinci. His books are available in 25 languages and have sold more than one million copies. Michael helps organizations around the world develop more creative, innovative and conscious cultures.

Raj Sisodia is the FW Olin Distinguished Professor of Global Business and Whole Foods Market Research Scholar in Conscious Capitalism at Babson College. He is also Co-Founder and Co-Chairman of Conscious Capitalism Inc. Raj has published ten books, including Conscious Capitalism: Liberating the Heroic Spirit of Business, Firms of Endearment: How World Class Companies Profit from Passion and Purpose, and Everybody Matters.

To pre-order The Healing Organization, please click on this link.

For other articles from Michael and Raj, please refer to: https://healingorganizations.com

[1] Please see the Sign of the Times Leader from November 2018, Rising Global Risk (and its Implications for India)
[2] Please see the Sign of the Times Leader from June 2015, Cleaning Up India Worth $250bn: The Moral and Economic Imperative of a Clean Environment
[3] Please see the Sign of the Times Leader from August 2019, National Populism and the New World Order
[4] “ESG” refers to Environmental, Social and Governance

©2019 GPC, Greater Pacific Capital LLP. All rights reserved

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