The Brain—and Soul—of Capitalism

The Magazine - November 2013

by Nancy Koehn

In 1970 the economist and Nobel laureate Milton Friedman called corporate social responsibility “hypocritical window dressing,” saying that businesspeople inclined toward it “reveal a suicidal impulse.” How times have changed. Some executives still take a Friedmanesque view, but most accept social and civic responsibilities as indispensable to doing good business; their enterprises won’t survive if those responsibilities are ignored.

Keep in mind that capitalism needs a brain and a soul. Solving today’s burning issues—social, environmental, political, and financial—requires bigger goals, new incentives, and a reconception of what business really is. It also requires leaders with moral muscle who are willing to pursue sustainable goodness and positive impact despite colossal challenges. Starbucks CEO Howard Schultz and Unilever CEO Paul Polman are champions in this movement: Their long-term missions and pursuits are models for building companies to last.

Invest in people above all. A company’s most important assets—mission, reputation, and people—are not on the balance sheet. Schultz is deeply invested not only in Starbucks’s 200,000 partners (employees) but also in its global coffee bean farmers. Whether offering stock options and health coverage to part-time U.S. workers, hosting “family partner forums” for employees’ parents in Beijing and Shanghai, or donating cows to coffee farmers in Rwanda, he sees enlightened decision making as smart business: Health benefits and parent engagement build trust among employees; cows for coffee farmers strengthen loyalty and productivity. “To be a benevolent organization, you have to make a lot of profit,” he told Fortune in 2011. “But if your sole goal is to maximize profit, you’re on a collision course with time.”

Live the adage “From those to whom much is given, much is required.” Starbucks and Unilever may have a resource advantage, but they use their brand, visibility, and scale to blend capitalism with activism to influence change. Polman tackles global malnutrition; Schultz addresses other big-picture issues such as job creation and political disunion. And people respond. When Schultz called on major corporations to halt all political campaign contributions until the U.S. government solved the budget deficit, nearly 200 top executives of major companies signed on. He’s resolute: “Business leaders cannot be bystanders.”

Fail and keep learning. While other CEOs talk about change, Polman is grafting measurable sustainability onto Unilever’s DNA. His goals are ambitious: reduce the greenhouse gas impact of Unilever products by 50%; source 100% of raw materials sustainably; help one billion people improve hygiene. Such transformation is not without risks: If successful, Polman will be a role model; but if Unilever falters, critics will call for his head. He understands that to address social issues, business must experiment and innovate.

Schultz and Polman represent a growing corps of 21st-century leaders who are demanding bigger, bolder things of business—not primarily as a moral obligation (although that’s very important) but as an imperative for enduring organizational success. In the next decade we’ll see others forge their own models, just as we’ll see the decline of companies that cannot summon the moral courage demanded by principled leadership.

Unilever’s goal is to “stay close to society to guarantee our future.” Polman says that what he’s doing is “nothing special.” But if his and Schultz’s actions motivate others to follow, the impact will be extraordinary.

Nancy Koehn is a historian and the James E. Robison Professor of Business Administration at Harvard Business School.