“You cannot have a conscious business without a conscious leader”

Amid the constant chase for wealth creation and profit maximisation, Raj Sisodia asks businesses to pause and reflect upon their true purpose. In an exclusive chat with Outlook Business, author and leader of the Conscious Capitalism movement talks about the evolution of this principle, how it can be adopted and its impact on the entire ecosystem

In this era of crony capitalism, how do you define conscious capitalism?

Unfortunately, profits have been the sole purpose of businesses over the past 50 years. Conscious capitalism is the idea that a business needs to be more than just profit maximisation. We believe that businesses need to identify their authentic purpose and align it with making a difference in the world. Companies should consciously focus on not only creating value for investors and customers but also for employees, their families, suppliers, communities, environment and for the planet as a whole. All stakeholders need to win. Only then, it is conscious capitalism. Otherwise, it is just crony capitalism, or as we like to call it ‘crapitalism’.

How can companies exercise the theory of conscious capitalism?

It all starts at the top. Leaders need to define the purpose of their businesses. You cannot have a conscious business without a conscious leader. Today, ‘deliberately developmental organisations’ focus explicitly on enabling people to evolve and become more capable. If the leader builds the right kind of culture and organisation, personal growth and company’s goals are not in conflict with each other. What is good for the individual is also good for the organisation and vice versa.

So, how does the adoption of conscious capitalism impact the ecosystem?

Companies that embrace conscious capitalism start to create a lot more value — not just financial, but also intellectual, social, emotional, ecological and spiritual. This, in turn, impacts the culture that we operate within.

In your experience, could you cite an example of a company that practices conscious capitalism?

Well, Whole Foods Market is a very good example. It is the largest natural and organic food retailer globally. Their purpose is to convey to people that what you put into your body makes a difference to not just your health, but also the health of the food system and the planet. Being around for 40 years, they have delivered multi-bagger return to investors, developed thriving communities and satisfied customers. They have five foundations that they fund with their business, and all of this works in harmony to create a virtuous cycle.

In your book Firms of Endearment, you have highlighted the new rules of capitalism, which in essence say that companies are fuelled by passion and purpose, not cash. What are the tell-tale signs that drew you to this conclusion?

We looked at some companies that had a deep emotional connect with all their stakeholders. The relationship was not just transactional – that customers are getting lowest prices, employees are getting the highest salaries or suppliers getting highest margins. All these stakeholders chose to work with a company because they believed in the company’s purpose and felt a sense of trust. These signs clearly indicate that a business is more than just cash generation. For example, everybody connected to Whole Foods Market is concerned about food and health.

In another book, Rule of Three, you argue that the three strongest, most efficient companies control 70-90% of the market in any industry. Could you help us understand why this tends to happen?

In a market where you have too many big players competing with each other, companies are unable to become profitable because of low margins. As a result, the return they generate is lower than the risk adjusted costs of capital, leading to companies either shutting down, merging or getting acquired. Ultimately, we found that when there are three big players, it seems to be the right blend between having enough competition to avoid a monopoly, and at the same time, ensure profitability. So, empirical reality shows that in free market systems, three big players tend to control the bulk of the market and the rest is comprised of specialists.