James O’Toole’s brainy and provocative new book, The Enlightened Capitalists, examines the challenges of being a socially responsible business that tries to do well by doing good.
O’Toole, professor emeritus at USC’s Marshall School of Business, identifies 50 American and British business leaders of the last two centuries whose organizational skills and ethics benefited both society and shareholders, and he profiles about 25 of them in depth.
Motivated by religious beliefs or social consciousness, early business pioneers greatly improved the lives of their employees and communities by resolving problems such as poverty, unsafe and unhealthy working conditions, inferior goods and environmental degradation.
Modern-day enlightened capitalists have provided environmentally sound goods or services, offered employees ownership stakes in companies, continuing education and scholarships, upgraded medical coverage, child-care facilities, and, by relocating their offices and workplaces to failing towns, have rehabilitated these areas.
“Significantly, the enlightened capitalists sought to address social problems primarily through their business practices, rather than by acts of charity or philanthropy,’’ O’Toole wrote.
The bad news, he said, is that most companies that are engaged in “virtuous practices’’ do not endure in their original “virtuous’’ form. His research, undertaken over about 50 years, shows that after an enlightened capitalist founder is gone, only a handful of companies have survived intact even two successions in leadership.
From the 18th century to the present, O’Toole said, the same question nags: “Are socially virtuous business practices compatible with shareholder capitalism?” He answers this question in the last line of his book on what he describes as “an uncertain’’ note.
Before that ambiguous finale, O’Toole presents examples of virtue succeeding in business, but far more cases of failure.
Loss of control after going public and being answerable to a board and profit-driven shareholders is the most frequent culprit. Also, mergers or acquisitions have diluted founders’ original intent, usually denuding the company of its socially enlightened values.
Among the 24 companies that O’Toole profiled in his 1985 book, Vanguard Management, only three—Dayton-Hudson (now Target), W. L. Gore and Lincoln Electric have been able to maintain their founders’ visions of operating a socially responsible business that does well because it does good.