Conscious Capitalism is not CSR
Wednesday, 8th October 2014 at 10:00 am
Many people think that Conscious Capitalism and Corporate Social Responsibility (CSR) are very much branches of the same tree but in reality there are significant differences between them says James Meldrum, co-founder of the first Australian food business to be certified as a B Corp, Whole Kids.
Many people think that Conscious Capitalism and Corporate Social Responsibility (CSR) are very much branches of the same tree. On first glance, many of the activities undertaken by conscious businesses and corporations adopting CSR appear similar. However, dig a little under the surface and you’ll soon realise that there are significant differences between the two.
According to the Conscious Capitalist Institute, “Conscious Capitalism is a philosophy based on the belief that a more complex form of capitalism is emerging that holds the potential for enhancing corporate performance while simultaneously continuing to advance the quality of life for billions of people”.
OK, certainly an impressive aspiration, but how does the Conscious Capitalism philosophy have practical applications in running a business?
At its heart, Conscious Capitalism is a business model where interests of all major stakeholders (employees, customers, suppliers, communities, investors and the environment) are served, and the ultimate aim is to maximise shared value for all (not just maximising the value for one group, ie shareholders). Conscious capitalism is embedded in the core structure of a business which, in turns, influences leadership, decision making, business strategy, processes, recruitment and performance management, customers service practices, and so on.
Corporate Social Responsibility, on the other hand, is a term that describes the way a corporation takes into account the financial, environmental and social impacts generated by the business. Philip Kotler defines CSR as a “commitment to improve community well-being through discretionary business practices and contributions of corporate resources”. For example, businesses may engage in CSR activities to go beyond minimum regulatory standards or expectations of environmental groups or social welfare advocates so that they may seen as good “corporate citizens”.
One way to think about the differences between Conscious Capitalism and CSR is that Conscious Capitalism is the engine that drives the car while CSR is an optional extra (especially if you’re running a business with a “conventional economic” engine). Decisions that drive the engine of a conscious business are based on the philosophy’s four pillars (see below), whereas the practice of CSR is often subordinated to the primary goal of a corporation – that is, to maximise the financial return to shareholders.
Indeed, the key difference between the two terms can be found in Kotler’s definition above. CSR is clearly a “discretionary business practice”, which is markedly different to the approach of conscious businesses where creating value for all stakeholders (not just shareholders) is intrinsic to the success of their businesses. Thus, “doing good” and creating shared value is part of the operating model and DNA of all conscious businesses. So for a conscious business the term “CSR” is superfluous – by its very nature, a conscious business embeds its financial, environmental and social impacts as part of “business as usual”.
John Mackey, Co-Founder of Whole Foods Market, describes the four pillars of Conscious Capitalism as:
“Higher purpose, stakeholder integration, conscious leadership, and conscious culture and management. The four are interconnected and mutually reinforcing. The tenets are foundational; they are not tactics or strategies. They represent the essential elements of an integrated business philosophy that must be understood holistically to be effectively manifested. Higher purpose and core values are central to a conscious business and all the other tenets connect back to these foundational ideas.”
A charged often levelled at CSR is that it is “added on” to a business as a way to improve a company’s public image often through public relations, marketing, philanthropy, donations or corporate support (time and/or money) to a community organisation or public cause. This has led many observers to discredit CSR as a form of “greenwash”, and in some cases the charges have stuck.
According to a TIME magazine article: “This will not surprise anyone familiar with Enron, the once-high-flying energy company whose bosses were not only responsible for one of the great acts of corporate fraud in history but also an almost unprecedented level of corporate philanthropy in the years leading up to their unmasking. Likewise, just two years before the Deepwater Horizon fiasco knocked the stuffing out of British Petroleum in 2010, CEO Tony Hayward announced that the firm’s safety record was among the industry’s best, reflecting a culture of conscientiousness meant to satisfy internal and external stakeholders. Alas, not everyone was listening, especially those tasked with preventing deep-water rigs in the Gulf of Mexico from blowing up.”
Conscious capitalism is a more integrated, cohesive and impactful approach to business than CSR. As Professor Raj Sisodia, Founder of the Conscious Capitalism Institute, states: “Innumerable companies today have a CSR department or have at least nominated a CSR expert, because it is in vogue at the moment and not necessarily because it fits with their inner attitude and the company culture. Often companies study the negative effects of their industry and then invest a lot of money to mitigate these negative effects instead of creating a new business model, so that these negative effects don’t occur to begin with. Many corporations have a significant investment in CSR without integrating it into the existing business model. Conscious Capitalism is solid business management and not just a CSR department.”
About the Author: James Meldrum is a co-founder of Whole Kids. Whole Kids is the first food Australian food business to be certified as a B Corp and one of the founding members of B Corporation Australia. The company aims to bring about long-term sustainable change in the way food is sourced, manufactured, distributed and ethically marketed to children (and families).