Contributor, Korn Ferry Institute
Retooling Capitalism with Purpose in Mind
Daniel Goleman, author of the best seller Emotional Intelligence and host of the podcast First Person Plural: Emotional Intelligence and Beyond, is a regular contributor to Korn Ferry. His latest book, Altered Traits: Science Reveals How Meditation Changes Your Mind, Brain, and Body, is available now.
In November, I had the pleasure of sitting down with Rebecca Henderson for my podcast, First Person Plural: Emotional Intelligence and Beyond. Henderson, a Harvard University professor, has become a leading voice on purpose, innovation and organizational change.
I first shared some of Henderson’s insights in my article, The Real Purpose of Chocolate and Diamonds, where I referenced her 2020 book, Reimagining Capitalism in a World on Fire. Henderson’s work dispels a common myth in the purpose movement: that capitalism is at odds with doing good in the world. Almost 50 years after the Friedman Doctrine, which famously claimed that the sole social responsibility of business is to increase profits, many firms still believe the only way to survive is to focus on their shareholders.
Henderson’s research supports what many purpose-driven organizations are beginning to know: that done well, purpose drives innovation, creativity, trust, and employee engagement—all of which inevitably lead to higher long-term profits.
More specifically, her work shows that capitalism—an economic system where trade and industry are privately controlled—isn’t itself the enemy. The problem, she argues, is a fundamental lack of guardrails—the absence of any price or penalty for making decisions that put the planet and its people at a long-term disadvantage.
The most obvious example is the lack of immediate consequences for burning fossil fuels and emitting greenhouse gases. While research points to significant long term costs of climate change, almost none of that cost gets directly absorbed by organizations causing the most harm. One analysis estimates that if no mitigating actions are taken, rising temperatures could cause the world economy to shrink by 18% over the next three decades.
Henderson summarizes the issue as one of “fundamental mispricing,” a world where the actual cost of a product isn’t reflected in the profit and loss sheet. This goes back to something I have been saying for years: that if consumers knew the actual environmental cost of a product at point of purchase they might change what they buy.
In Henderson’s words, by not pricing the damage that we're causing, it is “as if our world is radically out of balance.” Henderson points out that this isn’t only happening in respect to the climate: a myopic focus on “low cost” has given many firms the silent permission to push down wages and avoid the costs of being better to their workforce—a practice that has come back to bite them in the form of the “Great Resignation.”
“We've taken the health of our societies for granted,” says Henderson, remarking that “without the right kind of rules and regulations in place, we've created a radically uneven playing field in which the people who want to just drive things to the lowest common denominator are those that are going to make the most money.”
Meanwhile, Henderson is a huge fan of free markets. “Free markets have helped create incredible prosperity, they drive innovation, and I think using competition as a way to allocate resources is a brilliant idea,” she shares. “If you think of the speed with which we got a COVID vaccine, that's partly due to the old-fashioned competitive juice of capitalism.”
So, what’s the fix? Not only does Henderson advocate for thinking more broadly and holistically—for considering long-term impact and societal wellbeing—but she also puts forth a vision of a more inclusive decision-making process.
“The societies that grow and thrive are those that have inclusive institutions,” says Henderson. “Balanced capitalism includes some kind of voice for working people, so that they can sit at the table with business and government and make sure that their interests are looked out for.”