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July 2014 Newsletter

Guest Column: Can A New Form Of Capitalism Save the World? The Premise and Promise of Conscious Capitalism

* Any views or opinions presented in this guest column are solely those of the authors and do not necessarily represent those of the EDA or the Department of Commerce.

By: Jeff Cherry and Rick Frazier

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Jeff Cherry, CEO and Managing Partner of the Porter Group, LLC Rick Frazier, Founding Partner and Head of Research at Concinnity Advisors, LP

Over our careers as entrepreneurs, CEOs, consultants, business advisors and now as investors, two things have become pretty apparent to us:  first, capitalism offers society the best hope of making life better for people all over the planet. This basic premise cannot be ignored in the face of overwhelming historical evidence. And second, although many don’t like to admit it, capitalism is in a state of crisis. Look around, and you will find far too many examples of companies that seem to have lost their way. Capitalism as currently practiced still contains many hard edges that prevent it from being as powerful a force for good as it could be.

Much of the nation doesn’t trust Corporate America. In light of persistent examples of poor customer service, full time employees taxing our social services because they can’t provide for their families, the financial crisis, the recent recession, and persistently low levels of commitment and engagement in the American workplace, many of us see businesses’ focus on short-term profits at any cost as a major contributor to this state of affairs.

And yet there is good news afoot. A growing number of companies realize that simultaneously paying attention to the needs of all stakeholders is not only key to a sustainable society, but also the surest and safest path to long-term financial success.

These companies recognize the marketplace is demanding they do more than simply strive to maximize their own profits by extracting resources from nature and people to do so. They recognize that in an environment of increasing transparency fostered by social media, and a growing societal desire to find meaning in all we do, we are collectively rethinking our relationship with capitalism.  We are considering new metrics as we choose whom we want to work for, buy from, and allow to operate in our communities. In response, the best-managed companies are creating work environments that inspire people to give their best efforts and that cause them to take pride in their work and company. They don’t expect communities to simply be grateful for the jobs they bring in, regardless of what kind of neighbor they turn out to be. They don’t sacrifice the long-term health of their organization on the altar of short-term earnings. In short, they are setting the example for how companies can smooth the hard edges of capitalism and strive to have it be more universally viewed as a positive force for good.

Conscious Capitalism® is a term that has been used to describe companies that operate with this more holistic, inclusionary mindset. Remarkably, this mindset does not compromise shareholders’ interests. In fact, shareholders often experience greater gains than shareholders in competing companies.

To demonstrate this we need look no further than the ground-breaking work done by our colleagues, Raj Sisodia and the late David B. Wolfe. In their book Firms of Endearment: How World Class Companies Profit from Passion and Purpose, Raj, David and co-author Professor Jag Sheth found that publicly traded Firms of Endearment– companies that celebrate and promote purpose, meaning, appreciation, joy, and even love – returned 750% over 10 years, while the S&P overall provided a 128% return. In 5 years, these same companies provided their investors 205% return, while the S&P lost 13% 1.

We have a tremendous opportunity in front of us to create a form of capitalism that lifts all boats – not just the yachts. Government can aid in this transformation through stronger, more collaborative bonds with those companies that are creating exceptional value for investors by proactively serving society. After all, partners are always more responsive to one another’s needs than adversaries.

Capitalism can evolve into a system for creating a more just, joyous, profitable and sustainable society. A society that rewards work as a calling, affords families the opportunity to live out their dreams, respects the planet and creates ever greater opportunities for workers, investors, communities and customers.  That, we believe is the promise of Conscious Capitalism.

Jeff Cherry is the CEO and Managing Partner of the Porter Group, LLC, an investment consulting and venture capital firm. He is also the Founder and the Executive Director of the Conscious Venture LabSM, an accelerator for early stage companies focused on purpose and profit.

Rick Frazier is Founding Partner and Head of Research at Concinnity Advisors, LP, an investment advisory firm founded on the premise that companies guided by a multi-stakeholder operating system are best positioned to meet the expectations of newly ascendant stakeholders and to flourish in a new marketplace reality.

1 Raj Sisodia, David B. Wolfe, Jag Sheth, “Firms of Endearment: How World Class Companies Profit from Passion and Purpose” Wharton School Publishing, 2007