On 5 and 6 April, there was a conference on conscious capitalism in San Francisco. In January, a new book, Conscious Capitalism: Liberating the Heroic Spirit of Business, by John Mackey and Rajendra Sisodia, was published. Many in the business world are enthusiastic about this seemingly new approach to business, which focuses on broader social, environmental and ethical goals, rather than simple profit maximisation.
As the Washington Times review linked to below states:
“Conscious Capitalism” promotes a business culture that embodies “trust, accountability, caring, transparency, integrity, loyalty and egalitarianism.” The management ideal of “Conscious Capitalism” contains four key elements of “decentralization, empowerment, innovation and collaboration.” Above all, this exemplary form of business practice relies on careful attention to four tenets: higher purpose and core values, stakeholder integration, conscious leadership and conscious culture and management.
So how realistic is this vision of caring capitalism? There may be a few inspiring businesspeople, truly committed to improving the interests of the various stakeholders of their business and society more generally, but could it become a model for business in general? And if so, does this require education, monitoring and regulation? Or can a libertarian approach to business generate an environment where conscious and caring capitalists flourish and succeed better than those with a more narrow focus on profit?
The following videos and articles discuss conscious capitalism and the arguments of those, such as John Mackey, founder and co-CEO of Whole Food Market, who advocate it.
Webcasts
Conscious capitalism The Economist, John Mackey (15/3/13)
Conscious Capitalism: Heroes of the Business World Conscious capitalism, April in San Francisco (5/4/13)
It’s Not Corporate Social Responsibility Conscious capitalism, John Mackey (Jan 13)
Articles, reviews and information
Conscious Capitalism: Creating a New Paradigm for Business Whole Planet Foundation, John Mackey
Companies that Practice “Conscious Capitalism” Perform 10x Better Harvard Business Review, Tony Schwartz (4/4/13)
4 Ways to Become a (More) Conscious Capitalist Inc., Francesca Louise Fenzi (8/4/13)
The New Management Paradigm & John Mackey’s Whole Foods Forbes, Steve Denning (5/1/13)
Book Review: ‘Conscious Capitalism’ Washington Times, Anthony j. Sadar (20/3/13)
Book Review: Whole Foods Co-CEO John Mackey’s Conscious Capitalism Huffington Post, Christine Bader (28/1/13)
Chicken Soup for a Davos Soul Wall Street Journal, Alan Murray (16/1/13)
Conscious business Wikipedia
Questions
- What are the features of conscious capitalism?
- Do firms “get the shareholders they deserve”?
- How might firms that are not pursuing conscious capitalism be persuaded to become more conscious and more caring?
- How does conscious capitalism differ from corporate social responsibility?
- What would you understand by “conscious consumers”? How might their behaviour differ from other consumers?
- Why might firms engaging in conscious capitalism become more profitable than firms that have a simple aim of profit maximisation?
- What reforms, both internal within a firm and in the legal environment, does John Mackey advocate? Do you agree with his suggestions? What else do you suggest?
The English Premier League (EPL) has negotiated a record TV deal which will generate £5.5 billion of revenue over the next 3 years – beginning in the season 2013–14. This represents a 70% increase on the previous deal. Controversy has arisen over some initial proposals put forward by the EPL as to how the money will be spent. The owners of the clubs in the Championship of the English Football League (EFL) are particularly concerned about the size of the proposed payments to the three teams relegated from the EPL.
Some 30 years ago the money generated from the sale of television rights was equally shared between all the teams in the then four divisions of the English Football League (EFL). In 1992 the top division of the English Football League broke away and formed the English Premier League (EPL). This newly formed EPL negotiated a separate television deal and kept the majority of the money. However, some payments were and still are made to the teams in the EFL and to organisations such as the League Managers Association and Professional Footballers Association. For example in 2011-–12 the EPL donated £189.4 million of the £1.2 billion generated from that year’s TV deal.
The majority of the money donated by the EPL is spent in two main ways. First, some money is redistributed to all the teams in the EFL: i.e. The Championship, League 1 and League 2. These are known as ‘solidarity payments’ and in 2011–12 the EPL spent £49.8 million on this scheme. Each club in the Championship received £2.3 million. It has been proposed that the amount paid into this scheme should be increased by 5% in the season 2013–14. Second, a relatively large amount of money is paid over a four-year period to the three teams relegated each season from the EPL into the Championship. These are known as ‘parachute payments’ and in the season 2011–12 the EPL spent £90.9 million on this scheme. The rationale for having parachute payments is to help the relegated teams adjust their wage bills to the much lower revenue streams that come from playing in the Championship. Proposed changes to the scheme are outlined in Table 1.
The chairmen of the football league clubs met on the 20th March 2013 and a number of them expressed concerns about the relatively large increase in the parachute payments compared to the solidarity payments. They were particularly concerned that the changes to the funding would damage the competitive balance of the Championship.
Competitive balance refers to how the most talented players are distributed amongst the teams in a league. For example, are the majority of the most talented footballers playing for just a couple of the teams? In this case the league is competitively imbalanced and the teams with the best players will tend to win far more games than the other teams. The outcome of the league will be very predictable. If the most talented players were more evenly spread across all the teams in the league, then it would be more competitively balanced. Matches and the outcome of the league would become more unpredictable.
Does the level of competitive balance matter? Some sports economists have argued that it may have a significant impact on the success of the league. This is because fans may value the unpredictability of the results. It follows that closer and more unpredictable results will generate higher match-day attendances and increase the revenues of the clubs.
This is an interesting argument and is the opposite of what economic theory would predict for most markets. For example, the standard prediction would be that as firms outperform their rivals, they generate more revenue and profit. If they manage to drive all their rivals out of business, they would become a pure monopoly and make large abnormal profits. However in professional team sports the outcome may differ significantly. If the unpredictability of the league is highly valued by fans, then teams will generate more revenue when they have strong and evenly matched rivals.
It has been reported that further discussions about the distribution of the money will take place this month with the owners of the championship clubs arguing that there should be smaller increases in parachute payments and much larger increases in solidarity payments. Representatives of the EPL have argued that the parachute payments do not distort competition and make the championship predictable. They point out that at present only one of the top six teams in the championship (Hull) receives parachute payments, while only one of the teams promoted from the Championship in the season 2012–13 (West Ham) received these payments.
Articles
Premier League warned over rich and poor split in wake of TV deal The Guardian, Owen Gibson (19/3/13)
Championship clubs angered by Premier League parachute boost Daily Mail, Charles Sale (6/2/13)
Football league is to lessen the advantage of parachute payments The Guardian, Owen Gibson (20/3/13)
Championship clubs warn Premier League over hike in parachute payments for relegated teams The Independent, Majid Mohamed (20/3/13)
Increased parachute payments could lead to a salary cap in the Championship The Post, A. Stockhausen (21/3/13)
Scudamore:Parachute payment system fair Eurosport, Andy Eckardt (22/3/13)
Parachute payments more than a softened landing The Daisy Cutter, Richard Brook (21/3/13)
Questions
- What factors will influence the size of the attendance at a football match?
- To what extent do you think that the money generated from the sale of television rights should be equally shared between all the clubs in the English Premier League and the English Football League
- Can you think of any ways of measuring the competitive balance of a football league?
- Explain why a very competitively imbalanced league may reduce the revenue for all the clubs in that league?.
- In traditional economic theory it is assumed that firms aim to maximise their profits. What do you think is the objective of a typical football club in the English Premier League?
Few people have £18bn worth of funds to spend. But someone that does is Warren Buffett and a Brazilian firm, who look set to purchase Heinz for this sum. Heinz, known for things like baked beans and ketchup already has an exceptionally strong brand and is cash rich – these are two ingredients which Warren Buffett likes and have undoubtedly played their part in securing what looks to be a tasty deal.
The company’s Board has already approved the deal, but shareholders still need to have their say and have been offered $72.50 per share. 650 million bottles of Heinz ketchup are sold every year and its baked beans, at the least in the UK, are second to none. Products like this have given Heinz its global brand name and have provided the opportunity to shareholders to make significant gains. Its Chairman said:
The Heinz brand is one of the most respected brands in the global food industry and this historic transaction provides tremendous value to Heinz shareolders.
This statement was certainly reciprocated by Warren Buffett when he spoke to CNBC, saying:
It is our kind of company … I’ve sampled it many times … Anytime we see a deal is attractive and it’s our kind of business and we’ve got the money, I’m ready to do.
The deal therefore looks to be profitable to both sides, but is there more to it? An investigation has already been launched by the Securities and Exchange Commission as to whether information about this purchase was leaked early and was used to make money. Insider trading occurs when someone is given information early about a merger such as the one described above. They then use this information, before it is made public, to buy up a company’s stock. It is incredibly difficult to prosecute and huge amounts of money can be made by hedge funds, amongst others. This is certainly one aspect of the deal to keep your eye on.
So, what does the future hold for Warren Buffett and Heinz? Buffett likes to extract extra value from companies he purchases and has in the past split up his businesses to create separate trading companies. However, given his taste for ketchup and his appreciation for strong global brands, it’s unlikely that we’ll see a change to the recipe of any of the well-known products. The following articles consider the takeover and the case of insider trading.
Will Buffet ‘squeeze value’ from Heinz BBC News (15/2/13)
Heinz-Buffett deal: will anyone spill the beans on insider trading? The Guardian, Heidi Moore (15/2/13)
Heinz bought by Warren Buffett’s Berkshire Hathaway for $28bn BBC News (14/2/13)
Traders sued over Heinz share bets Independent, Nikhil Kumar (16/2/13)
Heinz deal brings it back to its roots Financial Times, Alan Rappeport, Dan McCrum and Anoushka Sakoui (14/2/13)
Beanz means Buffet: Heinz purchased in $28bn takeover The Guardian, Dominic Rush (14/2/13)
US SEC sues over Heinz option trading before buyout Reuters (15/2/13)
Warren Buffet and Brazil’s ‘Sage’ Jorge Leman strike £18bn Heinz deal The Telegraph, Richard Blackden (15/2/13)
Questions
- What type of take-over would you class this as?
- Consider the Boston matrix – in which category would you place Heinz when you think about its market share and market growth?
- Why is a company that has a global brand and that is cash rich so tempting?
- Given your answer to question 3, why have other investors not taken an interest in purchasing Heinz?
- If you were a shareholder in Heinz, what factors would you consider when deciding whether or not to vote for the takeover?
- What growth strategy has Heinz used to establish its current position in the global market place?
- What is insider trading? Explain how early information can be used to make money in the case of Heinz.
- Explain how the share price of $72.50 is set. How does the market have a role?
With the fall of communism in eastern Europe between 1989 and 1991, many hailed this as the victory of capitalism.
Even China, which is still governed by the Chinese Communist Party, has embraced the market and accepted growing levels of private ownership of capital. It is only one or two countries, such as North Korea and Cuba, that could be described as communist in the way the term was used to describe the centrally planned economies of eastern Europe before 1990.
But whilst market capitalism seemed to have emerged as the superior system in the 1990s, may are now questioning whether the market capitalism we have today is fit for the 21st century. Today much of the world’s capital in the hands of big business, with financial institutions holding a large proportion of shares in such companies. And the gap between rich and poor is ever widening
The market system of today, is very different from that of 100 years ago. In fact, as John Kay agues in his article “Let’s talk about the market economy” below, it would be wrong to describe it as ‘capitalism’ in the sense the term was used in the debates of the 19th and early 20th centuries. Nonetheless, the term is still used and generally refers to the market system we now have. And it is a market system that many see as failing and unfit for purpose. It is a system that coincided with the bubble of the 1990s and early 2000s, the credit crunch of 2007–9 and the recession of 2008/9, now seeming to return as a double-dip recession
With the political and business leaders of the world meeting at the World Economic Forum at Davos in Switzerland on 25–29 January 2012, a central theme of the forum has been the future of capitalism and whether it’s fit for the 21st century.
Is there a fairer and more compassionate capitalism that can be fostered? This has been a stated objective of all three political parties in the UK recently. Can we avoid another crisis of capitalism as seen in the late 2000s and which still continues today? What is the role of government in regulating the market system? Does the whole capitalist system need restructuring?
It’s becoming increasingly clear that we need to talk about capitalism. The following webcasts and articles do just that.
Webcasts and podcasts
Davos 2012 – TIME Davos Debate on Capitalism< World Economic Forum (25/01/12)
Can capitalism be ‘responsible’? BBC Newsnight, Paul Mason (19/01/12)
Capitalism ‘nothing to do with responsibility’ BBC Newsnight, Eric Hobsbawm (19/01/12)
Are there alternatives to capitalism? BBC Newsnight, Danny Finkelstein, Tristram Hunt and Julie Meyer (19/01/12)
America Beyond Capitalism The Real News on YouTube, Gar Alperovitz (27/12/11)
The future of capitalism CNBC, Warren Buffett and Bill Gates (12/11/09)
Capitalism Hits the Fan (excerpt) YouTube, Richard Wolff (2/1/12)
Panel Discussion “20 years after – Future of capitalism in CEE” Erste Group on YouTube, Andreas Treichl, Janusz Kulik, Jacques Chauvet, and media Adrian Sarbu (24/2/11)
The Future of Capitalism: Constructive Competition or Chaos? YouTube, Nathan Goetting, Tony Nelson, Craig Meurlin and Judd Bruce Bettinghaus (24/1/11)
Capitalism in Crisis Financial Times, Various videos (24/1/11)
Bill Gates: Capitalism a ‘phenomenal system’ BBC Today Programme, Bill Gates talks to Evan Davis (25/1/12)
Capitalism (See also) BBC The Bottom Line, Evan Davis and guests (28/1/12)
Articles
Meddle with the market at your peril Financial Times, Alan Greenspan (25/1/12)
The world’s hunger for public goods Financial Times, Martin Wolf (24/1/12)
When capitalism and corporate self-interest collide JohnKay.com, John Kay (25/1/12)
Let’s talk about the market economy JohnKay.com, John Kay (11/1/12)
A real market economy ensures that greed is good JohnKay.com, John Kay (18/1/12)
Seven ways to fix the system’s flaws Financial Times, Martin Wolf (22/1/12)
To the barricades, British defenders of open markets! The Economist, Bagehot’s Notebook (26/1/12)
Community reaction to doubts about capitalism in Davos CBC News (26/1/12)
Capitalism saw off USSR, now it needs to change or die The National (UAE), Frank Kane (26/1/12)
Words won’t change capitalism. So be daring and do something Observer, Will Hutton (22/1/12)
A political economy fit for purpose: what the UK could learn from Germany Our Kingdom, Alex Keynes (20/1/12)
Debate on State Capitalism The Economist (24/1/12)
Questions
- How has the nature of capitalism changed over recent decades?
- Can capitalism be made more ‘caring’ and, if so, how?
- What do you understand by the term a ‘fair allocation of resources’? Is capitalism fair? Can it be made fairer and, if so, what are the costs of making it so?
- Can greed ever be good?
- How does the ‘Anglo-Saxon’ model of capitalism differ from the European model?
- What do you understand by the term ‘crony capitalism’? Is crony capitalism on the increase?
- John Kay states that “Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital.” Explain what this means and what its implications are for making capitalism meet social goals.
- In what ways can governments control markets? Have these instruments and their effectiveness changed in effectiveness over time?
- What are the costs and benefits to society of the increasing globalisation of capital?
- To what extent was the financial crisis and credit crunch the result of a flawed capitalist system and to what extent was it a failure of government intervention?
- Why is it important for the success of capitalism that companies should be allowed to fail? Consider whether this should also apply to banks. How is the concept of moral hazard relevant to your answer?
In the blog Has Merlin lost his magic, the issue of banks failing to meet their lending targets as set by the government was considered. Small businesses have been finding it difficult to obtain bank loans to help their business grow. Vince Cable has gone so far as to say: ‘There is a serious problem with lending to good, small companies.’ As a result of this, new sources of finance are being sought and one innovative approach has come to the forefront: crowd funding. People group together by pooling their money and investing in ideas or businesses. The attraction is that it doesn’t require huge amounts of cash, but with enough potential investors, significant amounts of finance can be raised. The following BBC News article looks at this innovative approach to financing a business.
Small firms seek crowd funding BBC News, Catherine Burne (27/5/11)
Questions
- What is the attraction of crowd funding?
- Are there any risks of this method of finance to the investors and to the firm seeking investment?
- What are the disadvantages of crowd funding relative to something like investment from a venture capitalist?
- How important is the size of the firm when it comes to the viability of crowd funding?
On 5 and 6 April, there was a conference on conscious capitalism in San Francisco. In January, a new book, Conscious Capitalism: Liberating the Heroic Spirit of Business, by John Mackey and Rajendra Sisodia, was published. Many in the business world are enthusiastic about this seemingly new approach to business, which focuses on broader social, environmental and ethical goals, rather than simple profit maximisation.
So how realistic is this vision of caring capitalism? There may be a few inspiring businesspeople, truly committed to improving the interests of the various stakeholders of their business and society more generally, but could it become a model for business in general? And if so, does this require education, monitoring and regulation? Or can a libertarian approach to business generate an environment where conscious and caring capitalists flourish and succeed better than those with a more narrow focus on profit?