by Michael J. Gelb

Commenting
on the Business Roundtable’s recent headline-making declaration that
the doctrine of shareholder primacy has outlived its usefulness, Johnson
& Johnson CEO Alex Gorsky observed, “it isn’t an achievement, it’s a
call to action.”

Why are so many of the world’s leading
corporations beginning to heed this call, rethinking the core
assumptions driving what they do? Adam Smith, the genius of economics
and social psychology, who generated the framework for contemporary
capitalism, would say that public disapproval weighs on the conscience
of business leaders and ultimately leads to change.

In The Wealth of Nations
Smith predicted accurately that free markets would generate
unprecedented prosperity. He influenced Benjamin Franklin directly (they
dined together in Edinburgh in the early 1770s) and his ideas became
central to the defining identity of the United States.

Before The Wealth of Nations, Smith published The Theory of Moral Sentiments
in which he proposed the ethical philosophy upon which capitalism and
all societal institutions must rely. He understood capitalism as a
system of cooperation based on a balance of fundamental human
motivations: self-interest and caring for others. We are not just
self-interested creatures; that would render us sociopathic. Smith
emphasized that capitalism needed a conscience. For Smith, profit isn’t
an end in itself but rather the means to promote the common good.

But,
since 1970 when Milton Friedman’s argument for shareholder primacy
became the dogma imparted in most business schools, and when quarterly
earnings reports began to become more important than the long-term
interests of stakeholders, things have gone awry. Beyond the dramatic
stories of obviously sociopathic enterprises (try an internet search for
“Most Hated Companies” or “Sociopathic Capitalism” and you’ll recognize
many familiar names) “business-as-usual” at the average company has
contributed to a situation in which more than half of American
households are technically insolvent, where the disparity between the
affluent and the working poor has been growing for 40 years, with
suicide rates rising more than 25% in the last 20 years.

Smith,
who was deeply committed to helping the poor and disenfranchised through
the dynamism of capitalism always emphasized that society is
interconnected and that rising prosperity must be leveraged for the
benefit of all.

That interconnection is more apparent today than
ever before and what we are witnessing is the effect of the call to
conscience from the population who are increasingly aware that our
wounded ecosystem, our metastasizing economic inequality, our epidemics
of obesity, opioid addiction, anxiety, suicide and the gunning down of
school children are indicators that something must change.

Until
recently most large companies believed that departments of “corporate
social responsibility” and “sustainability initiatives” might be enough
to assuage public disapproval, but there’s a glaring conflict between
CSR and record stock buybacks and it’s increasingly clear that existing
sustainability initiatives aren’t enough to mitigate impending
environmental disaster. These efforts are widely viewed as public
relations schemes and as insufficient palliatives at best.

Companies still operating under Friedman’s dictum that The Social Responsibility of Business is to Make a Profit
have a hard time selling their CSR initiatives, to employees and the
public, and more and more people are realizing that the notion of
“sustainability” isn’t sustainable.

Instead, we must, as the Business Roundtable and many others are beginning to understand, reorder our priorities and put people and the general welfare first. The good news is: Companies who do this discover that they become more profitable in the long term, as the research of my co-author Professor Raj Sisodia and his colleagues demonstrates convincingly.

This has been called Creative Capitalism by Bill Gates, and Conscious Capitalism by John Mackey and Raj Sisodia, and I’d like to suggest a new name: Regenerative Capitalism.

Modern
democracy and capitalism took root in the United States, evolved here,
and then spread to other parts of the world. Despite difficulties and
setbacks, these two operating systems remain the twin hopes for human
welfare. But we are at an inflection point, a critical juncture in
history where we must evolve these operating systems to meet the crises
of our time.

Business is poised to play the key role in this evolution that can heal our planet and provide greater prosperity, abundance, health, and happiness for millions of people who are suffering needlessly.

When leaders awaken conscience and
consciousness they begin to discover the creativity needed not just to
sustain our lives and demonstrate responsibility, but to heal and
regenerate our society.

Michael J. Gelb is co-author, with Professor Raj Sisodia, of The Healing Organization: Awakening the Conscience of Business to Help Save the World.

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