Black & White
Nobody can fault you for wanting to make a profit. But are there times when the bottom line isn't only about money?
For six years entrepreneur Duncan Berry worked in his off-hours to save a 13.5-acre estuary on Vashon Island, now called Fern Cove Sanctuary, off the coast of Seattle. He helped raise $750,000 to set aside the area of natural forest and tidelands by purchasing it from its fourth-generation owners. "It's a little jewel," says Berry, who considers himself an ardent environmentalist. "And I really felt strongly that it should belong to the Puget Sound community and should not go to one wealthy Microsoft owner."
But 15 months ago Berry quit the board of Fern Cove because of a discovery he'd made about his industry.
Berry's privately held company, the Apparel Source Inc., makes cotton-knit shirts, selling $50 million worth a year. Much to his chagrin, he had just learned that the cotton industry was unleashing a "staggering number of toxic chemicals" into the environment.
Berry wanted time to study how the 53 million pounds of pesticides and 1.6 billion pounds of synthetic fertilizers applied to cotton grown in the United States each year is not only destroying farmland but finding its way into food and cattle feed.
"What I was doing during the day in a very lucrative business was at odds with what I was doing with my life in the off-hours," says Berry, 43. "I had two choices: I could quit, or I could stay at the table and try to effect change." Berry chose the latter.
But even so, Berry has not considered the one move that could have had the most dramatic--and immediate--impact on his company's use of conventional cotton. He and his partner, Randy Clark, could make the decision to shift to using some organic cotton tomorrow. But it would cut into the company's profits--not erase them, mind you, but certainly reduce them.
So why not do it? Berry's reasoning is familiar. Companies, as owners are inclined to argue in situations like this, must guard profits above all. "Our primary mission as a company is to be a profitable organization," Berry says. "I believe very strongly that for this to sustain itself, it has to financially make sense for everybody." For Berry, who operates in a very low margin business, what makes sense isn't anything that would cut into the company's profits.
Of course, Berry never envisioned the Apparel Source as a mouthpiece for environmental change, a company that would tout its devotion to the environment as a selling point to consumers. Yet, "like everyone else," says Berry, "down to the staunchest 'green' customer, I'd said, 'Cotton? Oh yeah, that's great stuff. It's 100% natural."
Right now Berry won't change his company's ways, because of the effect it would have on his company's profits. But couldn't the fact that the shift would cost him money make it more worthwhile to do? Indeed, it "speaks of greater commitment if the company can sustain a financial penalty in the short term," says John Elkington, chairman of SustainAbility, a London-based consulting firm that advises companies on economic, environmental, and social issues.
Berry has opted to focus on urging others--namely, one of his major customers--to take the first step. That in itself is a bold decision for the five-year-old company, which ships more than 8 million shirts a year to only two customers, discount retailers Wal-Mart and Target. Based in Kent, Wash., the company employs only 10 full-time workers. To manufacture its shirts, the company works with plants in Los Angeles; Muscle Shoals, Ala.; and Karachi, Pakistan. Berry's recent discovery has left him conflicted about the way he's running the business. "It's been harder to sleep at night since I found out, and it hasn't stopped being harder," he says. "I don't sleep better yet, because I'm not reducing pesticides. It's not visible yet."
Tossing and turning isn't the only barometer of Berry's commitment. He has seriously investigated some of his options. For instance, he learned enough about the cost of organic cotton to understand that he couldn't afford to switch over to it entirely. Whereas traditional cotton costs 65Â¢ to 70Â¢ a pound, organic cotton can cost an additional 50Â¢ to 60Â¢ a pound, according to Anderson Warlick, president of Parkdale Mills, the country's largest spinner of cottons.
That kind of price hike can be sustained only by companies like Patagonia, the outerwear maker that shifted to using 100% organic cotton in 1996. Because of the company's earthy image, it could also pass on some of the increased cost to its customers, raising the price of its cotton garments an average of $2 to $10. "With us being as vocal as we are about the environment, it would have been really hard to continue selling conventional cotton," says Jill Vlahos, director of fabric development at Patagonia.
But unlike Patagonia, which sells $24 T-shirts and $70 jeans directly to its customers through catalogs and company-owned retail stores, the Apparel Source sells some of its shirts to retailers for $3.70. They, in turn, mark them up to $6.99. "Patagonia's an entrenched niche marketer," observes Berry, whereas when he thinks of his end users, "we're talking about Bubba."
Going 100% organic, however, was not Berry's only option. Companies like Nike, Gap Inc., and Levi-Strauss have begun to blend a small percentage (typically 1% to 6%) of organic cotton in with the traditional cotton they use. "That's still a massive amount of organic cotton," says Sandra Marquardt, project coordinator of the Organic Fiber Council, in Richmond, Calif.
But Marquardt points out that "if it doesn't work for Nike, they don't lose their shirts." For the Apparel Source, shirts are its only business. "If we were a general company and this was one little part of some product that we do, then we could be out beating the drums," says Berry's partner, Clark. "But when cotton is in everything we sell, we can't afford to be out beating the drums against what is our total revenue."
But in fact there's no requirement to label the organic-cotton percentage in a blended garment, according to Marquardt. "Most companies don't say anything about it," she says. "In some companies they made the decision they were better off not talking about what they were doing, because in some cases some consumers might question them about what the other 97% is."
It was that very concern that Berry and his partner say they encountered when they first approached Target last year, suggesting that it introduce a line of blended-organic-cotton clothing. If Target would agree to do so, the Apparel Source could then charge the retailer more for its shirts, and Target in turn could charge consumers more, thus preserving Berry's profit margin. "At first they said they didn't even want to talk about it because it's just too explosive," Berry reports.
But Berry says he countered the powers at Target by saying, "Look, this is about choices. If you walk into your grocery store tomorrow, you're going to see a choice of organic produce or nonorganic produce. They're not saying, 'Don't touch that carrot!' If you want to make a difference to the environment, you'll spend a little more. Here's a choice. That's all it is."
Berry can make a passionate argument about why and how Target could make the shift to organic right now. How then does he reconcile that with his decision that it's too risky for his company to make that shift?
Especially when, as it turns out, the Apparel Source could afford to change its shirts. When pressed, Berry admits that on the $6.99 cotton shirts that the Apparel Source sells to Target for $3.70, his company makes a gross profit of 5% to 18%, depending on where the shirts are manufactured. (The cost is lower on those made in Pakistan.)
If Berry and Clark wanted to, they could earmark a portion of the most profitable of those $6.99 shirts for introducing a blend of 3% organic cotton like the one used by some large companies. The additional cost of using a 3% blend would amount to 10Â¢ a garment, Berry says. If the company ate that cost, it would still be left with a slender profit.
Such a shift is indeed theoretically possible, as Berry acknowledges. But he also admits that he's never fully explored it. Had he done so, he might have discovered other advantages--though far from certain ones--to surrendering some of his profits. By acting on his own initiative, for example, the company might find itself first in line if Target eventually decides to jump on the blended-cotton bandwagon. The Apparel Source would certainly be better positioned than other vendors, who would need time to line up organic suppliers. That readiness could translate into extra orders. Granted, that's only a prospect, and a long-term one. For now there's no guarantee that the company's profits would ever recover.
At breakfast at a restaurant overlooking the Seattle skyline, Berry comments that he tries hard to engage in a "right livelihood," the fifth step of the eightfold path in Buddhist teachings, which advises that we should "earn our living in such a way as to entail no evil consequences. To seek that employment to which we can give our complete enthusiasm and devotion."
"That step has got me stuck," says Berry.
But Berry isn't stuck. Not really. He's decided that the riskiness of making the shift to an organic-cotton blend outweighs the importance of his environmental mission. It's a reflexive part of the entrepreneurial mentality to see profits as untouchable, so it's no wonder that "the bottom line" becomes the ultimate defense for any uncomfortable decision . Nobody's going to fault you for wanting to make money, after all. But the question is more delicate: Are there times when an entrepreneur's personal passion justifies putting profits at substantial risk?
If Berry doesn't want to take that risk, he shouldn't be surprised if Target doesn't want to, either. And he also should understand why customers may not want to foot the bill for his environmental conscience. But Berry could put his margins where his mouth is, cut into those margins, and change the company's course.
Berry says that his wife, Melany , places the environmental priority "right up there with our children." A shift to organic cotton might help him more easily answer the question she posed when she first learned of the environmental damage the industry was causing: "What do you want your lasting impact to be?"
Jeffrey L. Seglin is a fellow at the Center for the Study of Values in Public Life at Harvard University.
Did a CEO 'place the company's reputation in jeopardy' by helping a troubled employee?
The most recent Black and White column, " The Savior Complex" (February), argued that a CEO who had stepped in to aid an employee with a personal problem might have been motivated more by a desire to "feel better about himself" than he was by a sincere intent to help out. The CEO explained why he had sent an alcoholic employee for treatment--not once, but twice--despite the fact that the employee's failure to show up for work cost the $14-million company more than $100,000. In making his decision, the CEO admitted that he had sidestepped advice from people who were knowledgeable about substance abuse--namely, that the employee would have a better shot at recovery if he were fired. Readers agreed that CEOs must draw a line in such situations, but they didn't agree about where that line should be drawn.
"The CEO had a good heart, but at times the head must rule," wrote Yvette McManus, owner of Yvette's Designs in Sterling, in Lufkin, Tex. "He enabled the alcoholic with support and placed the company's reputation in jeopardy. No winners in that ball game."
Not that there wasn't something "noble and wise" in what the CEO did, as Dick Gray, president of Xtension Technologies, in Laguna Hills, Calif., put it. "But at some point," he added, "every executive must weigh the option of cutting loose an employee who can't adapt to a life without a crutch."
But where is that point? Peter Johnson, president of a technology-consulting firm in Bethesda, Md., believes that a business owner should "try to show a human touch, but not a hug." He admits, however, that making that distinction requires straddling another fine line. "I think of the shareholders, and I think of why the business exists, before spending its time and money on employee disasters. Never take one of these 'helping' campaigns off the business playing field and start helping the employee with your personal time or resources. That is not help."
Indeed, the CEO's mistake was in believing that he knew what would help, offers Stephan Cludts, a student at the Centre for Economics and Ethics at the Catholic University of Leuven, Belgium. "It's possible to help one's employees, even if this has a cost," he says. But "the CEO should have taken advice from people who know how to deal with this kind of problem."