The New Capitalists
By Joseph Hart
Is it possible to make money and really make a difference?
If you are one of the 8 percent of American consumers who refuse to shop at Wal-Mart for ethical reasons, you might want to pop some valerian tablets before you read on.
Wal-Mart: ethical leader. Wal-Mart: environmental steward. Wal-Mart: socially responsible corporation.
If you didn’t hurl the magazine across the room, consider the following: In 2004 Wal-Mart established a “global ethics office” to enforce 10 principles, including to “never manipulate, misrepresent, abuse, or conceal information” and “never act unethically — even if someone else instructs you to do so.” Employees have access to a confidential hotline to report abuses.
In October 2005 CEO Lee Scott announced a long-range plan to use 100 percent renewable energy at the company. For starters, Wal-Mart is working on a new store design that will reduce energy use by 30 percent in the next three years and plans to double the fuel efficiency of its truck fleet — one of the largest in the world — by 2015.
Earlier this year, the company rolled out expanded benefits for its workforce, which management claims are among the best in the retail sector.
If you can’t keep your cynical side from making you squirm, maybe it’s because you can’t forget the New York Times story in October 2005 that revealed that 46 percent of the chain’s employees’ children are uninsured or on Medicaid. The company has been fined repeatedly for violating the Clean Water Act, including $3.1 million in 2004 for failing to contain runoff at construction sites. Wal-Mart hired Eugene Scalia, former solicitor of the Department of Labor and son of U.S. Supreme Court associate justice Antonin Scalia, to defend the corporation against three whistle-blower lawsuits, and federal prosecutors just recently nailed vice chairman Tom Coughlin for embezzling $500,000 to buy, among other things, supplies for his hunting dogs and a couple cases of Smirnoff. (When he was accused, Coughlin claimed he used the money for union busting, a response that can be filed under cold comfort.)
So which is the real face of Wal-Mart? The easy-being-green family-owned company that donated nearly $1 million to make Sesame Street episodes that help military kids cope with the Iraq war? Or the I-love-trash megachain that, according to a study conducted at Penn State, actually ends up reinforcing, not improving, countywide poverty rates when it plops down a store?
The plain fact is that in today’s business world, as companies of all sizes embrace “corporate social responsibility,” or CSR, villains can be heroes and the Man often acts like a gentleman. The simple principle of CSR is that companies should enhance the public good. As a result, a growing number of giant international corporations are appointing CSR vice presidents, launching environmental programs, scrutinizing suppliers’ human rights records, and adopting ethical guidelines to govern corporate behavior.
Critics of CSR say it’s a sop to special interest groups and unions, a ploy to promote deregulation, or a “greenwash” to cover up malfeasance (many companies, like Wal-Mart, have websites peppered with heartwarming facts and stories). But there’s no denying that CSR initiatives have genuine value. If every corporation adopted Wal-Mart’s pledge to reduce energy use by 30 percent in the next three years, for example, the effect would be profound.
CSR also represents a fundamental shift in our collective understanding of the role of business in society. It’s no longer enough, more and more corporations are conceding, for capitalism to simply make money. It must also make a difference.
Back in 1982, futurist John Naisbitt accurately predicted globalization and the information age in his outrageously successful book Megatrends (Warner Books). He and his partner, Patricia Aburdene, turned the book into a megabrand with regular forays into the future. The latest, Megatrends 2010 (Hampton Roads, 2005), penned by Aburdene alone, predicts “the rise of conscious capitalism.”
Aburdene says that capitalism is finding its soul and traces the discovery to the activist movements of the 1970s and 1980s that lobbied successfully for, for example, divestment of South African stocks. Since then, a growing number of Americans have sought a spiritual path and they’re bringing their spirituality into the workplace. Add the refusal of GenXers to sacrifice life for work and the campaigns by students against corporate abuses like sweatshop labor, and the broad seeds of a grassroots revolution were planted.
Then came the now-familiar series of disasters in global capitalism: the tech-stock bubble, the Asian market crash, 9/11, and waves of U.S. corporate scandals. And business as usual hit the breaking point. “We have been facing the worst crisis in capitalism since the Great Depression,” Aburdene told Utne, “and we are seeing the cost of what I call ‘unconscious’ capitalism — the idea that the sole purpose of business is to make money.”
Now-retired U.S. Federal Reserve chairman Alan Greenspan wrote the obituary for bottom-line thinking, unknowingly perhaps, in 2002. As Congress debated its response to Wall Street’s book cooking, Greenspan criticized the architects of the scandals. “An infectious greed seemed to grip much of our business community,” he told the Senate Committee on Banking, Housing, and Urban Affairs. “Our market system depends critically on trust. Trust in the word of our colleagues and trust in the word of those with whom we do business.”
In the world of free-market, bottom-line capitalism, the underlying logic driving Greenspan’s comments is radical: It opens the door to an entirely different way of seeing business — one that allows room for values other than self-interest.
Free-market capitalism rests on the creed that the supremacy of self-interest makes the market the only “realistic” method of organizing our society. The Economist, for example, in January 2005 ran a lengthy critique of CSR, which argued that “for strictly selfish reasons,” corporations do the right thing: “The goal of a well-run company may be to make profits for its shareholders, but merely in doing that — provided it faces competition in its markets, behaves honestly, and obeys the law — the company, without even trying, is doing good works.”
The illogic is typical: Either the company is acting out of “strictly selfish reasons,” or it is balancing that selfishness with honesty and lawfulness.
Inevitably, the Economist article conjures the ghost of Adam Smith, whose “invisible hand” theory is a favorite of the free-market-at-any-cost set. Merely by pursuing our own interests, Smith posits, we advance the interests of society as a whole. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner,” he wrote in The Wealth of Nations, “but from their regard to their own interest.”
Introduce an imbalance in power, however, and Smith’s theory collapses and powerful elites become ruthless in their pursuit of self-interest, as they did in the Stalinist labor camps and the slave plantations of the Old South.
Moreover, self-interest is only one facet of human behavior. The butcher throws scraps to his dog — where’s the self-interest in that? He might give a bargain to a customer out of pity or plain old friendliness. In fact, the entire theory represents such a diminished view of humanity and is so disprovable in practice that it’s surprising anyone believes it. Or would be, if it didn’t rationalize greed.
A better word for the relationship between the butcher and his customer is reciprocity. Smith’s notion of self-interest is easily contained in the term — in a reciprocal relationship, after all, both sides get something. But unlike mere self-interest, reciprocity implies mutual acknowledgment, interdependence, and diplomacy. In short, it’s the “win-win” of reciprocity, not greed masquerading as self-interest, that forms an appropriate foundation for a civil society.
If Donald Trump is the comb-over king of the Adam Smith bottom-liners, the figurehead of reciprocity is Josh Mailman. You won’t find his name in gold letters on any skyscrapers; Mailman’s style is unassuming. He is, however, a remarkably active philanthropist and an entrepreneur who invests heavily in businesses that reflect his progressive values. His fingerprints are on virtually every major socially responsible business venture in the nation.
In 1987 Mailman helped form the Social Venture Network, a kind of incubator for entrepreneurs who measure success by the “triple bottom line” of people, planet, and profits. Over the years, the organization has in turn launched a number of initiatives, including Business for Social Responsibility, which helps large corporations adopt CSR initiatives; the Business Alliance for Local Living Economies, which promotes local and sustainable practices for small entrepreneurs; and Net Impact, which functions as a network for swapping ideas for young socially minded leaders.
Social Venture Network’s membership includes familiar brands like Clif Bar, Greyston Bakery, and Tom’s of Maine. It also includes progressive media outlets, such as Mother Jones, the Nation, and Utne (editor in chief and CEO Nina Utne is on the board).
Unlike larger corporations, smaller socially responsible entrepreneurs aren’t seeking to balance “immoral” profit seeking with “moral” social responsibility projects, says Social Venture Network co-executive director Pam Chaloult. Instead, “they believe, fundamentally, that business can be and should be a force for social change.” The triple bottom line is built right into their business plans.
For example, Pura Vida, a leading fair trade coffee dealer based in Seattle, not only offers farmers a just price, it invests millions of dollars in the Latin American communities where the coffee is grown; the Wisconsin co-op Organic Valley is run by farmers who take home 45 percent of the company’s profits (see page 46).
Because they are guided by a mission of change, unfettered by corporate legal structures, and agile in their response to changing customer demands, socially minded entrepreneurs running small-scale businesses are the natural leaders of the new capitalism of reciprocity. They have “helped initiate a fundamental shift in the way private enterprise is conducted,” writes the founder of the green cleaning products company Seventh Generation, Jeffrey Hollender, in What Matters Most (Basic Books, 2003). “Big global companies have begun speaking our language and even emulating some of what we’ve done.”
There is at least one major obstacle to corporate America’s getting a conscience: the legal structure of the corporation itself. “It is set up by statute to serve the best interest of the shareholder, and that’s creating wealth,” says Joel Bakan, author of The Corporation (Free Press, 2004) and collaborator on the recent film by the same name. “Any manager or director who actually pursued the triple bottom line at the expense of shareholder interests would be acting illegally.” (To read a Q&A with Bakan, see page 48.)
One fix to that problem is to expand the notion of “shareholder interests.” Since the 1960s, coalitions of activists, religious groups, and investors have introduced shareholder resolutions to denounce corporate misdeeds and demand reform. The proliferating social investment funds, which screen corporations for various ethical practices, frequently hold stocks in “bad” companies for this very purpose. Since the Wall Street accounting scandals, the number of these resolutions has reached record levels, and votes in their favor are on the rise. Thus far, actual reforms have been relatively modest, tending toward negotiations and releases of reports, not shifts in conduct.
Another reform strategy is to change the legal definition of corporations. Businesspeople and reformers in several states, including Minnesota, California, and Missouri, are attempting to craft legislation that would do so. One such group is the Boston-based Corporation 2020, an organization founded by Business Ethics magazine and the Tellus Institute, which proposes a new kind of charter that balances profit margins with environmental stewardship, human rights, and ethical practices.
There will probably always be an inherent contradiction between making a buck and making a difference. Enron itself, in the year before its collapse, released a triple bottom line CSR report that promised to slash greenhouse emissions, honor global human rights, and strive for honesty and transparency. Certainly until corporations are legally compelled to expand the notion of shareholder value from its current narrow focus on profits, environmental and social justice policies will have to be justified in terms of making money — whether by direct savings or through the indirect rewards of marketing and public relations.
Some hope, however, that the combined forces of CSR values, consumer demand, and shareholder pressure can align doing well with doing good. For example, fuel costs are compelling corporations to reduce their energy dependence at the same time that consumers are demanding greener goods. The end result, intended or not, is environmental reform.
Consider Wal-Mart’s energy independence pledge. “We have taken a lot of heat from some of our supporters for working with Wal-Mart,” says Cory Lowe, outreach coordinator at the nonprofit Rocky Mountain Institute, which is providing technical support in Wal-Mart’s store and truck redesigns. “But we want to save the most barrels of oil we can. Wal-Mart’s fleet gets 6 miles per gallon, which is terrible. We’re going to move them to 12, and that alone will make a huge difference.”
Stories like this one, says Megatrends author Patricia Aburdene, prove that honoring values other than profits can actually improve the bottom line. “Money isn’t the root of all evil — pursuit of money is,” she says. “Conscious capitalists want to make money, too, and to that extent we’re just as greedy as we used to be. But we want to do it by doing right by our communities and our employees and the planet as a whole. The fact that our businesses are outperforming the unconscious capitalists shows that we’re onto something.”
Joseph Hart is an associate editor of Utne.
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