A gentler capitalism

Every few decades, America’s business leaders change their minds about what obligations corporations and the wealthy have to society. This happened 100 years ago, when ex-robber barons like Andrew Carnegie invented modern philanthropy to address social ills, and in the mid-20th century, when leading executives stopped fighting unions and backed more generous wages and benefits. It also happened in the 1970s, when big business rejected that compact with labor, leading to the harsher free-market ethos of the 1980s and 1990s.

Now, corporate leaders are shifting their thinking once more, calling for a gentler form of capitalism.

The latest evidence came last week from two titans of business, H. Lee Scott Jr., chief executive of Wal-Mart, and Bill Gates, the retiring chairman of Microsoft. At an annual meeting of thousands of Wal-Mart employees and suppliers on Jan. 23, Scott pledged that the company -- long one of the most ruthless firms in America -- would promote energy-efficient products and improve labor conditions in its supply chain. Scott even said that Wal-Mart stores might one day generate electricity with windmills and solar panels. The very next day, Gates, whose company is still under court supervision stemming from an antitrust settlement in 2002, used a speech at the World Economic Forum in Davos, Switzerland, to call for a new “creative capitalism� in which “more people can make a profit, or gain recognition, doing work that eases the world’s inequities.�

Signs have long been mounting that corporate leaders are looking beyond the bottom line. Last year, nearly two dozen top U.S. companies, including General Electric, DuPont and Shell, joined to call for faster action on climate change. Google has committed 1% of its profits to charitable purpose; it’s Google.org hybrid for-profit philanthropy issued $26 million in grants and investments this month. Scores of chief executives have hired “corporate responsibility officers� -- a position that didn’t exist a few years ago -- to monitor their companies’ records on environmental, labor and diversity issues.

It is easy to be skeptical of such moves and talk. Critics have been quick to point out, for instance, that Wal-Mart is still engaged in troubling practices, such as failing to pay a living wage to many employees. And Gates’ new focus on helping the poor can be seen as the predictable mellowing of an executive-turned-philanthropist who no longer needs to worry about quarterly earnings.

Still, there’s good reason to think that we are at another historic pivot point. Corporations, and the people who lead them, do not exist in isolation. When society adopts new values, as Americans broadly have on issues such as climate change and sweatshop labor, executives tend to go along. Sometimes the coercive pressure of unions or government forces their hand; other times (as may be the case today with Wal-Mart) they may fear falling out of step with consumers, tarnishing their brand and gradually losing market share.

When Gates spoke at Davos about ways that business should serve the world’s poor, he was striking the same chord that Andrew Carnegie did when he published “The Gospel of Wealth,� arguing that the rich have a moral obligation to the less fortunate. Like Carnegie, Gates will likely have huge influence among his super-affluent peers.

A sea change like this among the far-upper class doesn’t happen often. Such a shift, if truly underway today, will have enormous political consequences in the years to come. If the consensus in the executive suites is that economic inequality has risen too much, or that too many social needs like healthcare are going unmet, or that the polar ice caps might really melt, the next president and Congress will have more success tackling these problems. It is far easier to get things done in Washington when Wall Street isn’t digging in its heels.

The very mission of corporations could change. If a focus on social responsibility begins to nudge aside the bottom-line orthodoxy, we can expect voluntary steps to raise wages, improve health benefits (as Wal-Mart has promised) and adopt environmentally sustainable practices.

None of these outcomes is a given. Global competition is fierce, making it harder than ever for business leaders to think beyond their balance sheets. But as more corporate leaders proclaim their commitment to social responsibility, and as politicians, unions and activists demand that they live up to this rhetoric, a new era of a gentler capitalism may truly begin.