Tag: profit maximisation

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

  1. What are the features of conscious capitalism?
  2. Do firms “get the shareholders they deserve”?
  3. How might firms that are not pursuing conscious capitalism be persuaded to become more conscious and more caring?
  4. How does conscious capitalism differ from corporate social responsibility?
  5. What would you understand by “conscious consumers”? How might their behaviour differ from other consumers?
  6. Why might firms engaging in conscious capitalism become more profitable than firms that have a simple aim of profit maximisation?
  7. 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?

With Christmas approaching, many high street stores will be hoping for a big increase in sales, but that seems unlikely to be enough for Arcadia, whose brands include Top Shop, BHS and Dorothy Perkins. Arcadia’s profits have decreased to £133m, which is a fall of 38% and, based on this data, it is planning on closing many stores across the country over the next few years. With leases expiring on many of their stores within about 3 years, the current plan, according to Sir Phillip Green, is to close about 250 stores. Speaking to the BBC, he commented:

‘Now, there may be other opportunities that turn up that we might want to open. But certainly, in terms of our existing portfolio, currently that’s our thinking.’

The economic climate has obviously played a key role, but so has the weather. With the hottest October and November for decades, people have been delaying their shopping and purchases of winter clothing and this has put increased strain on many high street traders (see the news item Dreaming of a white Christmas).

What is perhaps of more concern than one company’s profits being significantly lower is the impact this may have on unemployment. With over 2500 stores, Arcadia is one of the largest private employers in the UK and if 250 stores are closed, there may be severe consequences for the labour market and this may have further adverse effects on aggregate demand. A key factor that may partly determine the future of firms such as Arcadia is how much consumers spend this Christmas. Perhaps for these stores, they really may be hoping for a white Christmas – at least that may encourage people to stock up on winter clothes – if they can get to the shops!

Arcadia to close stores after reporting loss Financial Times, Andrea Felsted (24/11/11)
Arcadia and Dixons post profit loss BBC News (19/4/10)
Retail slowdown hits Arcadia stores Guardian, Zoe Wood (9/5/11)
Arcadia set to close up to 260 stores as profits fall BBC News (24/11/11)
Has Sir Phillip Green lost his Midas touch? Independent, James Thompson (25/11/11)
Arcadia suffers 40% slide in profits The Press Association (24/11/11)

Questions

  1. Explain why the current economic situation has caused a slowdown in retail sales.
  2. Illustrate the way in which a firm will maximise profits. If profits are declining, is it because sales revenue has fallen or that costs have risen? Adapt your diagram to show a fall in profits based on your answer.
  3. According to the article by the Press Association, margins were ‘squeezed by 1.8% as it took a £53 million hit to absorb price increases’. What does this mean?
  4. How might the unseasonably warm weather be an explanation for a weaker trading environment?
  5. If 260 stores are closed, what impact might this have on unemployment?
  6. If more workers lose their jobs, how might this have a subsequent adverse effect on sales? Think about the multiplier effect here.