Business Opinion

The Rise of Conscious Capitalism

A graphic of money and stocks to represent conscious capitalism

What does high-profile business opposition to Georgia’s new restrictive voting law tell us about the direction of post-pandemic corporate consciousness in America, in Canada, and around the world?

The future is relentless.

Change is a universal constant, and the global COVID-19 pandemic has laid bare that our status quo systems of commerce are fragile. As the spread of the virus demanded drastic preventative actions, societal apparatus for the economy, public health, and the justice system all have experienced existential threats.

Equally, we have learned that our systems are resilient and adaptable. History will bear witness to scores of frontline workers, medical professionals, scientists, and leaders who met the moment with grit, resolve, and an instinct for social good. In these complex circumstances, thoughtful corporations looking to the future are reacting to the strain on our old way of doing things. The pandemic, climate change catastrophes, unrest for racial equality, and a litany of other factors beyond widgets, costs and sales are leading to evolving standards for corporate conduct.

And it is in these complex circumstances that major players in corporate America have erupted in swift, clarion public denunciations for a Georgia state election law that would curtail voter rights in traditionally black districts. Over 100 companies, many of them well-known Fortune 500 residents and household brand names, have gone out of their way to scorn the law and take calculated action that impacts commerce, jobs, and tax bases for the state. Republican legislators have responded by denouncing the corporate actions as everything from meddling to tyranny. It is jarring friction. What’s going on? And what might it mean for the delicate dance between business, policy, and politics here in Canada?

The Georgia moment is unique in modern business; a chance that sees a controversial law act as the flashpoint for the solidification of conscious capitalism not only as a theory but as a driver of action. In turn, those actions may herald conscious capitalism as a triumphant idea in the post-pandemic system.

Progressive shift in Canada

Here in Canada, we have equally felt this progressive shift to proactive, creative corporate involvement in growing ways. What was unprecedented only a year ago is now the precedent. What remains extraordinary is the universally shared vulnerability caused by a humanity-level scourge. Governments, businesses, owners, workers, and people will all bear scars from this turbulent year—and therefore may have a new understanding of the need for an industrial revolution based on the rich connectivity of all elements of modern existence. Politics, pandemics, and the actions of corporations all mash up against each other in a single, multi-dimensional culture. At this moment, corporations can responsibly—and credibly—adopt conscious capitalism as a governing dynamic for corporate prosperity tied to and supportive of social good.

In December 2020, the world’s largest investor, asset manager BlackRock, gave notice that it was placing environmental and social priorities at the forefront of its investment approach. And scores of Canadian companies already have prioritized climate action and Net Zero plans.

Additionally, former Governor of the Bank of Canada, and current Head of ESG and Impact Fund Investing for Brookfield Mark Carney recently released his book Value(s): Building a Better World for All, professing a deep and urgent argument about the foundational changes needed to reshape a viable long-term world economy.

More so, the urgency erupted from the Black Lives Matter movement during this past summer of pain, moved corporate interests to unseen levels of accountability and reflection regarding institutional racism in the working world, including the BlackNorth Initiative, led by the Canadian Council of Business Leaders Against Anti-Black Systemic Racism.

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Commitment to principles-based capitalism

All these initiatives reflect a quickly growing trend toward market actions dictated by a commitment to principles-based capitalism.

To a degree, since political polarization has become a pervasive cultural and economic issue, it should come as no surprise that major brands are taking stands on voting rights and other inherently political matters.

They are demonstrating a philosophical evolution in the concept of appropriate corporate conduct.

Measuring the sustainability and societal impact of an investment in a company or business will increasingly dictate who succeeds. In the wake of 2020, it seems irreversible that these criteria will play a more central role to determine the future financial performance of corporations. It’s not a new idea. But it has reached a moment of maturation.

The concept of corporate social responsibility has percolated along with the growth of capitalism. In The Theory of Moral Sentiments, Adam Smith noted that there are some principles in our nature which “interest us in the fortune of others, and render their happiness necessary [solely for] the pleasure of seeing it”. In Smith’s harmoniously functioning society, corporate civility would set the market, not be the end of it.

In reality, for more than a century, the spine of all corporate activity has been the fiduciary duty to shareholder value.

There has been much corporate and political leadership on expanding that value set over the last 20 years in Canada. However, bluntly, much of that conversation has been about corporate volunteerism into “soft” societal commitments for reasons of image and charity. Cynicism dictated that performative corporate posturing was worth its marketing dollars because there was no mechanism to track impact or repudiate shallow promises.

Today, however, the rapid rise in consumer activism and choice, and the rise of progressive political voices worldwide shift the corporate conversation; fiduciary responsibilities to create sustainable profits and growth now must include an assessment of social impact, not avoid it. That is why the current American moment is so striking—while portions of the political class angrily goad corporations to “stay out of politics,” they ignore the fact that corporations are simply reacting to market forces that demand and reward expressions of corporate values.

In other words, corporations that concentrate on the bottom line to the exclusion of social principles will hurt the bottom line. The rise of social consciousness and the fluidity of consumer spending means that the new metrics of corporate viability include environmental, social, and governance matters, which are really about your demonstrable social responsibility principles.

Unlike with other waves of good corporate citizenship in recent decades, contemporary consumers have technology platforms that incent instant corporate accountability. Social media sentiment can be a perception-generating market force beyond any ad campaign. Brand-switching is easier than ever since the online marketplace eradicates the impact of any given company controlling local “shelf-space”. Democratized investment and currency options mean grass-roots investment decisions can aggregate quickly to affect corporate well-being. The consumer is now a digital citizen and operationalizes these principled desires.

The heart of conscious capitalism

As attitudes have evolved on climate action, on diversity and inclusion, and on ethics and accountability, investors, governments, customers, and talent bases all demand clarity and action from corporate leaders. Indeed, so does a generation of business leaders who understand from their own lives and communities, that a sustainable world truly does require corporate responsibility—urgently—to survive, heal, and thrive.

Prudence today demands a commitment to principled prosperity. With creativity, vision, and diligence, corporate leaders can create necessary societal infrastructure while maximizing returns.

In the 21st century, firms only will achieve long-term business goals by integrating social impact leadership into their priorities and operating systems. It very well may be that we are at a point when capitalism and social progress can work harmoniously, not in contrast to each other. That is the heart of conscious capitalism. 

There is, of course, always a reason to be jaded. Yet there is reason to believe we are at an inflection point, where we will mark a change in the dynamics that define success, the voices dictating the terms and the expectations of what a corporation can be.

Canada, as part of a global economy, is absorbing that change, and Canadian corporations will either lead or be swept up by it.

About the author: Awanish Sinha is a partner and Co-Lead, Public Sector, at McCarthy Tétrault.

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