Mutuality and Concepts of Responsible Business

Introduction

The core tenets of financial capitalism—shareholder primacy and profit maximization—are being criticized and reimagined. Since 2008 we have heard about many different forms of capitalism—from conscious capitalism to inclusive capitalism, Capitalism 2.0, creating shared value, and, of course, the subject of this volume, the Economics of Mutuality (EoM).

Each of these concepts can be described as a type of capitalism, as it exists within a system based on free markets and private ownership. But each offers a significantly different vision of the purpose of business compared with that presented by financial capitalism. As Michael Porter and Mark Kramer write of Creating Shared Value, ‘The purpose of the corporation must be redefined as creating shared value, not just profit per se’ (2011: 64). Nevertheless, while all of the concepts listed above can legitimately be understood to share the common goal of ‘redefining’ the purpose of the corporation, they offer solutions, approaches and alternatives at quite different levels, from the highly conceptual (e.g. values, principles and logics) to the very technical (e.g. practices and processes).

This chapter aims to compare the differences and similarities between these various ‘responsible business capitalisms’ (RBCs).

It begins by presenting a framework for classification that provides a basis for comparison and helps to structure and organize the contributions of each RBC concept. The second part of the chapter will discuss what the classification framework tells us about the contribution of EoM in particular.

Responsible Business Capitalisms: Classifications and Paradigms

Conscious capitalism describes its goal as offering ‘a new paradigm’ for business: ‘Business needs to become holistic and integral with deeper comprehensive purposes. Corporations must rethink why they exist’ (Strong 2009: 103). Such a statement clearly adheres to the general goal of RBCs—but what makes it a new paradigm? Does rethinking the purpose of business constitute a new paradigm? Would instituting new practices of ‘servant-leadership’ (Mackey and Sisodia 2013), integrated strategies and triple bottom line accounting (Elkington 1998) amount to a new paradigm? Gladwin et al. (1995), also drawing on the language of paradigms, suggests that all of the above would be required: ‘new fundamentals, new languages, and new lenses’ (877). This is not because RBCs must be complete concepts, but because they must compete to displace those existing ideas that are dominant—at least this is what the paradigm approach would suggest.

The ‘paradigm-view’1—a concept identified by the physicist and philosopher Thomas Kuhn—has been highly influential in both the social and natural sciences, but its application in the former has been somewhat loose.2 Indeed, the economist John Kay said that ‘paradigm’ is ‘the most overworked and abused term in the study of management’. Nevertheless, the use of a paradigm-view is appropriate given both the ambitions of RBCs to challenge the fundamentals of financial capitalism and the present context of socio-political crises facing the broader economic and business world. Indeed, Kuhn argues that challenges to the fundamental philosophy of a dominant paradigm indicate the potential for paradigm-change to occur.

A paradigm is more than a synonym for ‘model’. As the philosopher Margaret Masterman argued, Kuhn’s ideas involve three main meanings of paradigm: metaparadigms, sociological paradigms, and artefact paradigms:

• Metaparadigms are of a philosophical nature, dealing with a ‘new way of seeing’, focusing on knowledge and assumptions.

• Sociological paradigms are accepted approaches and habits; in business these would equate to corporate cultures, strategies, or business models.

• Artefact/Construct paradigms are the most ‘concrete’, offering specific tools, practices, and textbooks.

In other words, a paradigm is composed of all of these meanings, which together constitute a whole worldview.

It is ‘the constellations of beliefs, values and concepts that give shape and meaning to the world a person experiences and acts within’ (Norton, 1991: 75) as well as the artefacts and constructs which form the apparatus required for work to be done. Table 6.1 shows how these paradigms relate to the capitalist worldview.

Applying the Paradigm View Classification

So what happens when we apply this paradigm-view to the major types of Responsible Business Capitalisms?

Corporate Social Responsibility

Any discussion of responsible business cannot ignore the concept of corporate social responsibility (CSR). These ideas have been around for some time, emerging from the belief that corporations have an obligation to work for social betterment, and have influenced research, discussions, and action at the intersections of business and society.

However, it is a broad field, loosely defined. It incorporates (at worst) cynical PR-driven greenwashing as well as some valuable and serious concepts that could be justifiably included in our definition of responsible business capitalism. There is not sufficient space here to examine the contribution of CSR as whole. Nevertheless, stakeholder theory is one particular idea, discussed in detail below, that as an early offshoot of CSR provides an important starting point for understanding more recent RBCs.

Stakeholder Theory and Conscious Capitalism

The philosopher and management scholar R. Edward Freeman calls stakeholder theory a ‘new narrative’ for capitalism. It is based on adopting the relationships between business and the groups and individuals who can affect or are affected by the business’s activities as the key ‘unit of analysis’. In our classification, taking stakeholders rather than shareholders as the central unit of analysis is a fundamental re-examination of the old assumptions of financial capitalism at the metaparadigm level. Indeed, it strikes at the heart of the question: what is the purpose of the firm? Is it to serve shareholders by making as much profit as possible? Or is it broader, as stakeholder theory argues, so that shareholders are included amongst other relevant stakeholders to whom the firm must also deliver value?

Stakeholder theory therefore is underpinned by a ‘normative core’: it engages substantively with questions on the purpose of business and its obligations to society and the planet. In other words, it challenges the most basic assumptions of the dominant paradigm.

However, stakeholder theory is not just a set of primarily philosophical questions. It can also be considered in terms of the sociological paradigm.

Stakeholder theory applied at the sociological level is called stakeholder engagement. It requires executives to think beyond a transaction-by-transaction or contract-centred basis for its strategic operations. Instead, executives must engage and strategize by considering a far more complex picture of connected multiple stakeholder3 interests—whether employees, customers, suppliers, communities, government, or shareholders. All these stakeholders are affected by the activities of business in some way, and so business must actively manage the effects of its activities across the whole ‘ecosystem of stakeholder relationships’. More recently, scholars have discussed the importance of stakeholder engagement being two-way: in other words, that executives must be thoughtful listeners and that those outside the firm are highly influential on firm performance itself.

When it comes to the construct paradigm, however, stakeholder theory seems to have contributed few specific tools and artefacts—with the exception of accounting and marketing. In accounting, the theory has influenced developments such as value-added statements, environmental impact and sustainability reporting, and corporate social disclosure. In marketing, the use of various stakeholder scorecards is a good example of a tool for companies to track and measure the level of satisfaction of its key stakeholders.

Closely related to stakeholder theory is the increasingly high-profile conscious capitalism movement founded by the CEO and co-founder of Whole Foods Market John Mackey. Conscious capitalism builds quite explicitly on the normative assumptions of stakeholder theory that take the firm beyond profit maximization alone—to what is termed a ‘higher purpose’—and emphasizes the need for cultivating virtuous corporate cultures and heroic leadership. Therefore, similarly to stakeholder theory, conscious capitalism contributes constructively to thinking at the meta and sociological paradigm levels by highlighting the role of purpose, culture, and leadership in driving positive transformation in business. However, it contributes no further tools for managers and employees below the C-suite or senior leaders to actually implement the tenets of conscious capitalism whilst navigating the complexities of day-to-day decision-making. Ultimately, the concrete practicability of conscious capitalism does not extend beyond a reliance on the strength of corporate culture, CEO’s leadership, and generally managing stakeholder interests.

Creating Shared Value (CSV)

CSV is perhaps the RBC that has gained most attention since its introduction in a 2011 Harvard Business Review article by Michael E. Porter and Mark R. Kramer.

The core ideas of CSV emerge from C. K. Prahalad’s well-known base of the pyramid theory (BoP) and pockets of the strategic CSR literature that argue social programming ought to be included at the core of business strategy: ‘Business and society have been pitted against each other for too long’ (Porter and Kramer 2011: 64). By shifting these concerns from the periphery to the core, a firm can generate both social and economic value in three ways:

1. By reconceiving products and markets

2. Redefining productivity in the value chain

3. Building up supportive industry clusters in the company’s locations.

Porter and Kramer describe CSV as ‘policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates’ (2011: 66). So the thrust of CSV as ‘policies and operating practices’ is at the sociological level, where a paradigm develops its core models, strategies, and habits. Importantly, however, Porter and Kramer couch CSV as the way to ‘reinvent capitalism’ and answer the widespread demand for a ‘new conception of capitalism’ (64), an ambition that would require a more thorough reformulation at the metaparadigm level. In this sense, the classification reveals an important conceptual sleight of hand that requires some attention.

A typical CSV example would be of a large multinational firm, with its headquarters in the developed world, entering the developing world seeking the win–win of profitability and social value. In order to achieve this, the firm reformulates its products and business model to meet the requirements of the local context. Common reformulations of products would include single-use packets for beauty products and smaller sizes, creating lower, more affordable price points. In parallel, the firm will re-think its approach to supply chains by building a local cluster through infrastructure development that most improves the value-creation opportunities. Lastly, the firm might partner with an NGO to recruit local underprivileged entrepreneurs to distribute the products and in the process give them additional training and income-generating opportunities.

In such an example, the firm is certainly re-thinking its business strategies and practices, but has there been a change in the fundamental assumptions of business activities? At first glance, it would appear that the profit-maximization motive has been replaced by the goal of creating shared value. However, a closer examination shows that two crucial assumptions of financial capitalism remain unchanged—firm-centricity and financial priority.

This can be seen clearly in Porter and Kramer’s articulation of local cluster development: ‘Then the task is to focus on the weaknesses that represent greatest constraints to the company’s own productivity and growth, and distinguish those areas that the company is best equipped to influence directly from those in which collaboration is more cost effective. Here is where the shared value opportunities will be greatest’ (2011: 75). So they suggest that the firm should participate in cluster development only on those issues that most affect its own productivity and growth, and that it should unashamedly prioritize cost-effectiveness. Ultimately, when it comes to the relationship between business and society, apart from those few occasions where the respective interests of firm and society align perfectly, business still wins in CSV. Society is a legitimate stakeholder, but also a secondary citizen subservient to the traditional financial, firm-centric goals of the corporation.

A similar example is Nestlé’s Nespresso business that buys premium coffee beans from smallholders in Africa and Latin America. The supply chain interventions described by Porter and Kramer, such as productivity training groups and bank loan guarantees, are reasonable practices. But they remain activities that prioritize the interests of the company. In other words, CSV may help firms create shared value strategies and business models, but it does not do so on the basis of altering the fundamental relationship between business and society. These CSV opportunities comply with existing assumptions and constraints of financial capitalism.

At the construct level, CSV offers little additional detail on any specific new practices. There are broad suggestions on how to do local cluster development, the use of technology to create logistic efficiencies and lower resource consumption. While societal value is integral to business model creation, its performance is still fundamentally reliant on traditional measures of success focused on profit, growth, and sometimes sustainability scorecards. None of these suggested practices is unique to CSV or indeed is explicitly connected to a way of doing business that flows from a more responsible capitalism.

Our classification shows that the main contribution of CSV is at the sociological level, offering a compelling conceptualization of shared value strategies able to generate social and economic value for a firm where market opportunities present an aligned set of stakeholder interests. CSV is an additional corporate ‘habit’, that enables the firm to address CSR-type problems in profitable ways; but despite its claims, it falls short of changing the purpose of the corporation in any substantive, metaparadigmatic sense. Indeed, an additional explanation of its popularity as a concept could be that its implementation does not require a fundamental transformation of the business, simply a recasting of business strategy to be profitable in a new era, but not substantively more.

Economics of Mutuality

Since 2007, EoM has been researched, developed and piloted by Mars Catalyst—the internal think-tank of Mars, Inc.—and a number of academic partners from leading universities and business schools (see Chapters 3 and 4). EoM, despite the centrality of the word ‘mutuality’, is not directly related to ideas such as mutual ownership, mutual funds, or the similar sounding ‘economy of mutuality’.4 Mutuality has a distinctive history and meaning within Mars that informs EoM in important ways.

Although EoM was initially conceived through a question of deep philosophical and pragmatic business consequence—what is the right level of profit for the corporation?—the actual birth of EoM was at the artefact-level: namely in the creation of alternative non-financial management metrics (see Chapters 9–12).5 EoM began developing the tools for puzzle-solving before defining exactly what the puzzle was: ‘an artefact, becomes a “research vehicle”, and at the same moment, if successful, it becomes a paradigm, by being used to apply to new material, and in a non-obvious way’ (Masterman 1970: 78).

Since 2014, building on the creation of these new non-financial management metrics, Catalyst and scholars at Saïd Business School, University of Oxford, and ESSEC Business School have developed EoM further, evolving additional practices and frameworks in the model. These have been important developments at the sociological level and discussed elsewhere in this volume are ecosystem orchestration (Chapter6) and cross-sector partnering (Chapter8). Interestingly, at this level there is significant overlap and similarities between EoM, CSV, and stakeholder theory. At the construct level, the mutual P&L (Chapter 13) is a new accounting practice designed to incentivize more responsible management behaviour by bringing non-financial capitals into the management accounts.

Ultimately, however, it is at the metaparadigm-level that the concept of mutuality offers EoM a unique ethic both to confront the dominance of financial capitalism and draw together models (sociological-level) and tools (construct-level) to construct a pragmatic alternative. In other words, EoM is not, by virtue of any single tool or strategy, going to shift a paradigm. However, taken together across the three paradigm levels, there is a greater consistency and coherence to EoM than to other RBCs. Therefore, while there are undoubtedly similarities between EoM and other RBCs at the sociological and construct levels, there remain important differences. For example, ecosystem orchestration, as in CSV strategy, demands that a firm reconceive products and markets as well as value chains. However, in CSV the re-conception process does not also demand a fundamental decentring of itself. The firm will consider the interests of a wider community and its environmental impact, but it ultimately remains self-interested and profit-driven, albeit more deliberate and strategic in identifying shared value opportunities. The ethic of mutuality is the crucial differentiator as the core ethic (metaparadigm) of EoM. In ecosystem orchestration, mutuality demands not only that the firm place itself as one of many players in a system, but also that a purpose not specific to the firm take its place. Furthermore, the practice of ecosystem mapping is explicitly about understanding the system and its problems from the perspective of other stakeholders. Therefore, the purpose of the firm in EoM is to develop solutions to pain points experienced by other stakeholders; the overall business model must be profitable but not every activity is directly income-generating. EoM claims the problems of others as the firm’s central purpose, and its unique contribution as a business is to develop profitable, sustainable ways of addressing the problems.

Conclusion

Assessing these RBCs against Kuhn’s three paradigm levels suggests that most are still in what he would call a ‘pre-paradigmatic state’. They have a growing number of adherents; they are developing their respective philosophies, models and tools; but they still lack the coherence across the three paradigm-levels that would offer a genuine, practicable alternative to financial capitalism. This is a challenge EoM is well placed to take on as it is further researched and practiced as a whole.

The paradigm-view also reveals that some caution is required in assessing models, strategies, and tools such as CSV and some CSR-type initiatives as easily comparable ideas. While they may purport to adhere to the RBC metaparadigm, they are better understood as evolutions within financial capitalism. As shown with CSV in particular, the strategies ultimately fail to challenge the core assumptions and epistemologies of financial capitalism.

The task of paradigm-shifting is a complex and painful process on the part of practitioners and scholars, communally and individually. It requires changing our entrenched way of doing and way of seeing, which ultimately is a challenge that demands a change to the very foundations of our understanding of what it means ‘to do’ and ‘to see’ in business. It involves new behaviours, new language, and new models.

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Notes

1. Margret Masterman’s phrase in ‘The Nature of a Paradigm’ (1970: 67).

2. Cf. Friedrichs (1970).

3. Freeman defines a stakeholder as ‘any group or individual who can affect or is

   affected by the achievement of the organization’s objectives’.

4. Jackson (2016).

5. Beginning at this level is unique amongst RBC concepts, arguably with the

   exception of triple-bottom-line accounting, although such a method was originally more related to the sustainability agenda rather than the RBC discourse.

Alastair Colin-Jones joined Mars Catalyst in 2016 and is responsible for the day-to-day management of the joint research programmes between Mars Catalyst and various university partners around the world. He also supports the implementation of the Economics of Mutuality within large businesses on both the supply and demand side. Previously, he was the knowledge manager at the Skoll Centre for Social Entrepreneurship at Saïd Business School and prior to that helped to start a social enterprise in Oxford. Alastair has a first-class undergraduate degree and a graduate degree from the University of Oxford.

Sudhir Rama Murthy is a research fellow at Saïd Business School, University of Oxford. He is also an early career research fellow at the Skoll Centre for Social Entrepreneurship, and a member of the Senior Common Room at St Antony’s College, Oxford. His research interests are in sustainable manufacturing, circular economy, and stakeholder management. He was a recipient of the Dr Manmohan Singh Scholarship from St John’s College, University of Cambridge, for his PhD in engineering. He holds a master’s degree from the Indian Institute of Science. Sudhir’s broad motivation is in sustainable industrialization of the developing world.

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