Ethical Capitalism and the Role of Ethics in Business

Learn about ethical capitalism and discover the role of ethics in business. Let's dive into an overview of conscious capitalism!

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Read time 9 minutes

Published On May 22, 2023

Businesses of all types and sizes are the drivers of world economies and the foundation of daily life in many societies. Given their influence, it’s no surprise that the way in which they conduct themselves is also hugely significant for society. This begs the question: Do businesses have an obligation to conduct themselves in an ethical manner?

If you are a proponent of conscious capitalism, then the answer is a resounding “yes!” Ethical capitalism is at the heart of conscious capitalism. This philosophy positions companies as a force for good and the instigators of positive change. But exactly what role do ethics play in conscious capitalism?

What Is Conscious Capitalism?

In order to understand the role of ethics in conscious capitalism, it’s necessary to first take a closer look at this business philosophy. Conscious capitalism is a collection of principles intended to guide corporate decision-making at all levels — from establishing the company’s official mission, to hiring members of the board, to establishing labor practices for workers. Its principles are as follows:

A higher purpose: Conscious capitalism states that all businesses should have a higher purpose beyond the generation of profits. For example, a hospitality company’s higher purpose might be to provide compassionate care to travelers so they can feel well taken care of when they are far from home. A funeral home’s higher purpose would be not only to honor the memories of those who have passed on, but also to provide comfort to those left behind.
Stakeholder orientation: Conscious capitalism requires companies to orient their mission and business practices toward meeting the best interests of all of their stakeholders. A company’s stakeholders can include its employees, shareholders, suppliers, vendors, customers, clients and labor unions. The community near the company is also a stakeholder in the company’s success, as businesses have direct impacts on their surrounding communities.
Conscious leadership: The person at the helm of an organization must be accountable for their mistakes, take ownership in their work, drive innovation, work toward positive change and inspire others. In conscious capitalism, conscious leadership also applies to every team member — not just the CEO.
Conscious culture: A company’s culture can be described as either toxic or uplifting. It’s the responsibility of every leader in the organization to nurture a positive company culture that benefits all stakeholders and drives the company forward.

What Is the Role of Ethics in Business?

Ethical codes comprise a broad topic with many possible interpretations. However, one simple definition is that “ethics” refers to a collection of moral principles that guide the behaviors, conduct and decision-making of individuals and groups. Through ethical codes, humans grapple with some of the most complicated questions in life, such as:

What is right and wrong?
How can one live a good life?
What should a person do when both option A and option B will result in an act of wrongdoing?
What are humanity’s rights and responsibilities?

In essence, ethics govern how people relate to one another and interact with each other and their environments. The underpinning philosophy of conscious capitalism is that if all humans have ethical obligations to each other, then businesses also have ethical obligations to humanity and their environments.

Proponents of conscious capitalism point out that all of an organization’s stakeholders are both interconnected and interdependent; what affects one affects all, and all stakeholders are equally important. What does this mean in practical terms?

Here is an example: Pantheon Enterprises, a chemical manufacturer located in Phoenix, knows that the creation of new chemical products can lead to negative effects on the environment and people’s lives.

In order to combat this, Pantheon Enterprises commits to following conscious and sustainable efforts and goals. They “provide solutions to human needs, wants and challenges.” However, they do not disregard the effects of the chemical industry, so they devote themselves to “protecting people and our planet” by following the standards they have set to hold themselves accountable in an ethical manner.¹

Case Studies of Ethical Capitalism in Action

There are a number of companies that have embraced the ethical mindset of conscious capitalism. They are led by individuals who recognize that self-interest and altruism are not mutually exclusive; it is indeed possible to build and grow a profitable company while doing right by others.

One notable example is Bombas, a company founded for the dual purpose of profits and philanthropy. Their mission is to donate a clothing item for every clothing item a customer purchases (primarily socks). All of their donations are sent to community organizations across the country for distribution to individuals affected by homelessness.²

To date, Bombas has donated more than 75 million clothing items to homeless shelters and has partnered with more than 3,500 community organizations across the nation.² This company is a true force for good. Other notable companies that adhere to the ethical principles of conscious capitalism include:

Patagonia: This outdoor clothing company is committed to maintaining an environmentally-friendly supply chain, having switched from pesticide-heavy crops to organic cotton.³ Furthermore, the company pays its workers fair wages.⁴
Starbucks: This company relies on objective third-party evaluators to ensure that all of its coffee is ethically sourced and that farmers receive fair pay.⁵
Whole Foods: The co-founder and CEO of Whole Foods, John Mackey, is also the co-founder of the conscious capitalism movement. As such, it makes sense that the company would adhere to ethical principles that nurture all of its stakeholders and promote healthy living. For example, the company builds stores that use alternative energy, recycles rainwater and uses food scraps for energy.⁶ It also pays its workers fairly while capping salaries for executives.⁷

As you can see, there are a number of ways that companies can adhere to the ethical principles of conscious capitalism. Ideally, a company will adopt comprehensive policies and practices designed to nurture ethical decision-making in all of its spheres of influence — from environmental impacts to social well-being.

What About the Role of Socially Conscious Investors?

For most people, the primary goals of investing are to grow their wealth and make their future more secure, such as by planning for retirement. Yet, for some, investing has broader implications than wealth management and financial gain. Conscious investing is done with a higher purpose in mind, and it aligns with the principles of conscious capitalism.

Conscious investing is also referred to as “socially responsible investing” (SRI) or “values-based investing,” and it has been gaining considerable traction in recent years. Conscious investing is the practice of investing one’s money in an ethical and responsible way. The goals are two-fold:

To make the world a better place by investing in socially responsible, ethical companies and by refusing to invest in companies that engage in questionable practices
To generate a profit for the investor, the practice of conscious investing recognizes that although individual investors want to turn a profit, they don’t want their dollars being used for unethical practices.

How Do Socially Conscious Investors Establish Their Portfolios?

The definition of conscious investing raises another question: How exactly does one determine which investments are ethical and which are not? There is no set-in-stone formula, and every person might answer this question a little bit differently.

For example, some people are primarily concerned about the environmental impact of the companies they invest in. They wouldn’t invest in a company that contributes to the deforestation of the Amazon rainforest, but they would invest in a company that follows environmentally sustainable practices and has a limited carbon footprint.

Other conscious investors are primarily concerned with social change. They might prefer to invest in companies that have committed to social equality, such as those with equal percentages of minority and non-minority board members. These investors might also consider whether the company’s everyday practices contribute to or detract from social justice.

Of course, some investors might prefer to invest in companies with a commitment to social justice in both practice and governance, as well as a commitment to eco-friendly practices. This is known as “ESG investing,” referring to environmental, social and governance investing.

An investor who abides by ESG criteria will evaluate all three of the following factors before deciding whether to invest in a company.

Environmental: This considers the entirety of the company’s environmental impact. It may include everything from how the company manages recycling to whether the company creates sustainable products and the volume of greenhouse gases the company’s activities emit. For example, a conscious investor would prefer to invest in a toothpaste company that manufactures completely recyclable toothpaste tubes and plants trees to offset its emissions.
Social: The social component of ESG investing is quite broad and considers issues both internal and external to the company. For example, does the company engage in equal employment opportunity practices? Does the company contribute to fair housing, fair lending or other community development initiatives?
Governance: The corporate governance factor of ESG investing pertains to a company’s leadership and board. A conscious investor might consider issues such as whether the executives’ pay is exorbitant when compared to that of the average worker, whether the board is diverse and whether leadership is steering the company toward ethical decisions.

When looking for ethically conscious companies to invest in, an investor might decide to follow a negative screening methodology. In other words, they might decide to avoid investing in any companies that are involved with tobacco, weapons manufacturing or fossil fuels.

Alternatively, they might use a positive screening methodology, such as by actively seeking out companies that embrace ethical capitalism. Some investors prefer thematic investing, which involves investing in causes that are near and dear to them. Examples include women’s rights, healthcare or water conservation.

Community-based investing is another possibility. A socially conscious investor might prefer investing strategies that contribute to the positive advancement of underserved communities. For example, they may choose to invest in banking and lending companies that provide assistance to underserved, low-income communities.

Is Socially Conscious Investing Profitable?

In a 2017 survey, the Morgan Stanley Institute for Sustainable Investing determined that 75% of respondents were curious about conscious investing. However, 53% of them believed that investing in this manner would yield a lower financial return. Its researchers explored this question by examining almost 11,000 mutual funds from 2004 to 2018.⁸

The study revealed that sustainable mutual funds provided a return on investment that was comparable to that of traditional mutual funds (those not designed with conscious investing in mind). There was no statistically significant difference in performance between these two types of funds.⁸

Furthermore, the researchers discovered that sustainable mutual funds showed 20% less downside deviation compared to traditional funds. This is a statistically significant finding that indicates conscious investing is less risky than traditional investing.⁸

Earn Your Bachelor’s of Business Administration

Now that you have a better understanding of the principles of ethical capitalism and the importance of socially conscious investors, it’s time to consider how you might put your newfound knowledge into action. In other words, how can you pursue a career that you can be proud of and that makes a positive difference in the lives of others? It starts with pursuing higher education after high school.

Consider pursuing a bachelor’s of business administration degree. A Bachelor of Science in Business Administration can prepare you to serve as an effective change-maker in a variety of sectors and industries. You’ll learn about finance, business regulations, labor markets and the role of ethics in business. In short, you can learn how to potentially excel in a business aimed at attracting socially conscious investors.

There are many careers that you could choose to pursue after graduating with your BS in Business Administration, including the following:

Sales associate
Production officer
Business analyst
Business consultant
HR specialist

At the Colangelo College of Business at Grand Canyon University (GCU), all of our business and management degree programs emphasize the importance of ethical decision-making and servant leadership. If you envision yourself setting an example for others to follow in the corporate world, consider applying for enrollment today in one of our programs, such as the Bachelor of Science in Business Administration degree. Complete the form on this page to explore the many online and on-campus possibilities at GCU.

¹Pantheon Enterprises, The Principles of Conscious Chemistry in August 2021

²Bombas, Giving Back in June 2021

³Patagonia, How We Got Here: Organic Cotton in September 2021

⁴Patagonia, Living Wage in September 2021

⁵Starbucks Coffee at Home, Starbucks Ethical Sourcing in September 2021

⁶Whole Foods Market, Our Core Values & Mission in September 2021

⁷Whole Foods Market, Whole Benefits in March 2023

⁸Morgan Stanley, Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds in March 2023

Approved by the director of academic operations from the Colangelo College of Business on May 11, 2023.