Articles

What is driving the ‘ethical capitalism’ trend, and what is it likely to lead to?

SAGE International Australia (SIA)
Series on Ethical Capitalism
By Ms. Astrid Vikström, SIA Intern (UK-based) 

In 1970, Milton Friedman famously said, “[t]here is one and only one social responsibility of business – to increase its profits”. This was the axiomatic principle for much of capitalism over the following decades, up until the 2007/8 financial crisis. The crisis, and ensuing deterioration in corporate trust triggered a shift in how companies approach their ethical and social responsibility. This trend is evidenced by the increasing tendency for corporations to emphasise and communicate what they do to ‘contribute to the social good’. These policies generally fit under the umbrella term known as CSR[1], and range from ethical sourcing of resources, to engaging with charitable causes in the local community. There is disagreement as to whether this change is brought about by companies genuinely embodying such values, or if companies have realised that customers increasingly are expecting such values to be embodied and, by basing their consumption behaviour on these leading companies to become seemingly more ethical as a means to remain competitive (Bartlett and Preston, 2000).

For the sake of argument, corporations are not seen as just “economic instrumentalities for the production and distribution of goods, services and the creation of wealth and societal resources” (Epstein, 2000: 146), but as actors with significant and complex impact on the environment in which they operate (Bonini and Emerson, 2005). Importantly, in an era where MNE[2]s carry increasing weight in the international sphere (Epstein, 1999), there must be mechanisms in place to hold them accountable for the repercussions of their actions, as their size and practices are altering the conditions that the current legal and financial system was built upon (Epstein, 2000:154). This essay will agree that what matters for the people affected by company practices is just that: the tangible outcome on stakeholders’ and consumers’ daily life, and accept Sisodia’s (2011) definition of ethical/conscious businesses as “explicitly managed for the simultaneous benefit of all of their stakeholders … so that what is good for one is good for all” (p.100). ‘Ethical capitalism’ is thus best understood as a perspective on management that is becoming increasingly popular (Hurst, 2013) across borders.

Opinions differ on whether ethical capitalism is driven by consumers putting higher pressure on companies to align with their ethical values (Lobel, 2006; Brunk, 2010; Singh, 2012), or whether there is an inherent change in business management towards becoming more ethical (Bartlett and Porter, 2000). The underlying contention in the field is whether business can (and should) act to improve the common social good (Bartlett and Preston, 2000), or that business and social good are mutually exclusive, and that becoming more ethical in order to maintain a competitive edge makes whatever ethical practices undertaken moot. Whether this trend is consumer or producer led is relevant to understand for assessing how it is likely to develop, and whether it will last (Brunk, 2010). With increased freedom and availability of information, customer activism is increasingly putting pressure on companies to be ethical (Lobel, 2006), with evidence suggesting that the impact of poor business practices on brand image being far more complex than previously thought (Fan, 2005; Singh, 2012). For example, rather than demanding that corporations move business out of countries with poor HR[3] records, there is increasingly a demand for companies to engage with local communities to improve the standard of life there (Lobel, 2006).

Examples of companies and businesses that incorporate a ‘stakeholder’ approach into their CSR include FGMC[4] companies such as Unilever (Unilever, 2017), and Mondelez International (Mondelez, 2017). GPSF[5]s like Accenture (Accenture, 2017) and PwC (PwC, 2017) are also, at least nominally, becoming more vocal about ethical concerns, and stakeholders on a variety of levels. Starbucks is another example of an MNE starting to consider its ability to have a positive impact on the communities in which it employs people throughout its production chain (Starbucks, 2017), as do Pret a Manger (Singh, 2012). Whether these companies are reacting to, or driving this trend is another matter, and in this regard Whole Foods is an interesting example (Cheretis and Mujtaba, 2014). Founded in the 1970s, it has consistently been a key player in raising awareness of and bringing organic food into people’s homes. Interestingly, in a bid to expand what the initiative ‘organic’ once started from, and as evidence of a company who truly embody the values it projects, Whole Foods released a new certification labelled ‘responsibly grown’ (Whole Foods Market, 2017). This was because it was felt that ‘organic’ fell short of addressing the wealth of environmental issues related to contemporary agricultural practices (Kowitt, 2015). This represents an interesting example of a company that takes proactive steps to further what it deems are important societal issues, seeking to ‘do their bit’ to improve what they can control.

There is much debate on whether or not businesses operating ethical, or as it is also known, conscious ‘capitalism’, works in practice. The argument is that it cannot remain competitive compared to other actors who are able to cut costs through operating less ethically, and thus continue to produce a profit to keep it in business (Liedl, 2013; Hurst, 2013). In a capitalist system, business decisions are always going to be related to the financial implications of it, and whether or not it is likely to give the company in question an edge or not. However, it is worth considering whether such criticism falls on deaf ears, considering that ethical businesses have pledged to consider all its stakeholders, not just the shareholders with capital invested in the business, and to do good by them too. In other words, expanding the notion of success, seeking to create impact, and thus include factors beyond financial profits. In fact, markets are uniquely placed to do good (Bonini and Emerson, 2005), and while not traditionally the primary purpose of for profit actors, a growing group of philanthropists, investors and practitioners are advancing strategies that intentionally blend economic, social and environmental value (Bonini and Emerson, 2005: 4). This is the main premise of ‘blended value theory’, which holds that ‘doing well’ does not necessarily need to be separated from ‘doing good’, by pointing out that although the two have been legally separated and primarily designated to government and non-profits (doing good), on the one hand and private corporations (doing well) on the other, they do not exist in a vacuum. It is evident, nonetheless, that for-profit corporations have social worth and impact, and non-profit organisations create economic value (Bonini and Emerson, 2005). These types of initiatives will be incremental in achieving the GSG[6] (UN, 2016; Unpri.org, 2017), and UNCTAD[7] has estimated that meeting the GSGs will require annual investment of US$5-7 trillion between 2015-2030. This is impossible for the UN and its member countries to achieve without the assistance of private capital, as only an estimated “US$1 trillion annually will come from public funds, leaving a gap of up to US$6 trillion annually for private capital to fill” (Unpri.org, 2017). It is argued that for this to materialise, legislation that prompts companies to take such measures are in place; one suggestion is the EU considering making sustainable investing a fiduciary duty of institutional investors (Rust, 2017).

Neoliberal capitalism is ‘the doctrine of uncontrolled markets’, where actors pursuing their self-interest is the best route to prosperity, where inequality, and speculation is approved of, and competition and ruthlessness held as human nature (Mason, 2016). This type of capitalism is ferociously adaptable, and has survived numerous financial crashes. To replace this dynamic system, something just as powerful and effective is needed, a holistic module that can run itself and deliver a better outcome (Mason, 2016). Although ethical or conscious capitalism is a commendable initiative, the question remains whether the forces propelling its spread are strong and all-encompassing enough to contribute to systemic change. It should be questioned whether ‘ethical inputs’ into the system that dominates the paradigm we inhabit can produce truly ethical outcomes (Hague, 2010). It is therefore pertinent to ask whether ‘doing good’ is the prerogative of states and NGOs (Malapur, 2008). An interesting development in this regard, is the increased emphasis on blended value investment, acknowledging the complex relationship between non-profit organizations and for-profit companies and their economic as well as social worth and impact. Although the issue of accountability is a relevant criticism, there is little reason why companies should not take up social causes, seeing as their resources could be directed towards improving the lives of those in need (Malapur, 2008). In the end, the outcome that matters is the impact initiatives have on their target subjects, and regardless of what you call it, there must be a better way forward than the neoliberal way of doing capitalism (Bizan, 2014). One that emphasises long-term environmental and socio-economic value, business with a higher purpose where the challenge is not simply “don’t be evil”, as is Google’s corporate philosophy, but to actively seek to do good (Bizan, 2014). Conscious consumers expressing their preference for ‘ethical’ goods, according to simple supply and demand theory would suggest that with demand, supply will follow. Add to this the role management schools can play in training conscious and ethical managers (Bartlett and Preston, 2000), growing traction of blended value approaches to investment, and a critical mass of ethical managers and consumers, there might be substantive enough forces in place to initiate lasting change towards more ethical business practices.

Endnotes:

[1] Corporate Social Responsibility

[2] Multi-National Enterprises

[3] Human Rights

[4] Fast Moving Consumer Goods

[5] Global Professional Services Firms

[6] Global Sustainability Goals

[7] The UN Commission on Trade and Development (UNCTAD)

 

References:

Accenture.com. (2017). Corporate Citizenship Award | Accenture. [online] Available at: https://www.accenture.com/gb-en/company-recognition-good-corporate-citizen [Accessed 27 Nov. 2017]

Bartlett, A., Preston, D., 2000. Can Ethical Behaviour Really Exist in Business? Journal of Business Ethics v.23: pp.199-20

Bonini, S., Emerson, J., 2005. Blended Value Theory. Maximizing Blended Value– Building Beyond the Blended Value Map to Sustainable Investing, Philanthropy and Organizations. [online] http://www.blendedvalue.org/wp-content/uploads/2004/02/pdf-max-blendedvalue.pdf [Accessed 2 Dec. 2017]

Brunk, K., A., 2010. Exploring Origins of Ethical Company/Brand Perceptions – A Consumer Perspective on Corporate Ethics. Journal of Business Research v.63 pp.255-262  [online]
https://ac.els-cdn.com/S0148296309000770/1-s2.0-S0148296309000770-main.pdf?_tid=f98731b4-d2af-11e7-a471-00000aab0f6b&acdnat=1511704070_98ed9a9cd6299021176fb46169e8375a

Bizans., P., 2014. How to Make Capitalism More Ethical. World Economic Forum [online] https://www.weforum.org/agenda/2014/11/how-to-make-capitalism-more-ethical/ [Accessed 12 October 2017]

Cheretis, D; Mujtaba, B. 2014. Maximizing Long-Term Value and Conscious Capitalism at Whole Foods. Advanced Management Journal; V.79 (3)

Coe, N., M., Dicken, P., Hess, M., 2008. Global production networks: realizing the potential Journal of
Economic Geography
pp. 271–295 doi:10.1093/jeg/lbn002

Epstein, E., M., 1999. The Continuing Quest for Accountable, Ethical, and Humane Corporate Capitalism An Enduring Challenge for Social Issues in Management in the New Millennium. Business and Society v. 38(3). pp.253-267. http://journals.sagepub.com/doi/pdf/10.1177/000765039903800302

Epstein, E., M., 2000. The Continuing Quest for Accountable, Ethical and Humane Corporate Capitalism: An enduring challenge for social issues in management in the new millennium. Business Ethics Quarterly, Volume 10, Issue 1. ISSN 1052-150X. pp. 145-157

Fan, Y., 2005. Ethical branding and corporate reputation. Corporate Communications: An International Journal, Vol. 10 (4), pp.341-350, [online] https://doi.org/10.1108/13563280510630133 [Accessed 26 Nov. 2017]

Friedman, M., 1970. Legitimacy and Responsibility: The Social Responsibility of Business is to Increase Profits. FIrst published in the New York Times, reprinted in: Chadwick, R., F., Schroeder, D., Applied Ethics: Critical Concepts in Philosophy volume 5, Taylor & Francis

Hurst, D. 2013. Is Conscious Capitalism A Conceptual Mess? | David K. Hurst. [online] Davidkhurst.com. Available at: http://www.davidkhurst.com/is-conscious-capitalism-a-conceptual-mess/ [Accessed 27 Nov. 2017]

Jackson, T., 2009. Prosperity without growth? The transition to a sustainable economy. [online] Sustainable Development Commission. [Accessed 1 Dec. 2017] https://research-repository.st-andrews.ac.uk/bitstream/handle/10023/2163/sdc-2009-pwg.pdf?sequence=1

Jackson, T., 2011. Prosperity without Growth: Economics for a Finite Planet. Energy & Environment · Vol. 22 (7)

Kowitt, B. (2015). John Mackey: The conscious capitalist. [online] Fortune. Available at:
http://fortune.com/2015/08/20/whole-foods-john-mackey/ [Accessed 25 Nov. 2017]

Liedl, J. (2013). The Merits and Limitations of “Conscious Capitalism” – Ethika Politika. [online] Ethika

Politika. Available at: https://ethikapolitika.org/2013/04/10/the-merits-and-limitations-of-conscious-capitalism-2/ [Accessed 20 Nov. 2017]

Lobel, O., 2006. Sustainable Capitalism or Ethical Transnationalism: offshore production and economic development. Journal of Asian Economics. V. 17(1) pp.56-62. DOI: https://doi.org/10.1016/j.asieco.2006.01.008

Malapur, S., 2008. Intel Enters Third World Countries: Charity or Business? ICFAI Journal of Marketing Management. Vol. 7 Issue 4, pp.65-79.

Mason, P. 2015. PostCapitalism: a guide to our future. Allen Lane, Penguine Books. UK: Milton Keynes.

Mondelez, (2017). Our Progress. [online] Available at: http://www.mondelezinternational.com/well-being/our-progress [Accessed 27 Nov. 2017]

PwC. (2017). Corporate responsibility. [online] Available at: https://www.pwc.com/us/en/about-us/corporate-responsibility.html [Accessed 27 Nov. 2017].

Rust, S., 2017. EU Considering Sustainable Investment as Fiduciary Duty for Investors. Published 13 November 2017. IPE International Publishers Ltd [online] https://www.ipe.com/news/esg/eu- considering-sustainable-investing-as-fiduciary-duty-for-investors/10021736.article [Accessed 8 Dec. 2017]

Singh, J., J., 2012. Does Having an Ethical Brand Matter? The Influence of Consumer Perceived
Ethicality on Trust, Affect and Loyalty. Journal of Business Ethics v.111(4) pp.541-549. [online]
https://link.springer.com/article/10.1007/s10551-012-1216-7

Sisodia, R., 2011. Conscious Capitalism: A Better Way to Win. California Management Review. Vol 53(3) pp.98-109 [online] http://rajsisodia.com/pdf/academics/Conscious- Capitalism-A-Better-Way-to-Win-Raj-Sisodia.pdf  [Accessed 27 November 2017]

Starbucks Coffee Company. (2017). Corporate Social Responsibility |Starbucks Mission Statement [online] Available at: https://www.starbucks.com/responsibility [Accessed 27 Nov. 2017]

Unilever, 2017. Sustainable Living. [online] Available at: https://www.unilever.com/sustainable-living/ [Accessed 27 Nov. 2017]

UN, 2016. The Global Goals for Sustainable Development Report: What do the Sustainable Development Goals Mean for Investors? Principles for Responsible Investment [online] https://www.unpri.org/download_report/22974 pp.1-8 [Accessed 5 Dec. 2017]

Unpri.org, 2017. Sustainable Development Goals. [online] Available at:

https://www.unpri.org/about/sustainable-development-goals [Accessed 5 Dec. 2017]

Whole Foods Market. (2017). Purpose & Why It Matters. [online] Available at:
http://www.wholefoodsmarket.com/responsibly-grown/purpose-why-it-matters [Accessed 1 Dec. 2017]

 

Views expressed in this article are not necessarily those of
SAGE International Australia
***

Leave a Reply

Your email address will not be published.
Required fields are marked *