Core Principles of Ethical Capitalism
To understand the concept of Ethical Capitalism, we have to first consider concepts such as Conscious or Responsible Capitalism. Conscious or Responsible Capitalism is a philosophy that integrates social and environmental well-being with traditional profit-driven business models. It proposes that companies can and should function as forces for good by being accountable to all stakeholders—including employees, customers, suppliers, and the environment—not just shareholders. Key components include creating a positive company culture, using conscious leadership, and making choices that benefit all involved, such as paying fair wages and sourcing sustainably. AI points out that a stakeholder orientation promotes the idea that businesses focus on creating value for all stakeholders, not just maximizing profit for shareholders.
What is Conscious Capitalism
I spend a lot of time reading research by colleagues on matters related to corporate social responsibility (CSR). I recently read a piece on the website of Grand Canyon University (CGU) that captures the essence of what ethical capitalism is. Here is a brief summary.
As a starting point, it’s important to understand the role of ethics in conscious capitalism. According to CGU, Conscious Capitalism is a collection of principles intended to guide corporate decision-making at all levels — from establishing the company’s official mission, to hiring members of the board, to establishing labor practices for workers.” They define the principles as follows.
- A higher purpose: “Conscious capitalism states that all businesses should have a higher purpose beyond the generation of profits.” For example, an assisted living facility would have a higher purpose of providing those services that create a facility to enhance the well-being of its clients.
- Stakeholder orientation: “Conscious capitalism requires companies to orient their mission and business practices toward meeting the best interests of all of their stakeholders. A company’s stakeholders can include its employees, shareholders, suppliers, vendors, customers, clients and labor unions. The community near the company is also a stakeholder in the company’s success, as businesses have direct impacts on their surrounding communities.”
- Conscious leadership: The person at the head of an organization must be accountable for fostering ethical behavior and exude ethical leadership, which means to “take ownership in their work, drive innovation, work toward positive change and inspire others. In conscious capitalism, conscious leadership also applies to every team member — not just the CEO.”
- Conscious culture: “A company’s culture can be described as either toxic or uplifting. It’s the responsibility of every leader in the organization to nurture a positive company culture that benefits all stakeholders and drives the company forward.”
Ethical Considerations
Some critics argue that the inherent drive for profit in capitalism is fundamentally incompatible with true ethical behavior, and that concepts like “ethical capitalism” can be a misleading form of “greenwashing” or “social washing”.
Greenwashing is when a company or product makes false or exaggerated claims about being environmentally friendly to mislead consumers. It’s a misleading marketing tool where organizations spend more on advertising their “green” initiatives than on actually implementing sustainable practices. This practice allows companies to capitalize on the growing demand for sustainable products while avoiding the costs and efforts of being truly eco-friendly. Some maintain that it is possible to build a more ethical system by incorporating principles of social responsibility into the capitalist framework, with others tracing these ideas back to the philosophy of Adam Smith.
Virtually all businesses have ethical codes of conduct. For these purposes, we can use one definition that “ethics” refers to a collection of moral principles that guide the behaviors, conduct and decision-making of individuals and groups. Through ethical codes, humans grapple with some of the most complicated questions in life, such as:
- What is right and wrong? Here, morality comes into play.
- What are humanity’s rights and responsibilities? Here, the rights theory guides ethical decisions by acting in the best interests of humanity and making decisions that are motivated by right, not wrong; good, not bad.
- How can one live a good life? Here, a virtue approach to decision-making guide decisions and actions by seeking out happiness through ethical decision-making.
- How can decision-makers balance the good and bad? Here, utilitarian ethics guides decision-making is useful. The decision-maker would have to evaluate the harms and benefits of alternative actions a select the one that maximizes net benefits.
Ethical Companies
Patagonia is a good example of a socially responsible company that acts in accordance with ethical principles. This outdoor clothing company is committed to maintaining an environmentally friendly supply chain, having switched from pesticide-heavy crops to organic cotton. Furthermore, the company pays its workers fair wages.
Whole Foods is another ethical company. The co-founder and CEO of Whole Foods, John Mackey, is also the co-founder of the conscious capitalism movement. As such, it makes sense that the company would adhere to ethical principles that nurture all of its stakeholders and promote healthy living. For example, the company builds stores that use alternative energy, recycles rainwater and uses food scraps for energy. It also pays its workers fairly while capping salaries for executives.
Another ethically conscious company is Bombas. To date, Bombas has donated more than 75 million clothing items to homeless shelters and has partnered with more than 3,500 community organizations across the nation. This company is a force for good.
As you can see, there are a number of ways that companies can adhere to the ethical principles of conscious capitalism. Ideally, a company will adopt comprehensive policies and practices designed to nurture ethical decision-making in all of its spheres of influence — from environmental impacts to social well-being.
Core Principles of Ethical Capitalism
Ethical Capitalism, in its simplest form, is about doing good while doing business. At its heart, Ethical Capitalism operates on a fundamental principle → that businesses can be both profitable and ethical. This isn’t a utopian dream, but a practical approach to commerce that acknowledges the interconnectedness of economic, social, and ecological systems.
The key ideas behind Ethical Capitalism is to incorporate it into straightforward concepts that resonate with everyday life. The Sustainability Directory outlines the principles of ethical capitalism as follows.
- Stakeholder Consideration → Moving beyond just shareholders, businesses consider all stakeholders – employees, customers, suppliers, communities, and the environment – in their decisions. It’s like planning a family gathering, ensuring everyone’s needs are considered, not just your own.
- Transparency and Accountability → Openness about business practices and taking responsibility for actions. Imagine a clothing brand openly sharing where their materials come from and how their garments are made, good or bad, and working to improve any shortcomings.
- Fairness and Equity → Striving for just and equitable treatment in all business dealings. This means paying fair wages, providing safe working conditions, and ensuring equal opportunities. It’s like ensuring everyone at the playground gets a fair turn on the swings.
- Sustainability → Operating in a way that meets present needs without compromising the ability of future generations to meet their own needs. This involves minimizing environmental impact and conserving resources. Think of it as leaving the campsite cleaner than you found it, ensuring others can enjoy it too.
These principles aren’t just abstract ideals; they are practical guidelines that shape how businesses operate daily. From sourcing materials to managing employees and engaging with communities, Ethical Capitalism offers a framework for building a more just and sustainable economic system. It recognizes that long-term success isn’t solely measured in financial terms but also in the positive impact a business has on the world around it. It is a move toward businesses becoming forces for good, actively contributing to a better future for all.
There is a lot more to Ethical Capitalism. One issue I will look at in a future blog is the role of Environment, Social and Governance (ESG) in carrying out ethical investing decisions that benefit the stakeholders.
Blog posted by Steven Mintz, PhD, Professor Emeritus, Cal Poly San Luis Obispo. Visit Steve’s website (www.stevenmintzethics.com) to find out more about his activities.