When the head of the world’s largest money manager BlackRock issued his annual letter to CEOs, his latest and strongest push for business leaders to embrace social purpose beyond profits, he continued to turn more than a few heads.
“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” wrote Larry D. Fink, in his letter entitled “The Power of Capitalism“. Such language from a CEO managing some $10 trillion has drawn criticism across the spectrum. It was “woke capitalism” for Fox Business, while on the left, he’s been scorned for not being “loud enough.”
To be sure, it’s a healthy debate, but what virtually all the headlines miss is the long-building tectonic shift in thought leadership. In fact, just a week earlier, unnoticed in the business press was BlackRock’s annual stewardship statement, which advocated that businesses considering conversion of “corporate form” to public benefit corporations should put it to a shareholder vote. However quiet, Fink’s letter is nothing less than a signature on a profound ideological document. What he has embraced is the emerging ideology of “Conscious Capitalism.”
I understand that “ideology” is not a common phrase in business discussions. But as shorthand for a body of ideas and ideals, ideology is effectively the operating system by which societies and institutions organize themselves – commerce included. I’ve dubbed the reigning business ideology of the 20th century, the “OS” as it were, “Sloan/Rooseveltism,” and Fink may well have concluded it.
I’ve so named the old ideology for Alfred P. Sloan, the mastermind behind the rise of General Motors and long associated with an apocryphal remark attributed to his CEO Charles Wilson: “What’s good for business is good for America.” Though the remark is perhaps legend, it’s entered our lexicon and reflects the ethos that the pursuit of profit is a virtue unto itself, the rising tide that lifts all boats.
The other side of this body of thought is the ethos captured in trust-busting President Theodore Roosevelt’s foundational campaigns to balance capitalist excess with his idea that “Great corporations exist only because they are created and safeguarded” by great institutions of government.
In tandem, these two schools created an equilibrium that became the rough roadmap for not only Wall Street and Main Street, but for regulators from the federal EPA to the nation’s 20,000 municipal zoning authorities. Broadly, Sloan/Rooseveltism has served us well, delivering a century of exponential economic growth with cleaner water, safer food, virtually accident-free air travel, and, most recently, a life-saving mRNA vaccine.
Soon, we may get House- and Senate-passed legislation to put upwards of $100 billion into research to boost our chip-making capacity, fund STEM scholarships, reinvigorate space exploration, and bolster AI and other technologies.
This implied contract has worked in the past, and it works occasionally today. But in the main, the two bookends of this ideology are fast wearing and crumbling as we witness the erosion of Sloan/Rooseveltism. What Fink has confronted is something deeper than passing woke-ism or a sop to shareholder activism. He has confronted head on the malady of a collapsing business ideology whose feverish symptoms we see in the endless primal screams about the 1% at the top, the 13% at the bottom, and the future of everyone in between.
It’s not as if we were not warned.
“Laws and institutions must go hand in hand with the progress of the human mind,” Thomas Jefferson wrote, a phrase that graces his monument. If not, he added, “We might as well require a man to wear still the coat which fitted him when a boy.”
To re-frame Jefferson’s counsel in our age of exponentially increasing technological progress:
- At least three quarters of what a freshman computer science student learns this year at the university will be obsolete by his or her junior year.
- The utility of state-of-the-art public transit a mere decade ago is now in question with the looming arrival of autonomous vehicles.
- Regulators contort themselves around the rules designed for CompuServe in the age of Facebook or Twitter as the testifying CEO of Google tutors a lawmaker who quizzes him on Apple products: “Congressman, the iPhone is made by a different company.”
Which is why a new ideology for our new digital economy and its means of production is nigh. Only the institutions of commerce themselves can lead this. In fact, they have begun. The new and emerging ideology is “Conscious Capitalism,” manifested most vividly in the global proliferation of firms organized as what are known as public benefit corporations – toward which BlackRock’s move is the latest.
Under this model, firms bind themselves to a public benefit mission and continually report on the standard financials and on how the company is living up to that mission. That status protects the company against profit-demanding shareholder lawsuits, and also attracts employees and investors who want to combine profit with purpose. My company, data.world, is just one of the thousands of certified B Corporations doing well while doing good.
The roots of this new ideology can be traced back at least three decades to work by Paul Hawken, a successful entrepreneur, and his 1993 book, “The Ecology of Commerce – A Declaration of Sustainability.” For Hawken, it is an issue of how we design and manage the commercial marketplace, the ethos of production.
“To create an enduring society, we will need a system of commerce and production where each and every act is inherently sustainable and restorative,” he wrote. “Business will need to integrate economic, biologic, and human systems to create a sustainable method of commerce.”
Hawken’s argument — intriguing back then, but imperative today — is not simply that business has a responsibility to donate to PBS. Rather, his argument was — and is — that only the institutions of commerce have the scope, power, resources, and innovative spirit capable of taking on our most pressing global challenges.
Since Hawken and others first began to imagine this new commercial ethos decades ago, these ideas have cohered in many ways. This coherence includes the formation of “B Lab” in 2006 to help companies organize themselves for explicit public benefit. More broadly, it found a voice with “Conscious Capitalism,” a 2013 book by John Mackey, the founder of Whole Foods, and business professor Rajendra Sisodia. Relatedly, the World Economic Forum is championing a “Fourth Sector,” combining purpose with profit.
Conscious Capitalism seeks to replace the old ideology of shareholder value-maximization that cements a slavish adherence to the judgment of the “market,” even when other social signals are more powerful. It challenges executives enriched by stock options, empowers companies fearful of “activist investors” who attack whenever stock prices fail to meet quarterly “expectations,” and curtails often-frivolous shareholder lawsuits pushing for stock gains at all costs.
Last year, I penned a TechCrunch essay with Arizona State University’s Ann Florini, in which we called on Facebook to reorganize itself as a public benefit corporation. I’m not hopeful that Mark Zuckerberg will take us up on the pitch. But I do believe it’s a far more sensible course than continuing the battle over Section 230 of the Communications Decency Act, which grants Meta immunity from the actions of its users – a perfect expression of the collapse and fecklessness of Sloan/Rooseveltism.
But Zuckerberg would hardly be alone if he took up this call. Thirty-five states have passed laws enabling companies to organize and operate this way, with the benefits of sustainability in their bylaws. Such laws now exist in Canada, Colombia, and Ecuador, and are pending in Argentina, Chile and Australia.
Among the globally noted companies embracing the new OS are Schneider Electric in France, renewable energy producer Orsted in Denmark, Banco do Brasil, the largest financial institution in Latin America, Canada’s consulting firm Stantec, U.S. food and spice producer McCormick, and countless smaller companies.
Mackey and Sisodia’s Conscious Capitalism suggests this as the best – and perhaps only – exit from Jefferson’s conundrum:
In the early years of the twenty-first century, we are becoming acutely aware that our natural resources are finite,” they wrote. “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.
This is our new business ideology. This is, as Fink put it, “The Power of Capitalism.”
Editor’s note: An earlier version of this essay incorrectly attributed the maxim, “What’s good for business is good for America,” to former General Motors chief Alfred P. Sloan. The apocryphal statement is more generally attributed to his CEO, Charles Wilson.