Profits With Principles
By Ira Jackson and Jane Nelson
We’ve all seen business ethics become front-page news in the wake of Enron, WorldCom, Tyco et al. In her best-selling book, aphoristically titled “Pigs at the Trough,” columnist Ariana Huffington charged many chief executive officers and boards with placing their personal interests ahead of those of their customers, employees, and communities. Driven by an obsessive focus on short-term profits and a desire to inflate their own stock options, many CEOs permitted deceptive practices that left average employees – and ultimately shareholders – holding the bag. She also asserted today’s CEO not only makes far more pay relative to the average worker than 20 years ago, but has often been rewarded for poor performance while average worker income stagnates. The price of these scandals is increased public cynicism and a belief that business acts only for its own bottom line. The same cynicism is evident in some parts of our banking world after successive mergers.
In their recent book “Profits With Principles, Seven Strategies for Delivering Values With Value,” long-time BankBoston executive Ira Jackson, now a fellow at Harvard’s Kennedy School, along with co-author Jane Nelson, make the case that treating employees, customers and communities ethically is not only the right thing to do, it is the profitable thing. They see evidence in the failures of these unethical firms and the success of the progressive firms they profile, that in the long run successful firms will be those that inculcate ethical, social and environmental concerns into core decision making. In this balanced and comprehensive examination of “doing well by doing good,” they draw on a body of work that has been evolving for the past three decades. That includes the notion that “stakeholders,” from labor, community, environmental and other interest groups, deserve a place at the table with shareholders. It is the “triple bottom line” advanced by leaders such as Interface Inc.’s Ray Anderson. Anderson once observed, “Beyond profit there must be purpose. Beyond success there must be significance. And by doing good you’ll end up boosting your bottom line as well.”
Jackson and Nelson offer seven steps for putting the theory of “doing well by doing good” into action. They are: harness innovation for public good, put people at the center, spread economic opportunity, engage in new alliances, be performance-driven in everything, practice superior governance and pursue purpose beyond profit.
Their proposals range from embedding ethical, social and community considerations into product design to taking a revised approach for managing a multi-national corporation’s supply chain. The time has passed when executives could declare, as did a Disney spokesman of Haiti’s sweatshops in 1997, “we have nothing to do with the standard of living of people who work there.” Today’s executives need to be sensitive to the impact of all their actions, even indirect ones. The cost of ignoring direct or indirect impact on distant or local communities can be high. Simple ignorance of an interest group or unintended social or environmental degradation can bring “instant vilification” by today’s Internet-savvy special interests.
Yet firms with the vision to embrace non-traditional allies, such as non-governmental organizations (NGOs) and advocacy groups, profit by their actions. Jackson and Nelson cite how corporate “villains” such as Nike overcame charges of Third World worker exploitation by partnering with the International Youth Foundation for better conditions. And Jackson cites his own successful experience founding alliances with civic interest groups for BankBoston’s First Community Bank as evidence that such approaches work locally as well as globally.
The authors recommend a few crucial steps to help move beyond defensive compliance to embracing community needs and ethical business practices. As they advocate “putting people at the center,” they recommend creating formal and informal advisory roles for key stakeholders. These include employees, customers, suppliers, contractors, community neighbors and government officials with whom “responsive, transparent and accountable relationships” need to be established. For this to be truly effective, management must be genuinely open to input and willing to share some level of decision-making. Otherwise, such efforts will simply increase cynicism.
A second step to sustainable and profitable community alliances is to add rigorous, public performance-driven measures to community actions that are comparable to those used with traditional “for profit” activities. Additionally, without the backing of a vigorous, independent and diverse board of directors, little can be accomplished by way of new ethical community and employee relations. Those boards need defined oversight for management ethics and CEO accountability. Finally, Jackson and Nelson stress the need for a firm to have a true “reason beyond profit.”
“Too often,” they observe, “mission statements can be empty promises for which corporate practices don’t match the rhetoric.”
They cite Johnson & Johnson, with its credo of primary responsibility to “doctors, nurses and patients,” as one firm that has successfully avoided this pitfall.
The inequity of CEO pay remains unsolved in society at large and by the authors, who largely drop the subject after devoting considerable space to it early in the work. Finally, the case for a long-run empirical link between ethical practice and superior earnings remains a “still emerging field of study.”
While there are no simple solutions, “Profits With Principles” presents an important challenge to executives who are seriously interested in increasing community engagement for their firms and potentially increasing earnings, or at least avoiding penalties, in this post-Enron world.
Profits With Principles
Hardcover: 400 pages
(June 15, 2004)
James T. Briand is director of marketing at Middlesex Savings Bank in Natick.