NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, August 5, 2008

TIME Managing Editor Rick Stengel recently convened an elite panel of business leaders and thinkers to talk about how corporations can do well by doing good. The panelists were Microsoft co-founder Bill Gates; Whole Foods founder and CEO John Mackey; Ogilvy & Mather chairman Shelly Lazarus; University of Michigan professor C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid; and Geeta Rao Gupta , president of the International Center for Research on Women. Here is a transcript of the wide-ranging discussion.

Stengel: Bill, what is creative capitalism?

Bill Gates: Well the starting point is that capitalism has done a great job. The life expectancy has more than doubled in the last century. The number of people who are literate and, pursuing economic opportunity is just dramatically higher over a long period of time. But if we look at it and say, how are we doing for the people who are the worst off, the poorest, we see that the rate of improvement for them is nowhere near what it should be or that it could be. And we see in the roles of the different actors, government and business, an opportunity to change that. In the case of business, they have a lot of innovators.

Now, let’s just take the drug companies, they, they understand about creating new drugs and testing new drugs. That’s a very deep competence that government does not have. Only business. And appropriately, those drug companies respond to market signals. And so there are market signals, say from the rich world, that things like male baldness is a serious issue, and so resources are put into that. There are some other issues, diseases of the poorest, that there is no economic signal that’s saying the innovators should be put to those problems. And so some combination of forces, either the corporation itself, wanting to make a contribution that helps it in terms of its image, its hiring, its relationship with the government, or, some dollars that come in that create a market for that goods, in some way we need to draw that innovation power to do work for the poorest. In some cases it’s very straightforward, you can have tiered pricing, if there’s a market for a product in the rich world and in the developing world then it has a low marginal cost for production, then you can have the best of both worlds. You can recover most your R&D off of those who are better off, and you can have close to marginal cost pricing for those who are the poorest.

Now doing that differentiation so it gets to the appropriate people is often a challenge but there are cases that that is being done. I think now more than ever, as the state of science lets us be very optimistic about breakthroughs, that we have engineers, not just in the United States but throughout the world, particularly in Asia more and more, that we get the, the goal line, the measurement of what corporations do to also include this idea of, have you made a special effort for the poorest and the most needy, that will be important. I certainly know as I come to my full-time work at the foundation, I’ll be going to cell phone companies and saying, hey, can we have free air time for these healthcare clinics to call up and get advice about medical things. Can we have a special way of using SMS messages so that farmers know future weather conditions and pricing things and so even a very small-scale farmer is armed with the information he needs to make a decisions. I’ll be reaching out to banks, because there are new ideas about how we can have not just microfinance with loans, but also savings and insurance type things.

And so, the progress of many of the things that the foundation is working on will depend on these corporations making a decision that in the short-run is not purely profit-driven, that is, being willing to try some novel things and put some of their smartest people on it in an expectation that either inventing new products will create economic opportunity, which is really C.K.’s idea that was very stimulating to me when he first came out with that. Or, in addition, that’s just in terms of reputation for hiring employees or working with governments that there would be a benefit for having done this type of project.

So, I think the generation of young people now are particularly interested in these things, I certainly get asked a lot about you know, how they should see their energies not just being taking the best paying job but also being associated in their work, in their giving, or in their voting, with the needs of the poorest.

Stengel: C.K., I know that Bill was influenced by, by your work, and one of the questions I have, and I guess it’s a question both about creative capitalism and how you see it, is that, when it comes to cell phones for Kenyan farmers for example, isn’t this just good old fashion capitalism in the sense that it’s a recognition of a market that people hadn’t figured out how to profit from, and now, and now they are.

Prahalad: I think it is, but there’s a twist to it, and I think it’s an important twist. If you look at traditionally how we have looked at all this product and services especially high-tech products like cell phones, we would never have gone to the poor. But, I think that growth opportunity is there, as the cell phones have demonstrated. Also, it is changing the asymmetry of information, be it the farmer, who can now get prices, weather conditions, or someone who can make small transactions with SMS messaging, suddenly the asymmetry of information which is the essence of poverty ? that is why people are poor, they don’t have access to information ? that is changing very, very dramatically. What is happening in the cell phone industry, three billion people are connected for the first time in human history, I think it will be four billion soon. That I think gives me tremendous confidence that we can really take Bill’s idea and see it through to its logical conclusion, which, for me, is how to democratize commerce.

So that the challenge for the 21st century for me is: how to make every human being get access to world- class products at affordable prices. A good example is the cell phone. That means we have to change the business models as well as the technology. And the second is how to make everyone a micro-producer.

So, to me if you can create the capacity for consumption, and capacity for getting paid for your effort, we will have created a fundamentally different world where inequalities, and not only just income inequalities but opportunity inequalities and lifestyle inequalities will have changed.

So I start with the proposition that it is in the interest of the large company both local and global, to focus on the poor, because they provide a fundamental and new source of innovation. Bill already talked about in his paper a 50 cent vaccine for malaria, a one dollar serum, or vaccine, for cholera, that is only possible if you want to go to the bottom of the pyramid and take care of those people. I think that they inform the developed world on how to create fundamental innovations. Thirty dollar cell phones, $30 cataract surgery, less than a cent for a minute of cell phone time, a one cent sachet of shampoo ? these are fundamental innovations. They are not necessarily technological innovations. They are new business innovations that have been transforming most of Asia and a lot of Africa. We tend to forget, even in Africa which is the poster child for problems and opportunities, Celtel and MTN are two of the fastest-growing local companies. People find a way to buy cell phones and use these because it improves their lives.

So, I believe that the obligation to participate and to use the term that we use ? do well and do good ? goes beyond just being nice. It’s really starting to see a different pattern of opportunities. And I believe that companies are really starting to see a new pattern of opportunity. And that is why it is so exciting, because it is really re-thinking the role of capitalism, call it creative capitalism, by taking the energy, the technology, and the organization, deep down, so that we innovate continuously, and I think that’s the exciting part.

Stengel: Now, Geeta, there are lots of women at the bottom of the pyramid. In fact, C.K. has written about how the use of microfinance, how women have disproportionately used it, and succeeded although not grown their businesses to the extent that others have. How do you see creative capitalism helping women, in particular, in the developing world.

Gupta: Well, microfinance is, actually, one of the best examples of one type of creative capitalism, and it’s a shade removed from the one which C.K. just described, which is you know, doing well by doing good. The model that microfinance operates on is more what I would call development entrepreneurship, where solving the problems of poverty are the central mission, not making a profit. But that you use market principles in order to be able to make a difference in that sphere and the best examples of microfinance, I mean the Grameen Bank is the most famous example but there are now hundreds of those kinds of organizations all over South Asia in particular and all over Africa that yes, reach out to women. Ninety percent of all borrowers are poor women. And they have developed a model whereby they can actually sustain their microfinance services by actually charging a larger interest, by, you know, charging some sort of pricing, it’s difficult, and, but also, depending on some grants in order for it to work because in order for microfinance to work, you need communities that have some financial literacy, you need to be able to invest in their human capital a little bit in order for them to truly benefit from the financial services.

So, to what Bill said, you know, there’s is a third partner here. There’s the government, there’s business, and there’s civil society, and I represent a non-profit organization and I can tell you, that some of the most exciting partnerships are when those three come together to make a scaleable difference in the lives of people.

Stengel: Now John, Geeta mentioned the role of government, the role of non-profits, and we were talking a little bit before, I mean you are a, in some ways, a pure libertarian and don’t really see government as having much of a role in, in helping folks, and that the corporation, and companies like yours can actually do well by doing good both by serving its own constituency, it’s customers, and the consumers. I mean, so, how do you see creative capitalism, and I know you call it something, conscious capitalism, what’s the difference between the two?

Mackey: Well, I think creative capitalism and conscious capitalism are fellow travelers, they have much more in common than they have differences. I’d define conscious capitalism in terms of two things. First, that business become conscious, or becomes aware that it has a deeper purpose. We tend to think of the purpose of business to maximize profits and shareholder value, and I submit that that’s mostly a myth. That’s not, most entrepreneurs do not start their businesses in order to maximize profits. Having read about Bill, he had passion for software. He wanted to put computers everywhere, he wanted to transform the world. That’s, that was passion, that’s not about maximizing profits, it worked pretty well ? he became the richest guy in the world. That’s a nice consequence of having a deeper purpose. But Microsoft is one of the world’s transforming organizations, and I might add, so is the Gates Foundation. Because it has a deeper purpose.

So the first part of conscious capitalism is becoming aware of the potential that every business has to pursue a deeper purpose. And secondly, is understanding that in the 21st century, we live in a world where the best way to optimize, or the best way to maximize profits or shareholder value is not to aim directly for it but is an indirect result A. of purpose, B. of what you want to say, the interdependent nature of stakeholders, that the customers, the employees, the investors, and the suppliers, the community and the environment, are all interdependent and connected with each other. There’s been far too much attention paid to the conflict of interest of these stakeholders, and not enough attention paid to the fact that they’re all connected to each other.

So, the 21st century conscious business is trying to optimize the business system. If you optimize the business system, and seek the win-win-win-win solutions, which I think is something creative capitalism is built to advocate, you will also happily maximize your holder value in the long run as well, and you’ll maximize the value for your customers, for employees, for suppliers, and for communities, so those are the two aspects of conscious capitalism. Deeper purpose, interdependent nature of the stakeholder base.

Stengel: Shelly, I’d love to, for you to jump on that, and I have a sort of two-part question for you. One is a very practical one, I mean, we’re living right now at a moment where most consumers perceive the regular good-old-fashioned economy as really struggling, and they’re, they’re grappling with their mortgages, and four dollar gas, I mean, how will people receive this idea of creative capitalism. And the second thing that I want you to jump off on, and then I want to go back to Bill, is, you know one of the notions, Bill’s notion, and John was just talking about it too, that the recognition that companies get for doing good actually has all kinds of benefits that ultimately go to the bottom line, not the least of which is the fact that it attracts people, and young people, who say, hey, I’m proud to work here because of the things this company is doing.

Lazarus: Well I think it, what’s so interesting, is that people are still debating whether companies should have a conscience or whether corporate social responsibility is essential to creating shareholder value. And yet all these same companies say they’re market-driven. Well, the market has spoken. Consumers care. They care. And whether or not you tell them what you’re doing, they think they know. So, part of anybody’s brand has to do with what consumers impute to that organization in terms of how much they care, their citizenship, whether they have a conscience. And so I think it’s now become obvious, the debate is over. Consumers care and you have to worry about it.

And the second thing I would observe is that in companies that have really strong brands, the whole, you don’t know where the sort of commercial part ends and the conscience, giving part begins. In the best companies it all sort of flows together and it comes together and is represented in, in what that company stands for. We do advertising, we do the brand campaign for Dove. And peop ? women around the world, they don’t think it’s advertising at all, they actually think it is “Thank you, for bringing the issue of how people perceive women in the world, to women.” And so, we actually won an award last year, we won the big prize at Cannes last year, for Dove. And the big debate was not, whether it was the best film, everybody thought it was the best film. The debate was, was it advertising? Because it actually was about creating a movement, for self-esteem for women around the world.

And so, I think so the whole, all the lines are diluting you know, they’re sort of, everything is morphing and everything communicates. And one of the things that communicates most strongly right now, I would say, is the conscience of organizations.

Continue reading “The Creative Capitalism Roundtable“