Creation of Abundance Is a Corporation’s Purpose

Does capitalism need to be fixed? Is it no longer fit for purpose in this modern era, given our environmental ecosystems are under self-evident strain and income gaps are widening to levels not seen since the “robber baron” era?

This was the question I was called to answer at David and Philippa Stroud’s inspiring and expanding Forum last weekend. I rephrased the question slightly: Can capitalism promote the common good? Joining me in the discussion were Rand Stagen, Doug Rauch, and Steve Hall – successful entrepreneurs who have coached CEOs to greatness, led iconic Trader Joe’s from near irrelevance to triumph and lifted a marginal automotive company to multi-billion dollar heights. All three of these remarkable entrepreneurs have since graduated to running Conscious Capitalism, an advocacy group that believes business can benefit everyone, most especially when purpose meets profit.

Over Q&A, the discussion turned as it inevitably does to Milton Friedman’s 1970 article “The Social Responsibility of Business Is to Increase Its Profits.” Friedman’s New York Times classic has been credited with spawning Gordon Gekko’s ignominious claim that “Greed is good,” as well as oligarchic tyranny theories which Bernie Sanders effectively promotes and derides. Capitalism’s undeniable negative externalities are why a majority of millennials and Gen-Zers today have concluded socialism would be a superior socio-economic framework.

And that’s when controversy ensued. Nobel Laureate Friedman never said businesses should promote profits without guardrails. What he actually wrote is that it is the responsibility of business “to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.” These two addendums about rules and customs are crucial. And they allowed me to highlight something Adidas has recently done that millennials, Gen-Zers, and Gordon Gekko alike can all rightly applaud.

Working with Parley Ocean Plastic, Adidas has committed to replacing all the virgin polyester in their products with recycled polyester derived from oceanic plastic waste. This program has been remarkably successful, and it is not all Adidas is doing to rejuvenate the planet. Through their “Made to Be Remade” program, once you’ve had your full run with their shoes and apparel, instead of tossing them in the trash you can send them back to Adidas to be recycled, meaning much less garbage ends up in landfills. Proof of the success of this environmentally mindful strategy comes from the market, however. Since embarking upon their ambitious recycling journey in 2015, Adidas’ stock has risen nearly 400% – meaning they have tapped into new consumer demands, opened new markets, and dramatically benefitted their bottom line. Planet protections have handsomely fattened Adidas shareholders’ wallets.

So, is this an example of stakeholder capitalism – or merely capitalism as Milton Friedman defined it? I would argue it is the latter, perhaps inspired by the former. Like Milton Friedman, I would further argue it is the type of capitalism all public companies should strive for.

Consumer attitudes evolve. Farsighted companies like Adidas find ways to change with them. Adidas’ consumer strategy was met with commercial success. This means it can be sustained. Other nobly-minded public corporate officials evolved faster than consumers did – like Emmanuel Faber at Danone or Bud Light’s marketing team. They misunderstood the market and ultimately saw their sales and profits plummet. They are no longer making corporate decisions. Too many stakeholder capitalist instincts are like these: well-intended but unsustainable. If enduring impact is a public company’s goal, its bottom line must remain black. If growing impact is part of a public company’s calling, growing profits and rising stock prices are essential.

So what should we conclude about the future of capitalism and its role in promoting the common good? For stakeholder capitalism to succeed, it must remain capitalistic – and for a society to succeed, ubiquitous public virtue is needed. Business’s potential role in propagating such virtues is circumscribed. Greater public mindfulness spawned by the universal principles of human dignity, subsidiarity, and solidarity would undoubtedly promote broader social inclusivity and lasting environmental sustainability, aspirations largely enunciated by the United Nation’s Sustainable Development Goals. Great companies may well find ways to reinforce these virtues and benefit from their broader acceptance – but they must also find ways to persevere when we humans fail to be all we can and should be, something we invariably seem to do.

The ultimate purpose of a corporation is to mindfully generate the material abundance society needs to make our way, as John 12:35-36 and Isaiah 42:16 suggest, through the darkness to the light. If business can further amplify light along the way, all the better. We humans will likely to get the future we work towards. My hope is that greater mindfulness will lead to greater inclusivity, sustainability, and economic growth. Within profit’s constraints, business can and should make all three of these goals more attainable – and within prevailing rules and social customs, should not actively thwart them.

This article was originally published by RealClearPolitics and made available via RealClearWire.