The Enlightened Capitalists: Cautionary Tales of Business Pioneers Who Tried to Do Well by Doing Good.

• Author: Morrison, Richard

The Enlightened Capitalists: Cautionary Tales of Business

Pioneers Who Tried to Do Well by Doing Good

James O'Toole

New York: HarperBusiness, 2019, 592 pp.

James O'Toole, a professor emeritus at the University of Southern California's Marshall School of Business, has assembled an impressive collective history of dozens of innovative--and even visionary--business leaders in his new book, The Enlightened Capitalists: Cautionary Tales of Business Pioneers Who Tried to Do Well by Doing Good. His detailed history includes a wide array of enterprises, from an early-19th century textile mill run by a social reformer to a present-day San Francisco bakery that sells fig and fennel sourdough, each one with an ostensibly more exalted purpose than mere profitability.

O'Toole has assembled a lifetime of research--he says he's "been noodling about this book's subject since 1970"--with copious real-world examples. Unfortunately, he provides little in terms of a theoretical framework. He seems to hope that more business leaders will adopt his preferred policies but can be frustratingly vague on how a current-day corporate manager can decide for herself whether a given proposed policy will count enlightened, effective, and affordable.

The problem with using O'Toole's heterogeneous body of examples for his announced purpose is threefold:

* Lack of a clear definition of "enlightened";

* Reliance on intentions rather than measurable outcomes; and

* Focusing on the direct, obvious results while ignoring dynamic, second-order results.

Dozens of times throughout the book, O'Toole praises the corporate policies on his nice list with positive terms like "fair," "respectful," and "ethical." But that qualitative status seems to rest entirely on the judgment of the author and the subjects of the book themselves. Almost never do we get any objective benchmarks or thresholds for when a proposed management policy qualifies for those accolades. How high does a wage have to be before it transcends ordinary pay and becomes "generous"? Should a company be donating to environmental activist groups when it could be spending that money on better employee health coverage instead? Given that many of the ethical practices he recommends are supposedly also profitable when properly implemented, how are we to judge when a CEO is practicing them because of a commitment to virtue rather than merely because they are profitable? Does it matter?

Perhaps more important, some of the policies O'Toole endorses most strongly--such as encouraging employees to invest in company stock--are directly at odds with what many experts would say is the best interest of workers (as opposed to the interests of a CEO cultivating a reputation for egalitarian management). One doesn't have to be Suze Orman or Dave Ramsey to conclude that investing a large portion of one's retirement savings in the stock of a single company is far too risky for the average worker, no matter how cozy the worker's relationship with the employer. This is especially true when employees are depending on the returns from an employee stock ownership plan to fund their retirement in the absence of a defined-benefit pension or annuity.

While O'Toole often returns to a handful of his favorite policies, like employee stock ownership, the corporate leaders in Enlightened Capitalists implemented a wide variety of ideas, all of which receive a sympathetic presentation. These leaders raised pay, built company housing, established unpriced schools for workers' children, created worker advisory boards, subsidized postsecondary tuition for employees, delegated authority, increased sick leave, paid for employees' health care, renounced layoffs, issued bonuses, provided schedule flexibility, committed to environmentally friendly practices, and donated to...