The high price of running a socially responsible business.
The high price of running a socially responsible business.
A generation of countercultural entrepreneurs struck out to change the world in the 1980s by building socially responsible businesses -- and made getting filthy rich look like good clean fun. Here's what they never told you about the high price of principle
In 1978, when two Vermont hippies in an unheated gas station set out to bring butterfat to the people, no one would have come to them for business advice. For Heath Bar Crunch, undoubtedly, but for a tutorial on how to build a company with a social conscience? Let's face it, we would have stuck with the cones.
More than 15 years later Ben & Jerry's, the once-funky business Ben Cohen and Jerry Greenfield built into a $130-million publicly traded company, is decidedly mainstream, winning enough devotees to constitute an entrepreneurial movement of its own. Socially responsible superfounders like the two real guys in Vermont, or Anita and Gordon Roddick of the Body Shop, or Yvon Chouinard of Patagonia, or Paul Hawken of Smith & Hawken have become irresistible apologists for the notion that you can do the right thing -- care for employees, suppliers, customers, and indeed, the planet -- and still turn a profit to please the most capitalist of pigs.
Throughout the 1980s, prosperity and a penchant for publicity made those iconoclastic founders heroes. And like all good role models, they made it look easy. (Would we admire them if they didn't?) After a decade or two, though, the wonder years are over. Most of those founders have weathered at least one recession, an onslaught of competition, and a disappointing quarter or four. The good have grown up or grown old or grown weary. For those who would model their businesses after them, there are lessons to be drawn from their corporate histories as well as their creeds. The challenge lies not only in understanding the benefits of righteous business practice -- its power as a marketing tool has been amply demonstrated -- but also in anticipating its cost. (See "Too Good to Be True?" [Article link].)
Doing the right thing can be risky business.* * *
The World Will Never Be the Same (Of Course, It Won't Be Entirely Different, Either)
A company, no matter how laudable its intentions, will never be good enough. The more ambitious its social agenda, the more elusive success will be. The Body Shop, which considers "changing the world" its charter, is a case in point. Its sales were $650 million last year, and it operates 1,050 shops in 45 countries. The company has opposed animal testing, embraced fair trading practices with indigenous groups, and encouraged liberal activism among its employees and franchisees. Its founders, Anita and Gordon Roddick, have become rock stars in the world of alternative business. But despite almost messianic ambitions, the Roddicks' business has yet to transform the face of the earth. "This hasn't changed the way the rain forest is being destroyed or created a vibrant economy in the Indian subcontinent," notes the Body Shop's corporate communications manager, Gavin Grant.
Indeed, the company's best efforts have taught the founders how intractable and time-consuming global disorders such as deforestation and third-world poverty can be. The politics of saving the rain forest, or trading with its native inhabitants, is itself a jungle. While leftists protest that the company does too little, those on the right complain that it proselytizes too much. "We've had to learn to manage our own expectations for success as well as everyone else's," says Gordon Roddick. Not that the Roddicks and their followers give up. They simply spend inordinate amounts of time trying not to.
Because a savior's work is never done, the Body Shop and other businesses like it must live with the same admirable goals year after year and settle for only incremental success. Instead of declaring the elimination of third-world poverty a corporate goal, "we now say that we hope to make a difference in the lives of a few hundred people at a time," says Roddick. "It's possible to do that. In fact, we have done that."
For companies that limit their aspirations to the banalities of financial performance, success -- as they define it -- is just plain easier to recognize (thanks to a crude device called a profit-and-loss statement). When you pledge your business to effecting profound social change, you can either (a) fail, or (b) not fail entirely. But you never flat-out succeed. Goal setting becomes a process of patching up the promises and trying again next year.* * *
Extra! Extra! Read All About Us. . . .
This just in: the press creates icons and then destroys them. These companies, which have shown no reluctance to crow about their rectitude, have benefited enormously from media exposure. "You have to declare your vision publicly if you want others to support it," says Roddick. Inevitably, however, the relationship with the fourth estate becomes complicated and occasionally perilous.
"Once you raise the bar and urge business as a whole to raise its standards, you paint a bull's-eye on your back," says Craig Cox, editor of Business Ethics. "The press will watch closely for signs of hypocrisy."
Even if the companies didn't invite the adulation, they have invited scrutiny. "You create a legend or a myth around the business," says Roddick. "But the press ultimately grows bored with you and starts looking around for deficiencies." Not long after a company's initial apotheosis, suspicions begin to arise that its convictions are simply marketing gimmicks, that the talk about SR is simply PR. The line between principles and image making can blur. The moment companies fall short of their own high ideals (and inevitably they do), a chorus of cynics stands ready to cry hypocrite. The Body Shop, for instance, has been publicly flogged for inadvertently violating its own animal-testing ban. It has also been charged in the press with fraud for misleading customers about its testing practices. Though the company was vindicated by the courts in the libel case it litigated last year, Roddick recommends a stoic resolve: "You have to expect you'll be held up for rigorous examination. This is not for the chickenhearted."* * *
We're Just One Big Happy Commune
Employees flock to these PC payrolls as pilgrims, seeking empowerment and profound happiness along with their paychecks.
"Employee expectations are often so high, they're impossible to manage," says editor Cox. "If you come to work for a socially responsible company, you expect to have more flexibility, more informal relations with supervisors, the autonomy to fashion the job the way you choose," he points out. "It can be quite a shock to find out that the visionary founder is not an attentive manager or that there's still a hierarchy and still some lousy grunt work that somebody is going to tell you to get done."
There is a secret premium exacted from employees for the privilege of living their values 80 hours a week: "Many of these companies pay less, expect longer hours, and offer harder working conditions," says Meredith Maran, a former editorial director at Smith & Hawken and now a consultant to several socially responsible companies. Outmoded equipment and relatively high rates of worker injury plagued Ben & Jerry's for years, for example.
At Smith & Hawken and Patagonia, two companies at which employees were laid off after financial crunches in the early 1990s, the disappointment was nearly terminal. "People were so stunned by how far short the company fell of their expectations," says Maran, "they started to feel afraid, powerless, and ultimately unwilling to fight for their point of view when it came to important business decisions. When fear and then resentment set in, productivity was killed by that."* * *
The Oath of Office: Now Lean to the Left and Repeat After Me
It is only natural that founders surround themselves with people sympathetic to their values. Who doesn't want employees who will culturally fit an organization? The problem arises when the requisites for a proper "fit" become too restrictive. Does running a politically progressive company mean you won't hire Republicans? Are meat eaters or gun owners or pro-lifers among those who need not apply? Is it possible that a conservative chief financial officer or a libertarian sales manager might be an asset and not just an anomaly in your organization? The temptation to conduct political litmus tests, even tacitly, is real. And the danger of alienating longtime customers or employees should not be dismissed. After the Body Shop issued a statement against the Gulf War, it was surprised to find fierce opposition in its own camp: no one had consulted employees with loved ones serving in Desert Storm.
Who's Minding the Store? (Oh, That)
The genius in these businesses can almost always be located in their marketing or design. A visionary leader such as Chouinard or Hawken or Roddick harbors a passion for the product and for the salvific message packaged along with it. But an ardor for cash flow? Or inventory control? Or even management? The stuff of which businesses are made does not always fire the soul. A passion to do the right thing may not translate into a passion for doing things right.
Witness Patagonia, which suffered a cash crisis that eliminated as much as a third of its workforce in 1991. According to former executives, the company's infatuation with its social mission made it inattentive to, even disdainful of, the mechanics of running a business. In a year in which sales grew at a 30% rate, overhead rose twice as fast. Meanwhile, the company's finance function remained literally exiled in an outlying building. Patagonia has since reorganized and sworn off growth.
"One of the problems at Smith & Hawken," says Maran, "was that you had a bunch of people walking around with this nonprofit mentality, acting like they were working for Greenpeace instead of a direct-mail business." Smith & Hawken was sold to the CML Group last year.* * *
Since When Do Nice Guys Finish First?
The success of these companies ensures competition. Some companies, so seduced by doing good, lack the survival instincts to do well in a crowded market. Others stay and manage to fight. Yet if they respond too forcefully, they're pilloried as bullies. Ben & Jerry's withstood a barrage of criticism for aggressively shutting its competitors out of distribution (in much the same manner the Pillsbury Doughboy had earlier tried to squelch Ben & Jerry's). While other companies are free to be ruthless competitors, two ballyhooed nice guys don't have the same license.
The Costs: What You Don't Count Won't Hurt You?
Virtue doesn't come cheap. It may pay off in a bonanza of free publicity or in undying customer as well as employee loyalty, but there's no avoiding hefty up-front costs and plenty of variable costs thereafter. Pollution-control equipment or day-care subsidies might yield dividends in the end. But such "investments" will remain expenses for a long time first. And even when returns are realized, the costs do not necessarily abate. The Body Shop boasts an exotic collection of cost centers, including an Environmental Department, a Fair Trade Department, and an Against Animal Testing Department. The bill paid by the Body Shop, for example, to screen suppliers and enforce its animal-testing ban runs more than $100,000 a year. It is, admittedly, a small fraction of the company's revenues. But as the company grows and its network of suppliers expands around the globe, the costs will only rise. Profit margins may not.
You may succeed as a business and fail as a force for social change. But you cannot succeed as a reform movement while failing as a business.
Any business, even the most altruistic, cannot be merely a means to a social end. There must be something in the process -- either making money or building an organization or producing a product -- that sustains you. No matter how salutary your aim, you won't be excused from the ordinary chores of hiring and firing. You'll still have to develop a product, manufacture it, ship it, distribute it, and get paid for it. You'd better have some fun on the way to a better world.