Capitalism has done a fantastic job of driving economic growth, improving living standards, and creating prosperity for the last 100 years or so. However, since the 70s, or maybe the 80s, capitalism has narrowed its focus from a set of wider considerations to a more concentrated focus of “just” profit maximisation.
Ethical capitalism aims to redress this imbalance by returning to a more traditional, responsible and sustainable form of capitalism. In their seminal tome on the history of management, “The Puritan Gift, Reclaiming The American Dream Amidst The Global Financial Chaos”, the Hooper brothers suggest “traditional” companies exhibited a quartet of characteristics, paraphrasing; 1) a conviction to purpose 2) an aptitude for skills 3) a moral outlook and 4) an ability to assemble galvanise and marshal financial, material and human resources and … each of these characteristics are “intimately bound together”.
Modern thinking around ethical capitalism is uncannily similar and also centred on four key components: company purpose, company culture, stakeholder engagement and leadership.
Let’s take a look at each.
Company purpose.
A company’s purpose should go beyond just maximising profits and should also consider wider social and environmental impacts of its activities. A clear and meaningful purpose can inspire staff and attract customers who share the same values. It can also help you differentiate yourself from your competitors and build a loyal customer base. Your purpose should be aligned with your core values and should reflect a commitment to creating value for all stakeholders, not just shareholders.
Company culture.
A company’s culture refers to its shared values, beliefs, and practices that shape its behaviour and decision-making. A positive company culture can foster ethical behaviour, promote diversity and inclusion and encourage innovation. It can also help attract and retain top talent. To create a strong company culture, leaders should prioritise values such as integrity, respect, and accountability. You should also create a safe and supportive work environment where your people feel empowered to speak up and share their ideas.
Conversely, a toxic culture drives everything in the other direction; just think Exxon or perhaps FIFA a few years ago or more recently the convulsions currently emanating from within, of all places, the CBI!
Stakeholder engagement.
A stakeholder is anyone affected by the things you do. That could be companies, organisations or individuals. In the world of management systems these are referred to as interested parties and include: shareholders, directors, customers, staff, suppliers, community and society at large. Properly engaging with stakeholders can help you understand their needs and concerns, build trust and create value for all parties. It can also help you identify and mitigate potential risks and avoid any negative impacts on the environment and society. To effectively engage with stakeholders, you need to be transparent and honest about your operations and their impact, listen to feedback, and collaborate with them to find, as ISO might put it, mutually beneficial solutions.
Leadership.
Undoubtedly, capitalism is not working in some sectors of society “the rich get richer and the poor get poorer” is an often quoted remark. But is there any evidence. In the world of business there is.
Clearly, it is leaders that play the starring role in setting the tone for a company’s purpose, culture and stakeholder engagement. It is leadership that drives all of these things. But are the leaders with the biggest voice (often those in the press) setting the right tone?
Encouragingly, on one hand there appear to be an increasing number of scholarly articles published on the subject of the “servant leader” which seems to be gathering momentum. On the other there are statistics released by prominent and thoughtful organisations [1] suggesting that the CEO-to-worker compensation ratio reached 399-to-1 in 2021, a new high. Before the pandemic, its previous peak was in 2000 when the ratio was 372-to-1. In 1965 it was 20-to-1. Is 20 times the average salary not really enough for most CEO’s? In my view 400 times is obscene. It’s unethical. Especially when you consider they are probably not getting more pay because they are more productive or more skilled than other workers, or because of a shortage of excellent CEO candidates. And isn’t the performance of a company more often driven by events outside the organisation than by the actions and decisions of the one person at the top?
Ethical leaders need to prioritise integrity, accountability, and responsibility and lead by example. They also need to foster a culture of open communication and encourage employees to speak up and share their ideas. To be an effective ethical leader you should continuously educate yourself on emerging trends and best practices and be willing to adapt and learn from your mistakes.
Conclusion
Ethical capitalism is not some idealistic fantasy#1
Astonishingly and damningly, one study by the economist Roger Martin, found that during the “golden age” when managers were less focused on profits alone, around 1933 to 1976, the annual return on stocks was actually higher than in more recent times when profits have been prioritised above all else!
Ethical capitalism is not some idealistic fantasy#2
The go to guy in the world, and in the news recently, is probably, Yvon Chouinard, the Patagonia founder and chief executive. Patagonia’s purpose statement is “We’re in business to save our home planet.” Pretty cool huh? He has recently placed his US$3 billion company in a specially designed trust and all future profits will now be used to combat climate change and protect undeveloped land around the world.
Ethical capitalism is not some idealistic fantasy#3
The go to geezer in the UK is the once upstart entrepreneur, Julian Richer, who built Richer Sounds into a nationwide and multi award-winning audio specialist business and then gave it to his staff as an Employee Owned Trust. He has since gone on to found the Good Business Charter an excellent organisation that promotes a scheme to which companies can sign up to in recognition of responsible business practices.
In today’s world, with especially pressing concerns like Artificial Intelligence and the Race to Net Zero, adopting an ethically capitalist approach will be fundamental to the future prosperity of all.
Companies have a responsibility to address social and environmental issues and to create value for all stakeholders. By embracing the principles of ethical capitalism, companies can build trust, enhance their reputation, and create sustainable growth and prosperity for themselves and the broader society.
[1] The Economic Policy Institute
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