Posted: August 6th, 2022

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Building Block Activities will vary from week to week but are designed to give you the opportunity to learn more about the topics we discuss in class. These activities may involve reading a scholarly article, reading a blog post, listening to a portion of a podcast, watching a short video, and so on, all related to a specific topic that connects to course content. All of these materials will be posted and/or linked below. After working through these materials, you’ll need to submit a brief paper demonstrating what you’ve learned and reflecting on the materials.

This week’s topic is all about sexism. For this week’s Building Block Activities, you’ll explore gender—and, to a lesser extent, racial/ethnic—representation in academia and a key hypothesis that can explain these statistics. Note that the two articles I’ve assigned are fairly heavy in the analyses they report. You don’t need to understand how all of the analyses work; just make sure you understand the arguments and main points of each. Here are the materials you’ll need to work through before writing your paper:

Material #1: Expectations of brilliance underlie gender distributions across academic disciplines (scholarly article), Science: 

Leslie, Cimpian et al. (2015)

Material #2: Google, Tell Me. Is My Son a Genius? (blog post), New York Times: 

https://www.nytimes.com/2014/01/19/opinion/sunday/google-tell-me-is-my-son-a-genius.html (Links to an external site.)

 or download a pdf version here: Download Stephen-Davidowitz (2014)

Material #3: Female Professors Hardly Brilliant, Certainly Not Genius (blog post), U.S. News & World Report: 

https://www.usnews.com/news/blogs/data-mine/2016/03/07/female-professors-hardly-brilliant-certainly-not-genius (Links to an external site.)

 

Material #4: Adults and children implicitly associate brilliance with men more than women (scholarly article), Journal of Experimental Social Psychology: 

Storage et al. (2020)

If you want to earn full points on these assignments, pay special attention to the requirements: 

· Format requirements: 1 page (headings don’t count toward the length requirement), 1-inch margins, double spaced, 12-pt font, Times New Roman.

· Content requirements: a very brief “Summary” of the assigned materials, a “Connections” section in which you connect these materials to your own experience or to what we’ve discussed in class, and a “Reflections” section in which you simply reflect on the topic.

Here’s how you can expect to be graded:

· 2 pts for following format requirements

· 4 pts for following content requirements

· 4 pts for being thoughtful in what you write and illustrating that you really worked through the assigned materials

WOMEN IN SCIENCE

Expectations of brilliance underlie
gender distributions across
academic disciplines
Sarah-Jane Leslie,1*† Andrei Cimpian,2*† Meredith Meyer,3 Edward Freeland4

The gender imbalance in STEM subjects dominates current debates about women’s
underrepresentation in academia. However, women are well represented at the Ph.D.
level in some sciences and poorly represented in some humanities (e.g., in 2011,
54% of U.S. Ph.D.’s in molecular biology were women versus only 31% in philosophy).
We hypothesize that, across the academic spectrum, women are underrepresented in
fields whose practitioners believe that raw, innate talent is the main requirement for
success, because women are stereotyped as not possessing such talent. This
hypothesis extends to African Americans’ underrepresentation as well, as this group
is subject to similar stereotypes. Results from a nationwide survey of academics
support our hypothesis (termed the field-specific ability beliefs hypothesis) over three
competing hypotheses.

L
aboratory, observational, and historical evi-
dence reveals pervasive cultural associa-
tions linking men but not women with
raw intellectual talent (1–4). Given these
ambient stereotypes, women may be un-

derrepresented in academic disciplines that are
thought to require such inherent aptitude. We
term this the field-specific ability beliefs hy-
pothesis (fig. S1).
Current discourse about women in acade-

mia focuses mainly on women’s underrepresen-
tation in (natural) science, technology, engineering,
and mathematics (STEM) (5). However, STEM
disciplines vary in their female representation
(fig. S2) (5, 6). Recently, women have earned
approximately half of all Ph.D.’s in molecular
biology and neuroscience in the United States,
but fewer than 20% of all Ph.D.’s in physics and
computer science (7). The social sciences and
humanities (SocSci/Hum) exhibit similar varia-
bility. Women are currently earning more than
70% of all Ph.D.’s in art history and psychology,
but fewer than 35% of all Ph.D.’s in economics
and philosophy (7). Thus, broadening the scope
of inquiry beyond STEM fields might reveal new
explanations and solutions for gender gaps (8).
We offer evidence that the field-specific ability
beliefs hypothesis can account for the distribu-
tion of gender gaps across the entire academic
spectrum.

Individuals’ beliefs about what is required
for success in an activity vary in their emphasis
on fixed, innate talent (9). Similarly, practi-
tioners of different disciplines may vary in the
extent to which they believe that success in
their discipline requires such talent. Because
women are often negatively stereotyped on
this dimension (1–4), they may find the aca-
demic fields that emphasize such talent to be
inhospitable. There are several mechanisms by
which these field-specific ability beliefs might
influence women’s participation. The practi-
tioners of disciplines that emphasize raw apti-
tude may doubt that women possess this sort
of aptitude and may therefore exhibit biases
against them (10). The emphasis on raw ap-
titude may activate the negative stereotypes in
women’s own minds, making them vulnerable
to stereotype threat (11). If women internalize
the stereotypes, they may also decide that these
fields are not for them (12). As a result of these
processes, women may be less represented in
“brilliance-required” fields.
We used a large-scale, nationwide study of

academics from 30 disciplines to evaluate the
field-specific ability beliefs hypothesis, along
with three competing hypotheses. The first com-
petitor concerns possible gender differences in
willingness or ability to work long hours (13):
The more demanding a discipline in terms of
work hours, the fewer the women. The second
competing hypothesis concerns possible gender
differences at the high end of the aptitude dis-
tribution [(14, 15); but see (16, 17) for criticism].
Such differences might cause greater gender
gaps in fields that, by virtue of their selectivity,
sample from the extreme right of the aptitude
distribution: The more selective a discipline,
the fewer the women. The third competing hy-
pothesis concerns possible differences among

fields in the extent to which they require system-
izing (the ability to think systematically and ab-
stractly) or empathizing (the ability to understand
thoughts and emotions in an insightful way): The
more a discipline prioritizes systemizing over
empathizing, the fewer the women (14, 18, 19).
Our findings suggest that the field-specific ability
beliefs hypothesis, unlike these three compet-
itors, is able to predict women’s representation
across all of academia, as well as the representa-
tion of other similarly stigmatized groups (e.g.,
African Americans).
We surveyed faculty, postdoctoral fellows, and

graduate students (N = 1820) from 30 disciplines
(12 STEM, 18 SocSci/Hum) (table S1) at geo-
graphically diverse high-profile public and private
research universities across the United States.
Participants were asked questions concerning
their own discipline (table S2); responses in each
discipline were averaged (tables S3 and S4), and
analyses were conducted over disciplines (not in-
dividuals). As our dependent measure, we used
the percentage of female Ph.D. recipients in each
discipline (7).
To assess field-specific ability beliefs, we asked

participants to rate their agreement with four
statements concerning what is required for suc-
cess in their field (e.g., “Being a top scholar of
[discipline] requires a special aptitude that just
can’t be taught”) (table S2). Respondents rated
both the extent to which they personally agreed
with these statements, and the extent to which
they believed other people in their field would
agree with the statements. Because answers to
these eight questions displayed very similar pat-
terns (a = 0.90), they were averaged to produce
a field-specific ability belief score for each disci-
pline (with higher scores indicating more empha-
sis on raw ability). As predicted, the more a field
valued giftedness, the fewer the female Ph.D.’s.
Field-specific ability belief scores were signifi-
cantly correlated with female representation ac-
ross all 30 fields [correlation coefficient r(28) =
−0.60, P < 0.001], in STEM alone [r(10) = −0.64, P = 0.025], and in SocSci/Hum alone [r(16) = −0.62, P = 0.006] (Fig. 1). In a hierarchical re- gression with a STEM indicator variable entered in the first step and field-specific ability belief scores entered in the second (Table 1, models 1 and 2), adding the ability belief variable sig- nificantly increased the variance accounted for, DR2 = 0.29, P < 0.001. To assess work demands, we asked partici-

pants to report the number of hours they worked
per week, on-campus and off-campus (table S2).
There was no correlation between the total num-
ber of hours worked (on- plus off-campus) and
female representation, r(28) = −0.03, P = 0.895.
Women tended to be underrepresented in fields
whose practitioners worked more on-campus
hours, but this correlation was not significant
either, r(28) = −0.32, P = 0.088. No significant
correlations with on-campus hours were found
either within STEM, r(10) = 0.46, P = 0.131 (note
the positive coefficient here), or within SocSci/
Hum, r(16) = −0.07, P = 0.772. Adding on-campus
hours to the hierarchical regression predicting

RESEARCH | REPORTS

262 16 JANUARY 2015 • VOL 347 ISSUE 6219 sciencemag.org SCIENCE

1Department of Philosophy, Princeton University, Princeton,
NJ 08544, USA. 2Department of Psychology, University of
Illinois at Urbana-Champaign, Champaign, IL 61820, USA.
3Department of Psychology, Otterbein University, Westerville,
OH 43081, USA. 4Survey Research Center, Princeton
University, Princeton, NJ 08544, USA.
*These authors contributed equally to the work. †Corresponding
author. E-mail: sjleslie@princeton.edu (S.-J.L.) or acimpian@illinois.
edu (A.C.)

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women’s representation did not significantly
increase the variance accounted for, DR2 < 0.01, P = 0.687 (Table 1, model 3) [Similar results were obtained with total hours worked, as de- tailed in the supplementary materials (SM).] Thus, differences between fields in hours worked did not explain variance in the distribution of gender gaps beyond that explained by field- specific ability beliefs and the STEM indicator variable. To assess selectivity, we asked faculty parti-

cipants to estimate the percentage of graduate
applicants admitted each year to their depart-
ment. We then reverse-coded this measure so
that higher values indicate more selectivity.
Fields that were more selective tended to have
higher, rather than lower, female representa-
tion, but this correlation did not reach signif-
icance, r(28) = 0.34, P = 0.065. Further, this
selectivity measure did not predict female rep-
resentation in STEM alone or in SocSci/Hum
alone (both Ps > 0.478), and adding it to the
hierarchical regression did not result in a sta-
tistically significant increase in the variance
accounted for, DR2 = 0.04, P = 0.134 (Table 1,
model 4). (An analysis considering only selec-
tivity measures from top-10% departments
produced the same pattern of results; see the
SM.) To account for potential differences in
the strength of the applicant pools across disci-
plines, we compared the 2011–2012 Graduate
Record Examination (GRE) General Test scores
of Ph.D. applicants. These data were available for
only 19 of the disciplines in our study (7 STEM
and 12 SocSci/Hum) (20). A composite measure
of GRE scores was not significantly correlated
with female representation, r(17) = −0.24, P =
0.333, and so provided no evidence that fields
with more women have weaker applicant pools.
Further, the relation between field-specific abil-
ity beliefs and female representation remained
significant when adjusting for GRE scores, r(16) =
−0.57, P = 0.013.

SCIENCE sciencemag.org 16 JANUARY 2015 • VOL 347 ISSUE 6219 263

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Earth Sci Chem

Astronomy Math

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Field-specific ability beliefs

(higher numbers indicate greater emphasis on brilliance)

3.7 4.2 4.7 5.2

Fig. 1. Field-specific ability beliefs and the percentage of female 2011 U.S. Ph.D.’s in (A) STEM and
(B) Social Science and Humanities.

Table 1. Hierarchical regression models predicting female representation. N = 30 disciplines. Significant statistics are bold. R2 comparisons are
always with the preceding model (to the left).

Model 1 Model 2 Model 3 Model 4 Model 5
Predictor

b t P b t P b t P

b t P b t P

STEM indicator –0.50** –3.03 0.005 –0.42** −3.20 0.003 –0.35 –1.49 0.148 –0.30 –1.34 0.193 –0.28 –1.07 0.297
Field-specific

ability beliefs
–0.55*** −4.13 <0.001 –0.56*** –3.98 <0.001 –0.58*** –4.17 <0.001 –0.56** –3.46 0.002

On-campus
hours worked

–0.09 –0.41 0.687 –0.01 –0.03 0.975 0.02 0.07 0.945

Selectivity 0.24 1.55 0.134 0.24 1.54 0.137
Systemizing

versus
empathizing

–0.06 –0.23 0.817

R2 0.25 0.54 0.54 0.58 0.58
F for change

in R2 9.19** 17.08*** 0.17 2.40 0.06
P for change

in R2
0.005 <0.001 0.687 0.134 0.817

**P< 0 0.01. ***P < 0.001.

RESEARCH | REPORTS
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To assess systemizing versus empathizing,
we asked participants to evaluate the extent to
which scholarly work in their discipline requires
these two abilities (two questions each, table
S2) (as = 0.63 and 0.90, respectively). A com-
posite systemizing-minus-empathizing score was
significantly correlated with female representa-
tion across all disciplines, r(28) = −0.53, P = 0.003.
However, this score did not significantly predict
female representation in STEM alone, r(10) =
−0.27, P = 0.402, or in SocSci/Hum alone, r(16) =
−0.25, P = 0.310. Adding systemizing versus em-
pathizing composite scores to the hierarchical re-
gression did not increase the variance accounted
for, DR2 < 0.01, P = 0.817 (Table 1, model 5). In- deed, field-specific ability beliefs were the sole significant predictor of female representation in this final model, b = −0.56, P = 0.002.

To further compare our hypothesis to its
competitors, we performed another hierar-
chical regression in which the STEM indicator,
on-campus hours, selectivity, and systemizing
versus empathizing were all added together as
a first step. The model was significant, R2 =
0.38, P = 0.016, although no individual predic-
tor in it was. When field-specific ability belief
scores were added, the variance accounted for
increased to 58%, DR2 = 0.21, P = 0.002. This
finding reflects once again the predictive pow-
er of the field-specific ability beliefs hypothesis.
(However, we do not claim that field-specific
ability beliefs are the sole determiner of gender
gaps or that these three are the only alternative
hypotheses; other factors undoubtedly play a
role. Further, this study was not designed to
eliminate the three competing hypotheses but

rather to use them as a benchmark for our
hypothesis.)
To check for robustness, we duplicated our

analyses using weights created by comparing the
demographic characteristics of our respondents
against the demographics of the population of aca-
demics we initially contacted. Adding these post-
stratification weights to our analyses helped us
to check for the influence of bias resulting from
differential nonresponse (21, 22) (for details, see
the SM). In a weighted version of the final model
in the hierarchical regression, field-specific abil-
ity beliefs were again the only significant pre-
dictor of female representation, b = −0.40, P =
0.029 (see table S7 for weighted versions of all
models).
There are many potential mechanisms by which

field-specific ability beliefs may influence women’s
representation. To assess some possibilities, we
asked participants to evaluate the statement,
“Even though it’s not politically correct to say it,
men are often more suited than women to do
high-level work in [discipline].” Participants rated
their own agreement and the extent to which they
thought that other people in their field would
agree. These two scores were averaged into a
single measure (a = 0.80). Disciplines that empha-
sized raw talent were more likely to endorse the
idea that women are less suited for high-level
scholarly work, r(28) = 0.38, P = 0.036. In turn,
higher endorsement of this idea was associ-
ated with lower female representation, r(28) =
−0.67, P < 0.001. We also asked participants to rate whether they thought that their dis- cipline was welcoming to women (table S2). Disciplines that valued giftedness over dedica- tion rated themselves as less welcoming to women, r(28) = −0.58, P = 0.001, and fields that viewed themselves as less welcoming had fewer female Ph.D.’s, r(28) = 0.74, P < 0.001. Together, ratings of whether women were suitable for and welcome in a discipline mediated 70.2% of the relation between field-specific ability beliefs and the percentage of female Ph.D.’s (bootstrapped P < 0.001) (23). Thus, field-specific ability beliefs may lower women’s representation at least in part by fostering the belief that women are less well-suited than men to be leading scholars and by making the atmosphere in these fields less welcoming to women. Like women, African Americans are stereotyped

as lacking innate intellectual talent (24). Thus,
field-specific ability belief scores should predict
the representation of African Americans across
academia. Indeed, African Americans were less
well represented in disciplines that believed gifted-
ness was essential for success, r(28) = −0.54, P =
0.002 (Fig. 2). However, field-specific ability be-
lief scores should not predict the representation
of Asian Americans, who are not stereotyped in
the same way (25). Indeed, Asian American rep-
resentation was not correlated with field-specific
ability beliefs, r(28) = 0.16, P = 0.386. A hierar-
chical regression with the STEM indicator, total
hours worked (the same results are found with
on-campus hours only), selectivity, and system-
izing versus empathizing, all entered together in

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Art Hist

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Engineering
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History

Linguistics Math

MidEastStud

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Neurosci
Philosophy

Physics

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Psychology

Sociology
Spanish
Statistics
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3.2
Field-specific ability beliefs

(higher numbers indicate greater emphasis on brilliance)
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Fig. 2. Field-specific ability beliefs and the percentage of 2011 U.S. Ph.D.’s who are (A) African
American and (B) Asian American.

RESEARCH | REPORTS
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the first step predicted very little variance in
African Americans’ representation, R2 = 0.06, P =
0.827 (Table 2, model 1). Adding field-specific
ability beliefs in the second step significantly
increased the variance accounted for, DR2 = 0.29,
P = 0.003 (Table 2, model 2). As with women,
field-specific ability beliefs were the only signifi-
cant predictor of African American representation
(with total hours worked: b = −0.61, P = 0.003;
with on-campus hours: b = −0.64, P = 0.005).
Finally, we considered alternative explana-

tions for our results. If women believe more
strongly than men in the value of hard work,
disciplines with fewer women may have higher
field-specific ability belief scores precisely for
that reason—because they have fewer women.
Relative to men, women in our survey did report
lower field-specific ability belief scores and thus
more belief in the importance of dedication
(Mwomen = 3.86 versus Mmen = 4.24), t(1812) = 7.31,
P < 0.001. However, contrary to this alternative hypothesis, the field-specific ability belief scores derived separately from each discipline’s female and male respondents were independently pre- dictive of the percentage of female Ph.D.’s across the 30 fields: r(28) = −0.40, P = 0.028, for women’s scores, and r(28) = −0.50, P = 0.005, for men’s. We also constructed a gender-balanced field-specific ability belief score for each disci- pline by computing the average scores for men and women in that discipline and then averag- ing the two gender-specific scores. This mea- sure weights women’s and men’s scores equally, regardless of their actual representation in a field, and was again the only variable that sig- nificantly predicted women’s representation in the regression model that included all com- petitors plus the STEM indicator, b = −0.49, P = 0.009. Thus, the relation between field-specific ability beliefs and women’s representation is not a simple matter of men and women valuing effort differently. Is it possible that people simply infer what

is required for success in a field on the basis of

their estimates of that field’s diversity, so that
they assume a field requires less brilliance if
women are well represented in it? Contrary to
this alternative hypothesis, a regression anal-
ysis performed on the individual-level data
revealed that academics’ perceptions of the
diversity of their field (see table S2) were in
fact not a significant predictor of their field-
specific ability beliefs, b = −0.05, P = 0.277.
This analysis included indicator variables for
each discipline so as to minimize the influence
of discipline-specific unobserved variables (26).
Thus, the relation between field-specific ability
beliefs and women’s representation is not a sim-
ple matter of using women’s representation in a
field to infer what is required for success.
Is natural brilliance truly more important

to success in some fields than others? The
data presented here are silent on this ques-
tion. However, even if a field’s beliefs about
the importance of brilliance were to some
extent true, they may still discourage partic-
ipation among members of groups that are
currently stereotyped as not having this sort
of brilliance. As a result, fields that wished to
increase their diversity may nonetheless need
to adjust their achievement messages.
Are women and African Americans less like-

ly to have the natural brilliance that some
fields believe is required for top-level success?
Although some have argued that this is so, our
assessment of the literature is that the case has
not been made that either group is less likely to
possess innate intellectual talent (as opposed
to facing stereotype threat, discrimination, and
other such obstacles) (10, 16, 17, 24, 27).
The extent to which practitioners of a dis-

cipline believe that success depends on sheer
brilliance is a strong predictor of women’s and
African Americans’ representation in that dis-
cipline. Our data suggest that academics who
wish to diversify their fields might want to
downplay talk of innate intellectual gifted-
ness and instead highlight the importance of

sustained effort for top-level success in their
field. We expect that such easily implement-
able changes would enhance the diversity of
many academic fields.

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ACKNOWLEDGMENTS

We thank E. Anastasia, R. Baillargeon, R. Bigler, C. Chaudhry,
R. Fusello, E. Harman, M. Johnston, Y. Lee, S. Lubienski,
A. Penner, H. Perhai, E. Pomerantz, J. Robinson-Cimpian, and
the members of the Cognitive Development Lab, University
of Illinois at Urbana-Champaign. We also thank five anonymous
reviewers for their comments. This work was supported by
NSF grant BCS-1226942 to S.-J.L. and by Spencer Foundation
grant 201100111 to A.C. The data are available in the SM,
with values for the primary variables given in table S4. The SM
contains additional data.

SUPPLEMENTARY MATERIALS

www.sciencemag.org/content/347/6219/262/suppl/DC1
Materials and Methods
Figs. S1 and S2
Tables S1 to S8
References

17 September 2014; accepted 25 November 2014
10.1126/science.1261375

SCIENCE sciencemag.org 16 JANUARY 2015 • VOL 347 ISSUE 6219 265

Table 2. Hierarchical regression models predicting African American representation. N = 30
disciplines. Significant statistics are bold. R2 comparisons are always with the preceding model (to
the left).

Model 1 Model 2
Predictor

b t P b t P

STEM indicator 0.05 0.15 0.878 –0.06 –0.21 0.833
Total hours worked –0.13 –0.58 0.571 –0.26 –1.30 0.207
Selectivity –0.21 –0.88 0.387 –0.19 –0.93 0.359
Systemizing versus

empathizing
–0.23 –0.71 0.487 0.10 0.35 0.733

Field-specific
ability beliefs

–0.61** –3.28 0.003

R2 0.06 0.35
F for change in R2 0.37 10.76**
P for change in R2 0.827 0.003

**P < 0.01.

RESEARCH | REPORTS
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Expectations of brilliance underlie gender distributions across academic disciplines
Sarah-Jane Leslie, Andrei Cimpian, Meredith Meyer and Edward Freeland

DOI: 10.1126/science.1261375
(6219), 262-265.347Science

, this issue p. 262; see also p. 234Science
required, academic departments had lower percentages of women.
other fields are believed to require more empathy or hard work. In fields where people thought that raw talent was
by Penner). Surveys revealed that some fields are believed to require attributes such as brilliance and genius, whereas
that general attitudes about the discipline would reflect the representation of women in those fields (see the Perspective

hypothesizedet al.Some scientific disciplines have lower percentages of women in academia than others. Leslie
Women’s participation and attitudes to talent

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Contents lists available at ScienceDirect

Journal of Experimental Social Psychology

journal homepage: www.elsevier.com/locate/jesp

Adults and children implicitly associate brilliance with men more than
women☆,☆☆

Daniel Storagea,⁎,

T

essa E.S. Charlesworthb, Mahzarin R. Banajib, Andrei Cimpianc,⁎
a University of Denver, United States of America
b Harvard University, United States of America
c New York University, United States of America

A R T I C L E I N F O

Keywords:
Stereotypes
Gender
Brilliance
Implicit Association Test

A B S T R A C T

Women are underrepresented in careers where success is perceived to depend on high levels of intellectual
ability (e.g., brilliance, genius), including those in science and technology. This phenomenon may be due in part
to a gender-brilliance stereotype that portrays men as more brilliant than women. Here, we offer the first in-
vestigation of whether people implicitly associate brilliance with men more than women. Implicit measures are
absent from prior research on the gender-brilliance stereotype, despite having the potential to contribute unique
information about the prevalence of this stereotype. Across

5

studies (N =

3

6

1

8

) with 1

7

Implicit Association
Tests using 6 distinct comparison traits (e.g., creative, funny), we found consistent evidence for an implicit
gender-brilliance stereotype favoring men. Indeed, for 5 out of 6 comparison traits (even the male-typed trait
funny), male was associated with brilliant and female with the comparison trait. Only a physical trait (strong)
showed a stronger association with male than brilliant did; none of the psychological traits used as comparisons
rivaled brilliant in their association to male. Evidence for the implicit gender-brilliance stereotype was con-
sistently observed whether the male and female targets were represented with verbal labels or pictures, and
whether the pictures depicted White or Black targets. Moreover, the results were robust in both men and women,
children and adults, across different regions of the U.S. as well as internationally. This pervasive implicit as-
sociation of brilliance with men is likely to hold women back in careers perceived to require brilliance.

1. Introduction

Women are underrepresented across a range of careers that are
perceived to require high-level intellectual ability (e.g., brilliance,
genius), including many science, technology, engineering, and mathe-
matics (STEM) fields but also fields in the social sciences and the hu-
manities, such as philosophy (Cimpian & Leslie,

2

017; Leslie, Cimpian,
Meyer, & Freeland, 2015; Meyer, Cimpian, & Leslie, 2015). This dis-
tinctive pattern of underrepresentation emerges in part because of a
stereotype that associates these qualities of genius and brilliance with
men more than women (Bian, Leslie, & Cimpian, 2017, 2018; Jaxon,
Lei, Shachnai, Chestnut, & Cimpian, 201

9

; Rivera & Tilcsik, 2019). This
stereotype may lead members of fields that value brilliance to perceive

women as unsuited for these careers (Bian, Leslie, & Cimpian, 2018)
and may perhaps also undermine women’s own willingness to pursue
careers in these fields (Bian, Leslie, Murphy, & Cimpian, 2018). Our
main goal in this paper is to contribute to this growing area of research
by conducting the first investigation of the gender-brilliance stereotype
using implicit measures. Implicit measures have remained entirely absent
from prior work on gender-brilliance stereotypes despite having the
potential to contribute unique information about the prevalence of this
stereotype, as well as its malleability and relation to prejudiced beha-
vior.

We begin by clarifying the content of the stereotype under in-
vestigation and differentiating it from other gender stereotypes. We
then review the existing evidence that people endorse a gender-

https://doi.org/

10

.1016/j.jesp.2020.10

4

020
Received 17 November 2019; Received in revised form 6 June 2020; Accepted

11

June 2020

☆ This paper has been recommended for acceptance by Fiona Kate Barlow.
☆☆ We are grateful to our participants, including the Urbana-Champaign and New York families who participated. We would also like to thank the research

assistants from the Cognitive Development Labs at the University of Illinois and New York University for their help with data collection. The members of the
Cognitive Development Lab at New York University provided helpful feedback on a previous draft of this manuscript. This research was supported by National
Science Foundation grants BCS-1530669 and BCS-1733897 awarded to Andrei Cimpian and the Dean’s Competitive Fund for Promising Scholarship from Harvard
University to Mahzarin R. Banaji.

⁎ Corresponding author.
E-mail addresses: Daniel.Storage@du.edu (D. Storage), andrei.cimpian@nyu.edu (A. Cimpian).

Journal of Experimental Social Psychology 90 (2020) 104020

Available online 04 July 2020
0022-1031/ © 2020 Elsevier Inc. All rights reserved.

T

http://www.sciencedirect.com/science/journal/00221031

https://www.elsevier.com/locate/jesp

https://doi.org/10.1016/j.jesp.2020.104020

https://doi.org/10.1016/j.jesp.2020.104020

mailto:Daniel.Storage@du.edu

mailto:andrei.cimpian@nyu.edu

https://doi.org/10.1016/j.jesp.2020.104020

http://crossmark.crossref.org/dialog/?doi=10.1016/j.jesp.2020.104020&domain=pdf

brilliance stereotype and, finally, motivate the present set of studies.

1.1. The gender-brilliance stereotype

We use the terms brilliance and genius interchangeably to refer to
high-level intellectual ability (Bian, Leslie, Murphy, & Cimpian, 2018;
Rattan, Savani, Naidu, & Dweck, 20

12

). People seem to assume bril-
liance is unevenly distributed not just across individuals (i.e., some
people have it and others do not) but also across social groups (i.e., some
groups have it and others do not). We will focus on the stereotyped
assumption that men are more likely to possess brilliance than women,
which we refer to as the gender-brilliance stereotype.

The content of the gender-brilliance stereotype differs along two key
dimensions from the content of other gender stereotypes that pertain to
the intellectual domain. First, unlike gender stereotypes about mathe-
matical, scientific, or verbal ability (e.g., Cvencek, Greenwald, &
Meltzoff, 2011; Nosek, Banaji, & Greenwald, 2002a), the gender-bril-
liance stereotype is general—it pertains to a quality that cuts across
specific domains of intellectual activity; its breadth is likely to make
this stereotype particularly powerful. Second, unlike gender stereotypes
about competence (e.g., Fiske, Cuddy, Glick, & Xu, 2002; Williams &
Best, 1990), the gender-brilliance stereotype pertains to a particularly
high level of intellectual talent. In principle, a person can think that men
and women are equally intelligent on average (i.e., disagree with the
gender-competence stereotype) but also think that men are over-
represented among geniuses (i.e., agree with the gender-brilliance ste-
reotype). Consistent with the idea that gender-competence and gender-
brilliance stereotypes are empirically distinguishable, a recent meta-
analysis of public opinion polls showed a significant decrease from
1946 to 2018 in the prevalence of gender-competence stereotypes fa-
voring men (Eagly, Nater, Miller, Kaufmann, & Sczesny, 2019): The
percentage of poll respondents who reported they believed women to
be more intelligent than men increased steadily over this period, and the
percentage of responses indicating that men and women are equally
intelligent was generally high (e.g., 85.9% in a nationally-re-
presentative 2018 poll). Thus, if we take these data at face value,
gender-competence stereotypes favoring men may now be in the past.
In contrast, gender-brilliance stereotypes seem to remain widespread,
as we review in the next section.

Before describing prior evidence on gender-brilliance stereotypes,
we note that these stereotypes are worthy of study not simply because
they are different from other gender stereotypes or because they are
widespread. These stereotypes are also important to investigate and
understand because they seem to hold women back across a wide range
of prestigious careers. The more that people in a field believe that these
qualities of brilliance and genius are needed for success in their field,
the fewer women can be found among its members (e.g., Leslie,
Cimpian, et al., 2015; Storage, Horne, Cimpian, & Leslie, 2016), and
this relationship holds even when accounting for fields’ reliance on
domain-specific skills such as mathematics (Cimpian & Leslie, 2015;
Storage et al., 2016). Thus, arriving at a robust, comprehensive un-
derstanding of gender-brilliance stereotypes can inform future efforts to
increase gender equity in career outcomes.

1.2. Previous evidence on the gender-brilliance stereotype

A major source of evidence for the existence of a gender-brilliance
stereotype consists of people’s self-reported impressions of familiar
others (e.g., their instructors, their children; see Bennett, 1996;
Furnham, Reeves, & Budhani, 2002; Kirkcaldy, Noack, Furnham, &
Siefen, 2007; Rivera & Tilcsik, 2019; Storage et al., 2016; Tiedemann,
2000). For example, students use the words brilliant and genius more
often to describe male instructors than female instructors in their re-
views on RateMyProfessors.com (Storage et al., 2016; see also
Schmader, Whitehead, & Wysocki, 2007). Similarly, participants refer
more male than female acquaintances for jobs said to require high

levels of intellectual ability but not for jobs said to require high levels of
motivation (Bian, Leslie, & Cimpian, 2018).

Consistent with this evidence, other studies have found a gender-
brilliance stereotype favoring men when assessing participants’ explicit
judgments of unfamiliar women and men (Bian et al., 2017; Bian,
Leslie, & Cimpian, 2018; see also Raty & Snellman, 1997; Rivera &
Tilcsik, 2019). For example, when shown pairs of unfamiliar women
and men and asked to guess which person in each pair was “really,
really smart,” children as young as 6 years of age from different regions
of the U.S. chose significantly more men than women (Bian et al., 2017;
Jaxon, Lei, et al., 2019). Similarly, when children were shown a set of
unfamiliar peers and asked to select several teammates for a game
described as being for children who “are really, really smart,” they first
selected teammates of their own gender but then proceeded to select
mostly boys as teammates (Bian, Leslie, & Cimpian, 2018). This dif-
ference was not observed when the same game was described as being
for children who “try really, really hard,” suggesting that the preference
for boys as teammates was specific to the “brilliance” game. Note that
even though these judgments concerned individuals (rather than
groups), the individuals were unfamiliar to participants, which means
that their responses likely reflected their general concepts of males and
females.

1.3. Aim of the present research

The main aim of the present research was to extend prior work on
the gender-brilliance stereotype by investigating this stereotype with
implicit measures. In social cognition, a distinction has long been drawn
between explicit and implicit measures of stereotypes (e.g., Greenwald
& Banaji, 1995). Examining both explicit and implicit measures is im-
portant for a complete understanding of the prevalence of a stereotype,
its implications for behavior, and its malleability to interventions. That
is, explicit and implicit stereotypes have been shown to differ in theo-
retically important ways, including (1) their prevalence across different
demographic groups, with implicit attitudes being more consistent
across demographic groups (e.g., both old and young people prefer
young people on implicit measures; Nosek et al., 2007); (2) their ability
to predict behaviors, with implicit stereotypes being more likely to
predict spontaneous behaviors (Kurdi, Seitchik, et al., 2019); (3) the
mechanisms by which they are most readily changed, with implicit
attitudes/stereotypes argued to change more through associative pro-
cesses and explicit attitudes/stereotypes through propositional pro-
cesses (Gawronski & Bodenhausen, 2006; cf. Kurdi & Banaji, 2017), and
(4) their responsiveness to social changes, with implicit attitudes/ste-
reotypes often changing relatively more slowly than explicit attitudes/
stereotypes (Charlesworth & Banaji, 2019a). Because implicit and ex-
plicit measures provide complementary perspectives on a stereotype,
the main goal of the present work was to test whether the gender-
brilliance stereotype is also present on implicit measures of stereo-
typing.

We employed a common measure of implicit cognition, the Implicit
Association Test (IAT; Greenwald, McGhee, & Schwartz, 1998), which
indirectly assesses the degree of overlap between concepts (e.g., brilliant
and male, creative and female) via response latencies in a sorting task.
Because this task asks participants to respond as quickly and accurately
as possible and is therefore based on participants’ automatic responses,
the IAT can identify stereotypes that participants may be unable or
unwilling to report (Greenwald & Banaji, 1995).

Although the validity and reliability of the IAT have recently been
challenged (e.g., Schimmack, 2019; Tetlock & Mitchell, 2009; for re-
sponses to these types of concerns, see Gawronski, 2019; Jost, 2019;
Vianello & Bar-Anan, 2020), the IAT nevertheless offers distinct in-
formation about a stereotype that complements the information ob-
tained with explicit measures. In addition, the IAT has been used ex-
tensively to study stereotypes (e.g., Kurdi, Seitchik, et al., 2019; Nosek,
Smyth, et al., 2007), and the evidence to date speaks to its construct and

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020

2

http://RateMyProfessors.com

predictive validity as a measure of stereotypic associations (for a re-
view, see Nosek, Greenwald, & Banaji, 2007). For instance, Nosek et al.
(2009) found that nations with stronger implicit gender-math stereo-
types favoring males also showed a larger male advantage in 8th grade
standardized math performance relative to countries with weaker
gender-math stereotypes. It is thus likely that an implicit gender-bril-
liance stereotype, if present, has implications for behavior both per-
formed by, and directed toward, women in fields and careers where
brilliance is valued (e.g., physics, philosophy). Our goal here is to
provide the first investigation of this implicit stereotype.

1.4. Overview of studies

In the current research, we tested implicit gender-brilliance asso-
ciations across five studies with 3618 child and adult participants from
different regions of the U.S., as well as from 78 other countries. In a
subset of these studies, we also collected data on participants’ explicit
gender-brilliance associations, which enabled direct comparisons of the
strength of explicit and implicit stereotypes.

Study 1 provided a first test of the implicit gender-brilliance ste-
reotype by measuring the association of male (vs. female) with brilliant
vs. a comparison trait (either creative or happy) in a geographically
diverse sample of U.S. participants.

Study 2 examined the relative strength of the association between
male (vs. female) and brilliant relative to four comparison traits, selected
to be both female-typed (friendly, beautiful) and male-typed (strong,
funny). This approach can therefore position the strength of the male-
brilliant association relative to other gender-trait associations. That is,
will the male-brilliant association be overridden when the comparison
trait is male-typed, indicating that the male-brilliant association may be
weaker than male-funny or male-strong? Or will participants still as-
sociate brilliant with male even when this requires associating a male-
typed trait with female, thus indicating that male-brilliant may be
stronger than male-funny or male-strong?

Studies 3–5 built outward to examine the generalizability of the
implicit gender-brilliance stereotype across stimuli, participant ages,
and geography. Specifically, Study 3 explored the intersectionality of
the implicit gender-brilliance stereotype by testing whether the ste-
reotype persists when the gender stimuli consist of Black females and
males (rather than White females and males, as in Study 1). Study 4
investigated whether the implicit stereotype is present early in life, by
ages 9 and 10, in line with prior developmental work using explicit
measures (e.g., Bian et al., 2017). Finally, Study 5 provided an initial
investigation of the cross-national generalizability of the implicit
gender-brilliance stereotype.

2. General method

Across all studies, we administered an IAT probing whether parti-
cipants associate brilliance with men more than women. Participants’
reaction times in the IAT were measured as they sorted (1) stimuli

related to the category male, (2) stimuli related to the category female,
(3) words related to the trait brilliant (e.g., genius, brilliant, super-
smart), and (4) words related to a similarly-positive comparison trait
(see Table 1). Reaction times were then compared across two critical
blocks: (1) a “stereotype-congruent” block, in which male and brilliant
were assigned the same response key (and thus sorted together), while
female and the comparison trait were assigned a different response key
(and sorted together); and (2) a “stereotype-incongruent” block, in
which the pairings were reversed (male + comparison trait and fe-
male + brilliant). The order of the critical blocks was randomized across
participants.

The logic of the IAT is as follows: If brilliant is indeed more asso-
ciated with male than female in people’s minds, then participants will be
faster when brilliant- and male-related stimuli are sorted with the same
key (i.e., the “stereotype-congruent” block) than when brilliant- and
female-related stimuli are sorted with the same key (i.e., the “stereo-
type-incongruent” block). The difference between a participant’s reac-
tion times on congruent vs. incongruent blocks, expressed as a fraction
of the overall variability in the participant’s responses, is known as a D
score and provides an index of the extent to which the participant more
readily associates brilliance with men and the comparison trait with
women. Across all studies reported here, positive D scores indicate a
male-brilliant/female-comparison trait association, and negative D scores
indicate a female-brilliant/male-comparison trait association. We refer
readers to Greenwald et al. (1998), Greenwald, Nosek, and Banaji
(2003), and Nosek, Greenwald, and Banaji (2005) for more information
on how the IAT is structured and scored.

2.1. Comparison traits

Across the five studies, we used six unique comparison traits
(creative, happy, strong, funny, friendly, and beautiful; see Table 1) to rule
out the possibility that participants’ responses were driven primarily by
an association between female and a particular comparison trait (for a
similar strategy, see Jajodia & Earleywine, 2003; Sherman, Rose, Koch,
Presson, & Chassin, 2003). In addition to ruling out this alternative, the
inclusion of six unique comparison traits allows us to situate the
strength of the male-brilliant association relative to other male-trait as-
sociations (such as male-funny or male-strong). That is, using six com-
parison traits can answer a key question: At what point, if ever, does a
male-brilliant association disappear? Is there an identifiable comparison
trait that can override this association, or is it present regardless of the
comparison?

An alternative strategy for measuring gender-brilliance stereotypes
would have been to use a single-category IAT (SC-IAT) comparing the
associations of male vs. female with a single trait (brilliant). We opted for
the strategy of using a range of comparison traits in a standard IAT (as
described above) for three reasons. First, the psychometric properties of
the SC-IAT are weak, with lower predictive and internal validity than
the standard IAT (Kurdi, Seitchik, et al., 2019). Second, in the SC-IAT,
participants may adopt simplifying strategies that make it difficult to

Table 1
The IAT stimuli in Studies 1–5.

Study Female stimuli Male stimuli Brilliance stimuli Comparison trait stimuli

1, 4, 5 8 photographs of White women (female) 8 photographs of White men (male) Genius, brilliant, super-smart Creative, artistic, super-imaginative
1 8 photographs of White women (female) 8 photographs of White men (male) Genius, brilliant, super-smart Happy, joyful, super-upbeat
2a, 2b Female, she, her, woman, women Male, he, him, man, men Super smart, brilliant, genius, brainiac Very beautiful, elegant, graceful, pretty
2a, 2b Female, she, her, woman, women Male, he, him, man, men Super smart, brilliant, genius, brainiac Very friendly, outgoing, kindly, chatty
2a, 2b Female, she, her, woman, women Male, he, him, man, men Super smart, brilliant, genius, brainiac Very funny, entertaining, hilarious, witty
2a, 2b Female, she, her, woman, women Male, he, him, man, men Super smart, brilliant, genius, brainiac Very strong, brave, bold, tough
3 8 photographs of Black women (female) 8 photographs of Black men (male) Genius, brilliant, super-smart Creative, artistic, super-imaginative

Note. Italicized stimuli represent the trait/category label. The stimuli within each category were included based on the authors’ judgment that they best represented
the category. The pictures of females and males in Studies 1, 3, 4, and 5 were taken from the Chicago Face Database (Ma, Correll, & Wittenbrink, 2015) and were
matched in terms of attractiveness, age, and positive emotionality (for details, see Appendix S1 in the Supplementary Online Materials [SOM]).

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020
3

interpret whether conceptual associations are actually being measured
(Nosek, Greenwald, & Banaji, 2007). For instance, if male and brilliant
are assigned the same response key and female is assigned the other key,
participants can categorize stimuli simply based on whether they match
or mismatch female rather than based on an association with brilliant.
Third, as mentioned above, our chosen approach of using multiple
comparison traits allows us to situate the male-brilliant association re-
lative to other stereotypic associations. It is only by using the standard
IAT with multiple comparison traits that we are able to assess which
traits, if any, are more associated with men (or less associated with
women) than the trait brilliant.

2.2. Format, scoring, and administration

All IATs followed a standard 7-block format (Greenwald et al.,
1998), and scores were analyzed using the publicly available R
packages IATScore (Storage, 2017) and IATanalytics (Storage, 2018), in
accordance with the updated scoring algorithm of Greenwald et al.
(2003). Adults completed the IAT online, whereas children (Study 4)
completed it on a computer in a lab or at their school, in the presence of
a researcher.

2.3. Explicit measures

In a subset of studies, we administered several explicit measures at
the end of the sessions. First, we included explicit measures of the
gender-brilliance stereotype, which allowed us to compare participants’
explicit endorsement of the gender-brilliance stereotype with the
strength of their implicit associations. We administered two different
types of explicit measures, some akin to traditional scales (see Study 1)
and others more similar to the comparative format of the IAT, in that
they asked participants to self-report whether they associated the trait
brilliant with men more than women or vice-versa (see Study 2). In both
cases, we compared participants’ explicit endorsement of the gender-
brilliance stereotype with their IAT scores.

Second, we included several measures of gender prejudice and po-
litical orientation, which allowed us to explore the correlates of parti-
cipants’ gender-brilliance IAT scores. If the IAT captures the implicit
belief that men (more than women) are brilliant—rather than merely
the implicit belief that women (more than men) possess some positive
comparison trait—then scores on the IAT should correlate positively
with explicit measures of prejudice against women (e.g., Old-Fashioned
Sexism; Swim, Aikin, Hall, & Hunter, 1995), as well as with measures of
political conservatism, which is often accompanied by negative views of
lower-status groups (e.g., Altemeyer, 1981; Christopher & Mull, 2006).

For brevity and because implicit–explicit comparisons are not the pri-
mary focus of the present research, these comparisons are reported only for
Studies 1 and 2, where they bear on our research questions; all other
analyses on this topic are reported in the Supplementary Online Materials
(SOM; see Tables S2 and S3) and on the Open Science Framework (OSF):
https://osf.io/8xzek/?view_only=acea685941d6443e8bedd00b71cbe961.

2.4. Power analyses

We used G*Power 3.1 to perform sensitivity power analyses for all
five studies (Faul, Erdfelder, Lang, & Buchner, 2007). In particular, we
calculated the power of the one-sample t tests of participants’ D scores
against 0, since D scores significantly above 0 provide evidence of an
implicit stereotype associating male with brilliant and female with a
comparison trait. For all analyses, the power level was set at 80% and
the alpha level at 0.05 (two-tailed tests). These analyses revealed that
all of our studies were adequately powered to detect small effects
(Cohen’s ds ≥ 0.28). The study with the lowest power was Study 4
(N = 103), which was still powered to detect effects as small as
d = 0.28.

3. Study 1

Study 1 provides the first test of participants’ implicit gender-bril-
liance stereotype. Specifically, we tested whether participants associate
the trait genius (genius, brilliant, super-smart) with the category male
more than the category female. Because the IAT is a relative measure
and is therefore equally dependent on the choice of the critical trait
(genius) and the comparison trait, we began with two semantically
distinct comparison traits, tested in separate IATs: creative (creative,
artistic, super-imaginative) and happy (happy, joyful, super-upbeat).
Although additional comparison traits are tested in Study 2, including
specifically male-typed traits (i.e., funny, strong), the comparison traits
of creative and happy were intentionally chosen because (1) they are not
consistently associated with either females or males (e.g., Bem, 1974;
Garg, Schiebinger, Jurafsky, & Zou, 2018; Helmreich, Spence, &
Wilhelm, 1981) and (2) are similar to genius in positivity and desir-
ability, as established by norming data on an independent sample (see
Appendix S2 in the SOM). To increase the generalizability of our test of
implicit gender-brilliance stereotypes among U.S. adults, we recruited
participants from three distinct sources: Mechanical Turk (MTurk) and
the subject pools of a public and private university from different re-
gions of the country (University of Illinois at Urbana-Champaign
[UIUC] and New York University [NYU], respectively).

3.1. Participants

Participants (N = 818; 520 women, 297 men, 1 other) were re-
cruited from MTurk (n = 264, Mage = 34.0 years,
range = 18–69 years), UIUC (n = 276, Mage = 19.5 years,
range = 18–24 years), and NYU (n = 278, Mage = 19.6 years,
range = 17–40 years). An additional 53 participants (34 from MTurk,
15 from UIUC, 4 from NYU) were excluded from the final sample be-
cause of criteria related to IAT scoring (e.g., if they responded faster
than 300 milliseconds on >10% of trials, which likely suggests that
they clicked quickly through the task; Greenwald et al., 2003), missed
attention checks, or because they had IP addresses from outside the U.S.
The final sample was 48.8% White, 7.4% Black, 27.9% Asian, 9.3%
Hispanic, and 6.6% other. Participants received $1.75 (MTurk) or
course credit (UIUC, NYU) for their participation.

The sample size was determined a priori such that each of the two
IATs (with creative and happy as a comparison trait, respectively) would
be tested on at least 125 participants in each of the three recruitment
venues (2 × 3 × 125 = 750). We oversampled by approximately 15%
relative to the target sample size to allow for exclusions. The same
procedure was used to determine the sample size of Study 3, which was
similar to the present study in that it also used creative as a comparison
trait and included participants from UIUC and NYU. No participants
were added after initial data analysis.

3.2. Procedure and materials

In this and all subsequent studies, we report all measures and ex-
clusions. In Study 1, participants completed one of two IATs that dif-
fered only in the comparison trait: creative (n = 4

13

) or happy
(n = 405; see Table 1 for stimuli). After completing the IAT, the par-
ticipants completed a battery of explicit measures (see Table 2). These
measures included the Gender-Brilliance Stereotype Endorsement
Scale, an explicit measure of the extent to which participants endorse
the gender-brilliance stereotype (e.g., “One is more likely to find a male
with a genius-level IQ than a female with a genius-level IQ”;
1 = strongly disagree to 9 = strongly agree; Bian, Leslie, & Cimpian,
2018). Participants also filled out the Gender-Brilliance Stereotype
Awareness Scale, on which they rated the extent to which people in
society more generally—rather than the participants perso-
nally—endorse the items in the preceding (Endorsement) scale. This is a
measure of participants’ awareness or knowledge of the gender-brilliance

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020
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https://osf.io/8xzek/?view_only=acea685941d6443e8bedd00b71cbe961

stereotype, which is distinct from personal endorsement (Ashmore &
Del Boca, 1981; Devine, 1989). The rest of the measures consisted of
various scales of sexism and political conservatism (see Table 2). We
expected scores on the IAT to correlate positively with these scales,
which would support the claim that the IAT captures a male-brilliant
association rather just positive stereotypes about women (i.e., that they
are creative and happy).

3.3. Results and discussion

3.3.1. Is there an implicit gender-brilliance stereotype?
The mean IAT D score across all participants was 0.22 [0.20, 0.24],

which was significantly different from 0, t(817) = 18.79, p < .001, d = 0.66, indicating a reliable male-genius/female-comparison trait as- sociation.1 76% of participants showed D scores above 0. The pre- valence of this stereotype is similar to that of other widely-tested im- plicit gender stereotypes. For instance, in prior work 72% and 76% of participants showed D scores above 0 on IATs measuring gender-science and gender-career stereotypes, respectively (Nosek, Smyth, et al., 2007).

The implicit gender-brilliance stereotype was present both when the
comparison trait was creative, D = 0.24 [0.21, 0.27], t(412) =

14

.70,
p < .001, and when the comparison trait was happy, D = 0.19 [0.16, 0.22], t(404) = 11.90, p < .001 (see Fig. 1). Moreover, the stereotype was present in both women (D = 0.20 [0.17, 0.23]) and men (D = 0.25 [0.21, 0.29]), ts > 12.77, ps < .001, although it was overall slightly stronger in men, t(815) = 1.99, p = .047, d = 0.14. Closer inspection revealed that men's stereotypes were only stronger when creative was the comparison trait, t(411) = 4.87, p < .001, d = 0.48; in contrast, women's stereotypes were stronger when happy was the comparison trait, t(402) = 2.20, p = .028, d = 0.22. This difference was not predicted and is not easy to interpret, so we do not speculate about its source. The key take-away is that both IATs, regardless of whether creative or happy was the comparison trait, showed a male-genius asso- ciation among both women and men (all ps < .001). Finally, separate analyses within each sample (MTurk, UIUC, NYU) found a significant gender-brilliance stereotype for both comparison traits and for both women and men, regardless of the sample (see OSF). These results suggest that the implicit gender-brilliance stereotype is pervasive among U.S. adults.

3.3.2. Is there an explicit gender-brilliance stereotype?
To assess whether participants explicitly endorse a gender-brilliance

stereotype, we compared their responses on the Gender-Brilliance

Endorsement Scale against the midpoint (namely, 5). The results re-
vealed that participants did not, in fact, endorse a gender-brilliance
stereotype on this explicit measure: Their average agreement levels
(M = 3.30 [3.19, 3.41]) were significantly below the scale midpoint, t
(817) = −30.1, p < .001, d = −1.05. This result contrasts not just with participants' scores on the IAT but also with the studies reviewed in the introduction (e.g., Storage et al., 2016), which found evidence of a gender-brilliance stereotype in people's explicit judgments.

What might explain this contrast? To speculate, the present explicit
measure is considerably more direct than those used in previous re-
search. None of the studies described above asked participants point-
blank if they believed that men are more brilliant than women. Perhaps
many participants are simply unaware of holding this belief: Although
they do believe at some level that men are more brilliant and use this
belief to guide explicit judgments and descriptions (e.g., Storage et al.,
2016), participants may be unable to introspect on holding this belief.
Another possibility, complementary to the first, is participants are un-
willing to report this belief: The directness of the items may have
prompted participants to be concerned about appearing biased, which
may have led them to strategically underreport their endorsement of
the gender-brilliance stereotype.

Notably, participants reported much higher awareness or knowledge
of the gender-brilliance stereotype, measured here via participants’ re-
ports of the extent to which they believe society endorses this stereo-
type (M = 5.80 [5.68, 5.92] on the same 1–9 scale). In fact, partici-
pants’ reports of societal endorsement were significantly above the scale
midpoint, t(817) = 13.0, p < .001, d = 0.45. Thus, participants re- ported that others—but not they themselves—think of brilliance and genius as male qualities, a pattern that suggests this explicit stereotype may in fact be prevalent in the general population (in line with the

Table 2
Explicit measures of gender attitudes and political orientation in Study 1.

Measure Targeted construct (and key reference)

Gender attitudes and prejudice
Gender-brilliance stereotype endorsement and awareness

scale
Explicit endorsement of the stereotype that men are more brilliant than women, as well as awareness of the extent to
which society endorses this stereotype (Bian et al., 2018)

Old-fashioned sexism scale Endorsement of traditional gender roles and beliefs (Swim et al., 1995)
Modern sexism scale Forms of sexism that are more common in today’s society (e.g., denial of ongoing discrimination toward women) (Swim

et al., 1995)
Liberal feminist attitude and ideology scalea Gender role attitudes, goals of feminism, and feminist ideology (Morgan, 1996)

Political orientation
Right-wing authoritarianism scale Deference to established authorities, aggression toward out-groups, support for traditional values (Altemeyer, 1981)
Conservatism item Political liberalism vs. conservatism (1 item)

a To avoid participant fatigue, we included only the “Global Goals” and “Discrimination and Subordination” subscales.

Fig. 1. Dot plots (with box plot overlays) of participants’ IAT D scores in Study
1, by comparison trait (creative vs. happy) and participant gender. Each dot
represents a single participant’s D score. Solid line = median; dashed
line = mean.

1 Stereotyped associations appear stronger when the congruent trials make up
Blocks 3 and 4 of the IAT rather than Blocks 6 and 7 (e.g., Greenwald et al.,
1998; Nosek, Banaji, & Greenwald, 2002b). We found this order effect here as
well, DCongruentFirst = 0.32 [0.28, 0.35] vs. DIncongruentFirst = 0.13 [0.10, 0.16], t
(816) = 8.45, p < .001.

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020
5

evidence reviewed above; e.g., Bian, Leslie, & Cimpian, 2018; Rivera &
Tilcsik, 2019; Storage et al., 2016).2

3.3.3. Relationship between implicit and explicit gender-brilliance
stereotypes

Participants’ IAT scores were positively correlated with their explicit
endorsement of the gender-brilliance stereotype, r(816) = 0.08,
p = .026, but not with their explicit awareness of it, r(816) = −0.02,
p = .60. The positive correlation between the gender-brilliance IAT and
participants’ explicit endorsement of this stereotype provides some
evidence for the validity of this IAT as a measure of the male-brilliant
association. In addition, the small magnitude of this correlation is
consistent with prior evidence for the distinctiveness of implicit and
explicit measures of stereotyping (e.g., Nosek, Smyth, et al., 2007). The
absence of a correlation between participants’ IAT scores and their
awareness of the gender-brilliance stereotype in their society may
suggest that the gender-brilliance IAT is predominantly measuring in-
dividual-level stereotypes (e.g., Banaji, Nosek, & Greenwald, 2004)
rather than culture- or society-level associations (Payne, Vuletich, &
Lundberg, 2017), although it is also possible that individual self-reports
of stereotype awareness do not capture society-level beliefs with suffi-
cient precision.

3.3.4. Relationship between implicit gender-brilliance stereotypes and
measures of gender bias and political conservatism

Participants with higher IAT scores scored significantly higher in
Old-Fashioned Sexism, Modern Sexism, Right-Wing Authoritarianism,
and political conservatism, rs > 0.07, ps < .027, and (also as expected) significantly lower on the Feminist Ideology Scale, r(816) = −0.10, p = .004. All of these significant correlations are in line with the in- terpretation that the gender-brilliance IAT captures negative views about women (i.e., that they are not brilliant) rather than exclusively positive stereotypes (i.e., that women are creative).

3.3.5. Conclusion
The results from Study 1 provide evidence for a pervasive implicit

gender-brilliance stereotype among U.S. adults. These results also
highlight the benefit of using implicit measures as a complement to
explicit measures, which in this study provided a mixed picture (i.e., no
evidence of explicit endorsement of gender-brilliance stereotypes but
evidence of awareness of these stereotypes).

4. Study 2

Our main goal in Study 2 was to estimate the strength of the implicit
gender-brilliance stereotype with greater precision by using four com-
parison traits. The comparison traits were chosen to vary in the extent
to which they are typically (explicitly) associated with males vs. fe-
males, as indicated by our norming data (see Appendix S3 in the SOM).
Specifically, we included a strongly male-typed trait (strong), a mod-
erately male-typed trait (funny), a strongly female-typed trait (beau-
tiful), and a moderately female-typed trait (friendly). Using these traits,
we can triangulate on the relative strength of the male-brilliant asso-
ciation. For instance, if the association between male and brilliant is
stronger than the association between male and funny, we should

observe positive D scores suggesting a male-brilliant and female-funny
association; conversely, if the association between male and brilliant is
weaker than that between male and funny, we should observe negative
D scores suggesting a male-funny and female-brilliant association. We
investigated these questions in an initial sample of participants from
Project Implicit (Study 2a), as well as a preregistered replication sample
recruited from the same participant population (Study 2b).3

Study 2b also addressed a potential alternative explanation for the
implicit gender-brilliance stereotype observed in Study 1. Implicit at-
titudes are often more positive toward females than males (Dunham,
Baron, & Banaji, 2016). If participants’ implicit attitudes happen to also
be more positive toward the comparison traits (e.g., beautiful) than the
target trait, then participants might be faster on the “stereotype-con-
gruent” blocks of the IAT simply because positively-valenced female is
grouped with a positively-valenced comparison trait, forming a co-
herent pairing (Kurdi, Mann, Charlesworth, & Banaji, 2019). If this
alternative explanation is correct, then the results of the IATs might not
reflect true semantic or meaning-based stereotypic associations of the
sort we set out to investigate. We addressed this possibility by con-
currently measuring (in Study 2b only) respondents’ implicit stereo-
types and implicit valenced attitudes toward the target and comparison
traits and examining whether the implicit gender-brilliance stereotype
is still present after accounting for the variance explained by the va-
lence of participants’ implicit associations with the target and com-
parison traits.

4.1. Participants

Both the initial sample (Study 2a; N = 760; 485 women, 270 men, 5
other; Mage = 38.5 years, range = 18–78 years) and the replication
sample (Study 2b; N = 1201; 624 women, 577 men; Mage = 34.2 years,
range = 16–88 years) consisted of volunteer respondents recruited
through the Project Implicit research website (https://implicit.harvard.
edu/implicit/). An additional 41 and 309 participants were excluded
from Study 2a and Study 2b, respectively, because they failed to com-
plete the IAT. The sample for Study 2a was 75.0% White, 7.5% Black,
3.0% Asian, and 9.4% other; the sample for Study 2b was 79.5% White,
9.1% Black, 3.2% Asian, and 11.3% other.

The size of the sample for Study 2a was determined a priori so that
each of the four IATs (which differed in the comparison trait used)
would be tested on approximately 200 participants. We increased the
sample size per IAT relative to Study 1 (200 vs. 125) because one of the
goals of Study 2 was precise estimation of (potentially smaller) effect
sizes. We did not, however, make an allowance for exclusions in this
study. Thus, the 41 participants who were excluded from Study 2a came
out of the allotment of 800 participants that we received from Project
Implicit. The size of the sample for Study 2b was preregistered based on
a priori power analyses (https://aspredicted.org/ss36j ). No parti-
cipants were added after initial data analysis.

4.2. Materials and procedure

4.2.1. The IATs
In both Study 2a and Study 2b, participants were randomly assigned

to complete one of four IATs comparing the trait super smart with one of
four comparison traits (very strong, very funny, very friendly, or very
beautiful), chosen to represent the range from strongly masculine to
strongly feminine attributes (see Appendix S3 in the SOM for norming
data). We switched to trait labels that use intensifiers (namely, super
and very) to better equate the positivity and desirability of the bril-
liance-related trait label and the comparison trait label (see the

2 Because some of the items in the Endorsement and Awareness scales per-
tained to broader gender differences in intellectual ability rather than brilliance
per se, we also analyzed just the two items that capture the explicit gender-
brilliance stereotype most directly: “One is more likely to find a male with a
genius-level IQ than a female with a genius-level IQ” and “Extreme intellectual
brilliance is more common in men than in women.” For these items as well,
explicit endorsement of the gender-brilliance stereotype was significantly below
the scale midpoint (M = 2.74 [2.60, 2.88], t(816) = −32.2, p < .001, d = −1.13) and awareness was significantly above (M = 5.62 [5.48, 5.77], t (816) = 8.42, p < .001, d = 0.29).

3 Studies 1, 3, 4, and 5 were collected more than a year before Study 2, as part
of a dissertation and before preregistration was common practice. This is why
only Study 2 was preregistered.

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norming data in Appendix S3). Another difference from Study 1 was
that the gender stimuli consisted of gender-related words (e.g.,
“woman,” “man”; see Table 1 for full list of IAT stimuli) rather than
pictures of females and males. These minor stimulus changes provided
an opportunity to test the robustness of participants’ implicit gender-
brilliance stereotypes.

Participants in Study 2b also completed an attitude IAT assessing
implicit positivity/negativity toward the two traits (e.g., super smart and
very beautiful). In the attitude IAT, the trait stimuli were identical to
those in the stereotype IAT, but the gender categories were replaced
with good (good, best, amazing, excellent, wonderful) and bad (bad,
awful, worst, terrible, horrible). The order of the attitude and stereo-
type IATs was counterbalanced across participants.

4.2.2. The explicit stereotype measure
To enable a better-matched comparison between implicit and ex-

plicit gender-brilliance stereotypes, we administered an explicit ste-
reotype measure that was more analogous to the IAT, in that it assessed
relative associations between concepts (rather than endorsement of scale
items, as in Study 1). After completing the IAT(s), all participants self-
reported the extent to which they associate super smart with males vs.
females (“To what extent do you associate the quality of SUPER SMART
with men and women?”; 1 = strongly associate with men, 2 = moderately
associate with men, 3 = slightly associate with men, 4 = equally associate
with both men and women, 5 = slightly associate with women, 6 = mod-
erately associate with women, 7 = strongly associate with women).
Participants also reported the corresponding association for their as-
signed comparison trait (i.e., very beautiful, very friendly, very funny, or
very strong). Stereotype awareness was not measured in this study.

4.3. Variance decomposition analysis

A variance decomposition analysis was performed to examine the
amount of variance overlap between implicit stereotypes and implicit
valenced attitudes toward the traits (see Kurdi, Mann, et al., 2019, as
well as our preregistration: https://aspredicted.org/ss36j ). Specifi-
cally, variance for each stereotype IAT was decomposed into (1) error
variance, (2) true variance accounted for by the attitude IAT assessing
implicit positivity/negativity toward the target and comparison traits
(“overlapping variance”), and (3) residual true variance (“independent

variance”).4 Significance tests for each variance component were per-
formed using bootstrapped confidence intervals. If the independent
variance is greater than zero, then it can be inferred that the measured
implicit stereotype cannot be accounted for exclusively by artifactual
valence-based associations.

4.4. Results and discussion

4.4.1. Implicit gender-brilliance stereotype
As expected, participants showed an implicit male-super smart as-

sociation when the comparison traits were female-typed: very beautiful
(D2a = 0.35 [0.29, 0.41], D2b = 0.29 [0.25, 0.33]) and very friendly
(D2a = 0.13 [0.08, 0.19], D2b = 0.10 [0.05, 0.15]), ts > 4.13,
ps < .001, ds > 0.24, >60% of D scores above 0 (see Fig. 2 and OSF).
Participants also showed evidence of a gender-brilliance stereotype
with the male-typed comparison trait very funny (D2a = 0.14 [0.08,
0.20], D2b = 0.09 [0.05, 0.13]), ts > 4.17, ps < .001, ds > 0.24,
>59% of D scores above 0. This indicates that the implicit association
between male and super smart is relatively stronger than the implicit
association between male and very funny, an explicitly male-typed trait.

Nevertheless, a reverse association was found for the comparison
trait of very strong, such that participants associated male with very
strong and female with super smart (D2a = −0.26 [−0.31, −0.20],
D2b = −0.23 [−0.27, −0.19]), ts > 8.76, ps < .001, ds > 0.62,
>73% of D scores below 0. Thus, only when the comparison attribute
was strongly male-typed (and physical) did participants’ scores “flip,”
finally showing an association between super smart and female. To
clarify, this finding does not challenge the existence of an implicit
gender-brilliance stereotype; rather, it helps to more precisely position
the relative strength of this stereotype. While the tendency to associate
brilliance with men is stronger than the tendency to associate humor,
friendliness, and beauty with men (as evidenced by average D scores
significantly >0), it is weaker than the tendency to associate strength
with men.

Fig. 2. Dot plots (with box plot overlays) of participants’ IAT D scores in Study 2a and Study 2b. Each dot represents a single participant’s D score. Solid
line = median; dashed line = mean.

4 Error variance was calculated as 1 – the internal consistency of the stereo-
type IAT (calculated as the mean of 1000 split half correlations). The variance
accounted for by the attribute attitude was calculated as the disattenuated
correlation between the attitude and stereotype IATs. Residual variance was
calculated as 1 – error variance – variance accounted for by the attitude.

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4.4.2. Explicit gender-brilliance stereotype
In Study 2a, participants explicitly associated super smart with

women more than men (M = 4.10), t(721) = 3.56, p < .001, d = 0.13, on a t test against 4 (the midpoint). Similar results were observed in Study 2b: Participants self-reported a weak but statistically significant association between super smart and women (M = 4.05), t (1137) = 2.15, p = .032, d = 0.07. Thus, similar to Study 1, partici- pants showed no evidence of explicitly endorsing a gender-brilliance stereotype favoring men—in fact, they reported that women are more brilliant than men, which is inconsistent with their implicit stereotypes.

4.4.3. Relation between explicit and implicit gender-brilliance stereotypes
Prior to calculating the correlations between the explicit and im-

plicit measures of the gender-brilliance stereotype, we reverse-coded
the explicit measure so that it points in the same direction as the IAT,
with higher values indicating a gender-brilliance stereotype favoring
males. Participants’ explicit and implicit stereotypes showed small but
significant positive correlations in both Study 2a, r(720) = 0.15,
p < .001, and Study 2b, r(1136) = 0.09, p = .004. The fact that IAT scores correlated positively with self-reports of a gender-brilliance stereotype favoring males provides additional evidence for the validity of our IAT as a measure of the implicit association between male and brilliant (rather than just female and the comparison traits).

4.4.4. Implicit attitudes toward traits (Study 2b)
Implicit attitudes (measured with the attitude IATs) favored super

smart over the comparison traits of very strong (D = 0.36 [0.31, 0.40])
and very funny (D = 0.15 [0.10, 0.20]), ts > 5.49, ps < .001. Implicit attitudes toward super smart and very friendly were matched (D = 0.01 [−0.05, 0.06]), t(292) = 0.29, p = .78, and participants held more positive implicit attitudes toward very beautiful than super smart (D = −0.13 [−0.18, −0.08]), t(311) = 5.31, p < .001. That only one comparison trait (very beautiful) was implicitly perceived as more po- sitive than the trait super smart reduces the concern that implicit ste- reotypes were confounded by valence-matching between gender atti- tudes and attitudes toward the traits, a conclusion also reinforced by the variance decomposition analyses, which we describe next.

4.4.5. Variance decomposition analyses
For all four stereotype IATs, the proportion of independent variance

(i.e., the proportion of residual true variance after removing the var-
iance accounted for by the valence of participants’ implicit attitudes
toward the traits) was significantly different from zero: 0.45 [0.27,
0.60] for the stereotype IAT with very beautiful as a comparison trait,
0.40 [0.18, 0.56] for the very friendly IAT, 0.41 [0.26, 0.55] for the very
funny IAT, and 0.26 [0.06, 0.44] for the very strong IAT. These results
rule out the alternative explanation that the observed implicit gender-
brilliance stereotype is simply due to a valence match between people’s
positive attitudes toward female and the comparison traits. More likely,
this implicit stereotype reflects meaningful semantic associations.

4.4.6. Conclusions
In summary, the results of Study 2 provide three main conclusions.

First, the implicit stereotype that associates being brilliant with men
(and other traits with women) is strong—even stronger than the asso-
ciation between men and the male-typed trait funny. Second, when
asked directly, participants self-report a weak association between super
smart and women, not men. This result highlights the added value of
employing an implicit measure such as the IAT. Third, Study 2b ruled
out the possibility that the implicit gender-brilliance stereotype is an
artifact of the valence of participants’ implicit attitudes toward the
categories and traits involved; instead, it indeed appears to be a se-
mantic association.

Having provided evidence for the existence and relative strength of
the implicit gender-brilliance stereotype, we expand outwards in
Studies 3–5 to test whether this belief generalizes to Black stereotype

targets (Study 3), child participants (Study 4), and international parti-
cipants (Study 5).

5. Study 3

The photographs used in Study 1 depicted White women and men.
In the U.S., stereotypes about White women and men (the high-status
majority group) are most similar to stereotypes about women and men
in general (Ghavami & Peplau, 2013; see also Purdie-Vaughns & Eibach,
2008). In contrast, stereotypes of Black women and men are most dif-
ferent from general gender stereotypes, not only relative to the ste-
reotypes of White women and men but also Latinx, Asian, and other
groups. For example, Black women experience less backlash than White
women when they behave assertively, in part because assertiveness
aligns with Black racial/ethnic stereotypes (Livingston, Rosette, &
Washington, 2012). In light of these considerations, participants may
not show an implicit gender-brilliance stereotype favoring men when
reasoning about Black men and women. Alternatively, it is possible the
implicit gender-brilliance stereotype will override such intersectionality
effects (i.e., unique effects that arise out of the interaction of various
social identities; Crenshaw, 1990), in which case we would expect to
see similar IAT scores to what was observed in Studies 1 and 2, even
when using Black targets.

To distinguish between these predictions, Study 3 investigated im-
plicit gender-brilliance stereotypes by using pictures of Black females
and males (n = 8 each) from the Chicago Face Database (Ma et al.,
2015), matched in attractiveness, age, and positive emotionality (see
Appendix S1 in the SOM). In this and the following two studies, we use
creative as a comparison trait because creative provides the closest se-
mantic match for genius (both reflect intellectual qualities). Ad-
ditionally, creative yielded a result in the middle of the distribution of
the comparison traits used in Studies 1 and 2 (i.e., weaker than using
beautiful but stronger than using funny) and may therefore be the best
approximation of the average strength of the implicit gender-brilliance
stereotype favoring men.

5.1. Participants

Participants (N = 222; 142 women, 78 men, 2 other) were recruited
from UIUC (n = 86, Mage = 19.4 years, range = 18–23 years) and NYU
(n = 136, Mage = 19.3 years, range = 18–23 years). An additional 22
participants (6 from UIUC, 16 from NYU) were excluded from the final
sample because of criteria related to IAT scoring (Greenwald et al.,
2003) or missed attention checks. The final sample was 40.1% White,
4.5% Black, 32.9% Asian, 9.9% Hispanic, and 12.6% other. Participants
received course credit for their participation.

Similar to Study 1 (where we also used creative as a comparison
trait), the sample size was set a priori to 125 participants in each of the
two recruitment venues (2 × 125 = 250), plus an allowance for ex-
clusions. This recruitment plan was followed successfully at NYU.
However, the participant pool at UIUC during the semester when this
study was conducted was smaller than usual, so we were not able to
meet our initial recruitment plan for this venue. Note, however, that
even this smaller-than-planned sample is sufficiently powered to detect
effects of the same magnitude as those in Study 1. No participants were
added after initial data analysis.

5.2. Results and discussion

The mean IAT D score was 0.25 [0.21, 0.29], t(221) = 11.65,
p < .001, d = 0.78, corresponding to 78% of participants with D scores above 0. As before, this indicates a strong and widely prevalent implicit stereotype associating male with genius (and female with creative). Despite the switch in gender stimuli from White targets to Black targets, participants' scores were consistent in magnitude across Studies 1 and 3, suggesting that the implicit gender-brilliance stereotype generalizes

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020
8

across racial/ethnic boundaries. Additionally, as in previous studies,
this stereotype was observed among both women (D = 0.22 [0.17,
0.27]) and men (D = 0.32 [0.24, 0.39]), ts > 8.41, ps < .001 (see Fig. 3), though it was again somewhat stronger in men, t(218) = 2.19, p = .030, d = 0.30. Finally, separate analyses within each sample (UIUC, NYU) also found a significant gender-brilliance stereotype for both women and men participants (see OSF).

6. Study 4

Do children also show implicit beliefs associating brilliance with
men? This question is important for several reasons. First, implicit be-
liefs have unique predictive validity in school settings, explaining dif-
ferences in achievement among children beyond explicit self-reports
(Cvencek, Fryberg, Covarrubias, & Meltzoff, 2018; Cvencek, Meltzoff, &
Kapur, 2014). Second, certain school subjects and professional fields
are generally thought to require more brilliance than others (e.g.,
mathematics, physics; Leslie, Cimpian, et al., 2015; Storage et al.,
2016), with these beliefs even held by elementary school teachers
(Heyder, Weidinger, Cimpian, & Steinmayr, 2020). Thus, if children
implicitly associate brilliant with male, this stereotype may be an ob-
stacle to girls’ success in fields where they perceive this trait to be va-
lued (e.g., girls may opt out, or be pushed out, of pursuing brilliance-
oriented professions). Although previous evidence suggests early ac-
quisition of an explicit gender-brilliance stereotype (Bian et al., 2017),
the presence of implicit beliefs on this topic has never been investigated
in children before. Here, we provide the first test of whether children
from two geographically and culturally distinct regions of the U.S. (Il-
linois and New York) show evidence of an implicit gender-brilliance
stereotype.

6.1. Participants

Children (N = 103; 51 girls, 52 boys; Mage = 9.98 years,
range = 9–10 years) were recruited from Urbana-Champaign, Illinois
(n = 53) and New York City, New York (n = 50). An additional 3
children (1 from Illinois, 2 from New York) were excluded from the
final sample because of criteria related to IAT scoring (Greenwald et al.,
2003), a server error, or being outside the targeted age range.

We focused on 9- and 10-year-olds because piloting indicated that 9-
year-olds were the youngest group that could reliably complete the
same IAT used with adults in Study 1. Although versions of the IAT

have been used with younger children (e.g., Cvencek et al., 2011),
modifying the IAT for a younger sample would have prevented a direct
comparison with adults, a primary interest in this study. Focusing on
elementary-school children’s implicit stereotypes, as we do here, is also
theoretically motivated, as prior evidence has documented that (other)
implicit stereotypes are present even at this early age and predict stu-
dents’ achievement (Cvencek et al., 2011; Cvencek et al., 2014).

The sample was 62.2% White, 10.2% Asian, 6.1% Hispanic, 5.1%
Black, and 16.3% other. All children were tested in a quiet laboratory
environment and received a brief training before completing the IAT
(e.g., they were asked to pronounce and define each of the six words
used [see Table 1] and were corrected, if necessary).

The sample size was set a priori to 50 usable participants in each of
the two recruitment venues (2 × 50 = 100). The samples in the present
study are smaller than the samples of adults in the preceding studies
because children are more difficult to recruit. Nevertheless, these
samples are sufficiently powered to detect effects of the same magni-
tude as those in Study 1 (which used the same comparison trait—na-
mely, creative). No children were added to the sample after initial data
analysis.

6.2. Results and discussion

Similar to adults, children showed evidence of a moderate-to-strong
implicit stereotype associating male with genius (and female with crea-
tive), D = 0.24 [0.18, 0.31], t(102) = 7.43, p < .001, d = 0.73, cor- responding to 75% of participants' D scores being above 0. This ste- reotype was present for both girls (D = 0.25 [0.16, 0.33]) and boys (D = 0.24 [0.14, 0.35]), ts > 4.75, ps < .001 (see Fig. 4), and did not differ by gender, t(101) = 0.04, p = .97, d = 0.01. Finally, as in the previous studies, the implicit gender-brilliance stereotype was present when examining girls' and boys' responses separately within each sample (Illinois and New York; see OSF).

In summary, the present results reveal that the implicit stereotype
associating genius with male more than female (and creative with female
more than male) is in place early in life, among elementary-school
children growing up in two geographically and culturally distinct re-
gions of the U.S.

7. Study 5

Both implicit and explicit gender stereotypes have been shown to
vary across cultures (Glick et al., 2000; Miller, Eagly, & Linn, 2015;

Fig. 3. Dot plots (with box plot overlays) of participants’ IAT D scores in Study
3. Each dot represents a single participant’s D score. Solid line = median; da-
shed line = mean.

Fig. 4. Dot plots (with box plot overlays) of children’s IAT D scores in Study 4,
by gender. Each dot represents a single child’s D score. Solid line = median;
dashed line = mean.

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020
9

Nosek et al., 2009). As such, Study 5 was intended as a first step toward
testing whether the implicit gender-brilliance stereotype extends be-
yond the cultural context of the Unites States. To ensure as broad a test
as possible, we administered our IAT to online samples of participants
spanning seven different regions of the world (e.g., Eastern Europe,
Latin America and the Caribbean) and tested whether the scores from
each of these regions revealed an association between genius and male
(and creative and female).

7.1. Participants

Residents of 78 countries (N = 514; 360 men, 151 women, 3 other;
Mage = 30.9 years, range = 18–64 years) were recruited through
Amazon’s Mechanical Turk (see Table S1 in the SOM for the full list of
countries).5 Before beginning the study, participants completed an
English proficiency check, consisting of four questions with answers
that would be obvious to anyone who understands English (e.g., “If
someone robbed you, how would you feel?”, with the answer options
being “good,” “happy,” “energetic,” and “sad”). Participants were ex-
cluded if they gave the wrong answer to more than two of these four
questions; five participants were excluded on this basis. An additional
21 participants were excluded because of criteria related to IAT scoring
(Greenwald et al., 2003) or because they had a U.S. IP address. Parti-
cipants received $1.75 for participating. A majority of the sample was
college-educated, with 13.5% reporting having completed “some col-
lege,” 44.6% reporting having a college degree, and 28.2% reporting
having a master’s degree. The median household income bracket of the
sample was 20,000–29,999 U.S. dollars.

The sample size was set a priori to 500 participants, with an al-
lowance for exclusions. We could not anticipate how various regions
would be represented in the sample, so we reasoned that 500 partici-
pants would provide a balance between statistical power across regions
and cost of recruitment. No participants were added after initial data
analysis.

7.2. Results and discussion

The average IAT D score across the entire sample was 0.24 [0.21,
0.27], t(513) = 15.70, p < .001, d = 0.69, corresponding to 77% of participants with D scores above 0. The implicit stereotype associating genius with male (and creative with female) thus appears consistently even in participants from cultures outside of the U.S. Moreover, the magnitude of this stereotype was similar to that shown by U.S.

participants in the preceding studies. Both women (D = 0.18 [0.12,
0.24]) and men (D = 0.26 [0.23, 0.29]) showed the implicit male-
genius/female-creative association, ts > 5.97, ps < .001, and, as was the case among previous samples of U.S. adults, men's stereotypes were stronger, t(509) = 2.31, p = .021, d = 0.20.

The implicit gender-brilliance stereotype was observed in all seven
of the geographic regions sampled in this study (see Fig. 5): Eastern and
Southeastern Asia (n = 20, D = 0.31 [0.17, 0.44]), Eastern Europe
(n = 40, D = 0.31 [0.20, 0.43]), Latin America and the Caribbean
(n = 88, D = 0.22 [0.16, 0.28]), Northern and Sub-Saharan Africa
(n = 14, D = 0.26 [0.01, 0.51]), Southern Asia (n = 160, D = 0.16
[0.10, 0.22]), Western Asia (n = 20, D = 0.26 [0.07, 0.46]), and
Western Europe (n = 151, D = 0.30 [0.25, 0.35]), ts > 2.21, ps < .046 (see Table S1 in the SOM for a list of countries in each region).6 Of note, our relatively small MTurk samples are not necessarily representative of their respective regions and, as such, this study represents a first step rather than the final word on the cross-cultural generalizability of the implicit gender-brilliance stereotypes. Nevertheless, this evidence points to the possibility that the stereotype associating male with the trait genius (and female with the trait creative) is a global phenomenon. Future studies should recruit larger or more representative samples from a wider range of countries to assess the cross-cultural general- izability of these findings.

To provide an additional test of the cross-cultural consistency of this
stereotype, we ran an intercept-only mixed-effects model in which in-
dividuals’ IAT scores were nested within region (i.e., the model in-
cluded a random intercept for region). Consistent with the possibility of
cross-cultural consistency, this model revealed that only 1.9% of the
variability in IAT scores was due to the region in which a participant
resided (95% CI = [0.3% to 9.6%]; see OSF).

Finally, in a separate set of exploratory analyses, we examined the
country-level relationship between gender-brilliance stereotyping and
the degree of structural inequality between women and men (in terms
of economic participation, health outcomes, etc.). Although the present
sample of participants was smaller than is typical for such cross-country
analyses, and the results should therefore be interpreted with caution,
we found that participants from more gender-equal countries exhibited
stronger implicit but weaker explicit gender-brilliance stereotypes (for
details, see Appendix S4 of the SOM). If replicated in subsequent work,
this pattern of relationships may also provide insight into recent find-
ings of a “gender-equality paradox,” whereby more gender-equal

Fig. 5. Dot plots (with box plot overlays) of partici-
pants’ IAT D scores in Study 5, by region. Each dot
represents a single participant’s D score. Solid
line = median; dashed line = mean. E/SE
Asia = Eastern and Southeastern Asia; E
Europe = Eastern Europe; Latin Amer/
Caribbean = Latin America and the Caribbean; N/
Sub-Sahar Africa = Northern and Sub-Saharan
Africa; S Asia = Southern Asia; W Asia = Western
Asia; W Europe = Western Europe. The regions were
defined using a classification scheme from the
United Nations Statistics Division (2010).

5 Mechanical Turk does not support accounts for U.S. citizens residing abroad.
Tax information is required by Amazon when registering for an account on
Mechanical Turk to verify non-U.S. status.

6 Although Canada did not fit into the seven regions (as defined by the United
Nations Statistics Division, 2010), the sample contained 15 Canadian partici-
pants as well. As with every other geographic region, Canadian respondents
showed an implicit gender-brilliance stereotype, D = 0.22 [0.05, 0.39], t
(14) = 2.80, p = .014.

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020
10

countries also have fewer women pursuing careers in science and
technology (Stoet & Geary, 2018; see also Charles & Bradley, 2009;
Richardson et al., 2020). Given that high-level intellectual ability is
seen as key to success in these careers (Leslie, Cimpian, et al., 2015), the
present data suggest that women pursuing science and technology in
more gender-equal countries may face more, rather than less, implicit
bias—even though an examination of explicit measures of gender bias
might suggest otherwise.

8. General discussion

The present research contributes to a growing literature examining
the stereotype that portrays high-level intellectual ability (e.g., bril-
liance, genius) as a predominantly male quality—a stereotype that
holds women back in careers where this ability is valued, both in STEM
and beyond (Cimpian & Leslie, 2017). Using implicit measures (namely,
the IAT), which were absent from prior investigations of this stereotype,
we found a pervasive implicit stereotype associating the traits of bril-
liance and genius with men more consistently than with women (and
other traits, such as creativity or humor, with women more than men).
This implicit stereotype was surprisingly robust: It was observed in
women and men from the U.S. (Studies 1–3), in women and men from
other regions of the world (Study 5), and in American girls and boys as
young as 9 years of age (Study 4). Similarly, it was observed when
assessed with female and male targets from different racial/ethnic
groups (Studies 1 and 3), as well as with generic gender labels instead
of images (Study 2), and when assessed in the context of five unique
comparison traits, including ones that are explicitly rated as masculine
(i.e., funny).

The present studies also ruled out two alternative explanations for
the observed implicit stereotype. First, it is unlikely that the gender-
brilliance stereotype IAT simply captured positive stereotypes about
women: IAT scores correlated positively with explicit measures of the
gender-brilliance stereotype (i.e., self-reports of the belief that men are
more brilliant than women), as well as with broader measures of ex-
plicit bias against women and political conservatism (Studies 1 and 2).
Second, it is unlikely that the gender-brilliance stereotype is simply due
to a superficial valence match between participants’ positive attitudes
toward women and the comparison traits. Contrary to this alternative,
variability in gender-brilliance stereotype IAT scores was not accounted
for by the valence of participants’ implicit attitudes toward the com-
parison traits (Study 2b).

Our results using explicit stereotype measures (Studies 1 and 2)
further highlight the value of implicit measures to a complete under-
standing of the gender-brilliance stereotype. When asked directly whe-
ther they believe that men are more brilliant than women, participants
generally reported disagreeing with this idea (Study 1). In fact, parti-
cipants reported that they associated the quality of being super smart
with women more than men (Study 2). Interpreting these responses is
not entirely straightforward. One possibility is to take them at face
value and conclude that there is no explicit gender-brilliance stereotype
favoring men, and perhaps also that current explicit stereotypes on this
topic favor women. However, this conclusion is at odds with other re-
cent studies that have consistently identified a gender-brilliance ste-
reotype favoring men in participants’ explicit—albeit more in-
direct—judgments (e.g., Bian, Leslie, & Cimpian, 2018; Storage et al.,
2016). In addition, participants in Study 1 reported that society gen-
erally believes men to be more brilliant than women, even if they
themselves do not.

Thus, an alternative possibility is that participants are reluctant to
report endorsing a belief that is socially undesirable (e.g., Greenwald,
Poehlman, Uhlmann, & Banaji, 2009). From this perspective, the ex-
plicit belief that men are more brilliant than women may be widely
endorsed but may surface only in contexts that do not overtly highlight
the intergroup nature of evaluations and the possibility of appearing
biased (e.g., Storage et al., 2016). The robust evidence of an implicit

stereotype linking brilliant with male (see Studies 1–5) is consistent with
this argument that explicit gender-brilliance stereotypes favoring men
are widely held but socially sensitive. However, the evidence ultimately
cannot rule out the above-mentioned possibility that explicit gender-
brilliant stereotypes really are weak or reversed relative to implicit
ones. More research is needed to understand the wide variability in
responses elicited with explicit measures of gender-brilliance stereo-
types.

At a broader level, the present findings contribute to theories
seeking to explain women’s underrepresentation in STEM. Given that
success in (some of) these careers is generally assumed to require
brilliance (e.g., Leslie, Cimpian, et al., 2015), a widespread implicit
stereotype that associates brilliance with men may make it more diffi-
cult for women to pursue these fields, whether by leading women to opt
out due to lack of belonging (Bian, Leslie, Murphy, & Cimpian, 2018) or
by biasing evaluations of men and women’s potential to succeed (Bian,
Leslie, & Cimpian, 2018). The surprisingly early acquisition of these
stereotypes (see also Bian et al., 2017) is an important factor as well:
The earlier children start associating brilliance with males, the earlier
girls’ aspirations may veer away (or be pushed away) from careers that
they perceive to rely on this trait.

8.1. The sources of the implicit gender-brilliance stereotype favoring men

Why do people have an implicit gender-brilliance stereotype fa-
voring men? In principle, one possibility is that this stereotype tracks
actual gender differences in high-level intellectual ability. This possi-
bility is unlikely: While women and men do differ on average with
respect to certain abilities—with some differences favoring men (e.g.,
spatial reasoning; Lauer, Yhang, & Lourenco, 2019) and others favoring
women (e.g., episodic memory; Asperholm, Högman, Rafi, & Herlitz,
2019)—they do not differ in fluid intelligence (e.g., Flynn, 2012). Ad-
ditionally, although some have argued that men are more variable and
thus overrepresented in the extremes of the intelligence distribution
(including in the right tail, where “brilliant” minds are found; e.g.,
Hedges & Nowell, 1995), mounting evidence actually reveals that the
extent to which men are more variable than women in intellectual
ability varies across time and cultures (e.g., Feingold, 1994; Irwing &
Lynn, 2005; for a review, see Charlesworth & Banaji, 2019b). As such,
gender-brilliance stereotypes are unlikely to be learned from observing
actual differences in brilliance between men and women.

A more likely source of the gender-brilliance stereotype, suggested
by the social role theory of stereotype content (e.g., Eagly & Steffen,
1984; Koenig & Eagly, 2014), is the inferences drawn from observing
the current unequal distribution of women and men across careers:
When people observe unequal gender distributions in fields that em-
phasize brilliance, they may (incorrectly) infer that these distributions
reflect the inherent qualities of men and women (see also Cimpian &
Salomon, 2014a, 2014b). More men than women occupy prominent
positions in fields that are perceived to require brilliance—such as
mathematics, physics, and philosophy—both currently (e.g., faculty at
top institutions) and historically (e.g., Newton, Einstein, Plato, Aris-
totle). When exposed to these gender-imbalanced distributions, people
may infer that men are simply better suited for careers that require
intellectual “firepower” (Hussak & Cimpian, 2015, 2018a, 2018b).
According to this account, gender-brilliance stereotypes favoring men
develop not from actual gender differences in intellectual ability but
rather as an artifact of the structural factors that have historically
constrained women’s intellectual pursuits.

This mechanism may also explain the consistent levels of the im-
plicit gender-brilliance stereotype across regions of the world (Study 5):
While there is, of course, some cross-country variability in the gender
composition of various careers, many brilliance-oriented fields remain
male-dominated globally (e.g., Charles & Bradley, 2009; Miller et al.,
2015). In addition, schoolchildren all over the world are likely to learn
about the contributions made by male historical figures such as Newton

D. Storage, et al. Journal of Experimental Social Psychology 90 (2020) 104020
11

or Aristotle, which reinforces the association of brilliant with male.
Study 5 is, however, only a preliminary step toward a cross-cultural
examination of the gender-brilliance stereotype. Perhaps future in-
vestigations with larger, more representative samples will identify
greater cross-country and -region variability in this stereotype than we
were able to detect with a small and relatively homogeneous sample of
Mechanical Turk workers.

From a developmental standpoint, another source of the gender-
brilliance stereotype is children’s exposure to socialization agents, such
as their parents and teachers, who themselves associate brilliance with
men and may express this stereotype through their behaviors around
children (e.g., Gunderson, Ramirez, Levine, & Beilock, 2012; Musto,
2019). For instance, teachers tend to attribute girls’ classroom perfor-
mance to their greater conscientiousness and boys’ to their greater in-
tellectual ability, which does not always “shine through” when boys are
inattentive or unmotivated (e.g., J. Cimpian, Lubienski, Timmer,
Makowski, & Miller, 2016; Tiedemann, 2000). These beliefs are mani-
fested in the classroom through subtle behaviors (e.g., allowing boys to
interrupt girls and monopolize the conversation) that are nevertheless
sufficient to reveal to students what their teachers believe about boys’
and girls’ abilities (Musto, 2019). To the extent that each new genera-
tion of children is socialized by adults who exhibit these beliefs and
behaviors, it seems likely that gender-brilliance stereotypes will con-
tinue to be widespread.

8.2. Limitations and future directions

Related to some of the discussion above, our studies did not in-
vestigate why implicit and explicit measures lead to different conclu-
sions about the presence (and direction) of a gender-brilliance stereo-
type. Was the implicit-explicit dissociation observed because the link
between intelligence and gender is a sensitive topic and people are
unwilling to publicly report their stereotyped beliefs on this topic, or
because explicit gender-brilliance stereotypes truly differ in content
from implicit ones? More generally, questions about how best to ac-
count for dissociations between implicit and explicit measures continue
to be conceptually and methodologically debated (e.g., Greenwald &
Nosek, 2008; Nosek, 2007) and remain unresolved in the literature, not
only with respect to gender-brilliance stereotypes. Finding ways to re-
solve these differences and fully understand how gender-brilliance
stereotypes operate at the implicit and explicit level is an important
direction for future research.

In future work, we also hope to extend this work by investigating
implicit stereotypes about less extreme levels of intellectual ability. For
instance, do people implicitly associate traits such as smart and in-
telligent with men more than women as well, even though they no
longer seem to do so explicitly (Eagly et al., 2019)? Another useful
extension of this work would be to replicate our studies with more
diverse samples of participants, and to investigate the cross-country
generalizability of the gender-brilliance stereotype with larger, more
representative samples. Presenting the task to participants in their na-
tive language (rather than in English, which for most of them is a
second language) may also reveal greater cross-cultural variability by
priming participants’ unique cultural and linguistic experiences (e.g.,
Ogunnaike, Dunham, & Banaji, 2010).

Finally, it will be important to gain more insight into the sources of
the substantial individual differences that we observed across studies in
participants’ implicit gender-brilliance stereotyping (see the distribu-
tion of the individual data points in Figs. 1–5). The measures of sexism
and political conservatism included in Study 1 begin to provide an
answer to this question, in that they correlated with participants’ im-
plicit stereotypes, but collectively they only accounted for 1.6% of the
variance in IAT scores. Thus, there remains much to discover about why
some people associate brilliant with male, while others do not.

8.3. Implications for intervention

How might we intervene in light of this research to increase the
representation of women in fields that value brilliance? Although
gender stereotypes, including implicit gender stereotypes, have the
potential for change over the long term (Charlesworth & Banaji, 2019a,
2019b; Eagly et al., 2019), these changes are often slow, especially at
the societal level. Thus, more immediate intervention efforts might
productively focus on educating members of brilliance-oriented careers
about the causes and consequences of implicit and explicit bias (e.g.,
Carnes et al., 2015; Devine et al., 2017). Educational interventions may
also challenge the notion of fixed brilliance being a requirement for
success (e.g., Canning, Muenks, Green, & Murphy, 2019; Heyder et al.,
2020). A complementary strategy involves changing the way we so-
cialize boys and girls, including modeling beliefs and behaviors that
reflect gender neutrality and providing opportunities for exposure to
counter-stereotypical role models (e.g., Cheryan, Siy, Vichayapai,
Drury, & Kim, 2011; Dennehy & Dasgupta, 2017; Stout, Dasgupta,
Hunsinger, & McManus, 2011). Such interventions may be critical in
advancing opportunities and access for women in the near term. Over
time, their effects may also accumulate and push society’s implicit
gender-brilliance stereotypes toward neutrality.

8.4. Conclusion

To conclude, the present studies show that people implicitly conceive
of brilliance and genius as male more than female traits, whereas other
traits (e.g., creativity, humor, beauty) are conceived of as relatively
more female than male. This work suggests new ways of understanding
phenomena of theoretical and societal importance (such as gender gaps
in STEM and beyond), paving the way for future investigations into the
origins of gender-brilliance stereotypes and their consequences for
women’s and men’s career trajectories all over the world.

Open practices

The studies in this article earned Preregistered and Open Data
badges for transparent practices. The preregistration for Study 2b is
available at https://aspredicted.org/ss36j . The datasets and the
analysis scripts are available at https://osf.io/8xzek/?view_only=
acea685941d6443e8bedd00b71cbe961.

Appendix A. Supplementary data

Supplementary data to this article can be found online at https://
doi.org/10.1016/j.jesp.2020.104020.

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  • Adults and children implicitly associate brilliance with men more than women
  • Introduction
    The gender-brilliance stereotype
    Previous evidence on the gender-brilliance stereotype
    Aim of the present research
    Overview of studies
    General method
    Comparison traits
    Format, scoring, and administration
    Explicit measures
    Power analyses
    Study 1
    Participants
    Procedure and materials
    Results and discussion
    Is there an implicit gender-brilliance stereotype?
    Is there an explicit gender-brilliance stereotype?
    Relationship between implicit and explicit gender-brilliance stereotypes
    Relationship between implicit gender-brilliance stereotypes and measures of gender bias and political conservatism
    Conclusion

    Study 2
    Participants
    Materials and procedure
    The IATs
    The explicit stereotype measure
    Variance decomposition analysis
    Results and discussion
    Implicit gender-brilliance stereotype
    Explicit gender-brilliance stereotype
    Relation between explicit and implicit gender-brilliance stereotypes
    Implicit attitudes toward traits (Study 2b)
    Variance decomposition analyses
    Conclusions

    Study 3
    Participants
    Results and discussion
    Study 4
    Participants
    Results and discussion
    Study 5
    Participants
    Results and discussion
    General discussion
    The sources of the implicit gender-brilliance stereotype favoring men
    Limitations and future directions
    Implications for intervention
    Conclusion
    Open practices
    Supplementary data
    References

Stoli Vodka Case Analysis

Questions to consider…

1. Describe the issue facing the managers of Stoli USA. Is this a corporate crisis, and why or why not?

2. What was happening in Russia at the time that upset the LGBTQ community?

3. Identify the market and nonmarket stakeholders in the case. What were their interests, sources of power, and likely coalitions?

4. Should Stoli vodka be considered a Russian brand? In an age of globalized supply chains, what qualifies a brand’s national authenticity?  Does it matter?

5. In what ways did the nature of social media pose specific challenges to the company?

6. Evaluate the crisis management response of both the SPI group and Stoli USA. What more should they do to restore the brand’s reputation?

Copyright
Copyright © 2020 by Rebecca Henderson
Cover design by Pete Garceau
Cover copyright © 2020 Hachette Book Group, Inc.
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Library of Congress Cataloging-in-Publication Data
Names: Henderson, Rebecca, author.
Title: Reimagining capitalism in a world on fire / Rebecca Henderson.
Description: New York: PublicAffairs, 2020. | Includes bibliographical
references and index.
Identifiers: LCCN 2019045461 | ISBN 9781541730151 (hardcover) | ISBN
9781541730137 (ebook)
Subjects: LCSH: Economic policy. | Organizational change. | Capitalism—Moral
and ethical aspects.
Classification: LCC HD87 .H46 2020 | DDC 330.12/2—dc23
LC record available at https://lccn.loc.gov/2019045461
ISBNs: 978-1-5417-3015-1 (hardcover), 978-1-5417-3013-7 (ebook), 978-1-
5417-5713-4 (international)
E3-20200320-JV-NF-ORI

CONTENTS
Cover
Title Page
Copyright
Dedication
PROLOGUE
1
“WHEN THE FACTS CHANGE, I CHANGE MY MIND. WHAT DO YOU
DO, SIR?”
Shareholder Value as Yesterday’s Idea
2
REIMAGINING CAPITALISM IN PRACTICE
Welcome to the World’s Most Important Conversation
3
THE BUSINESS CASE FOR REIMAGINING CAPITALISM
Reducing Risk, Increasing Demand, Cutting Costs
4
DEEPLY ROOTED COMMON VALUES
Revolutionizing the Purpose of the Firm
5
REWIRING FINANCE
Learning to Love the Long Term

file:///tmp/calibre_4.19.0_tmp_bHXuTS/rhBBSi_pdf_out/OEBPS/cover.xhtml

6
BETWEEN A ROCK AND A HARD PLACE
Learning to Cooperate
7
PROTECTING WHAT HAS MADE US RICH AND FREE
Markets, Politics, and the Future of the Capitalist System
8
PEBBLES IN AN AVALANCHE OF CHANGE
Finding Your Own Path Toward Changing the World
Acknowledgments
Discover More
About the Author
Praise for Reimagining Capitalism in a World on Fire
Notes

To Jim and Harry

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PROLOGUE
I grew up British. The experience left (at least) two lasting marks. The first is a
deep and abiding love of trees. My family life was tumultuous, and I spent much
of my teens lying on the great lower limb of a massive copper beech,
alternatively reading and looking up at the sky through its branches. The beech
was toweringly tall—at least as tall as the three-story English manor house it
stood next to—and the sun cascaded down through its leaves in greens and blues
and golds. The air smelled of mown grass and fresh sunlight and two-hundred-
year-old tree. I felt safe and cared for and connected to something infinitely
larger than myself.
The second is a professional obsession with change. My first job out of
college was working for a large consulting company, closing plants in northern
England. I spent months working with firms whose roots went back hundreds of
years and that had once dominated the world but were now—disastrously—
failing to grapple with the challenge of foreign competition.
For many years I kept the two sides of myself quite separate. I built a career
trying to understand why denial is so pervasive and change is so hard. It was a
good life. I became a chaired professor at MIT and something of an expert in
technology strategy and organizational change, working with organizations of
all shapes and sizes as they sought to transform themselves. I spent my
vacations hiking in the mountains, watching the maples burn and the aspens
dance in the wind.
But I kept my job and my passions in separate boxes. Work was lucrative and
fun and often hugely interesting, but it was something I did before returning to
real life. Real life was cuddling on the sofa with our son. Real life was lying
together on a blanket underneath the trees, introducing him to the world that I
loved. I assumed that the trees were immortal: a continuously renewing stream
of life that had existed for millions of years and would exist for millions more.
Then my brother—a freelance environmental journalist and the author of The
Book of Barely Imagined Beings, a wonderful book about creatures that should
not exist but do, and A New Map of Wonders, an intricate meditation on the

physics of being human—persuaded me to read the science behind climate
change. I wonder now if he was hoping to wake me up to the implications of my
day job. If so, he succeeded.
It turns out that the trees are not immortal. Leaving climate change
unchecked will have many consequences, but one of them will be the death of
millions of trees. The baobabs of southern Africa, some of the oldest trees in the
world, are dying. So are the cedars of Lebanon. In the American West, the
forests are dying faster than they are growing. The comfortable assumption on
which I’d based my life—that there would always be soaring trunks and the
sweet smell of leaves—turned out to be something that had to be fought for, not
an immutable reality. Indeed, my comfortable life was one of the reasons the
forests were in danger.
And it wasn’t just the trees. Climate change threatened not just my own son’s
but every child’s future. So did rampant inequality and the accelerating tide of
hatred, polarization, and mistrust. I came to believe that our singular focus on
profit at any price was putting the future of the planet and everyone on it at risk.
I came close to quitting my job. Spending my days teaching MBAs, writing
academic papers, and advising companies as to how to make even more money
seemed beside the point. I wanted to do something. But what? It took me a
couple of years to work out that I was already in the right place at the right time.
I started working with people who had the eccentric idea that business could
help save the world. A couple of them ran multibillion dollar companies. But
most of them were in much smaller firms or much less exalted positions. They
included aspiring entrepreneurs, consultants, financial analysts, divisional VPs,
and purchasing managers. One was convinced she could use her small rug
company to provide great jobs for skilled immigrants in one of the most
depressed towns in New England. Several were trying to solve the climate crisis
by building solar or wind companies. One was giving his life to accelerating
energy conservation. One was pushing his company to educate and hire at-risk
teenagers. Another was hiring convicted felons. Another was doing everything
she could to clean up labor practices in the factories her firm ran across the
world. Many were trying hard to channel financial capital to precisely these
kinds of people: business leaders seeking to solve the great problems of our
time.
All of them were skilled businesspeople, very much aware that the only way
they could drive impact at scale was to ensure that doing the right thing was a
“both/and” proposition—a means to both build thriving and profitable firms and

to make a difference in the world. All of them were passionately purpose driven,
convinced that harnessing the power of private enterprise was a hugely powerful
tool to tackle problems like climate change and—perhaps—to drive broader
systemic change.
I loved working with them. I still do. They strive to live fully integrated
lives, refusing to wall off their work from their deepest beliefs. They struggle to
create what one purpose-driven leader I know calls “truly human” organizations
—firms where people are treated with dignity and respect and motivated as
much by shared purpose and common values as by the search for money and
power. They try to make sure that business is in service to the health of the
natural and social systems on which we all depend.
But I worried. I worried that this approach to management would never
become mainstream: that it was only exceptional individuals who could master
the creation of both purpose and profit. I was convinced that in the long run, the
only way to fix the problems that we faced was to change the rules of the game
—to regulate greenhouse gas emissions and other sources of pollution so that
every firm has strong incentives to do the right thing, to raise the minimum
wage, to invest in education and health care, and to rebuild our institutions so
that our democracies are genuinely democratic, and our public conversations are
characterized by mutual respect and a shared commitment to the well-being of
the whole. I couldn’t see how a few purpose-driven firms could help drive the
kind of systemic change that we would need to put these kinds of policies in
place. My students—by this time I was teaching a course in sustainable business
—shared my concerns. They had two questions: Can I really make money while
doing the right thing? and Would it make a difference in the end if I could?
The book you hold in your hands is my attempt to answer these questions—
the result of a fifteen-year exploration of why and how we can build a profitable,
equitable, and sustainable capitalism by changing how we think about the
purpose of firms, their role in society, and their relationship to government and
the state.
I do not suggest that reimagining capitalism will be easy or cheap. My career
has given me extensive firsthand experience of just how difficult it is to do
things in new ways. For many years I worked with firms struggling to change. I
worked with GM as it attempted to respond to Toyota. With Kodak, as the
conventional film business collapsed in the face of digital photography. With
Nokia—which at its peak sold more than half of the world’s cell phones—as
Apple revolutionized the business.1 Transforming the world’s firms will be hard.

Transforming the world’s social and political systems will be even harder. But it
is eminently possible, and if you look around, you can see it happening.
I am reminded of a moment some years ago when I was in Finland,
facilitating a business retreat. It was the first and last time that my agenda has
included the item “5.00 pm—Sauna.” Following instructions, I showed up for
the sauna, took off all my clothes, and soaked up the heat. “And now,” my host
instructed me, “it’s time to jump into the lake.” I duly ran across the snow
(everyone else carefully averting their eyes—the Finns are very polite about
such things) and carefully climbed down a metal ladder, through the hole that
had been cut in the ice, and into the lake. There was a pause. My host arrived at
the top of the ladder and looked down at me. “You know,” she said, “I don’t
think I feel like lake bathing today.”
I spend a good chunk of my time now working with businesspeople who are
thinking of doing things differently. They can see the need for change. They can
even see a way forward. But they hesitate. They are busy. They don’t feel like
doing it today. It sometimes seems as if I’m still at the bottom of that ladder,
looking up, waiting for others to take the risk of acting in new and sometimes
uncomfortable ways. But I am hopeful. I know three things.
First, I know that this is what change feels like. Challenging the status quo is
difficult—and often cold and lonely. We shouldn’t be surprised that the interests
that pushed climate denialism for many years are now pushing the idea that
there’s nothing we can do. That’s how powerful incumbents always react to the
prospect of change.
Second, I am sure it can be done. We have the technology and the resources
to fix the problems we face. Humans are infinitely resourceful. If we decide to
rebuild our institutions, build a completely circular economy, and halt the
damage we are causing to the natural world, we can. In the course of World War
II, the Russians moved their entire economy more than a thousand miles to the
east—in less than a year. A hundred years ago, the idea that women or people
with black or brown skin were just as valuable as white men would have seemed
absurd. We’re still fighting that battle, but you can see that we’re going to win.
Last, I am convinced that we have a secret weapon. I spent twenty years of
my life working with firms that were trying to transform themselves. I learned
that having the right strategy was important, and that redesigning the
organization was also critical. But mostly I learned that these were necessary but
not sufficient conditions. The firms that mastered change were those that had a
reason to do so: the ones that had a purpose greater than simply maximizing

profits. People who believe that their work has a meaning beyond themselves
can accomplish amazing things, and we have the opportunity to mobilize shared
purpose at a global scale.
This is not easy work. It sometimes feels exactly like climbing down a metal
ladder into a hole cut through foot-thick ice. But here’s the thing: while taking
the plunge is hard, it is also exhilarating. Doing something different makes you
feel alive. Being surrounded by friends and allies, fighting to protect the things
you love, makes life feel rich and often hopeful. It is worth braving the cold.
Join me. We have a world to save.

1
“WHEN THE FACTS CHANGE, I CHANGE MY
MIND. WHAT DO YOU DO, SIR?”
Shareholder Value as Yesterday’s Idea
The real problem of humanity is the following: we have Paleolithic emotions; medieval
institutions; and god-like technology.
—E. O. WILSON
What is capitalism?
One of humanity’s greatest inventions, and the greatest source of prosperity
the world has ever seen?
A menace on the verge of destroying the planet and destabilizing society?
Or some combination that needs to be reimagined?
We need a systemic way to think through these questions. The best place to
start is with the three great problems of our time—problems that grow more
important by the day: massive environmental degradation, economic inequality,
and institutional collapse.
The world is on fire. The burning of fossil fuels—the driving force of modern
industrialization—is killing hundreds of thousands of people, while
simultaneously destabilizing the earth’s climate, acidifying the oceans, and
raising sea levels.1 Much of the world’s topsoil is degraded, and demand for
fresh water is outstripping supply.2 Left unchecked, climate change will
substantially reduce GDP, flood the great coastal cities, and force millions of
people to migrate in search of food.3 Insect populations are crashing and no one
knows why—or what the consequences will be.4 We are running the risk of
destroying the viability of the natural systems on which we all depend.5
Wealth is rushing to the top. The fifty richest people among them own more

than the poorer half of humanity, while more than six billion live on less than
$16 a day.6 Billions of people lack access to adequate education, health care, and
the chance for a decent job, while advances in robotics and artificial intelligence
(AI) threaten to throw millions out of work.7
The institutions that have historically held the market in balance—families,
local communities, the great faith traditions, government, and even our shared
sense of ourselves as a human community—are crumbling or even vilified. In
many countries the increasing belief that there is no guarantee that one’s children
will be better off than oneself has helped to fuel violent waves of anti-minority
and anti-immigrant sentiment that threaten to destabilize governments across the
world. Institutions everywhere are under pressure. A new generation of
authoritarian populists is taking advantage of a toxic mix of rage and alienation
to consolidate power.8
You may wonder what these problems have to do with capitalism. After all,
hasn’t the world’s GDP quintupled in the last fifty years, even as population has
doubled? Isn’t average GDP per capita now over $10,000—enough to provide
every person on the planet with food, shelter, electricity, and education?9 And,
even if you think business should play an active role in attempting to solve these
problems, doesn’t it seem, at first glance, an unlikely idea? In the majority of our
boardrooms and our MBA classrooms, the first mission of the firm is to
maximize profits. This is regarded as self-evidently true. Many managers are
persuaded that to claim any other goal is to risk not only betraying their
fiduciary duty but also losing their job. They view issues such as climate change,
inequality, and institutional collapse as “externalities,” best left to governments
and civil society. As a result, we have created a system in which many of the
world’s companies believe that it is their moral duty to do nothing for the public
good.
But this mind-set is changing, and changing very fast. Partly this is because
millennials are insisting that the firms they work for embrace sustainability and
inclusion. When I first launched the MBA course that became “Reimagining
Capitalism,” there were twenty-eight students in the room. Now there are nearly
three hundred, a little less than a third of the Harvard Business School class.
Thousands of firms have committed themselves to a purpose larger than
profitability, and nearly a third of the world’s financial assets are managed with
some kind of sustainability criterion. Even those at the very top of the heap are
beginning to insist that things have to change. In January 2018, for example,
Larry Fink, the CEO of BlackRock, the world’s largest financial asset manager,

sent a letter to the CEOs of all the firms in his portfolio that said the following:
“Society is demanding that companies, both public and private, serve a social
purpose. To prosper over time, every company must not only deliver financial
performance, but also show how it makes a positive contribution to society.
Companies must benefit all of their stakeholders, including shareholders,
employees, customers, and the communities in which they operate.”10
BlackRock has just under $7 trillion in assets under management, making it
among the largest shareholders in every major publicly traded firm on the planet.
It owns 4.6 percent of Exxon, 4.3 percent of Apple, and close to 7.0 percent of
the shares of JPMorgan Chase, the world’s second-largest bank.11 For Fink to
suggest that “companies must serve a social purpose” is the rough equivalent of
Martin Luther nailing his ninety-five theses to Wittenberg Castle’s church
door.12 The week after his letter came out, a CEO friend reached out to me to
confirm that surely he didn’t—really—mean it? My friend was in a state of
shock. He had based a long and successful career on putting his head down and
maximizing shareholder value, and to him Fink’s suggestion seemed ludicrous.
He couldn’t imagine taking his eye off the profit ball in today’s ruthlessly
competitive world.
In August 2019 the Business Roundtable—an organization composed of the
CEOs of many of the largest and most powerful American corporations—
released a statement redefining the purpose of the corporation: “To promote an
economy that serves all Americans.” One hundred and eighty-one CEOs
committed to lead their companies for “the benefit of all stakeholders:
customers, employees, suppliers, communities, and shareholders.”13 The Council
of Institutional Investors (CII)—a membership organization of asset owners or
issuers that includes more than 135 public pension and other funds with more
than $4 trillion in combined assets under management—was not amused,
responding with a statement that said, in part:
CII believes boards and managers need to sustain a focus on long-term
shareholder value. To achieve long-term shareholder value, it is critical to
respect stakeholders, but also to have clear accountability to company
owners. Accountability to everyone means accountability to no one. BRT
has articulated its new commitment to stakeholder governance… while (1)
working to diminish shareholder rights; and (2) proposing no new
mechanisms to create board and management accountability to any other
stakeholder group.14

One of the world’s largest financial managers insists that “the world needs
your leadership,” and some of the world’s most powerful CEOs publicly commit
to “stakeholder management,” while many businesspeople—like my (hugely
successful) CEO friend and many large investors—think they are asking for the
impossible. Which of them is right? Can business really—and I mean really—
rescue a world on fire?
I’ve spent the last fifteen years of my life working with firms that are trying
to solve our environmental and social problems at scale—largely as a means of
ensuring their own survival—and I’ve come to believe that business has not only
the power and the duty to play a huge role in transforming the world but also
strong economic incentives to do so. The world is changing. The firms that
change with it will reap rich returns—and if we don’t reimagine capitalism, we
will all be significantly poorer.
I started this journey with an appropriately British degree of skepticism, but I
am now surprisingly optimistic—in the “if we work really hard, we might just
succeed” sense of optimistic. We have the technology and the resources to build
a just and sustainable world, and doing so is squarely in the private sector’s
interest. It is going to be hard to make money if the major coastal cities are
underwater, half the population is underemployed or working at jobs that pay
less than a living wage, and democratic government has been replaced by
populist oligarchs who run the world for their own benefit. Moreover, embracing
a pro-social purpose beyond profit maximization and taking responsibility for
the health of the natural and social systems on which we all rely not only makes
good business sense but is also morally required by the same commitments to
freedom and prosperity that drove our original embrace of shareholder value.
A mere decade ago the idea that business could help save the world seemed
completely crazy. Now it’s not only plausible but also absolutely necessary. I’m
not talking about some distant utopia. It’s possible to see the elements of a
reimagined capitalism right now, and to see how these elements could add up to
profound change—change that would not only preserve capitalism but also make
the entire world better off. Indeed this book is an attempt to persuade you to give
your life to the attempt.
How We Got Here
A central cause of the problems we face is the deeply held belief that a firm’s
only duty is to maximize “shareholder value.” Milton Friedman, perhaps the

most influential intellectual force in popularizing this idea, once stated that
“there is one and only one social responsibility of business—to use its resources
and engage in activities designed to increase its profits.” From here it’s not far to
the idea that focusing on the long term or the public good is not only immoral
and possibly illegal but also (and most critically) decidedly infeasible. It is true
that the capital and product markets are ruthless places. But in its current
incarnation, our focus on shareholder value maximization is an exceedingly
dangerous idea, not just to the society and the planet, but also to the health of
business itself. Turing Pharmaceuticals’ experience with Daraprim illustrates the
costs of chasing profits at the expense of everything else.
In September 2015, Turing, a small start-up with only two products,
announced that it was raising the price of the generic drug Daraprim from $13.50
to $750 a tablet—an approximately 5,000 percent increase. Daraprim was widely
used to treat complications from AIDS. It cost approximately $1 per pill to
produce and had no competition.15 Anyone wanting to buy Daraprim had to buy
it from Turing. The move unleashed a media storm. Martin Shkreli, Turing’s
CEO, was vilified in the press and accosted in public. But he was unrepentant.
Asked if he would do anything differently, he replied:
I probably would have raised prices higher.… I could have raised it higher
and made more profits for our shareholders. Which is my primary duty.…
No one wants to say it, no one’s proud of it, but this is a capitalist society,
capitalist system and capitalist rules, and my investors expect me to
maximize profits, not to minimize them, or go half, or go 70 percent, but
to go to 100 percent of the profit curve that we’re all taught in MBA
class.16
It’s tempting to believe that Shkreli is an outlier. He is a deeply eccentric
person and currently in jail for defrauding his investors.17 But he expressed in
the starkest terms the implications of the imperative to make as much money as
you can, and Daraprim is not the only generic drug to have had its price hiked. In
2014, Lannett, another generic pharmaceutical producer, raised the price of
Fluphenazine—a drug that is used to treat schizophrenia and is on the World
Health Organization’s list of most essential medicines—from $43.50 to $870—a
2,000 percent increase.18 Valeant increased the prices of Nitropress and Isuprel
—two leading heart drugs—by more than 500 percent, reportedly leaving the
firm with gross margins of more than 99 percent.19

Surely this can’t be right. Do managers really have a moral duty to exploit
desperately sick people? Purdue Pharma’s decision to aggressively promote the
prescribing of OxyContin was—at least in the short term—hugely profitable.20
Does this mean that it was right or even good business? Do firms have a duty to
pursue the maximum possible profit, even when they know that doing so will
almost certainly have significantly negative consequences for their customers,
their employees, or society at large? Since December 2015, when the Paris
Climate Agreement was signed, for example, the world’s fossil fuel companies
have spent more than a billion dollars lobbying against controls on greenhouse
gas (GHG) emissions.21 Lobbying in favor of heating up the planet may have
maximized shareholder value in the short term, but in the long run, was it a good
idea?
Taken literally, a single-minded focus on profit maximization would seem to
require that firms not only jack up drug prices but also fish out the oceans,
destabilize the climate, fight against anything that might raise labor costs—
including public funding of education and health care, and (my personal favorite)
attempt to rig the political process in their own favor. In the words of the
cartoon: “Yes, the planet got destroyed, but for a beautiful moment in time we
created a lot of value for shareholders.”

Tom Toro
Business was not always wired this way. Our obsession with shareholder
value is relatively recent. Edwin Gay, the first dean of the Harvard Business
School, suggested that the school’s purpose was to educate leaders who would
“make a decent profit, decently,” and as late as 1981, the Business Roundtable
issued a statement that said, in part: “Business and society have a symbiotic
relationship: The long-term viability of the corporation depends upon its
responsibility to the society of which it is a part. And the well-being of society
depends upon profitable and responsible business enterprises.”
A Beautiful Idea

The belief that management’s only duty is to maximize shareholder value is the
product of a transformation in economic thinking pioneered by Friedman and his
colleagues at the University of Chicago following the Second World War. Many
of their arguments were highly technical, but the intuition behind their work is
straightforward.
First, they argued that free markets are perfectly efficient, and that this makes
them a spectacular driver of economic prosperity. Intuitively, if every firm in an
industry is ruthlessly focused on the bottom line, competition will drive all of
them to be both efficient and innovative, while also preventing any single firm
from dominating the market. Moreover, fully competitive markets use prices to
match production to demand, which makes it possible to coordinate millions of
firms to meet the tastes of billions of people. Friedman himself brought this idea
to life using a very ordinary example:
Look at this lead pencil. There’s not a single person in the world who
could make this pencil. Remarkable statement? Not at all. The wood from
which it is made… comes from a tree that was cut down in the state of
Washington. To cut down that tree, it took a saw. To make the saw, it took
steel. To make steel, it took iron ore. This black center—we call it lead but
it’s really graphite, compressed graphite… comes from some mines in
South America. This red top up here, this eraser, a bit of rubber, probably
comes from Malaya, where the rubber tree isn’t even native! It was
imported from South America by some businessmen with the help of the
British government. This brass ferrule? I haven’t the slightest idea where
it came from. Or the yellow paint! Or the paint that made the black lines.
Or the glue that holds it together. Literally thousands of people co-
operated to make this pencil. People who don’t speak the same language,
who practice different religions, who might hate one another if they ever
met!22
If Friedman were trying to make the same point today, he might use a cell
phone—each of which contains hundreds of components that are manufactured
all over the world.23 But the key point is that truly competitive markets allocate
resources much more effectively and much more efficiently than anything else
we’ve tried. Indeed, pathbreaking work in the fifties and sixties established that
under a number of well-defined conditions—including free competition, the
absence of collusion and of private information, and the appropriate pricing of

externalities—maximizing shareholder returns maximizes public welfare.24
The second argument behind the injunction to focus on shareholder returns
rests on the normative primacy of individual freedoms, or the idea that personal,
individual freedom is—or should be—the primary goal of society and that an
individual’s ability to make decisions about the disposition of her resources and
time should be one of society’s highest goals. This idea is deeply rooted in the
post-Enlightenment, classical-liberal tradition of the eighteenth and nineteenth
centuries. Milton Friedman and Friedrich Hayek drew from this tradition as a
way to articulate an intellectual counterpoint to the Soviet Union’s philosophy of
centralized economic control.
Freedom, in this context, is “immunity from encroachment” or “freedom
from”—the ability to make decisions free from the interference of others.
Friedman and his colleagues suggested that free markets create individual
freedom because, in contrast to planned economies, they allow people to choose
what they do and how they do it and give them the resources to choose their own
politics. It is difficult to be truly free when the state—or a small group of
oligarchs—controls whom you work for and how much you’re paid.
Third, Friedman and his colleagues argued that managers are agents for their
investors. Acting as a trustworthy agent is a moral commitment in its own right,
rooted in the widely shared idea that one should keep one’s word and not misuse
funds with which one has been entrusted. Since managers are agents, they
argued, they have a duty to manage the firm as their investors would wish—
which Friedman assumed would in most cases be “to make as much money as
possible.”
Together these three arguments make a powerful case for shareholder value
maximization and are the moral force behind many businesspeople’s belief that
to maximize profits is to fulfill deep normative commitments. From this
perspective, failing to maximize shareholder returns not only constitutes a
betrayal of your responsibility to your investors but also threatens to reduce
prosperity by compromising the efficiency of the system and reducing
everyone’s economic and political freedom. To do anything other than maximize
returns—to pay employees more than the prevailing wage for no obvious benefit,
for example, or to put solar panels on the roof when local coal-fired power is
cheap and abundant—is not only to make society poorer and less free but also to
betray your duties to your investors.
These ideas are, however, the product of a specific time and place, and of a
particular set of institutional conditions. Given the realities of today’s world,

they are dangerously mistaken. Friedman and his colleagues first formulated
them in the aftermath of the Second World War. At the time it seemed there was
a serious risk that a reliance on the market would be replaced by centralized
planning. Governments—after conquering economic depression and war—were
popular and powerful. Capitalism was not. Enduring memories of the Great
Depression that had preceded the war—at its height US GDP fell by 30 percent,
while industrial production fell by almost 50 percent, and a quarter of the
working population was unemployed25—meant that for the next twenty years,
unregulated, unconstrained capitalism was regarded with suspicion nearly
everywhere. This was the dominant view in Europe and in Asia. In Japan, for
example, the business community explicitly embraced a model of capitalism that
stressed the well-being of employees and a commitment to the long term, while
in Germany, firms, banks, and unions cooperated to create a system of “co-
determination” that routinely sought to balance the well-being of the firm with
the well-being of employees and of the community.
This meant that for roughly thirty years after the war, in the developed world
the state could be relied on to ensure that markets were reasonably competitive,
that “externalities” such as pollution were properly priced or regulated, and that
(nearly) everyone had the skills to participate in the market. Moreover, the
experience of fighting the war created immense social cohesion. Investing in
education and health, “doing the decent thing,” and celebrating democracy
seemed natural.
Friedman’s ideas did not get much traction until the early seventies, when the
turmoil of the first oil embargo ushered in a decade of stagflation and intense
global competition, and the US economy came under significant pressure. Under
these conditions, it was not crazy to believe that “unleashing” the market by
telling managers their only job was to focus on shareholder returns would
maximize both economic growth and individual freedom.
The Chicago-trained economists blamed the economy’s lackluster
performance on the fact that many managers were putting their own well-being
before their duty to their investors. Their suggested solution—to tie executive
compensation to shareholder value—was eagerly embraced by investors.
Managers were told that they had a moral duty to maximize profits—indeed that
to do anything else was actively immoral—and CEO pay was linked tightly to
the value of the company’s stock. GDP took off like a rocket and with it,
shareholder value and CEO pay.26
But… meanwhile, the environmental costs of this growth—trillions of tons of

greenhouse gases in the atmosphere, a poisoned ocean, and the widespread
destruction of the earth’s natural systems—remained largely invisible.
Worldwide inequality fell as several of the developing economies—most notably
China—began to catch up to Western levels of income. But in the developed
world income inequality has increased enormously. The vast majority of the
fruits flowing from the productivity growth of the last twenty years have gone to
the top 10 percent of the income distribution, particularly in the United States
and the United Kingdom.27 Real incomes at the bottom have stagnated.28 The
populist fury that has emerged as a result is threatening the viability of our
societies—and of our economies. What went wrong?
In a nutshell, markets require adult supervision. They only lead to prosperity
and freedom when they are genuinely free and fair, and in the last seventy years
the world has changed almost beyond recognition. Global capitalism looks less
and less like the textbook model of free and fair markets on which the injunction
to focus solely on profit maximization is based. Free markets only work their
magic when prices reflect all available information, when there is genuine
freedom of opportunity, and when the rules of the game support genuine
competition. In today’s world many prices are wildly out of whack, freedom of
opportunity is increasingly confined to the well connected, and firms are
rewriting the rules of the game in ways that maximize their own profits while
simultaneously distorting the market. If firms can dump toxic waste into the
river, control the political process, and get together to fix prices, free markets
will not increase either aggregate wealth or individual freedom. On the contrary,
they will wreck the institutions on which business itself relies.
Why Markets Are Failing Us
The Turing Pharmaceutical example illustrates the essential nature of the
problem—but we can be even more precise. Markets have gone off the rails for
three reasons: externalities are not properly priced, many people no longer have
the skills necessary to give them genuine freedom of opportunity, and firms are
increasingly able to fix the rules of the game in their own favor.
Energy is cheap because we don’t pay its full costs. American consumers pay
roughly five cents per kilowatt-hour (¢/kWh) for electricity from coal-fired
power plants. But burning coal emits enormous quantities of CO2 (coal is
essentially fossilized carbon)—one of the leading causes of global warming.
Producing a kilowatt-hour of coal-fired electricity causes at least another four

cents of climate-related damage. Moreover, burning coal kills thousands of
people every year and destroys the health of many more. The extraction,
transportation, processing, and combustion of coal in the United States cause
twenty-four thousand lives to be lost every year due to lung and heart disease (at
a cost of perhaps $187.5 billion per year); eleven thousand additional lives are
lost annually due to the high health burdens found in coal-mining regions (an
annual cost of perhaps $74.6 billion).29 Calculating an aggregate, global figure
for the health costs associated with burning fossil fuels is enormously difficult
since costs differ significantly depending on a wide range of factors, including
the type of fuel and on how and where it’s being burned. One estimate suggests
that every ton of CO2 emissions is associated with current health care costs of
about $40, which would imply a cost per kWh of about four cents, but my
colleagues who work in this area remind me that these costs can vary
enormously and are often much higher.30 When you add these costs back in, the
real cost of a kilowatt-hour of coal-fired electricity is thus not 5¢ but something
more like 13¢. This means we are only paying about 40 percent of the real costs
of burning coal. Fossil fuel energy looks cheap—but only because we’re not
counting the costs we are imposing on our neighbors and on the future.
Every coal-fired plant on the planet is actively destroying value, in the sense
that the costs these plants are imposing on society are greater than their total
revenues, let alone their profits. For example, Peabody Energy, the largest coal
company in the United States, shipped 186.7 million tons of coal in 2018 for
total revenues of $5.6 billion.31 The combined climate and health costs of
burning 186.7 million tons of coal are about $30 billion, so—taking total revenue
as a measure of total value creation, which is conservative—Peabody is
destroying at least five times the value that it is creating.
Every time you use fossil fuels—whether it’s to drive a car or to take a flight
—you are creating lasting damage that you are not paying for. The production of
every ton of steel, every ton of cement, and every single hamburger—to focus on
a few products that are particularly energy intensive to produce—creates
significant damage that isn’t included in the price. The production of every
cheeseburger generates approximately the same emissions as half a gallon of
gasoline, and beef consumption alone is responsible for about 10 percent of
global GHG emissions (and only about 2 percent of calories consumed).32
When you add these costs to the bottom line, it turns out that nearly every
firm is causing significant damage. In 2018, for example, CEMEX, one of the
largest cement companies in the world, emitted more than forty-eight million

tons of CO2—despite the fact that in 2018 about a quarter of the electricity used
in its cement-producing operations was generated from renewables.33 That’s at
least $4 billion worth of damage.34 Its Earnings Before Interest, Taxes,
Depreciation, and Amortization (EBITDA) that year was $2.6 billion.35 In fiscal
year 2019 the total emissions of the UK retail chain Marks & Spencer—a
company that has been working hard to reduce emissions for years—were
equivalent to 360,000 tons of CO2.
36 That’s about $32 million in damages. Pretax
profits in the same year were £670 million.37
The distortion caused by the failure to price GHG emissions is enormous.
Prices across the entire economy are completely out of whack. If the free market
works its magic through the fact that prices capture all the information one needs
to know, in this case there isn’t much magic in evidence.
Markets only create genuine freedom of opportunity if everyone has the
chance to play. When unchecked markets leave too many people too far behind,
they destroy the freedom of opportunity that is fundamental to their own
legitimacy. The world is immeasurably richer than it was fifty years ago, and
inequality between countries has fallen significantly. In the 1950s half the
world’s population lived on less than $2 a day. Now only 13 percent live at this
level, and most people have a decent subsistence.38 But within countries
inequality has jumped to levels not seen since the 1920s. In the United States and
the United Kingdom, for example, the benefits of productivity growth have gone
largely to the top 10 percent while real incomes have stagnated.39
In the United States social mobility is now significantly lower than it is in
Canada and northern Europe, but it has fallen nearly everywhere.40 The winners
from the economic boom have increasingly found ways to pass on their success
to their children, so that a child’s success is increasingly a function of the zip
code where they were born and their parents’ income. Only 2–4 percent of
students in the eight Ivy League schools’ class of 2013 were from the bottom 20
percent of the income distribution, while between 10 and 19 percent of the class
had been born to families in the top 1 percent. A student born to the top 5 percent
of the income distribution has about a 60 percent greater chance of joining the 1
percent than a student whose parents’ income was in the bottom 5 percent, even
if they both attended one of America’s most highly regarded universities.41 Your
health is increasingly determined by your zip code. To take just one example: In
2017, the life expectancy of the residents of the poorest sections of New Bedford,
Massachusetts, was slightly less than life expectancy in Botswana and
Cambodia.42

It has also become significantly harder for entrepreneurial firms to succeed.
Between 1997 and 2012, the four largest firms in every sector increased their
share of their sector’s revenues from 26 to 32 percent.43 Young companies were
15 percent of the economy in 1980 but only 8 percent in 2015.44 This increase in
concentration is also reducing workers’ bargaining power—and with it, both
benefits and compensation—while driving up profits and prices.45
Markets are only free and fair if the players can’t fix the rules in their own
favor. In 2014, for example, two political scientists published a study exploring
the relationship between popular support for a policy and the odds of it becoming
law. The views of the “average citizen” in the United States, they found, don’t
matter at all. Proposals supported by 90 percent of the general population are no
more likely to pass than proposals supported by 10 percent.46 But if the rich
wanted something done, it got done.
Spending the money to change the rules of the game in your favor can be a
fantastically effective way of making money—even as it imposes significant
costs on everyone else. In 1997, for example, the Walt Disney Company lobbied
heavily in support of an obscure piece of legislation called the Copyright Term
Extension Act (CTEA).47
Giving artists and authors (and filmmakers) copyright in their creations
allows them to profit from their ideas—giving them the incentive to create more.
But copyrights are limited so that after some reasonable period of time, other
artists and authors can build on the ideas of those who have come before them. In
Disney’s case, for example, the movie Snow White is based on an old European
folktale. So is Beauty and the Beast. The CTEA promised to extend US copyright
to the life of an author plus seventy years, and to extend corporate copyrights to
ninety-five years. For Disney, which was facing the risk that its most beloved—
and most profitable—characters would start coming off copyright in 2023, the
bill offered an additional twenty years of protection.
Disney spent slightly more than $2 million48 lobbying for the bill—pushing
so aggressively for its passage that it became laughingly known as the “Mickey
Mouse Protection Act.”
The bill ultimately sailed through Congress and was signed into law on
October 27, 1998. My rough estimates suggest that at the time it passed, it might
have been worth as much as $1.6 billion of additional income to Disney—not a
bad return on slightly more than a $2 million investment.49 There is no evidence,
however, that it increased the general welfare. Rather, the reverse. Disney had
argued that delaying the moment until competitors could copy its films would

increase Disney’s incentives to create new ones. But a group of prominent
economists—including five Nobel laureates—argued that the extension had had
essentially no effect on the incentives to innovate.50 In their words, “In the case
of term extension for existing works, the sizable increase in cost is not balanced
to any significant degree by an improvement in incentives for creating new
works.”51
In plain language, Disney—a firm that prides itself on its wholesome family
image and whose theme parks are practically a required stop for every family in
the United States—had essentially laid the groundwork for charging these very
families somewhere north of a billion dollars to enrich its own investors without
generating anything like a comparable social benefit.
Still, this is just money. The fossil fuel companies have been pursuing a
similar strategy with much graver consequences for the world. Between 2000 and
2017, the fossil fuel industry as a whole spent at least $3 billion lobbying against
climate change legislation, and millions more backing groups and campaigns
that denied the reality of climate change.52
As of this writing, Marathon Oil, the largest oil refiner in the United States,
publicly acknowledges the reality of climate change and claims that it has
“invested billions of dollars to make our operations more energy efficient.” But
it has been a vigorous supporter of the current administration’s attempts to roll
back existing regulations on automobile emissions, suggesting on one call to
investors that the rollback could increase industry sales by 350,000 to 400,000
barrels of gasoline a day.53 Such an increase would impose costs of between $4.3
and $4.9 billion on the rest of the world, but at a price of roughly $56/barrel
would increase industry sales by between $6.9 and $7.9 billion.54 In Washington
State, oil interests outspent their opponents by two to one to defeat a measure
designed to impose the first ever US carbon tax, with BP alone contributing $13
million to the effort.55
It’s not only money that allows firms to buy favorable rules. In many
situations the issues are so highly technical, so narrow, or so dull that neither the
media nor the general public cares much about them. For example, changes in
accounting standards are hard to understand and rarely arouse much public
interest. But seemingly minor changes in accounting rules were one of the causes
of the Great Crash of 2008.56
Profit maximization only increases prosperity and freedom when markets are
genuinely free and fair. Modern capitalism is neither. If massive externalities go
unpriced or uncontrolled, if true freedom of opportunity is more dream than

reality, and if firms can change the rules of the game to suit themselves at the
expense of the public good, maximizing shareholder value leads to ruin. Under
these conditions firms have a moral duty to help build a system that supports
genuinely competitive, appropriately priced markets and strong institutions.
They also have a compelling economic case to do so. A world on fire threatens
the viability of every business.
The Danger Ahead
For years, the proponents of the unchecked free market have been attacking
government. But the alternative to strong, democratically controlled government
is not the free market triumphant. The alternative is crony capitalism, or what
the development economists call “extraction,” a political system in which the
rich and the powerful get together to run the state—and the market—for their
own benefit. Extractive elites monopolize economic activity and systematically
underinvest (when they invest at all) in public goods such as roads, hospitals, and
schools.
There’s always a trade-off. Too much focus on the public good stifles the
entrepreneurial dynamic that is the lifeblood of well-functioning markets. Too
much focus on economic freedom leads to the destruction of the social and
natural world and to the steady degradation of the institutions that hold the
market in balance.
Russia’s experience illustrates this dynamic. The Soviet economy under
communism grew much more slowly than the Western economies, while also
greatly restricting personal and political freedoms. Following the fall of the
Berlin Wall and the collapse of the Soviet empire, Russia moved aggressively to
embrace a completely unconstrained market—Chicago economics in its purest
form. For a golden moment it seemed as though Russia would become a
developed market economy. But no one stopped to price externalities, build the
institutions that would enforce the rule of law, provide decent education and
health care, or ensure that firms couldn’t set their own rules. Behind the smiles,
the men with guns were still in charge. The Russian state sold its holdings—the
vast majority of the economy—to a small group of cronies, creating a
particularly nasty form of crony capitalism. The United States has a population
of 327 million and a GDP of $21 trillion.57 Russia has roughly half the
population and a GDP of only $1.6 trillion.58 Free markets need free politics:
functioning institutions are great for business.

When we told the leaders of firms that their sole duty was to focus on
shareholder value, we gave them permission to turn their backs on the health of
the institutions that have historically balanced concentrated economic power. We
told them that so long as they increased profits, it was their moral duty to pull
down the institutions that constrained them—to lobby against consumer
protection, to distort climate science, to break unions, and to pour money into
efforts to roll back taxes and regulations. We pushed businesspeople into alliance
with populist movements that actively campaigned against government, and that
rejected fundamental democratic values. In the short term these alliances yielded
seductive returns, but in the long term they threaten the fundamental pillars of
our societies and our economies. Brexit will not be good for business. Neither
will a global trade war or the end of immigration. The problem is not free
markets. The problem is uncontrolled free markets, or the idea that we can do
without government, and without shared social and moral commitments to the
health of the entire society on which effective government depends.
We know what needs to be done. The United Nation’s seventeen Sustainable
Development Goals lay out a coherent road map—widely embraced by the
business community—for building a just and sustainable world.59 We have the
technology and the brains to address our environmental problems, and we have
the resources to reduce inequality. The question is not what should be done. The
question is how.
Business must step up. It is immensely powerful. It has the resources, the
skills, and the global reach to make an enormous difference. It also has a strong
economic case for action. Left unchecked, global warming seems likely to shrink
the American economy by roughly 10 percent by the end of the century60 and to
create almost unimaginable suffering. In the words of David Wallace-Wells,
writing in The Uninhabitable Earth about the effects of different levels of
increase in long-run average temperatures:
Because these numbers are so small, we tend to trivialize the differences
between them—one, two, four, five.… Human experience and memory
offer no good analogy for how we should think of those thresholds, but, as
with world wars, or recurrences of cancer, you don’t want to see even one.
At two degrees the ice sheets will begin their collapse. 400 million more
people will suffer from water scarcity, major cities in the equatorial band
of the planet will become unlivable, and even in the northern latitudes heat
waves will kill thousands each summer. There would be 32 times as many

extreme heat waves in India, and each would last five times as long,
exposing 93 times more people. This is our best case scenario. At three
degrees, Southern Europe would be in permanent drought and the average
drought in Central America would last 19 months longer. In the Caribbean,
21 months longer. The area burned each year by wildfires would double.
By 2050 as many as a billion people could be on the move.61 This is not a
world you want to live in—and it’s one that threatens the roots of our economic
system. In the words of Ray Dalio, the founder of Bridgewater Associates, one of
the world’s largest hedge funds:
I think that most capitalists don’t know how to divide the economic pie
well and most socialists don’t know how to grow it well, yet we are now at
a juncture in which either a) people of different ideological inclinations
will work together to skillfully re-engineer the system so that the pie is
both divided and grown well or b) we will have great conflict and some
form of revolution that will hurt most everyone and will shrink the pie.
As Ray suggests, this is not a problem that business can solve on its own. We
will only be able to tackle problems like climate change and inequality with state
help—and this will require rebuilding our institutions and bringing markets and
governments back in balance. Business can make an enormous difference, but
only if it works together with others to build the healthy, well-run governments,
vibrant democracies, and strong civil societies that will be essential to making
real progress.
A reimagined capitalism—a reformed economic and political system—has
five key pieces, none sufficient on its own, but each building on the other and
each a vital part of a reinforcing whole. We can begin to see what this looks like
in practice through the story of the transformation of a single firm.
The chapter title is from Paul Samuelson, who later attributed it to Keynes.
“When the Facts Change, I Change My Mind. What Do You Do, Sir?” Quote
Investigator, May 19, 2019, https://quoteinvestigator.com/2011/07/22/keynes-
change-mind.

2
REIMAGINING CAPITALISM IN PRACTICE
Welcome to the World’s Most Important
Conversation
Neo: I know you’re out there. I can feel you now. I know that you’re afraid… afraid of us.
You’re afraid of change. I don’t know the future. I didn’t come here to tell you how this is going
to end. I came here to tell how it’s going to begin. I’m going to hang up this phone, and then
show these people what you don’t want them to see. I’m going to show them a world without
you. A world without rules or controls, borders or boundaries. A world where anything is
possible. Where we go from there is a choice I leave to you.
—THE MATRIX, RELEASED MARCH 1999
The First Piece of the Puzzle: Creating Shared Value
In 2012, Erik Osmundsen became the CEO of Norsk Gjenvinning (NG), the
largest waste handling company in Norway.1 The waste business was an
unfashionable corner of the economy, but Erik believed it was on the edge of
significant transformation. Historically the business had been largely a matter of
hauling garbage to local landfills. But Erik believed the future of the industry
was in recycling, which had the potential to be a high-tech business selling into
a global market with significant economies of scale. He also believed that the
waste business held the key to addressing two of the world’s great global
challenges: climate change and the increasing shortage of raw materials. In his
words:
I asked myself, what other industries do we have where you can really

change so much for the better? So it was the opportunity that grabbed me.
I saw the potential to do something really good. The waste industry in
Norway reduces Norwegian CO2 by 7 percent, which I thought was
baffling. Was that possible? We at NG collect 25 percent of all Norwegian
waste and we bring 85 percent back to the industry in the form of raw
materials and waste to energy. Which I thought was… incredible… I
realized that our industry holds the key to achieving the circular economy
—solving two global issues at the same time: the rapidly increasing
global waste problem and the squeeze on the future supply of natural
resources due to the projected increase in middle-class consumers around
the world.
Erik was acting as interim CEO for NG and interviewing candidates for the
permanent position when he made the decision to apply for the job himself. In
his words:
I remember it as if it was yesterday. It was the day before Easter and I was
interviewing a really good candidate and he said look, I have one question
for you, are you a candidate for this job? I went home, and I was thinking
to myself, my God, I haven’t been this engaged for decades. I went to my
wife and I said, I don’t know if this is a good idea and I haven’t done this
before at this scale. But every morning I wake up and I feel that I’m doing
something that is really worthwhile and that we could actually make an
impact. So after Easter I called up Reynir [the private equity partner who
was acting as NG’s chairman], and asked him if he could put my name in
the ballot so to speak, and the rest is history.
Erik began by riding along with the waste trucks and hanging out at the
depots. It quickly became clear that although the majority of employees were
honest people, both NG and the industry were engaged in a range of corrupt
practices. NG and its competitors were disposing of waste illegally, either by
deliberately mislabeling hazardous waste as ordinary waste or knowingly
dumping it into the municipal grid. It was ten times cheaper to export electronic
waste to Asia illegally than to process it within Norway, while the regulations
surrounding waste disposal were poorly enforced by a multitude of different
authorities, and the fines for violations were tiny. One study suggested that more

than 85 percent of all the waste transported in the country was in violation of the
regulations.
Within NG, some managers were fudging their financials to meet short-term
targets and misrepresenting the quality of the recycled materials they were
selling. When Erik pushed for explanations, he was met with bemused variants
of “but that’s how it’s always been around here.” In Erik’s words: “The story was
always that this is the way it has always been done. Everyone else is doing it. It’s
always just some stupid guys in Oslo who think that things can be done
differently, but we know that it can’t be done differently because that won’t
work financially or it won’t work at all.”
Some people might have walked away. But Erik went back to his board,
asking for the money and the time required to clean up the business. He began
by putting in place a compliance policy that had to be signed by every employee.
After a short amnesty he moved to a zero-tolerance regime under which
infringing the policy would result in immediate termination. This was not an
entirely popular move. In the first year, thirty of the top seventy line managers
left the company, together with half of the senior staff. Many took their
customers with them.
Erik and his team then hammered out a new vision for the company. Instead
of being merely a company that hauled away waste, NG would become a global
seller of industrial recycled raw materials—a global recycling powerhouse. In
Erik’s words, “Everything is collected. Everything is recycled. Everything is
resourced. And everything is used over again as a new resource as opposed to
the stuff that is dug out of mines or cut down in the forests.”
He went public with what he had found, using the publicity as one lever
among many to change NG’s culture. He later explained:
Hanging our dirty laundry outside the house was a very public statement
not only to the industry but to our employees that we were serious. It’s not
lip service that we’re talking here. It’s not some sort of speech that you
give to an industry association. We were putting our head on the block in
the national media saying that we will clean things up. And we were
honest about it. One of the key things we practiced from day one was this
brutal truth policy.
It also gave him the opportunity to reach out to potential customers—
primarily those with prominent global brands—who might be willing to pay a

premium in return for peace of mind. Some customers—not as many as he had
hoped, but some—responded, signing up with NG because it was the right thing
to do and to avoid the possibility of scandal. Erik began to hire aggressively
from firms beyond the waste management industry, looking for raw talent, new
skills, and alignment with NG’s new purpose. He brought in executives from as
far afield as Coca-Cola, Norsk Hydro, and NorgesGruppen, Norway’s largest
grocery chain.
It was a costly transformation. In the first year the compliance program alone
cost as much as 40 percent of NG’s earnings before interest and taxes. It took
several years to bring the new employees up to speed. In the meantime the local
industry association threatened to expel NG for bringing the industry into
disrepute, and, since Erik’s agenda threatened the interests of organized crime,
he himself became the target of threats.
But the new strategy also opened up unexpected opportunities. Managers who
had seen the corruption firsthand and had felt powerless to do anything about it
enthusiastically took up the challenge of remaking the company, and shutting the
door on sloppy and illegal practices opened up space for real innovation. Slowly
but surely NG began to industrialize the waste industry’s value chain by
embracing increasingly high-tech recycling. NG was the first Norwegian firm to
purchase a state-of-the-art machine that used optical technology to sort metals.
One could put an entire car in at one end and recycle 95 to 96 percent of its
contents. The machine was initially rated as having a capacity of 120,000 tons a
year, but within a year Erik’s team was able to nearly double this number. This
led in turn to a search for more waste to process, which led to a complete
rethinking of the logistics of waste collection and an expansion of NG’s range to
all of Scandinavia. As NG stepped up its production of high-quality metals, it
was able to diversify its customer base, significantly increasing the prices it
received. In combination, these moves created significant economies of scale,
driving down costs, increasing margins, and allowing NG to outcompete its
rivals, further increasing volumes. By 2018 NG was one of the largest and most
profitable waste companies in Scandinavia.
In short, Erik was able to translate his vision for improving the sustainability
of the waste business into a new, highly disruptive—and highly profitable—
business. The conversation around reimagining capitalism is sometimes framed
in terms of a tension between profits and purpose. NG’s case illustrates why this
conversation is missing the point.
Business as usual is not a viable option. We have to find a different way to

operate if our planet—and with it capitalism—is to survive. We need to move
from a world in which environmental and social capital are essentially free—or
at least someone else’s business—to a world in which the need to operate within
environmental limits within a thriving society is taken for granted. The
transition will be massively disruptive—but like all such transitions, it will also
be a source of enormous opportunity.
Everyone must breathe to live, but the purpose of living is not breathing.2 In
today’s world, reimagining capitalism requires embracing the idea that while
firms must be profitable if they are to thrive, their purpose must be not only to
make money but also to build prosperity and freedom in the context of a livable
planet and a healthy society. Erik’s experience illustrates the enormous power of
this kind of pro-social vision. It enabled him to create “shared value,” or to build
a profitable business, doing the right thing while simultaneously reducing risk,
cutting costs, and increasing demand.
Contrary to what many believe, embracing pro-social goals for the firm—a
pro-social purpose—is eminently legal. Nowhere in the world are firms legally
required to maximize investor returns. Under US law, for example, it is probably
illegal to make a business decision that will certainly destroy long-term
shareholder value, but except in a few tightly defined situations such as when
they have committed to sell the firm, directors have very wide latitude.3 Under
Delaware law, for example, where the majority of US companies are
incorporated, directors have fiduciary duties of care, loyalty, and good faith to
both the corporation and its shareholders. This means that directors can—and
should—sometimes make decisions that do not maximize shareholder value in
the short term to pursue long-term success. US directors facing hostile takeover
bids do this routinely, turning down offers that value the firm at significantly
more than its current stock price in the belief that the takeover will reduce the
company’s long-term value. They are protected by the business judgment rule,
which presumes that in making a business decision, the directors of a
corporation act on an informed basis, in good faith, and in the honest belief that
the action taken is in the best interests of the company.
But creating shared value is not sufficient to reimagine capitalism. It’s not
enough to adopt a pro-social vision for the company. We also have to change the
way organizations are run.
The Second Piece: Building the Purpose-Driven Organization

There are essentially two ways to run an organization. Low road firms assume
that people are cogs in a machine and manage them as things, while high road
firms treat people with dignity and respect, as autonomous and empowered
cocreators in building a community dedicated to shared purpose. Running a high
road firm might sound expensive, but it doesn’t have to be. There’s lots of
evidence to suggest that in many circumstances high road firms are significantly
more innovative and productive than their low road rivals. Making the switch
from the low road to the high road is critical to reimagining capitalism for two
reasons.
The first is that reimagining capitalism is not going to be easy. Deciding to
create shared value is often risky. Building a just and sustainable economy will
be disruptive, and the dynamics of disruption are always difficult. Purpose-
inspired high road firms are much better equipped to handle the transition—as
NG’s example suggests—and are likely to be catalytic in driving the kinds of
change we need.
The second is that building high road organizations is in itself a crucial piece
of building a just and sustainable society. Not all high road firms can afford to
pay higher wages, but many can, and that in itself will be a critical contribution
to reducing inequality. Moreover, good jobs—jobs with meaning, in which
people are treated with respect and encouraged to grow and to contribute to the
best of their ability—are themselves crucial to the development of a healthy
society.
Creating shared value and building high road organizations will be hugely
important steps toward reimagining capitalism, but they will not be enough.
Purpose-driven firms seeking to create shared value can have enormously
positive impacts on the world. NG, for example, is playing a significant role in
transforming the waste business. When competitors see that there is money to be
made from acting in new ways, they will often embrace the change themselves.
Improving energy efficiency used to be the province of inspired individuals.
Now that everyone can see it’s often hugely profitable, building green is fast
becoming the industry-wide standard. But many firms that would like to do
more find themselves constrained by the short-termism of the capital markets.
Transforming the behavior of investors is just as important as transforming the
behavior of firms.
The Third Piece: Rewiring Finance

Traditional finance may be the single biggest stumbling block to reimagining
capitalism. As long as investors care only about maximizing their own returns,
and focus only on the short term and on what can be easily measured, firms will
be reluctant to take the risks inherent in seeking to exploit shared value and to
embrace high road labor practices. It may be legal—it may even be morally
required—to seek to address the big problems of our time, but if your investors
will fire you if you do, you will leave the big problems for someone else to
solve. It is essential to rewire the financial system if we are to reimagine
capitalism.
Fortunately this process is already underway. If solving the big problems of
our time is in the interest of investors—and in many cases it is—then the secret
to persuading them to support companies seeking to do the right thing is to
develop measures that demonstrate that the right thing is also the profitable
thing. We need auditable, replicable metrics that capture the costs and benefits
of addressing environmental and social problems so that investors too can
understand the benefits of creating shared value (and so that they can hold firms
to account). So-called ESG metrics—Environmental, Social, and Governance—
is one response to this challenge. It took us over a hundred years to develop
rigorous systems of financial accounting, and ESG metrics are still a work in
progress, but they are already changing investor behavior. In 2018 more than $19
trillion—20 percent of all total financial assets under management—was
invested using ESG-based information.4
Still, even the best metrics will not be enough to get us where we need to go.
There are some things that are simply too hard to measure—and there are
problems that firms could profitably solve but that would reduce investor
returns if they do. A second step toward rewiring finance is to look for
alternative sources of capital—to so-called impact investors, who care as much
about making a difference as they do about maximizing their returns—and to
consumers and employees. Consumer- and employee-owned firms are much
more likely to be comfortable improving consumer and employee welfare at the
expense of capital returns than conventional investors. Learning to mobilize
these alternative sources of capital at scale could have powerfully catalytic
effects.
Another option is to reduce the power of investors—to give managers shelter
from the relentless demands of the capital markets by changing corporate
governance, or the rules that specify who controls the firm. This is a tricky but
exciting line of inquiry. The widespread adoption of corporate forms like the

benefit corporation, could have profoundly beneficial effects—but could also
have unanticipated consequences and would probably be widely resisted by
today’s investors.
Rewiring finance along these lines will be a critical step toward reimagining
capitalism. But it will not be enough. If we can channel capital into leading-
edge, purpose-driven firms, and use a focus on ESG to ensure that every firm is
forced to uphold a higher standard of behavior, it would make an enormous
difference. But many of the problems we face are genuinely public goods
problems, and no single firm has incentives to fix them alone. We need to learn
to cooperate.
The Fourth Piece: Building Cooperation
When Nike first attempted to get child labor out of its supply chain, it began by
attempting to clean up its own operations, giving all its suppliers a code of
conduct and auditing them regularly. This approach succeeded in improving
some practices in some factories, but it proved to be impossible to fix the
problem completely. Most of the large suppliers turned out to work for nearly
everyone in the industry, and some of Nike’s competitors had no interest in
improving labor conditions—or had different ideas about how to do so. Audits
proved to be a very imperfect tool for changing behavior, and many of the major
suppliers routinely outsourced work to much smaller firms that proved hard to
monitor. Nike was left with a serious business problem—the risk that conditions
in their supply chain might cause significant brand damage—and no way to fix
it.5
In response, Nike attempted to persuade every other major firm in the
industry to join in cleaning up the entire supply chain. Together with a number
of other firms Nike pulled together the Sustainable Apparel Coalition, an
organization dedicated to a cooperative response to the supply chain crisis. The
core idea behind these kinds of cooperative organizations is simple—if everyone
does his or her part, everyone benefits. In chocolate, for example, the major
buyers of cocoa (chocolate’s principle ingredient) have come to realize that the
only way to ensure that cocoa is available over the long term is to band together
to share the costs of building a just, sustainable supply chain.6 In mining, the
world’s largest mining companies are trying to get a handle on their human
rights problems by collectively agreeing to implement the UN’s guiding
principles on human rights.7

The problem with cooperating to create public goods, of course, is that even
though we all benefit from their existence, we are often tempted to “free ride”
by letting others do the hard work of building or maintaining them. Fortunately
humans are quite good at solving public goods problems. For example, during
the years my son was growing up, I hosted a large and elaborate Easter egg hunt.
In the early years I attempted to give everyone lunch, but after a while my
friends started to bring dishes, and the gathering gradually became a potluck
affair. Lunch was usually delicious, featuring elaborate lasagnas, tasty salads,
and wonderful home-baked cookies and cakes.
But a potluck only works if everyone pitches in. Taking the trouble to cook an
elaborate lasagna is like taking the trouble to make sure that your suppliers are
taking care of the environment and following good labor practices. There’s
always a temptation to free ride—to arrive with a packet of stale cookies. If
everyone thinks that no one else is going to cook, no one will take the trouble,
and there will be no lunch. But—particularly when everyone knows everyone
else, and when everyone expects to keep working together—this rarely happens.
We heap extravagant praise on the maker of the lasagna, and we punish those
who bring stale cookies by teasing them unmercifully or “forgetting” to invite
them back. Sometimes—as among many families, armies, motorcycle gangs,
churches, sports fans, universities, and a thousand other clubs—we become so
identified with the group that we happily contribute everything we have to
ensure its success. Indeed, modern psychology suggests that we are as naturally
“groupish” as we are “selfish”—that humans have evolved in groups and that
emotions like shame and pride and ideas like duty and honor ensure that we like
being part of a team and think badly of those who loaf or take advantage.
One way to understand the history of the human race is to look at it as the
story of our increasing ability to cooperate at larger and larger scales.8 We built
cooperation first within the family, then within the extended family group, and
then within the village, the town, and the city. Successful nations cultivate
disdain for the “other” and pride in the homeland to persuade people to pay their
taxes and participate peacefully in the political process. At their best, large
corporations are cooperative communities, persuading hundreds of thousands of
people to work together toward a shared goal. Reimagining capitalism requires
taking this ability to cooperate and mobilizing it to solve public goods problems
at larger and larger scales.
The technical term for this kind of activity is “self-regulation,” and it can be
immensely powerful. It engages firms with each other and with third-sector and

government partners in the pursuit of solutions to common problems, often
prototyping solutions that prove to be a model for subsequent practice. But it is
also inherently fragile. Many collaborative agreements fail to reach their goal.
In the case of Nike and the textile business, for example, there continue to be
firms—particularly smaller ones, or those from countries where the reputational
costs of behaving badly are not that great—that are tempted to “cheat” or to buy
from the lowest bidder and to tolerate questionable practices. It turns out that
it’s usually very hard to sustain this kind of cooperation without the help of the
state—and states everywhere are failing. If we are to reimagine capitalism, we
need the private sector to be part of the effort to rebuild our institutions and to
fix government.
The Fifth Piece: Rebuilding Our Institutions and Fixing Our Governments
Creating shared value, learning to cooperate, and mobilizing the power of
finance will all drive progress. But there are too many problems that we cannot
solve without the power of government. Even if a significant fraction of
America’s firms adopts a high road labor strategy, it seems very unlikely that
their commitment could significantly reduce inequality. Too many firms will
have short-term incentives to take the low road and race to the bottom.9 Many
firms believe they simply cannot afford the cost of raising wages.
Moreover, unilaterally driving up wages is unlikely to be sustainable without
moves to address the full range of factors that drive inequality in the first place,
from changes in the tax code to the decline in organized labor representation, to
the increasing dominance of very large firms and the failure of the US
educational system to keep pace with the demands of the modern workplace.
These are all issues that can only be addressed through political action. And
government will only enact these kinds of measures if we can move beyond
populism and gridlock. The only way we will solve the problems that we face is
if we can find a way to balance the power of the market with the power of
inclusive institutions, and purpose-driven businesses committed to the health of
the society could play an important role in making this happen.
Business has played critical roles in building inclusive institutions in the past
and could do so again. In seventeenth-century England, for example, it was a
coalition of merchants and other businessmen that deposed the king and first
wrote the rules of parliamentary democracy.10 The Puritans of New England
took a charter designed for a corporation and used it to build democratic

government.11
Today’s firms have enormous power to influence governments if they choose
to use it. In 2015, for example, the governor of Indiana signed a bill into law that
legitimized discrimination against gay people. Since today’s employees will not
tolerate LGBTQ discrimination, the response from the business community was
swift and aggressive—and a week later the Indiana legislature backed down.
Business needs to take similarly focused action in support of our institutions and
our society.
Rebuilding our institutions is, of course, a collective action problem—but
those firms that are seeking to create shared value, that are trying to take the
high road with respect to their employees, and that are learning to act
cooperatively are ideally positioned to solve this problem. They have committed
themselves to making a difference, and they are finding that in many cases they
can only reach their goals with the support of governments firmly committed to
the public good.
REBUILDING OUR INSTITUTIONS requires the development of new ways of behaving
and new ways of believing, just as much as it requires the development of new
laws and new regulations.
We will not reimagine capitalism unless we rediscover the values on which
capitalism has always been based, and have the courage and the skill to integrate
them into the day-to-day fabric of business. To pretend that this is not the case is
to critically misrepresent the truth of our current situation. We are destroying
the world and the social fabric in the service of a quick buck, and we need to
move beyond the simple maximization of shareholder value before we bring the
whole system crashing down around our heads.
I’m often tempted to downplay the role that the courage to express one’s
personal values will play in driving the necessary changes. Sometimes when I’m
standing on a stage in full regalia (stylish black jacket, colorful scarf, the
highest heels I can manage) in front of a room full of powerful people, I’m
tempted to tell them that they should try to solve the world’s problems simply
because it will make them all more money. It has the great virtue of being true,
and I know they’ll love it. I sometimes get concerned that if I start talking about
“values” and “purpose,” they will write me off as a simpering female who
doesn’t get the hard realities of life in the business world. But change is hard. I
spent the first twenty years of my career trying to persuade firms like Kodak and

Nokia to change their ways, and I know there are always a thousand reasons to
put one’s head down, ignore what’s coming, and focus on next quarter’s results.
I will never forget a conversation I had once at Motorola’s paging division. It
was a hot day in Florida, and I was in a windowless conference room, holding a
rough prototype of something that looked very much like a smartphone, several
years before anyone had heard of a Blackberry—let alone an iPhone. I had been
preaching the benefits of making a significant investment in the new technology,
but the divisional manager looked at me skeptically—to this day I remember the
curve of his eyebrow—and said:
I see. You’re suggesting that we invest millions of dollars in a market that
may or may not exist but that is certainly smaller than our existing
market, to develop a product that customers may or may not want, using a
business model that will almost certainly give us lower margins than our
existing product lines. You’re warning us that we’ll run into serious
organizational problems as we make this investment, and our current
business is screaming for resources. Tell me again just why we should do
this?
New ways of doing things nearly always look profoundly uncertain and are
nearly always less profitable than existing ways of behaving. But grasping them
often yields rich rewards, while denying them—as Motorola did—often leads to
disaster. Twenty years of research have taught me that the firms that were able to
change were those that had a reason to do so. Purpose is the fuel that provides
the vision and the courage that is required to reimagine capitalism.
Running a company that’s trying to make a difference in the world is not for
the faint of heart. The successful purpose-driven leaders I know are almost
schizophrenic in their ability to switch from a ruthless focus on the bottom line
to passionately advocating for the greater good. Hamdi Ulukaya, the founder and
CEO of Chobani, and one of the most authentically purpose-driven leaders out
there, is effectively two people: a driven businessman and a compassionate
humanitarian. “I’m a shepherd and I’m a warrior,” he says when asked. “I come
and go between those two. I’m a nomad, and nomads are the most real people.
You can’t pretend.”
For several years I had the honor of facilitating Paul Polman’s strategic
retreats. Paul was the CEO of Unilever at the time, and he was in the midst of
trying to persuade his senior team that committing the organization to solving

the world’s problems was not only the right thing to do but also the royal road to
industry leadership. He would move seamlessly from passionately discussing
the thousand ways in which Unilever could make the world a better place to
ruthlessly cross-examining one of his divisional presidents about why she had
missed her sales targets for the quarter and what exactly she was going to do
about it—without missing a beat.
Running a company committed to doing the right thing is harder than running
a conventional company. It’s about being able to be a superb manager and a
visionary leader. About being ruthlessly focused on the numbers and
simultaneously open to the wider world. But it is eminently possible—and a lot
more fun—to manage this way. Leaders like Hamdi and Paul are reimagining
capitalism. They are creating value for their investors, while never losing sight
of their responsibility to the world on which they depend. Building a just and
sustainable world will not be easy or cheap. But in my view we have no realistic
alternatives. We must find a way to make this work.
A CEO with whom I work recently described a conversation he’d had with
two of his largest investors:
I gave them the usual spiel about how our operating margins were up and
how the investments we’d been making for growth were paying off, and
they asked me the usual questions. Then I asked them if they thought
climate change was real and, if it was, if the world’s governments were
going to fix it. Yes, they said—and no, governments weren’t going to fix
it. There was a pause. I asked them if they had children. They did. So I
said, “If government isn’t going to fix it, who will?” There was another
pause. Then we started a real conversation.
Welcome to the world’s most important conversation.

3
THE BUSINESS CASE FOR REIMAGINING
CAPITALISM
Reducing Risk, Increasing Demand, Cutting Costs
Money is like love; it kills slowly and painfully the one who withholds it, and enlivens the other
who turns it on his fellow human.
—KAHLIL GIBRAN, “YESTERDAY & TODAY, XII,” FROM KAHLIL GIBRAN’S LITTLE
BOOK OF LIFE
Money is, in some respects, like fire. It is a very excellent servant, but a terrible master.
—P. T. BARNUM, THE ART OF MONEY GETTING: OR GOLDEN RULES FOR
MAKING MONEY, 1880
Having conversations about important issues is, of course, important. But is
there evidence that there is a business case for creating shared value or for
treating people well and reducing environmental damage? Definitely.
Thousands of firms are even now making billions of dollars while
simultaneously addressing social and environmental problems. In the United
States, solar is now an $84 billion industry and employs more people than coal,
nuclear, and wind combined.1 Wind provides 7 percent of US electricity.2 India
just canceled fourteen large coal-fired power stations because the price of solar
energy has fallen so dramatically.3 Two million plug-in electric vehicles were
sold last year, and sales are growing exponentially.4 The market for meats is
expected to be a $140 billion industry within the next ten years.5
But to reimagine capitalism we have to reimagine every business—not just
the sexy ones. Companies everywhere are claiming to make a difference because
millennials won’t work for them otherwise. But is there actually a business

model for going green? Norsk Gjenvinning is a great story—but, well, it is in the
waste business after all. So it’s perhaps not that surprising to learn that one could
make money by doing a better job of recycling. And Erik Osmundsen is the CEO,
and has the authority to push his agenda. But can people who have regular jobs—
who face the daily pressures of competition and the skeptical eyes of peers and
bosses—really find a way to reimagine capitalism? Even if they sell, say, teabag
tea? The answer is often yes—but doing so requires allies, courage, and
organizational savvy.
Hunting for Reasons to Do the Right Thing
Michiel Leijnse joined Unilever in the summer of 2006 as the brand
development manager for Lipton tea. He had come from Ben & Jerry’s ice
cream, a small company where a strong brand name combined with a super-
premium product had allowed the company to develop a famously green supply
chain—and to charge for it. But Lipton, the largest tea brand in the world, was a
very different proposition.6
Tea is the world’s most popular drink after water. Nearly half of humanity
drinks it every day, and in 2018 the world imbibed about 273 billion liters of the
stuff—or about a trillion cups.7 Unilever sells just under $6 billion worth of tea
every year, most of it in teabags.8 Selling teabag tea is a highly competitive
business. Teabags are cheap—as of this writing, for example, Walmart will sell
you a hundred Lipton teabags for $3.48, or for the princely price of 3.5¢ each—
and most consumers don’t see much difference in quality or taste between the
big brands.9 When Michiel took over, it looked as if the industry might be in a
death spiral. Chronic oversupply, coupled with a lack of any real differentiation
between products, was driving the big brands to cut prices—which put further
pressure on everyone to cut prices even further. In 2006 the price of tea was less
than half of its mid-1980s peak. What was to be done?
In response, Michiel—working closely with colleagues from across the tea
business—came up with a startlingly counterintuitive proposal. They
recommended that Unilever should publicly commit to purchasing 100 percent
sustainably grown tea. This would be a massive undertaking—requiring, among
other things, training over half a million smallholder farmers—and it would
significantly raise the price that the firm paid for tea. In other words, Michiel
was proposing to raise his costs in an intensely competitive business in the
middle of an ongoing price war. To say that this was not a textbook move is an

understatement. If Michiel had walked into my office and asked for my advice, I
might well have told him to lie down until the feeling went away. In the event, it
took Michiel and his colleagues five months of one-on-one conversations to
persuade their bosses that they hadn’t lost their minds.
What were they thinking?
Michiel and his colleagues made several arguments. The first was around
ensuring supply. Growing tea can be a dirty business. For some smallholders, tea
production implies the conversion of tropical forests into agricultural land,
which can lead to reductions in biological diversity and to soil degradation.10
Logging for the firewood needed to dry tea can lead to local deforestation, which
in turn can lead to problems in water retention. However, for most farmers
unsustainable practices are the result of a focus on increasing yields rather than
on increasing acreage. Conventional tea production entails the large-scale
application of insecticides, pesticides, and fertilizers. Together they reduce soil
quality and increase erosion. Years of commoditization have contributed to a
downward price spiral that puts pressure on workers and the environment as
farmers try to safeguard their income. Tea growers struggle to maintain
production on degraded, eroding soils using ever more chemicals, further
accelerating erosion and soil degradation. Tea production is also particularly
vulnerable to global warming, as increasing temperatures, droughts, and floods
are all likely to make growing tea more expensive and more difficult.11 The team
suggested that current practices were putting the entire viability of the supply
chain at risk. In Michiel’s words: “If we didn’t do something to transform the
industry, at some point we just wouldn’t be able to get the quality and quantity of
tea we needed.” Since Unilever buys a significant fraction of branded global tea
supplies, this was a material risk to the business. In the case of cocoa, for
example, the key ingredient in chocolate, unsustainable growing practices
coupled with the impact of climate change have meant that supplies have lagged
significantly behind worldwide demand, and cocoa prices have become
increasingly volatile as a result.12
The second set of arguments focused on the need to protect Unilever’s tea
brands. Working conditions on conventional tea plantations can be grim. Tea
harvesting is a labor-intensive business, requiring workers to pick the top two to
three leaves of the tea plants every ten to twelve days. But tea workers are often
paid less than $1 a day, and many suffer from inadequate housing and sanitation,
and have little or no access to health care or education for their children. In
Bangladesh and India, tea workers routinely suffer from acute malnutrition and

are among the poorest of all workers.13 The team argued that in failing to insist
on better practices in its supply chain, Unilever ran the risk of being attacked—
and that in a mass media age, these kinds of attacks could be immensely costly.
Team members further suggested that it would be possible to persuade tea
suppliers to embrace more sustainable practices. Michiel’s colleagues had
dragged him to Kericho—a beautiful twenty-one-thousand-acre Kenyan tea
plantation that Unilever had owned for many years. Tea production at Kericho
was significantly more sustainable than it was in the rest of the industry. For
example, tea bush prunings were left on the field to rot, rather than being
removed as waste or for use as firewood or cattle food, a practice that maximized
soil fertility and water retention. The estate carefully managed its fertilizer use.
On-site hydropower provided reliable electricity at one-third the cost of power
bought from the Kenyan grid, and the tea was dried using wood sourced from
fast-growing eucalyptus forests planted on the edge of the estate. Kericho made
only minimal use of agrochemicals and other pesticides, both because of the
favorable climate and also through appropriate management of the surrounding
land, which was home to the natural predators of many pests.
At the same time Kericho was achieving some of the highest yields in the
world, with tea production of 3.5 to 4.0 tons per hectare, nearly double that of
most conventional tea plantations. That meant that they could afford to pay their
sixteen-thousand-plus employees more than two and a half times the local
agricultural minimum wage. In addition, employees had free access to company
housing and health care, and employee children were educated in company-
owned schools.14 If Unilever could come up with a way to cover the costs of
training their suppliers and of certifying the tea, it seemed plausible that the
suppliers would be willing to switch—and that Unilever would only have to pay
about a 5 percent premium for the tea.
The third—and most crucial—argument that Michiel and his colleagues made
was that embracing sustainability would increase consumer demand for
Unilever’s teas. They didn’t think they had any chance of persuading Unilever’s
tea-drinking customers to pay more for their tea. When asked, most consumers
talk a good game. In one recent global study, for example, nearly three-quarters
of consumers claimed that they would change their consumption habits to reduce
their impact on the environment.15 Nearly half claimed to be willing to forgo a
popular brand name for an environmentally friendly product.16 In Latin America
and in Africa and the Middle East, roughly 90 percent of respondents expressed
an urgent need for companies to embrace environmental issues.17 But by and

large most consumers, most of the time, won’t pay more for sustainable
products. Middle-aged, middle-class women will pay more for sustainable
products in some settings, and some people will pay more for high-end products
like coffee and chocolate, but for most people a product’s sustainability is—at
least today—something that is a “nice to have” rather than a “must have.”18
A 5 percent increase in the cost of your most important raw material is a lot
of money in the midst of a price war—particularly if you don’t think you can
raise prices—but at Ben & Jerry’s, Michiel had helped to launch the world’s first
Fair Trade ice cream, and he had become particularly attuned to the ways in
which concern over the environment and labor practices was beginning to shape
buying behavior. He hoped that at least some of Lipton’s consumers were
sufficiently concerned that they would be willing to switch to a sustainable
brand.
By this stage you can probably see why it took Michiel and the team nearly
six months to persuade senior management to approve the idea. But they did. My
sense—based on interviews conducted several years later—is that the team was
passionate about the fact that this was the right thing to do, and reasonably
convincing that at least one of the three business models they had argued for
might pay off. Unilever had long been a values-driven company, and my guess is
that it was the combination of purpose and plausible economics that clinched the
deal.
In any event, there turned out to be an element of truth in all three arguments.
The Unilever estates in Kenya and Tanzania were the first sites to be certified as
growing sustainable tea. The team then identified a priority list of its larger
suppliers in Africa, Argentina, and Indonesia. Many of these estates were already
professionally managed and were certified following adjustments to existing
practices, using available tools.19 The next step was the certification of the five
hundred thousand Kenyan smallholders from whom Unilever purchased tea.
Working with the Kenyan Tea Development Agency (KTDA) and the IDH, the
Dutch Sustainable Trade Initiative, Unilever designed a program that “trained
the trainers” and led to the rapid diffusion of sustainable farming practices
across the country. Each tea factory elected thirty to forty lead farmers, each of
whom received approximately three days of training. Each lead farmer was in
turn expected to train approximately three hundred other farmers through farmer
field schools, with the focus of the training being hands-on demonstrations of
sustainable agricultural practices. Most of the new techniques did not require
huge changes in practice or much investment. For example, getting farmers to

leave their prunings in the field (to improve soil quality) rather than removing it
for use as firewood required persuading farmers to plant trees for fuel. Tree
seeds were very cheap, and Unilever subsidized the cost. Farmers were also
encouraged to make compost from organic waste rather than burning it, as well
as to make better use of waste and water.
Some changes were expensive. For example, the certification standards
required the use of personal protective equipment for the spraying of (approved)
pesticides. This could cost up to $30, half a month’s salary for a smallholder.20 In
these cases, the Rainforest Alliance—the NGO in charge of certification—
worked with organizations like Root Capital and the International Finance
Corporation to assist with the purchase, and in some places, the local
smallholders pooled money to buy a single set, which was shared.21 One study
suggested that total net investments were less than 1 percent of total cash farm
income for the first year.22
Many of the farms saw yield gains of 5 to 15 percent from the
implementation of more sustainable practices, as well as improvements in the
quality of the tea, reductions in operating costs, and the chance to realize higher
prices. Average income increased by an estimated 10 to 15 percent.23 But
according to Richard Fairburn, the manager of the Kericho estate, the most
salient benefit to farmers was more intangible: “The Kenyan smallholders are
ultimately interested in creating a farm in good health that can be passed on to
future generations. That was the ‘sustainability’ that resonated with them.”
What about the promised benefits to Unilever?
By 2010 all Lipton Yellow Label and PG tips tea bags in western Europe,
Australia, and Japan were fully certified, and by 2015 all the tea in Lipton tea
bags—approximately a third of Unilever’s tea volume—came from Rainforest
Alliance–certified estates. The effort had changed the lives of hundreds of
thousands of tea workers and demonstrated that it was possible to significantly
increase the health and resilience of the supply chain. But, as forecasted,
Unilever’s costs had significantly increased. Tea supplies were still strong, and
none of Unilever’s brands had been hit by unmanageably bad publicity, but one
of the problems with risk avoidance as a business case is that it’s often quite hard
to measure.24 Michiel needed to demonstrate an increase in demand.
Nothing could be accomplished on this front unless his colleagues on the
ground in each market could be persuaded to put marketing muscle behind the
project, and not all of them were convinced it was a good idea to make the
attempt. At the time, marketing at Unilever was a highly decentralized activity,

with each country having its own marketing team, and each making its own
decisions about whether and how much to push sustainability as a part of
Lipton’s identity. In the first year of the campaign, at least one major region—the
United States—decided against using the sustainability theme in its marketing
campaigns, and another—France—was highly skeptical that it would have an
effect, and only introduced it under pressure. But in those markets where the
local organization enthusiastically embraced the idea, Unilever’s share increased
significantly. The UK market, for example, was roughly 10 percent of Unilever’s
tea sales and dominated by two major brands—Unilever’s PG tips and its rival,
Tetley Tea. Each had roughly a quarter of the market.25
The PG tips brand was a mass-market, working-class brand, and its
advertising campaigns were infused with offbeat British humor.26 The marketing
team treated the sustainability initiative as a major brand innovation and devoted
their entire year’s €12 million (approximately $13/£10 million) marketing
budget to promoting the effort. The challenge was to find a message that would
resonate with its consumers, while maintaining consistency with the brand’s core
proposition. “It was a huge challenge,” explained one member of the campaign.
“We had to talk to mainstream consumers in a way that explained a complex
topic without preaching, all in a language aligned with the brand.” The chosen
message, “Do your bit: put the kettle on,” emphasized the positive action that
consumers could take by drinking PG tips. The campaign tried to keep the
lighthearted spirit of the brand’s previous campaigns and used its well-
established characters: a talking monkey called Monkey and a working-class
man named Al. In one of the ads, for example, Monkey, presenting a slideshow
in the kitchen, explained to Al what becoming sustainable meant, and how easy it
was for him to do the right thing.
Prior to the campaign, PG tips and Tetley Tea had been battling hard for the
top spot in the British market. But following the campaign, PG tips saw its
market share increase by 1.8 points, while Tetley remained relatively flat. Repeat
purchase rates increased from 44 to 49 percent, and sales of PG tips increased by
6 percent. Surveys suggested that there had been a steady increase in the
perception of PG tips as an ethical brand following the launch of the campaign.
In Australia, the Lipton brand held nearly a quarter of the €260 million27
($288/A$345 million) market. The local team chose the phrase “Make a Better
Choice with Lipton, the world’s first Rainforest Alliance Certified tea,” and
introduced a €1.1 million ($1.2/A$1.4 million) campaign. Sales increased by 11
percent, and Lipton’s market share rose from 24.2 to 25.8 percent. In Italy, where

Unilever had an approximately 12.0 percent share,28 the message chosen was
“your small cup can make a big difference,” and sales increased by 10.5 percent.
In the context of a ruthlessly competitive consumer goods business like tea,
these are great numbers, and my back-of-the-envelope calculations suggest that
Unilever broke even on its investments within the first few years, while
simultaneously significantly strengthening its brands. In 2010 it was one of the
experiences that led Paul Polman, the incoming CEO, to commit the firm to a
“Sustainable Living Plan,” a plan that set wide-ranging company-wide goals for
improving the health and well-being of consumers, reducing environmental
impact, and, perhaps most ambitiously, sourcing 100 percent of agricultural raw
materials sustainably by 2020. This goal implied massive transformation in a
supply chain that sourced close to eight million tons of commodities across fifty
different crops, and Paul’s belief that it could be a source of competitive
advantage was rooted—at least in part—in Unilever’s experience in tea. Michiel
and his colleagues had demonstrated that a commitment to sustainability could
pay off—or that, at least for Unilever, it was possible to create shared value at a
billion dollar scale.
Michiel’s success highlights two of the four available pathways for creating
shared value: reducing risk and increasing demand. I’ll explore risk reduction as
a path to driving change below. Using sustainability to increase demand at the
margin is increasingly widespread. Consumers won’t usually pay more for
sustainability. But if they find a product that they like—one that ticks all the
right boxes in terms of quality, price, and functionality—then many of them will
switch to the more sustainable product. In June 2019, Unilever announced that its
purpose-led, “sustainable living” brands were growing 69 percent faster than the
rest of the business and generating 75 percent of the company’s growth.29
Michiel’s success also demonstrates the ways in which reimagining
capitalism is not just a game for CEOs. Michiel found allies at Lipton,
particularly among managers in the supply chain who had spent years on the
ground in Africa and India and who were passionately committed to changing the
way the tea business was run. Together they found a way to build and implement
a business case that helped trigger the transformation of the entire company.
Using the embrace of shared value to reduce risk and increase demand is a
powerful way to create economic returns. Walmart’s culture-changing experience
with Hurricane Katrina30 led it to the discovery of another great reason to
embrace sustainability: the fact that there turns out to be money—a great deal of
money—lying on the floor. Cleaning up one’s environmental footprint can be a

great way to cut costs.
Walmart and the $20 Billion Bill
You would not have guessed from his background that Lee Scott was going to
grow up to be a passionate environmentalist. Scott grew up in Baxter Springs,
Kansas, where his father owned a Phillip’s 66 gas station and his mother was a
music teacher at the local elementary school. After graduating from high school,
he went to work at a local company that made tire molds. By the time he was
twenty-one, he was working the night shift to pay for college and living with his
wife and son in a tiny trailer.31
Seven years later he was living in Springdale, Arkansas, working as a
terminal manager for a trucking company called Yellow Freight. Here—while
trying to collect a debt for Yellow Freight—Scott met David Glass, who a decade
later was going to become Walmart’s second CEO. Glass refused to pay the bill,
believing it to be erroneous, but—impressed by Scott’s sincerity and drive—
offered Scott a job. Scott refused, later remarking that he told himself, “I’m not
going to leave the fastest-growing trucking company in America to go to work
for a company that can’t pay a $7,000 bill!” But two years later, Glass succeeded
in persuading him to join Walmart as assistant director of logistics, and twenty
years later, Scott became Walmart’s third CEO.32
It was a tough time for Walmart. Scott found himself in the midst of a media
storm. By all the traditional measures, Walmart was an outstandingly successful
company—indeed in many ways it symbolized all that was best about free
market capitalism. It exemplified the way that “outsiders” could make it big:
Walmart was founded in rural Arkansas on the basis of the radically unlikely
idea that providing retail service to rural America could be a profitable business.
Over thirty years Walmart remade retailing, developing skills in logistics,
purchasing, and distribution that led to it becoming one of the largest companies
in the world. In 2000, when Scott took over as CEO, Walmart had approximately
$180 billion in revenue and employed more than 1.1 million people.33
While outsiders focused on Walmart’s stunning financial returns, insiders like
Scott were just as excited about the impact that Walmart had on people’s lives. If
you worked at Walmart, “save money, live better” was not an empty corporate
slogan, but a compelling statement of the deepest purpose of the firm. One
independent study found that between 1985 and 2004, Walmart saved the average
American household $2,329 per family, or about $895 per person.34 Seventy-five

percent of Walmart’s management team had come up through the ranks, and
Scott and his colleagues saw the firm as a powerful engine of economic
advancement for people who might otherwise be excluded from the economic
mainstream.
But critics of the company had a very different view of its impact, and as the
2000s unfolded, Walmart found itself increasingly under fire.35 Walmart was
accused of hurting downtown areas by driving out smaller independent stores
that were unable to compete with Walmart prices. Unions claimed that Walmart
crossed the line when it came to anti-union activities, and that its wages and
employment practices forced large numbers of Walmart workers into
government-support programs to supplement their food, rent, and medical care.
The company was sued for gender discrimination and investigated for employing
workers living and working illegally in the country. It was accused of violating
child labor laws and buying products from suppliers that were made by child
labor. Walmart’s competitors and suppliers faced similar allegations, but
Walmart’s conduct received significantly more attention in the press. One
consulting firm reported that 54 percent of Walmart’s customers believed that
Walmart acted “too aggressively,” that 82 percent wanted the company to “act
like a role model for other businesses,” and, perhaps most damningly, that
between 2 and 8 percent of customers had stopped shopping at Walmart because
of “negative press they have heard.” When I first suggested to my son that
Walmart was one of the more sustainably focused firms that I knew, he looked at
me skeptically. “I believe you, Mom,” he said, “because you’re my mom. But no
one else will.”
Reflecting on this storm of criticism later, Scott suggested that he was slow to
recognize it because he believed that the negative feedback was coming from
“blue-state elites,” who didn’t shop at Walmart and therefore didn’t understand
the money the company saved consumers. Andy Ruben, Walmart’s first head of
sustainability, recalled that inside Walmart, “You felt like you were in a bunker
of some sorts and there was enemy fire every time you stuck your head up. The
dissonance was so great between what I saw happening—people with such great
intentions, what their aspiration was and what they were doing—from the way
that that company was now being perceived outside of Bentonville.”36
(Walmart’s HQ is located in Bentonville, Arkansas.) One expert who worked
closely with the firm later recalled: “They were so isolated in Bentonville at that
time they really didn’t understand why people didn’t just love them. They’re
like, ‘We do everything right. We deliver to our customers every day the lowest

price. We’re hardworking. We have integrity.’ That was their story.”
In September 2004, Scott held a two-day off-site meeting focused on “the
state of Walmart’s world” and on how the firm might respond to its critics. At a
subsequent meeting in December, the group agreed that it was time for Walmart
to take a “strong stance on corporate responsibility.” Eight months later
Hurricane Katrina hit the Gulf Coast, giving Scott an opportunity to launch the
new strategy in a particularly powerful way.
Hurricane Katrina was one of the most devastating disasters in US history. It
flooded New Orleans and its surrounding communities, killed over one thousand
people, created over one million refugees, and cost an estimated $135 billion.37
Individual Walmart stores throughout the region—without waiting for orders
from headquarters—began doing what they could for survivors, giving away
food and clothing, and housing relief workers. One store manager in Waveland,
Mississippi, “took a bulldozer and cleared a path into and through that store, and
began finding every dry item she could give to neighbors who needed shoes,
socks, food and water.” On a conference call with his senior team, Scott told his
team to respond without thinking of the quarter’s budget, and Walmart corporate
quickly got behind the local efforts, donating $20 million in cash, ten times the
firm’s initial pledge, along with one hundred truckloads of goods and one
hundred thousand meals.38
The press praised Walmart’s response to the storm at a time when
government-led relief efforts in the early days of the crisis had largely failed. A
Washington Post article entitled “Wal-Mart at Forefront of Hurricane Relief”
noted, “The same sophisticated supply chain that has turned the company into a
widely feared competitor is now viewed as exactly what the waterlogged Gulf
Coast needs.” Aaron Broussard, president of Jefferson Parish, Louisiana,
appearing on Meet the Press, a nationally broadcasted Sunday morning
television news show, stated, “If the American government would have
responded like Wal-Mart has responded, we wouldn’t be in this crisis.”
The next month, in a speech broadcast to all Walmart’s suppliers and to all its
stores, offices, and distribution centers worldwide, Scott drew on Walmart’s
experience during the hurricane to announce a major commitment to
sustainability. He introduced three key goals: to be supplied 100 percent by
renewable energy, to create zero waste, and “to sell products that sustain our
resources and environment,” as well as a number of other commitments,
including a 20 percent reduction in greenhouse gas emissions over seven years
and a promise to double the efficiency of Walmart’s transportation fleet. He also

announced commitments to action with respect to health care, wages,
communities, and diversity.
Scott set these goals in 2005. Sustainability was still a niche issue—
something that only firms like Patagonia and Ben & Jerry’s cared about. At the
time Walmart’s commitment was revolutionary. Recall that Unilever didn’t
announce its Sustainable Living Plan until 2010. It had immediate effects on
public perceptions of the firm—as it was designed to. A 2008 report suggested
that while in 2007 Walmart had ranked last in the ranking of twenty-seven retail
companies by ethical reputation, in 2008 the company took third place (behind
Marks & Spencer and Home Depot).39
But then something unexpected happened. Walmart found that saving energy
was making the company a great deal of money. By 2017 Walmart had met its
goal of doubling the transportation fleet’s efficiency and was saving more than a
billion dollars a year in transportation costs—around 4 percent of net income.
Walmart doesn’t release detailed investment figures, but in 2007 and 2009 we
know that it was spending about $500 million on increasing energy efficiency
and reducing GHG emissions. If it continued to spend at about this rate—and if
the only benefits from this spending were the increased trucking efficiency—
then my back-of-the-envelope calculations suggest that it received at least a 13
percent rate of return on its capital—at a time when many retail companies
scramble to make 5 or 6 percent. Over the same period, Walmart has also
increased the energy efficiency of its stores by 12 percent, which—again by my
back-of-the-envelope conversion—is currently saving them about $250 million a
year.
One could argue that this shouldn’t have been a surprise. Engineers and
consultants had been saying for years that there was money to be made in energy
conservation. In 2007, for example, one of the world’s leading consulting firms
published a study claiming that the world could reduce its energy use by 25
percent if it simply adopted the energy saving measures that were profitable at
the time.40 Fine-tuning heating and cooling systems usually pays back within a
year since about 30 to 40 percent of the energy used in heating and cooling older
buildings is wasted.41 KKR, one of the world’s largest private equity firms,
claims to have saved over $1.2 billion in energy costs and now routinely requires
every firm that it buys to undergo an energy and water audit because the
financial returns to such audits are so high.42 There’s now at least a billion dollar
business in helping firms save money through energy reduction.43
But it took strategic vision to start uncovering these kinds of savings. This is

not unusual. At Lipton, building a sustainable business model meant visualizing
fundamental shifts in consumer behavior. Walmart’s breakthrough came from
focusing on the everyday operational details of the business—from a profoundly
different perspective. In its way, Walmart’s commitment was just as
transformative as Lipton’s.
Playing the Odds in Energy
I want to come back to the concept of risk reduction as an economic case for
pursuing shared value. We saw in the Unilever tea case that it can be important,
but hard to quantify. When risks are common, and there is enough data to
generate a good sense of their likelihood—in the case of house fires or
automobile accidents for example—the costs of any particular risk can be quite
precisely quantified. These are the calculations that built the insurance industry.
But when risks are entirely novel, it becomes much harder to estimate how much
one should pay to avoid them.
Perhaps this is why many firms have yet to integrate climate risk into their
thinking, despite the fact that there’s clearly something going on. Since the
1980s, for example, the scale of weather-related insurance losses has risen
fivefold to about $55 billion a year. Uninsured losses are twice as much again.44
One recent exercise suggested that the insurance industry may still be
underestimating potential losses from extreme weather by as much as 50
percent.45 Sea levels in Miami have risen by about six inches in the last thirty
years. Current projections suggest that they will rise another six by 2035. Twelve
inches of sea level rise in combination with spring tides or hurricanes is likely to
cause catastrophic damage to oceanfront property.46 Even with all this
information readily available, I know that at least one major bank is
underwriting mortgages on beachfront Florida real estate without including this
possibility in its calculations of property values.
In April 2019 Mark Carney, the governor of the Bank of England, and
François Villeroy de Galhua, the governor of the Banque de France, issued a joint
statement pointing out that insured losses from extreme weather events have
risen five-fold in the last thirty years. They suggested that the financial markets
faced the risk of a climate “Minsky moment”—a reference to the work of the
economist Hyman Minsky, whose analysis was used to show how banks
overreached themselves before the 2008 financial crisis, and warned that those
companies and industries that failed to adjust to climate change might cease to

exist.47
In October 2019, Jerome Powell, the Federal Reserve chair, wrote to Senator
Brian Schatz, noting that climate change was being “considered as an
increasingly relevant issue for the central bank.” The same month the San
Francisco Fed published a collection of eighteen papers exploring the risks that
climate change posed to the financial system.48
How can individual firms think about these kinds of risks, and build a case for
action around them? One strategy is to think about an investment in
sustainability not as a leap into the unknown, but as a strategic hedge. Take, for
example, the case of CLP.
In 2004, CLP, one of the largest investor-owned utilities in Asia, announced
that by 2010, 5 percent of its power would come from renewables. In 2007 it
doubled down on this commitment by promising that 20 percent of its generating
portfolio would be carbon free by 2020. These targets were the most ambitious
of any power company in Asia—and by many conventional measures they made
no sense at all.49
A majority of CLP’s power stations were coal fired. This was not unusual in
Asia, where coal is the fuel of choice for electricity generation since it’s easily
available and relatively cheap. In 2007 coal-fired power was significantly
cheaper than power from solar, wind, or nuclear sources. In 2013—after
significant declines in the cost of both solar and wind—CLP was assuming that
wind would cost 30 percent more than coal, and that solar energy would cost
three times as much.
What were they thinking?
I think that CLP was focused on the risks of remaining heavily dependent on
coal-fired power. Sticking with coal presented significant political risk. Power
plants are immovable, long-lived, and very expensive. They typically take three
to five years to build and generate power for twenty-five to sixty years. Since
they can’t be moved and are often the only energy provider in an area, their
success is critically dependent on maintaining good relationships with the local
community, or on what is often called a “license to operate.” CLP believed that
there was a real possibility that at some stage local communities were going to
start blaming local coal-fired power stations for the pollution in their
neighborhoods and the flooding of their cities, and that this could put their
license to operate in serious jeopardy. They feared that governments might move
to penalize coal-fired stations—perhaps by increasing the price of coal through
some kind of carbon price or tax, perhaps by simply shutting them down.

Sticking with coal also created technological risks. CLP believed there was a
real possibility that solar and wind costs would drop precipitously. Most new
technologies are expensive when they are first introduced. The first portable
consumer cell phone, for example, cost consumers $3,995 in 1983 dollars (in
2018 money that would be just over $10,000).50 But most technologies go down
what’s called a “learning curve.” As demand increases, firms invest more in
R&D, and as the technology is increasingly embedded in products, firms get
better and better at making them. While in 2007 solar and wind power were both
still much more expensive than coal, there was clearly some probability that
sooner or later they might well be cheaper.
I don’t know that CLP ever assigned a precise probability to either risk. But
in 2008, when I asked a number of utility company executives what odds they
would put on them, I got remarkably consistent estimates. Most of the executives
believed that there was about a 30 percent chance that renewables would be cost-
competitive with fossil fuels in the next twenty years, and about a 30 percent
chance that public pressure would force governments to put some kind of tax or
price on carbon. We mapped these two uncertainties into a 2×2 that looked like
this:

The top right-hand corner of this diagram defines “Business as Usual,” a
world in which there is no carbon regulation, and renewable energy remains
expensive relative to fossil fuels. Sometimes I call this the “cross-fingered”
future since so many firms spend so much time hoping that this is indeed where
we’re headed. According to the energy executives, there was about a 49 percent
(.70 * .70) probability that in 2030 the world would look much like it does today.
The lower left defines “Green Paradise”—a world in which carbon is priced and
renewable energy is cheaper than coal. In 2008 many utility executives thought
this was a very unlikely future, giving it only a 9 percent probability. But the
odds of the other two futures—“Renewables Are Competitive with Fossil Fuels”
and “Regulation Is Real” were about 21 percent each.
There were two interesting things about this diagram. The first was that it
suggested that the odds of the future looking like the present were less than 50
percent. The second was that this was almost always news to everyone in the
room. Usually the group moved from ridiculing the visionaries who were
convinced that Green Paradise was imminent, to wondering how to hedge their
bets. CLP’s leadership thought the odds that the world would see a business-as-
usual future were very low indeed. In 2013 Andrew Brandler, the CEO of CLP
phrased it this way:
We see carbon as a long-term threat to any business. In 2050, if you are a
carbon-intensive business, you are in big trouble; chances are you won’t
be in business by then. We have been in business for over 100 years, and
we want to be in business in 2050, but that doesn’t mean you take action in
2049. You have to move down this path and be ahead of the curve as the
world moves.
This is the key to understanding CLP’s strategy. The flip side of risk is
opportunity. If Asia’s power sector was going to decarbonize—and CLP believed
that it was—moving to carbon-free energy ahead of the competition was
potentially an exceedingly attractive business opportunity. Fifteen years later,
their early commitments look prescient. Between 2010 and 2018, for example,
the global weighted-average cost of solar- and wind-generated electricity has
fallen by 35 and 77 percent, respectively.51 Installation costs have dropped by 22
and 90 percent.52
In some places solar and wind are already cheaper than coal. They are
“intermittent” sources of power—they only work when the sun is shining and the

wind is blowing—so using them to replace fossil fuels at scale requires further
reductions in the cost of storage. But the rate at which their costs are falling is
quite breathtaking, and those of my colleagues who work in renewable energy
tell me that the odds that renewable energy will be cost competitive with coal by
2030 are very high indeed.53
Renewables made up 38 percent of China’s total installed generation capacity
by the end of 2018,54 and current projections are for China’s electricity grid to be
60 percent renewable by 2030,55 and for India’s to be 67 percent renewable by
2050.56 $6 trillion of new energy investment will go into Asia Pacific in the next
twenty years—new capacity in China will be greater than that in the United
States and Europe combined, and new capacity in India will be greater than
either the United States or Europe.57 Carbon-free power is a huge market
opportunity, and thanks to its early investments in the field, CLP is particularly
well positioned to succeed. For CLP, tackling risk has meant huge opportunity.
If It’s So Great, Why Isn’t Everybody Doing It?
Between them Lipton, Walmart, and CLP put the economic case for creating
shared value clearly on the table. Reducing environmental damage and treating
people well reduces reputational risk. It assures the long-term viability of the
supply chain. It can persuade consumers to favor your products and services over
those of your competition. It can reduce costs. It can create entirely new
businesses—particularly if, like CLP, you are sophisticated enough to see how
the world is changing before others do.
Robin Chase founded Zipcar—a car sharing service—in 2000, nearly twenty
years ago, years before the rest of us discovered the sharing economy. She saw
Zipcar as part of a much larger vision for how the economy might be
transformed. In one interview she explained:
The collaborative economy is larger than the sharing economy. The
sharing economy feels to me like it’s about assets. The collaborative
economy is everything. It’s making clear and visceral to us that, if I can
have real-time access not just to hard assets, but to people, to networks, to
experiences, it means that the way I do my own personal life is completely
transformed. I don’t have to do any hoarding.
I don’t have to be worried about having stuff and owning it. I can start
to rely on the fact that I can reach out and find the right person at the right

moment. That dramatically transforms how you live. Instead of on-
demand cars, it’s an on-demand life, in a much larger fullness.58
Zipcar grew to be the largest car sharing company in the world and was
acquired by Avis in 2013 for half a billion dollars.59 It now has over a million
members in five hundred cities in nine countries. Since leaving Zipcar, Chase
has founded or helped to found at least three other ventures with similar goals—
Buzzcar, a peer-to-peer car sharing service; GoLoco.org, a ride sharing company;
and Veniam, a firm that uses cars and trucks to blanket a city with public Wi-Fi.
But every time I teach, people ask me if firms can really make money by
doing the right thing. “I know about Tesla,” they say, “but are there any other
examples out there?” I tell them that there are hundreds and refer them to the
Harvard Business School case website, armed with the right key words. But it is
certainly the case that shared value has yet to go entirely mainstream. Why?
Why are so many businesspeople so reluctant to think that worrying about how
they treat their people or the environment around them might be a powerful
source of profitability?
The key to this puzzle, I believe, is to realize that the embrace of shared value
is, first and foremost, an innovation—and more precisely, an architectural
innovation. Architectural innovations change the relationship between the
components of a system—the system’s architecture—without changing the
components themselves. And because most people in most organizations are
focused on the components of the system they’re embedded in, rather than the
relationship between them, architectural innovations are hard to spot and hard to
react to. Architectural knowledge—knowledge of how the components fit
together—becomes embedded in the structure, in the incentives, and in the
information processing capability of the organization, where it becomes
effectively invisible, making it very difficult to change.
Much of the conversation around innovation focuses on the potential for cool
new technologies to disrupt existing industries. We tend to think of the way
artificial intelligence is likely to change the world, or of the potential for algae
grown in tanks to replace oil. But Michiel, Scott, Andrew, and Robin are also
architectural pioneers—inventors of new ways of thinking about the structure
and purpose of the firm. The idea that the way to grow Lipton’s tea business was
to increase the price it paid for tea was a profoundly revolutionary one, requiring
a quite new way of thinking about the entire value chain. Walmart was famous
for its skills in cost reduction. Who could have imagined that thinking about

something as nebulous as saving the environment would lead to previously
undiscovered billion dollar cost-reduction opportunities? CLP committed to
transforming their entire business—at a time when the available alternatives cost
significantly more and came festooned with as yet unsolved technical problems.
Robin invented a new business from whole cloth because she saw the purpose of
the economy in an entirely different way. Creating shared value is an act of
profound imagination. If you’re deeply embedded in old ways of doing things,
it’s hard to grasp the benefits of something as bold as reimagining capitalism.
Take, for example, the case of Phil Knight, the founder of Nike, one of the
most successful entrepreneurs of the last fifty years. Phil completely
revolutionized the footwear and apparel businesses. But he steadfastly ignored
the risk that child labor in his supply chain presented to Nike’s business, and in
doing so put Nike’s brand—its most valuable asset—at considerable risk. He had
a strong business case for embracing shared value, and he missed it completely.
What was he thinking?
Phil drove Nike’s growth through three core insights. The first was that the
way to drive down costs was to subcontract production to cheaper locations
overseas. In the 1970s this was a revolutionary idea. The second was that
continuous innovation was the key to success. Nike invested heavily in research
right from the beginning. The third was the one that supercharged Nike’s
success: the power of marketing. Phil—who understood both the symbolic power
and attractiveness of sports years before almost anyone else—channeled the bulk
of the money saved by Nike’s production strategy into its marketing budget. In
the words of one journalist:
Nike is a cultural icon because Phil understood and captured the zeitgeist
of American pop culture and married it to sports. He found a way to
harness society’s worship of heroes, obsession with status symbols and
predilection for singular, often rebellious figures. Nike’s seductive
marketing focuses squarely on a charismatic athlete or image, rarely even
mentioning or showing the shoes. The Nike swoosh is so ubiquitous that
the name Nike is often omitted altogether.60
In combination the three ideas turned out to be commercial dynamite, and by
1992 Nike had $3.4 billion in sales. But Phil was not an entirely happy man. His
investors seemed to be oblivious to the power of his vision, no matter how often
he tried to explain it to them.

In Nike’s Annual Report for the year, for example, he noted that Nike had
$3.4 billion in sales and was the largest athletic shoe company in the world. That
it “had made every major advance in athletic shoes in the last twenty years” and
“broke[n] the billion dollar market in international sales for the first time in a
single fiscal year.” And yet “for all but a couple of very brief periods, we have
always sold at a substantial discount from the S&P’s 500 Index P/E multiple.…
We get summed up with the old label ‘sneaker company’… [and] lumped into
the apparel category.”61
A company’s P/E multiple is the ratio between its market value and its after-
tax earnings. In general, investors give companies they believe are likely to grow
substantially higher multiples. In the late 1990s and early 2000s, for example,
health care, IT, and telecoms had much higher P/E multiples than the rest of the
economy. To put Phil’s annoyance in perspective, Amazon’s P/E has never been
below fifty-six, and is now over a hundred. But Nike’s P/E didn’t reliably break
twenty until 2010.62 In short, Phil believed that his investors had no idea how
quickly the company was going to grow, and were underpricing it as a result.63
For the next five years the idea continued to be central to his annual letter.
In 1993 he wrote: “Nike continues to be an undervalued global power brand.
… Athletic shoes and clothes—especially shoes—are not commodities. Try this:
run a marathon, or even a mile, in a pair of $19.95 Wal-Mart specials. That will
end the discussion.”
In 1994: “Although it was our first down year in seven years we generated an
18 percent ROI. You’d think that for a company for which an 18 percent return
was labeled ‘bad’ would get higher than a 15 P/E multiple when the market
average stood at 20, wouldn’t you?”
In 1995, after noting that this is “the greatest year in industry history,” he
wrote: “Even in good times such as these, as I sit down to write this letter I
become angry and frustrated.… If you show this record to investment analysts
without identifying the company, an experiment we have done, they will say it
deserves a P/E multiple in excess of the S&P 500. Only after the company’s
name is revealed does the consensus move to a multiple at a discount from the
market.… This has reached the point of ridicularity.”
In 1996 Nike’s multiple rose, but Phil was still not entirely happy: “By (the)
standards of measurement we normally use in this space, fiscal year 1996 was a
fantastic year. We set an all-time record for sales and earnings.… And to its
credit, Wall Street saw fit to increase our multiple.… The central question was:
does a fashion company, no matter how strong the brand, deserve such a

multiple? The problem with the debate is that the answer doesn’t matter. It’s the
question that is wrong.”
Throughout the early 1990s, in short, Phil grappled with a problem that besets
many successful, visionary entrepreneurs. He couldn’t seem to communicate the
power of his vision to his investors. Knowing what we know now, of course,
reading his letters makes clear just how prescient Phil was.64 He talks
extensively about the ways in which sports will create worldwide brands. He
explains—again and again—how he’s investing for a global future—how Nike’s
investments in innovation, in endorsements, and in building infrastructure on the
ground overseas are going to yield enormous dividends. But until 1996—when
even the slowest analyst began to wake up to the Nike phenomenon—he couldn’t
get the multiple up beyond the S&P average. It’s no wonder he got a little
frustrated.
Yet at the same time that Phil was raging against the blindness of Wall Street
analysts, he himself was proving to be equally blind to something that was about
to shake his business to its roots.
In 1992 Harper’s Magazine published the paycheck of Sadisah, a young
Indonesian woman who worked for the Sung Hwa Corporation, making shoes for
Nike. The piece—which was written by Jeffrey Ballinger, a worker’s rights
advocate who had spent nearly four years in Indonesia—showed that she was
paid about $1.03 a day, or just under 14¢/hour. Ballinger suggested that at these
rates the labor cost embedded in an $80 pair of shoes was approximately 12¢,
and closed his piece by asking:
Boosters of the global economy and “free markets” claim that creating
employment around the world promotes free trade between industrializing
and developing countries. But how many Western products can people in
Indonesia buy when they can’t earn enough to eat? The answer can’t be
found in Nike’s TV ads showing Michael Jordan sailing above the earth
for his reported multiyear endorsement fee of $20 million—an amount,
incidentally, that at the pay rate shown here would take Sadisah 44,492
years to earn.65
In 1993 CBS aired a report detailing abusive working conditions at Nike’s
Indonesian suppliers, and in 1994 a series of harshly critical articles appeared in
Rolling Stone, the New York Times, Foreign Affairs, and the Economist. In 1996
Life magazine published a devastating exposé of child labor practices in Pakistan

and India. The author described going undercover as an American interested in
setting up shop in Pakistan to make soccer balls for export. He found children
working as slaves, unable to leave because they could not afford to pay off the
peshgi their parents had taken for them. One foreman offered to get him “as
many as 100 stitchers if you need them,” noting that “of course you’ll have to
pay off their peshgi to claim them.” Children were blinded, malnourished, beaten
if they asked for their parents and—most evidently—hardly paid at all.
Schanberg, the author of the article, claimed that the average child laborer made
60¢ a day. At the head of the article ran a photograph of a twelve-year-old boy
stitching Nike’s soccer balls. The implication was clear: Nike was employing
enslaved children.
Doonesbury, the popular comic strip, devoted a full week to Nike’s labor
issues. Student organizations at many campuses urged boycotts of Nike’s
products. Nike was in the midst of expanding its chain of giant retail stores, and
found that “each newly opened NikeTown came with an instant protest rally,
complete with shouting spectators, sign waving picketers and police barricades.”
Nike’s celebrity endorsers—including Michael Jordan and Jerry Rice—were
publicly hounded.
But throughout the fracas, Nike continued to insist that what happened in its
supply chain was none of its concern—that it had a code of conduct in place that
prohibited abusive behavior, and that its suppliers were independent contractors
over whom it had no control. Neal Lauridsen, Nike’s vice president for Asia said,
“We don’t know the first thing about manufacturing. We are marketers and
designers.”66 John Woodman, Nike’s general manager in Jakarta, explained,
“They are our subcontractors. It’s not within our scope to investigate [allegations
of labor violations].” Adding, “We’ve come in here and given jobs to thousands
of people who wouldn’t be working otherwise.”67
Labor issues don’t show up in Phil’s letter to shareholders until 1994, when he
took particular exception to a New York Times piece by the sports writer George
Vecsey, complaining that it was “two columns of incessant railing on Nike, the
terrible entity.” In 1995 there was no mention of the supply chain. In 1996 he
said the following:
By the standards of measurement we normally use in this space, fiscal
1996 was a fantastic year.… Yet no sooner had the great year ended than
we were hit by a series of blasts from the media about our practices
overseas. So I sat with a dilemma: Use this space to answer our critics’

misconceptions,… or try to give our owners the bigger picture of their
company.… I chose the latter.68
In 1997 he was captured on camera talking to the director Michael Moore in a
documentary called The Big One:
Moore: Twelve-year-olds working in [Indonesian] factories? That’s O.K.
with you?
Knight: They’re not twelve-year-olds working in factories… the
minimum age is fourteen.
Moore: How about fourteen then? Does that bother you?
Knight: No.
There is no word about labor issues in the supply chain in his annual letter.
Then profits collapsed. Nike had been growing very fast. In 1997 revenues
were up 42 percent and net income by 44 percent—but in 1998 demand cooled.
Nike’s critics suggested that public outrage over its labor practices was partly to
blame. In 1997 there had been just under three hundred pieces published
coupling the words “Nike” with “sweatshop” or “exploitation” or “child labor.”69
In May 1998, at a speech at the National Press Club, Phil changed his tune,
acknowledging that “The Nike product has become synonymous with slave
wages, forced overtime and arbitrary abuse.”70 He announced the formation of a
corporate responsibility function at Nike, and committed the company to a
number of new initiatives designed to improve factory working conditions,
including raising the minimum wage; using independent monitors; strengthening
environment, health, and safety regulations; and funding independent research
into conditions in Nike’s supply chain. Nike is now one of the leaders of the push
to make apparel supply chains more sustainable, and independent rankings
routinely rank Nike as the most sustainable footwear and apparel company in the
world.71
Nike’s story is the key to understanding why so many firms are having trouble
making the switch to shared value. It took Phil, a visionary entrepreneur who
could see things almost no one else could see, five years to understand the threat
that problems in the supply chain posed to his brand—even as he was berating
his investors for not understanding the roots of Nike’s success. The irony here is
that in failing to understand that the world was changing in ways that made it

essential for Nike to pay attention to labor conditions in its supply chain, Phil
was falling into precisely the same kind of error as his investors—who were
failing to understand the ways that sports were remaking the footwear and
apparel businesses.
When the world shifts in unexpected ways, even the most visionary
businesspeople have trouble understanding what’s happening. Phil’s investors
missed Nike’s potential, and Phil and his colleagues missed the supply chain
issue because they were both architectural innovations—changes in the way the
pieces of the puzzle are put together.
Incremental innovation—innovation that improves one particular piece of the
puzzle—is often harder to deliver than it sounds, but it’s usually easy to see that
it must be done, and it doesn’t threaten the status quo. Nike under Phil was an
expert incremental innovator, introducing significantly improved running shoes
year after year.
“Radical” or “disruptive” innovation tends to get most of the attention. These
are innovations that make old ways of doing things completely obsolete. Think
of digital photography or of the new drugs that stimulate the patient’s own
immune system to fight cancer. But while radical innovation presents a profound
challenge to successful organizations, it’s a challenge whose scope is
immediately clear. Digital photography forced Kodak into bankruptcy, but not
because Kodak failed to see the threat that it represented. Indeed, Kodak invested
deeply in digital photography right from the beginning and made a number of
groundbreaking discoveries in the area.
It’s architectural innovation that creates trouble, and it’s architectural
innovation that brought Kodak down. The move to digital photography changed
the architecture of the product—cameras became a component of telephones
instead of stand-alone machines that had to be lugged around—and the ways in
which photographs were shared, printed, and used. Kodak found it all but
impossible to adapt. Radical innovation is tough but visible. All the major
pharmaceutical companies can see that understanding genetics is going to be
central to finding new drugs, and all of them have invested heavily in bringing
genetics into their research operations. But architectural innovation runs under
the radar. It often looks as if it’s about a relatively small change to one small
piece of the puzzle, but it’s actually about a complete rethinking of the way the
pieces fit together.
Tim Harford, the Financial Times’ “Undercover Economist,” uncovered a
wonderful example of the ways in which successful organizations can miss the

power of architectural innovation in the history of the British response to the
invention of the tank.72 The tank was invented by E. L. de Mole, an Australian
who approached the British War Office with his design in 1912, two years before
World War I broke out.
By 1918, the last year of the war, Britain had the best tanks in the world, and
the Germans none at all. Indeed the allies forbade their production. But by the
1930s, Germany had leaped ahead, and in 1939, the first year of the Second
World War, it produced twice as many tanks as the British—and used them to
much greater effect.
The problem was classically architectural. The British Army didn’t know
where to put the tank. It was divided into two great branches—cavalry and
infantry. The cavalry’s job was to be swift and mobile. Tanks were swift and
mobile. Perhaps the tank was a special kind of horse and belonged with the
cavalry? The infantry’s job was to be an immovable source of invincible
firepower. Tanks were tough to dislodge and extraordinarily powerful. Perhaps
the tank was just a very strong infantryman with a particularly powerful gun?
One could, of course, start an entirely new unit, just for tanks. But who would
fight for such a unit? Who would fund it?
Of course the tank was neither simply a faster kind of horse nor a more
powerful kind of infantryman. It was some kind of cross between the two—only
more so—with the potential to enable a completely different kind of warfare. A
British army officer named J. F. C. Fuller recognized this potential while the
First World War was still underway. In 1917 he presented a detailed plan to his
superiors, suggesting that tanks coupled with air support could do an end run
around the German trenches, attacking German headquarters behind the line and
ending the war almost immediately. Fuller’s biographer calls his idea “the most
famous unused plan in military history,” but of course it was used—in 1940, by
the Germans, who called it “blitzkrieg.”
The British had given control over the tanks to the cavalry, and the cavalry
was orientated toward its horses, rather than toward the new weapon. The horse
was the central element of the cavalryman’s life—his pride, his joy, his reason
for being. Field Marshall Sir Archibald Montgomery-Massingberd, the most
senior general in the British Army, responded to the threat of Nazi militarization
by providing each cavalry officer with a second horse and increasing spending on
horse forage tenfold. The United Kingdom entered the Second World War
seriously unprepared to respond to a competitor who had redesigned its army
around the tank, rather than the other way around.

Architectural innovation is difficult to see—and often hugely difficult to
respond to—because in nearly every organization, most people spend the vast
majority of their time paying attention to the piece of the puzzle they have been
assigned. If you’re a door handle engineer at a major car company, you pass your
days designing door handles. You go to door handle conferences and follow door
handle trends. You don’t spend a lot of time thinking about how the automobile
industry as a whole is likely to change. To survive, everyone develops mental
models of how the world works that tell us what we need to pay attention to and
what we can safely ignore.
You’d think that CEOs—who are supposedly paid to think about the big
picture—wouldn’t fall into this trap. But as Nike’s case illustrates, they do.
Indeed, in Phil Knight’s case, one way to think about what happened is that it was
precisely because he was putting so much time and energy into communicating
his vision of the future (and of course, into building a multibillion dollar global
firm) that he didn’t have the mental space to appreciate the significance of what
was happening in his supply chain. Phil and his colleagues’ complete conviction
that they had no responsibility for things that happened beyond the boundaries of
the firm was so deeply rooted that they found the initial criticism they faced
almost incomprehensible. They “knew” that their responsibility to their
employees stopped at the boundaries of the firm. It was just a given—the way
the world operated—an assumption shared by nearly every businessperson they
knew. In a way that now seems deeply ironic, at the very moment that Phil was
berating his investors for failing to understand that the deepest assumptions
underlying the sports business were changing in profoundly important ways, he
himself couldn’t see that old assumptions about the nature of the relationship
between a brand and its supply chain were also changing, and that child labor in
his supply chain posed a massive threat to his brand. Once the world sent him a
sufficiently strong signal that the issue could no longer be ignored, he responded
—as we would expect—with energy and skill.
THERE IS ENORMOUS opportunity to create shared value. Individual firms can
address environmental and social problems and build thriving businesses at the
same time, by reducing their costs, protecting their brands, ensuring the long-
term viability of their supply chains, increasing demand for their products, and
creating entirely new businesses.
But these opportunities can be hard to see. Building a just, sustainable society
is going to be as disruptive as moving from steam to electricity, or learning to

use the internet or to take advantage of AI. Firms that are doing well under the
current dispensation will claim that there’s no need to change—that if there is a
need to change, there is no business case—and that even if there is a business
case they’re too busy to work on it right now. This is what change looks like.
When I was at MIT, I held the Eastman Kodak Professor chair, and spent
some time working with Kodak as it attempted to respond to the threat of digital
photography. It had no trouble making the technological transition. A Kodak
engineer was the inventor of the first digital camera, and the firm held many of
the early patents in digital photography and built a large digital camera business.
But Kodak was unable to develop a business model that would allow it to make
money: consumers printed digital photographs far less often, and the firm did not
anticipate the way in which the camera would become an integral part of the
mobile phone. Kodak went bankrupt in 2012, the victim of profound
architectural innovation.
I’ve spent more than twenty years of my life studying these kinds of change.
I’ve learned at least three things. The first is that recognizing and responding to
architectural innovation is hard but not impossible. Phil Knight had trouble—
perhaps precisely because he was so successful—but Lipton, Walmart, and CLP
were all able to use the creation of shared value as a route to significant
competitive advantage. The second is that those firms that manage to take
advantage of these kinds of transitions—that have the courage to invest before
their competition and to invest in the skills and people required to build entirely
different ways of approaching a market—have the potential to reap enormous
returns.
The third is that organizational purpose is the key to change. Those firms that
have a clearly defined purpose beyond profit maximization, where it is clearly
understood that the purpose of the firm is not to make shareholders rich, but to
build great products in the service of the social good—these are the firms that
have the courage and the skills to navigate transformation.
Redefining the purpose of the firm is central to reimagining capitalism. What
exactly this means and what it might look like in practice is the subject of the
next chapter.

4
DEEPLY ROOTED COMMON VALUES
Revolutionizing the Purpose of the Firm
Some people think greed is good. But over and over it’s proven that ultimately generosity is
better.
—PAUL POLMAN, RETIRED CEO OF UNILEVER1
On January 12, 2015, in a packed hotel ballroom in Jacksonville, Florida, Mark
Bertolini, the CEO of Aetna, announced that beginning in April the firm would
be paying a minimum wage of $16/hour.2 Aetna was one of the largest health
insurance companies in the world, and his move made headlines. Nearly six
thousand employees—around 12 percent of Aetna’s domestic workforce—would
see their pay increase by an average of 11 percent. Some would receive a pay
raise of 33 percent.3 Mark also announced that many of these employees would
be able to sign up for Aetna’s richest health benefit plan for the price of the
cheapest. As a result, some employees would see an increase in their disposable
income of more than 45 percent. The ballroom exploded. Mark later said: “I had
known people would be happy, but I wasn’t ready for the raw emotion. There
were people crying. People saying, ‘Praise the Lord. My prayers have been
answered.’ The frontline managers were thrilled.”
It was an expensive move, increasing Aetna’s labor costs by about $20
million a year, and it did not go down well with some of his colleagues in senior
management. Among Aetna’s minimum-wage employees, 80 percent were
women. Most of them were single mothers, and some were on food stamps
and/or Medicaid. But when Mark proposed paying them $16/hour, he faced stiff
resistance, much of it framed in classic shareholder value maximization terms.
In his words, “They told me we’d be paying above-market rates, particularly in

states with lower-than-average wages. We’d be hurting our bottom line. We have
shareholders to serve. We have Wall Street to satisfy.”
What was Mark thinking?
One interpretation is that he was simply indulging his own sense of morality
at Aetna’s expense. When asked, Mark did indeed frame the wage increase as a
personal, deeply moral decision. He talked about the ways in which his decision
to become active on social media had alerted him to the struggles many of his
employees were facing. “More and more often, I saw people online saying, ‘I
can’t afford my benefits. My healthcare coverage is too expensive.’” He told the
New Yorker that it was not fair for employees of a Fortune 50 company to be
struggling to make ends meet, and explicitly linked the decision to the broader
debate about inequality, mentioning that he had given copies of Thomas
Piketty’s Capital in the Twenty-First Century to all his top executives.
“Companies are not just money-making machines,” he told the magazine. “For
the good of the social order, these are the kinds of investments we should be
willing to make. There definitely is a moral component and, you know, I had
plenty of arguments that the spreadsheet wouldn’t pencil out. And my view was,
in the end, this is just not fair.”4
But this was only part of the story. Behind the scenes, for both personal and
professional reasons I explore below, Mark was in the midst of an audacious
strategy to create shared value by fundamentally transforming Aetna’s business
model. Paying each of his employees a living wage was a key element of this
strategy—a move to create shared purpose and in doing so, create the
commitment, creativity, and trust that would enable him to implement his
vision.
The widespread adoption of authentic purpose—a clear, collective sense of a
company’s goals that reaches beyond simply making money and is rooted in
deeply held common values and embedded in the firm’s strategy and
organization—is an essential step toward reimagining capitalism. It has three
critically important effects. First, deeply embedded authentic purpose makes it
much easier to identify the kinds of architectural innovations that enable the
creation of shared value. Second, it makes it much easier to take the risks and
find the courage required to actually implement these kinds of innovation.
Third, building a genuinely purpose-driven organization is in itself an act that
creates shared value, since it requires creating the kinds of jobs that are needed
to begin to address inequality and build a just society.
Mark’s business case began with the fact that the US health care system is in

trouble. US health care costs nearly twice as much (measured as a percentage of
GDP) as health care in the rest of the developed world without delivering
notably better results.5 In one study, for example, the World Health Organization
placed the United States thirty-seventh out of 191 counties in terms of its
“overall health system performance.” Another review evaluating the health care
systems of eleven countries—Australia, Canada, France, Germany, the
Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom,
and the United States—suggested that the United States had the worst
performance of the group.6
At the same time Aetna’s existing business was coming under increasing
stress. Health insurance is one of the least well-regarded industries in the United
States, with a net promoter score below that of airlines and cable TV
companies.7 Moreover, in the face of increasing economies of scale, it was
steadily consolidating—and Aetna was a distant third to the two industry
leaders, United Health and Anthem.8 Mark needed a new strategy, and his own
deep sense of purpose guided his choice.
Mark’s sense of mission was triggered by two life-shattering events that
occurred in his forties. In 2001 his sixteen-year-old son Eric was diagnosed with
terminal cancer. He later said, “What I was told was that he had six months and
no one had ever survived his cancer.”9 Mark quit his job, and according to one
observer, “all but moved into his son’s hospital room, torturing the medical team
for information and helping his son get an unapproved drug.” Another noted that
Mark “downloaded a copy of Harrison’s Principles of Internal Medicine, a bible
for junior doctors, and started having fierce arguments with the medics, who
thought he was in denial about his son’s chances of survival.” At one moment
Eric nearly starved to death because he was allergic to the only fat supplements
approved for use in the United States, but Mark persuaded a doctor to locate a
fish-based supplement in Austria, filed for the regulatory exemption, and
persuaded the maker’s chairman to bring it to the United States on his next flight
there. His son is the only person to have ever survived his type of cancer—
gamma-delta T-cell lymphoma.10
The episode shaped his views of the US medical system and of what was
needed to fix it. “Lesson one was that they always viewed him as the lymphoma
in room four, whereas I knew him from the delivery room when he was born.…
Their view of him was as a disease, not a person.… What I learned through that
experience was that the health care system is not very connected,” said Mark.
“We were the connection. We were the advocates.”

This perception that the medical system cared about individual procedures
and the bottom line rather than about its patients as whole human beings was
reinforced when in 2004—less than a year after he had joined Aetna—he
suffered a life-threatening skiing accident that broke his neck in five places and
left him with permanent arm damage. The medical establishment prescribed
painkillers, but in his words:
During the recovery, I’m on seven different narcotics all at once. Fentanyl
patches, Vicodin, OxyContin, Neurontin, Keppra. And liberal use of
alcohol when I didn’t have to go anywhere. It was a mess. Somebody
suggested Craniosacral therapy. I said, “What the hell is it?” But by the
fourth visit I was feeling better, and over a period of five, six months got
off all of my drugs. I got hooked on Craniosacral therapy. Then the
Craniosacral therapist said to me, “You should try yoga.” I said, “Ah,
that’s for girls.” But after I tried it, I couldn’t move the next day. I said,
“Oh my god. This is amazing, what a workout.” I started practicing every
day because it made me feel better. And about two months into it I said,
there’s more to this. So I started reading the Upanishads, the Bhagavad
Gita, went to retreats, learned some chanting, studied some Sanskrit, and
was like, “This is like amazing.”11
In response, he began to drastically reconfigure Aetna’s strategy. He hoped to
use Aetna to transform his members’ health care by making it much more
personal and much more connected. He set up two distinct initiatives. The first
was the creation of a leading-edge digital platform built on big data and world-
class behavioral economics. The platform would not only simplify the way in
which Aetna’s members interacted with Aetna (a major pain point in the current
business) but also offer a range of applications that would support Aetna’s
members in taking care of their own health in real time. In the United States, for
example, 20 to 30 percent of medication prescriptions are never filled and
approximately half of all the medications prescribed for chronic disease are
never taken.12 This leads to approximately 125,000 deaths a year13 and increases
health care costs by between $100 billion and $289 billion annually.14 One
senior member of Mark’s team described the way in which the platform might
help fix this problem:

A simple thing that we can do is institute a reminder program, and
specifically target members during the first six prescription fills. We want
to give them incentives to adhere to their medication, and we can run a
vast number of experiments to rapidly test ideas and learn what’s going to
move the needle. Do we give a member in this reminder program the
incentive up front, or do we wait until they’ve filled their sixth
prescription? Ultimately, we want to be able to offer the right incentive to
the right person at just the right time, and in a way that they want. For
example—and this is dependent on the level of consent that the member
has given us, and who we might partner with—if a member is walking
past a CVS or some other retail partner, we could send them a message on
their Apple Watch to go get a flu shot, and if they do, they’ll get some
form of reward.15
The second initiative was to put people on the ground who could work face-
to-face with Aetna’s sickest members. In the first set of pilots, for example, the
firm put a multidisciplinary team into each of eight districts in Florida. Each
team included nurses, pharmacists, behavioral health experts, social workers,
dieticians, and community health educators. All Aetna members were assigned a
field care manager, whose job was to reach out to them, to learn about their
goals for their health, and to bring in other parts of the team as needed to reach
these goals. Christopher Ciano, president of Aetna’s Florida operations,
explained:
The Aetna Community Care program uses a holistic approach to truly
understand the needs and goals of each individual member. A
comprehensive and personalized plan is then designed to address those
needs. Historically, many of our programs have been designed around
disease states, and not [around] member specific personalized goals. Take
congestive heart failure for example. We previously weren’t setting
outcomes based upon the personal desires of the member—maybe our
member just wants to be able to go outside and play with their grandchild
instead of achieving some common disease state metric. Our new
approach focuses on what each member wants in terms of their specific
health ambitions, and we set out to help members achieve these goals by
being in the community and interacting with them where they live, work,
and play, rather than simply engaging with them telephonically or through

the mail.16
Mark described the new strategy as “the consumer part of the health care
revolution.” At its heart was a classic shared value thesis: the belief that if Aetna
could partner with its members to improve their health, not only would its
members be much healthier, but Aetna’s costs would fall, and Aetna would build
a thriving, profitable—and highly differentiated—business. In the words of Gary
Loveman, the man Mark hired to execute this strategy:
The general understanding that everyone has of health care is that it’s
hopelessly complicated and nearly unaddressable, and that tends to stop a
lot of people in their tracks. I have a simpler idea, which is that many
Americans are unnecessarily sick, and their costs are needlessly high and
their lives needlessly challenged as a result. For example, take two 60-
year-old men who have diabetes and early-stage renal failure. One of
them follows medical counsel tightly and lives a productive, happy life
with only slightly above-average healthcare costs. The other does not
follow medical counsel and lives a very precarious, unhealthy, and costly
life with a lot of trips to the hospital and the emergency room. My
ambition is to get that second guy to look like the first guy. If I can do
that, I can get a lot of people healthier, and we can all save an awful lot of
money.17
Framed this way, of course, Mark’s strategy looks simply like good business.
But that’s the nature of shared value—it’s all about addressing the big problems
while simultaneously building a business case. It’s not a question of purpose or
profit. It’s about using the broader view that a larger purpose provides to find
these kinds of opportunities—and then embedding purpose into the organization
in a way that enables the firm to execute them.
Mark’s strategy was risky. It required an audacious level of architectural
innovation—a complete rethinking of how Aetna worked with its customers and
how it would create value. You will recall from the story of the British Army’s
reaction to the tank just how hard architectural innovation can be to execute—
particularly within a large, well-established, reasonably successful organization.
For more than a hundred years, Aetna’s business had been about selling and
administering insurance. The firm had made money by controlling costs, not by

advocating for its patients. Mark’s strategy required everyone—from the senior
leadership team to the people answering the phones—to develop a significantly
different set of skills and to act in very different ways.
My experience is that the most reliable enabler of this kind of change is
deeply held shared purpose. It aligns everyone in the organization around a
common mission. It gives everyone a reason to work toward the goals of the
organization as a whole, rather than their own personal goals. Most importantly,
it unleashes the kind of creativity, trust, and sheer excitement that enables old
firms to do new things.
People will work hard for money, status, and power—“extrinsic” motivators.
But for many people, once their core needs are met, the sheer interest and joy of
the work itself—“intrinsic” motivation—is much more powerful. Shared
purpose creates a sense that one’s work has meaning—one of the core drivers of
intrinsic motivation and a driver of higher-quality, more creative work. It also
creates a strong sense of identity, another source of intrinsic motivation and a
powerful source of trust within the firm. To the degree that purpose supports
authenticity—the ability to live a life in accordance with one’s deepest values—
it also increases the presence of positive emotions—something that is strongly
correlated with the ability to see new connections, to build new skills, to bounce
back after difficult times, and to be more resistant to challenges or threats. The
employees of purpose-driven firms are thus likely to be significantly more
productive, happier, and more creative than those at more conventional ones.18
An authentic purpose also turbocharges the ability to work in teams.
Employees who are deeply identified with the firm’s purpose share a common
set of goals. They are also likely to be significantly more “pro-social”—that is,
to be temperamentally inclined to trust others and to enjoy working with them.
Teams that share common goals and that are composed of individuals who are
truly authentic, fundamentally prosocial, and intrinsically motivated find it
easier to communicate and align their activities, to trust each other, and to create
a sense of “psychological safety”—all attributes that drive high performance,
and the ability to take risks and to learn from each other. Purpose-driven firms
are thus likely to be much more open to new possibilities and far more capable
of handling the architectural change that is often required to take advantage of
those opportunities.
Mark’s own strong sense of purpose gave him the perspective and the passion
necessary to design Aetna’s new strategy. But unleashing the creativity, trust,
and commitment required for Aetna to execute it required building a purpose-

driven organization—one in which the vast majority of Aetna’s employees were
themselves deeply committed to the new purpose and convinced that Aetna’s
senior team were authentically driven by this purpose themselves.
Mark threw himself into this task. He began by communicating his personal
story as often and as authentically as he could. He papered the walls of Aetna’s
headquarters with cheerful posters laying out the firm’s new values. But talk is
cheap. Persuading thousands of people that you’re for real—that your foremost
goal is making a difference in the world, rather than making a difference to the
bottom line—requires making it clear that there are times when you will do the
right thing just because it is the right thing. That you will—at least occasionally
—put purpose before profit.
This is, I believe, how we should understand Mark’s decision to raise Aetna’s
minimum wage. Arguing that Aetna’s employees would be much more likely to
become committed to member health if their own health were taken care of,
Mark had introduced yoga and meditation classes at Aetna. Eventually every
Aetna office with more than two thousand employees had an acute care center, a
fitness center, a mindfulness center, and a pharmacy. He faced some pushback.
He recollected,
I had people pushing against it, with our C.F.O. at the time saying, “We’re
a profit-making entity. This isn’t about compassion and collaboration.” I
said, “Well, I actually think it is. And I’m in charge, so we’re going to do
it.”19
Then he raised the minimum wage. He was careful to talk about the
economic case for doing so, noting that many of the affected employees worked
in customer service, and arguing that more engaged employees would make
better connections with Aetna’s customers. As he said, “It’s hard for people to be
fully engaged with customers when they’re worrying about how to put food on
the table.”20 But that’s not why he did it—or not only why he did it. He did it
because he absolutely believed that it was the right thing to do. And here’s the
paradox. His willingness to take the heat that came with the decision was a
telling signal of his authenticity—and that in turn, was an important step toward
unleashing the power of purpose across the whole organization. Notice the
paradox here. Being authentically purpose driven can be a powerful business
strategy. But you can’t decide to be authentic because it will be good business.
That wouldn’t be authentic. Becoming authentically purpose driven is all about

exploring the boundary between purpose and profit—about choosing to do the
right thing and then fighting hard to find the business case to make it possible.
Mark made important strides in remaking Aetna, but its fate as a purpose-
driven business is now in the hands of CVS, which bought the company in 2018,
partly in the hope that Aetna’s new strategy would complement CVS’s desire to
make its retail pharmacies centers for neighborhood health care and partly—
perhaps—because CVS is itself experimenting with purpose.21 But his
experience illustrates both the power of purpose to seed the kind of architectural
innovation that could mark the beginning of new forms of shared value creation
across US health care, and how building a genuinely purpose-driven
organization can itself be a strategy to create shared value.
Effective purpose-driven organizations share two elements. The first is a
clear sense of their mission in the world. While the leaders of purpose-driven
firms are very much aware that they must generate profits to survive, making
money is not their primary goal. Some purpose-driven firms exist to improve
the lives of their customers. Some focus on creating employment. Others hope
to solve the world’s environmental and social problems. But in every case they
put mission over the need to maximize short-term shareholder returns.
The second element is a commitment to building an organization in which
every employee is treated with dignity and respect and viewed as a whole human
being whose autonomy and worth is to be honored. In these “high road” or “high
commitment” organizations, authority is broadly delegated and work is designed
to empower people on the front line to make decisions and improve
performance. People are routinely challenged and given opportunities for
personal growth. High commitment organizations pay well, but rely more on
intrinsic motivation than on the use of monetary rewards or the threat of
termination. Hierarchy is downplayed in favor of the development of trust and
mutual respect between superiors and employees.
It is the combination of mission and this change in the nature of work that
releases the creativity, commitment, and raw energy that enables purpose-driven
firms to survive in a ruthlessly competitive world—and that drives the
innovation that’s required to reimagine capitalism. Leaders who embrace a
mission without changing the way they manage often find themselves struggling
to implement it. Those who simply raise wages without changing the nature of
work and the purpose of the organization find themselves struggling to afford
the pay raise. In short, the creation of authentically purpose-driven, high road
organizations is an important step toward a just society.

While there is healthy job growth at the high end of the income distribution,
the jobs that have traditionally provided a route to the middle class—in
manufacturing and in entry-level clerical and technical work—are disappearing.
The new jobs are either essentially temporary or are in fields like health care
and elder care. Generally—except in the presence of strong unions—these are
terrible jobs: paying badly, offering no benefits, and often mandating erratic and
arbitrary schedules. Having a good job is fundamental to most people’s sense of
well-being. It is almost impossible to have a good life if your basic needs for
food, shelter, and security are not met, but good jobs are also sources of social
status, companionship, and a sense of meaning that greatly increase happiness.22
Does it sound as though I’ve drunk too much purpose-flavored Kool-Aid, and
this is all merely happy talk? The rest of this chapter tries to persuade you that
on the contrary, I am deadly serious. There is a great deal of evidence that
purpose-driven firms not only routinely survive under brutally competitive
conditions but also that they often significantly outcompete their more
conventional rivals.23 I begin by providing a sense of what effective purpose
looks like in practice to illustrate why and how it can be a viable strategy. I then
answer the important question of why—if this is such a great way of managing
—it hasn’t already taken the world by storm. I close by exploring why it is the
case that more and more firms are announcing their commitment to purpose.
Purpose in Practice
The way in which the combination of mission and the nature of work plays out
in practice to support both architectural innovation and the generation of great
jobs can be seen particularly clearly at King Arthur Flour (“KAF”), the oldest
flour company in the United States.24 KAF’s best-selling product, the five-pound
bag of unbleached, all-purpose flour, is not a sexy product, and the market has
been shrinking for years. Fewer and fewer people bake, and more and more flour
is bought online, where brands often carry little weight. But KAF is thriving. Its
customers love the company. KAF has over a million likes on Facebook and
more than 375,000 followers on Instagram.25 (For comparison, General Mills,
the current market leader with $3.9 billion in sales in “meals and baking,”
compared to KAF’s roughly $140 million, has about 85,000 likes on Facebook
and 3,000 Instagram followers.26) Sales are growing in the high single digits
annually—an unheard of growth rate for a commodity product in a two-hundred-
year-old industry.

KAF’s purpose is to “to build community through baking,”27 and the three
co-CEOs (!) have a very clear sense of just why and how home baking can make
a difference in the world. Karen Colberg, the chief brand officer and one of the
co-CEOs told me:
Baking uniquely enables people to unplug. And as a mother of three
teenagers, I’m constantly in this mode of wanting connection with my
family and spending time together. And what we offer people is the ability
to come together and do something.
Ralph Carlton, co-CEO and chief financial officer, put it this way:
When you think of baking as opposed to food, you give people gifts. The
emotional connection people have, the notion of the smell of fresh baked
bread, there’s something unique about baking that brings people together.
And that inspires us… everything we do is centered around the baking
experience.
Suzanne McDowell, co-CEO and vice president of human resources, added:
Well, everyone can bake. So if you just start there, and you think about
how baking can level the playing field—it doesn’t matter how smart you
are, or how wealthy you are, or any of the things that separate us: we can
all come together and bake together. And spending time with people,
baking and learning a life skill, no matter whether you are young or old,
can be a remarkably unifying experience. You can bake with family,
coworkers, and neighbors. Baking is an amazing opportunity to build
community. And we need community building. It’s really important in our
world, always has been, always will be.
As in the case of Aetna, the passionate embrace of this purpose has enabled
KAF to identify a strategy that is classically architectural. KAF no longer thinks
of itself as selling only white flour—instead it is selling an experience, and
supporting its customers in becoming great bakers. In Ralph’s words:

One of the challenges of baking, but one of the great things about baking,
is to bake well you do need knowledge. And often you need inspiration.
Very few people bake without reaching for a recipe or some other
guidance. And baking is not that forgiving. It isn’t like cooking, where
you just go in there, and it doesn’t matter what you do, something
relatively good comes out. In baking, you have failure. [So] we started
providing information on the web. And it has really grown from it being a
small part of what we do to us being one of the leading sources of
knowledge and inspiration for bakers around the country right now.
And that’s a core piece of our strategy… we’re making a big bet that
future generations of bakers, when they have to choose products, are
going to choose the products from companies where they learn the most
from and they trust the most. And it’s not going to be because I barked at
you and told you to go buy King Arthur. It’s going to be because we had a
great recipe, or we taught you a technique that you value very highly…
[because] King Arthur is really a company that cares about me and cares
about baking and cares about quality.
This strategy is enabled by a deeply participative, fully empowered
workforce that embraces it as a reason for working that extends far beyond a
paycheck—and that makes it immensely difficult to imitate. KAF’s Vermont
headquarters—now a major tourist attraction28—includes a retail store, where
visitors can watch baking demonstrations and sample baked goods (made with
KAF products, of course) and a baking school, where hundreds of passionate
bakers arrive to take classes from King Arthur’s master bakers. The company
also offers online recipes and baking classes, and a fully staffed baking hotline,
where customers can get answers to their baking questions from employees with
thousands of hours of baking experience.29 Everyone is passionate about baking.
Everyone goes the extra mile to help the company succeed. The latest financial
results are shared with every employee, and everyone is offered training on how
to read income statements and balance sheets. The company is very careful
about the people it hires, and then equally careful about how they are treated.
Karen expands:
The culture is a very present part of the hiring process. So when we meet
people, and we talk about coming to work for King Arthur Flour, we talk
about it being participatory. We talk about it being collaborative. But what

does that mean? I want people to show up and feel accountable for
themselves, accountable to their teams, and to have a clear understanding
of what they’re supposed to be doing. Also to be comfortable that they
can challenge what it is they’re doing and challenge what others are
doing. And ask us questions so we have a really productive dialogue
around issues such as: Where’s the company going? Why did you decide
to do that? Did you think about this?
Ralph adds the following:
It’s a culture where people reach inside themselves to do the right thing.
Karen often gives the example, during our holiday season when business
is crazy and we’re sending thousands and thousands of packages out of
our distribution center every day. Word spreads around the building that
there’s too much work down in Pick and Pack and the team needs help.
And people just do it, they come downstairs to lend a hand, and not
because the boss tells them to.
Suzanne also commented on the positive work environment:
People are engaged. They’re proud of our products. They are in it
together. It’s not like you’re siloed, and here I am in my space. I’m going
to do my job—it has no impact or effect on you. In fact (your job) has a
lot of impact and effect on everyone. It’s fun. We love to celebrate. We
love to bake. We generally are pretty psyched about coming to work every
day.
KAF’s competitive success is thus intimately linked to its willingness to
empower its workforce—and this empowerment in turn means not only that it’s
fun to work at KAF but that the company can pay over the odds and offer
employees who vest a chance to build retirement savings. (KAF is a completely
employee-owned company, which has potentially important implications that I
will come back to in the next chapter.)
Creating a strong shared sense of purpose in a relatively small firm like King
Arthur Flour is one thing. Can it be implemented in much larger organizations?
It can. Toyota’s example underlines the fact that it’s possible to create a similar

sense of creativity and commitment in a billion-dollar organization that employs
hundreds of thousands of people.
Toyota is a deeply purpose-driven organization. The Second World War
destroyed the Japanese economy and most of the infrastructure and the housing
stock. In 1950 Japan had a GDP less than half that of Norway or Finland, despite
having a population roughly twenty times the size of either.30 In this context,
Toyota’s leaders—like those of many of the most successful Japanese firms of
the time—had two goals: to create employment and—since Japan has almost no
natural resources—to build thriving enterprises that could compete at an
international scale. The firm was founded in 1937, but in 1950 a crippling labor
dispute nearly forced it into bankruptcy. Desperately in need of cash and
teetering on the edge of failure, Toyota was able to use this profound
commitment to the community to translate the threat of bankruptcy into a new
way of working that was an order of magnitude more productive than the
management style of its American competitors, as well as an enduring source of
great jobs.31
When in 1957 Toyota first opened an office in the United States, General
Motors produced one in every two cars sold in America. GM’s executives
laughed at the Japanese imports, confident that they had a lock on the American
consumer. But by the 1980s American consumers had fallen in love with
Japanese cars. They complained that American cars suffered from noise and
vibration, and that they were significantly less reliable than their Japanese
competitors. Toyota was able to build much better cars for about the same price
by thinking quite differently about the system through which cars were designed
and produced, and completely changing the relationship between the key actors
in the system—in short, by completely “re-architecting” how cars were designed
and built.
Work at GM—as at nearly every other company in the United States at the
time—had historically been organized along strictly functional and hierarchical
lines. Responsibility for the design and improvement of the assembly system
was vested firmly in the hands of supervisors and manufacturing engineers,
while vehicle quality was the responsibility of the quality department, which
inspected vehicles as they came off the assembly line. GM’s managers were
notorious for believing that blue-collar workers had little—if anything—to
contribute to the improvement of the production process. Workers would
perform the same set of tasks—for example, screwing in several bolts—every
sixty seconds for eight to ten hours per day. They were not expected or

encouraged to do anything beyond this single task. Relationships between those
working on the plant floor and local management were actively hostile. One
worker interviewed in the early nineties described life then this way:
In the old days, we fought for job security in various ways: “Slow down,
don’t work so fast.” “Don’t show that guy next door how to do your job—
management will get one of you to do both of your jobs.” “Every now and
then, throw a monkey wrench into the whole thing so the equipment
breaks down—the repair people will have to come in and we’ll be able to
sit around and drink coffee. They may even have to hire another guy and
that’ll put me further up on the seniority list.”
Management would respond in kind: “Kick ass and take names. The
dumb bastards don’t know what they’re doing.”… Management was
looking for employees who they could bully into doing the job the way
they wanted it done. The message was simply: “If you don’t do it my way
I’ll fire you and put somebody in who will. There are ten more guys at the
door looking for your job.”
GM had an analogous relationship with its suppliers, treating them as
interchangeable and driving down costs by pitting them against each other. But
Toyota demonstrated that it was possible to structure work in significantly
different ways. Jobs on Toyota’s production line were even more precisely
defined than those on GM’s: for example, detailed instructions for every station
specified which hand should be used to pick up each bolt. But Toyota’s
employees had a much broader range of responsibilities.32 Each worker was
extensively cross-trained, and was expected to be able to handle six to eight
different jobs on the line. They were also responsible for both the quality of the
vehicle and for the continual improvement of the production process itself.
Everyone on the line was expected to identify quality problems as they occurred,
to pull the Andon Cord that was located at each assembly station to summon
help to solve problems in real time, and if necessary to pull the “Andon Cord”
again to stop the entire production line. Workers played an active role in teams
that were responsible for identifying improvements to the process that might
increase the speed or efficiency of the line. As part of this process, workers were
trained in statistical process control and in experimental design.
Supervisors and industrial engineers still existed at Toyota, but they were
explicitly charged with being of service to the shop floor workers. Everything

was in the service of the continual improvement of the process, and it was the
workers on the floor who were in charge of improvement. Toyota had a strongly
egalitarian culture, and “respect for people” was one of its core values.
The firm brought the same combination of deep respect and widespread
empowerment to its relationship with its suppliers. Suppliers were treated as
“supplier partners” and trusted with proprietary information that enabled them
to work closely with Toyota in the service of building better cars. Toyota even
changed the nature of white-collar work in the industry. Inside the firm, people
in marketing and engineering were encouraged to think of themselves as allies
rather than as adversaries. The finance function was encouraged to support the
process of continual improvement, rather than to act as a ruthless police force in
the service of the bottom line. Employees were encouraged to view themselves
as in service to the purpose of the firm, rather than in service to their own
advantage.
This strategy was spectacularly successful. In the late 1980s the Japanese
took 1.7 million engineering hours to develop a $14,000 car, while their US
competitors took almost twice the time. On the production line, GM took nearly
twice the number of hours, compared with Toyota, to assemble a car.33 By 1990
Toyota’s market value was twice that of GM’s, and by 2008, the firm was the
world’s largest automobile producer.34
Let me put this another way: Toyota was developing new cars in half the time
and at half the cost of its American rivals and building them using half the
number of people. It took American firms nearly twenty years to come to terms
with these results, despite the fact that Toyota’s success was widely documented.
There have been at least three hundred books and more than three thousand
academic articles written about the firm.
Moreover, Toyota is not unique. In every industry, on average the most
productive firms are more than twice as productive as the least.35 Recent
research drawing on data collected from thousands of firms across the world has
confirmed that these differences are almost certainly driven by the ways in
which firms are managed. “High commitment” work practices drive increases in
productivity across an extraordinary variety of industries.36
If managing with purpose is not only possible but potentially such a powerful
source of competitive advantage, then why doesn’t everyone manage this way?
Why have so many firms been so slow to put these ideas into action? Gallop
reports that 34 percent of US workers are now “actively engaged”—the highest
number in Gallop’s history—and that the percentage who are “actively

disengaged” has fallen to 13 percent, a new low. But more than half of all
employees remain “unengaged”—generally satisfied but not cognitively or
emotionally connected to their work or workplace. They show up and do the
minimum that is required but are likely to leave if they receive a slightly better
financial offer.37
The reason purpose-driven management is not universal or at least more
common is because it is in itself an architectural innovation of the first order—
requiring managers to think about themselves, their employees, and the structure
of the firm in entirely new ways. And unfortunately, many managers are
prisoners of a worldview—and with it a view of employees and a method of
management—that is over a hundred years old. If we are to reimagine
capitalism, it is vital to understand just where this worldview came from—and
how it can be changed.
Shaping Worldviews for a Hundred Years
The great Victorian-era capitalists viewed their employees as fundamentally
selfish and lazy, motivated mostly by money, and needing to be carefully
controlled. Firms were run along strictly hierarchical lines, with a strict division
between management and employees and an almost uniform assumption that
labor and capital were destined to be in conflict. Businessmen of the time
generally assumed that building a successful business required tightly
supervising the workforce and keeping wages as low as possible. In the United
States they broke unions when they could, hired private armies to fight—and kill
—striking employees, and persuaded the US Supreme Court that unions should
be prosecuted under the antitrust laws.
This view of the vast majority of employees as essentially stupid machines
that were best harnessed by the skill and expertise of managers was strongly
reinforced by the invention of “scientific management,” a perspective that gave
a scientific imprimatur to the belief and that made it the conventional wisdom
not just at GM but at most large firms for most of the twentieth century.
Scientific management was invented by a man named Frederick Taylor.
(Indeed, the technique is often called “Taylorism.”) Taylor was an American
blue blood. He was descended from one of the Mayflower pilgrims, attended
Phillips Exeter Academy, and was admitted to Harvard. But—perhaps because of
rapidly deteriorating eyesight—he instead decided to serve a four-year
apprenticeship as a shop floor machinist, ultimately joining the Midvale Steel

Works in 1878 as a machine shop laborer. He was quickly promoted and
ultimately became chief engineer of the works.
Taylor’s experience in these roles convinced him that the vast majority of the
plant’s employees were “soldiering,” or deliberately working as slowly as they
could, and he began a systematic study of what we now call “productivity.” He
discovered that in many cases output could be greatly increased by breaking
every action down into its constituent parts, improving the productivity of each
part, and then forcing employees to follow precisely the procedures laid out for
them by management. In practice this meant using the promise of financial
reward to turn people into robots. One of his most famous stories is about the
loading of pig iron at a firm called Bethlehem Steel. The experiment began with
a man he called Schmidt. Taylor tells the story this way:38
The task before us, then, narrowed itself down to getting Schmidt to
handle 47 tons of pig iron per day and making him glad to do it. This was
done as follows. Schmidt was called out from among the gang of pig-iron
handlers and talked to somewhat in this way:
“Schmidt, are you a high-priced man?… What I want to find out is
whether you are a high-priced man or one of these cheap fellows here.
What I want to find out is whether you want to earn $1.85 a day or
whether you are satisfied with $1.15, just the same as all those cheap
fellows are getting.
Did I vant $1.85 a day? Vas dot a high-priced man? Vell, yes, I vas a
high-priced man.
Well, if you are a high-priced man, you will do exactly as this man
tells you to-morrow, from morning till night. When he tells you to pick up
a pig and walk, you pick it up and you walk, and when he tells you to sit
down and rest, you sit down. You do that right straight through the day.
And what’s more, no back talk. Now a high-priced man does just what
he’s told to do, and no back talk. Do you understand that? When this man
tells you to walk, you walk; when he tells you to sit down, you sit down,
and you don’t talk back at him. Now you come on to work here to-morrow
morning and I’ll know before night whether you are really a high-priced
man or not.”
Taylor goes on to explain how Schmidt was turned into a human robot—
working when he was told to work, resting when he was told to rest—and how

this discipline increased his productivity by more than 60 percent. This claim is
almost certainly exaggerated.39 But there’s lots of evidence that the use of
Taylor’s methods dramatically increased productivity in a wide range of
settings. Advocates of Taylor’s approach still claim that putting all the expertise
in the hands of management and managing people as if they were machines may
have its downsides, but it has such dramatic effects on productivity that these
costs are well worth paying. “Taylorism” became the conventional wisdom, and
Taylor’s The Principles of Scientific Management became the best-selling
business book of the first half of the twentieth century. Taylor’s ideas became so
widely accepted that the early evidence that embracing a purpose could
significantly improve performance was widely dismissed—and even when it
was finally acknowledged, firms found it enormously difficult to implement the
new ways of working. Take, for example, GM’s struggle to respond to Toyota’s
success.
The Struggle to Find a New Way: GM Responds to Toyota
By the early 1980s GM’s leaders had become convinced that Toyota was indeed
doing “something different” in its factories. But they initially refused to believe
that the essence of Toyota’s advantage lay in its relationship with its employees.
Instead they focused on tangible changes to the production process—tools like
the fixtures designed to change stamping dies rapidly, or the use of “just in
time” inventory systems—rather than on the set of management practices that
made it possible to develop and deploy these techniques. For example, one
consultant to GM in the 1980s reported:
One of the GM managers was ordered, from a very senior level—[it]
came from a vice president—to make a GM plant look like NUMMI [a
plant that Toyota had taken over from GM and completely transformed].
And he said, “I want you to go there with cameras and take a picture of
every square inch. And whatever you take a picture of; I want it to look
like that in our plant. There should be no excuse for why we’re different
than NUMMI, why our quality is lower, why our productivity isn’t as
high, because you’re going to copy everything you see.…” Immediately,
this guy knew that was crazy. We can’t copy employee motivation; we
can’t copy good relationships between the union and management. That’s
not something you can copy, and you can’t even take a photograph of it.40

Performance at General Motors was judged on the basis of well-defined rules
or easily observable metrics, such as whether individuals met prespecified
deadlines, while performance at Toyota was judged on the basis of the
performance of the team as a whole.41 At Toyota, goals were jointly determined
through lively communication across multiple levels of the organization, an idea
completely foreign to the top-down, command-and-control manner in which GM
was run.
Managers whose entire careers had been spent focusing on the current
quarter, making their numbers, and learning to fine-tune an existing system were
ill-equipped to rethink the fundamentals of employee management. People who
had always managed their suppliers and their blue-collar workers by bullying
them had a difficult time thinking of them as a source of continuous
improvement and treating them with trust and respect.
Most critically, the successful adoption of high-performance work practices
requires the ability to create deep levels of trust, and GM’s history meant that it
had horrible problems doing this. GM preferred to manage by the numbers and
to promote on the basis of quantitative results. But no set of numerical
objectives can specify the kinds of behaviors that characterize high-performance
firms. Senior management would announce a commitment to long-term
relationships and to building trust, but until and unless these announcements
were coupled with similar commitments and altered incentives at the local level,
few believed that the local managers whom they dealt with would, in fact,
change their behavior.
An extraordinary example of the value that can be created by this kind of
trust is that for many years, Nordstrom’s employee handbook was a single sheet
of paper on which was written:42
WELCOME TO NORDSTROM
We’re glad to have you with our Company. Our number one goal is to
provide outstanding customer service. Set both your personal and
professional goals high. We have great confidence in your ability to
achieve them.
Nordstrom Rules: Rule #1: Use good judgment in all situations.
There will be no additional rules.

Please feel free to ask your department manager, store manager, or
division general manager any question at any time.
They meant it. Nordstrom built an impressive track record in the retailing
business on the basis of their employees “using good judgment.” In a series of
famous cases, one sales associate accepted the return of snow tires (Nordstrom
does not sell snow tires), another drove for hours to deliver a set of clothes so
that a customer could attend a family occasion, and a third changed the tires of
customers stranded in the company parking lot. Stories like these gave
Nordstrom a reputation for excellent customer service that was the envy of its
competitors and that created deep customer loyalty.43
But managers will only trust employees to “use their good judgment” if
there’s a long history of it working out well—and employees will only take the
risk of acting on their own initiative if the firm has a long history of rewarding
them if they do. Real trust can only be built over time—and only by firms that
are willing to make the short-term sacrifices that are required in any relationship
to demonstrate authentic commitment.
GM’s obsession with short-term returns and numerical targets made it
enormously difficult to build this kind of trust. In 1984, for example, the
company announced that it was interested in modifying the union contract to
support the use of teams and joint problem solving—but then a leaked internal
memo suggested that GM was planning to use the new contract simply to reduce
head count. Throughout the 1980s, many in union leadership remained
convinced that GM was implementing Toyota’s practices only as an attempt to
speed up production and to put employees under even greater pressure. GM thus
faced significant problems in building trust within its workforce. It’s hard to
trust an entity whose avowed purpose is to make money at your expense at every
possible moment.
It’s tempting to believe that GM was just uniquely badly managed, but I have
seen similar problems crop up in firm after firm attempting to adopt high-
performance work practices. Many managers are reluctant to give up the
comforting assumption that employees are stupid and managers hold all the
cards. They don’t want to do the hard emotional and mental work of building a
way of working in which everyone is honored and power is widely distributed.
And when they do decide to take the step, it can be hard to make the long-term
investments that are critical to building trust.
You can see this dynamic playing out over 150 years of history. Purpose-

driven firms emerge—demonstrate the power of purpose-driven management—
and are dismissed. But it is their experience that has laid the foundations for our
current moment, building a deep body of experience that remains relevant today.
The Rise of “High Road” Firms
In 1861 when George and Richard Cadbury took over their father’s failing tea
and coffee business, they built one of the first explicitly purpose-driven firms
into one of the most successful firms in England.44 Their deep commitment to a
faith tradition that stressed the equality of all human beings was instrumental to
their success, highlighting the critical role that strong spiritual or political
convictions often play in giving leaders the courage and vision necessary to
manage with purpose.
The Cadbury brothers were born in Birmingham, in the United Kingdom,
from three generations of Quakers, or as they preferred to be called, members of
the Society of Friends. Members of the Society were deeply committed to “the
light within,” or to the belief that God manifests directly in everyone, and were
prominent in the fight against slavery and in campaigns for penal reform and
universal education. As a community they were suspicious of profit, believing
that the function of industry should be to serve the community as a whole, and
that conflict between labor and management should be resolved through open
conversation and goodwill.
The two Cadbury brothers inherited a firm that was in trouble. It had only
eleven employees (down from twenty) and was losing money. Together they
invested the £8,000 they had inherited from their mother (roughly
£700,000/$861,300 in today’s money)45 and began the hard work of turning the
business around. By 1864 they were showing a small profit, and over the
following decades they built one of the most successful firms in England. Their
purpose was straightforward: to sell cocoa and chocolate of the highest possible
quality. When they began, the products on the market were basically a highly
diluted gruel. According to George Cadbury “only one fifth of it was cocoa, the
rest being potato starch, sago, flour and treacle.” Cadbury’s Cocoa Essence hit
the market in 1866, supported by the slogan “Absolutely pure, therefore best”
and quoting physicians in its advertisements. In 1905 the firm launched
“Cadbury’s Dairy Milk,” again stressing its purity since it used fresh rather than
powdered milk. A commitment to using the best possible ingredients would
remain a hallmark of the firm for the next century. Like all high-performing

purpose-driven firms, they combined a strong sense of the social purpose of the
business with a radically different way of treating their employees.
In 1878 the brothers built a large factory about four miles outside
Birmingham. The factory—which was given the name “Bournville” in an
attempt to suggest a French association for the chocolate—thrived, and in 1895
the Cadburys bought an additional 120 acres and set out to build a model village
around it full of trees, flowers, and gardens. George was an active teacher in the
Quaker Adult School Movement and had spent years teaching in Birmingham’s
worst slums. The experience led him to realize that it was as important to
transform the living conditions of the poor, as it was to provide them with an
education. “If I had not been brought into contact with the people in my adult
class in Birmingham,” he later said, “and found from visiting the poor how
difficult it was to lead a good life in a back street, I should probably never have
built Bournville village.” This stress on personal experience with those who are
less privileged than oneself is another theme that recurs in the accounts of
purpose-driven leaders: hands-on experience often provides a motivation for
exploring a different way of leading.
From the beginning the brothers explicitly rejected Taylor’s approach to
management. “Even if on the productive side,” one of the brothers remarked in a
1914 paper entitled “The Case Against Scientific Management,” “the results are
all that the promoters of scientific management claim, there is still the question
of the human costs of the economies produced.” George Cadbury told the
Conference of Quaker Employers that “the status of a man must be such that his
self-respect is fully maintained, and his relationship with his employer and his
fellow-workmen is that of a gentleman and a citizen.”
The brothers treated their employees as family and were famous for their
reluctance to stand on ceremony and their willingness to get their hands dirty.
From the beginning they invested heavily in education. All employees were
required to take an introductory academic course and could then choose
commercial or technical training if they wished. The Cadburys provided sports
and physical education facilities. They introduced sick pay and a pension fund.
There were Christmas, New Year’s, and summer parties. They also experimented
with worker participation in the running of the plant. The firm was formally run
by the Board of Directors (all of whom were family members) but controlled on
a day-to-day basis by a series of committees, including a Men’s Works
Committee. The Works Committee included both staff and foremen and was
responsible for factory conditions, quality control, and welfare work. In 1902

Cadbury introduced a suggestion scheme through which directly elected
employee representatives were invited to suggest improvements in the
management of the plant, and in 1919 the company began to experiment with
full-fledged industrial democracy, creating a three-tiered structure of Shop
Committees and Group Committees reporting to a Works Council.
By the 1930s Cadbury was the twenty-fourth-largest manufacturing company
in England and had created a portfolio of brands that remain global powerhouses
today. (Cadbury’s Fruit and Nut Bar was a staple of my childhood, and even now,
one of my life’s pleasures is quietly consuming one every time I’m in England.)
It remains an inspiration to many purpose-driven leaders, but at the time
Cadbury’s experience was put down as an oddity—a function of the owners’
Quaker beliefs, rather than of a new method of management.
The idea that there might be a better way to manage continued to surface. In
the 1940s Eric Trist, a British academic, was invited to visit Haighmoor, a
British coal mine about fifty miles east of Cambridge. The vast majority of
British coal mines were conventionally organized along Taylorist lines, but
Haighmoor was different. At Haighmoor conventional equipment couldn’t
access the coal face, and the miners had instead developed a system that used
self-organized teams in which every miner might handle up to six different jobs.
The mine was far safer and far more productive than any of its competitors’,
but when Trist suggested that it might be a good idea to use some of
Haighmoor’s techniques in other mines, the government agency that had let
Trist study Haighmoor in the first place rejected the idea. The agency apparently
feared that Trist’s interference would only lead to unrest and forbade him to
include the name “Haighmoor” in his reports. The fear that empowering
employees would lead to uppity employees and significant friction between
labor and management continued to surface as a reason to reject high road
management, despite the fact that experience suggests precisely the opposite is
true.
Trist next began collaborating with a group of Norwegians who had fought
Hitler successfully in small, self-managed teams and had together set up teams
across Norwegian industry. He believed their approach had the potential to drive
dramatic improvements in performance. However, while he was able to interest
a few corporations in his ideas, sooner or later, most managers retreated
queasily, “as if they had just discovered that Trist was trying to kill them off.” In
a sense, of course, he was. “Their opinion had a modicum of correctness in it,”
he said, years later. “They’d had all the power and did what they liked and they

didn’t want to share power.”46 As we saw in the GM case, this remains an
important barrier to change. Successful purpose-driven leaders have to learn to
relinquish control—to believe at a deep level that those who work for them have
at least as much creativity and drive as they do.
Trist’s ideas resurfaced in the work of Douglas McGregor, a professor at
MIT’s Sloan School of Management. In The Human Side of Enterprise,
published in 1960, McGregor laid out two theories of human motivation,
foreshadowing much of modern motivational theory. The first, “Theory X,”
framed people as fundamentally selfish and lazy, willing only to work for
themselves and for extrinsic rewards such as money, status, and power. The
second, “Theory Y,” hypothesized that people are motivated as much or more by
intrinsic rewards—by the pleasures of mastery and autonomy, by the opportunity
to build relationships with others, and by the desire for meaning and purpose.
Theory Y anticipated much modern research in postulating that people are as
much “groupish” as they are selfish, that they are hard wired to enjoy being part
of a group and even—under certain circumstances—to act cooperatively and
even altruistically. The book was sometimes interpreted as an argument in favor
of Theory Y, but McGregor himself insisted that his point was not that Theory Y
was correct, but that both theories are useful models, and that to rely on Theory
X alone is a dangerous oversimplification that leaves many powerful sources of
motivation off the table.
One of the first groups to put McGregor’s ideas into action were managers in
Augusta, Georgia, who were making laundry detergent for Procter & Gamble
(P&G).47 P&G had been an early and enthusiastic adopter of the principles of
scientific management, but by the early 1960s, the managers building the
Augusta plant were becoming increasingly frustrated by its limitations.
Everything was rigorously measured. Everything was specified. Everything was
wrapped in a tangle of rules and procedures. They decided to try something
different.
They began by inviting McGregor to visit. They liked his “plain speaking,
brutally frank, fiercely engaged management style” and his description of Trist’s
techniques, and decided to put them into practice. They moved to a system under
which the Augusta plant was run entirely by “technicians” organized into teams,
each of whom was expected to develop a wide range of skills and to actively
contribute to the continual improvement of the plant. The plant had no job
classifications and no production quotas. Its employees spent four hours a week
in training and an additional two hours meeting together to solve problems. In

short, the plant invented something remarkably close to the Toyota production
system years before Toyota would first make waves in the United States.
Augusta was so successful that by 1967 every new P&G plant was required to
use the system.
The first plant designed from the ground up to use the new techniques was
built in Lima, Ohio. Under the leadership of Charlie Krone—an unconventional
plant manager who had studied not only Trist but also Tibetan and Sufi
mysticism and the work of the spiritual teacher George Gurdjieff—the Lima
plant was designed to “embody learning” and to integrate emotional and
psychological factors directly into the design of the work. The human needs of
the employees were considered to be at least as important as those of the
business. There was minimal hierarchy. If you wanted to tackle an issue, you
worked to persuade your colleagues to build a team around you. Teams managed
their own schedules while managers acted as coaches and enablers. It too was
enormously successful. Production costs were rumored to be half the costs of a
conventional plant, but may have been even less than that. The plant’s managers
apparently thought that nobody would believe the real figures.
But the managers from Lima who attempted to persuade others to use the
techniques they had pioneered met with very little success. Senior managers
were at first puzzled and then threatened by the “hippie talk” of those who had
experienced the new way of doing things. In turn the new leaders became deeply
frustrated with their superiors, further persuading senior leaders that they
weren’t really serious and that they couldn’t be trusted. Krone became an
outsider, a management guru working with a tight cadre of apprentices to spread
the new techniques in smaller firms outside the Fortune 500.
The idea that empowering employees, treating them with trust and respect,
and motivating the organization through common goals and shared purpose
could dramatically increase performance did not die. Trist became one of the
founders of the Tavistock Institute, a group of researchers that stressed the
importance of human relations in shaping work. Douglas McGregor’s work at
MIT influenced the work of his colleague Ed Schein, who became the world’s
foremost expert on organizational culture. Scholars like Michael Beer at
Harvard continued to write about high-performing firms whose success was
rooted in purpose-driven leadership and respect for employees. But for decades
the purpose-driven organization was an outlier, more the exception than the rule.
However the world has changed dramatically in the last ten years. The idea
that purpose can drive performance has become something close to the

conventional wisdom. In one survey, four out of five CEOs agreed that “a
company’s future growth and success will hinge on a values-driven mission that
balances profit and purpose” and that “empowering employees’ personal sense
of purpose and giving them opportunities for more purpose-driven work is a
win-win that is good for both their business and the employees themselves.”48
There are many reasons for this shift. Reputational management and sheer
expediency are certainly playing a role. More and more companies feel the need
to show that they are doing “something,” and many have come to recognize that
a shared purpose is a great tool for driving transformation and growth.
But there is also an enhanced appreciation of the roots of Toyota’s success.
Like GM, many firms initially interpreted Toyota’s exceptional performance as a
reflection of the firm’s adoption of high-performance work practices—for
instance, a reliance on teamwork and a focus on incremental innovation—rather
than of the organizational culture and values that made this adoption possible.
As firms have struggled to adopt these practices themselves, this has begun to
change. In the words of one of the organizational consultants whom Toyota
employs to teach other firms about the Toyota way, “It’s all about the culture. It
was always all about the culture. But it takes firms a long time to fully take this
on board.”49 The outstanding success of other employee-orientated companies
like Southwest Airlines and Whole Foods has also attracted widespread
attention.
Another force behind the recent shift is the outpouring of new research
linking the adoption of authentic purpose and high-performing work systems to
financial performance. In her book, The Good Jobs Strategy, for example, MIT
researcher Zeynep Ton show that leading retailers like CostCo and Mercadona,
which redesigned their operations to support continuous learning and employee
initiative, were able outperform their competitors and to pay their employees
significantly over the odds. Other academic researchers using many years of
data and fine-grained measures of purpose have showed that high levels of
employee satisfaction and the presence of a purpose closely linked to strategy
improve total shareholder returns.50
The world is also changing in ways that make the need for purpose
increasingly evident. Public expectations are shifting, with 73 percent of the
world’s population now expecting business to address the big problems of our
time.51 The millennials and their successors are actively seeking jobs that
support a sense of meaning and purpose. At the same time, the trust gap between
business and the general public is accelerating. A third of employees don’t trust

their employer, and while 82 percent of the elite trusts business, only 72 percent
of the general public do.52
Something more profound is also going on. As the problems we face become
increasingly pressing, many business leaders are recognizing that there is a clear
moral imperative for action. I have talked to hundreds of business leaders about
their strategies for creating shared value. They have all been eloquent about the
business case. But in private, in the corridor or over a beer, nearly all of them
have told me that it is a compelling purpose that drives them to act—that it is
the existential risk that climate change presents, or the need to rebuild their
community, or to transform health care, or to save the oceans that drives them
forward. Some people interpret this duality as hypocrisy. But I believe that it is
fundamental to reimagining capitalism, and that business leaders must be aware
of the need to make both profits and meaning if we are to solve the great
problems of our time. Purpose-driven leadership is essential if we are to uncover
the new business models that will create shared value, if we are to be able to
implement them, and if we are to create the good jobs and the kinds of
workplaces that are essential to building a strong society.
Yet many firms struggle to integrate purpose into their operations. In many
firms purpose has yet to be clearly specified, linked to strategy, or
communicated to employees.53 Part of this disconnect undoubtedly reflects a
deep unwillingness to let go of Taylorism as a philosophy or to appear emotional
or sentimental at work. But there is another, more structural barrier at work—
and that’s the short-termism and ignorance of the world’s investors. When
investors insist on steadily increasing quarterly earnings and don’t understand or
cannot measure the value of purpose, it can be very hard to make the long-term
investments required to become a purpose-driven firm.
That’s why the third step toward reimagining capitalism is rewiring the
capital markets.

5
REWIRING FINANCE
Learning to Love the Long Term
If money go before, all ways do lie open.
—WILLIAM SHAKESPEARE, THE MERRY WIVES OF WINDSOR
If the opportunities for building thriving companies that are not only highly
profitable but also making significant progress against the big problems are real,
and if becoming a values-based, purpose-driven firm is the royal road to
unlocking these opportunities, why aren’t more firms actively embracing the
combination of purpose and shared value? Even as 85 percent of the world’s
largest companies claim to have a purpose, and many are beginning to explore
what they can do to create social value, we are still a long way from this
approach being anything like business as usual. What is going on?
The business leaders I know have an easy answer to this question: They say
that even when their company wants to improve its social and environmental
performance, they are constrained by our obsession with the short term. “It’s the
investors,” they tell me, “they’re obsessed with short-term results. It’s
impossible to invest for the long term without getting slammed if it means
missing quarterly earnings targets.” Peter Drucker, perhaps the most famous
management guru of the first half of the twentieth century, memorably
suggested: “Everyone who has worked with American managements can testify
that the need to satisfy the pension fund manager’s quest for higher earnings
next quarter, together with the panicky fear of the raider, constantly pushes top
managements toward decisions they know to be costly, if not suicidal,
mistakes.”1
Every CEO I’ve ever met agrees with Drucker. We know that companies

routinely delay or eliminate profitable investment opportunities to ensure they
hit their numbers. In one survey nearly 80 percent of chief financial officers said
they would decrease spending on research and development to meet earnings
targets, and just over 55 percent said they would delay a new project to meet
earnings targets even if it meant a (small) sacrifice in value. In another, 59
percent of executives would delay a high net present value project if it entailed
missing earnings by a dime.2
There’s also reason to believe that while asset owners may be focused on the
long term, asset managers may not be. Most asset owners do not manage their
own assets. For example, in 2016, institutional investors held 63 percent of the
outstanding public corporate equity.3 The retirement assets of most pensioners
are managed by pension funds, which in turn rely on professional asset
managers to invest on their behalf. Most individual investors invest in mutual or
index funds, where their assets are managed by professional asset managers—
who also vote their shares. This means that the interests of the asset owners are
not necessarily reflected in the behavior of those who actually manage the
assets: while many asset owners might like to drive performance over the long
term, many investment managers might well prefer short-term returns,
particularly if their compensation or the size of their portfolio is shaped by their
ability to deliver immediate returns.4
When in October 2015, Doug McMillon, the CEO of Walmart, announced
that Walmart’s sales would be flat for the year and that earnings per share would
fall 6–12 percent, the value of Walmart’s stock sank by nearly 10 percent, taking
with it roughly $20 billion in market value.5 McMillon had attempted to explain
that the decline in earnings reflected a $2 billion investment in e-commerce and
a nearly $3 billion investment in paying hourly employees more—both moves
that he believed were essential for the health of the business—but Wall Street
was not impressed. Walmart’s stock is still majority-owned by the Walton
family, who were strongly supportive of the decision, so Doug kept his job, but
many CEOs fear that in similar circumstances they would not be so fortunate.
Many business leaders tell me they are reluctant to jump wholeheartedly into
embracing shared value because the need to satisfy their investors and to avoid
the threat of activist interest in the stock makes it impossible to invest in the
kind of long-term projects that true purpose requires. The way to reimagine
capitalism, they suggest, is to get investors off their backs.6 They propose a
variety of ways in which this might be done—from changes in the law that
would make it clear that firms have responsibilities to multiple stakeholders, to

only allowing investors to vote their shares if they have held them for a
sufficiently long period of time—but all of them are clear that if we are to
reimagine capitalism, investors should have less power.
I’m very sympathetic to this argument. I, too, know of great projects that
were delayed because they would harm next year’s operating earnings. But I
think that both the problem and the solution are more complicated than this line
of reasoning would suggest.
There are at least two problems with the simple version of the short-termism
thesis. The first is that while investors do punish firms that miss their earnings,
the research in the area overwhelmingly suggests that this is because investors
believe that missing earnings is an indication of bad management, rather than
because they don’t support investing in the long term.7 Indeed one of the
strongest findings in the accounting literature is that firms that miss their
earnings do indeed perform worse—in the long term—than firms that make
their targets.8 So one interpretation of the drop in Walmart’s stock price is
simply that Doug’s announcement that he was going to miss his targets led his
investors to worry that something was fundamentally wrong with the firm—or
with his leadership.
The second is that we know that in some circumstances investors are more
than willing to invest in firms that won’t be profitable for many years. Gilead, a
biotechnology firm that is famous for introducing the first drug to cure hepatitis
C, lost $343 million over the course of the first nine years after its IPO.9 But it
was valued at $350 million the year it went public, and nine years later was
worth nearly $4 billion.10 In the five years after Amazon first listed on the
Nasdaq, it posted a cumulative net loss of just under $3 billion. But that year
investors valued the company at just over $7 billion. Fourteen years later, when
the company first moved solidly into the black, Amazon was worth $318 billion,
despite the fact that it only had $600 million in profits.11 Clearly many investors
have been willing to wait for years to see Amazon’s investments pay off. Indeed
investors have been willing to funnel billions to a wide range of “platform”
plays—including Uber, Lyft, and Airbnb—despite the fact that many of these
firms have yet to make any money.
So it can’t be that investors are altogether and overwhelmingly short term
focused. When investors understand the nature of the bet they are being asked to
make, some of them will make it. It took investors many years to learn the
language of biotech. But now hundreds of analysts understand why it is that
investing in fundamental research might yield billions of dollars in profit later.

It took the dot-com bubble of 1994 to 2000, and the success of Facebook and
Google to persuade mainstream investors of the power of platforms. But most
now have a deep appreciation for the ways in which investing to build a large,
sticky customer base committed to your platform can lead to massive profits.
Indeed one of the causes of the recent failure of WeWork’s IPO was the fact that
most investors could see that while the firm touted itself as a platform play, it
was not at all clear this was the case.
Viewed from this perspective, to the degree that there is genuinely money to
be made in creating shared value and in building purpose-driven firms,
investors’ reluctance to invest in purpose cannot be only a function of their
inherent short-termism. It must be—at least partially—a failure of information.
Walmart’s stock might have fallen on Doug’s announcement because investors
had no idea how to measure the impact of the investments he was making, and
as a result simply didn’t believe that they were likely to increase long-term
returns. It turns out that reimagining capitalism requires reimagining
accounting.
Give Investors Better Data
It took me a surprisingly long time to embrace the idea that accountants hold the
key to saving civilization. Even after I’d read Jacob Soll’s wonderful book, The
Reckoning: Financial Accountability and the Rise and Fall of Nations—a blow
by blow account of how the invention of double entry bookkeeping enabled the
creation of the modern state—I secretly thought of accounting as the dusty, dry
part of business—about as interesting as plumbing.
But then I noticed a strange thing. I knew plenty of businesspeople who were
only mildly worried about the fact that we were running our entire economy on
the basis of the idea that generating massive amounts of CO2 typically doesn’t
cost firms a dime, or that it was equally costless (to the firm) to hollow out a
community, pay one’s employees bottom dollar, and push for tax cuts. But the
accountants I knew weren’t mildly worried. They were incandescently worried.
We all have a general sense that what gets measured gets managed. But the
accountants had spent their professional lives writing about how even tiny
changes in accounting rules can change behavior in profound ways. And they
could see that we were failing to measure a whole world of things that were
shaping the performance of the business but that were effectively invisible.
Take “reputation,” for example. We know that it can have profound economic

effects. We know that it takes years to build and can be destroyed in an instant.
Or “corporate culture”—ditto. But there’s no mention—and certainly no
measure—of either in the financial reports. If you make your decisions by
analyzing financial statements, as most investors do, there’s an enormous
amount of information you just don’t see. And if you don’t see it, you’re
tempted to think it doesn’t exist or doesn’t matter.
Modern accounting provides the foundation for modern capital markets. Few
people would trust their savings to strangers without some assurance that they
would be able to tell whether they were putting their investors’ interests first—
and it’s impossible to know whether this is the case without accurate numbers
that reflect the health of the business. We tend to take the existence of things
like the balance sheet for granted, but modern financial reports are the result of
a hundred-year struggle over exactly which numbers firms should report—and
who should be responsible for making sure these numbers are accurate. Until the
disaster of the Great Depression led to strong public demands for financial
transparency and the formation of the Securities and Exchange Commission (the
SEC),12 American firms didn’t routinely report much in the way of financial
information. Here, for example, is the full text of Procter & Gamble’s annual
report for 1919:13
Office of the Procter & Gamble Company
Cincinnati, Ohio, August 15, 1919
To the Stockholders of the Procter & Gamble Company:
The total volume of business done by this Company and constituent Companies
for the fiscal year ended June 30, 1919, amounted to $193,392,044.02.
The net earnings for the year, after all reserves and charges for depreciation,
losses, taxes (inclusive of Federal and State Income and War Taxes), advertising
and special introductory work had been deducted, amounted to $7,325,531.85.
We shall take pleasure in furnishing further information to any accredited
stockholder who is interested, and who will apply, in person, at the Company’s
office in Cincinnati.
Yours respectfully,
The Procter & Gamble Company
Wm. Cooper Procter, President

If you were a Procter & Gamble shareholder in 1919 and wanted to know
more about your company than its annual revenues and profits, you had to go to
Cincinnati and inquire in person. This made it very difficult to value companies
unless one knew them very well indeed, which in turn limited the number of
investors who were willing to invest in any single company. Modern financial
accounting, in contrast, allows investors thousands of miles away to compare
one company to another using standardized, audited measures whose link to
performance is widely understood—and this in turn means that nearly everyone
can invest everywhere, greatly increasing the odds that well-run companies will
be able to raise capital.
One crucial step toward persuading investors to invest in business models
whose success relies on the discovery of new customer needs, reduced risk, and
high commitment organizations is the development of reliable, standardized
metrics of aspects of the firm’s strategy and operations that haven’t historically
been included in the financial accounts. Take “risk” for example. We know that
climate change poses profound risks to some firms. But which firms? As
consumers and governments wake up to environmental and social problems,
firms that make their living pumping greenhouse gases into the atmosphere or
selling products made in abusive labor conditions are at risk. But you can’t look
at their financial accounts and know how much they’re pumping out or whether
their suppliers are violating human rights.
Or take “culture.” Many people have a sense that corporate culture can be a
profound source of long-term advantage and that choosing to treat employees
well could greatly increase the productivity of the firm. But it’s hard to tell if a
firm is treating its employees well or if it has a healthy culture from looking at
the financial results. The financials can tell you how well the firm has done
historically, but not whether it is making the right investments right now. If all
you do is rely on the financial statements, there’s an enormous amount of
information you just don’t see. And if you don’t see it and can’t measure it, you
won’t know that it exists or whether it matters.
So-called Environmental, Social, and Governance (ESG) metrics are one
possible solution to this problem.14 They have their origin in the 1980s, when a
number of high-profile disasters, including the 1984 leak of toxic gas in Bhopal,
India, that killed at least fifteen thousand people and injured many more and the
1990 Alaskan Exxon Valdez oil spill, led several NGOs to demand that firms
disclose more information about the environmental and social effects of their
operations.15 In response several firms began issuing corporate social

responsibility reports. These early reports contained only very limited amounts
of quantitative information. Shell’s 1998 offering, for example, consisted almost
entirely of a chatty discussion of the firm’s “General Business Principles.”
In 1999, the Coalition for Environmentally Responsible Economics (CERES)
founded the Global Reporting Initiative (GRI), an organization devoted to
standardizing sustainability reporting.16 The GRI issued its first set of
guidelines in 2000, and by 2019, more than 80 percent of the world’s 250 largest
corporations used its standards to report on their sustainability performance, and
its database had more than thirty-two thousand reports on file.17 The GRI data
are, however, of only limited use to investors. Their primary purpose is to
highlight information that could help NGOs and governments hold corporations
to account, and firms report the same information regardless of their industry,
size, nationality, or ownership structure.
Since many investors suspect that better ESG metrics could help them
generate superior returns, there has been an explosion of activity among
entrepreneurs and nonprofits seeking to develop investor-friendly metrics. These
efforts draw not only from GRI data but also from surveys sent to firms, annual
reports, and a wide variety of public data. I know of at least two start-ups that
are using artificial intelligence to construct information about social and
environmental performance from scraping the web.
Despite the fact that many of these data are selectively disclosed, often
difficult to compare, and of highly variable quality, they are already changing
global investment practices.18 More than 40 percent of all professionally
managed assets—$47 trillion worth—are now invested using some form of
social responsibility criteria.19 Slightly less than half of this money is in so-
called exclusionary funds—funds that exclude firms such as gun manufacturers
or tobacco companies.20 About 10 percent is managed through CEO engagement
—active, hands-on work by investors that attempts to change firm behavior
directly—while the rest is invested using “ESG integration.” In 2018, $19
trillion was invested this way, at least 20 percent of total assets under
management.
Hundreds of studies have explored the degree to which performance against
ESG criteria is correlated with financial performance. The results vary greatly
depending on the metrics that are chosen and the structure of the study, but taken
as a whole the evidence to date suggests that there is no relationship between
these (very dirty) measures of ESG performance and financial success.21 As a
preliminary result, this is hugely encouraging, since it suggests that, at the very

least, firms trying to do the right thing are not underperforming their
competitors.
More recent work suggests that the way to move forward is to focus on the
subset of ESG metrics that are material, that is, that capture aspects of
nonfinancial performance that have a significant impact on profitability.22
(Material events or information are any events or facts that would affect the
judgment of an informed investor.)23 Recent research using handcrafted data
sets and metrics that are almost certainly material to the firm’s economic
performance has found convincing evidence that the two are positively
correlated.24 But developing these kinds of metrics has not been easy. Jean
Rogers and her colleagues have spent nearly ten years bringing one set to life.
After graduating with a PhD in environmental engineering, Jean took a job
with a company that cleaned up superfund sites.25 She loathed it. She later said,
“I hated that job because… it was just cleaning up messes, and it horrified me
that people had let it get to this point and were OK with these end of pipe
‘solutions’ that did not solve the real problems.” She moved to one of the big
accounting firms, where she hoped to gain a business perspective on how to
address environmental problems and then to Arup, a global professional services
firm, where she became the leader of the firm’s US management consulting
practice.
Here she became radically dissatisfied with existing reporting standards. “I
worked with many companies to develop sustainability reports, but they weren’t
being used as management tools,” she later recalled. “The companies were only
doing them so they could say they did them, using them as public relations.
There was no comparability between industries, or even between companies
within the same industry.” Few industries had metrics. “The GRI relied on
general indicators for most of their reporting; they had only defined industry-
specific metrics for the five industries that had asked for them. I knew, and
others agreed, that because different sustainability metrics were more or less
important depending on the actions of companies in a given industry, reporting
had to be industry-based, but when I brought it up in conversation, people said,
‘Yes, but it’s just too hard, there are too many industries and too many
indicators.’”
In 2011 Jean—together with a number of other pioneers working at the
intersection between sustainability and reporting—founded the Sustainable
Accounting Standards Board (SASB, pronounced “sasbee”).26 Jean wanted to
build a world in which any and all investors could type in a ticker symbol and

bring up useful ESG data for any company as easily as they could bring up
financial data. Her plan was to develop separate standards for each industry, so
that companies need only report on the issues that were material to them. The
data would be easily auditable and easily comparable across companies.27 A
focus on materiality would allow SASB to argue that every firm had a duty to
report on precisely these metrics since they have a legal duty to report all
material information. It would also mean that the metrics would be much more
likely to be correlated with the company’s performance—and thus be useful to
investors. Jean believed that once these kinds of metrics had been defined and
widely accepted, they would allow firms to communicate the value of strategic
initiatives designed to create shared value more effectively, and that once
investors were able to build a clearer sense of the link between ESG and
financial performance, they would push the companies they owned to use them
to improve the company’s strategy.
Jean and her staff began by constructing “materiality maps” for each
industry, searching tens of thousands of documents to develop an understanding
of the issues that shaped performance in each of them and developing a
preliminary set of metrics that were useful, cost-effective, comparable across
firms, and potentially auditable. They then convened a set of industry working
groups, drawing on investors, corporations, and other stakeholders, to produce a
draft set of standards. Each draft was subject to further review by the full set of
SASB’s members, and was then made available for public comment for ninety
days. By 2018 the group had released a full set of standards for seventy-seven
industries.
Preliminary academic analysis, as I noted above, confirmed that the new
standards were positively correlated with long-term financial performance.28
Equally intriguingly, there was also evidence that they were helping firms attract
investors with significantly longer time horizons. Consider, for example, Sophia
Mendelsohn’s experience at JetBlue.
Sophia joined JetBlue as its head of sustainability in 2011.29 She had
previously worked as head of sustainability in emerging markets for Haworth, a
multinational manufacturer of furniture, and for the Jane Goodall Institute in
Shanghai, where she established environmental programs in offices and schools
across China.30 When she joined JetBlue, the firm was throwing away one
hundred million cans a year, and her first task was to put a recycling program in
place. Then she began to think about what else she might do.
She focused first on creating shared value wherever she could find it. In 2013

she launched a resource efficiency program designed to (among other goals)
decrease potable water use. The majority of JetBlue’s flights were landing with
their water tanks almost full, so Sophia spearheaded the implementation of a
policy that required potable water tanks to be only three-quarters full. The
change resulted in a reduction of roughly 2,700 metric tons of CO2 and fuel
savings of nearly a million dollars a year.31
In 2017 Sophia and her team spearheaded a multifunctional initiative to
introduce electric vehicles as ground service equipment at the JFK airport in
New York, JetBlue’s home base. The project was expected to cut operating
expenses by roughly three million dollars over ten years, and had a net present
value of nearly three-quarters of a million dollars. It triggered widespread
interest across the industry, and at least one airport authority has used it as an
example of how best to think the electrification of ground service equipment.
Two years later, Sophia entered a binding agreement to purchase thirty-three
million gallons of renewable blended jet fuel a year for at least ten years at the
same price as standard jet fuel. It was the largest renewable jet fuel purchase
agreement in aviation history and—since jet fuel was the largest single
component of JetBlue’s cost after wages and salaries, and oscillated wildly as a
percentage of revenues—a major coup.32
Sophia’s interest in accounting grew out of a conversation with her
colleagues at JetBlue’s investor relations department.33 JetBlue had become one
of the most profitable airlines in the United States by stressing a passionate
commitment to customer service. This meant investing for the long term—not
only in the kinds of technical investments that would immediately improve the
customer experience (like multichannel TV), but also in building strong
relationships with its crew members and in thinking through the ways in which
its customers’ focus on sustainability might shape their views of the airline. But
despite this long-term orientation, many airline investors, including some of
JetBlue’s investors, were largely short-term-orientated. Sophia’s colleagues in
investor relations believed that if JetBlue could find a way to communicate its
strategy more effectively, it would help to attract more long-term, growth-
orientated investors. This, in turn, would make it easier to make the kinds of
long-term investments most likely to fuel JetBlue’s growth.
In response, Sophia proposed that JetBlue become the first airline to issue a
SASB report. She argued that since SASB’s airline metrics included both
measures of the firm’s relationship with its workforce and of its approach to
sustainability, issuing such a report would be a powerful way to help

communicate the firm’s long-term, growth-orientated outlook, particularly since
JetBlue was significantly ahead of its competitors on both dimensions.
In talking about the decision later, she said:
Ultimately, what we want to do is… increase the value of our shares,
diversify our investor base, (and) reduce volatility in the stock. So we
want shareholders to believe in our stock for the long run. Our investors
are our owners, and they deserve to have information in the way they want
it—particularly as it relates to the major environmental and social mega
trends pressuring the industry. Sustainability reporting has shifted from
being about storytelling to being about model orientated data sharing.
This reporting strategy dramatically increased investor interest. One major
investor spent two hours cross examining Sophia on the move. By 2017 turnover
had grown from 30 percent in 2015 to 39 percent, the highest figure in the
industry. Two years later an increasing number of investors were routinely
asking questions that moved seamlessly from sustainability to the business.
Sophia had also discovered that the process of putting together the report had
powerfully reinforcing effects inside the organization, since framing
sustainability as something that had a major effect on JetBlue’s financial
performance—a perspective that everyone understood—provided a way to talk
about issues like climate change in a way that built commitment to the idea
across the firm.34
Well-designed, material, auditable, replicable ESG metrics can thus play an
important role in matching purpose-driven firms with investors who care about
the long term and who view the creation of shared value as a route to superior
profitability. They may also allow asset owners to solve some of the agency
problems inherent in the fact that so many financial assets are professionally
managed by those with relatively short time horizons, by making it significantly
easier for asset owners to communicate a concern for the long term, and for
social and economic performance, to the professionals who manage their money.
Take, for example, the case of the Japanese Government Pension Investment
Fund.
Hiro Mizuno joined the Japanese Government Pension Investment Fund (the
GPIF) in the fall of 2014 as its chief investment officer.35 He took a significant
pay cut, leaving a high-profile private equity job in London to supervise eighty
employees on a single floor of a rather ordinary office building in downtown

Tokyo. Press coverage at the time noted that it was an unconventional decision,
but no one suggested that it had the potential to spark a revolution in the way
that one of the world’s largest pools of money worked with its asset managers to
address environmental, social, and governance issues.
The GPIF is the largest pension fund in the world, holding about ¥162 trillion
(about US$1.6 trillion) in financial assets. Before 2013 the fund invested the
majority of its portfolio in Japanese sovereign bonds, but in 2014 GPIF’s
regulators decided that the fund should diversify its portfolio and invest a
significant fraction of its resources in equities (shares of publicly traded
companies) in the hope of significantly increasing returns. This presented Hiro
with a quandary.
There were two routes he could take to increase GPIF’s performance. One
was to try to pick winners by investing only in those firms that were likely to
outperform their competitors. This approach makes intuitive sense and
sometimes yields spectacular results. For example when Peter Lynch took over
management of the Magellan mutual fund in 1977, it had only about $18 million
under management. Lynch believed the secret to success was understanding
individual companies in depth and investing in those he thought most likely to
succeed.36 He was spectacularly successful: between 1977 and 1990, the fund
averaged a more than 29 percent annual return, making Magellan the best-
performing mutual fund in the world.37 By 1990 it had more than $14 billion
under management.38
But Hiro knew that Lynch’s story was an alluring exception, and that “active”
investors—those like Lynch who try to invest only in high-performing firms—
on average make consistently lower returns than “passive” investors who buy a
defined group of equities and simply hold them.39 Moreover GPIF is simply too
big to be able to invest in only a limited set of firms. It owns about 7 percent of
the Japanese equity market and roughly 1 percent of the world’s, and it is also a
huge investor in the bond markets. This means that the fund is what is known as
a “universal investor”—an investor with so much money to invest that it is
effectively forced to hold stock in every available firm.40 Indeed 90 percent of
GPIF’s Japanese equity portfolio and 86 percent of its foreign equity portfolio
are invested in “passive funds”—funds that hold every available stock in a
particular class and that are designed to track the performance of the entire
market.
Hiro therefore decided to try to improve GPIF’s performance by improving
the health of the entire economy—by persuading every firm in Japan (and

indeed in the world) to embrace the use of ESG.
In Hiro’s words,
Private business is always built upon a competitive model. But GPIF is a
public asset owner; we don’t need to beat competitors or the market…
GPIF is a super-long-term investor. We are a textbook definition of a
universal owner.… Some people say ESG is not a positive attribute for
achieving excess returns. But… we are not interested in making excess
returns. We are more interested in making the whole system more viable.
Informally, he stressed the consistency of an approach to investment rooted
in environmental and social performance with long-standing Japanese cultural
values, remarking, “My grandmother would have been very upset if I told her
that, in my position or my job, thinking about the global environment or social
issues was against my professional mandate. She would tell me to quit my job
immediately.”
There were several reasons to believe that pushing firms to focus on
environmental, social, and governance issues would improve the performance of
the Japanese economy. Focusing on improving corporate governance—the “G”
in ESG—seemed like the obvious place to begin. There is widespread agreement
that one of the reasons Japanese firms have generated significantly lower returns
than their foreign competitors over the last twenty years is that Japanese
corporate boards are relatively weak by global standards. Many Japanese
managers are so secure in their positions that they feel no pressure to exit
underperforming businesses or to explore new opportunities. In 2017 only 27
percent of major Japanese companies had a board on which more than a third of
the directors were independent, and many of these “independent” directors were
lawyers or academics with little management experience. GPIF’s first order of
business was thus to try to persuade its asset managers to push the companies
they owned to improve their governance structures so as to give more power to
investors—to ask them to disclose more information about their businesses, to
talk to their shareholders about long-term strategy, and to vote their shares with
governance in mind.
Focusing on social issues, or on the “S” in ESG, also seemed likely to yield
substantial dividends. Japan’s birth rate had dipped below replacement levels in
the mid-1970s, and Japan’s working-age population was declining faster than
any other on the planet.41 Given Japan’s closed immigration policies, persuading

more women to stay in the labor force was critically important to long-term
economic growth. But making this happen required dealing with some deep-
rooted structural problems. Many Japanese companies have a two-track
employment system. New employees are sorted into the sogoshoku (managerial)
or the ippanshoku (general clerical) track. Participation in the sogoshoku track is
critical to securing regular employment status and the possibility of promotion
to management positions, but women are disproportionately hired into the
ippanshoku track. Women are also expected to take primary responsibility for
child-rearing, and since most employers expected their employees to work very
long hours, it is difficult to combine having children with a career. In the World
Economic Forum’s 2017 Global Gender Gap Index, Japan ranked 114th out of
144 countries.42
Hiro also believed that attempting to solve Japan’s environmental problems
—the “E” in ESG—was critical to ensuring the long-term well-being of his
beneficiaries. Unchecked climate change threatened to destabilize Japan’s food
supply and to fuel an increase in the frequency of natural disasters in an island
already disproportionately subject to them. “Even if I could pay pensions thirty
years from now,” Hiro said, “what good would it do if the grandchildren of my
beneficiaries can’t play outside?”
Deciding to focus on ESG was one thing. Implementing the decision was
another. As an independent administrative agency, GPIF was prohibited from
directly trading equities or from directly talking to firms to minimize any
potential government influence over the private sector. All of the fund’s
investing was outsourced to independent asset managers.43 Hiro thus began by
asking every one of GPIF’s thirty-four asset managers to start a systematic
conversation with every company they invested in about that company’s
approach to ESG issues, to vote in each company’s proxy election, and to report
that vote to GPIF. For example, an asset manager might note that a particular
board’s nomination and governance committee had no independent chair, ask
when that would be rectified, and threaten to vote against the management if it
was not. GPIF would meet one-on-one with each asset manager at least twice a
year, asking each of them to outline how they were engaging with companies,
and requiring them to disclose their proxy votes.
To say that all hell broke loose—in a very Japanese way—is to understate the
case. One observer suggested that Hiro’s suggestion that he would like GPIF’s
passive managers to be “passively active” was “the most controversial
announcement in the history of asset management.” Nearly all of the fund’s

asset managers protested—quietly and politely—that they didn’t have the
expertise required to make informed decisions with respect to ESG. The active
managers objected that their expertise lay in increasing alpha (risk and market-
adjusted relative return) and that they were unconvinced that focusing on ESG
would help. The passive managers suggested that since they were paid less than
0.1 percent of an investment’s value, they couldn’t afford to develop the
necessary capabilities.44
Hiro replied—equally quietly and politely—that it was not his intention to
reduce anyone’s compensation and that he was happy to pay for better
performance and increased expertise. He also pointed out—very diplomatically
—that none of the asset managers should feel forced to work for GPIF. He then
changed the way in which GPIF evaluated, selected, and compensated its asset
managers, signing multiyear contracts with the active asset managers who were
willing to agree to a new fee structure, designed to reward them explicitly for
generating alpha and for focusing on the long term, and asking his passive
managers to propose a “new business model” for their fees. When, after two
years, none of the passive managers had made a concrete proposal, he increased
the weight GPIF placed on stewardship activities in the selection criteria to 30
percent and announced that asset managers who did not meet the new
expectations could see their investment allocation reduced or, at worst, lose
GPIF’s business. He also reiterated his offer to change the fee structure.
Hiro’s investment consultants were uncomfortable with the new contracts,
suggesting that giving asset managers multiyear contracts violated GPIF’s
fiduciary duty since the multiyear commitment sacrificed the option value
inherent in being able to fire managers at any time. Hiro replied that it was
failing to sign long-term contracts that violated GPIF’s fiduciary duty since it
promoted short-termism. He said, “They did not understand my fiduciary duty
correctly. I have a fiduciary duty across generations.”
Hiro also used GPIF’s size and visibility to raise the profile of ESG issues
across the entire Japanese business community. He launched five stock indexes
based on ESG themes, and invested about 4 percent of the money that GPIF had
allocated to equities, about ¥3.5 trillion (about US$32 billion), into them.45 He
also ensured that the methodologies that had been used to construct each index
were fully disclosed. This was not a usual practice. Hiro noted the following:
If I think more conventionally… and define my job as beating the market,
we shouldn’t have asked the [index] vendors to disclose their

methodologies. Nevertheless, we demanded that they disclose them,
because what we wanted was to improve the whole market, not to beat the
market. With access to the selection criteria, companies that were not
selected for the indices could learn how to improve their ESG rating. And
we demanded that the index vendors engage with companies and report
their progress. The vendors say that the number of inquiries they have
received from Japan has drastically increased since the debut of the
indices.
Hiro has changed how Japanese investors and Japanese companies think
about the potential to create shared value and the importance of investing in
social and environmental issues. Press mentions of ESG have increased more
than eightfold between 2015 and 2018.46 Among large and midsize companies,
80 and 60 percent, respectively, say that the increasing focus on ESG indexes has
raised awareness about ESG at their companies and has led to real change,47 and
nearly half of Japanese retail investors claim to recognize the importance of
considering ESG in their investment decisions. In the last two years the
percentage of Japanese financial assets allocated to sustainable investments has
increased from 3 to nearly 20 percent.48
Clearly much remains to be done, but Hiro’s preliminary success is deeply
encouraging. The widespread use of material, replicable, comparable ESG
metrics is a game changer, potentially enabling investors to develop a much
richer understanding of the relationship between a firm’s investments in social
and environmental performance and returns to the individual firm—as at
JetBlue—and returns to the portfolio as a whole—as at GPIF. But the adoption
of ESG metrics alone is clearly not currently sufficient to fix the short-termism
problem. Many ESG metrics remain hard to construct, rarely comparable across
firms and often difficult to audit, and even those that are well thought through
are insufficient to capture the universe of useful nonfinancial factors that may
drive performance.
Developing widely adopted, standardized metrics that can be routinely
incorporated into financial statements will take some time. Moreover, even with
the best ESG metrics in the world, it will be difficult to convincingly
communicate the value of some of the more intangible investments that enable
purpose-driven firms to succeed. As my description of SASB suggests, this is an
area of hugely active research, and things may well change going forward. In the
meantime, though, it’s worth exploring some of the other solutions that have

emerged to focus capital on the long term.
One possibility is to move away from the public capital markets altogether.
Family-owned firms, for example, are in principle ideally positioned to focus on
long-term value creation, and family-owned firms like Tata and Mars are among
the world’s most purpose-driven firms. But while there is some evidence that
this is indeed the case, the performance of family-owned firms tends to be
highly variable, and indeed many development economists believe that a need to
rely on family ownership is one of the factors that depresses economic growth in
those countries that have yet to develop widely trusted public capital markets.49
Private equity funds offer another source of highly informed, long-term
capital, but again the evidence on this front is mixed. Private equity funds
appear to outperform the public markets, but so far as I am aware, there is no
systematic evidence that they are more focused on the long term than the public
capital markets.50
Another possibility is to look to investors who are themselves purpose driven
and who share the firm’s goals and its commitment to the long term. The bad
news is that there are not very many of them. The good news is that this is
starting to change, and that the firms they invest in are more than capable of
holding their own in the face of more conventional competitors.
Find Investors Who Share Your Goals
So-called impact investors are the financial equivalent of purpose-driven firms
like Unilever or King Arthur’s Flour. They seek a decent return, but their goal is
to make a difference in the world rather than to maximize profits. It’s a group
that includes not only arms of philanthropic foundations like the Bill & Melinda
Gates Foundation and the Omidyar Network but also wealthy individuals and
families, private equity firms, and even a few institutional investors. Reynir
Indhal, the private equity partner who funded the purchase of Norsk Gjenvinning
and was one of Erik Osmundsen’s strongest supporters in his efforts to turn
around the firm, now leads Summa Equity, a private equity fund whose website
proudly proclaims “We Invest to Solve the World’s Global Challenges.”
Triodos Bank is a particularly visible example of the power that these kinds
of institutions can exercise—and also of the kind of commitment that is required
to build them.51 The bank, which is based in the Netherlands, began as a four-
person study group devoted to exploring how money could be managed more
consciously. The participants were interested in a system of spiritual philosophy

developed by the philosopher-scientist Rudolf Steiner, who conceived of society
as comprising three realms: economic, rights (including politics and law), and
cultural-spiritual. He believed that a healthy society depended on a balance
among the three domains. The founders decided that the purpose of their new
endeavor would be to initiate social change by stimulating innovative
entrepreneurial activity. Triodos Bank incorporated in 1980, equipped with
€540,000 in start-up capital and a banking license from the Dutch Central
Bank.52 The bank is owned by its customers, a strategy that has allowed it to
pursue goals that are explicitly about building a healthy society, rather than
about maximizing short-term returns. Today it has more than €15 billion in
assets under management and €266 million in revenues.53
The word triodos translates as “threefold way,” and the idea that the bank
would support the healthy development of Steiner’s three societal domains has
always been integral to its purpose. Eric Holterhues, the head of arts and culture
within Triodos Bank Investment Management, described the mission-centric
purpose of the bank in this way:
Three things are important for society. Preserving the Earth—that’s why
we’re active in all kinds of environmental projects. Then, how people
cope with each other on the Earth—that’s why we’re active in fair trade,
in microfinance. And finally the development of each individual—that’s
why we’re active in culture. This also makes us different from other
banks. We don’t say, “We are a bank, and let’s see what the sectors are
where we can make money.” We say “These three sectors: the Earth
(environment), we (social) and I (culture), this is our starting point and
how can we contribute to them as a bank?”
Peter Blom, the bank’s CEO, described the bank’s vision like this:
You want to influence what’s happening in the next 10 years.… That is
already a difference from many other banks. Maybe they think about the
future a little bit, but it’s more like “How can we do things we already do
better?” Not so much, “What do we want to influence and change?”
That’s a very important notion and if you do that you need to think about
big trends in society. Where are we going? Where is mankind going?

What is essential for people? Then you want to be able to look back after
ten to fifty years and see what has worked out. That’s the sort of approach
where you learn from the future, going back to where we are now. If you
don’t do that, then it’s very easy to repeat and repeat. You have to
understand the spirit of the time. The spirit of the time is connected to the
longer development of people—of entrepreneurs and how we will do
business.
Finding measures that might capture these kinds of goals is not an easy thing,
and Triodos Bank is a living example of the limitations of a simple reliance on
ESG metrics, however sophisticated. Loan decisions, for example, involve a
subtle process of individual and collective judgment, requiring the loan officer
to work out whether an application is aligned with the bank’s mission and
presents the right risk profile. One phrase that is often used around the bank is,
“If a child came to ask you for five euros, your first question would be ‘Why do
you want it?’” As Pierre Aeby, the chief financial officer, described it, “When
we invest in a loan, we look first at what the loan is for. What is the mission of
the borrower? What value does the borrower add in society? What is the match
with our own values? Then we look at it strictly as a banker. What is the
repayment capacity? What do they do? What is the collateral? Then we fix the
market price.”
Daniël Povel, who managed business lending in the Netherlands for the bank,
explained that “It’s very easy to finance, say, an organic/biodynamic farmer who
hires former drug addicts to work the farm, who also runs an art center that
produces paintings and sculpture, and who wants a loan to put solar panels on
his roof. That’s very easy; everyone would say yes.” But projects often fell into a
grey zone. The bank described these as “dilemmas” that required individual
judgment and discernment in dialogue with one’s peers to make a decision.
Daniël told this story of a dilemma that was discussed at one of the bank’s
weekly Monday morning meetings:
We were asked for a loan by a shoe factory, a very famous one, at least in
Europe. They were trying to cut their energy costs by being more energy
efficient. They wanted a loan to make their own energy with the leather
bio-waste from the factory—a fatty, oily substance that they collect when
they scrape cow skins. They wanted to burn this substance to generate
heat and electricity in order to cut their energy use by 30 or 35 percent,

which is a lot. They were advanced on other environmental issues, for
instance a lot of chemicals are used in shoe production, and they purified
the water so it could be used almost as drinking water.
My colleague who presented this example at the meeting asked, “Are
we going to finance it?” And someone asked, “These cows that provide
the skin for the shoes, are they allowed to walk outside?” And he
responded, “Do you want to have barbed wire marks on your shoes? Of
course they don’t walk outside. They are contained inside.” The problem
with this is that Triodos Bank doesn’t want to support intensive animal
farming operations that confine animals to overcrowded indoor spaces
and never allows them the freedom to move around or go outdoors. So the
question is, what should we do?54
In short, Triodos Bank relies on guidelines rather than on quantitative
criteria. People are asked to think about projects using not only their head but
also their heart and their gut. As Blom phrased it, “We deliberately never use the
word ‘criteria.’ We’ve always called them ‘guidelines,’ and that creates room
for discussion and dialogue. That is something more situational, more living and
probably involves much more explaining than having abstract criteria.”
Triodos Bank generates financial returns in the 5–7 percent range—
significantly below those earned by the large global banks in their best years,55
but significantly above those earned in their worst years. It has also succeeded in
making a significant difference in the world. It launched Europe’s first green
fund, the Biogrond Beleggingsfonds (the Ecological Land Fund), dedicated to
funding environmentally sustainable projects in Europe. A Wind Fund soon
followed. At the time, wind energy technology was in its early stages, but the
bank identified promising wind turbine manufacturers in Denmark, Germany,
and the Netherlands, and a small engineering company in the Netherlands as a
potential partner. The fund was profitable from the beginning, and had a
significant impact on the wider industry as other banks began to offer similar
products. Blom summed up this approach to system-level intervention this way:
You take a strategic view. You know the sector, and you say well this is
missing and in a healthy sector, those elements are needed, and there will
also be demand from customers of course. How do we now find the
entrepreneurs, who want to take the next step with us?
We’re trying to initiate a virtuous circle, where the loans we make act

as demonstration projects and there are spillover effects—so other people
come into the space. We’re looking for trust—so we try not to be a typical
bank that’s always out to make the best deal for itself. Clients come to us
because we are a hub. We’re building a whole new set of skills in support
of a much more collaborative economy.
In summary, Triodos Bank is pursuing a classically purpose-driven strategy,
using its focus on the broader community to catalyze the kind of architectural
innovation that can change the whole system. The sixty-four thousand dollar
question is whether these kinds of investors—investors who value the well-
being of the planet over squeezing the maximum possible returns from their
money—are a fringe group operating at the margins or the wave of the future. I
don’t think we yet know the answer. But I am hopeful. About $68 trillion of
wealth is expected to change hands in the next twenty-five years as the baby
boomers die, and much of this wealth will be given to a younger generation that
is much more interested in impact investing than their parents were.56
Another route to securing investors committed to the long term is to raise
capital from customers or employees. Triodos Bank’s success, for example, is
critically dependent on the fact that it is owned by its customers—customers
who choose to own the bank because they share its mission and values and are
committed to its long-term success. KAF’s CEOs believe that the fact that firm
is entirely employee-owned makes possible a degree of engagement and a
commitment to the mission of the firm that would not otherwise be possible.
Customer-owned firms are surprisingly widespread. Rural electricity
cooperatives played a crucial role in electrifying the United States and still
provide electrical power to more than 10 percent of the US population.57 Many
farmers who found themselves at the mercy of concentrated buyers have
responded by creating farmer-owned cooperatives, such as Land O’Lakes or
Dairy Farmers of America.58 These groups aggregate the collective power of
individual farmers to ensure that they receive the market price, and often
support marketing campaigns in support of sales. There are currently about four
thousand customer-owned agricultural cooperatives in the United States, with
roughly $120 billion in revenue among them.59
The early years of the insurance industry were dominated by customer-owned
“mutual” insurance companies, as investor-owned insurance companies initially
focused on charging the highest possible premiums, while customer-owned
companies were much more likely to write policies that rewarded risk-reducing

behavior.60 There are still about twenty thousand mutual insurance companies in
the United States. Credit unions are customer-owned cooperatives founded to
provide the best possible service to their members without the constraint of
having to maximize investor returns. There are currently approximately fifty
thousand of them in the United States. Collectively, the credit unions and the
mutual insurance companies have about $180 billion in revenues and employ
more than 350,000 people.61
These are relatively small numbers by the standards of the world’s biggest
agricultural buyers or the world’s biggest banks. The world’s two biggest traders
in agricultural commodities, for example, have more revenue between them than
all four thousand agricultural cooperatives.62 The two largest American banks
have more revenue between them than all fifty thousand financial
cooperatives.63 But their existence suggests that customer ownership might be a
crucial piece of a reimagined capitalism.
Employee ownership is relatively common, although in most cases
employees have essentially no control over the management of the firm. In
2013, about 38 percent of American employers offered profit sharing;64 20
percent of employees reported owning stock in their employer;65 about 5 percent
of employees took part in Employee Stock Option Plans (ESOPs); and about 15
percent took part in Employee Stock Purchase Plans (ESPPs), which allow
employees to buy stock in their employer. Participation in such plans was most
common for managers or salespeople, but employees of all types could and did
participate.66 In some of these companies employees owned a majority (or a
large minority) of the company. For example, employees owned Avis, the car
rental service, until they sold it to an outside investor in 1996. In 1994, United
Airlines’ employees agreed to an ESOP, acquiring 55 percent of company stock
in exchange for salary concessions, making the carrier the largest employee-
owned corporation in the world at the time. Employee ownership of United
ended in 2000.
Employee control is much less common, but it is attracting an increasing
amount of interest, particularly as a solution to the problem of inequality.
Michael Peck, Mondragon’s delegate to the United States, is the executive
director of 1worker1vote, a nonprofit designed to support the formation of
cooperatives modeled on Mondragon. The organization is supporting work in ten
cities across the country and has forged alliances with a wide range of
organizations, including the United Steel Workers, the National Cooperative
Bank, and the American Sustainable Business Council.67 In Preston, England,

the local council is actively experimenting with worker-owned cooperatives as a
step toward the revitalization of the city.68
In the United States the Publix supermarket chain is the largest employee-
controlled firm with more than one thousand locations throughout the Southeast
and two hundred thousand employees.69 The largest employee-controlled firm in
the United Kingdom is the John Lewis Partnership, which operates about forty
department stores and three hundred grocery stores throughout the country. In
2017 it had revenues of just over £10.0/$12.3 billion. It is a public company
whose stock is owned in trust for its eighty-three-thousand-plus employees
(known as “partners” within the firm). The firm is governed by a partnership
council whose members are elected every three years by a vote of the partners; a
partnership board, which is elected by the council and serves as the board of
directors; and a chairman, selected by the board.70
Mondragon, a firm based in Spain’s Basque region, is the largest employee-
owned firm in the world.71 In 2018 it had €12.0/$13.2 billion in revenues and
employed more than eighty thousand people.72 It is run as a cooperative, so that
worker-owners participate directly in the management of the company on a one
worker–one vote basis, and ownership is nontransferable. When workers retire
or leave, they receive a financial package or a pension in exchange for their
ownership stake, rather than being able to sell their shares. Mondragon is a
holding organization for more than one hundred worker cooperatives. Together
they compete in dozens of industries, including heavy manufacturing (auto
parts, home appliances, industrial machines); light manufacturing (exercise
equipment, antique firearms, furniture); construction and building materials;
semiconductors; information technology products; business services (human
resources management, consulting, law); education; banking; and agribusiness.
Mondragon invests heavily in education (Mondragon University is a nonprofit
cooperative with some four thousand students), and runs its own bank and
consulting company—all dedicated to helping its member cooperatives to
succeed and to spawn new ones. In 2013 it won one of the Financial Times’
“Boldness in Business” awards “for what it represents in terms of a real proposal
for a new type of business model: ‘Humanity at work,’ based on co-operation,
working together, solidarity, and involving people in the work environment.”73
Employee-owned firms—as you might expect—appear to prioritize
employment over profits and to pay their employees above the going wage.74
One study found that 3 percent of employee-owners were laid off in 2009–2010
compared to 12 percent for nonemployee owners, and that employee-owners had

approximately more than twice the amount in their defined contribution
accounts as participants in comparable nonemployee-owned companies, and 20
percent more assets overall.75 One senior manager at Mondragon suggested that
the firm played a significant role in reducing inequality, claiming that “if the
Basque region in Spain were a country, it would have the second-lowest income
inequality in the world.” Employee-owned firms also grow faster and are vastly
overrepresented in the “Best Companies to Work For” rankings.
When employee ownership is linked to the ability to participate in decision
making and is accompanied by greater job security, it increases employee
loyalty and motivation, lowers turnover, and drives higher levels of innovation
and productivity.76 The fact that King Arthur Flour is owned by its employees,
for example, makes it much easier to make the investments that are essential to
building and maintaining a highly engaged workforce—not only to providing
training, decent wages, and benefits, but also to invest the time and energy
required to ensure that information is widely shared, that the culture is
sustained, and that everyone is engaged.
Both customer and employee ownership thus offer potentially promising
pathways forward to rewiring finance, and building their share and presence in
the economy is likely to be a critical building block of a reimagined capitalism.
Leveling the legal and regulatory playing field to make employee- or customer-
owned firms easier to create is an important policy goal for those interested in
building a more equitable and sustainable world. But at the moment they are
more a promising model for the future than an immediate solution—a promising
project for purpose-driven millennials!
Perhaps this is why so many people working in this space have decided that
the only way to force investors to focus on the long term is to change the rules
of the game so that they have less power over the firm.
Change the Rules of the Game to Reduce Investor Power
Many of the people I most respect believe if we are to build a just and
sustainable world, we need to reject the idea of shareholder primacy
altogether.77 They believe that the only way to construct a sustainable capitalism
is to adopt a different view of the firm—one in which managers and directors
owe their loyalty not to investors but to the “stakeholders” in the firm—to
investors, yes, but also to employees, suppliers, customers, and the community
itself. They are keen to change the legal rules that control how firms are

governed to make this a reality.78
I am deeply sympathetic to the idea that we need to reduce the power of
investors in some important ways. But I think the path to doing this is both more
complicated—and potentially less straightforwardly beneficial—than some of
its proponents suggest.
I am, for example, a fan of the legal form known as the “benefit
corporation.”79 Firms that incorporate as benefit corporations formally commit
to creating public benefit as well as to giving decent returns to their investors.
The company must publish a strategy outlining just how it is planning to do
this,80 and the board has formal responsibility for making decisions that create
public as well as private value. Benefit corporations must also produce an
auditable report every year detailing their progress toward generating the public
benefit they have promised to create. You can incorporate as a benefit
corporation in thirty-six US states81—including Delaware, and there are at least
3,500 benefit corporations in operation, including Kickstarter, Patagonia,
Danone, Eileen Fisher, and Seventh Generation.82
Choosing to incorporate as a benefit corporation offers a number of tangible
advantages to firms hoping to make the world a better place. It makes clear that
neither the directors nor the managers have a legal responsibility to maximize
shareholder value. Indeed directors are required to consider the public interest in
making every decision. Most importantly, when directors have committed to sell
the firm, they can select the buyer that will create the most value for all the
firm’s stakeholders, rather than the one that offers current shareholders the most
cash. This is hugely important. As noted earlier, directors at conventional firms
do not generally have a legal duty to maximize shareholder value unless they
have made a decision to sell the firm, and current shareholders will not have
voting rights in the new entity. If this is the case, US directors have a legal
responsibility to sell the firm to the buyer that offers the highest price.83 This
may seem like a detail, but it is not. In a conventional firm, the fact that there is
always a risk that the directors may be forced to sell the firm to the highest
bidder can make it much harder to make the kind of long-term investments—in
building trust, in treating one’s employees well—that are essential to building
“high commitment firms.” Firms that are subject to the whims of the financial
market are untrustworthy partners, which can make it much more difficult for
them to build the long-term, trust-based relationships that are so essential to
building purpose-driven firms.84
Does this mean that making all firms benefit corporations is the secret to

reimagining capitalism? Alas, probably not. Reducing the power of investors is
a double-edged sword. If the firm’s investors, the board of directors, and the
management team are firmly committed to doing the right thing—and will bend
every nerve and sinew to make it happen—then incorporating as a benefit
corporation makes enormous sense. The firm’s managers won’t have to rely on
necessarily imperfect measures of shared value creation to convince investors to
let them move forward, and to the degree that focusing on public value creation
increases profitability, investors may even be better off. What’s not to like?
There are two problems. The first is that the model is heavily dependent on
the firm’s ability to attract investors who share the mission of the firm—or who
believe that operating this way is a reliable route to increasing profitability. In a
benefit corporation all the power remains with the investors. Only they can elect
the directors. Only they can sue to enforce adherence to the mission.85 In the
worst case, ruthless investors can take control of the company by voting in a
new board, give only lip service to the creation of public benefit, and simply re-
create a conventional firm.
The second problem is that—alas—not all managers and boards can be
trusted. Unless and until ESG metrics are sufficiently well developed that they
can allow investors to determine with a fair degree of certainty whether a firm is
creating public benefit, both managers and boards will have the temptation to
use the benefit corporation structure as a way to take life easy. Of course, if
investors are willing to sue, and the firm’s metrics are sufficiently detailed and
closely linked to performance, this won’t be a problem. But it is a strategy that
puts an enormous premium on good metrics and on deep engagement between
investors and the management team.
In Japan, for example, the “miracle” that remade Japan following World War
II stressed lifetime employment, close relationships with suppliers, persistent
investment over long time frames, and an almost obsessive focus on the
customer.86 The approach was complemented by tight relationships between
Japanese firms and their investors. Japanese firms had historically raised the
bulk of their capital from banks, and in most firms the board of directors was
staffed exclusively by company insiders and chaired by the CEO. While many
firms were publicly listed, they were protected from the threat of takeover by a
system of extensive cross-holdings.87 In practice, Japanese managers could do
almost anything they wanted without threat of pushback from their investors.88
This approach worked fantastically well—until it didn’t. Between 1960 and
1995, it enabled Japanese firms to build purpose-driven, customer-obsessed

firms like Toyota, and to conquer the world with innovative, low-cost products
of unsurpassed quality. Japan’s GDP grew at an extraordinary rate. In 1960
Japan’s GDP was just over 60 percent of the United Kingdom’s. By 1995 it was
four times the size.89
But beginning in 1995, the Japanese economy flatlined. Between 1995 and
2017, the UK economy approximately doubled in size. But over the same period,
the Japanese economy barely budged.90 It is still the fourth-largest economy in
the world—roughly the size of the British and French economies combined—but
Japanese rates of productivity growth are roughly half of those in the United
States and Europe, and the economy has been essentially stagnant for twenty
years, a period that has become known variously as “the lost decade” or the “lost
twenty years.”91 The question of just what caused this slowdown remains hotly
contested, with explanations ranging from a growing demographic crisis and the
toleration of gross inefficiency in some highly protected sectors of the economy
to the combination of a massive asset bubble and a failure to hold Japanese
banks accountable for its consequences. But many Japanese observers believe it
also reflects the failure of Japan’s system of corporate governance—that the
very features that enabled Japanese firms to focus on the long term with such
success in the sixties, seventies, and eighties are now a major liability. Japanese
managers remain firmly in control at most Japanese companies, and as a result
Japanese firms are relatively slow to exit underperforming businesses and/or
explore new opportunities.92
Giving managers significant control over their firms is a high-variance bet. If
they are competent and trustworthy, it gives them unparalleled freedom to make
the kind of hard decisions that build great firms. If they are deeply embedded in
a network of institutions that effectively holds them accountable—as was the
case in the United States in the fifties and sixties, and has often been the case in
countries such as Germany and the Netherlands, stakeholder-orientated
governance systems can be very effective. But if these institutions change in
fundamental ways, managers who have learned not to fear their investors may
become entrenched opponents of change.
This is not just a Japanese issue. In the last fifteen years, many of the most
successful Silicon Valley firms have gone public with dual class stock that has
left founders in sole control of their firms. Facebook, for example, issued two
classes of shares when it went public. The Class A shares went to everyday
investors and came with one vote per share. But the founders—mostly Mark
Zuckerberg—got Class B shares. Every Class B share came with ten votes. This

means that it is effectively impossible to force Zuckerberg to step down, no
matter how badly Facebook performs.93
In general, the founders in question claim that this structure is necessary to
protect them from shareholder pressure. One observer, commenting on
Snapchat’s decision to leave the vast majority of voting power in the hands of its
founders and to issue public stock with no voting rights at all, claimed that
shareholders pressuring companies to cut expenses and increase short-term
profits could stymie founder-led technology companies from making important
long-term investments in major value-creating innovations. He suggested that
“Great innovators simply see things that mere mortals cannot. As such, they are
often out of sync with the wisdom of the crowds.”94
But sometimes “great innovators” are simply once great founders who have
run out of road and now refuse to see that the company needs to move in new
directions. My point is not that changing the rules might not be a good thing—
indeed if I were in charge, I’d require every publicly traded firm to change its
governance structures such that it is no longer under constant threat of having to
sell the firm for the highest possible figure—but that simply changing the rules
is not an automatic or a costless solution to the problem of short-termism.
THERE ARE—BROADLY—THREE ROUTES to rewiring finance. One is to reform
accounting so that firms routinely report material, replicable, auditable ESG
data in addition to financial data. The widespread adoption of standardized,
easily comparable, auditable ESG metrics would make it easier for firms to
attract investors who will support them in making the kind of long-term
investments that are essential to building successful purpose-driven firms and to
creating shared value. More broadly, the right kind of ESG metrics could
provide a richer language for talking about how doing the right thing can
generate financial returns. They might lengthen time horizons and help both
managers and investors unpack the dynamics of the relationship between doing
good and doing well. When does it make sense to invest in human capital? To
have a leading-edge environmental strategy? To clean up one’s supply chain? As
answers to these questions emerge, lagging firms will be pushed to catch up to
the pioneers. It would be a different world. A world in which investors routinely
insisted that firms invest in energy conservation. A world in which many
employees were routinely better paid and better treated.
A second option is to rely on impact investors—or on one’s employees or

customers—for funding. This is a solution with many strengths, but it may be
challenging to take it to scale. The third is to change the rules that govern
corporations to shelter managers from investor pressure. This is intuitively
appealing but would have to be managed with care. There’s also the potentially
significant problem that—at present—the vast majority of the world’s existing
investors would almost certainly fight the idea tooth and nail.
Rewiring finance will make an enormous difference and has the potential to
support thousands of firms in their attempts to solve the big problems at scale.
Can these kinds of investments make a difference in the grand scheme of things?
It depends, of course, but there are several pathways through which individual
firm action can have a significant effect on the big problems. Very large firms
have a measurable effect simply through their own actions. Walmart works with
nearly three thousand suppliers, who in turn work with thousands more.95 Nike
and Unilever similarly touch thousands of suppliers and millions of consumers.
To the degree that they insist on better treatment of the employees or better
environmental practices, they impact millions of people. But even much smaller
firms change lives.
The pursuit of shared value can also have significant impact through its
effects on other firms. Sometimes the simple demonstration that a particular
investment makes commercial sense can persuade everyone in the industry to
adopt the same practice. When Lipton demonstrated that sustainably grown tea
cost only 5 percent more and that consumers cared sufficiently about the issue to
increase Lipton’s share, all of the firm’s major competitors embraced
sustainability too. Walmart’s massive investments in energy saving and waste
reduction have helped to persuade many other firms that these investments are
likely to yield rich returns.
Successful purpose-driven firms can also shape consumer behavior. Twenty
years ago, for example, most consumers assumed that “sustainable” meant
“compromised”—that sustainable products were by definition more expensive
or lower quality. That perception has steadily shifted as more high-quality
products have come to market proudly flaunting their sustainability credentials.
This, in turn, is persuading an increasing number of consumers to assume that
it’s possible to create fabulous sustainable products, and to demand this of more
of the products that they buy. Leading-edge firms can also shape the cultural
conversation. As the Nike case suggests, for many years no one held individual
firms responsible for the behavior of their suppliers. Once that changed, the
pressure to raise the bar substantially increased, and now nearly every major

firm pays at least lip service to conditions in its supply chain.
Individual firms can also move the technological frontier. This is most
evident in renewable energy, where every firm that enters the industry helps to
drive down costs. Between 2015 and 2018, for example, Tesla installed a
gigawatt-hour of energy storage technology (for comparison, in 2018 the entire
world installed only slightly more). Since 2010 Tesla’s efforts have helped to
drop the price of battery storage by at least 73 percent.96 New farming
technologies introduced by firms like Jain Irrigation and John Deere are rapidly
becoming industry standard, making it cost effective for many farmers to use
water and fertilizer much more efficiently.97 Sometimes the innovation is not
technological, per se. Solar City, for example, pioneered a new model of
financing solar panels that greatly expanded demand and saw the idea spread
across the industry.98
Firms can thus help to kick-start a number of reinforcing processes that have
the potential to drive change at scale. By demonstrating a new business model—
and in the process potentially driving down costs and persuading consumers to
demand it—they can push competitors to adopt the same practice, diffusing it
widely across the industry. This process is sufficiently well-advanced in the food
business that it is beginning to change global agricultural practices, and in
energy it may be strong enough to play a significant role in driving the transition
to fossil fuel–free energy. It’s well underway in the construction business, and by
some reports over half of all new construction in the United States is now built
to energy-efficient standards.
But action by individual firms is a route to change that is inherently limited.
In the end firms must be able to see a path to profit if they are to invest
resources at scale, and this is much easier in some kinds of industries and with
respect to some kinds of problems. To date, the big opportunities appear to be in
industries and places where environmental degradation presents a clear and
present danger to ongoing operations or to long-term sources of supply. Nearly
all the world’s major agricultural producers and traders, for example, are at the
very least aware that they should be thinking hard about these issues, and many
are doing much more. Using resources more efficiently also appears to be
another significant opportunity. For years energy and water were so cheap that
no one paid much attention to them. That is changing. To the degree that it is
indeed the case that treating employees better improves their performance, there
will be a business case for addressing inequality. Consumer preferences may
shift dramatically, and in industries like food, consumer goods, fashion, and

perhaps transportation, becoming more sustainable may increasingly be seen as
a potential route to profit.
But this list still leaves plenty of problems that can’t be addressed by firms
working alone. Some problems are simply too large for any single firm to be
able to build a business case around them.
The world is rapidly running through the available stock of wild fish—but
every individual fisher has strong incentives to keep fishing if no one else is
holding back. The falling price of renewable energy means that an increasing
fraction of new power plants will be built using solar or wind. But heading off
the worst consequences of global warming will require decommissioning many
existing fossil fuel plants—and that’s a process that without a change in the
rules is very unlikely to be profitable. Building an engaged, well-paid workforce
can be a potent source of competitive advantage—but it can be hard to pay
people well and to treat them decently when one’s competitors are busy racing to
the bottom. Many firms would like to see the quality of local education improve,
but very few can build a case for being the only firm willing to invest in making
it happen. Many firms would like to see an end to corruption or an increase in
the quality of local legal institutions, but most cannot make progress against
either goal on their own.
Hiro himself faces a variant of this issue. He believes that averting the worst
effects of climate change is very much in the best interest of his beneficiaries.
But he faces several free-rider problems in trying to change behavior. The first is
that it may not be profitable for individual firms to reduce fossil fuel use.
Should Hiro instruct his asset managers to force them to? The second is that
even if he has the power to force Japanese firms to go green, it seems wildly
unlikely that he has the power to force every firm in the world to change. And if
he can only change Japan, and global warming proceeds anyway, has he really
done the right thing for his beneficiaries?
In short, many of the problems we face are genuinely public goods problems
—and can only be solved through cooperative action or government policy. Is
such action possible? Can firms and/or investors come together to solve the
world’s big problems? The next chapter explores what’s happening on this front
and asks whether and under what conditions cooperative action within industries
or regions might help us reimagine capitalism.

6
BETWEEN A ROCK AND A HARD PLACE
Learning to Cooperate
You can’t stay in your own corner of the forest waiting for others to come to you. You have to
go to them sometimes.
—A. A. MILNE, WINNIE-THE-POOH: THE COMPLETE COLLECTION OF STORIES
AND POEMS
Is rewiring finance enough to reimagine capitalism? Alas not. If every firm on
the planet adopted a purpose beyond profit, pursued a shared value strategy, and
was supported by sophisticated investors committed to the long term, it would be
an enormous step forward, but nowhere near enough to solve huge problems such
as climate change and inequality. Too many of these problems are genuinely
public goods problems—solving them would benefit everyone, but no single
firm has the ability to solve them on its own. We won’t solve the climate crisis,
for example, until and unless we can agree to leave the great forests standing.
But if your competitors won’t stop cutting down the trees, you, too, may have to
cut them down to survive. We won’t solve inequality until we spend more on
education. But if your competitors won’t train their employees, you won’t be
able to afford to train yours either. This is the tension we face. On one side the
rock—the knowledge that continued deforestation and accelerating inequality
may cause enormous harm—and on the other the hard place—every individual
firm’s inability to do anything about it on their own.
Industry-wide cooperation, or as it’s sometimes known, industry “self-
regulation” is one potential solution. This isn’t an entirely crazy idea. Elinor
Ostrom was awarded the Nobel Prize in Economic Sciences in 2009 for her work
describing successful voluntary efforts within local communities to protect

common resources such as forests and water. Her work suggested that local
coordination could endure over generations and was often more effective than
government action.
Many of the central institutions of the nineteenth-century American economy
—including the New York Stock Exchange, the Chicago Board of Trade, and the
New Orleans Cotton Exchange—were voluntary associations formed to address
the public goods problems thrown up by the maturing US economy. They worked
to provide space for trade; to establish rules, rates, and standards; to improve
communication and the flow of information; to provide training for new
workers; and to uphold professionalism among their members. Banks joined
together to create nonprofit clearinghouses to provide emergency loans during
financial panics. Railroad companies created industry associations that
developed standards for cross-country timekeeping, for mechanical parts, and for
signaling.1 Most of the rules governing international trade are designed and
enforced by the International Chamber of Commerce, a voluntary association
founded in 1919. When they work, these kinds of private cooperative solutions
are often faster, less costly, and more flexible than conventionally regulated
alternatives.
But cooperation is fragile. Sometimes it holds, and sometimes it doesn’t. In
this chapter I explore the factors that make sustained cooperation possible, and
those that make it fail. I suggest that even when they fail—and they often fail—
cooperative efforts can lay the foundations for more robust solutions,
particularly partnerships with local governments and others in pursuit of the
common good. This is a story of hope followed by despair, followed by the
glimmerings of renewed hope. It’s difficult to be caught between a rock and a
hard place, but there is sometimes a way through.
Orangutans on the Building
Gavin Neath, the chief sustainability officer at Unilever, arrived at work on
Monday, April 21, 2008, looking forward to a productive day. He was surprised
to discover that eight people dressed as orangutans had climbed to the twenty-
three-feet-high balcony above the entrance to Unilever’s London headquarters
and unfurled an enormous banner proclaiming “Dove: stop destroying my
rainforest.”2 The press had descended and were asking everyone they could
corner what Unilever was planning to do next. As the most senior manager on
site, Neath could see a very tough day ahead.

The people in the orangutan outfits were from Greenpeace, and were
protesting Unilever’s use of palm oil. Unilever, Greenpeace declared, was
responsible both for the destruction of the rainforest and the near extinction of
the orangutans who lived in it. Cheap and versatile, palm oil is the most widely
consumed oil on the planet.3 It’s in about half of all packaged products, from
soap, shampoo, and lipstick to ice cream, bread, and chocolate—and it was in
most of Unilever’s products.4 Demand for palm oil quintupled between 1990 and
2015 and is expected to triple again by 2050. Unilever was the world’s largest
buyer.
The uncontrolled production of palm oil is an environmental disaster. To clear
land for palm cultivation, growers set fire to primary forests and peatlands,
releasing carbon into the atmosphere at an enormous scale.5 In 2015, Indonesia
was the world’s fourth-largest emitter of carbon dioxide (CO2), after only China,
the United States, and Russia.6 The process of deforestation also pollutes local
water supplies, degrades air quality, and threatens to destroy one of the world’s
most biologically diverse ecosystems.7 The Sumatran orangutan has been driven
to the brink of extinction.8 In the words of one reporter: “A great tract of Earth is
on fire. It looks as you might imagine hell to be. The air has turned ochre:
visibility in some cities has been reduced to 30 meters. Children are being

prepared for evacuation in warships; already some have choked to death. Species
are going up in smoke at an untold rate. It is almost certainly the greatest
environmental disaster of the 21st century—so far.”9
The Greenpeace activists chaining themselves to the Unilever building were
focused on Dove because it was one of Unilever’s largest and most visible
personal care brands that at the time was growing explosively. The activists were
particularly furious about the fact that Unilever had played an important role in
the foundation of the Roundtable for Sustainable Palm Oil four years earlier—a
collection of NGOs and palm-buying companies dedicated to growing palm more
sustainably—but “not a single drop” of sustainable palm oil was yet available.
They accused the firm of “greenwashing” on a grand scale.10
Greenpeace’s actions—and an accompanying series of videos that went viral
on social media, gaining over two million views—forced Unilever to respond.
Within a month Patrick Cescau, Unilever’s CEO at the time, had publicly
pledged that by 2020 Unilever would be using nothing but sustainable palm oil.11
The announcement got Greenpeace off Unilever’s back—at least for a while
—but created its own problems. No one inside the firm had a roadmap for how to
pay for what might be as much as a 17 percent increase in the cost of one of
Unilever’s most important commodities, particularly when consumers didn’t like
being reminded that their lipstick (or their food) had palm oil in it in the first
place.
Help arrived from an unexpected quarter. In January 2009, Cescau was
replaced as CEO by Paul Polman, the first outsider in Unilever’s 123-year
history chosen for the top job. Paul was Dutch—a plus at a company that was
jointly listed in both the United Kingdom and the Netherlands—but he had spent
the first twenty-six years of his career working for Procter & Gamble, one of
Unilever’s largest competitors. Paul left P&G three years before to be CFO at
Nestlé—another one of Unilever’s key competitors—but missed out on the CEO
job there in 2007. He arrived at Unilever with something to prove at a time when
the firm was widely perceived as falling behind.
Unilever had been roughly the same size as P&G and Nestlé until the early
2000s, but in the five years before Paul’s appointment, Nestlé and P&G had
grown rapidly, while Unilever’s sales had stagnated, and by 2008 Unilever’s
share price was less than half that of its rivals.12 This was partly a reflection of
the fact that P&G and Nestlé were active in a number of high-margin businesses
(notably diapers and pet food) where Unilever didn’t have a presence, and also of
the fact that Unilever was weighted down by a number of notoriously low-

margin products (notably margarine). But investors also believed that Unilever’s
organization had nothing like the focus or drive that characterized P&G and
Nestlé. One observer characterized Unilever as “the basket case of the (consumer
goods) industry.”
The press speculated that Unilever’s board had chosen Paul as the next CEO
precisely because he was an outsider—and an outsider with a record of
delivering bottom-line results.13 Former colleagues suggested that he was “tough
and analytic” and that he had a “tough, take-no-prisoners style.”
But it turned out that Paul was a more complicated man than he first
appeared. The first signal that this might be the case came on his first day as
Unilever’s CEO. He announced that Unilever was going to stop the practice of
offering earnings guidance, telling the Wall Street Journal, “I discovered a long
time ago that if I focus on doing the right thing for the long term to improve the
lives of consumers and customers all over the world, the business results will
come.”14 The share price fell 6 percent in a single day, taking nearly €2/$2.2
billion off Unilever’s market capitalization. But Paul stuck to his guns, later
joking that he took the plunge because “they couldn’t fire me on my first day.”
When Neath raised the question of sustainable palm oil with him, his immediate
response was “We have to do it and we can’t do it alone: let’s socialize the
problem.”
This is the central premise of industry self-regulation. If all the firms in an
industry need something done—or something stopped—but are unable to address
the problem by acting alone, it may be possible to solve it by agreeing to act
together. In the case of palm oil, for example, every major consumer goods
company in the world—many with brands worth hundreds of billions of dollars
—was potentially vulnerable to NGOs accusing them of destroying the
rainforest. Pepsi, for example, is one of the largest buyers of palm oil in the
world.15 So is Mars, the maker of M&Ms. Neither firm could afford a sustained
campaign linking their products to pictures of orangutans being hacked to death
as they ran from the flames of a burning forest.
Any single firm that chose to use sustainable palm oil not only faced the
daunting challenge of finding sustainable oil to buy but also risked putting itself
at a very substantial cost disadvantage. But if all the firms in an industry could
be persuaded to move together, buying sustainable oil would become something
that was “precompetitive,” or table stakes—a cost of doing business that all
firms undertook to reduce the risk of damage to their brands. If every firm in the
industry agreed to buy sustainable palm oil, everyone’s costs would increase—

but everyone’s brand would be protected, and no one would have put themselves
at a competitive disadvantage.
These kinds of voluntary cooperative agreements are, of course, inherently
fragile.16 Individual firms can promise to do the right thing but fail to follow
through, leaving the defectors with a short-term cost advantage, and those that
chose to cooperate feeling like (angry) patsies. When I suggested to one historian
of self-regulation that industry-wide cooperation might play a central role in
solving the world’s great problems, he giggled. His view was that industrialists
have often used self-regulation merely to diffuse the threat of government
regulation and to disadvantage smaller firms and potential entrants, rather than
to make fundamental change, and that in general self-regulation is rarely
effective except in the shadow of government regulation.17
But desperate times call for desperate measures. In many places, governments
are corrupt and regulation is rarely enforced—and while many of our problems
are global, we have few effective global regulators. Moreover there have been
times and places when industry cooperation has proved to be quite successful.
Consider, for example, the first attempt to clean up Chicago.
Learning from History: Black Smoke in the White City
The great industrial cities of the nineteenth century were incredibly polluted, and
some of the earliest attempts at industry self-regulation were triggered by the
desire to clean them up. These efforts sometimes worked—and sometimes they
did not. When Chicago’s business elite set out to clean up the city, for example,
they initially met with considerable success.18
On February 24, 1890, the US Congress selected Chicago as the host city for
the great “world fair” that became known as the World’s Columbian
Exposition.19 New York’s richest men had pledged $15 million (about $400
million in today’s money) to underwrite the fair if Congress awarded it to New
York City. Chicago’s elite—including Marshall Field, Philip Armour, Gustavus
Swift, and Cyrus McCormick—not only matched the offer but also raised several
million more dollars in twenty-four hours to beat New York’s bid.20
Hoping that the fair would bring international prominence to the city, the
organizers drew up plans to build an elaborate “White City” in Jackson Park, a
marshy bog seven miles outside Chicago’s city limits, and hired some of the
country’s most prominent architects to design a suite of neoclassical buildings in
the beaux arts style that would be covered with plaster of paris and painted a

bright white.
As the date of the fair drew closer, many of its most ardent backers began to
worry that the pristine buildings would be covered by a pall of thick, greasy
smoke. Chicago—like all industrial cities of its time—was subject to appalling
pollution. In the words of one historian:
Chicago world’s fair at the end of the nineteenth century
Today, one hundred years later, it is difficult to envision the sheer dirtiness
and heavy blackness of the smoke that polluted the city in the early 1890s.
… The most badly smoking buildings disgorged from their smokestacks
columns of black smoke and greasy soot that reminded spectators of
erupting volcanoes. Some black smoke was so heavy that it could barely
float in the air. It often fell to the ground, creating almost solid banks of
soot and steam and ash on city streets.

Businesspeople complained that they had to wear colored shirts and dark suits
to hide the soot. Shops and factories had to keep their doors and windows tightly
shut—even at the height of the summer heat—to try to prevent the smoke from
damaging their goods. In 1892, J. V. Farwell, one of Chicago’s leading dry goods
merchants, estimated that it cost him $17,000 a year to replace goods damaged
by smoke (about $430,000 in today’s money). One later estimate suggested that
the smoke cost Chicago more than $15 million (about $405 million in today’s
money) a year. And of course neither estimate includes the enormous costs that
the smoke exacted in human health.
Chicago had passed the country’s first anti-smoke ordinance in 1881, but it
was rarely enforced. The city’s Department of Health was so understaffed, there
were only a handful of sanitary inspectors responsible for identifying violations,
and the Attorney General’s Office rarely had the capacity to bring cases. When it
did bring charges, polluters would often (successfully) pressure local politicians
to persuade local judges to dismiss them.
In response, in January 1892, two years after Chicago had been awarded the
fair, a group of prominent Chicago businessmen formed the Society for the
Prevention of Smoke, an organization dedicated to “getting rid of the smoke
nuisance” before the opening of the fair, scheduled for May 1893.21 All but one
of the society’s founders were directors of the exposition, and many of them
were significant investors in the stocks and municipal bonds that had been used
to fund it.
The group began by exhorting businesses in Chicago to clean up their smoke
as a demonstration of “public spirit.” Since the equipment required to prevent
the generation of smoke could be difficult to install and operate effectively, the
society hired five engineers—at its own expense—to publicly demonstrate the
technology and to provide direct assistance to polluters. By July the engineers
had sent out more than four hundred detailed reports to establishments across the
city, offering specific recommendations as to how their pollution could be
controlled. About 40 percent of the businesses receiving the reports implemented
the recommendations and “practically cured their smoke nuisance.” Another 20
percent followed the recommendations but were unable to stop polluting, and a
further 40 percent refused to make the attempt.
The society next turned to the law. With the full cooperation of the city, it
hired (again at its own expense) Rudolph Matz, an attorney whose job was to
take owners to court if they didn’t attempt to follow the recommendations they
had been given by the society’s engineers. Matz responded with vigor, bringing

325 suits. In just over half of the cases, the owners agreed to attempt to abate
their smoke, and the charges were dismissed; while in 155 cases, the owners paid
$50 fines rather than agreeing to stop polluting. In such cases Matz would often
sue again. One tugboat owner, for example, estimated that he had paid more than
$700 in fines because of his refusal to switch to the significantly more expensive
coal required to operate without generating smoke. By late December 1892 most
of Chicago’s downtown smoke was under control. Roughly 300 to 325 problems
had been abated, locomotive smoke had been reduced by 75 percent, and 90 to 95
percent of tugboat owners had made the necessary switch.
That spring, however, the panic of 1893 hit the city, initiating a deep
depression that lasted several years. A quarter of the country’s railroads went
bankrupt, and in some cities unemployment among industrial workers hit 20 to
25 percent. The Society for the Prevention of Smoke began to demand jury trials,
and in several high-profile cases, juries refused to convict, despite the fact that
the plaintiffs were clearly making no effort to reduce their emissions. We can’t
tell from the public record exactly why this is the case, but one possibility is that
the members of the society were increasingly seen as “fat cats” attempting to
control city government for their own ends. Believing that without public
support their cause was hopeless, the society formally disbanded in 1893.
In the event, the fair proved to be an enormous success, setting a world record
for outdoor event attendance and seeing more than 750,000 visitors. The contrast
between the gleaming white structures of the fair and the filth of downtown
Chicago has been credited with helping to start the civic improvement movement
that emerged in the last decade of the century—a movement inspired by the idea
that cities could be as clean and healthy as the White City. But Chicago didn’t
effectively address its air pollution problems until the 1960s.
Building Cooperation at Global Scale
So far, so good. The White City case is encouraging. But it describes efforts
within a relatively small, tightly knit community with very compelling reasons
to cooperate. Can cooperation be sustained in a much more global, much more
diffuse setting—like palm oil? The answer to this turns out to be complicated.
Five years ago I—and many people within the industry—thought of the palm oil
case as one of the great examples of successful cooperation in the service of the
common good. Today it’s clear that this verdict was premature.
Unilever succeeded in socializing its problem—the vast majority of its

competitors have agreed to switch to sustainable oil, and Unilever is on target to
use 100 percent sustainable oil by 2019, a year ahead of its commitment. But
palm oil cultivation continues to be a major driver of deforestation. It has
become clear that the only way to solve this problem is in partnership—with
investors, with local communities, and with local governments. The industry’s
self-regulatory efforts have increased the odds that these partnerships will
succeed, but the situation is still very much in flux.
I begin this section by describing how these dynamics have unfolded, since
they are a powerful source of insight into the opportunities and the threats that
constrain many of the global efforts that are currently underway. I then turn to a
discussion of the success of the beef and soy initiatives, suggesting that their
ability to partner with local regulators was fundamental to their success. There
are hundreds of global self-regulatory efforts currently underway, attempting to
solve problems as diverse as ocean pollution, overfishing, corruption, and
abusive labor conditions across almost every industry. Building a richer
understanding of the likely determinants of their success is crucial if we are to
reimagine capitalism.
Paul began his efforts to socialize his palm oil problem by reaching out to
members of the Consumer Goods Forum (CGF), one of the largest industry
associations in the world. The forum currently includes more than four hundred
consumer goods manufacturers and retailers from seventy countries. Between
them, they generate more than $3.87/€3.50 trillion in revenues and employ
nearly ten million people.22
In early 2010, in a series of small group meetings with fellow CEOs, Paul
began to advocate for the idea that stopping deforestation should be a key issue
for the forum. His efforts were greatly helped by a Greenpeace attack on Nestlé.
In March 2010 Greenpeace released a spoof ad, showing a bored office worker
biting into a KitKat and finding himself eating an orangutan’s bloody finger
instead. (You can see it on YouTube, but be warned—it’s not pretty.23) The
intense press attention that followed galvanized not only Nestlé but also many of
the other consumer goods companies. Scott Poynton, the director of one of the
NGOs that Nestlé had hired to grapple with the issue, remembers arriving at
Nestlé’s corporate headquarters to be greeted by the receptionist saying
plaintively, “We don’t want to kill orangutans, that’s not who we are.”24
Gavin and Paul introduced the group to Jason Clay of the World Wildlife
Fund, who argued that the road to sustainability lay in precompetitive
cooperation by a small number of major companies. He pointed out that in all of

the world’s most highly traded commodities, a hundred companies bought at
least 25 percent of the world’s production. He suggested if these companies
demanded that the commodities they bought be sustainably grown, entire
industries would be forced to move in a more sustainable direction—and that
persuading a hundred companies to act would be much easier than persuading 25
percent of the world’s consumers to do so.
Gavin remembers one meeting in particular—a small gathering at Unilever’s
headquarters that included the CEOs of fifteen of the world’s largest consumer
goods companies, including Nestlé, Tesco, P&G, Walmart, Coke, and Pepsi—as
“a magic moment.” Terry Leahy, the CEO of Tesco, at the time the third-largest
retailer in the world, suggested focusing on sustainability “through a carbon
lens”—and was met with enthusiastic approval. Several of the CEOs present took
on persuading their peers to address deforestation as a personal mission.
In the months that followed the group struggled to get the other members of
the forum on board. I’m told it was a ferociously difficult process, and antitrust
concerns meant that the minutes of every meeting and all the documents they
generated had to be scrutinized by antitrust lawyers. Nevertheless, the steering
group charged with putting together a concrete proposal around Leahy’s idea
ultimately reached an agreement. At an emotionally charged meeting of the
forum, Paul, together with the CEOs of Tesco, Coca-Cola, and Walmart, gave
their full-throated support to the proposal, arguing passionately for the other
CEOs in the room to join them. In November 2010, at the UN’s sixteenth climate
conference, Muhtar Kent, Coca-Cola’s CEO, announced that the members of the
forum were committing to achieving zero net deforestation by 2020 for the four
commodities most responsible for driving global deforestation: soy, paper and
board, beef, and palm oil.25 Paul and his colleagues had succeeded in persuading
nearly every major Western consumer goods company and nearly every major
retailer to commit to buying and selling only sustainable palm oil—defined as
deforestation-free palm oil grown under well-regulated labor conditions.
But this was just the first step. Self-regulation is only stable when all the
parties to an agreement believe that it is in their collective interest to cooperate.
But while this is a necessary condition it is not sufficient. For cooperation to
endure it must also be the case that the participants cannot easily “free ride,” by
example, promising to use sustainable oil but not actually doing so—and for this
to be the case the group must have the ability to know when a firm cheats and the
ability to sanction or punish such firms if they are caught.
Rather than focus attention on the consumer goods firms themselves, Paul

and his colleagues began by trying to create a reliably sustainable supply,
reasoning that it would then be relatively easy to observe whether firms were
buying from it. As a first step they began by focusing on the three firms that
handled the vast majority of the international trade in palm oil: Golden Agri-
Resources (GAR), which in addition to its trading business was also the largest
grower of palm in Indonesia; Wilmar, the approximately $30 billion agricultural
giant based in Singapore that handled almost half of all globally traded palm oil;
and Cargill, a privately held American company that was the world’s largest
trader in agricultural commodities, with over $100 billion in revenues. They
believed that if they could persuade the three firms to commit to zero
deforestation, they would together push a large majority of palm oil suppliers
toward sustainability—and the regular use of sustainable certification.
GAR had adopted a zero burning policy in 1997, but had continued to carry
out forest clearance without permits, burning and disturbing areas of deep peat
and thus releasing enormous amounts of carbon. At the end of 2009, despite
significant concerns over the commercial impact of the decision, Unilever
announced that it would no longer buy from GAR unless the firm changed its
practices.26 The move sent shockwaves through the palm oil industry, triggering
riots and demonstrations in Indonesia. But in 2010, Nestlé joined Unilever in
pressuring the firm, and Kraft and P&G quickly followed suit. GAR reached out
to Greenpeace, opening negotiations that continued over a tense year. (One
observer described the atmosphere as “worse than that between the Arabs and the
Israelis.”) In February 2011, GAR pledged not to clear high conservation value
(HCV) forests and peatlands, and to refrain from clearing forest areas storing
large amounts of carbon. The four companies then resumed doing business with
the firm. When asked why GAR became the first Indonesian palm oil company
to announce a Forest Conservation Policy, Agus Purnomo, the chief
sustainability officer of GAR, said,
Because our primary market, the premium buyers, were requesting us to
do it. Is it because we want to go to heaven? No. Of course everybody
wants to go to heaven, but we are doing it because our buyers asked us to
do it. It is what every company needs to do, to (fully satisfy) their
customer.
At the same time, members of the CGF began to reach out to Wilmar and
Cargill in an attempt to persuade them to change their sourcing policies,

complementing the efforts of a number of NGOs that had been targeting Wilmar
for years. Fortuitously, in June 2013 thick layers of soot and haze caused by
illegal wildfires burning in Indonesia blanketed Singapore, Wilmar’s hometown.
The miasma set records for air pollution in the city-state and blanketed cars with
ash, forcing people indoors. The press attention led Wilmar’s CEO, Kuok Khoon
Hong, to engage directly with Paul and with both Forest Heroes and the Forest
Trust, two of the leading NGOs in the palm oil space. “He talked a lot about how
upset he was at the haze in Singapore and in China,” one of the activists recalled.
“He just needed to be given a business rationale to go ahead.” In December 2013,
Wilmar signed a sweeping “No Deforestation, No Peat, No Exploitation” pact,27
and in July 2014 Cargill, the third major palm oil trader, released an updated
policy committing to deforestation-free, socially responsible palm oil.28
Translating these commitments into action on the ground was the next hurdle.
The first point of contention was to define exactly what counted as “sustainable”
palm oil. It was relatively easy, for example, to agree that palm oil grown on land
that had high conservation value forests on it the year before was not sustainable.
But what was a high conservation value forest, and who was to define it? Did it
count as deforestation if the land was a second-growth forest? What kinds of
labor conditions made a particular plantation sustainable?
One option was to use the standards developed by the Roundtable on
Sustainable Palm Oil (RSPO), a multistakeholder partnership that had been
founded in 2004 to develop standards for sustainable oil palm cultivation. “In the
beginning it was very, very tough,” Roundtable CEO Darrell Webber explained:
The seven stakeholder groups from the supply chain, which included
several environmental and social NGOs, came together and basically no
one trusted each other. There was lots of heated debate, lots of arguments.
It took more than a year to draft the first standard. Many close calls,
threats of walkouts and dissatisfaction. But at the end of the day, trust was
built. People started to understand the other parties’ views much better
over time.
RSPO issued the first global guidelines for producing sustainable palm oil in
2005. The guidelines were articulated in eight principles and forty-three
“practical criteria” that were intended to be revised every five years, and were
adapted for use in each country. The growers, who paid for the audits, were
assessed for certification every five years and, if certified, monitored annually.29

All the organizations that took ownership of RSPO-certified oil palm products
were required to be supply chain certified and could then use the RSPO
trademark. The certification remained entirely voluntary, but it could be
withdrawn at any time in the case of infringement.
But critics claimed that the RSPO’s standards were comparatively weak and
that it was slow to respond to new developments. In 2015, a comprehensive
report summarized a list of breakdowns in oversight, including fraudulent
assessments that covered up violations of RSPO standards, failures to identify
indigenous land right claims, labor abuses, and conflicts of interest due to links
between the certification bodies and plantation companies.30 In response, a
number of individual growers—often under pressure from Western buyers—
agreed to use more stringent standards. Western buyers also continued to put
pressure on the RSPO to tighten its criteria. Industry participants described this
process as one of attempting to continually move the “floor”—or the minimum
requirements, as captured by RSPO standards—while also continually pushing
the “ceiling” or the definition of sustainability, based on the best available
knowledge, at the same time.
The foundations had been laid for third-party certification of sustainable palm
oil, making it relatively easy to tell if the big consumer goods companies were
keeping their commitments, and the technology in this area continued to
improve. There were important advances in the ability to audit any single firm’s
supply chain—to track oil back to the mill where it was processed and to monitor
the plantations where it was grown. Wilmar, for example, was regularly
deploying drones to help ensure that its plantations were indeed being
sustainably managed. Given the strength of the economic case for switching and
the readiness of many NGOs to call out firms that didn’t do the right thing, many
people—including both me and Jeff Seabright, who had taken over from Gavin
Neath as Unilever’s chief sustainability officer—were confident that the
Consumer Goods Forum’s actions would dramatically slow palm oil–related
deforestation.
But between 2001 and 2012 deforestation rates in Indonesia, the largest
producer of palm oil, more than doubled,31 falling only slightly between 2012
and 2015 and increasing significantly in 2016. Rates fell again in 2018, but
Indonesia is still losing hundreds of square miles of forest cover every year.32
Between 2010 and 2018, the country lost nearly five thousand square miles,
equivalent to 480 Mt of CO2 emissions, and 27 percent of this came from
primary rainforests.33 The share of the world’s palm oil that is sustainably grown

has not budged since 2015, and it is now clear that many members of the
Consumer Goods Forum are not going to be able to meet their 2020
commitments.34 Industry-wide cooperation has enabled many of the Western
firms to meet their promise to use sustainable oil—but it has not fixed the
underlying problem.
A number of factors appear to be responsible for this outcome. The first is the
failure to anticipate that while the business case for switching to sustainable oil
was relatively strong for the big Western buyers and the large palm oil suppliers,
persuading the small farmers who grow nearly 40 percent of the palm oil crop—
and who were responsible for much of the deforestation and the burning that
occurred—to stop cutting down the forest was another challenge again.35 Two
hectares (one hectare equals 2.47 acres) of cleared rainforest planted in palm
could ensure a family’s future, providing enough income to send the children to
university. Moreover, programs designed to support smallholder farmers become
more sustainable were having only mixed success.
Smallholders typically achieve yields of less than two metric tons per hectare,
compared to the six to seven metric tons reached by best-practice plantations, so
increasing smallholder efficiency is one possible solution to this problem. But
improving smallholder productivity is difficult. It requires educating hundreds of
thousands of smallholders in new planting and harvesting practices, in regions
that lack the kind of intermediate cooperative structures that were so helpful in
transforming tea production. The smallholders also had to be financed—first
with higher-quality seed and equipment, and then throughout the first,
nonproductive years of oil palm growth. While Cargill believed that improving
smallholder productivity was “the only way forward” and claimed that their
preliminary efforts were proving to be quite successful, GAR, which had piloted
a project to fund and educate smallholders in Kalimantan, part of the Indonesian
segment of the island of Borneo, was less optimistic. During the pilot, some
smallholders had failed to farm sustainably, while others had sold their harvest to
independent mills that promised a higher price than GAR.36
The legal and political environment was another major challenge. Over 90
percent of the world’s palm oil is grown in Indonesia and Malaysia, and in both
countries it is an important pillar of the economy. In 2014, for example,
agriculture made up over 13 percent of Indonesian gross domestic product37 and
employed over 34 percent of the population,38 providing two-thirds of rural
household income to approximately three million people. Palm oil was
Indonesia’s second-largest agricultural product and the country’s most valuable

agricultural export.39 In Malaysia, agriculture accounted for 7.7 percent of the
nation’s GDP.40 Many politicians in both Indonesia and Malaysia believed there
to be a direct conflict between local economic development and sustainability.
Worse, Indonesian law required land concession holders to develop all of the
land they had been allocated, regardless of company policy, and different
Indonesian ministries used different maps. Kuntoro Mangkusubroto, the minister
responsible for the effort explained,
Every important ministry has their own map of Indonesia. Well, Indonesia
is a very big country, and these ministries each have their own mission, so
it may make sense that they have their own version. But when it comes to
national development, we need one map. We need the map to have a
conclusion that can be accepted by the public, by the politicians, by the
government, that, for example, the forest coverage is so much, how many
million hectares on this island, where the boundary of the forests is.
The use of a single official map could help reduce the issuance of overlapping
permits, a leading cause of disputes between companies and indigenous people.
In 2010, the Indonesian government announced a One Map initiative, aiming to
bring together spatial data for Indonesia into a single database, but the project—
which is partially funded by the World Bank—is still in process.41
Another major problem is that there is simply too much money to be made in
cutting down Indonesia’s forests. An increasing fraction of globally traded palm
oil is sold to Indian and Chinese firms, and few of them have shown any interest
in purchasing sustainable oil. Moreover, although some Indonesian
administrations have committed themselves to the goal of reducing
deforestation, the palm oil industry is an important source of patronage for both
local and national politicians.42 The Ministry of Forests, which has partial
responsibility for land use and allocation, is notoriously corrupt, and retiring
civil servants often buy a palm oil mill or two “for their retirement.” Patronage
networks are endemic to Indonesia and often rely on the revenues from
deforestation and illegal logging to grease the wheels of politics. It was difficult
to know how the CGF could address these kinds of issues. One experienced NGO
leader put it to me this way: “Suppose that you detect illegal logging from the
air. You call the local mill, and then ask them to do what? To drive into the
forest, confront the armed men who are guarding the site, and tell them that the
mill will refuse to purchase palm oil produced from the land six years from

now?! I’ll tell you what you do when you encounter illegal loggers. You smile,
wish them well and keep on your way.”
More than 70 percent of all the logging in Indonesia is illegal.43 If there’s an
important group of producers who see no benefit to becoming more sustainable,
if they have customers who are happy to buy from them, and if the government is
not willing to enforce its own laws, it’s going to be very difficult to stop the
forests coming down.
Does this mean that self-regulation has failed in palm oil? The effort has—so
far—failed to stop deforestation. But it has significantly increased the odds of
stopping it going forward—if a way can be found to bring governments and/or
investors into the mix. The coalition needs to find a way to increase everyone’s
incentives to cooperate—by, for example, making growing sustainable oil
economically attractive to smallholders, by persuading Indian and Chinese
consumers to push local firms to use sustainable oil, or by persuading local
governments to enforce laws against deforestation.
The business case for action remains strong, and years of work have
generated deep knowledge as to how to fix problems on the ground. But someone
needs to be able to enforce cooperation. The decade-long struggle to reduce the
deforestation associated with soy and beef production in the Amazon suggests
that the secret is to partner with the public sector.
The soy story begins on familiar ground. In 2006 Greenpeace published
“Eating up the Amazon,” a report claiming that Archer Daniels Midland (ADM),
Bunge, and Cargill—the world’s largest commodities trading companies—were
actively contributing to the destruction of the Amazon rainforest through their
financing of soy bean production.44 Deploying protestors dressed in seven-foot-
high chicken suits outside McDonald’s (95 percent of soy is used as animal
feed), Greenpeace accused the Western firms buying Brazilian soy of helping to
destroy one of the world’s last great rainforests and cooking the planet.
Greenpeace published its report (and let loose its chickens) on April 6,
demanding that the entire food industry exclude soy produced in the Amazon
from their supply chains. Three months later—on July 25—a group that included
not only ADM, Bunge, and Cargill but also McDonalds and the two Brazilian
industry associations that controlled 92 percent of Brazilian soy production
announced a “soy moratorium”—an agreement not to purchase soy grown on
lands deforested after July 2006 in the Brazilian Amazon.

The moratorium was monitored by the Soya Working Group, which included
soy traders, producers, NGOs, purchasers, and the Brazilian government. Using a
combination satellite/airborne monitoring system developed jointly by industry,
several NGOS, and the government, the Soya Working Group monitored 76
municipalities that between them were responsible for 98 percent of soy
production in the Amazon.45 Farmers who violated the moratorium were
prevented from selling to the moratorium’s signatories, and could find it difficult
to obtain financing. The agreement was renewed every two years, and, in 2016,
the moratorium was extended indefinitely, or until it was no longer needed.46 In
the ten years after it was signed, soy production in the Brazilian Amazon nearly
doubled,47 but less than 1 percent of the new production was on newly deforested
land.48 Soy yields—the quantity of soy grown per acre—also increased
significantly.49
In 2009 Greenpeace issued “Slaughtering the Amazon,” a report accusing the
cattle industry of clear-cutting mature forests in the Amazon.50 Nearly 60
percent of agricultural land worldwide is used for beef production, and cattle
production drives 80 percent of Amazonian deforestation.51 Federal prosecutors
in the Brazilian state of Para began suing ranchers who had illegally cleared
forestlands and threatening to sue retailers who were buying from them. In

response Adidas, Nike, Timberland, and a number of other shoe companies using
Brazilian leather announced that they would cancel their contracts unless they
could be assured that the leather they were using was not implicated in the
destruction of the Amazon. The Brazilian Association of Supermarkets called for
the beef they sold to be deforestation-free.
The shares of Brazil’s four-largest meatpackers fell significantly as a result.52
Together they signed what became known as “The Cattle Agreement,” banning
the purchase of cattle from newly deforested areas in the Amazon.53 Continued
customer pressure—including a 2010 commitment by the members of the
Consumer Goods Forum to buy only zero deforestation beef—helped to keep the
moratorium in place.
Here again it was the active support of the Brazilian government that was
particularly helpful. Most of the Brazilian Amazon is formally protected by the
Forest Code, which requires that landowners permanently maintain 80 percent of
their land as forest. It was passed in 1965 but only rarely enforced until the
2010s, when the combination of the soy and beef moratoria and the development
of sophisticated technology for tracking deforestation on a daily basis gave it
new life. The Cattle Agreement was remarkably successful. In 2013, 96 percent
of all slaughterhouse transactions were with suppliers registered with Brazil’s
Rural Environmental Registry, up from just 2 percent of transactions prior to the
agreement.54 Between them, the two agreements dramatically slowed
deforestation in the Amazon at a time when rates of deforestation increased
significantly nearly everywhere else in the world.55
In both cases government support was critical to making progress—as the
dramatically accelerating rate of deforestation in the Amazon following
President Jair Bolsonaro’s recent election and subsequent repudiation of his
predecessor’s policies makes only too clear.56 But in both cases government
support was catalyzed and enabled by private sector action. The industry’s
commitment gave the government political cover to enforce the law—and
provided critical technical know-how and ongoing support.
My guess is that this experience will prove to be the model for future self-
regulatory efforts. Industry-wide cooperation will establish a demand for
sustainably produced products. Leading firms will invest to build the technical
expertise and operational sophistication necessary to make the switch. But in the
end government support will be critical to making progress.
One study, for example, analyzed the effectiveness of private sector
regulation in the apparel and electronics industries. It drew on five years of

research, more than 700 interviews, visits to 120 factories, and extensive
quantitative data.57 The author concluded that while there was much that could
be done, private sector compliance programs were unlikely to solve the full set
of labor problems in the global supply chain. In his words:
After more than a decade of concerted efforts by global brands and labor
rights NGOs alike, private compliance programs appear largely unable to
deliver on their promise of sustained improvements in labor standards.…
Compliance efforts have delivered some improvements in working
conditions… (but) these improvements seem to have hit a ceiling: basic
improvements have been achieved in some areas (e.g.: health and safety)
but not in others (e.g. freedom of association, excessive working hours).
Moreover, these improvements appear to be unstable in the sense that
many factories cycle in and out of compliance over time.
In palm oil and in textiles, extensive and well-funded efforts at self-
regulation have succeeded in making major gains but have not achieved their
original objectives. In both cases the industry has begun to look to local
regulatory authorities as partners in achieving fully sustainable supply chains.
In palm oil, members of the Consumer Goods Forum have been meeting
regularly with a broad range of stakeholders—including NGOs and local
communities and politicians in Indonesia and Malaysia—to explore possible
ways forward. One possibility is to move to what’s technically known as a
“jurisdictional” approach—building partnerships with local politicians, local
NGOs, and local communities in an attempt to build a business case for
converting entire regions to sustainable palm. Similar conversations are
happening in the textile business in the context of some promising early success.
One study of the Indonesia apparel industry, for example, found that self-
regulatory efforts were significantly more likely to increase wages when the self-
regulating body worked closely with the state and when local unions were
mobilized to push for state action.58 A study of the Brazilian sugar industry
found that the efforts of private auditors complemented the attempts of local
regulators to prohibit extreme forms of outsourcing, and that the two together
pushed firms to adopt significantly improved labor standards.59
What Makes the Difference?

What makes the difference? Why do some self-regulating organizations succeed
while others fail? One answer to this question emerges from the history of the
Institute of Nuclear Power Operations.60 The institute was founded in 1979
following the disastrous nuclear reactor meltdown known as Three Mile Island.
The accident shocked the public and terrified the nuclear industry. Indeed many
of the utilities operating nuclear power plants became convinced that the
industry could not survive another such incident.61
Historically the nuclear power industry had been regulated by the Nuclear
Regulatory Commission, a US government agency. Following the Three Mile
Island disaster, the Nuclear Regulatory Commission attempted to increase the
industry’s safety, but it was essentially a technologically focused institution, and
the independent commission set up to investigate the accident concluded that
organizational and managerial issues such as complacency and
miscommunication were the primary cause of the accident, rather than problems
with the technology. Many nuclear power workers had gained their experience
working with fossil fuels and had assumed that they should run nuclear plants as
they had run fossil fuel plants, namely, as hard as possible until they hit
problems—problems that would then be fixed by maintenance and/or technical
crews. Many managers and operators seemed to lack a sense of the vastly greater
destructive potential of nuclear energy. When individual plants did learn
something about how to run a plant more safely, the information was not shared
with other firms. The fifty-five utilities operating nuclear power plants in the
United States set up the Institute of Nuclear Power Operations as a private self-
regulatory organization to fill this gap.
The institute was staffed by former nuclear Navy veterans. The Navy’s
nuclear program was famous for its zero accident record and a culture that
placed safety first, second, and third. The Navy men (they were all men)
developed operating standards and procedures for the industry and provided
operational support for their adoption through an aggressive program of training
and plant visits. Each plant was extensively evaluated each year. Following the
visit, institute employees would show each plant how it compared to its peers
across a set of critical performance indicators—and then offer to work with the
plant to bring performance up to par. At annual industry meetings, the institute
would present the results of these studies to all attending CEOs, putting further
pressure on those with low grades to address their plants’ problems. If an
executive was found to be uncooperative, the institute could also threaten to
contact the company’s board of directors.

Between 1980 and 1990, the average rate of emergency plant shutdowns fell
more than fourfold, and the institute is widely credited with making an order of
magnitude improvement in the safety of the US nuclear power industry. It is still
in operation today and continues to be entirely funded by the nuclear industry.
As I mentioned above, Elinor Ostrom’s pioneering work also uncovered many
examples of successful industry-wide cooperation. In one of her most famous
studies, she examined the Maine lobster industry. Lobster stocks in Maine
declined dramatically in the 1920s and 1930s; in response the state imposed
regulations on the size and number of lobsters that could be taken. Local
lobstermen then self-organized to enforce these limits. They agreed to throw
back breeding females after punching a notch in their tails, and established a
system for dividing the fishing ground among themselves and an enforcement
mechanism to prevent violations. Lobster stocks were back to sustainable levels
by the late twentieth century and are now booming.62
Together with the Chicago story, these two cases graphically illustrate the
four conditions that must be in place if self-regulation is to succeed. The first is
that sustaining cooperation must be in everybody’s interest—and must clearly be
seen to be so by everyone involved. It’s much easier to cooperate if doing so
yields immediate benefits and—equally—if the costs of failing to cooperate are
also significant. One of the reasons the nuclear utilities were so eager to
cooperate after the Three Mile Island disaster was that they feared that a single
slipup at any nuclear plant could put the entire industry out of business.63 They
thus had very strong incentives to make cooperation work. This was also the case
in the lobster industry, where continuing to overfish would certainly throw
everyone out of work, while reducing the catch would plausibly lead to a rapid
rebound in the fisheries. One of the reasons that nearly half of the world’s
fisheries are sustainably fished is because most fisheries have historically
rebounded relatively quickly once fishing has been controlled. It means that
fishers don’t have to wait long to see the benefits of their self-restraint.64 In the
Chicago case, on the other hand, it’s not surprising that the Society for the
Prevention of Smoke was almost entirely founded by men who had significant
financial stakes in the success of the White City, while it was the tugboat owners
—who arguably had the most to lose and the least to gain from changing their
behavior—who made achieving lasting cooperation so difficult.
Cooperation is also much easier if everyone involved in the industry is in it
for the long term, or, more technically, if it’s hard to enter and difficult to leave.
Again, this was clearly the case in both the nuclear and lobster cases. Nuclear

plants have a sixty-year life and cannot be moved. The lobster fishers had gone
into debt to buy boats and equipment—assets whose value would fall close to
zero if the fishery collapsed.
But these two conditions are only enough to ensure everyone will cooperate if
the benefits of doing so ensure that it’s in no one’s interest to cheat or free ride.
One of the reasons that voluntary bodies like the International Chamber of
Commerce are so often successful is that the benefits they offer are tangible and
immediate and the temptation to cheat is very small. When this isn’t the case,
cooperation will only survive if it’s easy to see if someone is not pulling their
weight. In the nuclear case, annual inspections by the Institute of Nuclear Power
Operations served not only to bring every plant up to speed with the latest
techniques but also to ensure that all the utilities were doing their best to use
them. Lobster fishing catches are harder to observe, but the small size of the
lobstering communities made it relatively easy to detect people who were
cheating.
The fourth and last condition is that it must be relatively easy to punish those
members of the coalition who are not playing by the rules. The nuclear guys
became very good at this. In one famous incident, the institute sent a letter to the
board of directors of Philadelphia Electric’s Peach Bottom plant, highlighting the
plant’s years of underperformance. The board retired the plant’s top executives,
including the CEO, and moved quickly to address the problems. In another
incident, after years working privately with the management to fix California’s
Rancho Seco nuclear reactor, the institute informed the government’s nuclear
regulators about the reactor’s numerous safety violations. The regulators then
conducted their own inspection of the plant and subsequently ordered it shut
down.
In the lobstering case, poachers who left their lobster traps in another
lobsterman’s territory could expect a series of gradually escalating sanctions. A
tag would be tied to the poacher’s trap to signal that he had been caught. If the
poaching persisted, other lobstermen might cut the rope leading from the buoy to
the trap, making the trap impossible to retrieve. Poachers who persisted could
expect damage to their boats or threatening visits to their homes.
Notice that it was the loss of the ability to punish persistent polluters who
continued to pollute that ultimately destroyed the Chicago coalition. As long as
public opinion was with the coalition and the courts were convicting polluters,
the vast majority of Chicago’s businesses would stay in line. But once opinion
turned against the coalition and no one would convict, the effort fell apart.

Cooperation Within Regions
The idea that collective action across firms might be a powerful first step toward
partnership with local governments is not, of course, a new idea. Leading-edge
companies have been working together with local regulators and local
communities to create public goods that benefit the entire community for at least
a hundred years.
In Minneapolis–St. Paul, for example, which is by some measures one of the
most successful cities in the United States, the business community has a long
history of working with local government, particularly with regards to education.
Despite the fact that the city is located thousands of miles from either coast and
has some of the worst weather in the United States, nineteen of the Fortune 500
—including United Health Group, 3M, Target, Best Buy, and General Mills—are
headquartered in the city, as is Cargill, the largest privately owned company in
the United States. Given the city’s geographic isolation and terrible weather, the
CEOs of these companies are very much aware that they have a common interest
in making the region an attractive place to live and work. They also have a long
history of developing the kind of shared identity and private meeting spaces that
help sustain cooperation.65
For example, according to Robin Johnson, the president of the Cargill
Foundation, “The physical climate and location,66 the isolation of the
community from the coasts and the work ethic of the Scandinavian and German
immigrants who settled here may have prompted the idea that we’ve got to do
things to build the community for ourselves. No one will do it for us. We’ve got
to do things together.”
Kendall Powell, ex-CEO of General Mills, expanded:
If you go back far enough, the Cargills and Macmillans of Cargill, George
Pillsbury at Pillsbury, Cadwallader Washburn at General Mills, the
Daytons of Dayton-Hudson (later Target), they lived here and managed
these companies well into their maturity. As a result, organizations like
the Minneapolis club became places where it was relatively easy, if there
was a community problem, to convene a half a dozen business leaders and
decide what the business community ought to do about it. The heads of
these organizations now come from all over, but the institutions and the
traditions that gave rise to that sense of community involvement are still
there, and are still consciously pursued by community leaders.67

The Minnesota Early Learning Foundation is one example of this cooperation
in action. It got its start in 2003, when Art Rolnick, the head of research at the
Federal Reserve Bank of Minneapolis, published a paper noting that fewer than
half of Minnesota’s incoming kindergartners were emotionally, cognitively, or
socially ready for school.68 Cargill’s CEO, George Staley, took the lead in asking
the local business community for funds to take action on the problem. By the end
of the 2008 recession, he had raised $24 million and persuaded the CEOs of
Ecolab, Target, and General Mills to commit to five years of quarterly meetings
—in person—as board members.
They used the money to test three complementary initiatives. They gave
qualifying parents annual scholarships of up to $13,000 to spend on any high-
quality early childcare education programs in the Minneapolis–St. Paul area.
They launched a “Parent Aware” ranking system to identify high-quality early
childhood education programs, and they supported every family in the program
through home visits. The effort proved to be very successful, with the
scholarship recipients showing significantly better outcomes than a comparison
group, and it led to both the state and the federal governments making major
commitments to early childhood education in the state.
Looking back, Charlie Weaver, the CEO of Ecolab, stressed the way in which
the private sector was able to support investment in innovation and
experimentation that could subsequently provide a basis for political action,
saying:
The biggest success was in raising the $24 million. Without the funds to
pay for the scholarship, set up the rating system and give the parents the
chance to choose quality daycare facilities, the idea would not have been
taste tested and quality daycare centers would not have opened in these
neighborhoods. Without the money we would just have done a report
saying that early education is important and had no further impact. The
most important thing was being able to prove the idea before taking it to
the legislature for broader support.
Several mayors have told me that Minneapolis–St. Paul has a number of
things going for it that have made it particularly easy to build this kind of
cooperation. It is, for example, ethnically and racially much more homogenous
than most American cities. But my sense is that there are literally hundreds—
perhaps thousands—of city and regionally based efforts underway featuring

some form of public-private partnership in pursuit of reducing environmental
damage and/or reducing inequality through increased economic growth. All these
efforts require at least some level of cooperation among the leading businesses
of the area to be effective. Self-regulation—particularly when it’s coupled with
an appreciation for the power and role of the state—may yet turn out to be a
crucial tool in reimagining capitalism.
Investors as Enforcers
Cooperation among investors is another key to progress. More than a third of the
world’s invested capital—about $19 trillion—is controlled by the world’s
hundred largest asset owners. Nearly two-thirds of this money is in pension
funds, while the remaining third is in sovereign wealth funds.69 The fifteen
largest asset managers collectively handle nearly half of the world’s invested
capital. They include BlackRock, which currently manages just under $7.0
trillion; the Vanguard Group, which controls $4.5 trillion; and State Street, which
has $2.5 trillion under management.70 A very high proportion of this money, as
we saw earlier in the chapter on rewiring finance, is in passive investments. In
the United States, for example, 65–70 percent of all equities are held by index
and quasi-index funds.71 These investments are completely exposed to system-
wide risk. Their owners cannot diversify away from the risks that accelerating
rates of environmental degradation and inequality present to the entire economy.
The best way to improve their performance is to improve the performance of the
economy as a whole.
In principle these investors have enormous power to move the entire economy
in more sustainable directions. All they have to do is find a way to cooperate. If
all fifteen asset managers or all one hundred asset owners decided together to
require all the companies in their portfolio—or all the companies in a particular
industry—to move away from fossil fuels, end deforestation, or embrace high
road labor strategies, it would be an enormous step toward building more
equitable and sustainable societies. Hiro was able to drive significant change in
Japan on the basis of owning 7 percent of Japanese equities. Imagine what might
happen if the owners of more than half of the world’s capital demanded change.
It’s not quite that easy, of course. Take, for example, the ongoing effort to use
investor power to arrest global warming.
Climate Action 100+ (CA100+) was founded in 2017 with the goal of
persuading the world’s one hundred most important carbon emitters to, as one

reporter put it, “cut the financial risk associated with catastrophe.”72 The group
is an affiliation of more than three hundred investors who between them control
nearly half the world’s invested capital.73 They have three goals. The first is
ensuring that every firm in which they invest has a board-level process in place
to evaluate the firm’s climate risk and to oversee plans for dealing with it. The
second is to have every company clearly disclose these risks, while the third is to
persuade each firm to take action to reduce GHG emissions across its value chain
rapidly enough to be consistent with the Paris Agreement’s goal of limiting
global average temperature increase to well below 2°C.74
The business case for participating in CA100+ is well defined: the investors
who have joined it believe that climate change presents a clear and present
danger to the long-term value of their investments from which they cannot
diversify away. Like Hiro, many believe that their fiduciary duty to their
beneficiaries requires them to do everything they can to solve global warming.
This doesn’t mean that coordinating the group is entirely easy.
Its actual work is done through a mix of public letters, formal and informal
conversations with company management, and the filing of “shareholder
resolutions”—investor proposals for action that are submitted to a vote of the
entire shareholder base at the company’s annual general meeting. Individual
investors take responsibility for coordinating action with respect to a particular
company, building a coalition among the company’s investors to press for
change.
For example, in December 2018, a group of investors representing more than
$11 trillion published a letter in the Financial Times, saying, in part:
We require power companies, including power generators, grid operators
and distributors, to plan for their future in a net-zero carbon economy.
Specifically, we request companies to set out transition plans consistent
with the goal of the Paris Agreement, including compatibility of capital
expenditure plans. We expect explicit timelines and commitments for the
rapid elimination of coal use by utilities in EU and OECD countries by no
later than 2030, defining how companies will manage near-future write
downs from fossil fuel infrastructure.75
Six months later investors from CA100+ pushed Shell into announcing short-
term targets for limiting greenhouse gas emissions, and persuaded BP to support
a shareholder resolution that binds the company to disclose the carbon intensity

of its products, the methodology it uses to consider the climate impact of new
investments, and the company’s plans for setting and measuring emissions
targets. The resolution also requires annual reporting on the company’s progress
toward these goals and an explanation of the degree to which executive pay is
linked to the firm’s ability to meet them.76 The filing of shareholder resolutions
might not sound like world-changing stuff, but such resolutions can be a
powerful way of communicating investor priorities and beliefs and of putting
pressure on the firm. Any management team is only too aware that a sufficiently
large coalition of investors can, after all, replace them.
But engaging with companies in this way is costly, and Climate Action 100+
faces a classic free-riding problem: there’s a real risk that any particular investor
will be tempted to let the other investors in the coalition do all the hard work. It’s
relatively easy to tell which investors are pulling their weight, but there’s no
foolproof way of punishing those who choose to stay on the sidelines despite
their commitments. My sense is that at the moment, leading members are using a
mixture of moral suasion and in-group shaming to persuade everyone to
participate. If they succeed, Climate Action 100+ will prove to have been the tip
of a critically important iceberg.
I read BlackRock CEO Larry Fink’s letter and the announcement by the
Business Roundtable of a new purpose for the corporation as testing their
colleagues’ appetite for exactly this kind of strategy, and a group of the world’s
hundred largest investors—or of the world’s fifteen largest asset managers—
would meet several of the conditions most likely to support cooperation. The
group would be relatively small, the returns to cooperation potentially very high,
and it should be straightforwardly easy to observe whether every member of the
group is indeed putting pressure on the firms they own. If the coalition could
develop a way to punish investors that free ride, they would be home free—and it
might be that social pressure within the group would be enough to persuade
everyone to cooperate. I’m told that there is a room in which many of them meet.
The rumor is that they look at each other and say, “You go first.”
My students ask me if this kind of thing doesn’t make me nervous. Do we
really want the world’s largest asset owners to exercise this kind of collective
power? To me, this is an easy question. These owners are already exercising
enormous power—in the service of pushing the firms in their portfolio to race to
the bottom. It’s critically important that they make a deliberate decision to
trigger a race to the top instead. A central element of a reimagined capitalism is
a reimagined financial sector—one that takes its collective responsibilities to the

world seriously and is willing to act on them.
IN SUMMARY, SELF-REGULATION is a potentially powerful way to mobilize the
world’s business community in support of creating collective shared value. In the
nuclear industry, in textiles, palm oil, beef, and soy, and in places like
Minneapolis–St. Paul, the business community has come to believe that it would
be better off if it acted together to create a public good (or cease creating a
public bad). This kind of cooperation keeps bumping into government, and one
of the reasons that the pursuit of industry-level cooperation is potentially so
important is that it creates an appetite for government intervention. In palm oil,
soy, and beef, and increasingly in the textile and IT businesses, industry leaders
are actively pushing for government regulation. Firms that have committed
themselves to behaving well have strong incentives to push for sanctions against
those of their competitors who have not.
Can we take this logic to the next stage? If our problem is that our institutions
are failing to balance the power of the market, can the private sector help
strengthen these institutions? If they could, should they? These are the questions
I take up in the next chapter.

7
PROTECTING WHAT HAS MADE US RICH AND
FREE
Markets, Politics, and the Future of the Capitalist
System
If men were angels, no government would be necessary. If angels were to govern men,
neither external nor internal controls on government would be necessary. In framing a
government which is to be administered by men over men, the great difficulty lies in this: you
must first enable the government to control the governed; and in the next place oblige it to
control itself.
—JAMES MADISON, FEDERALIST PAPERS, NOS. 10 AND 51
In the end, the issues central to reimagining capitalism can only be addressed by
limiting the power of business. But our wholehearted embrace of shareholder
value maximization at almost any cost—and the systematic devaluing of
government that has followed in its wake—means that in many countries
national institutions are not currently well equipped to hold markets in check.
The media are under sustained attack, and the very idea of democracy is falling
out of fashion.1 Moreover, as noted earlier, many of the problems we face
require global solutions, and we have as yet only a very preliminary sense of
what globally inclusive institutions might look like. An enormous amount of
power is concentrated in the private sector at a time when national institutions
are under stress and our global institutions remain relatively weak. What can be
done?
THE KEY TO prosperity for both business and society at large is to understand free

markets and free politics as complements rather than as adversaries. Free
markets need democratic, transparent government if they are to survive—as well
as the other institutions of an open, inclusive society including the rule of law,
shared respect for the truth, and a commitment to a vigorous free media.
Similarly, free governments need free markets. Without the growth and
opportunity that truly free and fair markets provide, many societies have trouble
maintaining their legitimacy or upholding the minority rights that are at the heart
of effective democratic governance.
Reimagining capitalism through the push to create shared value, rewire
finance, and find new ways to cooperate will make an enormous difference, but
on their own they are not enough to build a just and sustainable society. Effective
government action is the missing piece, but the choice is not between markets
and government. Genuinely free and fair markets cannot survive without
government. The choice is between inclusion—transparent, democratic,
effective, market-friendly government supported by a strong society and a free
media—and extraction, the rule by the few on behalf of the few. Free markets
need free politics. It is time for the private sector to play an active role in
supporting them.
BOTH ENVIRONMENTAL DEGRADATION and inequality are systemic problems that
cannot be solved without government action. Arresting climate change requires
decarbonizing the world’s energy supply, radically upgrading the world’s
buildings, changing the way we build cities, remaking the world’s transportation
networks, and completely rebuilding agriculture. These are massive public goods
problems that not even the most sophisticated self-regulation can solve. We need
governments to provide either the economic incentives that will move firms to
action, or the regulations that will force everyone to do the right thing. Business,
in its own interest, must take the lead. Without good government and free
politics, the free market will not survive.
Energy demand is projected to double over the next fifty years.2 Stopping
global warming means ensuring that every new plant that’s built is carbon-free.
It also means shutting down or decarbonizing the world’s existing fossil fuel
infrastructure. These are tasks that only government action—whether it’s in the
form of a carbon tax or simple regulation—can achieve. Business was able to
make real progress in slowing the deforestation of the Amazon—but only with
government help. Now that the Brazilian government has changed its policies,
rates of deforestation have skyrocketed.3 The businessmen who built the White

City were only able to curb Chicago’s pollution as long as they could use the
threat of legal sanction to shut down polluters. Once they lost political support
and juries refused to convict, the pollution returned.4
Inequality presents a similarly tough set of deeply intertwined systemic
problems that can only be fully addressed through government action. Providing
every child with the education and the health care that he or she needs to be able
to compete in the modern economy is clearly table stakes—but table stakes that
can only be effectively provided by the state. Moreover, they are not enough to
ensure real equality of opportunity. Only about 20 percent of any given student’s
success is a function of his or her education, while about 60 percent is
attributable to family circumstances—and most particularly, to the family’s
income.5 Children growing up without adequate nutrition or adequate childcare,
and with parents who are working too hard and under too much stress to be able
to support them in their schoolwork, are much less likely to succeed.6 Only
government can address the structural factors that drive inequality and raise
incomes at the bottom of the income distribution.
Between 1946 and 1980, US total pretax national income nearly doubled. The
poorest half of the population saw their income slightly more than double, while
the richest 10 percent saw a slightly smaller increase.7 Between 1980 and 2014
pretax national income grew by 61 percent.8 But the income of the poorest half
grew by only 1 percent, while the income of the top 10 percent grew by 121
percent, and the income of the top 1 percent more than tripled. Average CEO pay
—which was about 30 times average worker compensation in 1978—was 312
times average compensation in 2017.9 Just over half of today’s public school
students qualify for free or reduced-price school lunches—a classic proxy for
poverty.10
We cannot provide real opportunity until and unless we can raise wages.
Many firms believe—however incorrectly—that they simply cannot afford to
raise wages. Recall that Walmart’s stock price dropped 10 percent on the day the
firm announced it was spending roughly $3 billion to raise its minimum wage by
approximately $2.50/hour.11 Raising it another 50 percent to $15/hour would cost
billions more. In 2018 Walmart made about $20 billion in operating profits. That
may sound like a lot, but it’s only about 4 percent of sales, and increasing labor
costs by billions of dollars without increasing sales or productivity could easily
trigger a wholesale flight from the stock.12 It may well be that if the firm could
adopt the kinds of labor practices that have allowed Costco or Mercadona to pay
over the odds, Walmart too could raise wages. But such a transformation would

be hugely disruptive—and there are many firms that continue to believe that they
cannot give their workers a decent wage until and unless all of their competitors
are forced to do the same thing.
Moreover simply increasing spending on education and unilaterally driving
up wages is unlikely to reduce inequality substantially without moves to address
the full range of factors that drive inequality in the first place, from uncontrolled
globalization and the decline of organized labor, to changes in the tax code that
favor the rich, to the increasing concentration in many industries and the failure
to invest in infrastructure. These are all issues that can only be addressed through
political action.
OF COURSE, THE idea that business could play a central role in strengthening
existing or creating new inclusive institutions might seem, at first glance, a little
far-fetched. The very idea of government has been under assault for decades.
Ronald Reagan, for example, famously declared in his inaugural address as
president of the United States that “in this present crisis government is not the
solution; government is the problem.”13 Grover Norquist, the influential head of
Americans for Tax Reform quipped in an interview, “I don’t want to abolish
government. I simply want to reduce it to the size where I can drag it into the
bathroom and drown it in the bathtub.”14
Trust in government—and in the idea that governments can be relied on to fix
society’s problems—is at an all-time low.15 But these perceptions are a function
of a systematic campaign to discredit government, not of the role that
governments could—and have—played in building just and sustainable societies.
One of the most important roots of the triumph of the “free market at almost
any cost” ideas that characterized the United States in the 1980s and 1990s was
an intellectual and cultural movement that was bankrolled by the private sector.
Much of the funding for the Mont Pelerin Society, an international group of
scholars that included conservative economists like Friedrich Hayek and Milton
Freidman and met regularly for some years to develop a rigorous academic basis
for their ultra–free market ideas, came from the business community.16
In the decades following World War II, businesspeople funded a number of
radio programs and popular magazines that featured the ideas of Ludwig von
Mises, Friedrich Hayek, and other neoliberal thinkers. For example, Howard
Pew, president of Sun Oil, funded James Fifield’s radio program, the Freedom
Story, and Billy Graham’s magazine, Christianity Today. These platforms

combined free-market Hayekian concepts with broader social and moral themes,
creating a network that supported conservative activism. Resources were also
channeled to libertarian think tanks such as the American Enterprise Institute in
an attempt to communicate free market, anti-government ideas to policy makers
and journalists.
Wealthy business leaders committed to free market thinking also made a
concerted effort to influence academic opinion. For example the John M. Olin
Foundation, founded by the eponymous industrialist, spent hundreds of millions
of dollars between 1960 and 2005 to develop and disseminate the expansion of
law and economics as a legal discipline, underwriting the costs of a majority of
its early programs and fellowships. A director of the Olin Foundation explained
that while law and economics seemed neutral, it possessed “a philosophical
thrust in the direction of free markets and limited government,” and that it was a
way to fund conservative legal scholarship without drawing backlash from
university deans. Leading schools such as Harvard Law School and Columbia
Law School received substantial funding for new law and economics programs in
the hope that they would influence other schools.
Charles and David Koch, sole owners of Koch Industries and two of the
richest men in America, were—until David Koch’s passing—the de facto leaders
of the continuing effort to reduce the size and power of the US government. That
mantle now rests on Charles’s shoulders alone. Throughout the 1980s and 1990s,
the brothers funded a variety of organizations opposing efforts like
environmental regulation, cap and trade legislation, and health care reform.
Beginning in 2003 they also began to convene twice-yearly donor “seminars” at
which wealthy individuals—largely business leaders—were exposed to ultra–
free market ideas as well as to practical political strategies for implementing
them. By 2010 more than two hundred wealthy donors were regular attendees.
The network is committed to cutting taxes, blocking or eliminating business
regulation, reducing funding for public education and social welfare initiatives,
undercutting public and private labor unions, restricting easy voter registration,
and cutting back voting days and hours. It continues to thrive and routinely funds
investments designed to generate ideas, research, and change in higher
education. But its most extensive efforts have been devoted to the creation of
Americans for Prosperity, “a general-purpose federation of organizations.” The
members of the federation invest in advertising, lobbying, and grassroots
agitation. By 2015 the federation had a budget of $150 million and five hundred
staff. In 2015, 76 percent of the new political organizations on the right were

affiliated with the Koch network, while 82 percent of new extraparty funding was
flowing through Koch-affiliated consortia.17
THE BELIEF THAT government is actively destructive—that it means unresponsive
bureaucrats, high taxes, and endless regulation—has thus been at least partially
constructed by a more than fifty-year campaign. These perceptions are an artifact
of our present moment, not of the role that government could—and has—played
in building just and sustainable societies. Two charges are laid against
governments: that they tend toward tyranny and particularly that they seek to
replace the free market with state control or central planning, and that they are
hopelessly gridlocked and ineffective. Some governments are indeed tyrannical,
and some governments are broken. But they have not all always been so, some
are not so now, and none have to be so going forward.
Building the Governments We Need: The Big Picture
The question of what kind of political system best supports economic growth and
social well-being is, of course, highly controversial. In the 1980s and 90s
political thinking in both the developed and developing world focused on the role
of free markets in driving economic prosperity and political freedom. Global
economic development was guided largely by the “Washington Consensus,” a
view of the world that focused overwhelmingly on the power of free markets to
drive growth. The Consensus led influential bodies such as the World Bank and
the International Monetary Fund (IMF) to push developing countries to enact
far-reaching deregulation and privatization, to open domestic markets to global
trade, and to permit free capital flows as roots of development—all without
explicit attention to the health of local political or social institutions.
It’s now clear that this was a mistake.
Empirically, many of the states that implemented the Washington Consensus
failed to do as well as expected. In post-Soviet Russia in particular, the rapid
liberalization of markets was followed by a descent into an extreme form of
crony capitalism, while the so-called Asian tigers—especially Taiwan,
Singapore, and the Republic of Korea—found economic success by pairing the
development of their own markets with heavy government intervention. A 2000
study that found that differences in political and social institutions explained
about three-quarters of per capita differences in income across formerly
colonized nations provoked a flood of further research.18 This work eventually

confirmed what historians and political scientists had never stopped saying—
namely that while economic growth and social well-being are often enormously
advanced by the presence of free markets, they are also critically dependent on a
host of complementary institutions.
A remarkably coherent consensus has emerged about the fundamental pillars
on which any successful system must be based. Scholars now differentiate
between “open access” regimes based on “inclusive” institutions—regimes like
those in Germany, Chile, the Republic of Korea, and the United States—and
“closed” regimes based on “extractive” institutions such as those in Russia,
Venezuela, Angola, the Democratic People’s Republic of Korea, and
Turkmenistan.
The distinction between inclusive and extractive institutions was first
emphasized by Daron Acemoglu and James Robinson in their book Why Nations
Fail. They defined inclusive economic institutions as those that support the
effective functioning of a free market, and inclusive political institutions as
those that enable the public to participate in the political process and monitor the
government. In contrast, extractive institutions concentrate both political and
economic power in the hands of the elite.
Extractive regimes are tyrannies. In an extractive society the political and
economic power is concentrated in a small elite. The rule of law is only
sporadically enforced, the media is a tool of the state, the rights of minorities are
routinely abused, and the right to vote—if it is exists—is systematically
manipulated and controlled. Free markets rarely thrive under extraction, since
the cadres of the elite control the law, and usually use it to create systematic
advantage for themselves and their friends, pushing the society toward crony
capitalism. The earliest forms of organized society were extractive. In ancient
Egypt and feudal Europe, political power was limited to the few who controlled
military force.19 They appropriated all the available economic surpluses for
themselves, which in turn enabled them to finance and maintain a system of
political and economic control.20
Examples of Economic and Political Institutions, Inclusive or
Extractive
ECONOMIC: Inclusive:
Secure property rights
Effective education & job training systems

Open markets with low entry costs
Balanced, fair employer-labor relations
Consumer protections
Environmental regulation
Antitrust enforcement
POLITICAL: Inclusive:
Democratic pluralism
Voting rights
Checks & balances in government
Free media
Freedom of speech & other personal rights
An impartial judiciary
Protection for minority rights
ECONOMIC: Extractive:
Weak property rights
Crony capitalism
Widespread anticompetitive monopolies
Forced or extractive labor
Disregard of externalities
POLITICAL: Extractive:
Monarchy / oligarchy / single-party rule
System of elites or nobility
Suppression of freedoms of expression
Patronage networks
Influential but opaque interest groups
Adapted from Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power,
Prosperity, and Poverty (New York: Crown Books, 2012).
Inclusive regimes are open, democratic, and accountable. They allow anyone
—no matter who their parents are—to participate in political and economic life.
They are characterized by two core institutions. The first is participatory
government. The second is the free market. As I suggested above, the two are
complements, and need each other to survive. Both are fragile. Governments
continuously seek more power, more wealth, and more control—while markets

similarly seek constantly to undermine the rules that constrain them, to seek less
regulation, lower taxes, and more power. They need each other—and the other
institutions of a free society if they are to stay in balance: the impartial rule of
law; a voice for labor; the preservation of minority rights; a free and effective
press; and a vigorous, open, and effective democracy.
Where do inclusive institutions come from? Free markets and free political
institutions first began to flourish on a large scale in Europe. In some cases, an
emerging merchant class pushed extractive rulers to share power. In others, the
potential for political inclusion to stimulate economic growth and to drive trade
led governments to share power as a way of increasing their ability to thrive in
the face of military threats.21 For example, in medieval Venice, a contractual
institution called the colleganza—a precursor to joint stock companies—enabled
wealthy financiers to provide capital to traveling merchants for long-distance
trade. Profits from the challenging journey were shared, providing traders, who
were chosen on the basis of merit rather than social standing, with the potential
to accumulate significant wealth. In time, this economic inclusion drove political
inclusion, as the growing merchant class placed constraints on Venice’s ruler (the
Doge) by eliminating hereditary rule and creating a parliament. Venice thrived
from the tenth to thirteenth century as a result, until the Serrata or “closure” in
the early years of the fourteenth century, when an exclusive group of wealthy
merchants succeeded in limiting access to the colleganza and to the parliament.
The change enabled these families to dominate the Venetian economy and its
politics for the next two hundred years—and marked the beginning of Venice’s
long decline.22
The emergence of inclusive institutions in seventeenth- and eighteenth-

century Britain was another important turning point. In the English Civil War of
1642–1649 and the Glorious Revolution of 1688–1689, a substantial middle- to
upper-class bourgeoisie, many of whom had made their money in trade, played
an important role in ushering in democratic reforms.23 During the Civil War,
they executed the king and brought the country under parliamentary rule. The
monarchy was restored in 1660, but with significantly restricted powers, and
following the Glorious Revolution, an alliance of commercial interests and
aristocrats forced the adoption of constitutional guarantees that further checked
the monarchy’s power and protected elections and free speech. Both the
American (1775–1783) and French Revolutions (1789–1799) can be similarly
interpreted as a struggle between a growing commercial class and a traditional
monarchy. In each case these political revolutions were followed by commercial
revolutions—by the breaking of aristocratic and monarchical control over the
economy in favor of economic competition open to (almost) all.
The history of the United States is a classic example of the power of inclusive
institutions. Following the Revolutionary War, the United States established
unprecedented checks and balances on political power, fundamental rights for
citizens, and free elections. The political and economic mobility supported by
these institutions meant that in principle any common (white) man could acquire
economic power—a radical notion in the eighteenth century—and this mobility
laid the foundations for the enormous dynamism of the United States’
nineteenth-century economy. The shared belief that (provided you were white
and male) your potential was limited only by your intelligence and your hard
work, coupled with the widespread availability of cheap land and the absence of
an entrenched ruling elite meant that the United States saw quite extraordinary
levels of social mobility.
In the nineteenth and twentieth centuries, this institutional regime was further
strengthened by the broadening of the franchise, public funding of education, and
the development of institutions such as a vigorous free media and a wide range
of labor, social welfare, consumer protections, and antitrust legislation. Partly as
a result, the United States has historically had not only an extraordinarily
innovative and dynamic economy but also among the highest levels of social
welfare of any developed nation.
Under effective inclusive institutions, effective governments are valued
partners in sustaining both the free market and a free society. The US
Department of Defense, for example, was the first customer for the computer
industry—an industry that got its start using discoveries that had been funded by

federal funds. Massive state investments in research and development led to the
revolutionary technologies that underpin the iPhone and the iPad, the internet,
GPS, touch-screen displays, and most communication technologies. Agricultural
extension schools funded by the federal government were instrumental in
diffusing the best practice techniques that helped to make US agriculture the
most productive in the world. Government money built the roads, ports, and
bridges that sustain the economy.24
Government regulation has solved a wide variety of environmental problems.
In 1973, for example, the chemists Frank Sherwood Rowland and Mario Molina
discovered that the chlorofluorocarbon (CFC) molecules used as aerosols and
refrigerants were stable enough to reach the stratosphere, and that their presence
there would cause the breakdown of the ozone layer that protects life on Earth
from the sun’s ultraviolet radiation. High levels of ultraviolet rays cause skin
cancer in humans and significant damage in other animal and plant life. Rowland
and Molina recommended that CFCs should be banned as soon as possible.25
This idea was strongly contested by the CFC industry, which at the time had
at least $8 billion in sales and employed over six hundred thousand people. The
chair of the board of DuPont was quoted as saying that the ozone depletion
theory is “a science fiction tale… a load of rubbish… utter nonsense.”26 DuPont,
the largest CFC manufacturer, speculated publicly that the costs of phasing out
CFCs could exceed $135 billion in the United States alone, and that “entire
industries could fold.”27
But twelve years later, three scientists discovered a hole in the ozone layer
over Antarctica that was much larger than anyone had expected. One estimate
suggested that if the question of CFCs was not addressed, by 2030 an additional
six hundred thousand people would die of skin cancer and an additional eight
million people would develop cataracts. There would also be significant damage
to plant and animal life. Despite continuing opposition, the Montreal Protocol—
an international agreement to phase out ozone-destroying chemicals—was
approved a year later to address the threat. The protocol has been remarkably
successful. It proved possible to find CFC substitutes relatively quickly, and the
Antarctic ozone hole is expected to return to its 1980 status by 2030. It has also
reduced global GHG emissions by about 5.5 percent.28
In the United States, the passage of the Clean Air Act in 1990 was similarly
effective. For example, the program to control acid rain—the SO2 (sulfur
dioxide) allowance trading program—cost no more than $2 billion a year and led
to benefits of between $50 and $100 billion a year in reduced mortality.29

Government regulations keep food and water supplies safe—and ensure that
workers are not routinely abused on the job. The adoption of national pension
schemes and government-funded health care for the elderly has meant that
millions of people no longer face the prospect of hunger and sickness in their old
age. No regulation and no government program is perfect, of course, and
government regulators can sometimes be difficult. But this is inherent in the
nature of the institution—the give and take of the political process in
combination with a focus on the public good rather than on private profit will
always mean that governments look less “efficient” than the private sector. But
efficiency is not the right criterion. The right criteria are whether the government
is clean, responsive, transparent, and democratic.
Economic growth in societies with strong inclusive institutions is more
consistent, and inclusive societies are significantly more prosperous than
societies living under extraction. Inclusive institutions are also a strong
determinant of individual well-being. Inclusive societies are happier and longer-
lived. They have lower-income inequality, greater socioeconomic mobility, and
greater social freedoms.30 While per capita GDP is a strong determinant of life
satisfaction for poor countries, when GDP is greater than about $15,000/year,
individual happiness is correlated not with income but with the presence of
inclusive political institutions.
In short, democratic governments and the other institutions of a free society
are a primary source of economic growth and individual well-being. The
problems that confront us now reflect the fact that we must build effective global
institutions if we are to address the global problems we face—but across the
world inclusive institutions are under sustained attack.
Business must become an active partner in shoring up the inclusive
institutions that we have and in building the new ones that we need. This is not a
question of supporting specific policies or of pushing a particular set of political
values. This is about supporting the foundations of our society. Business has to
learn to think systematically. The question should not be “Would this particular
policy benefit me,” but “How do we protect the institutions that have made us
rich and free?”
Many firms are already engaged with their local communities (as we saw
earlier with the example of Minneapolis-St. Paul), working with local
government to build the public goods that every society needs. Efforts have to be
expanded to both national and global levels and focused on three key issues. The
first is around minority rights and inclusion. Business should do what it can to

ensure that everyone in every society—regardless of race, gender, or ethnicity—
has the opportunity to be a full member of that society. The second is the need to
price or regulate major environmental externalities. Free markets only work their
magic when everything is properly priced. As long as firms can burn fossil fuels,
poison the oceans, and discard their waste without penalty, they will continue to
drive global warming and the destruction of the biosphere. Business must press
for the legislation that would force every firm to behave “well.” Lastly and
perhaps most importantly, business must do everything it can to preserve and
strengthen democracy and civil society.
Advocating for Minority Rights
Respect for the rights of minorities is one of the fundamental pillars of an
inclusive society, and a key indicator of the existence of healthy institutions.
Building a just and sustainable society requires not only the protection of
property rights and political rights but also civil rights, or equality before the
law. No society can be inclusive if it discriminates between groups in the
provision of public goods such as justice, security, education, and health.
Business is immensely powerful and beginning to flex its muscles in opposition
to discrimination. The fight to protect LGBTQ rights is one example of what this
might look like to practice.
In the United States views of LGBTQ people have changed enormously in the
last twenty years: 70 percent of the population—including majorities in both
political parties—now say that “homosexuality should be accepted,” up from 46
percent in 1994.31 Moreover, 61 percent favor same-sex marriage, up from 38
percent in 2002, and a (very slim) majority believe that trans people should have
civil rights.32
While the bulk of the heavy lifting on this front has been driven by the
enormous courage and persistence of LGBTQ people themselves, the movement
has been assisted by many of the large global corporations, who were early
supporters of gay rights. AT&T adopted a policy prohibiting discrimination
against employees based on sexual orientation in 1975, and IBM included sexual
orientation as part of its global nondiscrimination policy in 1984.33 In 1992 the
Lotus Development Corporation became the first publicly traded company to
offer benefits to its gay employees.34 IBM extended health care coverage to
same-sex couples four years later, while Walmart began to provide company-
wide health insurance benefits for all the domestic partners of its workers in

2013. Among the Fortune 500, 85 percent include gender identity protections in
their nondiscrimination policies (up from 3 percent in 2002).35 Sixty-two percent
offer transgender-inclusive health care coverage, up from zero in 2002.36 When
the Corporate Equality Index, which rates major companies on pro-LGBT
policies was first introduced in 2002, only 13 companies achieved perfect scores,
of the 319 surveyed. Today, even though the index has been revised to make it
more stringent, 366 of 781 businesses score a 100 percent, including fourteen of
the top twenty on Fortune’s rankings of the largest companies in the United
States.
But the battle has not been won. About half of the estimated 8.1 million
LGBTQ workers aged sixteen and older live in states without legal protections
against sexual orientation and/or gender identity employment discrimination,
and the number of hate crimes against LGBTQ people has not fallen
significantly.37 More recently a number of cities and states have passed
legislation that appears to be designed to make it legal to discriminate against
LGBTQ people. For example, in March 2015 Mike Pence, then governor of
Indiana, signed the Religious Freedom Restoration Act (RFRA). The act was
signed in a private ceremony attended by several groups that had been publicly
opposed to gay marriage, and critics charged that the legislation would allow
organizations to use religion to legally justify discrimination on the basis of a
person’s sexual orientation.
Many CEOs—both within Indiana and beyond—reached out publicly in an
attempt to reverse the legislation. Immediately before the act was passed, a
number of Indiana-based technology company CEOs, including the CEOs of
Clear Software, Salesforce, CloudOne, and Salesvue sent a letter to Mr. Pence
urging him to veto the measure, saying:
As leaders of technology companies, we not only disagree with this
legislation on a personal level, but (believe that) the RFRA will adversely
impact our ability to recruit and retain the best and the brightest talent in
the technology sector. Technology professionals are by their nature very
progressive, and backward-looking legislation such as the RFRA will
make the state of Indiana a less appealing place to live and work.38
Following the signing of the act, Tim Cook, the CEO of Apple (the first CEO
of a Fortune 500 company to come out as gay) tweeted that he was “deeply
disappointed” in the law. Yelp CEO Jeremy Stoppelman remarked,

[It] is unconscionable to imagine that Yelp would create, maintain, or
expand a significant business presence in any state that encouraged
discrimination by businesses against our employees, or consumers at
large.… These laws set a terrible precedent that will likely harm the
broader economic health of the states where they have been adopted, the
businesses currently operating in those states and, most importantly, the
consumers who could be victimized under these laws.39
The CEOs of Anthem Inc., Eli Lilly and Company, Cummins, Emmis
Communications, Roche Diagnostics, Indiana University Health, and Dow
AgroSciences—all companies with significant operations in Indiana—called on
the local Republican leadership to pass legislation to prevent “discrimination
based upon sexual orientation or gender identity.” Bill Osterle, the CEO of
Angie’s List, a home-services website that had recently announced that it would
expand its operations in Indiana, announced that the firm would postpone the $40
million expansion, putting as many as one thousand new jobs at risk.
A week later the legislature passed an amendment to the bill, clarifying that it
could not be used to defend discrimination against LGBTQ people.40 A month
later the governor of Arkansas also signed a revised “Religious Freedom” law
following public pressure from the CEO of Walmart, who publicly requested that
the governor veto the original version of the bill on the grounds that it
legitimized discrimination against LGBTQ people.
A similar response greeted North Carolina’s legislature when it passed the
Public Facilities Privacy and Security Act, more commonly known as the “HB2”
or the “bathroom bill” in March 2016. The bill eliminated a local city ordinance
that made it illegal for businesses to deny service to LGBTQ individuals and
would also have allowed transgender people to use restrooms that corresponded
to their gender identity. Under the state bill, transgender people were required to
use public restrooms corresponding to the gender listed on their birth
certificates.
The day after the bill passed, a number of companies—including American
Airlines, Red Hat, Facebook, Apple, and Google—issued statements opposing
HB2. A few days later more than one hundred other CEOs and business leaders
signed a letter expressing their concerns about the bill. The cofounder of PayPal,
Max Levchin, who the previous year had told CNN that opposing the Indiana law
was “a basic human decency issue,” canceled plans to open a new operations
center in Charlotte, the largest city in North Carolina and the source of the

original ordinance, costing the state as many as four hundred new jobs. A week
later Deutsche Bank announced that it was canceling its plans to create 250 jobs
in Cary, North Carolina. A year later, North Carolina passed a partial repeal of
HB2.
Taking these kinds of aggressive public positions is not always easy or cheap.
Walmart’s employees and customers are almost certainly deeply divided over the
question of LGBTQ rights. Osterle, the CEO of Angie’s List, was widely
attacked. The president of one local conservative group said, “I see what he did
as… nothing short of economic terrorism.” The One Million Moms blog labeled
the firm “a bully, plain and simple” and called for a boycott. Dan Schulman, the
CEO of PayPal, recalled, “We got many accolades from obviously lots of
different people for [speaking out], but we also got a lot of people who disagreed
with that decision. I got a lot of threats, personal threats.”
Discrimination is a bread and butter issue for the world’s largest corporations
since their millennial employees are passionate about the issue and demand that
their employers take a stand against it. But opposing discrimination—whether
it’s on the basis of gender, race, or ethnicity—is also a core moral value for
many business leaders.
On August 14, 2017, for example, Ken Frazier, the CEO of the US
pharmaceutical giant Merck, announced that he was resigning from President
Trump’s Manufacturing Council. He was reacting to the president’s suggestion—
following violent clashes in Charlottesville, Virginia, where a rally organized by
white supremacists had led to the death of a young woman—that there was
“blame on both sides.” Frazier issued a statement that said, in part,
Our country’s strength stems from its diversity, and the contributions
made by men and women of different faiths, races, sexual orientations and
political beliefs. America’s leaders must honor our fundamental values by
clearly rejecting expressions of hatred, bigotry, and group supremacy,
which run counter to the American ideal that all people are created equal.
As CEO of Merck, and as a matter of personal conscience, I feel a
responsibility to take a stand against intolerance and extremism.
Talking to the press about the incident a year later, Frazier—who is African
American and whose grandfather was born into slavery—recalled: “It was my
view that to not take a stand on this would be viewed as a tacit endorsement of
what had happened and what was said. I think words have consequences, and I

think actions have consequences. I just felt that as a matter of my own personal
conscience, I could not remain.”41
Given Frazier’s position as the CEO of a major drug company, his decision
was not without risks. President Trump had actively campaigned on the promise
to bring down drug prices, and indeed within an hour of Frazier’s statement he
tweeted, “Now that Ken Frazier of Merck Pharma has resigned from President’s
Manufacturing Council, he will have more time to LOWER RIPOFF DRUG PRICES!”
But within a week, all of the other CEOs on the council had resigned. They were
all personally attacked by President Trump.
These may seem like small actions. But they are suggestive of a willingness
on the part of some senior business leaders to challenge powerful politicians in
the service of strongly held values. Should US politics start to move toward a
more inclusive stance on issues of race, gender, and ethnicity, I suspect that the
private sector’s willingness to engage in these issues will be seen as an important
part of the movement that made it possible.
Going Global: The Private Sector and Climate Policy
Business must push governments everywhere to address climate change,
insisting that policy be based on current science, and advocating strongly for
market-friendly policies that could help us to avert disaster. Appropriate
regulation—something like a carbon tax or a carbon cap—would not only allow
the global economy to decarbonize at minimal cost but would also open up
billions of dollars in new market opportunities. Decarbonization will be
expensive. But unchecked climate change will cost billions of dollars more.
Current estimates suggest that climate change could cost the US economy as
much as 10 percent of GDP by the end of the century and destabilize the world’s
food supply.42 The IPCC estimates that keeping GHG emissions to a level that
offers a 66 percent chance of not exceeding 2°C warming would cost 3 to 11
percent of world GDP by 2100.43 But leaving global warming unchecked might
cost 23 to 74 percent of global per capita GDP by 2100 in lost agricultural
production, health risks, flooded cities, and other major disruptions.44
Unchecked climate change will also impose irreversible harm on coming
generations. Just as the world’s business community has committed to global
inclusion, so it should commit to ensuring that we leave a healthy planet to our
children.
Many in the private sector are already beginning to move in this direction. In

British Columbia, private sector support was critical to putting the province’s
climate tax in place. In the United States it was central to the adoption of the
Regional Greenhouse Gas Initiative (RGGI), the Northeast/mid-Atlantic carbon
trading system, and to the design and passage of California’s commitment to be
100 percent carbon free by 2045.
In April 2019, Gary Herbert, the Republican governor of Utah, signed the
Community Renewable Energy Act. The legislation required Rocky Mountain
Power, Utah’s power provider, to provide 100 percent renewable energy to those
communities in the state that requested it—paving the way for towns and cities
across the state to move to renewable power. Its passage crowned three years of
quiet negotiation between business, those cities that wished to move to
renewable power, and the utility.
Bryn Carey is one of the businesspeople who helped build political support
for the move. In 2004 he founded Ski Butlers, a ski equipment delivery and
rental business, out of a single-car garage in Park City. He quickly became aware
that climate change represented a significant threat—not only to his business but
to the state and the sport that he loved. Utah is currently one of the five US states
warming most rapidly. In the last forty-eight years, the average temperature has
increased by over 3°F, and the snow pack has fallen significantly, threatening not
only the ski industry but also the state’s water supply.45 In 2012 Carey spent
months trying to persuade the business community in Park City to back an
initiative to install solar panels on every roof in the city, but without success,
ultimately deciding that only politics could drive action. In 2015 he rallied his
own employees, local activists, and other residents—“dozens” of people in total
—to show up for a city council meeting. The following year the council passed a
resolution committing the city to be powered 100 percent by renewable energy
by 2032.46 In July 2016 Salt Lake City passed a similar resolution, and in 2017 a
number of other Utah communities followed suit.
But in Utah, cities that wished to switch to renewable power have only two
choices—build their own electric utility from scratch, or buy from Rocky
Mountain Power, a state-regulated monopoly that was notorious for burning coal.
By 2015, Salt Lake City had violated federal air quality standards for over a
decade, largely because of the city’s reliance on coal-fired electricity. In response
Mayor Jackie Biskupski, the city’s recently elected mayor, suggested that Rocky
Mountain agree to fund the investments that could make Salt Lake City’s
commitment to renewable energy feasible.
Over the next two years the mayor—joined by a number of other allies from

the environmental community, business, and mayors of the other cities that had
committed to using renewable power—negotiated quietly with the utility to craft
legislation that might make this possible. The coalition was helped by the fact
that the economics of renewable energy are changing so fast. In December 2018
PacifiCorp, the entity that owns Rocky Mountain Power, published a report
suggesting that thirteen of its twenty-two coal plants were more costly to run
than the available alternatives and that shutting them down could save millions
of dollars.47 But none of the company’s Utah plants made the list since the utility
had not yet fully paid down the debt incurred to build the plants, and the utility
demanded compensation if it were to close them down prematurely. The final bill
provided for those communities that switch to renewables to continue paying
down the coal debt. Reflecting on the complicated negotiations that made the
settlement possible, Biskupski recalled, “Did we have moments where people
wanted to throw their arms up? Sure we did. But when that happens, you have to
bring everybody back to the table and remind them: this is the journey. This is
the commitment. The people, they want clean air.”48
More than two hundred US businesses, cities, and counties are committed to
100 percent clean, renewable energy.49 “America’s Pledge,” a nonprofit devoted
to keeping track of local commitments across the United States, estimates that
these commitments add up to a 17 percent reduction in GHG levels from 2005
levels by 2025. It further suggests that strategies to reduce emissions further that
are “high-impact, near-term, and readily available for implementation by local
actors” could take this number to 21 percent.50 Broader engagement with the
goals of the coalition across the US economy could potentially lead to more than
a 24 percent reduction below 2005 levels by 2025. That decrease would put
America “within striking distance of the Paris Pledge.” The report closes by
claiming that “decarbonization can be led by the bottom-up efforts of real
economy actors… but only with deep collaboration and engagement.”
In 2017, when Trump declared that he was going to withdraw the United
States from the Paris Agreement51—joining Syria and Nicaragua as the only
countries not committed to taking action against climate change—the CEOs of
thirty US companies, including those from Apple, Gap, Google, HP, and Levi
Strauss—published an open letter urging him to rethink the decision. Elon Musk,
the CEO of Tesla, and Bob Iger, the CEO of Disney, resigned from the President’s
Advisory Council in protest.52
An even more ambitious collaborative effort called “We Are Still In” now
“includes 3,500 representatives from all 50 states, spanning large and small

businesses, mayors and governors, university presidents, faith leaders, tribal
leaders, and cultural institutions.” It is committed to catalyzing action at the
local level to ensuring that the United States meets its commitments under the
Paris Agreement.53 As of this writing more than two thousand businesses are
signatories to the agreement, all of them formally committed to working with
national governments and local communities to reduce GHG emissions. The
coalition attended the international climate negotiations at COP24 in December
2018, acting as a “shadow delegation” and meeting with national governments
and delegates to the conference to make the case for a strong set of rules to
operationalize the Paris Agreement.
My colleagues who work in international climate negotiations tell me that
this show of support from the private sector is critically important in keeping the
international climate negotiations alive—but that our situation remains
desperate. The private sector must make addressing climate change its first ask
of every government at every opportunity.
Supporting Democracy
Supporting inclusion and pushing hard for appropriate environmental policy are
critical tasks. But the most important issue facing business is to prevent the
further destruction of our institutions. Our political institutions are under threat
almost everywhere. Gerrymandering is supporting increasingly polarized
legislatures and furious partisan battles. Politicians craft rules to restrict turnout
and assault the free press. Judicial independence is increasingly being
compromised. More and more money is rushing into politics, creating the
perception—if not always the reality—that politician are for sale. If our political
institutions are to be genuinely free and fair, everyone’s voice must be heard, but
potential voters are becoming increasingly angry and cynical.
These are dangerous developments for business. As I said above, the
alternative to strong, democratically controlled government is not the free
market triumphant. The alternative to democratically controlled government is
extraction—the rule by the very few for the very few. Extractive elites are not
fans of the free market. They cannot resist the temptation to write the rules in
their own favor, to shut down innovation, and to suppress dissent. They let
infrastructure rot, underinvesting in roads, R&D, hospitals, and schools. If
democracy dies, so—in the end—will liberty, the free market, and the prosperity
it brings.

Business must demand that the rules of the game are determined
democratically. This means actively supporting measures that make it easier for
people to vote. Voting rates in the United States, for example, are among the
lowest in the world. In the 2014 midterm elections only 33 percent of the voting
age population actually voted—the lowest turnout in any national election of any
advanced democracy (except Andorra) since 1945.54 It also means pushing back
against any effort to suppress voting rights. In November 2018, for example, a
Florida ballot initiative to restore voting rights to convicted felons passed by
nearly 65 percent. But in May 2019 the Florida legislature passed legislation
insisting that felons could only vote if they had paid off all their court-ordered
fines, effectively nullifying the intent of the ballot initiative. This should be a
redline—business should call out and actively resist these kinds of measures.
It means collaborating with those who are trying to reduce the amount of
money in politics. In the United States spending on lobbying more than doubled
between 2000 and 2010 (from $1.57 billion to $3.52 billion) and has since
stabilized at around $3.25 billion per year.55 Following the Supreme Court’s
2010 Citizens United decision, external spending on presidential elections surged
from $338 million in 2008 to $1.4 billion in 2016.56 This spending excludes
politically motivated donations by the tax-exempt charitable foundations of US
companies, which a recent study estimated at $1.6 billion in 2014.57 Although
much of the growth in political spending has likely come from very wealthy
individuals rather than from business corporations, the fact that there is now a
great deal more corporate money in politics is beyond doubt.58 This flood of
spending might benefit individual firms, but it opens the private sector up to
charges of corruption and greatly reduces trust in the democratic process. It must
be resisted.
How much of this resistance is already underway? My sense—and I have
been actively hunting for it—is not much. A campaign called “Time to Vote” has
gained the support of three hundred companies across the country, including
Walmart, Tyson Foods, and PayPal, all of which are committed to increasing
voter participation through programs such as paid time off to vote and an
election day without meetings, and support for mail-in ballots and early voting.59
Corley Kenna, director of global communications and public relations at
Patagonia, one of the firms involved in the initiative, told CNBC, “This
campaign is nonpartisan, and it’s not political.… This is about supporting
democracy, not supporting candidates or issues.”60 A group of businesspeople
spearheaded by Reid Hoffman, an early employee at PayPal and one of the

cofounders of LinkedIn, has put hundreds of millions of dollars into efforts to
boost voter turnout and bring new candidates into politics.61
These are encouraging signs, but they are nothing like the collective action
that will be required to support the inclusive institutions that already exist and to
create the new ones that we need. When I’m working with businesspeople, this is
always the moment at which nearly everyone gets seriously jumpy. They want to
know if something like this has ever happened before. Has business ever been
able to rebuild political systems in ways that made them more inclusive? It has
indeed.
Building Inclusive Political Systems
There have been several moments when business has played a pivotal role in
helping to build inclusive societies. Below I briefly describe three, looking at
Germany immediately after the first and second world wars, Denmark in the late
nineteenth century, and Mauritius in the 1960s. In Germany business faced a
system under such stress there were serious doubts as to whether it could
survive. But business built a new way of working with its employees, and
together they forged a system that has made Germany one of the world’s most
prosperous and successful societies. In Denmark an embattled ruling elite helped
to build a system in which labor, business, and government have worked together
to turn one of the smallest and poorest places in Europe into one of the richest
and most equal—and one of the most market-friendly. Lest you write off the
successes of Germany and Denmark as a function of their European heritage or
their fundamentally homogeneous societies, I then turn to the history of
Mauritius—a society badly fractured along racial lines that was able to build a
thriving, multicultural community and a strong free market—that is now one of
the most successful countries in Africa. In each case visionary business leaders
had the courage and the imagination to try something new: to commit to
collaboration in the service of building a society that worked for everyone. In
retrospect their decisions look obvious and even easy—but at the time they were
not obvious at all.
Germany Builds Business-Labor Cooperation
Following Germany’s defeat in World War I, political and economic chaos led to
the abdication of Emperor Wilhelm II and the collapse of the German Empire.
“Councils” modeled after those of the Soviet Union gained widespread political

control, and a number of socialist parties gained increasing prominence. Facing
what they believed was a real threat of large-scale expropriation and economic
disaster, a group of prominent businessmen reached out to the labor unions in an
attempt to restore stability.
Hugo Stinnes, the wealthiest man in Germany, played a particularly important
role in this attempt. Stinnes had vast holdings in coal, iron, steel, shipping,
newspapers, and banks; one analyst described him as the Warren Buffett of his
time.62 Together with a number of other private sector leaders, he approached
moderate union leaders with proposals for a new economic order. In November
1918, the two groups signed the Stinnes-Legien Agreement, which established
the eight-hour workday, the recognition of labor unions, a right to establish
works councils, and the adoption of sectoral collective bargaining.63 Stinnes also
laid the foundation for a national system of employer representation. Talks
between the major firms began in 1918 and were concluded in 1919 when
employer representation was unified under the Reich Association of German
Industry (RdI). The RdI was organized along industry rather than regional lines,
a structure that tended to favor big business interests, and the new association
allowed Stinnes and his allies to expand the influence of the Stinnes-Legien
Agreement across a broad swath of additional firms.64
Between 1933 and 1945, fascism, economic and political turmoil, and the
disaster of World War II led to the breakdown of these agreements as the Nazis
dissolved both employers’ associations and unions. Leading German
businessmen despised the Nazis, but chose to collaborate with the new regime,
reaping rich profits in the short term but acquiescing in a process that ultimately
destroyed both the country and their own wealth. World War II left Germany—
and German business—in ruins. More than seven million Germans had died,
more than eight percent of the population. Twenty percent of the housing stock
had been destroyed. Industrial output and agricultural production was only about
a third of what it had been before the war.65
Fearing widespread radical unrest, the leading employers joined forces with
labor once more. The Federation of German industries (BDI) emerged as the
largest employer association, focusing largely on economic advocacy, while the
Federation of German Employers’ Association (BDA) was formed to manage
labor relations. The Confederation of German Trade Unions (DGB) was founded
as an umbrella organization to represent the trade unions. The three
organizations worked together to revive the tradition of employer-labor relations
and collective bargaining that had been established between the wars. All three

organizations exist today.66
One of the most critical tasks of postwar reconstruction was the revival and
standardization of the apprenticeship system. Prior to World War II, the system
had not been standardized by either sector or region. There were different
certification systems for different skills, and there was considerable variation in
the type and quality of the training. Following the war, a national coordinating
body spearheaded by several large industrial firms and sponsored by BDI and
BDA worked to catalogue the skilled trades, to create and disseminate training
materials, and to administer certification exams. All apprentices in the same
vocation received the same basic training and certification, and mechanisms
were developed to try to ensure that the training was continuously refreshed to
respond to new technological developments. The number of apprenticeship
programs increased dramatically, and legislation passed in the mid-1950s
formally recognized the system.67
Business associations and labor unions agreed to bargain annually to set pay
and working conditions. These annual agreements are legally binding and now
cover about 57 percent of all Germany employees. Most German employers also
invest in training; provide childcare support; and provide space, materials, and
time for employee-run works councils. Publicly traded German companies above
a minimal size are required to include employee representatives on their boards
in a system that has become known as “codetermination.”
Germany now has one of the world’s strongest and most equal economies. In
2017 it had one of the world’s highest levels of GDP per head, lower only than
Ireland, Norway, Sweden, and the United States.68 Income mobility—a measure
of the degree to which someone born to poor parents has as good a chance of
making as much money as someone born to rich parents—is lower than in the
Scandinavian countries, but is higher than in the United States, the United
Kingdom, France, Japan, or China. Average wage levels are among the highest in
the world, and unemployment rates (just under 5 percent as of this writing) are
among the lowest.
Despite these high wages, German firms are enormously successful exporters.
In 2017 Germany exported $1.3 trillion worth of goods, nearly half the value of
total economic output.69 (In the same year the United States exported only $1.4
trillion, 12 percent of output, while China exported $2.3 trillion, 19.76 percent of
output.) By some measures it is ranked as the world’s most innovative
economy.70 Nearly 25 percent of German GDP is in manufacturing (in the United
States, for comparison, manufacturing makes up only about 15 percent of

output). The World Bank’s 2016 Logistics Performance Index ranks Germany’s
logistics performance and infrastructure as the best in the world.71
Eight of the world’s one hundred largest companies are German, and the
country also boasts a highly successful Mittelstand, or group of globally
successful small and middle-sized firms. Of the world’s roughly 2,700 “hidden
champions”—firms that are in the top three in their industry and first on their
continent and have less than €5 billion in sales—almost half are in Germany. By
one estimate these relatively small firms have created 1.5 million new jobs,
grown by 10 percent per year, and registered five times as many patents per
employee as large corporations. Nearly all of them survived the great recession
of 2008–2009.72
Much of this success is driven by German’s apprenticeship system. Germany
now has one of the most sophisticated apprenticeship training schemes in the
world. Students can choose from hundreds of trades for an apprenticeship lasting
two to four years, during which they split time between classroom instruction
and on-the-job training. Trainers are paid for their time—including the time they
spend in class. Training at every company is shaped by standardized
occupational profiles, or curricula, developed by the federal government in
collaboration with employers, educators, and union representatives, giving
employees a standardized qualification that allows them to move between
firms.73
This story has two major implications for our current predicament. The first
is that business may not always recognize where its best interests lie. The
disasters of the two world wars forced the German business elite into a
relationship with its workforce that many modern American managers would
fight tooth and nail, but it was an important contributory factor to a system of
institutions that has built one of the most successful—and the most equal—
societies in the world. To me this underlines the critical role that purpose-driven
firms can play as catalysts for uncovering new ways of working. Just as Nike was
blind to the benefits of rethinking its relationship to its supply chain in the
1990s, so many firms remain blind to the critical role that the broader social and
political system plays in their success. The second implication is more prosaic.
If the private sector is to play a central role in rebuilding institutions, it will need
strong employee associations committed to playing a positive and political role
in the national conversation.
Fortunately, there are a number of business associations that could play the
same kind of role in the national and international conversation that the BDI and

BDA played in Germany. In the United Kingdom, the Confederation for British
Industry represents over 190,000 firms. The US Chamber of Commerce
represents more than three million businesses and in 2017 spent more money
lobbying the US Congress than any other single organization.74 The Business
Roundtable could also act as an important focus for action.
Historically neither the US Chamber of Commerce nor the Business
Roundtable has taken political positions beyond the immediate interests of its
members—and the Business Roundtable’s new statement makes no mention of
any responsibility for the health of US democracy—but the roundtable was the
first broad-based business organization to acknowledge the threat posed by
climate change, and the Chamber of Commerce recently adopted a formal
position on climate change, acknowledging its reality and calling for the United
States to “embrace technology and innovation” and “leverage the power of
business” to address it.75
Business leaders must insist that we address global warming. This means
vigorously supporting the science—more than 70 percent of Americans now say
that global warming is “personally important” to them, but 30 percent still deny
that it’s happening and/or that humans are to blame—and this minority remains
politically powerful.76 Addressing it also requires pushing hard for sensibly
designed, business-friendly global controls on greenhouse gas emissions. If the
Business Roundtable and the Chamber of Commerce fail to lead this charge, it
will be critically important to build alternative associations that can take up the
slack.
Globally, the World Economic Forum (WEF) includes “the 1,000 leading
companies of the world” and bills itself as the “global platform for public-
private cooperation.” The WEF is deeply involved in projects designed to create
shared value, and is also playing a leading role in a wide range of
collaborative/public/private reform efforts. The Global Battery Alliance, for
example, is a global platform for collaboration designed to “catalyse and
accelerate action toward a socially responsible, environmentally sustainable and
innovative battery value chain”;77 the project on strengthening global food
systems facilitates multistakeholder dialogues, and the Transformational Leaders
Network engages “over 150 action leaders and experts to exchange knowledge,
best practices, and experience across regions and sectors.”78 To my knowledge,
the WEF has as yet steered clear of anything that might be construed as political
action—indeed it has been heavily criticized for its failure to examine the
structural factors that have contributed to our current troubles79—but it has the

membership and the capacity to move in this direction if today’s senior business
leaders were to decide that doing so is important.
The International Chamber of Commerce (ICC) is less visible but has the
potential to play an even more critical role. It is the world’s largest business
organization, representing more than forty-five million companies in over one
hundred countries. Its primary mission is to formulate and enforce the trade rules
through which international business is conducted, and it often represents
business interests in negotiations with global bodies such as the World Trade
Organization, the United Nations, and the G20. The ICC is sponsoring some
intriguing efforts designed to improve traceability in the supply chain and has
formally committed to the importance of “fully engaging the corporate sector in
the implementation of the SDGs [Sustainable Development Goals].”80 To my
knowledge the ICC has as yet steered well clear—at least in public—of anything
that might look like explicitly political action; it could, for example, insist that
sustainability criteria inform global trade practices, but in principle, the ICC has
the connections and the global reach to play a central role in building a more
sustainable global system.
It’s easy to be cynical about the potential for the private sector to play a role
in driving systemic change. Indeed one interpretation of the German experience
is that we need the equivalent of a world war to change business attitudes.
Fortunately the Danish experience suggests that this is not necessarily the case.
Denmark: Business Responds to National Weakness
Bernie Sanders’s championing of Denmark has led many business leaders to roll
their eyes. But Denmark is not a socialist country, if by socialism is meant state
ownership of the means of production. Its economy is a strongly pro-business
system in which business, labor, and government work closely together to
sustain economic growth—within a structure that was championed by the private
sector.
In the second half of the nineteenth century, Denmark was a nation in trauma.
In 1864 the country had lost the Second Schleswig War to Prussia and Austria,
losing the Duchy of Schleswig and the Duchy of Holstein—territories that had
been under some form of Danish control since the twelfth century. This was one
of a long line of Danish defeats and left Denmark a small, poor country that
could no longer aspire to great power status.
By the 1890s the Danish legislature was divided between the Danish Right

Party—an uneasy alliance between big agriculture and Denmark’s leading
industrialists—and the Social Democrats—the party of the working class. Given
the split, the Danish king kept the conservatives in power by filling his cabinet
with members of the Danish Right Party. In 1890 the Social Democratic Party
had gained a significant number of seats and—fearing (correctly) that they
would soon be in the minority—members of the Danish Right Party began to
search for other mechanisms through which to maintain their influence.
The creativity of a single business leader proved to be critical in translating
this moment of crisis into successful institutional change. In 1896 Niels
Anderson, a member of Parliament and a railroad entrepreneur with a particular
skill in building consensus, took the lead in forming the Confederation of Danish
Employers, or the DA. He sold the idea to his colleagues as a means to influence
public policy in the absence of a legislative majority (in 1901 the Social
Democrats swept the elections, as he had predicted) and as a means to achieving
industrial peace by unifying the voice of business. He was remarkably successful
in achieving both goals.
The DA was able to beat back a Social Democratic proposal to create a
universal, tax-financed workers’ accident insurance system, successfully
replacing it with a board composed of government, employer, and labor officials.
Accident insurance would not be tax-financed; instead, employers would choose
their own private insurance.81 The success persuaded Danish business—and the
Danish government—that the DA could be an important vehicle for business-
friendly policy reform.
But Anderson’s most important success was in demonstrating that the DA
could head off labor unrest—by strengthening the labor movement! In 1897 a
wave of strikes hit the metals industries. DA members had already agreed that
they would not hire workers from other members of the DA during strikes or
lockouts, giving the DA both a united front in its dealing with the unions and
persuading a majority of Danish businesses to join the association. Next the
association inserted itself as a mediator between employers and labor, actively
encouraging labor to become better organized, and asking the unions to refuse to
work for firms that did not join the DA. The DA was able to negotiate an end to
the strike, and in 1898 the Danish Confederation of Trade Unions, or the LO, was
founded with the active assistance and support of the DA.
Two years later a massive three-month labor conflict known as the “Great
Lockout” erupted in the steel industry. Together the DA and LO were able to
negotiate a “September Compromise,” which established a national system of

collective bargaining. In 1907 the state gave the DA the power to intervene in
sectoral disputes, reinforcing the DA’s role as the top employers’ association and
giving the association a central role in negotiating business labor relations.
Over the next fifty years cooperation between labor, business, and
government became increasingly routinized—so much so that by the 1960s
Danish conservatives were bragging that they were responsible for a “decisive
step in the expansion of the welfare state.” In the 1970s and 1980s, economic
recession and high unemployment put the Danish welfare state under financial
pressure, and the state began to cut benefits and to suspend wage indexation. But
in response, employers and labor struck a sequence of bilateral agreements in
which employers increased investments in training. In the 1990s the DA played a
central role in helping to design a series of “active labor market policies”
(ALMPs) that were designed to move unemployed youths into training programs
and match them with jobs. The DA worked closely with the LO to build worker
support for the ALMPs, and persuaded member firms to participate, facilitating
communication between the government and individual firms to ensure their
smooth implementation.
Denmark is now one of the world’s most successful societies. It has one of the
highest average minimum wages in the world—$16.35 in 2015—despite the fact
that it does not have minimum wage legislation on the books.82 GDP per capita
is higher than it is in Canada, the United Kingdom, and France. It also has the
lowest income inequality among the OECD, with the richest 10 percent of Danes
earning only 5.2 times more than the poorest 10 percent.83 Danes get five to six
weeks of vacation a year, and up to a year of paid maternity/paternity leave.84
Policy making in Denmark is highly collaborative, bringing government,
employers, and unions together in a joint process that goes back over a hundred
years. This approach has made possible a unique mixture of relaxed labor
regulations (which favor firms) and a strong welfare state (which favors
workers), under which firms can fire workers with ease, but the state provides
extensive reemployment support through welfare and training programs. Around
80 percent of the labor force is covered by some form of collective bargaining
agreement. Unemployment insurance gives workers 90 percent of their salary for
two years, and an elaborate set of government, union, and corporate policies
allows almost any employee to attend paid training and pick up new skills. The
combination has made the Danish economy uniquely flexible and uniquely equal,
and is now warmly embraced by Danish business.
For example, in 2017 the Danish government convened a “Disruption

Council” to generate recommendations as to how Denmark should handle the
accelerating impact of digital technology on the Danish economy. The council
was headed by the prime minister and included not only eight ministers but also
another thirty members drawn from across Danish society, including CEOs,
social partners, experts, and entrepreneurs. It drew up an extensive set of
recommendations in four areas: education and training, new labor market
institutions, globalization, and “productive and responsible business.” This latter
area included the first formal agreement between a digital platform and its
employees. The agreement ensured the platform’s users have the right to—
among other things—pensions and a holiday allowance.
We can take at least three lessons from the Danish experience. The first is a
reminder of the ability of inclusive institutions to drive prosperity. Denmark is a
tiny country with no significant natural resources, yet its social and political
institutions have made it one of the richest countries in the world. The second is
the importance of the complementarity between the market and the state.
Denmark is simultaneously fiercely committed to the power of the free market
and to the role of the government in ensuring economic opportunity and social
well-being. Indeed the combination of national health care and extensive
government-supported job retraining arguably increases the power and flexibility
of the free market because by reducing the risks inherent in leaving a job, it
makes it much easier for employees to change positions and to start new firms.
The third lesson is the most critical. The case of Denmark highlights how
business can play a central role in framing policy without subverting the
democratic process. Business is an important and active voice in the
conversation, but it does not seek to control either the process or the end point.
Its first priority is the health of the country, not immediate financial returns. And
for over a hundred years this commitment has been fundamental to its success.
Mauritius: A Particularly Unlikely Success Story
Mauritius was first settled by the Dutch. They imported the first enslaved people,
stripped the island of its ebony trees, and killed the last of the dodoes. The
French arrived in 1721. They imported more enslaved people and began the
large-scale cultivation of sugar. The British took control of the island in 1814,
but they used the island only as a way station on the route to India, and left the
French elite in control. Slavery was abolished in 1835, and the local landowners
turned instead to the importation of indentured labor. Between 1834 and 1910,

more than 450,000 Hindu and Muslim Indian nationals arrived on the island, and
by 1911 nearly 70 percent of the island’s population of roughly 369,000 were
Indo-Mauritians.
They had no political representation. The British governed the island through
a legislative council composed of a small number of elected members and
another group nominated by the governor. The franchise was limited to wealthy
property owners, or about 2 percent of the population, and the first Indo-
Mauritians were not elected to the council until 1926.
In 1937 a fall in the price of sugar led to widespread rioting during which four
protestors were killed, and the next year a general strike was forcibly broken by
the British. Tension between the Franco-Mauritians who owned the sugar
plantations and the Indo-Mauritians who worked them remained high, and
prospects for further development seemed slim. In 1962 James Meade, a Nobel
Prize–winning economist,85 published an article entitled, “Mauritius: A Case
Study in Malthusian Economics,” in which he suggested that Mauritius faced
“ultimate catastrophe unless effective birth control can be introduced fairly
promptly.”
The crisis came in August 1967, when the British insisted on an open election
as the price for independence. It was bitterly fought. The Mauritian Labor Party
(MLP), made up largely of Indo-Mauritians, faced the Parti Mauricien Social
Démocrate (PDSD), a loose coalition between the Franco-Mauritian sugar barons
and the significant Creole population—largely French-speaking descendants of
the enslaved people who had been brought in to work the sugar plantations.86
In the event the MLP and its allies took 55 percent of the vote and thirty-nine
out of sixty-two seats. The old elite was deeply disappointed. One prominent
Franco-Mauritian entrepreneur later recalled, “The evening of the vote of ’67,
Gaëtan Duval [the leader of the PDSD] cried. Me, I was afraid. I wondered who
would be there to help the Mauritians.” Five months later, only six weeks before
the formal grant of independence, violent riots between Creoles and Muslims in
Port Louis, the capital city, left twenty-nine people dead and hundreds injured.
British troops had to be brought in to restore control. Nearly six hundred houses
were burned, and there were more than two thousand arrests.87
Seewoosagur Ramgoolam, the leader of the MLP, had become the first prime
minister of a free Mauritius, but the country seemed at risk of collapse. Facing
similar circumstances, the new government in Kenya had created a one-party
state. Tanzania had nationalized minority-owned businesses. Uganda had driven
the minority out of the country. Ramgoolam did something very different. He

reached out to the PDSD, suggesting that they together form a government of
national unity.
It was a risky decision. Ramgoolam faced a divided country and a weak
economy dependent on a business sector that was deeply suspicious of his
motives. Many on the Mauritian left—including many leading Hindu
intellectuals—favored nationalization of the big plantations. There was no
history of collaboration between government and business—and many members
of Ramgoolam’s own party were avowed Marxists who were deeply leery of any
rapprochement with the “capitalists” who dominated the economy. Satcam
Boolell, minister of agriculture, one of Ramgoolam’s most trusted colleagues,
told a reporter that he supported the coalition government, but under one
condition:
I am a socialist, and for me, the class struggle continues: capitalists
against workers.… However, for me as for others, the overriding interest
of the country comes first. That interest today is to eliminate
unemployment, hunger, destitution. My condition is that the large sugar
employers, the groups of the Mauritius Sugar Producers Association, give
a formal guarantee that they will employ the unemployed, those who have
been laid off since the introduction of the wage councils, and that they will
start up other projects. I will support the coalition if it leads to work for
everyone.
The sugar barons decided to cooperate. The two sides negotiated for two years
before the PDSD agreed to join the MLP in power. It was a true power-sharing
agreement, with key individuals from the PDSD taking control of some of the
most important government ministries. In essence, Ramgoolam promised to
leave the sugar barons in place if they would not only help him diversify the
island’s economy but also support him in sharing the gains of development
widely. The sugar barons agreed to do all they could to support Mauritian
development—and to keep wages high.
It is not clear precisely what led the sugar barons to cooperate with the MLP.
I’ve only been able to glean clues to the possible answer. It may be that the
island was small enough—and its elite sufficiently closely connected by shared
educational experiences and social ties—to permit the Franco-Mauritians to
embrace a commitment to the good of Mauritius as a whole. Ramgoolam was a
highly educated man—he graduated with a degree in medicine from the

University of London—with a long history of engagement with Mauritian
politics; some accounts suggest that he was a personal friend of Claude Noel, a
prominent Franco-Mauritian and successful entrepreneur who handled the
original negotiations between the MLP and the PDSD. Perhaps the Franco-
Mauritians were simply unusually farsighted. The Mauritians themselves—using
terms very similar to those used by the Danes—talk about dialogue and
compromise as being an essential aspect of the “Mauritian way of doing things.”
Whatever the cause, the agreement was enormously successful. Leading
Franco-Mauritians began to invest aggressively in international tourism. They
also spearheaded the development of Export Processing Zones (EPZs)—an idea
that had been rejected by the development community as impracticable.88
Exports from the EPZs grew over 30 percent annually from 1971 to 1975 and
played an important role in diversifying the Mauritian economy away from
sugar.
Tension between the elites and those who are less well off, and between
Francophones and Hindus, continues to this day. But it has always been confined
within essentially well-functioning institutions. Elections have been free and fair
and have consistently led to transfers in power—including to the Mauritian
Marxist party, the “Mouvement Militant Mauricien,” in 1982. The judiciary is
independent, and there is a lively free press. Even today there are at least nine
daily papers published on the island, including the India Times, Chinese Daily
News, the Independent Daily, and Le Defi Quotidien, L’Express, Le Mauricien,
and Le Socialiste.
These institutions—and the close cooperation on which they are based—are
widely regarded as having been instrumental in driving Mauritius’s unique
combination of economic and social strength. Mauritius ranks twenty-fifth in the
World Bank’s Ease of Doing Business Index and as the eighth “freest economy in
the world.”89 Real GDP grew more than 5 percent per year between 1970 and
2009, and in 2018 GDP per capita was $9,69790—just behind Poland, Turkey, and
Costa Rica. Between 1962 and 2008 the Gini coefficient dropped from 0.50 to
0.38. (In 2013 the United States had a Gini of 0.41. Germany’s Gini was 31.4,
and Denmark’s was 28.5.)91 Gender equality has improved, and the poverty rate
has fallen from 40 to 11 percent. The country recently ranked 11 out of 102
countries in the OECD Social Institutions and Gender Index and 65 in the Human
Development Index—ahead of Mexico, Brazil, and China.92
What can we learn from Mauritius’s experience? As advertised, it turns out
that business can help build inclusive institutions outside Europe, even when the

local society is not racially homogenous. It’s also a story that illustrates the
subtle interplay between economic interest and the shared sense of what is right.
In Germany, Denmark, and Mauritius, a strong sense of self-preservation led a
ruling elite to agree to institutional arrangements they did not favor, and would
almost certainly have vigorously resisted if they could. In each case, these
arrangements proved to be very successful—and to engender a common sense of
shared destiny that led to these ways being increasingly seen as the right way, the
only way, the obvious way to behave.
This interplay between self-interest and a shared sense of the right thing is the
energy that is propelling so many firms to explore the first four pieces of a
reimagined capitalism—shared value, purpose-driven, rewired finance, and self-
regulation—and is the reason I believe that they will increasingly support the
fifth—the building of inclusive societies. Purpose-driven firms searching for
shared value discover new business models that point the way toward making
money, while simultaneously reducing pollution and inequality. They build firms
authentically committed to doing the right thing, and tell the world—and their
employees—that they are committed to making a difference in the world. They
then discover that they need government if they are to meet their commitments.
Across the world groups of companies passionately committed to making a
difference in the world are discovering that shared value is not enough, that self-
regulation is unstable, and that investors are not moving fast enough. They are
discovering that without the full cooperation of a functional, transparent
government that cares about the welfare of its country and its people, many
environmental problems cannot be solved, and one can make only minimal
headway against reducing inequality. The efforts of purpose driven firms to drive
change are the tinder from which the fire of global political reform could spring.
Our situation is quite as dire as that facing Germany in 1945 or Denmark in 1895
or Mauritius in 1967.
IN 1971 FUTURE Supreme Court justice Lewis Powell asserted in a widely
circulated piece that became known as “the Powell memo” that the American
economic system was under broad attack. It was a time when this charge seemed
plausible. Government was popular and strong, and the younger generation was
actively challenging capitalism. This attack, Powell maintained, required
mobilization for political combat: “Business must learn the lesson… that
political power is necessary; that such power must be assiduously cultivated; and
that when necessary, it must be used aggressively and with determination—

without embarrassment and without the reluctance which has been so
characteristic of American business.” Moreover, Powell stressed, the critical
ingredient for success would be organization: “Strength lies in organization, in
careful long-range planning and implementation, in consistency of action over an
indefinite period of years, in the scale of financing available only through joint
effort, and in the political power available only through united action and
national organizations.”
Business leaders answered this call, and in doing so helped to push support
for the free market at the expense of governments to such an extent that they
helped drive the explosion in inequality that is fueling the populist dragon that
stalks the world today. It is time for a new approach—something as organized
and as focused on the long term as Powell recommended, but devoted to very
different goals.
I talk regularly with CEOs and ex-CEOs. Some of them are Republicans or
Conservatives—others are Democrats of various stripes. By and large they have
great values, and they all worry deeply about the state of the world. They
understand the viability of the system is at risk. But most of them think it’s not
their job to do anything about it. They are wrong. Rebuilding our institutions is
critical to averting long-term disaster and to creating a world in which business
can thrive. It’s also critical to building a just and sustainable society. This is the
time to act. I don’t know what this will look like, but one plausible pilot is
already underway. It’s called Leadership Now, and it is run by Daniella Ballou-
Aares.
In the days after the election of 2016, Daniella Ballou-Aares was besieged by
dozens of people from her professional and social networks.93 She had a
background in engineering and strategy consulting, a Harvard MBA, and an
enviable track record as an entrepreneur, helping to grow Dalberg—a strategic
advisory firm—from a seven-person start-up to a strategic advisory firm with
twenty-five offices across the globe. (She said later, “We were too young to be
starting a strategy consulting firm, but we did it anyway.”) But what made her
particularly sought-after following the election was that she had spent the
previous five years in government, advising the US secretary of state, seeking to
transform the United States’ approach to foreign aid, and securing an agreement
on the Sustainable Development Goals. The experience had been occasionally
inspiring, but it had also left her with a profound unease about the state of
America’s political institutions, and a concern that few businesspeople she knew
were paying attention. In her words,

Within a few months of joining the government I could see that the system
was not working. In the stately meeting rooms of the White House and the
State Department, we’d debate important policies and ideas, but it was
increasingly clear that there was no path to actually doing most of what we
were talking about—that most of the ideas could never get through
Congress—and that even if they could, they wouldn’t get through the
bureaucracy, because the system was so antiquated, and so unable to drive
change. Plus Congress had almost no incentives to do anything, given the
acceleration of gerrymandering and the kind of manipulation that was
starting to happen with campaign finance. Congress basically only passed
one serious piece of legislation—healthcare—during the Obama
administration.
She found the election of 2016 deeply sobering, and she started to talk about
what could be done with a group of friends from business school. She said,
When Trump won, there was all of a sudden a strong interest in
government, in why it wasn’t working and the risks that implied. We felt
we had a moment to capture that fear and attention and use it to engage
people in actually being part of fixing what wasn’t working. We knew that
this wasn’t just about Trump or Democrats vs. Republicans. People were
asking themselves, “Do I just donate money to lots of different
organizations? Do I support candidates? Do I go on marches? How can I
really have impact?”
The day after the 2017 Women’s March on Washington, Daniella and a group of
like-minded Harvard Business School classmates organized a one-day
conference to hear from both political and nonprofit leaders. They spent the next
six months engaging democracy experts, conducting analyses, and testing the
idea of a new political venture with their networks. In mid-2017 they founded a
membership organization devoted to “identifying the most impactful ways to
engage in the long-term project of fixing our political system.” Everyone kicked
in a little money to get the new organization—“Leadership Now”—off the
ground, and as the organization started to gain traction, Daniella stepped down
from Dalberg to take on the CEO role full time.
Leadership Now’s goal is to catalyze a new commitment to American
democracy and to support its members—who are largely businesspeople—in

fulfilling that commitment. Members are given opportunities to learn, engage,
and invest their time and resources in political reform. The organization hosts
speakers, dinner series, and briefings on topics as diverse as developing new
political talent and makes available the latest data on political spending. It has
developed a “democracy market map,” characterizing the money and the players
who are influencing democracy and curated a “democracy investment portfolio,”
a list of organizations that are fighting for reforms that members might want to
support. It identifies political candidates who share its values and recommends
them to its members. In the 2018 midterms, thirteen of the nineteen candidates it
recommended were elected to Congress—more than half of them women, many
with backgrounds in business, and all of them committed to political reform. It
holds an annual conference during which members meet to debate strategy, listen
to politicians and political experts, and simply get to know each other. The group
has already seen substantial increases in financial contributions by its members
to organizations and candidates dedicated to reforming the system. Everything is
geared toward building a connected community that’s willing to work together
over the long term and that can become effective advocates for political reform.
In Daniella’s words,
This is all around responsibility and commitment. We are not just
recruiting people to be members of an organization. We’re selecting
individuals who demonstrate commitment to being part of fixing their
democracy—and who recognize it will take real work over a decade or
more to do so.
The group now has a hundred and fifty dues-paying members and a presence
in six cities—Boston, Houston, New York City, Los Angeles, San Francisco, and
Washington, DC. It is explicitly nonpartisan. Members make a serious
commitment to engaging in political reform and subscribe to the group’s goals—
a commitment to defending and renewing democracy by ending gerrymandering,
ensuring voter access, and pursuing campaign finance reform—and to its beliefs
that “facts and science matter” and that “diversity is an asset,” and to the
importance of focusing on the long-term health of the nation and the planet.
There are surely many ways in which the private sector could step up to
support the institutions of inclusive societies across the world. Indeed my
mailbox is full of news about preliminary plans and thoughtful experiments
along these lines. My hope is that Leadership Now will soon be only one effort

among many.

8
PEBBLES IN AN AVALANCHE OF CHANGE
Finding Your Own Path Toward Changing the World
To be hopeful in bad times is not just foolishly romantic.… Human history is a history not only
of cruelty, but also of compassion, sacrifice, courage, kindness. What we choose to
emphasize in this complex history will determine our lives. If we see only the worst, it
destroys our capacity to do something. If we remember those times and places—and there
are so many—where people have behaved magnificently, this gives us the energy to act, and
at least the possibility of sending this spinning top of a world in a different direction. And if we
do act, in however small a way, we don’t have to wait for some grand utopian future. The
future is an infinite succession of presents, and to live now as we think human beings should
live, in defiance of all that is bad around us, is itself a marvelous victory.
—HOWARD ZINN, YOU CAN’T BE NEUTRAL ON A MOVING TRAIN, 1994
One small step for a man, one giant leap for mankind.
—NEIL ARMSTRONG
What will a reimagined capitalism look like? It’s impossible to know, of course,
but at the risk of seeming utopian, let me paint a picture of how the world might
look very different twenty years from now.
In a world that has reimagined capitalism, if you’re in business, you work for
a high-commitment firm that is deeply rooted in shared values, provides great
jobs, and takes for granted the idea that while it is essential to be profitable, the
firm’s primary goal should be to create value, not to make money at any price.
Everyone shares a common understanding of the need to balance short-term
returns with the public good and the long-term potential of the business. Firms
that deny the reality of climate change, treat their employees badly, or actively

support corrupt or oppressive political regimes are shunned by their peers and
punished by their investors.
Flexible, collaborative agreements across your industry ensure that every
organization is held to common standards, so that there are strong incentives for
everyone to race to the top. Consumers refuse to buy from firms that cut corners.
Prospective employees routinely check out the environmental and social
rankings of the firms they are considering joining, and since your firm is at the
leading edge of solving several important problems, it has become a magnet for
talent. You and your fellow employees have been able to develop new
mechanisms through which to express a strong, collective voice not just within
your firm but across the entire industry. This voice is welcomed as an important
contributor to the long-term health of the society and the free market.
Wherever it can, your firm works closely with government, cooperating in
open, public forums to design flexible policies that maximize economic growth
while controlling pollution and reinforcing the health of the broader society and
of its institutions. Your firm has done its part to support institutional reform,
supporting higher taxes, the suppression of corruption, and full democratic
access wherever and whenever possible.
There has been a revival of democratic participation: schools everywhere
consider “civics” one of their most important subjects, voter participation rates
have skyrocketed, and the public conversation is respectful, fact-based, and
extraordinarily lively. Governments everywhere control environmental
degradation with market-based policies where possible and with direct
regulation where it is not, and invest in the public goods that keep societies
strong and markets genuinely free and fair. As more and more firms respond to
these incentives and focus on transforming their business models to create great
jobs, minimize environmental damage, and create the products and services
needed to support a sustainable and equitable world, climate change is slowing,
inequality is falling, and economic growth continues to be strong.
Once the business community made a commitment to moving to carbon-free
energy, progress has been much faster than anyone expected—the OECD
countries are on track to decarbonizing their grids by 2050, and the new capacity
being built in Africa, China, India, and Brazil is overwhelmingly carbon free.
Agricultural practices have been transformed. A strong commitment to ensuring
that the cost of these changes should be equitably shared has led to very large
investments in retraining and relocation for those who were most affected.
These investments have helped to spread prosperity and to blunt the appeal of

authoritarian populism.
The shared recognition that the peace and security of the world depends on
giving everyone the ability to participate in the free market has led not only to
significant investments in education and health but also to a massive expansion
in public/private partnerships designed to spur entrepreneurship and new
business development in the context of strong social support. Both public and
private investment is increasingly focused on the 85 percent of humanity that
lives on less than $8 a day,1 and on the challenging—but exciting and profitable
—opportunities inherent in increasing their standard of living without
destroying the biosphere.
By now you’re probably thinking that I’ve drunk too much of that purpose-
flavored Kool-Aid. But if we decided to reimagine capitalism, we could. Those
of us who are doing well under the current system are probably the least well-
positioned to see how rapidly change could come. In the early sixties, for
example, when a South African psychologist asked a group of students to predict
how politics in South Africa would unfold, roughly 65 percent of the black
Africans in the group and 80 percent of those of Indian descent predicted the end
of apartheid. But only 4 percent of white Afrikaners made the same prediction.2
I think it’s entirely possible that we will bring everything down upon our
heads. But as you may recall from the prologue, I am hopeful. I think it’s also
entirely possible that we will turn things around. We have the brains, the
technology, and the resources to build a just and sustainable world—and in
doing so to create enormous economic growth.
The human race has already accomplished far more difficult things. In 1800,
85 percent of humanity lived in extreme poverty. In 2018, only 9 percent did.3 In
1800 more than 40 percent of all children died before reaching their fifth
birthday. Now only one in twenty-six die so young.4 My father was born in 1935.
In his lifetime the world’s population more than tripled—from roughly 2.3
billion to about 7.7 billion. But over the same period, world GDP increased
fifteen-fold, and GPD per capita has increased from approximately $3,000 to
nearly $15,000.5 That’s enough money to permit every man, woman, and child
on the planet to meet the core requirements for human happiness: to have
enough to eat, decent shelter, and physical security.
We are more peaceful and inclusive than our ancestors would have believed
possible. In 1800 slavery was legal almost everywhere, and women did not have
the right to vote. Now forced labor is only legal in three countries, and women
can vote everywhere there is voting. Almost no one lived in a democracy in

1800. Now more than half of humanity does so; nearly every child receives
some form of primary education; and 86 percent of the world’s population can
read and write. The young are much more likely to believe that climate change
is an immediate threat, to support interracial and gay marriage and the rights of
women—and much less likely than their parents to support populist leaders.6 We
did not blow ourselves up during the Cold War. We have eradicated smallpox;
flown to the moon; and invented the internet, AI, and the cell phone. We have
built hearts in petri dishes and reduced the average price of photovoltaic
modules a hundred-fold.7
The $12 Trillion Opportunity
Most importantly, there’s a great business case for saving the world. Meeting the
UN’s Sustainable Development Goals is a $12 trillion opportunity.8 Renewable
energy is now a more than $1.5 trillion business9 and in 2017 generated 26.5
percent of global electricity and accounted for 70 percent of all new power
generation capacity.10 Numbers like this make renewables a job creation
machine. More than three million Americans now have jobs in the clean energy
sector, more than three times the number employed in the fossil fuel industry.11
Increasing the efficiency with which energy is used could create thousands of
new firms and millions of new jobs and cut the world’s energy demands by as
much as 50 percent.12
Switching from beef to “white meat” such as pork or chicken could cut health
costs by $1 trillion a year, significantly lower GHG emissions, and greatly
reduce the pressure to find new agricultural land.13 Plant-based food is now a
$4.5 billion business14 and could be an $85 billion industry by 2030.15 Wheat
farmers in the Netherlands, Germany, and the United Kingdom reap more than
four times the harvest from the same area of land as farmers in Russia, Spain,
and Romania.16 Yields in much of Africa are even lower. Quadrupling food
production is probably an unrealistic goal, but a number of pilot projects suggest
that doubling yields—even in the face of climate stress—is eminently
possible.17 About a third of all the food that is produced globally is lost—to
pests or spoilage in the supply chain or as consumer waste. Preventing just a
quarter of this loss could feed nearly a billion people a year, save nearly a
quarter of a trillion dollars, and significantly reduce global GHG emissions.18
These are big numbers. On the ground they look like enormous economic
opportunity: hundreds of efforts that could create millions of new jobs. All we

need to do is reimagine capitalism. All you need to do is help.
Pebbles in an Avalanche of Change
“What can I do?” is the question I am asked most often and certainly the most
important one. It’s easy to fall into the trap of thinking that only heroes (and
heroines!) can change the world. When we tell the story of the civil rights
movement, we talk about Martin Luther King and Rosa Parks. When we talk
about the New Deal, we talk about Franklin D. Roosevelt. When historians fifty
years from now write the history of how we solved global warming, drastically
reduced inequality, and remade our institutions, they will focus on a few key
events—perhaps in the winter that three superstorms hit the East Coast of the
United States, making fixing global warming a completely bipartisan priority, or
in the summer that the harvests failed across Africa, sending millions of people
north to Europe, making it clear that everyone on the planet had to be given the
tools they need to feed themselves. Perhaps they will tell the story of the CEO
who led the coalition that helped negotiate a global labor agreement, or of the
Chinese and US presidents who sat down together to make a global wealth tax
feasible, or of the leaders of the social movement that made it politically
impossible not to solve climate change.
But this focus reflects the structure of our minds and the nature of modern
communication, not the way in which change actually happens. We use stories to
make sense of the noisy, messy, complicated reality of the world, and stories
need central characters—single individuals we can identify with and root for.
The real world doesn’t actually work that way. Effective leaders ride the
wave of change they find bubbling up around them. Martin Luther King did not
create the civil rights movement. It grew from decades of work by thousands of
African Americans and their allies, each doing the dangerous and difficult work
of standing up for change. Rosa Parks was not a lone heroine who simply
decided to stay in her seat one evening. She was a deeply committed civil rights
worker whose decision that night was taken in close collaboration with a
network of experienced female activists. Nelson Mandela did not single-
handedly end apartheid in South Africa. He built on fifty years of struggle in
which thousands of people participated and hundreds died.
Remember Erik Osmundsen, the CEO who took a corrupt waste collection
company and made it a leader in recycling? Whenever he visits my class, he
begins by saying that it’s not about him. Instead, he insists, it’s about the team of

people he works with, the people willing to do the actual work—the often dull,
day-to-day work—of cleaning up the waste industry. The media tell us that
change is dramatic, driven by individuals, and accomplished in minutes. But real
change happens one meeting at a time. Remember Michael Leijnse—a relatively
low-level employee whose name rarely surfaced in the press—but who, by
spearheading sustainable tea at Lipton, showed that it was both possible and
profitable, and in doing so, gave his CEO a reason to believe that he could halve
Unilever’s environmental footprint while increasing its sales.
When Sophia Mendelsohn started at JetBlue, her job was to design a
recycling program. But she took the trouble to meet with everyone she could,
seeking to understand how focusing on sustainability could help the company as
a whole and trying to ensure that everything she did solved a problem for one of
her colleagues. Within a few years she was able to spearhead a major shift in
how the company measured and managed itself. Greta Thunberg was a fifteen-
year-old schoolgirl when she began protesting climate change outside the
Swedish Parliament. If it’s really a climate emergency, she said, why aren’t we
doing anything? A year later an estimated 1.6 million students from 125
countries left school to join a global climate strike. I know of one multinational
company that completely transformed its sustainability strategy because its
employees were finding it too embarrassing to defend the company’s actions to
their children.
You are vital, and there is lots that you can do. Let me be precise.
Six Steps to Making a Difference19
Discover your own purpose. What is it you hold dear? What are you willing to
fight for? What do you value above everything else? Whatever you choose to do,
make sure that it aligns with the deepest part of who you are. I’m surprised by
how often the purpose-driven leaders I meet are deeply rooted in a faith tradition
or in a spiritual practice.
Another route to purpose is to reflect on the ways in which the problems of
our current age have echoed through your own life. Perhaps there’s a place that
you loved that you have lost or that has been destroyed. Perhaps you grew up on
the wrong side of the tracks, and you saw some of your friends hurt or killed.
Perhaps your family has dealt with illness or discrimination or anger. A lot of us
are broken, and in the profound brokenness of the world, we see echoes of our
own hurts and losses. We become healers to address both our own wounds and

those of others.
Some people fight for their children. Some are motivated simply by a
burning sense of what’s right. If you don’t already have a clear sense of what
you want to strive for and why, take time to work on yourself—either alone or
with others—to learn more. Driving change is hard work. You’ll need to be
connected to the fire within if you’re not to burn out.
Do something now. Decide to fly or drive less, or make the effort to buy only
from companies that treat their employees well. Insulate your house and, if you
can, put solar panels on the roof or buy your power from a green energy
provider. Calculate your carbon footprint, estimate the amount of damage you’re
doing, and if you can afford it, commit to offsetting that damage. Taking a first
step will lead to more. Doing something that’s even a little bit outside your
comfort zone will change the way you think about yourself. Making even a
small sacrifice will help you persuade yourself that you can make some
difference and that your voice counts. Something as simple as eating less meat
can help you decide to get more active at work—which in turn often opens the
door to signing petitions or protesting.20
Since we are social primates, your actions will help persuade others to
change their own behavior. In one survey, for example, half of the people who
responded who knew someone who had given up flying because of climate
change said they flew less as a result.21 People eating in a café who were told
that 30 percent of Americans had recently decided to eat less meat were twice as
likely to order a meatless lunch.22 The odds of someone buying solar panels go
up for each home in the neighborhood that already has them.23
Find others who share your goals and hang out with them. You cannot save
the world alone. I can’t even persuade my husband to turn out the lights every
time he leaves a room. (He’s working on it.) We all need allies—both because
there is strength in numbers and because there is no better antidote to despair
than working together with others to drive change. It’s not a coincidence that
people are far more likely to lose weight if they join a support group like Weight
Watchers, or far much likely to stay sober if they join Alcoholics Anonymous.24
Start a book club. Host a series of dinners. Join a nonprofit whose goals you
believe in and work you actively support. Every major political and social
movement has been fueled by people who were willing to do the hard work of
coming together to support each other in demanding change.
Bring your values to work. Start a new company with a different vision. I’ve
been in many meetings in which the threat from a passionate start-up working

on a shoestring is the clinching argument that persuades a much larger firm to
embrace the need to change. Robin Chase’s tiny start-up, Zipcar, transformed
how we think about car ownership. Start-ups like First Solar and Bloom Energy
convinced thousands of people that it was possible to make money in renewables
and energy conservation, helping to start entirely new industries.
You don’t have to be the CEO to drive change. If you work at a large
organization, you can be a values-driven “intrapreneur”—someone who sees the
opportunity for change and builds a team around it. Pick a problem: Changing
the light bulbs? Reducing the risk in the supply chain? Improving productivity
by reorganizing work and making the company’s purpose more salient? Then
find some friends, and work on it. Every successful change comes from a
demonstration project. Be the demonstration. Sometime soon someone is going
to walk into your office and ask you whether it makes sense to clean up the
supply chain, to pay people more, or to give everyone the day off to vote. Ask
the questions or do the analysis that pushes the company in the right direction.
It’s nearly always the people on the ground who know what can be done, not the
people in the corner office.
If you’re a consultant, push your clients to think about the risks and
opportunities that the big problems represent. Be the catalyst for change in how
they think about the world. If you’re an accountant, do the same thing.
Help rewire the capital markets. Work for an impact investor or a family
office or a venture capitalist or a private equity firm that understands that there’s
lots of money to be made in saving the world. Ray Rothrock, an old friend who
works at Venrock Ventures, helped raise hundreds of millions of dollars to fund
a company called Tri Alpha Energy that is developing a fusion-based technology
that could deliver commercially competitive baseload electric power.25
Work for an NGO and shame firms into changing—as Greenpeace does, or
help them understand how to go about doing it—as organizations like Proforest
or Leaders’ Quest do.26 Michael Peck founded 1worker1vote to support worker-
owned cooperatives all over the country. Sara Horowitz founded the Freelancers
Union, raising $17 million to start an insurance program for her more than four
hundred thousand members, and fighting for better pay and conditions. Nigel
Topping runs We Mean Business, a coalition of seven international nonprofits
that are working together to catalyze business action against climate change.
Work in government. We won’t get far without rebuilding trust in
government at every level. Smart, capable people who understand that business
can be part of the solution, but that externalities need to be properly priced and

that the power of business needs to be balanced by the power of the democracy
if the whole society is to thrive will be absolutely central to making this happen.
Get political. I know, the idea can be daunting. But it is absolutely essential.
Take courage from the examples of others. Remember what Daniella Ballou-
Aares has been able to accomplish in just a few years. Some time ago I had tea
with Kelsey Wirth, an old friend who is passionate about global warming. We
ranted about how slowly politicians were moving to address it and agreed that
finding a way to ratchet up public pressure was absolutely critical. Kelsey
speculated that mobilizing mothers might be key, since mothers are willing to do
almost anything to take care of their children. I left the tea having had a pleasant
grumble. But Kelsey—together with a small group of fellow moms—founded
Mothers Out Front—a group that now includes more than nineteen thousand
mothers and has teams on the ground in nine states. The group engages mothers
—deeply and personally—through individual meetings, house parties, and
community meetings, and supports them in becoming politically active in
effective ways.
In Massachusetts, for example, there are currently more than twenty-three
thousand gas leaks.27 Natural gas is actually methane—a greenhouse gas that
traps eighty-six times more heat than CO2. Of Massachusetts’s greenhouse gas
emissions, 10 percent is due to methane and—to add insult to injury—the lost
gas costs consumers at least $90 million a year. A group of mothers from
Mothers Out Front determined to get these leaks fixed. Members of the group
have met with activists, city councilors, and state legislators, pushing for
legislation to fix the problem. They persuaded a key member of the Boston City
Council to schedule a hearing on whether the council should support action—
and filled the hearing with committed mothers demanding change. They
threatened one of the state’s major utilities with a social media “superstorm.” By
the end of 2016, thirty-seven Massachusetts cities and towns had passed
resolutions in favor of new legislation, and the Massachusetts state legislature
recently passed an energy bill that includes many of the key provisions Mothers
Out Front has been fighting for.
Politicians tell Kelsey that they never hear from the vast majority of their
constituents—and that they are surprisingly open to persuasion when twenty
highly committed, articulate people come not only to the first hearing for a bill
but to the hearing after that, and to the one after that. The women I’ve met who
work with the group tell me that it is one of the best things in their lives. They
enjoy getting to know other mothers. They relish the sense of making a

difference. Most of all, they value knowing that they are doing something to
make sure that their children inherit a sustainable world.
Find a group that is politically active in a way that makes sense to you, and
join them. Push for voter registration, or for a climate tax, or a living wage.
Working in a community teaches us that organizing is the founding principle of
any kind of social change. We need to learn how to take a goal, break it into its
component parts, give the right people ownership of each part, and fight until we
see a resolution. People will tell you that it’s too late, or that it will never work,
or that things will never change. But it’s never too late. Things can always get
worse. A world that warms by six degrees rather than two will be
catastrophically worse off. Change is slow until it is fast. The avalanche looks
like nothing but a few pebbles moving until the whole hillside goes.
Take care of yourself and remember to find joy. Don’t judge your success by
whether you save the world. None of us can. There are nearly eight billion
wonderful, amazing, occasionally crazy-making human beings on this planet.
Each of us can only do what we can do.
Do you know the story about the young woman who saw a beach covered
with thousands of stranded starfish and began to throw them, one by one, back
into the sea? They say that her friend laughed at her, saying, “What are you
doing? Look at this beach: you can’t save all these starfish. You can’t even begin
to make a difference!” The young woman stopped for a moment, thought, and
then leaned down to pick up another starfish. “I don’t know about that,” she
replied, “but I know that I’m making a difference to this one.”28
You don’t need to transform the structure of the modern corporation single-
handedly to make a difference. If you can make even a small part of a single
firm a better place to work, you will change lives.29
I know it’s hard. I know the temptation to despair. I read bad news for a
living, and sometimes it can be hard to get out of bed. But most of the time this
work fills me with joy. I’m married to the love of my life, which helps
enormously, but I’ve also had the opportunity to develop a way of thinking about
my own role in the world that keeps me going when I’m tempted to simply lie
down.
My first husband was a man called John Huchra, who was born in New Jersey
on the wrong side of the tracks. His father was a railroad conductor and his
mother was a homemaker. Through raw smarts and drivingly hard work, he
became an astronomy professor at Harvard, spending as many as two hundred
nights a year observing on the world’s great telescopes. He was good at what he

did. There’s a galaxy called “Huchra’s lens” in his honor. Together with two
collaborators, he drew a map of the nearby universe that revealed a “Great Wall”
of galaxies 600 million light-years long and 250 million light-years wide. It was
one of the largest cosmic structures ever discovered, and it changed the face of
astronomy. Astronomers had always assumed that if they looked out beyond the
Milky Way, galaxies would be spread more or less evenly across the universe.
But John’s map suggested that the galaxies were instead confined to great sheets
arcing around enormous voids millions of light-years across. The discovery
made the front page of the New York Times and helped lay the foundation for the
current dark matter–based view of the universe.30 John became one of the most
highly cited astronomers of the twentieth century.
In 1991, when we had our first date, I was entirely ignorant of all this. He
was just some guy that I’d been introduced to. Since we were both academics, I
asked him how many papers he had published. He hesitated and guessed that it
was something over three hundred. Since I had roughly six published papers at
the time, I had to suppress a strong urge to leap to my feet and bolt, but we were
married a year later, when he was forty-four. He loved the outdoors—
particularly hiking and kayaking—and three years after we were married, our
son Harry was born. John hadn’t thought he would ever marry, let alone have a
son, and he loved Harry with a passion. Some fathers feel ambivalence toward
their children. As far as I can tell, John never did. Together we watched movies
every Friday night. We bribed Harry with small Lego figures to climb the
mountains of New Hampshire. Together we made chocolate cookies and
cheesecake and laughed and sat around doing nothing at all.
John became the president of the American Astronomical Association, and in
2006 led the delegation to Prague that formally moved the motion to delist Pluto
as a planet. Harry was in the room. In 2009 John was a member of a group that
went to Rome to meet the Pope—the Catholic hierarchy being keen to
demonstrate its support for astronomy ever since the tricky business with
Galileo. John had been born Polish Catholic, and he was tickled pink to have the
chance to address the Pope. In October 2010 we went to the twenty-fifth reunion
of my Harvard Business School class. I can still remember how happy I was that
night. I had just moved from MIT to the Harvard Business School and was
enjoying it enormously, our son had just entered high school and was thriving,
and I was in love. This is it, I remember thinking. This is what we have both
worked so hard for, for so many years. I thought we had mastered life.
Five days later, three weeks before my fiftieth birthday. I came home from a

business trip to find John lying on the floor. I thought he was playing with the
cats. When he wouldn’t move, I called 911, screaming at the people who
answered to send an ambulance now, right now—so that they could fix him,
wake him, something.… When I found him at the hospital—after a nightmare
drive more surreal than any dream—he was quite dead. I held his hand. We
buried him three days later. Harry was only fourteen.
Losing John is one of the hardest things that has ever happened to me.
Ordinary life felt like a betrayal. How could one do things like go to the grocery
store when John was dead? The warm, tight circle of our family had been blown
open. I felt as though I had gone from living in a beautiful house full of family
and friends to camping out in a lean-to on an open plain in the midst of driving
rain. Great waves of grief swept over me—I cried nearly every day for at least a
year. I envied those who still had their partners, still had their families intact.
But I learned. I learned that I had not paid nearly enough attention. A
passionate, funny, kind man had shared his life with me, and I had spent far too
much time worrying about whether he would take out the garbage. All that
laughter and love was gone, and I hadn’t treasured every single moment. I
learned that people are far more loving and caring than I had given them credit
for. People I hardly knew drove across town to give me lasagna at a time when I
could barely speak. It felt as if the world had given way beneath me and as if
hundreds of hands had reached out to catch me.
I learned that many worse things happen, all the time. One woman I knew—
the mother of one of Harry’s school friends—stopped me in the parking lot a few
weeks after his funeral and expressed her sympathy for my loss. Then she told
me that she was leaving her husband because he’d been beating her for more
than fifteen years. A colleague told me he had lost his father when he was six.
Another mentioned losing a child.
I learned that it is not death that is the tragedy. It is failing to live that is the
tragedy. Everybody dies. But not everybody lives. John threw himself into life.
He once flew to California to try to persuade a high school class to take more
science courses. He once flew to Mexico the week before Christmas to help a
graduate student finish her thesis. In a world in which many people hoard, John
gave away his data (and his time) to everyone who asked. He loved our son with
a fierce passion that stays with Harry today—Harry has often said that he had a
father in a way that many of his friends did not. He did world-class science but
never made a fuss about who he was or what he’d done. He immersed himself in
the beauty of the world. He would go anywhere and do anything, particularly

when it meant hauling fifty pounds of gear uphill in the rain. As far as I could
tell, he never cared about money or status. He wanted to do great science,
support his students—and anyone who needed his help—and to love the natural
world and his family. He gave and gave of himself. The day before his funeral I
saw him—I still don’t know if it was a dream or a waking vision—walking
down a road toward distant mountains. He looked over his shoulder toward me
and laughed. “Look for me in the trees and the rain,” he said, and set off toward
the horizon.
When people ask me what keeps me going, I tell them I’m a Buddhist, and
that Buddhism comes with both good news and bad news. The good news is that
we’re not going to die. The bad news is that this is because we don’t exist. I
believe—and you should feel free to interpret this as a metaphysical belief,
although I believe that it is also a physical fact—that we are not “real” in the
way we think we are. We are bundles of very small particles temporarily
patterned into structures of swirling energy. We think we are separate. We think
we exist. But we are songs the universe is singing—glorious songs—but songs
that will end. All we can do is try to sing as best we can.
The roots of our current predicament are fear and separateness. We fear we
will never have enough. We feel that we are separate and alone. But we are not. I
can’t tell you that trying to solve the great problems of our time will make you
either rich or famous—although it might. I can tell you that you will have
wonderful companions for the journey, that you will feel both more hope and
more despair than you expect, and that in the end you will die knowing that you
have lived life to the full.
Henry David Thoreau once said, “Most men [and women] lead lives of quiet
desperation and go to the grave with the song still in them.” But you don’t have
to. Really.

ACKNOWLEDGMENTS
This book has been more than ten years in the making, and I owe thanks to many
people. At MIT, John Sterman was the person who first persuaded me that
business could change the world; Bob Gibbons forced me to think clearly about
what makes organizations tick; and Nelson Repenning taught me that it’s all
about making choices. At HBS, Karthik Ramanna and Clayton Rose were
extraordinary thinking partners in framing up the core ideas that became
Reimagining Capitalism.
Joe Lassiter, Mike Toffel, Forest Reinhardt, Jennifer Nash, John Macomber,
and Dick Vietor kept me grounded in the realities of climate change and
business, while Paul Healy and Nien-he Hsieh helped me think through the
intersections between leadership and morality, Mike Beer and Russ Eisenhardt
showed me that purpose-driven business was a present reality, and Jane Nelson
and John Ruggie explained the importance of public-private partnerships and
global institutions.
Beyond HBS, David Moss, Richard Locke, and Luigi Zingales continue to be
enduring inspirations of how scholars can shape practice. Bruce Kogut hosted
me for an immensely valuable visit to Columbia Business School. Marshall
Ganz taught me about narrative and organizing, and kept reminding me that
reimagining government is just as important as reimagining business. Ioannis
Ioannou helped me think systematically about purpose and financial
performance. Sarah Kaplan gave me the courage to say what I really think.
Joshua Gans never gave up believing that architectural innovation was
important. Rajendra Sisodia, Carol Sanford, Katrin Kaufer, and Otto Scharmer
kept reminding me that the heart is just as important as the head.
Mariana Osequera Rodriguez and Tony He provided invaluable research
assistance. Tony, you covered more ground than I would have imagined possible.
Mariana, you have the patience of a saint and the work ethic of Thomas Edison.
Thank you for helping to carry the book over the finish line. Jessica Gover, Kate
Isaacs, Carin Knoop, Amram Migdal, Aldo Sesia, Jim Weber, and Hann-Shuin

Yew were wonderful partners in putting cases together. Elliott Stoller and Chris
Eaglin helped me see the world through the very different eyes of millennials.
My students have shown me that almost everything is possible. My particular
thanks to Ryan Allis, Chelsea Banks, Ruzwana Bashir, Lukas Baumgartner,
Oriel Carew, Howard Fisher, Diogo Freire, Casey Gerald, Patrick Hidalgo, Aman
Kumar, Sam Lazarus, Craig Matthews, Smriti Mishra, Alison Omens, Paulina
Ponce de Leon, Robert Poor, Anne Pratt, Prem Ramaswami, Carmichael
Roberts, Adam Siegel, Dorjee Sun, Henry Tsai, and Brian Tomlinson.
This book rests on the shoulders of all the businesspeople who have shown
me that capitalism can be reimagined. I’m sorry that I cannot name them all
here. The protagonists of my cases were endlessly helpful and always inspiring.
My thanks—now and always—to Peter Bloom, Karen Colberg, Ralf Carlton,
Suzanne McDowell, Mark Bertolini, Stan Bergman, Erik Osmundsen, Reynir
Indhal, Michiel Leijnse, Feike Sijbesma, and Hiro Mizuno.
Paul Polman showed me that it was possible to be passionately committed to
solving the problems of the world and also be the highly successful, detail-
obsessed leader of a multibillion dollar company. Let me watch them try to do
the impossible. Doug McMillan and Kathleen McLaughlin gave me hope. Jon
Ayers showed me that even a passionate advocate for shareholder value can
come to embrace the importance of shared values. Lauren Booker-Allen, Bob
Chapman, Catherine Connolly, Sue Garrard, Dick Gochenaur, Diane Propper de
Callejon, Kevin Rabinovitch, Jonathan Rose, Arthur Siegel, Carter Williams,
Andrew Winston, and Hugh Welsh showed me how passionate commitment
could drive change on the ground. I have benefited enormously from my friends
in the nonprofit world who share this agenda, including Craig Altemose, Heather
Boushey, Mindy Lubber, Lindsay Levin, Michael Peck, Bill Sharpe, Mark
Tercek, Nigel Topping, and Judy Samuelson.
My agent, Daniel Stern, took enormous trouble to find the right home for this
book. An amazing team helped me produce and position it. My thanks to Mel
Blake, Andrew DeSio, Theresa Diederich, Lindsay Fradkoff, Mark Fortier,
Jaime Leifer, Dan Masi, Claire Street, and Brynn Warriner. Shazia Amin was a
wonderful copyeditor.
Two of the people I would most like to thank are no longer with us. My
father, Mungo Henderson, died just under a year before the book was finished.
Dean John McArthur, for whom my chair at Harvard is named, passed away a
few months later. Both of them were slightly puzzled by this project, but neither
could have been more supportive or affectionate. I miss them both immensely

and wish they could have lived to see it finished.
My family and friends have been almost infinitely patient with the energy
and effort that I poured into this book at their expense. My thanks to Stephanie
Connor, who warned me that any reader could put the book down and watch
Netflix at any time, and to Sarah Slaughter, Linda Ugelow, Endre Jobbagy, Sarah
Robson, Tamlyn Nall, my mother Marina Henderson, my brother Caspar
Henderson, and my son Harry Huchra. Steven Holzman and Andrew Schulert
read early drafts and gave me hugely helpful comments. Jim Stone’s gentle
pressure was exactly what I needed.
There are three people without whom this book would not exist. John
Mahaney, my editor, who believed in the book from the beginning and spent
untold hours helping me wrestle it into shape. George Serafeim, my partner in
crime in teaching Reimagining Capitalism for the last five years, who pushed
me harder and more productively than anyone I’ve ever met, and who is a full
partner in many of these ideas. George, if anyone can change the world single-
handedly, it’s you. And Jim Morone, my husband, who showed me that it could
be done, encouraged me when it seemed impossible, and throughout everything
reminded me to delight in the sheer beauty of the world and the pleasure of
being alive.

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NATALIE CHLADEK
Rebecca Henderson is the John and Natty McArthur University Professor at
Harvard University, where she has a joint appointment at the Harvard Business
School in the General Management and Strategy units. Rebecca is one of
twenty-four University Professors at Harvard, a research fellow at the National
Bureau of Economic Research, and a fellow of both the British Academy and of
the American Academy of Arts and Sciences. She is an expert on innovation and
organizational change, and her research explores the degree to which the private
sector can play a major role in building a more sustainable economy, focusing
particularly on the relationships between organizational purpose and innovation
and productivity in high-performance organizations. She teaches “Reimagining
Capitalism: Business & the Big Problems,” in the Harvard Business School
MBA Program. Rebecca sits on the boards of CERES, Amgen and of Idexx
Laboratories and in February 2019 was named one of three “Outstanding
Directors of 2019” by the Financial Times. Her publications include Leading
Sustainable Change: An Organizational Perspective and Accelerating Energy
Innovation: Lessons from Multiple Sectors, and her work has been published in a
range of scholarly journals, including Administrative Science Quarterly, the

Quarterly Journal of Economics, Strategic Management Journal, Management
Science, Research Policy, the RAND Journal of Economics, and Organization
Science. She also plays the cello, not at all well but with great enthusiasm.

Praise for
REIMAGINING CAPITALISM IN A
WORLD ON FIRE
“This powerful and readable book is a clarion call for reimagining and remaking
capitalism. The market economy, which used to generate rapid productivity
growth and shared prosperity, has done much less of that over the last four
decades. The shifting balance of power in favor of large companies and lobbies,
the gutting of basic regulations, the increasing ability of corporations and the
very rich to get their way in every domain of life, and the unwillingness of the
government to step up to protect its weakest citizens are likely responsible for
low productivity growth and ballooning inequality in the US economy. Rebecca
Henderson argues that the market system can be reformed and this can be done
without unduly harming corporations. We can have a more moral and more
innovative capitalism. There is hope!”
—Daron Acemoglu, coauthor of Why Nations Fail
“If you are unsatisfied with today’s economic arguments—which too often seem
to present an unappealing choice between unbridled markets and old-school
collectivism—you need to read Rebecca Henderson’s Reimagining Capitalism in
a World on Fire. Henderson offers a system that rewards initiative and respects
the power of free enterprise, but that also recognizes that we have a higher
purpose in life than pure profit maximization. This is a book for the realist with
a heart.”
—Arthur C. Brooks, president emeritus, American Enterprise Institute;
professor of practice, Harvard Kennedy School; senior fellow, Harvard Business
School; and author of Love Your Enemies
“Rebecca Henderson is masterful in both elegant articulation of one of society’s
great challenges and clarity of vision in laying out a roadmap for practical and

essential change. Reimagining Capitalism is a great read, full of insights, and a
refreshing perspective that is new, practical, and ground-breaking, offering clear
steps for transitioning to a capitalism that is both profitable as well as just and
sustainable.”
—Mindy Lubber, CEO and president, CERES
“Rebecca Henderson is a provocative thinker on the purpose of business in
society. In her new book, she advances the dialogue about the role of business in
addressing the big social and environmental challenges of our time. Hers is an
important voice in an essential conversation.”
—Doug McMillon, president and chief executive officer, Walmart
“In a world on fire, status quo is not a great option. Rebecca Henderson
rightfully argues for a refoundation of business and capitalism and offers
thought-provoking ideas on what needs to be done to address some of the
world’s greatest challenges.”
—Hubert Joly, former chairman and CEO, Best Buy
“A must-read for every person with a stake in our economic system since change
or die is the inescapable reality confronting capitalism. The question is how.
Rebecca Henderson provides investors and corporate executives with the
thought leadership and compelling examples foundational for understanding
how to deliver sustainable and inclusive economic growth.”
—Hiro Mizuno, executive managing director and chief investment officer, GPIF
“Capitalism as we know it has gotten us this far, but to take the next steps
forward as a society and species we need new ways of seeing and acting on our
world. That’s exactly what Rebecca Henderson’s book helps us do. This is a
smart, timely, and much-needed reimagining of what capitalism can be.”
—Yancey Strickler, cofounder and former CEO, Kickstarter, and author of This
Could Be Our Future: A Manifesto for a More Generous World
“A breakthrough book, beautifully written, combining deep humanity, sharp
intellect, and a thorough knowledge of business. It rigorously dismantles old
arguments about why capitalism can’t be transformed and will reach people who
haven’t yet connected with the need for deep change.”

—Lindsay Levin, founding partner, Leaders’ Quest and Future Stewards
“With great clarity and passion, Rebecca Henderson provides a stellar guide to
building a purpose-driven organization, the surest path to success in a time of
rising temperatures and declining trust.”
—Andrew McAfee, author of More from Less and coauthor of The Second
Machine Age and Machine, Platform, Crowd
“Rebecca Henderson weaves together research and personal experience with
clarity and vision, illustrating the potential for business to benefit both itself and
society by leading on the most challenging issues of our day. Read, and feel
hopeful.”
—Judith Samuelson, vice president, the Aspen Institute
“Reimagining Capitalism is a breath of fresh air. Written in lively prose, easily
accessible to lay readers, and chock full of interesting case studies, Henderson
comprehensively surveys what we need to secure a workable future. Some
readers may think she goes too far in places, others may think she doesn’t go far
enough, but everyone will want to think about the economy she urges us to
create.”
—Larry Kramer, president of the Hewlett Foundation
“Business it at the start of a sea-change. Rebecca Henderson brilliantly captures
this moment when the tide is reversing its flow, from short-term shareholder
value to forward-looking common purpose. It will be an essential guide for
business strategy in riding these turbulent seas.”
—Paul Collier, Oxford University, author of The Future of Capitalism
“A clarion call for business leaders to get intentional—and quickly—about
purpose beyond profit and using business as a force for good. An easy read,
Reimagining Capitalism in a World on Fire makes the business case for those
who need convincing while delivering a dose of inspiration to those of us
already on the journey.”
—Bob Chapman, CEO of Barry-Wehmiller, author of Everybody Matters: The
Extraordinary Power of Caring for Your People Like Family

NOTES

Prologue
1. Gordon Kelly, “Finland and Nokia: An Affair to Remember,” WIRED, Oct.
4, 2017, www.wired.co.uk/article/finland-and-nokia; “Nokia Smartphone Market
Share History,” Statista, www.statista.com/statistics/263438/market-share-held-
by-nokia-smartphones-since-2007/.

Chapter 1: “When the Facts Change, I Change My Mind. What Do You
Do, Sir?”
1. WHO (World Health Organization), “Health Benefits Far Outweigh the
Costs of Meeting Climate Change Goals,” www.who.int/news-room/detail/05-
12-2018-health-benefits-far-outweigh-the-costs-of-meeting-climate-change-
goals; Intergovernmental Panel on Climate Change (IPCC), Climate Change
2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral
Aspects. Contribution of Working Group II to the Fifth Assessment Report of the
Intergovernmental Panel on Climate Change, edited by C. B. Field, V. R. Barros,
D. J. Dokken, K. J. Mach, M. D. Mastrandrea, T. E. Bilir, M. Chatterjee, K. L.
Ebi, Y. O. Estrada, R. C. Genova, B. Girma, E. S. Kissel, A. N. Levy, S.
MacCracken, P. R. Mastrandrea, and L. L.White (Cambridge, UK, and New
York: Cambridge University Press, 2014).
2. IPCC, Climate Change 2014; WWAP (UNESCO World Water Assessment
Programme), The United Nations World Water Development Report 2019:
Leaving No One Behind (Paris: UNESCO, 2019), www.unenvironment.org/news-
and-stories/press-release/half-world-face-severe-water-stress-2030-unless-
water-use-decoupled.
3. K. K. Rigaud, A. de Sherbinin, B. Jones, J. Bergmann, V. Clement, K.
Ober, J. Schewe, S. Adamo, B. McCusker, S. Heuser, and A. Midgley,
Groundswell: Preparing for Internal Climate Migration (Washington, DC:
World Bank, 2018).
4. Brooke Jarvis, “The Insect Apocalypse Is Here,” New York Times, Nov. 27,
2018, www.nytimes.com/2018/11/27/magazine/insect-apocalypse.html.
5. S. Díaz, J. Settele, E. S. Brondizio, H. T. Ngo, M. Guèze, J. Agard, A.
Arneth, et al., eds., “Summary for Policymakers of the Global Assessment
Report on Biodiversity and Ecosystem Services of the Intergovernmental
Science-Policy Platform on Biodiversity and Ecosystem Services” (Bonn,
Germany: IPBES Secretariat, 2019).
6. Hans Rosling, Ola Rosling, and Anna Rosling Rönnlund, Factfulness: Ten
Reasons We’re Wrong About the World—and Why Things Are Better Than You
Think, 1st ed. (New York, Flatiron Books, 2018).
7. WHO, “World Bank and WHO: Half the World Lacks Access to Essential
Health Services, 100 Million Still Pushed into Extreme Poverty Because of
Health Expenses,” Dec. 13, 2017, www.who.int/news-room/detail/13-12-2017-
world-bank-and-who-half-the-world-lacks-access-to-essential-health-services-

100-million-still-pushed-into-extreme-poverty-because-of-health-expenses;
Kate Hodal, “Hundreds of Millions of Children in School but Not Learning,”
Guardian, Feb. 2, 2018, www.theguardian.com/global-
development/2018/feb/02/hundreds-of-millions-of-children-in-school-but-not-
learning-world-bank; United Nations, “Lack of Quality Opportunities Stalling
Young People’s Quest for Decent Work—UN Report / UN News,” Nov. 21, 2017,
https://news.un.org/en/story/2017/11/636812-lack-quality-opportunities-
stalling-young-peoples-quest-decent-work-un-report; James Manyika et al.,
“Jobs Lost, Jobs Gained: Workforce Transitions in a Time of Automation,”
McKinsey Global Institute (2017).
8. Steven Levitsky and Daniel Ziblatt, How Democracies Die, 1st ed. (New
York: Crown Publishing, 2018); Yascha Mounk, The People vs. Democracy: Why
Our Freedom Is in Danger and How to Save It (Cambridge, MA: Harvard
University Press, 2018).
9. “GDP per capita (Current US$),” World Bank Data,
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD; “Population, Total,”
World Bank Data, https://data.worldbank.org/indicator/SP.POP.TOTL; “GDP per
Capita (Current US$),” World Bank Data,
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD.
10. Larry Fink, “A Sense of Purpose,” BlackRock,
www.blackrock.com/hk/en/insights/larry-fink-ceo-letter.
11. ICBC (Industrial and Commercial Bank of China) is the world’s largest
bank.
12. It turns out this story is almost certainly a myth. Billy Perrigo, “Did
Martin Luther Nail His 95 Theses to the Church Door?” Time, Oct. 31, 2017,
https://time.com/4997128/martin-luther-95-theses-controversy/.
13. “Business Roundtable Redefines the Purpose of a Corporation to Promote
‘An Economy That Serves All Americans,’” Business Roundtable, Aug. 19,
2019, www.businessroundtable.org/business-roundtable-redefines-the-purpose-
of-a-corporation-to-promote-an-economy-that-serves-all-americans.
14. “Council of Institutional Investors Responds to Business Roundtable
Statement on Corporate Purpose,” Council of Institutional Investors, Aug. 19,
2019, www.cii.org/aug19_brt_response.
15. Andrew Pollack, “Drug Goes from $13.50 a Tablet to $750, Overnight,”
New York Times, Sept. 20, 2015, www.nytimes.com/2015/09/21/business/a-huge-
overnight-increase-in-a-drugs-price-raises-protests.html.
16. Kate Gibson, “Martin Shkreli: I Should’ve ‘Raised Prices Higher,’” CBS

News, CBS Interactive, Dec. 4, 2015, www.cbsnews.com/news/martin-shkreli-i-
shouldve-raised-prices-higher/.
17. Stephanie Clifford, “Martin Shkreli Sentenced to 7 Years in Prison for
Fraud,” New York Times, Mar. 9, 2018,
www.nytimes.com/2018/03/09/business/martin-shkreli-sentenced.html.
18. Gretchen Morgenson, “Defiant, Generic Drug Maker Continues to Raise
Prices,” New York Times, Apr. 14, 2017,
www.nytimes.com/2017/04/14/business/lannett-drug-price-hike-bedrosian.html.
19. Joyce Geoffrey et al., “Generic Drug Price Hikes and Out-of-Pocket
Spending for Medicare Beneficiaries,” Health Affairs 37, no. 10 (2018): 1578–
1586.
20. Danny Hakim, Roni Caryn Rabin, and William K. Rashbaum, “Lawsuits
Lay Bare Sackler Family’s Role in Opioid Crisis,” New York Times, Apr. 1, 2019,
www.nytimes.com/2019/04/01/health/sacklers-oxycontin-lawsuits.html.
21. “Big Oil’s Real Agenda on Climate Change,” Influence Map, 2019,
https://influencemap.org/report/How-Big-Oil-Continues-to-Oppose-the-Paris-
Agreement-38212275958aa21196dae3b76220bddc.
22. Anne Elizabeth Moore, “Milton Friedman’s Pencil,” The New Inquiry,
Apr. 18, 2017, https://thenewinquiry.com/milton-friedmans-pencil/.
23. Sam Costello, “Where Is the IPhone Made? (Hint: Not Just China),”
Lifewire, Apr. 8, 2019, www.lifewire.com/where-is-the-iphone-made-1999503.
24. For an early articulation of this model, see, e.g., G. Stigler, The Theory of
Price (London: Macmillan, 1952).
25. Christina D. Romer and Richard H. Pells, “Great Depression,”
Encyclopœdia Britannica, Oct. 16, 2019, www.britannica.com/event/Great-
Depression; “Unemployment Rate for United States,” FRED, Aug. 17, 2012,
https://fred.stlouisfed.org/series/M0892AUSM156SNBR.
26. There’s a lively debate as to whether the focus on shareholder value
caused this explosion in growth. Other candidates include globalization, major
advances in technology, and the spread of the free market more generally.
27. F. Alvaredo, L. Chancel, T. Piketty, E. Saez, and G. Zucman, World
Inequality Report 2018 (Cambridge, MA: The Belknap Press of Harvard
University Press, 2018).
28. Alvaredo et al., World Inequality Report 2018.
29. Paul R. Epstein, Jonathan J. Buonocore, Kevin Eckerle, Michael Hendryx,
Benjamin M. Stout III, Richard Heinberg, Richard W. Clapp, et al., “Full Cost
Accounting for the Life Cycle of Coal,” Annals of the New York Academy of

Sciences 1219 (1): 73–98, via Wiley Online Library, accessed February 2017;
burning 1 pound of coal emits about 2 pounds of CO2 depending on the type of
coal.
30. WHO, “COP24 Special Report: Health and Climate Change” (2018);
Irene C. Dedoussi, et al., “The Co-Pollutant Cost of Carbon Emissions: An
Analysis of the US Electric Power Generation Sector,” Environmental Research
Letters 14.9 (2019): 094003; and see, for example, J. Lelieveld, K. Klingmüller,
A. Pozzer, R. T. Burnett, A. Haines, and V. Ramanathan, “Effects of Fossil Fuel
and Total Anthropogenic Emission Removal on Public Health and Climate,”
PNAS 116, no. 15 (April 9, 2019): 7192–7197.
31. Peabody Energy, 2018 Annual Report,
www.peabodyenergy.com/Peabody/media/MediaLibrary/Investor%20Info/Annu
al%20Reports/2018-Peabody-Annual-Report-02 ?ext= .
32. “The Carbon Footprint of a Cheeseburger,” SixDegrees, Sept. 26, 2017,
www.sixdegreesnews.org/archives/10261/the-carbon-footprint-of-a-
cheeseburger; “GLEAM 2.0—Assessment of Greenhouse Gas Emissions and
Mitigation Potential,” Results / Global Livestock Environmental Assessment
Model (GLEAM) / Food and Agriculture Organization of the United Nations,
FAO, www.fao.org/gleam/results/en/.
33. CEMEX Carbon Disclosure Project Annual Report, 2018.
34. 46m tonnes CO2e * $80/ton * 1.1 tonnes/ton.
35. CEMEX Annual Report, 2018,
www.cemex.com/investors/reports/hom#navigate.
36. Climate Change, Marks and Spencer,
https://corporate.marksandspencer.com/sustainability/business-wide/climate-
change.
37. Key Facts, Marks and Spencer,
https://corporate.marksandspencer.com/investors/key-facts.
38. Hans Rosling et al., Factfulness.
39. Alvaredo et al., World Inequality Report 2018.
40. Raj Chetty, “Improving Opportunities for Economic Mobility: New
Evidence and Policy Lessons,” Bridges (Fall 2016).
41. Raj Chetty et al., Mobility Report Cards: The Role of Colleges in
Intergenerational Mobility, NBER Working Paper no. w23618 (Cambridge, MA:
National Bureau of Economic Research, 2017).
42. “Disparities in Life Expectancy in Massachusetts Driven by Societal
Factors,” Harvard T. H. Chan School of Public Health News, Dec. 19, 2018,

www.hsph.harvard.edu/news/hsph-in-the-news/life-expectancy-disparities-
massachusetts-societal-factors/;
https://data.worldbank.org/indicator/sp.dyn.le00.in.
43. “Too Much of a Good Thing,” Economist, Mar. 26, 2016,
www.economist.com/briefing/2016/03/26/too-much-of-a-good-thing.
44. Ben Casselman, “A Start-up Slump Is a Drag on the Economy. Big
Business May Be to Blame,” New York Times, Sept. 20, 2017,
www.nytimes.com/2017/09/20/business/economy/startup-business.html?
module=inline.
45. Alan B. Krueger, “Reflections on Dwindling Worker Bargaining Power
and Monetary Policy,” Luncheon Address at the Jackson Hole Economic
Symposium 24 (2018); Jan De Loecker and Jan Eeckhout, The Rise of Market
Power and the Macroeconomic Implications, NBER Working Paper no. w23687
(Cambridge, MA: National Bureau of Economic Research, 2017).
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Politics: Elites, Interest Groups, and Average Citizens,” Perspectives on Politics
12, no. 3 (2014): 564–581.
47. Jacob Hartmann, “Disney’s Fight to Keep Mickey,” Chicago Stigler
Center Case no. 3 (November 2017).
48. “Lobbying Spending Database—Walt Disney Co, 1998,”
OpenSecrets.org.
49. In 1997 Disney’s net income from “creative content” was $878 million.
Walt Disney Company 1997 Annual Report,
https://ddd.uab.cat/pub/decmed/46860/iaDISNEYa1997ieng . Assuming that
50 percent of this income would have been lost starting in 2023 without the
passage of the bill, and that with the passage of the bill it will be retained, and
discounting those future income streams at 6 percent.
50. Tim Lee, “15 Years Ago, Congress Kept Mickey Mouse out of the Public
Domain. Will They Do It Again?” Washington Post, Apr. 23, 2019,
www.washingtonpost.com/news/the-switch/wp/2013/10/25/15-years-ago-
congress-kept-mickey-mouse-out-of-the-public-domain-will-they-do-it-again/.
51. Brief of George A. Akerlof et al. as Amici Curiae in Support of
Petitioners, Eric Eldred et al. v. John D. Ashcroft, Attorney General, 537 U.S.
186 (2003).
52. “Fossil Fuel Interests Have Outspent Environmental Advocates 10:1 on
Climate Lobbying,” Yale E360, July 18, 2018,
https://e360.yale.edu/digest/fossil-fuel-interests-have-outspent-environmental-

advocates-101-on-climate-lobbying; https://influencemap.org/index.html.
53. Hiroko Tabuchi, “The Oil Industry’s Covert Campaign to Rewrite
American Car Emissions Rules,” New York Times, Dec. 13, 2018,
www.nytimes.com/2018/12/13/climate/cafe-emissions-rollback-oil-
industry.html.
54. Following the references above and assuming that the social cost of
carbon is $80/ton.
55. Nichola Groom, “Washington State Carbon Tax Poised to Fail after Big
Oil Campaign,” Reuters, Nov. 7, 2018, www.reuters.com/article/us-usa-election-
carbon/washington-state-carbon-tax-poised-to-fail-after-big-oil-campaign-
idUSKCN1NC1A9.
56. Jonas Hesse, Mozaffar Khan, and Karthik Ramanna, “Political Standards:
Corporate Interest, Ideology, and Leadership in the Shaping of Accounting Rules
for the Market Economy,” Journal of Accounting & Economics 64, no. 20
(2015): 2–3.
57. “U.S. and World Population Clock,” Population Clock,
www.census.gov/popclock/; “Gross Domestic Product,” FRED, Oct. 30, 2019,
https://fred.stlouisfed.org/series/GDP.
58. “Gross Domestic Product for Russian Federation,” FRED, July 1, 2019,
https://fred.stlouisfed.org/series/MKTGDPRUA646NWDB; “Russian
Federation,” World Bank Data, https://data.worldbank.org/country/russian-
federation.
59. United Nations, “About the Sustainable Development Goals—United
Nations Sustainable Development,”
www.un.org/sustainabledevelopment/sustainable-development-goals/.
60. Coral Davenport and Kendra Pierre-Louis, “U.S. Climate Report Warns of
Damaged Environment and Shrinking Economy,” New York Times, Nov. 23,
2018, www.nytimes.com/2018/11/23/climate/us-climate-report.html?
module=inline.
61. “Migration, Environment and Climate Change (MECC) Division,”
International Organization for Migration, Feb. 15, 2019, www.iom.int/complex-
nexus#estimates.

Chapter 2. Reimagining Capitalism in Practice
1. The bulk of the material that follows is drawn from “Turnaround at Norsk
Gjenvinning,” by G. Serafeim and S. Gombas, Harvard Business School Case no.
9-116-012 (January 2017).
2. I first heard this from Peter Senge. Thanks, Peter!
3. Rebecca Henderson and Tony L. He, “Shareholder Value Maximization,
Fiduciary Duties, and the Business Judgement Rule: What Does the Law Say?”
Harvard Business School Background Note 318-097 (January 2018).
4. Global Reporting Initiative, “Sustainability and Reporting Trends in
2025,” Global Reporting.org (2015),
www.globalreporting.org/resourcelibrary/Sustainability-and-Reporting-Trends-
in-2025-2 .
5. Richard Locke, The Promise and Limits of Private Power: Promoting
Labor Standards in a Global Economy (Cambridge, UK, and New York:
Cambridge University Press, 2013).
6. “Trending: Cocoa Giants Embrace Sustainability, but Consumers Remain
Key to Lasting Progress,” Sustainable Brands, Dec. 12, 2017,
https://sustainablebrands.com/read/supply-chain/trending-cocoa-giants-
embrace-sustainability-but-consumers-remain-key-to-lasting-progress.
7. Rebecca Henderson and Nien-he Hsieh, “Putting the Guiding Principles
into Action: Human Rights at Barrick Gold (A),” Harvard Business School Case
no. 315-108, March 2015 (Revised December 2017).
8. Yuval N. Harari, Sapiens, A Brief History of Humankind (London: Harvill
Secker, 2014) is particularly interesting on this point.
9. One report described the dismal conditions of workers in the poultry
industry. The average worker had to perform the same task every 20 seconds,
processing more than 14,000 chickens per day. The average wage was $11 per
hour, while turnover was around 100 percent per year. The employees are not
covered by health insurance, despite the fact that injuries are five times more
common than in other industries, and are often forced to use diapers, as
bathroom breaks are tightly regulated. “Lives on the Line: The High Human
Cost of Chicken,” Oxfam America, May 23, 2018,
www.oxfamamerica.org/livesontheline/.
10. John Miller, The Glorious Revolution, 2nd ed. (Harlow, UK: Longman,
1997).
11. Encyclopedia Britannica, Massachusetts Bay Colony / Facts, Map, &

Significance [online], accessed Oct. 22, 2019,
www.britannica.com/place/Massachusetts-Bay-Colony.

Chapter 3. The Business Case for Reimagining Capitalism
1. Brian Eckhouse, “Solar Beats Coal on U.S. Jobs,” Bloomberg.com, May
16, 2018, www.bloomberg.com/news/articles/2018-05-16/solar-beats-coal-on-u-
s-jobs.
2. Richard Vietor, “Clean Energy for the Future,” Harvard Business School
(HBS) Technical Note (August 2019).
3. Ian Johnston, “India Just Cancelled 14 Huge Coal-Fired Power Stations as
Solar Energy Prices Hit Record Low,” Independent, May 24, 2017,
www.independent.co.uk/environment/india-solar-power-electricity-cancels-coal-
fired-power-stations-record-low-a7751916.html.
4. Mark Kane, “Global Sales December & 2018: 2 Million Plug-in Electric
Cars Sold,” InsideEVs, Jan. 31, 2019, https://insideevs.com/news/342547/global-
sales-december-2018-2-million-plug-in-electric-cars-sold/.
5. Kate Taylor, “3 Factors Are Driving the Plant-Based ‘Meat’ Revolution as
Analysts Predict Companies Like Beyond Meat and Impossible Foods Could
Explode into a $140 Billion Industry,” Business Insider, May 24, 2019,
www.businessinsider.com/meat-substitutes-impossible-foods-beyond-meat-
sales-skyrocket-2019-5. In May 2019, Beyond Meat, which makes a meatless,
plant-based burger with something very close to the taste and texture of real
beef, had one of the most successful IPOs of the last ten years. On the first day
of trading, the stock surged 163 percent, and the company closed that day with a
value of $3.83 billion; Bailey Lipschultz and Drew Singer, “Beyond Meat Makes
History with the Biggest IPO Pop Since 2008 Crisis,” Bloomberg.com, May 2,
2019, www.bloomberg.com/news/articles/2019-05-02/beyond-meat-makes-
history-with-biggest-ipo-pop-since-08-crisis.
6. My account of Unilever and its experience in the tea business is drawn
from my case: Rebecca Henderson and Frederik Nelleman, “Sustainable Tea at
Unilever,” HBS Case no. 9-712-438, November 2012.
7. “Tea Consumption by Country,” Statista,
www.statista.com/statistics/940102/global-tea-consumption/.
8. “Tea Market: Forecast Value Worldwide 2017–2024,” Statista,
www.statista.com/statistics/326384/global-tea-beverage-market-size/; Jasan
Potts, et al., The State of Sustainability Initiatives Review 2014: Standards and
the Green Economy (Winnipeg, Canada: International Institute for Sustainable
Development, 2014), www.iisd.org/pdf/2014/ssi_2014 ; and “Unilever’s Tea
Beverages Market Share Worldwide 2012–2021,” Statista,

www.statista.com/statistics/254626/unilevers-tea-beverages-market-share-
worldwide/.
9. www.walmart.com/ip/Lipton-100-Natural-Tea-Black-Tea-Bags-100-
ct/10307788.
10. Jason Clay, World Agriculture and the Environment (Washington, DC:
Island Press), 102–103.
11. Rachel Arthur, “Tea Production Rises: But FAO Warns of Climate Change
Threat,” Beveragedaily.com, William Reed Business Media Ltd., May 30, 2018,
www.beveragedaily.com/Article/2018/05/30/Tea-production-rises-but-FAO-
warns-of-climate-change-threat.
12. Alan Kroeger et al., “Eliminating Deforestation from the Cocoa Supply
Chain” (Washington, DC: World Bank, 2017).
13. Columbia Law School Human Rights Institute, The More Things Change,
Jan. 2014, https://web.law.columbia.edu/sites/default/files/microsites/human-
rights-institute/files/tea_report_final_draft-smallpdf ; “Study Report on Tea
Plantation Workers-2016-Ilo.org” (2016), www.ilo.org/wcmsp5/groups/public/
—asia/—ro-bangkok/—ilo-dhaka/documents/publication/wcms_563692 .
14. Kericho is not, of course, paradise. See Verita Largo and Andrew Wasley,
“PG Tips and Lipton Tea Hit by ‘Sexual Harassment and Poor Conditions’
Claims,” Ecologist, Nov. 17, 2017, https://theecologist.org/2011/apr/13/pg-tips-
and-lipton-tea-hit-sexual-harassment-and-poor-conditions-claims.
15. “Unpacking the Sustainability Landscape,” Nielsen, Sept. 11, 2018,
www.nielsen.com/us/en/insights/reports/2018/unpacking-the-sustainability-
landscape.html.
16. “Unpacking the Sustainability Landscape,” Nielsen.
17. “Global Consumers Seek Companies That Care About Environmental
Issues,” Nielsen, Sept. 11, 2018,
www.nielsen.com/us/en/insights/news/2018/global-consumers-seek-companies-
that-care-about-environmental-issues.html.
18. In two large-scale field experiments conducted with the apparel
manufacturer, Gap, labels with information about a program to reduce water
pollution increased sales by 8 percent among female shoppers, although they
apparently had no such effect in outlet stores or on male shoppers. J.
Hainmueller and M. J. Hiscox, “The Socially Conscious Consumer,” Field
Experimental Test of Consumer Support for Fair Labor Standard (Massachusetts
Institute of Technology Political Science Department Working Paper 2012-15,
2012). In one major US grocery store chain, sales of the two most popular bulk

coffees sold in the store rose by almost 10 percent when the coffees were labeled
as Fair Trade. Jens Hainmueller, Michael J. Hiscox, and Sandra Sequeira,
“Consumer Demand for the Fair Trade Label: Evidence from a Field
Experiment,” SSRN Electronic Journal 97, no. 2 (2011): SSRN, and an
experiment on eBay suggested that shoppers were willing to pay a 23 percent
premium for coffee labeled Fair Trade. M. J. Hiscox, M. Broukhim, and C.
Litwin, “Consumer Demand for Fair Trade: New Evidence from a Field
Experiment Using eBay Auctions of Fresh Roasted Coffee,” SSRN Electronic
Journal, (2011). See also Maya Singer, “Is There Really Such a Thing as
‘Ethical Consumerism’?” Vogue, Feb. 5, 2019, www.vogue.com/article/ethical-
consumer-rentrayage-batsheva-lidia-may.
19. Tania Braga, Aileen Ionescu-Somers, and Ralf W. Seifert, “Unilever
Sustainable Tea Part II: Reaching out to Smallholders in Kenya and Argentina,”
accessed November 2011, www.idhsustainabletrade.com/idh-publications.
20. “Britain Backs Kenya Tea Farmers,” SOS Children’s Village, March 14,
2011, www.soschildrensvillages.org.uk/charity-news/archive/2011/03/britain-
backs-kenya-tea-farmers.
21. Root Capital was a nonprofit social investment fund that provided
financing for rural businesses in developing countries. It invested in a class of
capital that sat between microcredit and commercial lending; Tensie Whelan,
Rainforest Alliance, interview by author, Cambridge, MA, October 24, 2011.
22. Rebecca M. Henderson and Frederik Nellemann, “Sustainable Tea at
Unilever,” HBS Case no. 712-438, December 2011 (Revised November 2012).
23. Idem.
24. Which is not to say that Unilever is perfect or that problems haven’t
come up. In 2011, for example, a Dutch NGO published a report claiming that
female employees at Kericho were subject to systematic sexual harassment.
25. “Tea in the United Kingdom,” Euromonitor International, January 2011,
www.euromonitor.com.
26. The best kind, in my view.
27. Using exchange rate of €1 = A$1.31, as of December 2, 2011.
28. “Tea in Italy,” February 2011, Euromonitor International, accessed
November 2011, www.euromonitor.com.
29. “Unilever’s Purpose-Led Brands Outperform,” Unilever Global Company
website, www.unilever.com/news/press-releases/2019/unilevers-purpose-led-
brands-outperform.html.
30. Susan Rosegrant, “Wal-Mart’s Response to Hurricane Katrina: Striving

for a Public-Private Partnership,” Kennedy School of Government Case Program
C16-07-1876.0, Case Studies in Public Policy and Management (Cambridge,
MA: Kennedy School of Government, 2007).
31. Suzanne Kapner, “Changing of the Guard at Wal-Mart,” CNNMoney,
Cable News Network, Feb. 18, 2009,
https://money.cnn.com/2009/02/17/news/companies/kapner_scott.fortune/. My
source for much of the story that follows is my case (and the references therein):
Rebecca Henderson and James Weber, “Greening Walmart: Progress and
Controversy,” HBS Case no. 9-316-042, February 2016.
32. Kapner, “Changing of the Guard at Wal-Mart” (2009).
33. “Our History,” Corporate, https://corporate.walmart.com/our-story/our-
history.
34. Business Planning Solutions, “The Economic Impact of Wal-Mart”
(Washington, DC, 2005).
35. Henderson and Weber, “Greening Walmart: Progress and Controversy”
(Revised February 2017).
36. Joel Makower, “Walmart Sustainability at 10: The Birth of a Notion,”
GreenBiz, November 16, 2015, www.greenbiz.com/article/walmart-
sustainability-10-birth-notion.
37. Alison Plyer, “Facts for Features: Katrina Impact” (The Data Center,
August 28, 2015), www.datacenterresearch.org/data-resources/katrina/facts-for-
impact/.
38. Edward Humes, Force of Nature: The Unlikely Story of Wal-Mart’s Green
Revolution (New York: Harper Business, 2011), 97–99; Michael Barbaro and
Justin Gillis, “Wal-Mart at Forefront of Hurricane Relief,” Washington Post,
Sept. 6, 2005, www.washingtonpost.com/archive/business/2005/09/06/wal-mart-
at-forefront-of-hurricane-relief/6cc3a4d2-d4f7-4da4-861f-933eee4d288a/.
39. “Former Laggard Wal-Mart Turns into Ethical Leader—Covalence Retail
Industry Report 2008,” Covalence SA, Dec. 11, 2008,
www.covalence.ch/index.php/2008/12/11/former-laggard-wal-mart-turns-into-
ethical-leader-covalence-retail-industry-report-2008/.
40. G. I. McKinsey, “Pathways to a Low-Carbon Economy. Version 2 of the
Global Greenhouse Gas Abatement Cost Curve,” McKinsey & Company,
Stockholm (2009).
41. By Editor, “Commissioning HVAC Systems,” FM Media, Jan. 22, 2015,
www.fmmedia.com.au/sectors/commissioning-hvac-systems/.
42. Robert G. Eccles, George Serafeim, and Tiffany A. Clay, “KKR:

Leveraging Sustainability,” HBS Case no. 112-032, September 2011 (Revised
March 2012).
43. “Global Industrial Energy-Efficiency Services Market Predicted to
Exceed USD 10 Billion by 2020: Technavio,” Business Wire, Dec. 26, 2016;
“Europe’s Energy Efficiency Services Market to Reach €50 Billion by 2025,”
Consultancy.eu, Apr. 2, 2019; “A $300 Billion Energy Efficiency Market,”
CNBC, Mar. 19, 2019, www.cnbc.com/advertorial/2017/09/19/a-300-billion-
energy-efficiency-market.html; Energy Efficiency Market Report 2018 (Paris:
International Energy Agency [IEA], 2018),
https://webstore.iea.org/download/direct/2369?
fileName=Market_Report_Series_Energy_Efficiency_2018 .
44. Adam Tooze, “Why Central Banks Need to Step Up on Global Warming,”
Foreign Policy, Aug. 6, 2019, https://foreignpolicy.com/2019/07/20/why-
central-banks-need-to-step-up-on-global-warming/.
45. Tooze (2019).
46. “Florida’s Sea Level Is Rising,” Sea Level Rise,
https://sealevelrise.org/states/florida/.
47. Akhilesh Ganti, “What Is a Minsky Moment?” Investopedia, July 30,
2019, www.investopedia.com/terms/m/minskymoment.asp; John Cassidy. “The
Minsky Moment,” New Yorker, January 27, 2008,
www.newyorker.com/magazine/2008/02/04/the-minsky-moment.
48. Christopher Flavelle, “Bank Regulators Present a Dire Warning of
Financial Risks from Climate Change,” New York Times, Oct. 17, 2019,
www.nytimes.com/2019/10/17/climate/federal-reserve-climate-financial-
risk.html
49. This story draws heavily on my case “CLP: Powering Asia,” George
Serafeim, Rebecca Henderson, and Dawn Lau, 9-115-038, February 2015.
50. “The First Mobile Phone Call Was Placed 40 Years Ago Today,” Fox
News, Dec. 20, 2014, www.foxnews.com/tech/2013/04/03/first-mobile-phone-
call-was-placed-40-years-ago-today.html.
51. The levelized cost of electricity is the ratio between lifetime costs to
lifetime electricity generation using a discount rate that captures the average
cost of capital. International Renewable Energy Agency, “Renewable Power
Generation Costs in 2018” (Abu Dhabi: IRENA, 2019).
52. IRENA, “Renewable Power Generation Costs in 2018”; IRENA, “Future
of Wind: Deployment, Investment, Technology, Grid Integration and Socio-
economic Aspects” (A Global Energy Transformation paper, Abu Dhabi:

IRENA).
53. See, for example, “New Energy Outlook 2019: Bloomberg NEF,” and
McKinsey Energy Insights, Global Energy Perspective, January 2019.
54. “China Pushes Regions to Maximize Renewable Energy Usage,” Reuters,
Aug. 30, 2019, www.reuters.com/article/us-china-renewables/china-pushes-
regions-to-maximize-renewable-energy-usage-idUSKCN1VK087.
55. “World Energy Outlook 2017 China: Key Findings,” International Energy
Agency, www.iea.org/weo/china/.
56. “New Energy Outlook 2019: Bloomberg NEF.”
57. AutoGrid, CLP Holdings Signs Multi-Year Strategic Commercial
Agreement with AutoGrid to Deploy New Energy Solutions Across Asia-Pacific
Region, Dec. 12, 2018, www.prnewswire.com/in/news-releases/clp-holdings-
signs-multi-year-strategic-commercial-agreement-with-autogrid-to-deploy-new-
energy-solutions-across-asia-pacific-region-702571991.html.
58. Nico Pitney, “A Revolutionary Entrepreneur on Happiness, Money, and
Raising a Supermodel,” Huffington Post, Dec. 7, 2017,
www.huffingtonpost.com/2015/01/30/robin-chase-life-lessons_n_6566944.html.
59. “Avis Budget Group to Acquire Zipcar for $12.25 Per Share in Cash,”
Zipcar, Jan. 2, 2013, www.zipcar.com/press/releases/avis-budget-group-
acquires-zipcar.
60. Jackie Krentzman, “The Force Behind the Nike Empire,” Stanford
Magazine, Jan. 1997, https://alumni.stanford.edu/get/page/magazine/article/?
article_id=43087.
61. Nike Annual Report 1992, NIKE,
https://s1.q4cdn.com/806093406/files/doc_financials/1992/Annual_Report_92.p
df.
62. P/E ratios measured as average annual PE.
63. Edward Yardeni et al., “Stock Market Briefing: S&P 500 Sectors &
Industries Forward P/Es,” Yardeni.com, Aug. 26, 2019,
www.yardeni.com/pub/mktbriefsppesecind .
64. Something I highly recommend if you’re interested in successful
entrepreneurship and in what it takes to build a really successful global
company. They are all available on Nike’s website, and they make for
fascinating reading, https://investors.nike.com/investors/news-events-and-
reports/default.aspx.
65. Jeffrey Ballinger, “The New Free-Trade Heel,” Harper’s Magazine, Aug.
1992, http://archive.harpers.org/1992/08/pdf/HarpersMagazine-1992-08-

0000971 ?
AWSAccessKeyId=AKIAJXATU3VRJAAA66RA&Expires=1466354923&Signa
ture=GuzAGJL99jmQtdjxkHswI0WLZJA%3D.
66. Mark Clifford, “Spring in Their Step,” Far Eastern Economic Review 5
(1992): 56–57.
67. Adam Schwarz, “Running a Business,” Far Eastern Economic Review
(June 20, 1991).
68. He mentions that “we answer the overseas questions in a supplement that
is included in the annual report meeting,” but I have been unable to locate a
copy.
69. Richard Locke, The promise and perils of globalization, the Case of Nike,
MIT Working Paper July 2002, IPC 02-007.
70. John H. Cushman, Jr., “International Business; Nike Pledges to End Child
Labor and Apply U.S. Rules Abroad,” New York Times, May 13, 1998,
www.nytimes.com/1998/05/13/business/international-business-nike-pledges-to-
end-child-labor-and-apply-us-rules-abroad.html.
71. Amir Ismael, “Making Green: Nike Is the Biggest and Most Sustainable
Clothing and Sneaker Brand,” Complex, June 1, 2018,
www.complex.com/sneakers/2015/08/nike-is-the-most-sustainable-clothing-
company.
72. Tim Harford, “Why Big Companies Squander Good Ideas,” Financial
Times, Sept. 6, 2018, www.ft.com/content/3c1ab748-b09b-11e8-8d14-
6f049d06439c.

Chapter 4. Deeply Rooted Common Values
1. David Gelles, “He Ran an Empire of Soap and Mayonnaise. Now He Wants
to Reinvent Capitalism,” New York Times, Aug. 29, 2019,
www.nytimes.com/2019/08/29/business/paul-polman-unilever-corner-
office.html.
2. The material that follows draws from Rebecca M. Henderson, Russell
Eisenstat, and Matthew Preble, HBS Case no. 318-048, February 2018.
3. Knowledge@Wharton, “Aetna CEO Mark Bertolini on Leadership, Yoga,
and Fair Wages.”
4. James Surowiecki, “A Fair Day’s Wage,” New Yorker, February 2, 2015,
www.newyorker.com/magazine/2015/02/09/fair-days-wage.
5. Lisa Rapaport, “U.S. Health Spending Twice Other Countries’ with Worse
Results,” Reuters, Mar. 13, 2018, www.reuters.com/article/us-health-spending/u-
s-health-spending-twice-other-countries-with-worse-results-idUSKCN1GP2YN.
6. Ajay Tandon et al., “Measuring Overall Health System Performance for
191 Countries” (Geneva: World Health Organization, 2000).
7. Mark Bertolini, Mission Driven Leadership: My Journey as a Radical
Capitalist (New York: Currency, Penguin Random House, 2019).
8. Jesse Migneault, Top 5 Largest Health Insurance Payers in the United
States, HealthPayerIntelligence, Apr. 13, 2017,
https://healthpayerintelligence.com/news/top-5-largest-health-insurance-payers-
in-the-united-states.
9. MarquiMapp, “Aetna CEO Takes Health Care Personally,” CNBC, Aug. 3,
2014, www.cnbc.com/2014/08/01/aetna-ceo-takes-health-care-personally.html.
10. Jayne O’Donnell, “Aetna CEO Got Summer’s First Merger Agreement,
Raised Minimum Wage and More,” USA Today, Gannett Satellite Information
Network, Sept. 8, 2015, www.usatoday.com/story/money/2015/09/07/aetna-ceo-
bertolini-yoga-meditation-motorcycles-minimum-wage/29782741/.
11. David Gelles, “Mark Bertolini of Aetna on Yoga, Meditation and Darth
Vader,” New York Times, Sept. 21, 2018,
www.nytimes.com/2018/09/21/business/mark-bertolini-aetna-corner-
office.html.
12. Meera Viswanathan et al., “Interventions to Improve Adherence to Self-
Administered Medications for Chronic Diseases in the United States: A
Systematic Review,” Annals of Internal Medicine 157, no. 11 (2012): 785–795.
13. Idem.

14. Aurel O. Iuga and Maura J. McGuire, “Adherence and Health Care
Costs,” Risk Management and Healthcare Policy 7 (2014): 35.
15. Rebecca M. Henderson, Russell Eisenstat, and Matthew Preble, “Aetna
and the Transformation of Health Care,” HBS Case no. 318-048, February 2018.
16. Idem.
17. Idem.
18. Rebecca Henderson, “Tackling the Big Problems: Management Science,
Innovation and Purpose” (Working paper prepared for Management Science’s
65th Anniversary, October 2019).
19. Gelles, “Mark Bertolini of Aetna on Yoga, Meditation and Darth Vader”
(2018).
20. Surowiecki, “A Fair Day’s Wage” (2015).
21. In 2014, CVS announced that it would stop selling tobacco products,
forfeiting roughly $2 billion/year in sales. See Elizabeth Landau, “CVS Stores to
Stop Selling Tobacco,” CNN, Cable News Network, Feb. 5, 2014,
www.cnn.com/2014/02/05/health/cvs-cigarettes/index.html.
22. Jan-Emmanuel De NeveGeorge Ward, “Does Work Make You Happy?
Evidence from the World Happiness Report,” Harvard Business Review (Sept.
20, 2017), https://hbr.org/2017/03/does-work-make-you-happy-evidence-from-
the-world-happiness-report.
23. Rebecca Henderson, “Tackling the Big Problems” (October 2019).
24. The description that follows draws on personal communications with
KAF executives as well as on the HBS case: Thomas DeLong, James Holian, and
Joshua Weiss, “King Arthur Flour,” HBS Case no. 9-407-012 (May 2007).
25. www.instagram.com/kingarthurflour/?hl=en.
26. www.facebook.com/GeneralMills/; www.instagram.com/generalmills/;
Christian Kreznar, “How King Arthur Flour’s Unusual Leadership Structure Is
Key to Its Success.” Forbes, Feb. 5, 2019,
www.forbes.com/sites/christiankreznar/2019/01/30/how-king-arthur-flours-
unusual-leadership-structure-set-it-up-for-success/#48e0e2045c95.
27. “Mission & Impact,” King Arthur Flour,
www.kingarthurflour.com/about/mission-impact.
28. Alana Semuels, “A New Business Strategy: Treating Employees Well,”
Atlantic, May 7, 2018.
29 “Baker’s Hotline,” King Arthur Flour, www.kingarthurflour.com/bakers-
hotline.
30. www.nationmaster.com/country-info/stats/Economy/GDP-per-capita-in-

1950.
31. For references for the account of Toyota and GM that follow, please see
Susan Helper and Rebecca Henderson, “Management Practices, Relational
Contracts, and the Decline of General Motors,” Journal of Economic
Perspectives 28, no. 1 (2014): 49–72.
32. The workforce management techniques employed by Toyota have been
extensively studied by labor economists and specialists in industrial relations.
Together they are often called “high-performance work systems.” There is no
single definition of “high-performance work system,” but three overarching
elements have been identified in the literature. In general, firms with high-
performance work systems (1) implement effective incentive systems, (2) pay a
great deal of attention to skills development, and (3) use teams and create
widespread opportunities for distributed communication and problem-solving.
See, for example, T. A. Kochan, H. C. Katz, and R. B. McKersie, The
Transformation of American Industrial Relations (New York: Basic Books,
1986); John Paul Macduffie, “Human Resource Bundles and Manufacturing
Performance: Organizational Logic and Flexible Production Systems in the
World Auto Industry,” Industrial & Labor Relations Review 48, no. 2 (1995):
197–221; Brian E. Becker et al., “High Performance Work Systems and Firm
Performance: A Synthesis of Research and Managerial Implications” (Research
in personnel and human resource management, 1998); C. Ichniowski, K. Shaw,
and G. Prennushi, “The Effects of Human Resources Management Practices on
Productivity: A Study of Steel Finishing Lines,” American Economic Review 87,
no. 3 (1997): 291–314; J. Pfeffer, The Human Equation (Boston: Harvard
Business School Press, 1998); Eileen Appelbaum et al., Manufacturing
Advantage: Why High-Performance Work Systems Pay Off (Ithaca, NY: Cornell
University Press, 2000); and S. Black and L. Lynch, “How to Compete: The
Impact of Workplace Practices and Information Technology on Productivity,”
Review of Economics and Statistics 83, no. 3 (2001): 434−445.
33. Susan Helper and Rebecca Henderson, “Management Practices,
Relational Contracts, and the Decline of General Motors,” Journal of Economic
Perspectives 28.1 (2014): 49–72.
34. Benjamin Elisha Sawe, “The World’s Biggest Automobile Companies,”
World Atlas, Dec. 13, 2016, www.worldatlas.com/articles/which-are-the-world-
s-biggest-automobile-companies.html.
35. Chad Syverson, “What Determines Productivity?” Journal of Economic
Literature 49, no. 2 (2011): 326–365.

36. Nicholas Bloom and John Van Reenen, “Measuring and Explaining
Management Practices Across Firms and Countries,” Quarterly Journal of
Economics 122 (2007): 1351–1408; Bloom and Van Reenen, “Why Do
Management Practices Differ Across Firms and Countries?” Journal of
Economic Perspectives 24, no. 1 (2010): 203–224; Bloom and Van Reenen,
“Human Resource Management and Productivity,” in Handbook of Labor
Economics, vol. 4, ed., Orley Ashenfelter and David Card (Amsterdam: Elsevier
and North-Holland, 2011), 1697–1767; Nicholas Bloom et al., “The Impact of
Competition on Management Quality: Evidence from Public Hospitals,” The
Review of Economic Studies 82, no. 2 (2015): 457–489; Nicholas Bloom et al.
“Does Management Matter? Evidence from India,” Quarterly Journal of
Economics 128, no. 1 (2013): 1–51; Nicholas Bloom, with Erik Brynjolfsson,
Lucia Foster, Ron Jarmin, Megha Patnaik, Itay Saporta-Eksten, and John Van
Reenen, “What Drives Differences in Management Practices,” American
Economic Review (May 2019).
37. Jim Harter, “Employee Engagement on the Rise in the U.S.,” Gallup.com,
Aug. 19, 2019, https://news.gallup.com/poll/241649/employee-engagement-
rise.aspx.
38. Frederick W. Taylor, “The Principles of Scientific Management” (New
York: Harper & Bros., 1911).
39. Charles D. Wrege and Richard M. Hodgetts, “Frederick W. Taylor’s 1899
Pig Iron Observations: Examining Fact, Fiction, and Lessons for the New
Millennium,” Academy of Management Journal 43, no. 6 (Dec. 2000): 1283–
1291.
40. “NUMMI,” This American Life, Dec. 14, 2017,
www.thisamericanlife.org/403/transcript.
41. One extreme example of this is reported in J. Patrick Wright, On a Clear
Day You Can See General Motors: John Z. DeLorean’s Look Inside the
Automotive (New York: Avon, 1979). He reports that at General Motors in the
1970s, it was considered a great honor for a junior executive to be chosen to run
the slide presentation at board meetings, but that the executive’s career could be
ended if he put a slide in the projector incorrectly.
42. Ashley Lutz, “Nordstrom’s Employee Handbook Has Only One Rule,”
Business Insider, Oct. 13, 2014, www.businessinsider.com/nordstroms-
employee-handbook-2014-10.
43. Robert Spector and Patrick D. McCarthy, The Nordstrom Way to
Customer Service Excellence for Becoming the “Nordstrom” of Your Industry,

2nd ed. (Hoboken, NJ: John Wiley & Amp Sons, 2012); Christian Conte,
“Nordstrom Customer Service Tales Not Just Legend,” Bizjournals.com, Sept. 7,
2012, www.bizjournals.com/jacksonville/blog/retail_radar/2012/09/nordstrom-
tales-of-legendary-customer.html; Doug Crandall, and Leader to Leader
Institute, Leadership Lessons from West Point, 1st ed. (San Francisco: Jossey-
Bass, 2007).
44. My principle source for the discussion that follows is Christopher Smith,
John Child, Michael Rowlinson, and Sir Adrian Cadbury, Reshaping Work: The
Cadbury Experience (Cambridge, UK: Cambridge University Press, 2009).
45. “Purchase Power of the Pound,” Measuring Worth,
www.measuringworth.com/calculators/ukcompare/relativevalue.php?
use[]=NOMINALEARN&year_early=1861£71&shilling71=&pence71=&amoun
t=8000&year_source=1861&year_result=2018dea.
46. My source for Trist’s work and for the discussion of the US developments
that followed is Art Kleiner, The Age of Heretics: A History of the Radical
Thinkers Who Reinvented Corporate Management, 2nd ed. (San Francisco:
Jossey-Bass, 2008).
47. My key reference for the history that follows is Kleiner’s The Age of
Heretics.
48. “About i3 Index,” Covestro in North America, www.covestro.us/csr-and-
sustainability/i3/covestro-i3-index.
49. Personal communication to the author.
50. “Purpose with the Power to Transform Your Organization,” BCG,
www.bcg.com/publications/2017/transformation-behavior-culture-purpose-
power-transform-organization.aspx; Alex Edmans, “28 Years of Stock Market
Data Shows a Link Between Employee Satisfaction and Long-Term Value,”
Harvard Business Review 24 (Mar. 2016), https://hbr.org/2016/03/28-years-of-
stock-market-data-shows-a-link-between-employee-satisfaction-and-long-term-
value; Robert G. Eccles, Ioannis Ioannou, and George Serafeim, “The Impact of
Corporate Sustainability on Organizational Processes and Performance,”
Management Science 60, no. 11 (November 2014): 2835–2857; Claudine
Gartenberg, Andrea Prat, and George Serafeim, “Corporate Purpose and
Financial Performance,” Organization Science 30, no. 1 (January–February
2019): 1–18.
51. “Edelman Trust Barometer Global Report” (2019),
https://news.gallup.com/reports/199961/7.aspx.
52. “State of the American Workplace,” Gallup.com, May 16, 2019;

“Edelman Trust Barometer Global Report” (2019),
https://news.gallup.com/reports/199961/7.aspx; “Edelman Trust Barometer,
2019,” Edelman, www.edelman.com/sites/g/files/aatuss191/files/2019-
02/2019_Edelman_Trust_Barometer_Global_Report .
53. “The Business Case for Purpose,” Harvard Business Review (2019),
www.ey.com/Publication/vwLUAssets/ey-the-business-case-for-
purpose/$FILE/ey-the-business-case-for-purpose .

Chapter 5. Rewiring Finance
1. Peter J. Drucker, Managing for the Future: The 1990s and Beyond (New
York: Penguin, 1992).
2. John R. Graham, Campbell R. Harvey, and Shivaram Rajgopal, “The
Economic Implications of Corporate Financial Reporting,” Journal of
Accounting and Economics 40, no. 3 (2005): 32–35, fig. 5; John R. Graham,
Campbell R. Harvey, and Shivaram Rajgopal, “Value Destruction and Financial
Reporting Decisions,” Financial Analysts Journal 62, no. 6 (Nov. 6, 2006).
3. Board of Governors of the Federal Reserve System 2016, p. 130.
4. Lucian Bebchuk, Alma Cohen, and Scott Hirst, “The Agency Problems of
Institutional Investors,” Journal of Economic Perspectives 31, no. 3 (Summer
2017): 89–112.
5. It was the largest single-day drop in seventeen years of trading. You can
see McMillon trying to explain that sometimes it’s necessary to take a short-
term hit to ensure long-term success to Mad Money’s Jim Crammer the evening
of the announcement at www.youtube.com/watch?v=4adIq7iJHtc. It’s well worth
watching.
6. Dominic Barton, “Capitalism for the Long Term,” Harvard Business
Review (March 2011): 85.
7. David Burgstahelr and Ilia Dichev, “Earnings Management to Avoid
Earnings Decreases and Losses,” Journal of Accounting and Economics 24
(1997): 99; John R. Graham, Campbell R. Harvey, and Shiva Rajgopal, “The
Economic Implications of Corporate Financial Reporting,” Journal of
Accounting and Economics 40, nos. 1–3 (2005): 3–73.
8. Katherine Gunny, “The Relation Between Earnings Management Using
Real Activities Manipulation and Future Performance: Evidence from Meeting
Earnings Benchmarks,” 2009, http://ssrn.com/abstract=816025 or
http://dx.doi.org/10.2139/ssrn.816025; Paul M. Healy, “The Effect of Bonus
Schemes on Accounting Decisions,” Journal of Accounting and Economics 7
(1985): 85.
9. Joe Nocera, “Wall Street Wants the Best Patents, Not the Best Drugs,”
Bloomberg.com, Nov. 27, 2018, www.bloomberg.com/opinion/articles/2018-11-
27/gilead-s-cures-for-hepatitis-c-were-not-a-great-business-model.
10. Data from Capital IQ.
11. Data from FactSet.
12. www.sec.gov/Article/whatwedo.html#create; the SEC protects investors

and helps maintain fair and efficient markets. It oversees the key participants in
the securities space, including investors, mutual funds, security exchanges, and
brokers and dealers. The SEC has the authority to take civil enforcement actions
against businesses and individuals that violate security laws (e.g., inside trading
and accounting fraud, among others).
13. Eugene Soltes, Why They Do It: Inside the Mind of the White-Collar
Criminal (New York: PublicAffairs, 2016).
14. “ESG Sustainable Impact Metrics—MSCI,” Msci.Com, 2019,
www.msci.com/esg-sustainable-impact-metrics.
15. Alan Taylor, “Bhopal: The World’s Worst Industrial Disaster, 30 Years
Later,” Atlantic, December 2014; Adrien Lopez. “20 Years on from Exxon
Valdez: What Progress for Corporate Responsibility?” Mar. 29, 2009,
www.ethicalcorp.com/communications-reporting/20-years-exxon-valdez-what-
progress-corporate-responsibility.
16. Mindy S. Lubber, “30 Years Later, Investors Still Lead the Way on
Sustainability,” Ceres, Mar. 23, 2019, www.ceres.org/news-center/blog/30-years-
later-investors-still-lead-way-sustainability. I have been a member of the
CERES board since 2017.
17. “GRI at a Glance,” Global Reporting Initiative (GRI),
www.globalreporting.org/information/news-and-press-center/press-
resources/Pages/default.aspx.
18. “Sustainability and Reporting Trends in 2025,” Global Reporting.org
(2015), www.globalreporting.org/resourcelibrary/Sustainability-and-Reporting-
Trends-in-2025-2 .
19. “2018 Global Sustainable Investment Review,” Global Sustainable
Investment Alliance (2018), www.gsi-alliance.org/wp-
content/uploads/2019/03/GSIR_Review2018.3.28 ; Renaud Fages et al.
“Global Asset Management 2018: The Digital Metamorphosis,” www.bcg.com;
BCG, www.bcg.com/publications/2018/global-asset-management-2018-digital-
metamorphosis.aspx.
20. “2018 Global Sustainable Investment Review”; Fages et al., “Global
Asset Management 2018.”
21. See, for example, Christophe Revelli and Jean-Laurent Viviani,
“Financial Performance of Socially Responsible Investing (SRI): What Have We
Learned? A Meta-analysis,” Business Ethics: A European Review 24, no. 2
(April 2015).
22. Mozaffar Khan, George Serafeim, and Aaron Yoon, “Corporate

Sustainability: First Evidence on Materiality,” Accounting Review 91, no. 6
(November 2016).
23. “Materiality,” Business Literacy Institute Financial Intelligence, Sept. 23,
2016.
24. Khan et al., “Corporate Sustainability (2016): 1697–1724; Eccles et al.,
“The Impact of Corporate Sustainability on Organizational Processes and
Performance” (2014): 2835–2857.
25. The discussion below draws extensively on Julie Battilana and Michael
Norris, “The Sustainability Accounting Standards Board (Abridged),” HBS Case
no. 419-058, March 2019.
26. Jean partnered with a number of key thought leaders, including Robert
Massie, Bob Eccles, and David Wood. She describes her decision to found SASB
as very much a purpose-driven decision. As Jean recalled, “It was scary to stop
earning a regular income, but I truly felt a moral responsibility to take this idea
forward because it had the potential to have such a major impact in the US and
around the world.”
27. Under SEC regulations, every publicly traded firm has the duty to alert its
investors to any information that is “material,” where information is material if
there is “a substantial likelihood that the disclosure of the omitted fact would
have been viewed by the reasonable investor as having significantly altered the
“total mix” of information made available.
28. Khan et al., “Corporate Sustainability.”
29. George Serafeim and David Freiberg, “JetBlue: Relevant Sustainability
Leadership (A),” HBS Case no. 118-030, October 2018.
30. “Bio,” Sophia Mendelsohn, www.sophiamendelsohn.com/bio.
31. JetBlue, “2016 Sustainability Accounting Standards Board Report”
(2017), http://responsibilityreport.jetblue.com/2016/JetBlue_SASB_2016 .
32. Serafeim and Freiberg, “JetBlue.”
33. The group that handled relationships with investors.
34. Serafeim and Freiberg, “JetBlue.”
35. The principle reference for the discussion that follows is Rebecca
Henderson, George Serafeim, Josh Lerner, and Naoko Jinjo, “Should a Pension
Fund Try to Change the World? Inside GPIF’s Embrace of ESG,” HBS Case no.
319-067, January 2019 (Revised March 2019).
36. Eric Schleien, “Investing: Buy What You Know,” Guru, Apr. 9, 2007,
www.gurufocus.com/news/5281/investing-buy-what-you-know.
37. “Peter Lynch,” AJCU,

https://web.archive.org/web/20141226131715/www.ajcunet.edu/story?
TN=PROJECT-20121206050322; Peter Lynch, “Betting on the Market-Pros,”
PBS, www.pbs.org/wgbh/pages/frontline/shows/betting/pros/lynch.html. If you
had invested $1,000 in the Magellan the day Lynch took over, it would have been
worth $28,000 the year he left.
38. Steven Perlberg, “Mutual Fund Legend Peter Lynch Identifies His ‘Three
C’s’ of Investing in a Rare Interview,” Business Insider, Dec. 6, 2013,
www.businessinsider.com/peter-lynch-charlie-rose-investing-2013-12.
39. Kenneth R. French, “Presidential Address: The Cost of Active Investing,”
Journal of Finance 63, no. 4 (2008): 1537–1573.
40. Indeed 90 percent of GPIF’s Japanese and 86 percent of its foreign equity
assets are invested passively.
41. Sean Fleming, “Japan’s Workforce Will Be 20% Smaller by 2040,” World
Economic Forum, Feb. 12, 2019, www.weforum.org/agenda/2019/02/japan-s-
workforce-will-shrink-20-by-2040/.
42. “The Global Gender Gap Report 2013,” World Economic Forum, 236,
http://www3.weforum.org/docs/WEF_GenderGap_Report_2013 ; “The
Global Gender Gap Report 2017,” World Economic Forum, 90,
http://www3.weforum.org/docs/WEF_GGGR_2017 .
43. GPIF was allowed to directly invest in bonds and mutual funds; 15
percent of GPIF’s fixed-income assets were managed internally.
44. “The Benefits and Risks of Passive Investing,” Barclays,
www.barclays.co.uk/smart-investor/investments-explained/funds-etfs-and-
investment-trusts/the-benefits-and-risks-of-passive-investing/.
45. See GPIF’s 2018 Annual Report.
46. The Nikkei Telecon Database, accessed December 2018.
47. Size is classified based on market capitalization.
48. “2018 Global Sustainable Investment Review,” Global Sustainable
Investment Alliance (2018), www.gsi-alliance.org/wp-
content/uploads/2017/03/GSIR_Review2016.F .
49. The question of whether family firms outperform publicly traded
companies is highly contested, perhaps because it is difficult to collect
comprehensive financial information from family-owned firms. Some sources
believe that they are more likely to trade off short-term returns for long-term
resilience, and that on average they outperform. See, for example, Kate
Rodriguez, “Why Family Businesses Outperform Others,” Economist,
https://execed.economist.com/blog/industry-trends/why-family-businesses-

outperform-others. Other evidence suggests that they underperform. See, for
example, Andrea Prat, “Are Family Firms Damaging Europe’s Growth?” World
Economic Forum, Feb. 12, 2015, www.weforum.org/agenda/2015/02/are-family-
firms-damaging-europes-growth/ and the stream of work by Nicholas Bloom
and his collaborators referenced above. For more on the governance of family
firms and their role in shaping the broader economy see Randall K. Morck, ed.,
A History of Corporate Governance Around the World (Chicago and London:
University of Chicago Press, 2005) and Richard F. Doner and Ben Ross
Schneiderm “The Middle-Income Trap: More Politics Than Economics,” World
Politics 68, no. 4 (2016): 608–644.
50. Robert S. Harris, Tim Jenkinson, and Steven N. Kaplan, “How Do Private
Equity Investments Perform Compared to Public Equity?” Journal of Investment
Management 14 no. 3 (2016): 1–24; Robert S. Harris, Tim Jenkinson, and Steven
N. Kaplan. “Private Equity Performance: What Do We Know?” Journal of
Finance 69, no. 5 (2014): 1851–1882.
51. The principle source for the discussion that follows is the Harvard
Business School case. Rebecca Henderson, Kate Isaacs, and Katrin Kaufer,
“Triodos Bank: Conscious Money in Action,” HBS Case no. 313-109, March
2013 (Revised June 2013).
52. “About Triodos Bank,” Triodos, www.triodos.com/about-us.
53. Triodos Bank, Annual Report 2018, www.triodos-im.com/press-
releases/2019/triodos-investment-management-in-2018.
54. My understanding is that Triodos decided not to fund the shoe
manufacturer.
55. Triodos Bank, Annual Report 2018.
56. Lorie Konish, “The Big Wealth Transfer Is Coming. Here’s How to Make
Sure Younger Generations Are Ready,” CNBC, Aug. 12, 2019,
www.cnbc.com/2019/08/12/a-big-wealth-transfer-is-coming-how-to-get-
younger-generations-ready.html.
57. References for this and much that follows are from my Mondragon case:
Rebecca Henderson and Michael Norris, “1Worker1Vote: MONDRAGON in the
U.S.,” Harvard Business School Teaching Plan 316–176, April 2016.
58. “The Development and Significance of Agricultural Cooperatives in the
American Economy,” Indiana Law Journal 27, no. 3, Article 2 (1952),
www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=2352&context=ilj.
59. “The Development and Significance of Agricultural Cooperatives in the
American Economy,” Indiana Law Journal.

60. Leon Stein, The Triangle Fire, 1st ed. (Philadelphia: Lippincott, 1962).
61. Steven Deller, Ann Hoyt, Brent Hueth, and Reka Sundaram-Stukel,
“Research on the Economic Impact of Cooperatives,” University of Wisconsin
Center for Cooperatives, June 19, 2009,
http://reic.uwcc.wisc.edu/sites/all/REIC_FINAL .
62. Tony Sekulich, “Top Ten Agribusiness Companies in the World,”
Tharawat Magazine 12 (June 2019), www.tharawat-magazine.com/facts/top-ten-
agribusiness-companies/#gs.001anx.
63. “Leading U.S. Commercial Banks by Revenue 2018,” Statista,
www.statista.com/statistics/185488/leading-us-commercial-banks-by-revenue/.
64. Douglas L. Kruse, ed., “Shared Capitalism at Work: Employee
Ownership, Profit and Gain Sharing, and Broad-Based Stock Options,” National
Bureau of Economic Research Conference Report (University of Chicago Press,
May 2010).
65. Douglas L. Kruse, Joseph R. Blasi, and Rhokeun Park, “Shared
Capitalism in the U.S. Economy,” NBER Working paper no. 14225 (Cambridge,
MA: NBER, August 2008).
66. Kruse et al., “Shared Capitalism in the U.S. Economy” (2008).
67. Kruse et al., “Shared Capitalism in the U.S. Economy” (2008).
68. Hazel Sheffield, “The Preston Model: UK Takes Lessons in Recovery
from Rust Belt Cleveland,” Guardian, April 11, 2017,
www.theguardian.com/cities/2017/apr/11/preston-cleveland-model-lessons-
recovery-rust-belt. See also https://thenextsystem.org/learn/stories/infographic-
preston-model.
69. Publix, “About Publix,” accessed January 2014,
www.publix.com/about/CompanyOverview.do.
70. John Lewis Partnership, “About Us,” accessed January 2014,
www.johnlewispartnership.co.uk/about.html.
71. “About Us,” Mondragon Corporation, www.mondragon-
corporation.com/en/about-us/.
72. Mondragon Corporation, Annual Report 2018 (2018), www.mondragon-
corporation.com/en/about-us/economic-and-financial-indicators/annual-report/.
73. “Mondragon Corporation, Winner at the Boldness in Business Awards
Organized by the Financial Times,” MAPA Group, Mar. 27, 2013,
www.mapagroup.net/2013/03/mondragon-corporation-winner-at-the-boldness-
in-business-awards-organized-by-the-financial-times/.
74. Critics sometimes charge that employee-owners put themselves at risk by

holding so much of their wealth in the firm, but the additional compensation
appears to more than make up for this effect. See, for example, Peter Kardas,
Adria L. Scharf, and Jim Keogh, “Wealth and Income Consequences of ESOPs
and Employee Ownership: A Comparative Study from Washington State,”
Journal of Employee Ownership Law and Finance 10, no. 4 (1998).
75. A defined contribution account is the bank account into which employees
and employers pay that later covers an employee’s pension; ESOP Association
data. Analyzed by NCEO, accessed February 2015,
www.esopassociation.org/explore/employee-ownership-news/resources-for-
reporters.
76. Kruse et al., “Shared Capitalism in the U.S. Economy?” (2008).
77. Colin Mayer, Prosperity: Better Business Makes the Greater Good
(Oxford, UK: Oxford University Press, 2019); Lynn Stout, The Shareholder
Value Myth: How Putting Shareholders First Harms Investors, Corporations,
and the Public, 1st ed. (San Francisco: Berrett-Koehler Publishers, 2012);
Thomas Donaldson and Lee Preston, “The Stakeholder Theory of the
Corporation: Concepts, Evidence, and Implications,” Academy of Management
Review 20, no. 1 (1995): 65–91.
78. See, for example, Stout, The Shareholder Value Myth; Mayer, Prosperity;
Leo Strine, Towards Fair and Sustainable Capitalism (Research Paper no. 19-39,
University of Pennsylvania Law School, Institute for Law and Economics,
September 2019), https://ssrn.com/abstract=3461924.
79. See https://benefitcorp.net/. Becoming a benefit corporation is
importantly different from becoming a certified B corporation, which requires
only that the firm commit to measuring itself through more than financial
metrics. See https://bcorporation.net/.
80. “Benefit Corporation Reporting Requirements,” Benefit Corporation,
https://benefitcorp.net/businesses/benefit-corporation-reporting-requirements.
81. “State by State Status of Legislation,” Benefit Corporation,
https://benefitcorp.net/policymakers/state-by-state-status.
82. “Benefit Corporations & Certified B Corps,” Benefit Corporation,
https://benefitcorp.net/businesses/benefit-corporations-and-certified-b-corps.
83. This duty is typically referred to as the director’s Revlon duty. See Leo E.
Strine, Jr., “Making It Easier for Directors to Do the Right Thing,” Harv. Bus. L.
Rev. 4 (2014): 235.
84. Stout, The Shareholder Value Myth.
85. See FAQ, Benefit Corporation, https://benefitcorp.net/faq.

86. “The Rise and Decline of the Japanese Economic ‘Miracle,’”
Understanding Australia’s Neighbours: An Introduction to East and Southeast
Asia (Cambridge, UK: Cambridge University Press, 2004): 132–148.
87. Cross-shareholding was understood as a demonstration of a desire to
develop long-term business relations among corporations. Until the 1990s, life
insurance companies were one of the most significant shareholder groups in
Japan. Japanese banks also held significant equity stakes in their debtors.
88. Nishiyama Kengo, “Proxy Voting Trends in 2014 and Outlook in 2015,”
presentation, Financial Services Agency, Tokyo, July 9, 2013,
www.fsa.go.jp/frtc/kenkyu/gijiroku/20140709/01 .
89. “GDP Growth (Annual %)—Japan,” World Bank Data,
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=JP;
“United Kingdom,” World Bank Data,
https://data.worldbank.org/country/united-kingdom.
90. “GDP Growth (Annual %)—Japan,” World Bank Data,
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=JP;
“United Kingdom,” World Bank Data,
https://data.worldbank.org/country/united-kingdom.
91. Jim Rickards, “Japan’s in the Middle of Its 3rd ‘Lost Decade’ and a
Recovery Is Nowhere in Sight,” Business Insider, Mar. 23, 2016,
www.businessinsider.com/japans-3rd-lost-decade-recovery-nowhere-in-sight-
2016-3.
92. Ito Kunio, “Ito Review of Competitiveness and Incentives for Sustainable
Growth: Building Favorable Relationships Between Companies and Investors,”
Ministry of Economy, Trade and Industry (METI), August 2014, accessed June
2018, www.meti.go.jp/english/press/2014/pdf/0806_04b , p. 52.
93. Jake Kanter, “Facebook Shareholder Revolt Gets Bloody: Powerless
Investors Vote Overwhelmingly to Oust Zuckerberg as Chairman,” Business
Insider, June 4, 2019, www.businessinsider.com/facebook-investors-vote-to-fire-
mark-zuckerberg-as-chairman-2019-6.
94. Guest, CIO Central, “Sorry CalPERS, Dual Class Shares Are a Founder’s
Best Friend,” Forbes, May 14, 2013,
www.forbes.com/sites/ciocentral/2013/05/14/sorry-calpers-dual-class-shares-
are-a-founders-best-friend/#aa06d5012d9b.
95. “Supplier Inclusion,” https://corporate.walmart.com/suppliers/supplier-
inclusion.
96. Adele Peters, “Tesla Has Installed a Truly Huge Amount of Energy

Storage,” Fast Company June 5, 2018.
97. “The Future of Agriculture,” Economist, May 11, 2016; “Jain Irrigation
Saves Water, Increases Efficiency for Smallholder Farmers,” Shared Value
Initiative, www.sharedvalue.org/examples/drip-irrigation-practices-smallholder-
farmers.
98. Brad Plumer, “What’s Driving the US Solar Boom? A Bit of Creative
Financing,” Vox, Oct. 8, 2014, www.vox.com/2014/10/8/6947939/solar-power-
solarcity-loans-leasing-growth-rooftop.

Chapter 6. Between a Rock and a Hard Place
1. Edward Balleisen, “Rights of Way, Red Flags, and Safety Valves: Business
Self-Regulation and State-Building in the United States, 1850–1940,” Journal of
Sociology 113 (2007): 297–351.
2. David Batty, “Unilever Targeted in Orangutan Protest,” Guardian, Apr. 21,
2008, www.theguardian.com/environment/2008/apr/21/wildlife.
3. Rainforest Rescue, “Facts about Palm Oil and Rainforest,” accessed
February 2015, www.rainforest-rescue.org/topics/palm-oil; Roundtable on
Sustainable Palm Oil (RSPO), “Impact Report 2014,” accessed February 2015,
www.rspo.org/about/impacts.
4. World Wildlife Fund (WWF), “Which Everyday Products Contain Palm
Oil?” accessed February 2016, www.worldwildlife.org/pages/which-everyday-
products-contain-palm-oil.
5. Mark L. Clifford, The Greening of Asia (New York: Columbia University
Press, 2015).
6. World Resources Institute (WRI), “With Latest Fires Crisis, Indonesia
Surpasses Russia as World’s Fourth-Largest Emitter,” Oct. 29, 2015, accessed
February 2016, www.wri.org/blog/2015/10/latest-fires-crisis-indonesia-
surpasses-russia-world%E2%80%99s-fourth-largest-emitter.
7. Raquel Moren-Penaranda et al., “Sustainable Production and Consumption
of Palm Oil in Indonesia: What Can Stakeholder Perceptions Offer to the
Debate?” Sustainable Production and Consumption, 2015, accessed November
2015, http://ac.els-cdn.com/S2352550915000378/1-s2.0-S2352550915000378-
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Questioning the Effectiveness in Attaining Conservation Goals. The Case of the
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(2014): 438–446.
9. George Monbiot, “Indonesia Is Burning. So Why Is the World Looking
Away?” Guardian, Oct. 30, 2015,
www.theguardian.com/commentisfree/2015/oct/30/indonesia-fires-disaster-21st-
century-world-media.
10. Avril Ormsby, “Palm Oil Protests Target Unilever Sites,” Reuters, Apr.
21, 2008, https://uk.reuters.com/article/uk-britain-unilever/palm-oil-protests-
target-unilever-sites-idUKL2153984120080421.

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14. Indrajit Gupta and Samar Srivastava, “A Person of the Year: Paul
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15. It’s a key ingredient of products like Doritos tortilla chips.
16. They may also raise antitrust issues. Most jurisdictions permit some form
of cooperation in the public interest, but all industry self-regulatory efforts pay
great attention to ensuring that they are not in breach of the law.
17. Edward J. Balleisen, “Private Cops on the Fraud Beat: The Limits of
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18. The discussion that follows draws heavily on Christine Meisner Rosen,
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History Review 69, no. 3 (1995): 351–397.
19. “The House of Representatives’ Selection of the Location for the 1893
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22. “Overview,” The Consumer Goods Forum,
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23. Ask Nestle CEO to stop buying palm oil from destroyed rainforest,
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32. Mikaela Weisse and Elizabeth Dow Goldman, “The World Lost a
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35. Shofia Saleh et al., “Intensification by Smallholder Farmers Is Key to
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36. Philip Jacobson, “Golden Agri’s Wings Clipped by RSPO in West
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Policy of Palm Oil Company in Indonesia: Lesson Learned from Golden-Agri
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42. Edward Aspinall and Mada Sukmajati, editors, Electoral Dynamics in
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43. Jake Schmidt, “Illegal Logging in Indonesia: Environmental, Economic
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49. Matthew McFall, Carolyn Rodehau, and David Wofford, “Oxfam’s
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50. Greenpeace, “Slaughtering the Amazon,” 2009,
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51. Beef provides less than 2 percent of the world’s calories. “Agriculture at a
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52. Hau Lee and Sonali Rammohan, “Beef in Brazil: Shrinking Deforestation
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54. Holly K. Gibbs et al., “Did Ranchers and Slaughterhouses Respond to
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55. Gibbs et al., “Did Ranchers and Slaughterhouses Respond to Zero-
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56. Tom Phillips, “Bolsonaro Rejects ‘Captain Chainsaw’ Label as Data
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59. Salo V. Coslovsky and Richard Locke, “Parallel Paths to Enforcement:

Private Compliance, Public Regulation, and Labor Standards in the Brazilian
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63. Both Japan and Germany essentially shut down their nuclear industries
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66. Winters in Minneapolis are famously cold and long.
67. Harvard Business School MELF Case C.
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40. The official summary of the amendment suggests that it “indicates that
the law related to adjudicating a claim or defense that a state or local law
ordinance or other action substantially burdens the exercise of religion of a
person: (1) does not authorize a provider to refuse to offer or provide services,
facilities, use of public accommodations, goods, employment, or housing to any
member or members of the general public; (2) does not establish a defense to it
to a civil action or criminal prosecution for refusal by a provider to offer or
provide services, facilities, use of public accommodations, goods, employment
or housing to any member or members of the general public; and (3) does not
negate any rights available under the Constitution of the State of Indiana,”
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41. David Gelles, “The C.E.O. Who Stood Up to President Trump: Ken
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44. Dimitri Zenghelis, “How Much Will It Cost to Cut Global Greenhouse
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57. Marianne Bertrand, Matilde Bombardini, Raymond Fisman, and
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58. See, e.g., Nicholas Confessore and Megan Thee-Brenan, “Poll Shows
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60. Abigail J. Hess, “A Record 44% of US Employers Will Give Their
Workers Paid Time off to Vote This Year,” CNBC, Oct. 31, 2018,
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61. Tina Nguyen, “Reid Hoffman’s Hundred-Million-Dollar Plan to Growth-
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65. David R. Henderson, “German Economic Miracle,” Library of Economics
and Liberty, www.econlib.org/library/Enc/GermanEconomicMiracle.html;
Wolfgang F. Stolper and Karl W. Roskamp, “Planning a Free Economy:
Germany 1945–1960.” Zeitschrift fur die gesamte Staatswissenschaft 135, no. 3
(1979): 374–404.
66. Michael R. Hayse, Recasting West German Elites: Higher Civil Servants,
Business Leaders, and Physicians in Hesse Between Nazism and Democracy,
1945–1955, vol. 11 (New York: Berghahn Books, 2003): 119–120.
67. Kathleen Thelen, How Institutions Evolve: The Political Economy of
Skills in Germany, Britain, the United States and Japan (Cambridge, UK:
Cambridge University Press, 2012).
68. This ranking excludes the rich city-states, “Country Comparison: GDP—

PER CAPITA (PPP),” Central Intelligence Agency,
www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html.
69. World Bank, World Trade Indicators, 2017,
https://wits.worldbank.org/CountryProfile/en/Country/WLD/Year/2017; “U.S.
Exports, as a Percentage of GDP,” Statista,
www.statista.com/statistics/258779/us-exports-as-a-percentage-of-gdp/.
70. Klaus Schwab, “The Global Competitiveness Report 2018,” World
Economic Forum, 2018.
71. “Infrastructure,” Germany Trade and Invest GmbH (GTAI),
www.gtai.de/GTAI/Navigation/EN/Invest/Business-location-germany/Business-
climate/infrastructure.html.
72. Hermann Simon, “Why Germany Still Has So Many Middle-Class
Manufacturing Jobs,” Harvard Business Review (July 13, 2017),
https://hbr.org/2017/05/why-germany-still-has-so-many-middle-class-
manufacturing-jobs?referral=03759&cm_vc=rr_item_page.bottom.
73. Tamar Jacoby, “Why Germany Is So Much Better at Training Its
Workers,” Atlantic, Oct. 20, 2014,
www.theatlantic.com/business/archive/2014/10/why-germany-is-so-much-
better-at-training-its-workers/381550/.
74. The US Chamber of Commerce claims to be “the world’s largest business
organization” and to represent more than 3 million businesses,
www.uschamber.com/about-us-chamber-commerce. In 2017 the Chamber was
the organization that spent the most lobbying the US Congress.
75. “Climate Change: The Path Forward,” U.S. Chamber of Commerce, Sept.
27, 2019, www.uschamber.com/addressing-climate-change.
76. R. Meyer, “The Unprecedented Surge in Fear About Climate Change”
[online], Atlantic, accessed Oct. 19, 2019,
www.theatlantic.com/science/archive/2019/01/do-most-americans-believe-
climate-change-polls-say-yes/580957/.
77. “Global Battery Alliance,” World Economic Forum,
www.weforum.org/projects/global-battery-alliance.
78. “Strengthening Global Food Systems,” World Economic Forum,
www.weforum.org/projects/strengthening-global-food-systems.
79. Anand Giridharadas, Winners Take All: The Elite Charade of Changing
the World (New York: Alfred A. Knopf, 2018).
80. “ICC Launches New Tool to Promote Business Sustainability—ICC—
International Chamber of Commerce,” ICC, Jan. 19, 2017,

https://iccwbo.org/media-wall/news-speeches/icc-launches-new-tool-to-
promote-business-sustainability/.
81. Asbjørn Sonne Nørgaard, “Party Politics and the Organization of the
Danish Welfare State, 1890–1920: The Bourgeois Roots of the Modern Welfare
State,” Scandinavian Political Studies 23, no. 3 (2000): 183–215.
82. Tim Worstall, “Denmark Does Not Have A $20 Minimum Wage, Try
$11.70 Instead,” Forbes, Aug. 13, 2015,
www.forbes.com/sites/timworstall/2015/08/12/denmark-does-not-have-a-20-
minimum-wage-try-11-70-instead/#17694b477814.
83. “Denmark Has OECD’s Lowest Inequality,” Local, May 21, 2015,
www.thelocal.dk/20150521/denmark-has-lowest-inequality-among-oecd-
nations. By contrast the gap in the United States is 18.8, with the richest 10
percent earning 18.8 times the poorest 10 percent.
84. Marc Sabatier Hvidkj, “How Does a Danish McDonald’s Worker Make
20$/Hour, Without a Minimum Wage Law?” Medium, Jan. 30, 2019,
https://medium.com/@marcsabatierhvidkjr/how-does-a-danish-mcdonalds-
worker-make-20-hour-without-a-minimum-wage-law-ea8bcbaa870f.
85. James Edward Meade, “Mauritius: A Case Study in Malthusian
Economics,” Economic Journal 71, 283 (1961): 521–534.
86. The MLP campaigned for independence in alliance with the Comité
d’Action Musulman (a Muslim party) and an outspokenly Hindu party, the
Independence Forward Block.
87. Deborah Brautigam and Tania Diolle, “Coalitions, Capitalists and
Credibility: Overcoming the Crisis of Confidence at Independence in Mauritius”
(DLP Research Paper 4, 2009).
88. EPZs are areas that are designed to enable domestic manufacturers to
compete internationally by freeing them of many local taxes and regulations. In
1962, a visiting World Bank mission exploring the possibility of setting some up
in Mauritius had concluded: “A limited industrial expansion may take place
mainly to serve domestic requirements. [But] a lack of domestic raw materials
and of power supply, a shallow local market, great distances and relatively high
labor costs set definite limits for industrial growth. Obviously, the conditions
which helped Hong Kong or Puerto Rico to attain their present prominence do
not exist in Mauritius.”
89. Doing Business, “Training for Reform. Economy Profile Mauritius”
(Washington, DC: World Bank Group, 2019),
www.doingbusiness.org/content/dam/doingBusiness/country/m/mauritius/MUS.

pdf.
90. “Mauritius,” World Bank Data,
https://data.worldbank.org/country/mauritius.
91. Lower Gini numbers mean less inequality. A society with a Gini
coefficient of 0 would be perfectly equal. One with a coefficient of 100 would
give all the income to a single person; “Countries Ranked by GINI Index (World
Bank Estimate),” Index Mundi,
www.indexmundi.com/facts/indicators/SI.POV.GINI/rankings.
92. Human Development Indices and Indicators: 2018 Statistical Update
(Mauritius: UNDP, 2018),
http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/MUS .
93. My sources for what follows are a personal interview with Daniella
conducted in August 2018, my personal experience, and Leadership Now’s
website. I am on the Advisory Board of the organization.

Chapter 8. Pebbles in an Avalanche of Change
1. Hans Rosling, Ola Rosling, and Anna Rosling Rönnlund, Factfulness: Ten
Reasons We’re Wrong About the World—and Why Things Are Better Than You
Think, 1st ed. (New York: Flatiron Books, 2018), 33.
2. K. Danziger, “Ideology and Utopia in South Africa: A Methodological
Contribution to the Sociology of Knowledge,” British Journal of Sociology 14,
no. 1 (1963): 59–76.
3. Rosling et al. Factfulness, 53.
4. “Global Child Mortality: It Is Hard to Overestimate Both the Immensity of
the Tragedy, and the Progress the World Has Made,” Our World in Data,
https://ourworldindata.org/child-mortality-globally.
5. Max Roser, “Economic Growth,” Our World in Data, Nov. 24, 2013,
https://ourworldindata.org/economic-growth; Max Roser et al., “World
Population Growth,” Our World in Data, May 9, 2013,
https://ourworldindata.org/world-population-growth; “World Population by
Year,” Worldometers, www.worldometers.info/world-population/world-
population-by-year/.
6. R. J. Reinhart, “Global Warming Age Gap: Younger Americans Most
Worried,” Gallup.com, Sept. 4, 2019,
https://news.gallup.com/poll/234314/global-warming-age-gap-younger-
americans-worried.aspx; Steven Pinker, Enlightenment Now: The Case for
Reason, Science, Humanism, and Progress (New York: Viking, 2018).
7. Rosling et al., Factfulness, 60. More formally, per Wp is a “Watt-Peak” or
a watt’s worth of capacity under optimal conditions.
8. Better Business Better World (London: Business and Sustainable
Development Commission, Jan. 2017),
http://report.businesscommission.org/uploads/BetterBiz-
BetterWorld_170215_012417 .
9. “Renewable Energy Market Global Industry Analysis, Size, Share, Growth,
Trends and Forecast 2019–2025,” Reuters, Feb. 22, 2019,
www.reuters.com/brandfeatures/venture-capital/article?id=85223.
10. “Renewables 2018 Global Status Report” (Paris: REN21 Secretariat).
11. Silvio Marcacci, “Renewable Energy Job Boom Creates Economic
Opportunity as Coal Industry Slumps,” Forbes, Apr. 22, 2019,
www.forbes.com/sites/energyinnovation/2019/04/22/renewable-energy-job-
boom-creating-economic-opportunity-as-coal-industry-slumps/#747b8f823665.

12. Energy Efficiency Market Report 2018 (Paris: International Energy
Agency [IEA], 2018), https://webstore.iea.org/download/direct/2369?
fileName=Market_Report_Series_Energy_Efficiency_2018 ; OECD
Publishing, World Energy Outlook 2017 (Paris: Organization for Economic
Cooperation and Development, 2017).
13. “Agriculture at a Crossroads,” Global Agriculture,
www.globalagriculture.org/report-topics/meat-and-animal-feed.html.
14. Deena Shanker, “Plant Based Foods Are Finding an Omnivorous
Customer Base,” Bloomberg.com, July 30, 2018,
www.bloomberg.com/news/articles/2018-07-30/plant-based-foods-are-finding-
an-omnivorous-customer-base; Jesse Nichols and Eve Andrews, “How the Word
‘Meat’ Could Shape the Future of Protein,” Grist, Jan. 18, 2019,
https://grist.org/article/how-the-word-meat-could-shape-the-future-of-protein/;
Janet Forgrieve, “Plant-Based Food Sales Continue to Grow by Double Digits,
Fueled by Shift in Grocery Store Placement,” Forbes, July 16, 2019,
www.forbes.com/sites/janetforgrieve/2019/07/16/plant-based-food-sales-pick-
up-the-pace-as-product-placement-shifts/#484fe50d4f75.
15. David Yaffe-Bellany, “The New Makers of Plant-Based Meat? Big Meat
Companies,” New York Times, Oct. 14, 2019,
www.nytimes.com/2019/10/14/business/the-new-makers-of-plant-based-meat-
big-meat-companies.html.
16. Hannah Ritchie and Max Roserm “Crop Yields,” Our World in Data, Oct.
17, 2013, https://ourworldindata.org/yields-and-land-use-in-agriculture.
17. International Panel of Experts on Sustainable Food Systems (IPES-Food),
“Breaking Away from Industrial Food and Farming Systems: Seven Case Studies
of Agroecological Transition” (Oct. 2018); “Unlocking the Inclusive Growth
Story of the 21st Century: Accelerating Climate Action in Urgent Times”
(Washington, DC: New Climate Economy, 2018),
https://newclimateeconomy.report/2018/wp-
content/uploads/sites/6/2018/09/NCE_2018_FULL-REPORT .; Technoserve,
Eyes in the Sky for African Agriculture, Water Resources, and Urban Planning,
Apr. 2018, www.technoserve.org/files/downloads/case-study_eyes-in-the-sky-
for-african-agriculture-water-resources-and-urban-planning .
18. Food and Agriculture Organization (FAO), The 10 Elements of
Agroecology: Guiding the Transition to Sustainable Food and Agricultural
Systems, www.fao.org/3/i9037en/I9037EN ; New Climate Economy,
Unlocking the Inclusive Growth Story (2018).

19. For more on how to make a difference in your own life, and to connect
with other readers of this book, please check out ReimaginingCapitalism.org.
20. Leor Hackel and Gregg Sparkman, “Actually, Your Personal Choices Do
Make a Difference in Climate Change,” Slate Magazine, Oct. 26, 2018,
https://slate.com/technology/2018/10/carbon-footprint-climate-change-
personal-action-collective-action.html.
21. Steve Westlake, “A Counter-Narrative to Carbon Supremacy: Do Leaders
Who Give Up Flying Because of Climate Change Influence the Attitudes and
Behaviour of Others?” SSRN 3283157 (2017).
22. Gregg Sparkman and Gregory M. Walton, “Dynamic Norms Promote
Sustainable Behavior, Even If It Is Counternormative,” Psychological Science
28, no. 11 (2017): 1663–1674.
23. Hackel and Sparkman, “Actually, Your Personal Choices Do Make a
Difference.”
24. Karen Asp, “WW Freestyle: Review for New Weight Watchers Plan,”
WebMD, Jan. 10, 2018, www.webmd.com/diet/a-z/weight-watchers-diet; John F.
Kelly and Julie D. Yeterian, “The Role of Mutual-Help Groups in Extending the
Framework of Treatment,” Alcohol Research & Health 33, no. 4 (2011): 350,
National Institute on Alcohol Abuse and Alcoholism; Dan Wagener, “What Is
the Success Rate of AA?” American Addiction Centers, Oct. 28, 2019,
https://americanaddictioncenters.org/rehab-guide/12-step/whats-the-success-
rate-of-aa.
25. Ray Rothrick, “Rockefeller Family VC Funds Risky Fusion Energy
Project,” Fusion 4 Freedom, May 22, 2016,

MIT-designed project achieves major advance toward fusion energy


26. Proforest is an NGO that works with large firms to help them transition to
responsible agricultural sourcing. See www.proforest.net/en.
27. The account that follows draws from information available at
www.mothersoutfront.org/.
28. “The Starfish Story,” City Year, www.cityyear.org/about-us/culture-
values/founding-stories/starfish-story, inspired by “The Star Thrower” a 16-page
essay by Loren Eiseley, published in 1969 in The Unexpected Universe.
29. “Organizing Toolkit,” Mothers Out Front,
https://d3n8a8pro7vhmx.cloudfront.net/mothersoutfront/pages/1218/attachment
s/original/1494268006/MothersOutFront_toolkit-Section_1 ?1494268006.
30. Dennis Overbye, “John Huchra Dies at 61; Maps Altered Ideas on
Universe,” New York Times, Oct. 14, 2010,

www.nytimes.com/2010/10/14/us/14huchra.html.

PublicAffairs is a publishing house founded in 1997. It is a tribute to the
standards, values, and flair of three persons who have served as mentors to
countless reporters, writers, editors, and book people of all kinds, including me.
I.F. STONE, proprietor of I. F. Stone’s Weekly, combined a commitment to the
First Amendment with entrepreneurial zeal and reporting skill and became one
of the great independent journalists in American history. At the age of eighty,
Izzy published The Trial of Socrates, which was a national bestseller. He wrote
the book after he taught himself ancient Greek.
BENJAMIN C. BRADLEE was for nearly thirty years the charismatic editorial leader
of The Washington Post. It was Ben who gave the Post the range and courage to
pursue such historic issues as Watergate. He supported his reporters with a
tenacity that made them fearless and it is no accident that so many became
authors of influential, best-selling books.
ROBERT L. BERNSTEIN, the chief executive of Random House for more than a
quarter century, guided one of the nation’s premier publishing houses. Bob was
personally responsible for many books of political dissent and argument that
challenged tyranny around the globe. He is also the founder and longtime chair
of Human Rights Watch, one of the most respected human rights organizations
in the world.
For fifty years, the banner of Public Affairs Press was carried by its owner
Morris B. Schnapper, who published Gandhi, Nasser, Toynbee, Truman, and
about 1,500 other authors. In 1983, Schnapper was described by The Washington
Post as “a redoubtable gadfly.” His legacy will endure in the books to come.

Peter Osnos, Founder

Title Page
Copyright
Dedication
PROLOGUE
1 “WHEN THE FACTS CHANGE, I CHANGE MY MIND. WHAT DO YOU DO, SIR?” Shareholder Value as Yesterday’s Idea
2 REIMAGINING CAPITALISM IN PRACTICE Welcome to the World’s Most Important Conversation
3 THE BUSINESS CASE FOR REIMAGINING CAPITALISM Reducing Risk, Increasing Demand, Cutting Costs
4 DEEPLY ROOTED COMMON VALUES Revolutionizing the Purpose of the Firm
5 REWIRING FINANCE Learning to Love the Long Term
6 BETWEEN A ROCK AND A HARD PLACE Learning to Cooperate
7 PROTECTING WHAT HAS MADE US RICH AND FREE Markets, Politics, and the Future of the Capitalist System
8 PEBBLES IN AN AVALANCHE OF CHANGE Finding Your Own Path Toward Changing the World
Acknowledgments
Discover More
About the Author
Praise for “Reimagining Capitalism in a World on Fire”
Notes

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