The Future of Capitalism

Professor R. Edward Freeman was featured in a closing plenary panel at the Eighth Bentley Global Business Ethics Symposium. The panel focused on trends, challenges and possibilities with respect to the enterprise of the future. The following remarks come from the conference proceedings.

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Freeman began the conversation by examining the issues underlying responsible capitalism and ways that the current business model could be improved. Freeman emphasized four core challenges:

  1. the need to recalibrate the traditional business model,
  2. broaden the idea of purpose,
  3. focus on creating value for a broader range of stakeholders
  4. and recast the narrative about business.

Criticizing the dominant model of shareholder maximization, he argued that this model “misses the mark in terms of understanding what business really does.” As he continued, “Consider the limitations when attempting to think of a company that only cares for shareholder value… many firms, especially large corporations, engage in philanthropy and corporate social responsibility (CSR).”

In moving toward a model of responsible capitalism, Freeman emphasized the importance of entrepreneurial spirit. “Most entrepreneurs start their business precisely because they want to remake the world,” he argued. As a way of remaking that world, he suggested that the idea of shareholder value must be broadened to include philanthropy, CSR, sustainability and stakeholder value, which lie at the core of conscious capitalism.

As he continued, it is important to think about how businesses work instead of how markets work, stressing the entrepreneurial purpose of improving customers’ lives. “Businesses start with a purpose and that purpose evolves,” Freeman noted, pointing to Whole Foods’ John Mackey who started his business to provide good food to the community. Whole Foods’ purpose expanded as it evolved, but it “was never to maximize shareholder value…we can think about responsible capitalism as turning loose our entrepreneurial spirit.”

Turning to stakeholder theory, which he argued is how businesses actually work, the underlying challenge is to “find a way to simultaneously satisfy customers, suppliers, employees, community, our shareholders.” As he continued, friction in any area of business can be a source of value creation. Using green technologies as an example, Freeman underscored that these advances emerged from community concerns, the push for good working environments and the quality movement.

Concluding his comments, Freeman turned to his fourth challenge of remaking the narrative about business, which should be concerned with purpose and creating value for stakeholders. “The reason capitalism works,” he argued, “is because human beings are complicated – not because we are selfish. When people want to be great they want to be part of something that is bigger than they are… when we make voluntary decisions to collaborate to work together and create value, society flourishes.”  Finishing his remarks, he noted that business is an institution of hope, but he cautioned that business schools are falling short of raising an appropriate level of awareness about these critical challenges and that calls for reform.

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