The New Story of Business: Towards a More Responsible Capitalism

• Published date: 01 September 2017
• Author: R. Edward Freeman
• DOI: http://doi.org/10.1111/basr.12123
• Date: 01 September 2017

The New Story of Business:

Towards a More Responsible

Capitalism

R. EDWARD FREEMAN

ABSTRACT

Business is undergoing a conceptual revolution. Since the

Global Financial Crisis there are many new ideas and pro-

posals to make capitalism more responsible. The purpose

of this paper is to identify key flaws in the “old story” of

capitalism. Six principles are explained that taken

together form the basis for a new story of business, one of

responsible capitalism.

INTRODUCTION

The last 40 years have seen great changes in our understand-

ing of business. In our lifetime, we have seen a remarkable

pace of globalization. We have seen revolutionary informa-

tion technology. We have seen nothing less than a fundamental

shift in the story of business. In this talk I will try to explicate what

I believe is a conceptual revolution in business, and in particular, I

R. Edward Freeman is University Professor and Olsson Professor of Business Administration,

the Darden School, University of Virginia, Charlottesville, VA. E-mail: freemane@darden.vir-

ginia.edu; redwardfreeman.com.

Editor’s Note: A public lecture by R. Edward Freeman, Verizon Visiting Professor of Business

Ethics, Bentley University.

V

C2017 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by

Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford OX4 2DQ, UK.

Business and Society Review 122:3 449–465

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will try to explain this “new story of business” in terms of a few fun-

damental principles or ideas.

While the roots of this revolution are easily traceable back to the

1980s or even earlier, they are most clearly seen in the responses

to the Global Financial Crisis (GFC) of 2008. Since that time, we

have seen an explosion of ideas of how to make businesses more

responsible for the consequences of their actions.

For instance, many companies have taken a renewed interest in

corporate social responsibility and sustainability. In addition, we

have seen a renewed emphasis on the idea of Conscious Capitalism

as John Mackey and Raj Sisodia have argued that companies that

follow the tenets of conscious capitalism will outperform those that

do not. Michael Porter and a colleague have suggested that compa-

nies focus on “shared value” where economic value and social value

are seen as going hand in hand. Nestle has been the show pony for

this idea. Just Capital is an NGO that is committed to rating com-

panies on widely accepted standards of justice. Bill Gates has sug-

gested Creative Capitalism, whereby companies forego profits for

the sake of public welfare. Senator Mark Warner of Virginia has

suggested that it is time for new metrics, especially around the wel-

fare of workers and has hailed a move to Capitalism 2.0.

Meanwhile, the idea of social entrepreneurship has taken off

with many millennials beginning to start businesses that address

social problems. NGOs such as the Acumen Fund, Kiva, Kickstar-

ter, and countless others have been started to provide capital for

small and very small businesses and entrepreneurs who are socie-

tal change agents. Even on Wall Street, we see an increase in the

movement toward what is variously called, “patient capital,”

“impact investing,” “responsible investing,” and other terms.

Business pundits have gotten into the act, decrying a lack of

ethics that they claim brought about the GFC. Robert Reich has

argued that ethics and profits have to go together. Agency Theorist

pioneer Michael Jensen has suggested that integrity is an important

element in a successful business. The Aspen Program in Business

and Society has led various conversations about new business mod-

els, new governance models, and a variety of other related ideas.

At two recent meetings at the White House in 2016 sponsored by

the Obama Administration’s Department of Labor, 75 people from

these organizations and movements gathered to discuss common-

alities and whether or not there needed to be one brand that

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