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The rise and rise of conscious capitalism Why the big business shift towards society action is truly historic
The rise and rise of conscious capitalism
Big business and society have always been considered separate entities. But there’s a very particular behavioural shift happening within the world’s most successful businesses. We find out what’s behind this revolutionary restructure.
Words: Lysanne Currie
On 16 January 2018 the world’s top CEOs woke up to a startling missive from one of their own. Laurence D Fink, founder of BlackRock, the most influential investment firm on Earth, wrote: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
His letter, hailed as a pivotal moment in ‘conscious capitalism’, was all the more surprising having come from a CEO who, just four years previously, had claimed that activism harmed job creation. But Fink had since wised up: businesses that failed to engage with the community, he warned, would “ultimately lose the licence to operate from key stakeholders”.
The term ‘conscious capitalism’ itself was first popularised by John Mackey, CEO of high-end grocery chain Whole Foods. Mackey spent the 1960s studying Eastern philosophies and living in Texan communes. His 2013 book Conscious Capitalism: Liberating the Heroic Spirit of Business argues for “a way of thinking about business that is more conscious of its higher purpose” and asks leaders to think about how they can create more value for their stakeholders.
Significantly, Mackey also argues that huge amounts of value can be delivered to every stakeholder without sacrificing profits. In this, he shares the viewpoint of economist Professor Colin Mayer, whose recent book Prosperity: Better Business makes the Greater Good, says corporations can create both wealth and social wellbeing.
“Business should be a force for social change as well as for social good,” he told BBC Radio 4 last year. “But increasingly over the last few years it has been the cause of inequality, environmental degradation, and growing mistrust in business.”
Fast-forward to 19 August 2019: The Business Roundtable, a lobbying group of leading American CEOs, announced they were no longer putting shareholders before everyone else. Instead, they were pledging a responsibility to their customers, workers and communities, helping to “set a new standard for corporate leadership”; a response to a changing world in which businesses are expected to do more than just maximise profits.
It all reflects a wider and accelerating trend. Highnet worth individuals – such as Amazon’s Jeff Bezos, who donated $2bn to the homeless in 2018, or Jeff Skoll, whose eponymous foundation is the world’s largest for social entrepreneurship – don’t simply want to manage problems anymore; they want to fix them.
Allied to this, donors are actively seeking out companies that fulfil a social purpose. “Consumers will analyse charities and come up with what they think are the most effective ways of giving,” says Anna Josse, CEO and founder of gift fund company Prism.
As younger, technologically adept generations come to age, they also play a big factor: “Millennials are more inquisitive, and are used to a level of transparency and having things at their fingertips,” says Lucy Edwards, partner at law firm Penningtons Manches LLP. “They’re in a position to hold companies to account in a way we haven’t in previous years, because the information simply hasn’t been there.”
With the rise of a new socially-minded generation, a spirit of ‘effective altruism’ is in the air. If post-war investors in an economically fragile world followed the rapacious likes of free-market economist Milton Friedman, the needs and preferences of socially conscious millennials have turned outwards, towards building a better and brighter solar-panelled tomorrow.
Various tax incentives have also made life easier for UK-based philanthropists, such as funds within charitable organisations, allowing donors to receive tax relief, along with tax breaks available for those bequeathing art to British charities (provided the art is in ‘the national interest’).
Edwards has also identified a trend in “parents helping children dip their toe in financial responsibility, by involving them in charitable endeavours… they want their children to be socially aware; the conversation emphasis has changed from ‘I want to make sure my children are financially mature’, to ‘I want my children to be aware of the privileges their wealth brings them’, and tailor the impact of their social footprint accordingly.
“The old method of philanthropy was that you could be a robber baron, pillage resources, do harm to the planet and treat your staff badly – but as you got closer to God, you could make up for it by buying everyone a library,” says Peter Cafferkey, founder and CEO of Boncerto, a network which acts as a bridge between charities and wealthy donors. “[But] people are now seeing through that. You need to look at your whole legacy.” »
Above: BlackRock founder Laurence D Fink has shaken up the business world Below: The Amazon Spheres, Seattle
Eva Longoria (left) attends the eighth London Global Gift Gala (Photography © Colin Hart)
FIVE THINGS TO KNOW ABOUT PHILANTHROPIC GIVING
1. DONATE MORE WITH GIFT AID
In 1990 the UK introduced Gift Aid, a scheme to support charitable giving to registered foundation by allowing them to reclaim income tax levied on the donor – effectively increasing the value of that donation. While the scheme has evolved over time, the main principles remain the same.
Subject to the required conditions being met, a qualifying charity can increase the value of a donation by 25% – that is, 25p for every £1 donation they receive through Gift Aid from an eligible UK tax payer.
There is also good news for donors, who can potentially reclaim UK income tax levied on the cash they donate via Gift Aid. For HNWs, this will typically mean a refund of income tax equivalent to 25% of their donation.
2. GIFT YOUR SHARES
Share giving can be particularly useful for HNW individuals, such as those who receive their bonuses in shares, or founders floating their company who want to unlock some of the value of their holding before the ‘lock-in’ period ends.
While giving shares as a gift can be tax effective, it is not a donation method that is widely used. Those who give qualifying shares to charities can be exempt from capital gains tax, and could potentially claim income tax relief too.
The charity receiving your share can then either use cash arising from dividends, if the shares are retained, or from sale proceeds if the shares are sold.
3. BEQUEATH YOUR PROPERTY
Tax breaks are also available to those bequeathing property. A gift of property has the same tax relief as your gifted shares. Charities can choose to use cash from either renting out the property or from property disposal, in order to fund its charitable activities.
4. DONATE YOUR ART
Under the Cultural Gifts Scheme you can also donate different types of artworks and objects, and claim income or capital gains tax relief on these gifts. There is one condition – the artwork needs to be of ‘preeminent’ quality, as judged by a designated panel, and approved by the government.
5. GIVE VIA DONOR ADVISED FUNDS
For many new philanthropists in the process of setting up their own foundation but concerned about the complex regulatory requirements, one potential option to make things easier is Donor Advised Funds (DAFs).
Administered by a third party, these vehicles allow an organisation, family or individual to donate cash, shares, real estate and personal property. They receive an immediate tax deduction and then recommend where to direct their gifts.
Donors can contribute to a DAF as often as they like – so it’s similar, in fact, to a savings account. It allows people to ring-fence money for long- or short-term charitable giving. It comes with flexible funding options and can be set up to operate anonymously. Finally, a DAF offers the ability to track all investments within a single vehicle, even for international giving. Good news for everybody.
