Ethical Capitalism? It's Worth a Try

Ethical Capitalism is not some idealistic dream; it is a powerful engine that drives long-term value creation.
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Following the financial crisis of 2008, many voices used "capitalism" as if it were a dirty word.

We can understand why. The short-term, purely self-interested thinking that contributed to the crisis and subsequent recession has also contributed to a long list of human tragedies: Thousands of workers killed when unregulated factories collapse; a growing income inequality where one billion people barely survive on less than $1 a day; and dangerous climate changes pressuring the supply of basic commodities. Some blame "capitalism" for these problems and, by extension, condemn capitalism as inherently unethical.

At the World Economic Forum in Davos this year, a group of business, NGO and government leaders discussed this question in a panel titled "Ethical Capitalism - Worth a Try?": I was fortunate to serve on the panel, which was moderated by Zanny Minton Beddoes, Economics Editor of The Economist, alongside Peter Brabeck-Letmathe, Chairman of the Board, Nestlé SA; Sir Martin Sorrell, CEO, WPP Plc; Ignazio Visco, Governor of the Bank of Italy; Jasmine Whitbread, CEO, Save the Children International; and Muhammad Yunus, Chairman, Yunus Centre and a recipient of the Nobel Peace Prize.

From my perspective, this notion that "capitalism" is inherently unethical is not only philosophically wrong but factually refutable. The problem is not with capitalism; the problem is with those capitalists who focus on the present without caring for the future.
Consider the extraordinary human achievement of the past two centuries generated by capitalism. As John Mackey reminds us in his book, Conscious Capitalism, 85 percent of the globe lived in extreme poverty just 200 years ago. Today, that number is 16 percent. Life expectancy has more than doubled, individual freedom has bloomed across the globe, and extraordinary innovation spurred by capitalism has changed daily life immeasurably. No other economic system yet devised has the power to create such positive change.

The heart of the issue is this: Capitalism is only as good as capitalists.

For any system to be sustained -- political, governmental, social or economic -- its leaders must be rooted in ethics. So what does this mean? Ethical Capitalism has at least two essential ingredients: A focus on creating long-term economic and social value, and a commitment by business to act as stewards of the full spectrum of its constituencies -- customers, employees, suppliers, investors and society. Ethical Capitalism seeks to build deep, trust-based relationships in the service of society as well as the bottom line. In other words, it is a business model with a "higher purpose."

The benefits are real and long-lasting. Companies committed to this higher purpose attract more customers, minimize operating costs through energy efficiency and reduced waste, improve employee retention rates and benefit from an experienced workforce that has a stake in the company's long-term success.

Ethical Capitalism is not some idealistic dream; it is a powerful engine that drives long-term value creation. We are one example. At Henry Schein, our commitment to balancing the needs of our five constituents -- Team Schein Members, our customers, our suppliers, our investors, and society -- has been central to our success. Our market valuation, now at $10 billion, has grown at a 23 percent rate compounded annually since the company went public in 1995. We are equally proud of our contributions to society, especially our efforts to enhance access to health care for the underserved through Henry Schein Cares, our global corporate social responsibility program. For example, since 2003, we have helped almost 4.5 million children receive free oral health care as a partner in the Give Kids a Smile program of the American Dental Association. We view being named as a FORTUNE "World's Most Admired" Company each of the past 12 consecutive years as powerful proof that a company can truly "do well by doing good."

Of course, we are not alone. Recent studies by Harvard Business School, Babson College and others have demonstrated that firms that prioritize stakeholder engagement and have a long-term orientation significantly outperform their counterparts in the stock market over time.

Capitalism is far from perfect; no system is. But capitalism is the best system we have come up with so far, and when combined with a real commitment to ethics, offers society the best opportunity to create wealth and lift people out of poverty. As business leaders, we must do more. Our task, in concert with government, academia, NGOs and civic society, is to work together to underpin the capitalist model with a strong ethical base. We must infuse the public dialogue with the understanding that self-interest and the interest of society are integrally intertwined. It is as simple as this: The success of businesses depends on a healthy, thriving society.

This year's World Economic Forum began with a message from Pope Francis, delivered by Cardinal Peter Turkson of Ghana. The Pope implored the world's business leaders "to ensure that humanity is served by wealth and not ruled by it."

That is the essence of Ethical Capitalism. We have no choice but to give it a try.

Stanley M. Bergman is Chairman of the Board and CEO of Henry Schein, Inc., a Fortune 500® company and the world's largest provider of health care products and services to office-based dental, animal health and medical practitioners, with nearly 17,000 employees and operations or affiliates in 25 countries.

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