By Scott Phillips
The idea of "doing well by doing good" isn't a new one. But as a greater proportion of the population continues to invest – directly and via superannuation – the composition of the "investing class" is changing.
No longer only the London-banker or Gordon Gekko stereotypes, the average investor is now the average citizen, and vice versa. And that's led to a broader range of objectives when it comes to investing, and the birth of a more socially aware investing movement.
Southwest Airlines was one of the original 'Firms of Endearment'.Credit: Patrick T. Fallon
Or perhaps we should call them movements. What we could loosely group under the umbrella of "ethical investing" includes "corporate social responsibility", "pro-social" investing, "responsible investing" and a whole lot more. The names might not matter – all but the least pragmatic ethical investor would agree that doing something is better than nothing, after all.
Profit by doing good
I'm going to throw an additional name into the mix – one that might not please the hardcore ethical investors, but which I think represents the best from different approaches, and combines it with market-beating performance: Conscious Capitalism.
Conscious Capitalism as a concept is the brainchild of Whole Foods chief executive John Mackey and US academic Raj Sisodia, and was born from some research the latter did on what he called "Firms of Endearment". This group, which hugely outperformed benchmark indices, was a group of companies that engendered positive affection from their stakeholders.
Conscious Capitalism, then, codified that research into four key tenets – the so-called "conscious businesses" are said to have a higher purpose, a stakeholder orientation, conscious leadership and a conscious culture. It differs from corporate social responsibility, the organisation says, by virtue "of its origins from within the company as an expression of an overall perspective on how to conceive and build a business, rather than as a response to external notions of what counts as socially responsible or external pressure".
Impressive results
And the results, financially speaking, are impressive. Over 15 years to 2013, the Firms of Endearment delivered a total return of about 18 times your money, compared to the US S&P 500 at just over two times.
Conscious Capitalism holds that you can embrace free markets, capitalism, the profit motive and all that goes with it, but still build (or reorient) a business using the four tenets outlined above. And as investors, that investing in such business stands a good chance of delivering a superior outcome.
These businesses don't just have to be in certain industries. Firms of Endearment include Amazon, Colgate, Costco, Disney, FedEx and Southwest Airlines.
Importantly, the idea holds that profit can – and likely will – follow as a result (rather than as the specific aim) of running a conscious business. By having a higher purpose (which sounds lofty, but can be as simple as "making air travel affordable for more people"), creating a company culture around that aim, making sure management pursue it, and by looking after its stakeholders (employees, suppliers, shareholders and the broader community), Conscious Capitalism suggests success will likely be the result.
Foolish takeaway
It's important to note, of course, that Conscious Capitalism – like any other management approach or investment technique – isn't a silver bullet. Even the most well-meaning businesses can fail. Instead, the researchers say, evidence suggests such companies are more likely to have a positive impact on the world around them, and deliver market-beating gains in the process.
For investors looking to do well by doing good, and looking for an investing framework that has some academic research to support it, Conscious Capitalism may just be a good place to start.
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Scott Phillips is a Motley Fool investment adviser. You can follow Scott on Twitter @TMFScottP . The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).