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

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Release Date: 
February 26, 2019
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“O’Toole says the purpose of his book is to offer information that 'inspires and guides' the forthcoming class of corporate leaders. His book surely contributes to his stated purpose.”

Can “enlightened capitalists” create companies that are profitable and, at the same time, address societal issues ranging from racial and gender discrimination to global climate change to income inequality? This is an essential question in the midst of today’s unexpected, but intensifying debate on which is the better economic system: capitalism or socialism? And it is the question addressed by Professor James O’Toole in his informative new book Enlightened Capitalists.

Importantly, though, the very last sentence of his book sums up his approach. Quoting Garrison Keillor, O’Toole writes “You get old and you realize there are no answers, just stories.” And stories are what we get for 478 pages. This book includes stories of companies big and small, famous and not so famous, producing products ranging from ice cream to life-saving drugs. Some will find this approach to be unsatisfying because the book does not establish an analytic framework, and it leaves it to the reader to connect the dots between stories.

O’Toole shows that the question of ethics or morality in business is not new. It was first raised during the Industrial Revolution that transformed “Britain into the wealthiest and most militarily powerful nation on the globe.” Working conditions at large manufacturing mills were horrible and, moreover, many of the workers were children—as young as five years old.

In 1800, Robert Owen, the first enlightened capitalist in the book, took over a “large, unprofitable” textile mill in Scotland. Owen stopped childhood labor, provided schools, and delivered basic services like removing garbage in the mill and the town. Workers enjoyed “relatively short working hours, a grievance procedure, guaranteed employment during economic downturns, and contributary health, disability, and retirement plans—all unprecedented and, for all intents and purposes, unimaginable at the time.” O’Toole laments that too many modern business leaders have moved away from the type of enlightened capitalism reflected in Owen’s treatment of his workforce.

On the other hand, O’Toole also discusses how some corporations do demonstrate they are enlightened capitalists through impressive corporate generosity. In the 1970s, Merck “was known for its advanced research capabilities, which led to the development of numerous lifesaving and life-enhancing drugs: the first vaccines for mumps and rubella, the first statins, and the first diuretics.” Merck took aim at river blindness, a dreaded disease affecting mostly developing countries. Merck projected that the effort would “take a dozen years and cost over $200 million.” The drug was proven safe in 1987, but no one would step up to pay for its distribution. Merck announced that it would provide the drug for free to anyone who needed it.

Finally, one of O’Toole’s strongest stories involves an iconic brand, Johnson & Johnson, which first provided products driven by advances in medical science including antiseptic surgery. Bob Johnson built the company into a substantial enterprise and spoke out about the need for ethical corporate behavior. During the Great Depression he avoided laying off any employees by reducing the workweek, and eventually increased wages as well. Bob Johnson’s book, Or Forfeit Freedom, called for a living wage, good working conditions, and job security. If businesses did not provide these three things, Johnson worried that “corporate capitalism” would give way to “a Marxist or fascist system.”

A major test for the company was the Tylenol crisis in 1982 when a “psychopath laced Tylenol capsules with cyanide.” Seven people died. Johnson & Johnson recalled all Tylenol at a cost of $100 million and introduced new safety packaging.   Rather than staying silent, the company spoke out, even inviting Mike Wallace from 60 Minutes to see inside efforts to address the crisis. Within one-year Tylenol was back on store shelves and had restored its reputation. Even with this history of moral business practices, O’Toole writes that, since 2000, “the company has been on an ethical and legal roller-coastal ride.”

O’Toole’s concern is that few corporate efforts of enlightened capitalism have been sustained. In 1985, O’Toole created a list 24 enlightened companies; only three have sustained their “admirable practices.” The rest have abandoned or lessened interest in the practices due to being acquired, going bankrupt, or hiring new leaders focused on short-term profits.

O’Toole seems to miss a crucial, threshold issue here. Is a company fundamentally or inherently ethical or moral if it produces a high-quality product at the best possible price? Larry Ellison, Chairman of Oracle, as quoted by O’Toole, gives us a concise, compelling answer: “Ford Motor Company did more good than the Ford Foundation.” Henry Ford made his Model T available to and affordable by many because he lowered the price by almost 72% between 1910 to 1927. The same is true of many other new, more productive products. For example, electric utilities made electricity available to and affordable by most by cutting the retail price by 80% over the first half of the 20th century. This fundamentally ethical or moral standard must be the starting point for any judgement. Only then can a company turn to the societal issues.

O’Toole says the purpose of his book is to offer information that “inspires and guides” the forthcoming class of corporate leaders. His book surely contributes to his stated purpose.