THE BLOG
11/13/2013 04:19 pm ET | Updated Jan 23, 2014

Let's Redefine Capitalism

While having a discussion with a business school professor friend recently, we began talking about the essence of what it means to be a capitalist. Every year she asks her new students the same question: "What is the purpose of business?" Invariably the answer that comes back is "to create wealth." This is a pretty standard view and I suspect most of the world would agree with this as a basic premise.

At the same time there's a growing trend afoot in the business world that is almost undeniable. The number of programs in academia and in the burgeoning business incubation industry for social entrepreneurs expands on a daily basis. I think this is a good trend in that a smart and motivated entrepreneur is truly one of the only powers on earth that has ever solved the pressing issues facing society.

I also think both views about the role of capitalism in society are insufficient to the task at hand. The simple facts are these: a wave of societal forces is changing what we demand from capitalist organizations. As we collectively decide whom we are going to work for, buy from, partner with and invest in, every company -- whether you're making forks or solving the water scarcity problem -- will need to find ways to elevate the humanity of all their stakeholders. The alternative is to run the risk of alienating customers, losing their best talent and seeing their cost of capital increase over time.

The challenge we face is a retelling of the story of capitalism and the creation of a model or operating system for business that responds to this emerging desire for meaning in the world of capitalism.

The current narrative, the one that tells us that capitalism is all about the money, has put us in a position where customers, employees, suppliers and even society at large are nothing more than inputs for the creation of shareholder value. We've moved so far from the true purpose of business -- that is producing something of value for society such that it creates a customer -- that we've had to come up with new phrases to describe money makers who also seek to positively impact humanity.

Social entrepreneurs and 'Corporate Social Responsibility' (CSR) programs abound. But companies like TOMS Shoes, Starbucks or Whole Foods Market are actually on a different path. Built on a foundation of purpose first, these companies are imagining a world where people are just as important as profits. The irony of course is that a company's ability to respond to these societal forces will profoundly affect their prospects for long-term cash flow and value creation.

Peter Drucker, the well-known management consultant and father of modern management said, "The major incentive to productivity and efficiency are social and moral rather than financial." Imbedded in this idea is a form of capitalism where each business seeks to have profound and positive effects on all of their stakeholders. Doing so creates tremendous long-term value for shareholders while also rendering the notion of CSR as nothing more than idle chatter. In a world where companies are practicing capitalism in a way that constantly and consistently strives to elevate the humanity of all of their stakeholders, entrepreneurship and social entrepreneurship converge and either you're responsible, sustainable, green (pick your moniker) or you are simply no longer able to compete.

As a long time practitioner of Conscious Capitalism® and a Drucker admirer, I've found a way to inspire that same social motivation in aspiring entrepreneurs. Just recently I founded and launched an organization called the Conscious Venture Lab, an early stage business accelerator, in partnership with the Howard County Maryland Economic Development Authority. It is our goal to develop companies and leaders who embrace capitalism as a powerful catalyst for good in society.

If our efforts at the Lab can help 10 entrepreneurs a year become "Conscious" capitalists, think about the profound impact we as a collective society could have if every corporation enlisted in this goal.

The time has come for a more robust definition of capitalism that creates value for us all.

Jeffrey Cherry is the founder and executive director of the Conscious Venture Lab, a business accelerator aimed at developing companies and leaders who embrace capitalism as a powerful catalyst for good in society.