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Strategic ethics: a new theoretical paradigm and measurement rubric for corporate responsibility projects

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Strategic ethics: a new theoretical paradigm and measurement rubric for corporate responsibility projects

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Content STRATEGIC ETHICS: A NEW THEORETICAL PARADIGM AND MEASUREMENT RUBRIC FOR CORPORATE RESPONSIBILITY PROJECTS by Nichele Mikol McClendon A Thesis Presented to the FACULTY OF THE USC GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree MASTER OF ARTS (STRATEGIC PUBLIC RELATIONS) May 2010 Copyright 2010 Nichele Mikol McClendon ii TABLE OF CONTENTS ABSTRACT iii PREFACE iv CHAPTER 1: AN INTRODUCTION TO STRATEGIC ETHICS 1 CHAPTER 2: WHY STRATEGIC ETHICS? 5 WHY BOTHER DOING GOOD? 5 A CRISIS OF TRUST 7 SELF-REPORTING AND TRUST 9 THE PROBLEM WITH PROVING CSR 10 WHY STRATEGIC ETHICS? 12 CHAPTER 3: MEASURING STRATEGIC ETHICS 16 EXXONMOBIL: ENVIRONMENTAL SAVIOR? 16 A PROBLEM OF APPROACH 18 OTHER NOTABLE METHODOLOGIES 20 THE STRATEGIC ETHICS RUBRIC 22 PROACTIVE ACTIVITIES 22 REACTIVE ACTIVITIES 31 CHAPTER 4: BEN & JERRY’S 34 BACKGROUND & HISTORY 34 SOCIAL & ENVIRONMENTAL INITIATIVES AT BEN & JERRY’S 36 RECOGNITION AND PUBLIC PERCEPTION 39 STRATEGIC ETHICS AT BEN & JERRY’S 40 STRATEGIC ETHICS UNDER PARENTAL GUIDANCE 50 CONCLUSIONS AND PRESCRIPTIONS 53 CHAPTER 5: GREEN MOUNTAIN COFFEE ROASTERS 55 BACKGROUND & HISTORY 55 SOCIAL & ENVIRONMENTAL INITIATIVES AT GMCR 56 RECOGNITION AND PUBLIC PERCEPTION 58 STRATEGIC ETHICS AT GMCR 59 STRATEGIC ETHICS IN A NOTORIOUS INDUSTRY 69 CONCLUSIONS AND PRESCRIPTIONS 70 CHAPTER 6: AMERICAN APPAREL 73 BACKGROUND & HISTORY 73 SOCIAL & ENVIRONMENTAL INITIATIVES AT AMERICAN APPAREL 74 SCANDAL 75 RECOGNITION AND PUBLIC PERCEPTION 76 STRATEGIC ETHICS AT AMERICAN APPAREL 77 CONCLUSIONS AND PRESCRIPTIONS 88 CHAPTER 7: CONCLUSION 90 BIBLIOGRAPHY 94 iii ABSTRACT Companies are increasingly incorporating social and environmental responsibility programs into their business functions, due to mounting data that demonstrates a positive relationship between corporate responsibility and increased economic benefits. However, there has been an excessive proliferation of inadequate terms and paradigms for understanding corporate responsibility; the result is a confusing academic and consumer landscape where it is difficult to discern which companies are genuinely pursuing good deeds and which companies are not. In this paper, I propose a new theoretical paradigm, Strategic Ethics, for understanding corporate responsibility projects that is more holistic than other methods, and is based advancing the pursuit of ethical behavior in business environments. Alongside the Strategic Ethics theoretical framework, I present a measurement rubric for conducting audits of companies who pursue social and environmental activities, to facilitate evaluation of those programs and comparison between companies on the grounds of Strategically Ethics. To illustrate the value of the Strategic Ethics framework, I conduct sample audits of three companies: Ben & Jerry’s, Green Mountain Coffee Roasters and American Apparel. This paper is a basic introduction to the Strategic Ethics model. As corporate responsibility and ethics programs continue to grow in importance in modern business, a uniform defining model like Strategic Ethics will be invaluable to evaluating those programs. iv PREFACE As I began to write the pages that follow, I faced a daunting task: wading through the broad and deep research on corporate activities related to social, environmental, and political action. The literature is, in a word, overwhelming. There is an overload of terms, yardsticks and theoretical paradigms. It’s no wonder that we—consumers, corporate leaders and communicators—are having a hard time understanding these activities in a meaningful way. So why would I propose a new term, paradigm and rubric? Simply put, because what exists does not work. Addressing the rampant mistrust that characterizes today’s societal climate is impossible with such scattered competing terminology and theories. What I propose in these pages is a new start: we take what’s good, get rid of the bad, and just plain build from scratch. The system I propose would level the playing field, enabling consumers and communicators alike to understand what is meant by – and expected from – corporate responsibility programs. I begin with the premise that this new set of ideas should be grounded firmly in something the vast majority of people already understand intuitively: ethics. For many of us, the framework for understanding what is right and what is wrong is engrained in our upbringing. Some theorists even posit that a sense of ethics is innate in human cognition. 1 1 For an explanation of this philosophy, see Ruse’s argument that morality is a “collective illusion of the genes.” (250). v We must do the right thing because it is the right thing. Ethics is distinct from altruism: we recognize inherently that doing the right thing leads to rewards. For business, this reward can be profit, competitive advantage, or any number of valuable commodities. In terms of corporate behavior, the paradigm of Strategic Ethics is the idea that in today’s business climate it is strategically advantageous to behave ethically; conversely, behaving unethically will, eventually, result in disaster. Strategic Ethics is a way of thinking about how companies are engaging in business activities, strategies, and programs that address social and environmental issues. We must embrace the idea that business can be both “responsible” in all senses of the word and in all functionalities without threatening profitability. While some might argue that the long-term bottom line might be hurt by companies giving money or resources to a community—being “socially responsible”—it seems fair to say that few would argue with the idea that the long-term bottom line could be hurt by a company behaving ethically. In the pages that follow, I introduce Strategic Ethics as a paradigm for considering these complex issues and for evaluating how businesses succeed—and fail—to function as socially and environmentally accountable parts of society. 1 CHAPTER 1: AN INTRODUCTION TO STRATEGIC ETHICS The key to making ethical business behavior profitable is the communication of ethical standards, goals and achievements to stakeholders. When a holistic corporate strategic ethics program is undertaken and communicated clearly to stakeholders, reputational benefits can be reaped and should, theoretically, lead to increased profitability. Some of these benefits may not translate directly into increased sales or profits; however, through the simple exercise of projecting benefits from one decision or behavior to the next, the end benefit becomes clear. For example, imagine a company that treats its employees extremely well: workers are included in making company decisions, and are provided perks such as paid time off to do volunteer work, excellent health insurance and scholarship opportunities for their children. The company then wins an award for employee satisfaction, which it publicizes among stakeholders. In turn, aside from the fact that high employee morale increases both volume and quality of output, 2 company officials are able to recruit from a stronger talent pool. This allows the company to employ the top workers in its field, which in turn produces even more tangible benefits. Though the initial action of treating employees well may not result in increased profitability in a single step, it does so through a series of dependent reactions. 2 For a detailed study demonstrating the interrelatedness of employee morale and output, see Vandenberg and Richardson. 2 A 2008 study by C.B. Bhattacharya, Sankar Sen and Daniel Korschum published in the MIT Sloan Management Review states that “there is growing evidence that a company’s corporate social responsibility activities comprise a legitimate and compelling way to attract and retain good employees” (Bhattacharya, Sen and Korschum 37). Companies with highly integrated responsibility strategies often mention their social responsibility projects during candidate interviews as a way to entice highly desirable potential employees to consider accepting jobs with the company. In an interview with Personnel Today magazine, shoe and boot manufacturer Timberland’s (NYSE: TBL) senior manager for European HR said: We tell people straight away that [time off to volunteer] is one of the key benefits. It’s one of the reasons that people want to come and work for us—it was certainly one of the things that attracted me. (McCormick) In Timberland’s case, the company’s commitment to social and environmental issues has provided an advantage in recruiting. Unlike other philosophical mechanisms, the strategic ethics framework is specifically crafted to include measurement. Without strong benchmarks indicating what is acceptable and understandable (as well is what is excellent and what is mediocre) responsibility efforts lose the vast majority of their meaning and impact. Without irrefutable data supporting said benefit, corporate leaders will continue to make less than whole-hearted efforts. Consumers will remain unable to decipher information that should be key to informing their choices of where they want to spend their increasingly precious dollars. 3 The dominant paradigm, Corporate Social Responsibility, suffers from two paradoxical problems: it is, at the same time, too narrow and yet, has too many definitions and interpretations. Corporate Social Responsibility, by basic intuitive definition, places emphasis on social issues. The new paradigm I propose systematically includes other measures of responsible behavior in relation to the environment, politics, and economics. Conversely, the argument over what CSR encompasses may have become so strident that the dialogue on meaning itself has eclipsed the actual application of CSR’s principles in focus. The Strategic Ethics framework allows any consumer to perform an audit to evaluate any company. When communications professionals know which set of standards consumers will use to judge a company’s responsibility efforts, shaping communications related to those efforts becomes much easier. In turn, when stakeholders use a holistic measurement structure to examine companies’ actions, organizations will be forced to be more accountable for both their actions and their characterizations of those actions. Increasing transparency could also serve to increase stakeholder engagement. This paper contains an introduction to and explication of Strategic Ethics as a concept, in addition to several sample applications of the Strategic Ethics rubric. In the second chapter, the business justification for pursuing social and environmental programs is summarized. Next, the logical and theoretical bases for the Strategic Ethics model are presented, and several other existing frameworks for evaluating organizations’ responsibility programs are introduced. The Strategic Ethics 4 framework is presented as more effective than these other concepts because of its holistic nature. In the third chapter, the Strategic Ethics rubric is introduced. Several other measurement tools are discussed and evaluated in comparison to the Strategic Ethics rubric. Finally, the eight core measurement areas of the Strategic Ethics rubric, called activity categories, are defined and justified. In the last three chapters (four, five and six), the Strategic Ethics rubric is applied to real-world companies that actively pursue social and environmental goals as part of their business. Each company is evaluated on the eight Strategic Ethics activity categories, and several areas of potential improvement for each are suggested. These final case study chapters also include additional Strategic Ethics activity categories for special circumstances, including how a company should be evaluated if they are a wholly owned subsidiary, are functioning in an industry with a history of socially- or environmentally- exploitative practices, or are facing a broader reputational scandal. Chapter four focuses on ice cream producer Ben & Jerry’s, and examines how Strategic Ethics concepts can be applied to a wholly owned subsidiary. Chapter five covers the Vermont-based coffee seller Green Mountain Coffee Roasters, and includes commentary on evaluating a company functioning in an oft-criticized industry. Chapter six is centered on the clothing manufacturer American Apparel, and how they have responded to scandal. 5 CHAPTER 2: WHY STRATEGIC ETHICS? WHY BOTHER DOING GOOD? The value of socially and environmentally conscious behavior for companies has been so well established that it is almost a moot point. Companies that engage in positive activities on a social and environmental level do better, in the long run, than companies that do not. 3 And despite arguments that engaging in socially productive endeavors is wrong because it diverts money that would otherwise be returned to shareholders or invested in the company, 4 there are studies that demonstrate that doing good has, in fact, a positive value. Hull and Rothenberger drew the following conclusion in their study on the interaction between social responsibility and innovation: Our findings suggest that the relationship is complicated, but that practical conclusions may be drawn. The first is that [Corporate Social Performance] can be achieved without a corresponding negative effect on financial performance— there is no zero-sum game to be played between these two. Furthermore, [Corporate Social Performance] appears to be a way to enhance financial. performance (Hull and Rothenberg 785) The distinction must be drawn: if corporate social responsibility efforts divert a small amount of company revenue in the short term, those efforts make up for that brief diversion in the long term through increased trust and other intangible measures. In their book The Debate Over Corporate Social Responsibility, May, Cheney and Roper argue that brands are becoming increasingly important. In many cases, brands like Coca Cola or Dove soap are more valuable than the corporations that control them, according to May, 3 See Schreck’s entire book on this argument for a detailed discussion of the business case for CSR. 4 Milton Friedman made the classic statement in The New York Times Magazine in 1970: “The social responsibility of business is to increase its profits.” 6 Cheney and Roper (52). They point out that positive brand associations can even outweigh more objective product attributes—Pepsi regularly beats Coca Cola in blind taste tests, yet Coke continually outsells Pepsi (52). In the context of brand power and growing societal emphasis on social and environmental issues, a company’s ability to associate its brand with its corporate social responsibility activities could appeal to consumers whose purchasing decisions are based on “value and values” (54). In addition to economic gain, social engagement has other positive effects on companies. Hull and Rothenberg found that social responsibility can be leveraged as a competitive advantage when innovation is absent: If a firm chooses not to innovate, or to innovate only to a small degree…it may instead use CSP [Corporate Social Performance] to differentiate itself. And innovative companies may find CSP helpful when they are between innovations. (786) This positive reputational effect of corporate responsibility is underscored by its positive effect on consumer attitudes. In a 2005 study, Becker-Olsen, Cudmore and Hill found that consumer “beliefs, attitudes and intentions” were positively impacted by proactive responsibility activities that were closely tied to the company’s core business (46). Lastly, strategic social involvement can provide a cornerstone for employee morale and building a strong corporate culture. Communicating to employees that they are part of a larger instrument for good inspires them to contribute, and provides a framework within which they can make appropriate decisions that will influence how the company operates (Collier and Esteban 19). Google (NASDAQ: GOOG) is an excellent example of a company with a strong corporate culture centered around social and environmental action: Google’s corporate motto is simply “Don’t be evil.” With this 7 sense of commitment to “doing good” embedded in the company’s most basic structure, Google employees know exactly what to base decisions on and how to behave: in a manner that has no negative impact (“Google Code of Conduct”). A CRISIS OF TRUST Institutions are currently facing a crisis of trust. The Edelman Trust Barometer is an annual study of business and opinion leaders in 20 countries (“Edelman Trust Barometer”). The 2009 Edelman Trust Barometer results indicated that trust in business is currently at a ten-year low: 62% of those surveyed reported that they trust corporations less than they did a year ago, and only 38% said that they trust business “to do what’s right” (Edelman Trust Barometer”). These feelings of distrust can have a profound impact on corporations: 77% of respondents in the 2009 Trust Barometer indicated that they refused to buy products or services from a company they distrusted (“Edelman Trust Barometer”). This is no surprise given the business scandals of the first decade of the 21 st century. In 2001, Enron executives lied to their own employees, the government, and their stockholders. 5 Over the course of 20 years, Bernie Madoff built a massive Ponzi scheme wherein he paid massive returns to early investors with money from new investors. When the bogus investment pyramid collapsed in 2008, Madoff had robbed hundreds of individuals and organizations—including charities – of $65 billion (Henriques). During 2008 and 2009, America’s entire investment banking industry 5 TIME Magazine published in-depth coverage of the Enron scandal in 2002. See: http://www.time.com/time/2002/enron/ 8 imploded under the weight of complicated, overly risky ventures. The events of the last decade have put many businesses, from banks to automotive companies, in the unenviable position of having to regain consumer trust. Even companies that have long been considered the pillars of American business have not escaped unscathed, due in part to decisions that have had significant negative reputational impact. Auto executives from Chrysler and General Motors ignored the push toward more environmentally friendly vehicles until they were forced to plead for government support and declare bankruptcy—even as the firms’ leaders flew to Washington on private jets to ask for taxpayer money (Peele). In February 2009, Wells Fargo (NYSE: WFC) cancelled a lavish executive bonus trip to Las Vegas in response to massive public backlash—the company had received $25 billion in bailout funds in early 2009 (Wagner and Apuzzo). This crisis of trust extends beyond business to other entities such as the United States government and the American media. The Pew Research Center for the People and the Press’ survey on public evaluation of the news media between 1985 and 2009 indicates that only 29% of Americans believe that the news media correctly report factual information (“Press Accuracy Rating…”). This is a precipitous decline from 1985, when 55% thought that news media accurately reported facts (“Press Accuracy Rating…”). Even Barack Obama, a president whose approval ratings soared during his first months in office, has lost traction during Fall 2009 (Saltonstall). 9 SELF-REPORTING AND TRUST The trust crisis is compounded by how difficult it is to measure a company’s trustworthiness. How can consumers know which companies simply talk the talk and which actually walk the walk? The way in which companies effectively communicate their commitment to social and environmental goals is the cornerstone to building trust among stakeholders. Unfortunately, to date there has been marked inconsistency in what many companies say they are doing and what they are doing. In defense against a 2003 lawsuit, lawyers for athletic equipment giant Nike (NYSE: NKE) argued that the company’s misrepresentations of its international labor standards programs were allowed by laws governing freedom of speech since the communications were about Nike’s social programs rather than its business endeavors (Werther and Chandler 161). The United States Supreme Court refused to hear arguments on this matter. While the case eventually settled out of court—Nike agreed to pay $1.5 million to a worker advocacy group (Werther and Chandler 162)—the legal questions in the lawsuit remain unanswered. Without clear legal precedent, what a company may and may not say about its CSR efforts remains a gray area. The fact that corporate social and environmental performance reporting remains voluntary and un-regulated by governing bodies like the SEC compounds the difficulty of evaluating companies’ CSR efforts. While many companies produce glossy social responsibility reports to send to investors, and build intricate websites to display social responsibility efforts to consumers, the contents of those reports may be less convincing 10 than if they were standardized and regulated. Government oversight of CSR is an entirely different can of worms—one that cannot be addressed in the confines of this paper. THE PROBLEM WITH PROVING CSR In the absence of government standards for CSR reporting, the need for a unified language and rubric for evaluating companies’ social and environmental efforts increases exponentially. During the past three decades, several terms have entered the corporate lexicon in attempts to describe the phenomenon of companies doing good without sacrificing doing well. While all of these terms have strengths and weaknesses, they are all stunted by the lack of unity in definition. During the years when theorists battled to prove that the concepts of profit and responsibility were not mutually exclusive, the definitions of these terms were contested as well. Even one of the most widely accepted term, “Corporate Social Responsibility” (also called Corporate Responsibility or CSR), has suffered. The meaning of CSR is diluted by the various definitions of the concept: Company A might consider its CSR program to be only its charitable contributions and employee volunteerism efforts. Company B might focus only on environmental impact. The fact of the matter is that none of these definitions are sufficient, and are therefore subject to continuous challenge. In fact, some researchers have posited that “the concept of CSR is in danger of becoming relegated to ‘abstract theorizing’ rather than being used to guide managerial practice in any meaningful way, and make a case that CSR needs to be ‘practical and actionable’” (Paul 66, quoting Amaeshi and Adi). Indeed, if we remain too tangled in the 11 definition of CSR to encourage meaningful shifts in awareness and actions, the opportunity to fundamentally change the way business is done will be lost. The current position of CSR as a nebulous, trendy, theoretical concept makes it easier for naysayers to dismiss and under-represent CSR’s true potential value as a contributor to business success. Similarly, other popular terms, such as “sustainability,” which is used by companies such as Coca Cola (“Sustainability: The Coca Cola Company”) and Procter & Gamble (“Designed to matter”), are marred by confusing definitions: many consumers associate the term sustainability solely with environmental impact, while others consider sustainability to extend to social initiatives as well. The conflicting definitions make achieving the necessary paradigm shifts much more difficult. Another common term, “philanthropy,” has a connotation of making financial charitable contributions; in short, writing a check. Endless newspaper photos of corporate executives handing a grossly oversized check to an eager non-profit director have fueled this image for decades. Many companies—from General Electric (“GE: Citizenship”), to Citigroup (“Corporate Citizenship”), to Microsoft (“Microsoft Corporate Citizenship”)—use the term “Citizenship” or “Corporate Citizenship” to describe their social and environmental projects. The Miriam Webster Dictionary describes citizenship as “membership in a community” or “the quality of an individual’s response to membership in a community” (“Citizenship”) Businesses are certainly community members, and while the term “corporate citizenship” appropriately represents the holistic concept that should govern the evaluation of strategically ethical activities, it is a descriptor of a company’s status in 12 the community rather than the activities it undertakes. The author posits that companies that practice strategic ethics are good corporate citizens. Employees at Timberland, the shoe and boot manufacturer, get 40 hours a year of paid volunteer time (Reingold). Timberland’s employee volunteerism helps make the company a good corporate citizen by cementing its membership in the surrounding community. While pursuing Strategic Ethics through Corporate Social Responsibility can help a company be a good corporate citizen, using the term “citizenship” to describe the paradigm as a whole is insufficient. WHY STRATEGIC ETHICS? That companies and communications professionals embrace the concept of strategic ethics is vitally important. Uniting the concept of holistic pursuit of social, environmental and economic responsibility under a single umbrella definition will serve to strengthen the concept as an essential business function. Using this united definition will give stakeholders a sense of continuity and a universal scale on which to judge a company’s commitment to ethical behavior on the whole. The concept of Strategic Ethics includes all aspects of a company’s performance, methods, processes and reputation. A company cannot be called strategically ethical unless it is actively participating in doing good in all of these spheres. There are several reasons why the concept of Strategic Ethics is more useful than CSR and other terms currently being used to describe companies that do well by doing good. First and foremost, much of the current CSR measurement depends on company officials voluntarily reporting internal activities. While this is immensely important and a 13 key indicator of corporate dedication to such programs, it is not in and of itself a judgment of the breadth and depth of these activities. The concept of Strategic Ethics includes a measurement of external factors, including communications and activities, as well as the extent to which a company voluntarily reports on both its problems and its positive contributions. Secondly, the Strategic Ethics paradigm is meant to evaluate all areas and aspects of a company. The Strategic Ethics rubric includes measurement of company commitment to shareholder communication and involvement, internal communications and actions, environmental programs, community involvement, philanthropic contributions and operational procedures. Combining all of these performance markers under one concept makes comparison between companies’ performances much simpler. The Strategic Ethics paradigm emphasizes the importance of strategy by definition. It is well documented that the social, environmental and philanthropic efforts that most benefit companies are those which are strongly tied to a company’s core mission, values, and area of business (Becker-Olsen, Cudmore and Hill 47). The extent to which a company is strategic in choosing and investing in these undertakings is closely related to how genuine—and therefore, positive to reputation—those activities will be perceived to be. On a purely theoretical linguistics level, the language of “ethics” is far more inspiring and binding than the language of “responsibility.” In a paper on the language companies use to describe their CSR efforts on their websites, Karen Paul cites a 2007 study (Loughran) that suggest companies that use the language of ethics actually tend to 14 have lower corporate social performance, and argues that perhaps failure to use more contemporary terminology indicates an outdated view of CSR. (64) In other words, Paul implies that the idea of “ethics” is out of style. This does not nullify the point, however, that the very basis of CSR is ethical behavior: doing the right thing because it is the right thing to do. The Merriam-Webster Dictionary defines ethics as “the discipline dealing with what is good and bad and with moral duty and obligation” (“Ethic”) Conversely, Merriam-Webster defines responsibility as “something for which one is responsible: burden” (“Responsibility”). The vast difference between these two definitions underscores the appropriateness of the language of ethics compared to the language of responsibility. The term “social responsibility” implies that the actions being taken are a burden the company must bear; the term “ethics” make those actions part of a moral duty to do the right thing. A duty certainly has more positive connotations than a burden. If the term ethics has gone out of style, it is time to reinstate it as part of the modern corporate lexicon: by definition, it is a far better framework within which to understand organizations’ social and environmental efforts. Acting ethically is not a burden, but instead a moral imperative and an inherent part of good business—and key to building trust among stakeholders. In the end, a united definition and clearly defined rubric will allow shareholders, consumers, regulators and other interested parties to clearly evaluate and compare companies’ efforts in two different ways. First, comparing companies to each other using metrics that focus on different criteria is inherently difficult—one company may be at the top of an environmental ranking, while another might be at the top of a philanthropic 15 ranking—without a method to evaluate all of their activities as a whole, it is difficult to divine which companies’ programs are the most advanced. Second, the Strategic Ethics rubric will place company programs on an absolute scale where a top rating means that the company is doing everything it could reasonably be doing in a given area. In this way, a company also can be evaluated against its own potential. A small company that is contributing modestly but is committed to the fullest extent possible rates better in an evaluation of strategic ethics than a large company contributing minimally—even if the large company’s contributions are objectively larger than the smaller company’s. 16 CHAPTER 3: MEASURING STRATEGIC ETHICS EXXONMOBIL: ENVIRONMENTAL SAVIOR? In fall of 2009, Forbes Magazine named Exxon Mobil (NYSE: XOM) its “green company of the year.” Forbes writer Christopher Helman cites, among other factors, Exxon Mobil’s investment in natural gas and algae farms. Editor William Baldwin calls Exxon Mobil’s CEO, Rex Tillerson, a “hero,” and the company itself a potential “environmental savior.” Exxon Mobil is an extremely profitable company. The company topped the 2009 Fortune 500, with $442.8 billion in revenue (“Fortune: 1. Exxon Mobil). Exxon Mobil’s $45 billion in profit is a boon to shareholders who are facing devastating downturns in other market sectors. The company also undertakes a wide variety of social responsibility initiatives. Exxon Mobil is engaged in efforts to lessen the company’s environmental impact, increase educational opportunity (particularly for women), support global health projects and improve workplace safety (“2008 Corporate Citizenship Report”) On top of these projects, Exxon Mobil makes significant donations of cash, goods and services: the company’s 2008 charitable giving was $189 million (“Worldwide community investments”). Yet there are two sides to this story: author Geoffrey Heal calls Exxon’s position on climate change a “state of aggressive denial” (214). According to the watchdog coalition Exxpose Exxon, Exxon Mobil actively denies that global warming exists (“Global Warming”), has refused to meaningfully invest in renewable energy (“Failed 17 Policies”) and continues to lobby for oil drilling in the Arctic (“Threats”). Exxpose Exxon, which is a collaborative enterprise among environmental groups whose founding members include Greenpeace and the Sierra Club, also argues that Exxon Mobil was irresponsible about cleaning up after the ExxonValdez oil spill, and continues to shirk responsibility for that disaster’s lasting environmental impact (“Failed Policies”). According to Exxpose Exxon, Exxon Mobil’s major competitors, including BP, ConocoPhillips, ChevronTexaco and Shell, have each committed to addressing the problem of global warming and investing in renewable energy source. Exxon Mobil is the lone major oil company that has not made such efforts (“Failed Policies”). It would be impossible to argue, however, that Exxon Mobil has not made strides to address its environmental impact. The company recently announced a $600 million investment in the development of algae farms that could produce automotive fuel from sunlight through natural biological processes (Helman). The 2008 Exxon Mobil Corporate Citizenship Report does state that “meeting the enormous energy demand growth and managing the risk of [greenhouse gas] emissions are the twin challenges of our time”—an acknowledgement of the dangers of global warming (“Climate Change”). The company dedicated a significant amount of space in its 2008 Corporate Citizenship Report to acknowledging environmental struggles and defining its corresponding initiatives in the areas of climate change, biodiversity and alternative energy. Under Forbes’ methodological approach, Exxon Mobil’s algae farm project— along with several other of Exxon Mobil’s environmental investments—was substantial 18 enough to counterbalance environmental groups’ concerns about Exxon Mobil’s other practices. The company’s historical practices and continued skepticism of global warming and the need for clean energy make it somewhat difficult to accept Forbes’ designation of Exxon Mobil as its Green Company of the Year. From a Strategic Ethics standpoint, despite Exxon Mobil’s recent investments, the company is not contributing as much as it could. Exxon Mobil has continued to post astronomical profits, even in the face of a global recession. The company’s capacity to do good is far greater than the effort the oil giant is putting forth. Despite recent Exxon Mobil’s recent efforts, the company has many problems to face, and the Forbes honor seems, at best, premature. A PROBLEM OF APPROACH The problems with Forbes’ narrow definition and extolling Exxon Mobil as a green company underscores the problems with many existing ways of evaluating companies’ environmental, social and philanthropic commitments. The greatest strength of the Strategic Ethics paradigm is that a company cannot be highly rated unless it is striving to do good on all fronts to the fullest extent of its ability. While Exxon’s commitments to the algae project and natural gas drilling are commendable, Exxon’s problematic environmental stances and activities cannot be ignored. Many current rubrics for measuring social responsibility mistakenly focus on just one aspect of a company without evaluating the efforts on the whole across a variety of indicators. Because of this 19 lack of holistic approach, little can be done to understand who the corporate leaders really are and who is being truly strategically ethical with the greatest positive impact. A second example serves to emphasize this problem. Forbes’ archrival Fortune magazine publishes a yearly list of “Most Accountable Companies.” The list includes large global players—the 2008 #1 was UK-based Vodafone. American companies to make the list include General Electric at #2, followed by Hewlett Packard at #11 and Chevron at #6. Nine of the top 50 “Most Accountable Companies,” according to Fortune, are oil and gas companies (“Most Accountable Companies”). Fortune uses four overarching categories—strategic intent, engagement, operational performance, and governance and management to evaluate companies—and scores each company on a 100-point scale (“Most Accountable Companies”). The key problem with Fortune’s rankings is that they are limited to companies that are part of the Fortune 500 (“Most Accountable Companies: Frequently Asked Questions”). The title of the list is simply “Most Accountable Companies”—not “Most Accountable Companies Within the Fortune 500,” making the title of the feature misleading at best. In addition, the exclusion of companies that are not large enough to make the Fortune 500 limits the usefulness of Fortune’s accountability rankings in providing actual insight. An organization does not have to be a corporate giant to “do good” well. Green Mountain Coffee Roasters, a company profiled later in this paper, is far from the Fortune 500 and does an admirable job of making a positive social and environmental impact. Additionally, non-corporate entities such as the REI Co-op, which functions as a consumer cooperative, can be Strategically Ethical: REI is vocally committed to 20 responsible business practices (“About REI”). The Fortune list does give users a sense of how companies are doing in terms of fulfilling their capacity: the highest ranked company for 2008, Vodafone, scored only 77.5 out of 100 (“Most Accountable Companies”). Without an appropriately inclusive methodology that allows for consideration of companies outside of the Fortune 500, readers may not be exposed to companies who are truly the best of the best. OTHER NOTABLE METHODOLOGIES While the Fortune and Forbes frameworks are deeply flawed, some other organizations employ metrics that come closer to being holistic and broadly applicable. The Dow Jones Sustainability Index focuses on strategic ethics (which it defines as “sustainability”) as an investment strategy, and characterizes it as follows: Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. Corporate sustainability leaders achieve long-term shareholder value by gearing their strategies and management to harness the market’s potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks. (“Dow Jones Sustainability Indexes…”) By rating company’s activities in the areas of strategy, financial, customer and product, governance, and stakeholder and human resources performance, the Dow Jones Sustainability Index aims to help investors funnel their money toward companies that are doing good. The obvious drawback of using the Dow Jones Sustainability Index to evaluate corporate responsibility programs is that it excludes privately held companies. Socially 21 conscious investment is a growing sector of the market, but without considering how companies on the Sustainability Index compare to privately held organizations, the Index itself becomes far less useful for purposes outside of choosing investments. Another more useful rubric is the Global Reporting Initiative’s Sustainability Reporting Guidelines. According to the GRI, the guidelines (the current version of which is called the G3 Guidelines), “outline the core content for reporting and are relevant to all organizations regardless of size, sector, or location” (“G3 Guidelines”). The G3 Guidelines are part of the GRI’s broader Sustainability Reporting Framework, which suggests that companies holistically report all content related to their sustainability—or strategic ethics—programs. The GRI is widely used by companies that publish yearly sustainability reports, and its biggest limitation is just that: it is a valuable tool for companies that choose to report on their programs, but there is no mechanism for an outside auditor to measure the success of those programs built into the GRI Sustainability Reporting Framework. In other words, GRI measurements rely on voluntary self-reported data. That companies report their progress on initiatives is important, but it is not enough of a basis on which to judge that progress, especially relative to other companies. In comparison to these other paradigms and measurement efforts, the usefulness of strategic ethics lies in its scope and its applicability. It aggregates self-reported and publicly available data on a company to produce a broad understanding of that company’s trustworthiness. Does it do good? Does it do well? Does the company’s commitment span all aspects of the organization? Do company officials actually do what 22 they say they’ll do? Do they tell anyone when they’ve made a mistake? For companies to be considered strategically ethical, the answers to all of these questions will be a resounding “yes.” THE STRATEGIC ETHICS RUBRIC An evaluation of a company’s strategically ethical behavior must include a study of two key categories of information. The first is proactive activities that impact reputation, such as internal communication with employees, philanthropic giving, community relationships and environmental programs. The second focuses on the reactive treatment of operational developments—both positive and negative—and how the company publicizes or responds to such events. These two broad categories of projects are broken down into eight unique subcategories, which fall under two umbrellas: proactive and reactive. The proactive activities are: shareholder, employee, environmental, community, operational and philanthropic. The reactive activities include crisis/issue and responses to external events. Each type of project is analyzed using a series of progress markers. PROACTIVE ACTIVITIES Shareholders: These activities relate to how a company interacts with its shareholders. Most business leaders consider shareholders (or, in the case of a privately held company, the owners and private investors) to be an extremely important audience 23 with which they must communicate and interact. Shareholders truly control the fate of the company; it is their money that allows the company to operate. In addition to responding to shareholder concerns, the leadership team of a strategically ethical company communicates clearly and promptly with the company’s shareholders. Companies are increasingly listening and responding to shareholder concerns, evidenced by a Harvard Business School study of the adoption of non-binding shareholder proposals. In 1997, the companies being studied implemented only 16.1% of proposals that received a majority vote from shareholders. In 2003, that number had jumped to 42.3%. 6 In any event, failure to engage with shareholders can lead to disaster: during the fight to end apartheid in South Africa in the 1990s, shareholders divested from organizations that were engaged in business with or in that country because of the South African government’s treatment of non-white citizens (Kline 233). In 2002, following the Enron scandal in which company executives systematically and knowingly defrauded shareholders, Congress enacted the Sarbanes-Oxley act (Wagner and Monk 140). Sarbanes Oxley (SOX) governs corporate fiscal responsibility and reporting practices. That companies adhere to SOX regulations is essential for them to be considered Strategically Ethical. Furthermore, companies that report above and beyond what is required of them by SOX are rewarded under the Strategic Ethics model. Questions to consider when evaluating of a company’s shareholder activities include: 6 This change could also be partially due to the passage of the Sarbanes-Oxley Act in 2002. 24 • How transparent is the company in informing its shareholders and providing information? Does the company comply with SOX? Do they report above and beyond what is required? • How honest is the company in its dealings? • Is the company responsive to shareholder concerns? • Does the company produce a yearly report that outlines its strategic ethics efforts? • How does the company explain the need for these activities and demonstrate their value to shareholders? Employees: These activities relate to how a company interacts with its employees. Developing an informed and motivated workforce enables a company to perform at its highest level—both in business and in any social or environmental efforts. Company staff must be actively engaged in furthering the company’s mission and strategy, and a strategically ethical company will be careful to demonstrate appreciation toward employees through the sharing of information, wealth, and decision making processes so that it is able to attract and retain the best and the brightest. Additionally, Strategic Ethics requires that basic human rights and dignities be assured to workers on all levels of the company’s supply chain. For example, a strategic ethics evaluation for Gap Inc. (NYSE: GPS), a U.S.- based clothing retail company, would have to take into account Gap’s ongoing problems with labor and human rights problems. The company has been plagued by numerous child labor scandals for the last 15 years. Throughout the 1990s, articles ran in the New 25 York Times and other publications accusing Gap of engaging in exploitative labor practices. 7 A 2000 BBC documentary team found children laboring in sweatshop conditions in Cambodia, despite Gap officials’ assertions that the factories in the region were being monitored to avoid such problems (Campbell). To combat this issue, Gap executives released the company’s first Social Responsibility Report in 2004 (“Social Responsibility”). An updated report was published for 2005-2006, as were an updated Code of Business Conduct and list of standards for factories under contract to manufacture Gap clothing (“Social Responsibility”). Questions to consider in developing an evaluation of a company’s employee activities include: • How clearly is the company’s commitment to strategically ethical activities articulated internally? • What opportunities exist for employees to participate in strategic ethics programs? • Does the company adhere to the U.N. Global Compact’s standards for human rights and labor in all areas of operations? 8 • Are critical management decisions transparent to employees? Environmental: These activities relate to how a company evaluates and mitigates its environmental impact. In the developed world, the reality of doing business in the 21 st century is that consumers and government regulators will not allow a company that shows blatant disregard for the environment to continue operating. Even oil 7 See, for example, Bob Herbert’s 1995 op-ed. 8 See The Universal Declaration of Human Rights. 26 companies, which have historically been called the environment’s worst enemies (recall the missteps Exxon Mobil is accused of at the beginning of this chapter), engage in substantial environmental agendas to reinforce their reputations against claims of environmental abuse. Furthermore, there is growing consumer demand for “green” products and companies. According to an ImagePower Green Brands Survey, “consumers perceive green as ‘a direct and positive reflection on their social status, in addition to recognizing its broader value to society and the world’” (Makower and Pike 26). The BBMG Conscious Consumer Report indicates that almost 90% of American consumers report that they are more likely to patronize environmentally friendly companies (Makower and Pike 26). A strategically ethical company maintains environmentally sound processes and practices, as well as safeguards to protect against accidents that could cause environmental harm. Additionally, the company might engage in additional voluntary pro-environmental campaigns, and company officials would be careful not to overstate the impact of its campaigns. Organizations that pursue environmentally-focused projects without holistic commitment or as a stopgap against criticism can be vulnerable to backlash. For example, in late 2007 General Motors launched an advertising campaign highlighting the fuel efficiency of its vehicles. While the fuel efficiency numbers GM cited in the ads were true, the campaign was severely undermined by the company’s other less environmentally-friendly actions and messages: during the run of the ad campaign, 27 GM was simultaneously fighting government fuel efficiency standards, and then-CEO Bob Lutz was vocally disavowing the reality of global warming (Schendler 228-230). Questions to consider in developing an evaluation of a company’s environmental activities include: • Is the company engaged in proactive programs to mitigate environmental impact? • Are these activities strategically aligned with the company’s mission and output? • Are the activities substantive—do they have the potential for long-term effectiveness? • Are the activities holistic? Do they extend to all areas of the business? • How is environmental consciousness extended to all aspects of the business? • Does the company have safeguards in place to avoid environmental crises? Community: These activities relate to how a company interacts, participates in, and enriches the community or communities in which it operates. Companies that disregard the needs of their communities risk grave reputational damage. Global precedent has indicated that companies will be held responsible for damage to communities: Chevron (NYSE: CVX) is currently battling the government of Ecuador over fines imposed due to environmental missteps (“Ecuador lawsuit”). Community members also increasingly demand that companies be actively involved in bettering the 28 areas where they operate (Burke 16-17). In fact, successful community programs have served to significantly positively affect reputation (Alsop 70-73). Several studies show that to be most effective, community involvement should be closely linked to the organization’s key mission; self serving programs, such as a company that donates to the CEO’s son’s soccer team, do not necessarily have a positive effect on stakeholder opinions (Becker-Olson, Cudmore and Hill 46-47). For example, Home Depot (NYSE: HD), a building supplies retail company, partners with the nonprofit organization, KaBOOM, donate materials and employee time to build playground in underserved neighborhoods. Building playgrounds fits perfectly with Home Depot’s core competencies and allows Home Depot employees to add value to the communities in which they work (Sagawa and Segal 29). Questions to consider in developing an evaluation of a company’s community activities include: • Has the company proactively sought to be an active participant in the community? • Are the community activities strategically aligned with the company’s mission and output? • Has the company had a measurable positive community impact? • Has the community responded positively to the company’s involvement? • Has the company developed strategic partnerships with appropriate community organizations? 29 • How effectively and transparently does the company communicate about its activities to the community? Operational: This category relates to how the company structures and manages its recurring processes necessary to run the business. Even outside of environmental efficiency, a company’s operational practices can greatly affect reputation and success. Decisions ranging from the source of raw materials, to modes of transportation routinely used by executives, and what kinds of images and messages are included on product packaging can reinforce or undermine a company’s agenda. A strategically ethical company has carefully considered how operational practices contribute to the company’s mission as a whole, and to its social and environmental efforts in particular. The company is careful not to engage in activities that might contradict its mission or communications. Patagonia, for example, is a privately held outdoor apparel and equipment company, and thus it has logically dedicated the majority of its CSR resources to environmental sustainability. Because it also sources materials from all over the world, Patagonia also has dedicated resources to streamlining its sourcing process, as well as to promoting fair labor standards and practices in locations that contribute to the Patagonia supply chain. Using cutting edge technology, the company has created a microsite that allows users to track the exact environmental impact of any Patagonia product they buy and to see Patagonia’s efficiency initiatives first-hand (“The Footprint Chronicles”). Questions to consider in developing an evaluation of a company’s operational activities include: 30 • Is the company dedicating resources to improving operating efficiency? • Is the company dedicating resources to potential solutions to social problems? • How transparent is the company’s supply chain? • Do operational practices align with the company’s strategy? • Do operational practices align with the company’s environmental, community, shareholder and internal/employee activities? Philanthropic: These activities relate to a company’s charitable giving and foundation focus. Many consumers equate corporate philanthropy with an old-fashioned cartoon of John D. Rockefeller tossing dimes to the needy during the Great Depression. More recently, they’ve seen Bill Gates devote countless resources (monetary and human) to his self-named foundation. The true philanthropic activities of most American corporations lie somewhere in between. While outright monetary contributions may be less fashionable than they used to be, the donations company executives choose to make can still be informative for stakeholders looking to understand a company’s mission and values. Johnson & Johnson (NYSE: JNJ), for example, focuses its corporate giving on “causes related to the welfare of women, children, and families” (Argenti and Forman 200), which is perfectly aligned with the health products company’s target customer base. A strategically ethical company has chosen contributions that are aligned with its communicated mission and values. General Electric (NYSE: GE) funds math and science programs for secondary school students throughout the United States. This choice of charitable contributions is linked to GE’s business: the company champions “Imagination 31 at Work,” which requires engineers and scientists, so it invests in developing the next generation (“Developing Futures in Education”). Questions to consider in developing an evaluation of a company’s philanthropic activities include: • Are the recipients of the company’s charitable giving appropriately aligned with the company’s mission and output? • What amount of money does the company commit to philanthropy? • How is the company’s charitable giving structured? Is it sustainable? • Does the company have an associated foundation? REACTIVE ACTIVITIES Crisis/Issue: These activities relate to the tenor, speed and appropriateness of a company’s response to a crisis or developing issue. The famed Tylenol crisis demonstrated the value of a prompt, appropriately and genuinely concerned response to a crisis situation. When several consumers died from ingesting Tylenol that had been laced with cyanide, Johnson & Johnson, the makers of Tylenol, immediately pulled all product from shelves nationwide until the problem could be thoroughly investigated, even though the decision cost the company over $100 million (Alsop 222). J&J’s proactive, caring response ultimately led the company to emerge from the crisis with an even stronger reputation (Alsop 223). Conversely, Ford and Firestone’s misguided response to a growing issue with Explorer tires demonstrated the danger of making a mistake when responding to a crisis. 32 When Ford Motor Company (NYSE: F) discovered that the Firestone tires (owned by Bridgestone, TYO: 5108) on Ford’s Explorer SUVs were extremely hazardous, the two companies engaged in public finger pointing without disseminating a message of care and concern to the consumers who had been harmed (Alsop 257). This fiasco seriously damaged Ford’s reputation (Alsop 12, 248), and the company was forced to struggle— and spend hundreds of millions of dollars in a variety of sections of the business—to regain consumer trust (Muller, Welch and Green). A strategically ethical company sees every crisis or issue as an opportunity to evaluate or reconsider company or industry practice. The responses should be prompt, honest and clear. Questions to consider in developing an evaluation of a company’s crisis/issue activities include: • Were preemptive steps taken to avoid the issue? • Was the response timely? • Did the tone of the response indicate genuine concern? • Were safeguards established to address issues going forward or to avoid a subsequent occurrence? • How effectively did the company communicate its response to various groups of stakeholders? Appropriate response to external events: These activities relate to the way in which a company has responded admirably to occurrences relating to their reputation or area of business. 33 The leadership of a strategically ethical company proactively responds rapidly to external factors, leverages corporate strengths in that response, and then actively publicizes their actions. For example, retail giant Wal-Mart (NYSE: WMT) responded quickly and decisively to provide disaster relief aid to Hurricane Katrina victims. Because of its logistical expertise and huge array of merchandise, Wal-Mart was able to react faster and with better results than the United States government (Savitz and Weber 55). Such triumphs of corporate compassion should be underscored. Questions to consider in developing an evaluation of a company’s positive reactive event activities include: • Was the response timely? • How did the company communicate its response to stakeholders? • Was the response or responsive action strategically aligned with the company’s mission and output? • Does the company consistently take advantage of opportunities for positive reactive activities? In the chapters that follow, I will examine companies that epitomize strategic ethics and discuss their successes and challenges. 34 CHAPTER 4: BEN & JERRY’S BACKGROUND & HISTORY Ben & Jerry’s is a wholly owned subsidiary of Unilever Global. The company was founded by Ben Cohen and Jerry Greenfield in 1978 as Ben & Jerry’s Homemade Inc. in Burlington, VT. With $14,000 in capital, Cohen and Greenfield created what would become an ice cream empire inside an old gas station, refurbished with a do-it- themselves renovation. Within the first few years, Cohen and Greenfield established many of what are now integral parts of the Ben & Jerry’s brand, including the expansion from serving only in-shop scoops to distributing pints to grocery retailers, and founding an annual “Free Scoop” day. (“History”) By the early 1980s, Cohen and Greenfield had expanded through franchises and distribution in larger swatches of New England. The pair took Ben & Jerry’s public in 1984 (Hays). By 1985, Ben & Jerry’s was available outside of New England for the first time. The company has differentiated itself from other premium ice cream manufacturers such as Haagen-Dazs and Dreyer’s Grand Ice Cream (both owned by Nestle) by offering quirky flavors with offbeat ingredients and names. One of Ben & Jerry’s iconic flavors, “Chunky Monkey,” is banana ice cream with fudge chunks and walnuts. Another set of famous varieties take their name from famous musicians who have made significant social contributions: “Cherry Garcia” honors Grateful Dead front 35 man Jerry Garcia; “Phish Food” pays homage to jam-band favorite Phish; “One Sweet Whirled” makes reference to a song by the Dave Matthews Band (Aleksander). The company remains headquartered in South Burlington, Vermont. As of 2009, Ben & Jerry’s Homemade Inc employs 841 people, and distributes ice cream in grocery and convenience stores all over the world, including its 750 franchised Scoop Shops. The company is currently led by CEO (Chief Euphoria Officer) Walter Freese. (“Ben & Jerry’s Homemade, Inc.”) Unilever Global is a British-Dutch company that consists of two parts: Unilever PLC (LDN: ULVR; NYSE: UL), which is headquartered in the United Kingdom, and Unilever NV (EUR: UNA; NYSE: UN), which is headquartered in the Netherlands. While the two parent companies are legally separate entities, they function as a single business (“Unilever: Introduction to Unilever” 17). Unilever employs 174,000 people in 100 countries worldwide (“Unilever at a glance”). Unilever is a global leader in consumer-packaged goods: it owns 400 brands, including household staples like Lipton tea, Dove soap and Country Crock margarine (“Unilever: Introduction to Unilever” 4). In addition, Unilever owns well-known ice cream and ice cream novelty brands like Breyers All Natural, Good-Humor and Popsicle (McQuiston). On April 12, 2000, after a flurry of ownership proposals which included offers from competitors like Haagen-Dazs and Dreyer’s, Unilever acquired Ben & Jerry’s in a deal valued at $326 million (McQuiston). Unilever paid $43.60 per share to buy the company outright (Walker). 36 SOCIAL & ENVIRONMENTAL INITIATIVES AT BEN & JERRY’S The Ben & Jerry’s commitment to CSR is the result of deep personal beliefs held by Ben Cohen and Jerry Greenfield. Even though the two founders no longer lead the company, their legacy of “maverick” (Hays) business and socially progressive projects remains in tact. In a 2008 interview with the Oberlin Review, Greenfield—an Oberlin College alum—said about ethical business: You just have to do things differently. Normal businesses think only about profit. We ask people to think about something else—social and environmental change. The work is harder, but it’s more fulfilling. People in the company connect on the basis of shared values. (qtd. in Ollstein) These values and Cohen’s and Greenfield’s own commitments to socially and environmentally responsible business practices are reflected in the company’s mission statement, which they unveiled in 1988 (“History”). Ben & Jerry’s emphasizes an “interrelated” tri-fold commitment, with sections devoted to its social mission, its product mission and its economic mission: Social mission: To operate the Company in a way that actively recognizes the central role that business plays in society by initiating innovative ways to improve the quality of life locally, nationally and internationally. Product mission: To make, distribute and sell the finest quality all natural ice cream and euphoric concoctions with a continued commitment to incorporating wholesome, natural ingredients and promoting business practices that respect the Earth and the Environment. Economic mission: To operate the Company on a sustainable financial basis of profitable growth, increasing value for our stakeholders and expanding opportunities for development and career growth for our employees. (“Mission Statement”) Cohen and Greenfield actually realized the first part of their mission even before it was written: they established the Ben & Jerry’s Foundation in 1985. To this day, much 37 of the company’s philanthropic ventures are enacted through the foundation (Grant and O’Connor 16). In 1988, Cohen and Greenfield helped to found 1% For Peace, a non- profit focused on the reallocation of 1% of the American defense budget to peaceful causes (“History”). Today the organization is known as Business For Social Responsibility. Other parts of Ben & Jerry’s CSR program are largely focused on environmental and farming-related issues. In 1985, the company began construction of what remains its corporate headquarters. Before “green” was in style, Cohen and Greenfield insisted that the facility be built with special attention to avoiding waste through extreme commitment to efficiency, both in terms of materials and processes. The company also pioneered the practice of using farm animals to process organic waste—starting in 1987, all Ben & Jerry’s organic waste was fed to pigs. (“History”) More recently, Ben & Jerry’s has remained on the cutting edge of environmental issues. Freezers contribute significantly to global warming because they emit hydrofluorocarbons (HFCs), which are a powerful greenhouse gas. In 2008, Ben & Jerry’s became the first company to switch completely to HFC-free freezers (Gunther). Ben & Jerry’s has a longstanding commitment to fighting against genetically modified (GM) ingredients. The company sued the state of Illinois for the right to label its products as GM-free (Barrett). Even post-acquisition, Ben & Jerry’s leadership remains dedicated to keeping their ice cream “natural,” as emphasized in the mission 38 statement: in 2006, the company publicly contradicted Unilever by refusing to include a certain GM preservative that Unilever was actively lobbying to have legalized in the UK (Owen). In addition to these programs, Ben & Jerry’s has a history of leveraging the popularity of its unique ice cream flavors to gain exposure and raise money for social and environmental issues the company supports. In 1996, the company introduced “Rainforest Crunch,” and pledged to donate a portion of the proceeds to prevent deforestation of the rainforest (Cohen and Greenfield 60). During September 2009, Ben & Jerry’s temporarily changed the name of popular existing flavor “Chubby Hubby” to “Hubby Hubby” to honor the legalization of same-sex marriage in Vermont—the company also added a smiling gay couple and a rainbow to the label (Kronenberg). Gay marriage is a highly divisive: The Pew Forum on Religion and Public Life reports that 29 states have amended their constitutions through voter initiatives to ban the practice (“Gay Marriage”). Yet Ben & Jerry’s, as an openly progressive liberal company, was willing to accept the risk of backlash from some consumers in order to support a cause that aligned with the company’s values. Ben & Jerry’s also established a reputation as an excellent employer with a friendly and open corporate culture. Historically, employees have been allowed to bring dogs and children to work. “The Joy Gang,” a committee of employees and volunteers, works to plan events and generally promote fun in the workplace. (Weinstein 130) 39 Each year, Ben & Jerry’s publishes its SEAR (Social and Environmental Assessment Report). Archived reports are available through the company website (“Social and Environmental Assessment Reports”). RECOGNITION AND PUBLIC PERCEPTION Participants in a focus group of USC graduate students that met on September 29, 2009 expressed a strong fondness for Ben & Jerry’s. The first things that came to mind when they were asked about Ben & Jerry’s were “amazing, fun flavors,” and “hippie attitude.” The mainstream media’s response to Ben & Jerry’s socially and environmentally responsible business strategy has been mixed. At the time of the company’s founding, the approach Cohen and Greenfield took to running their business was largely unprecedented. During the late 1980s and early 1990s, many publications marveled at the quirky company and its leadership. More recently, even in the wake of the Unilever buyout, the company has received praise for its ongoing environmental stewardship. 9 In financial publications, however, Ben & Jerry’s was evaluated more harshly. Some writers argued that Ben & Jerry’s stock never performed as well as it might have. During the early years, Ben & Jerry’s saw double-digit growth year after year (“History”). In the mid 1990s, however, Ben & Jerry’s had hit a stumbling block and was struggling to create profits (Judge). By the late 1990s, as the Unilever buyout loomed on the horizon, the Ben & Jerry’s stock price was as low as $20 per share (Walker). 9 See, for example, the New York Times’ Associated Press-written piece, “Ben & Jerry’s, GE Work on Green Freezers for Us” 40 Rob Walker of Slate magazine argues that the rise of shareholder rights—the idea that shareholders have the prerogative to demand the largest possible return on their investment and should have a say in how companies are run on a day-to-day basis— pushed Ben & Jerry’s into a difficult position: they simply were not showing a large enough return on investment during the late 1990s. Walker cites an argument by The Motley Fool, a website that offers stock market analysis “for the common man,” that states that Ben & Jerry’s had “underperformed the market’s historical average during the greatest bull run in the stock market history. That’s unacceptable any way you slice it.” Walker, like other financial writers, supported the Unilever deal as a step in the right direction for Ben & Jerry’s to increase its profitability. STRATEGIC ETHICS AT BEN & JERRY’S Shareholder Activities Ben & Jerry’s has a unique set of circumstances in this category due to the fact that it is owned by Unilever. Because an investor cannot buy stock directly in Ben & Jerry’s, the company is more beholden to its parent company than it is to shareholders. Still, several shareholder activity questions from the strategic ethics paradigm do apply. • Does the company produce a yearly report that outlines strategic ethics efforts? Each year, Ben & Jerry’s has published its Social and Environmental Assessment Report (SEAR). Ben & Jerry’s is truly a pioneer in the area of reporting corporate responsibility: the company published its first SEAR in 1989 (“History”). 41 The 2008 SEAR identified three key goals that Ben & Jerry’s leadership planned to focus on going forward: to “further the cause of Peace and Justice,” to “harmonize [their] global supply chain and ensure its alignment with [their] values,” and to “take the lead promoting global sustainable dairy practices.” All of these goals relate to Ben & Jerry’s core business or mission, and much of the report is structured to relate back to these overarching themes. Ben & Jerry’s is remarkably transparent: its SEARs have been called “studies in candor” (Hollender and Fenichell 169). All SEARs are archived on the company website, making it simple to cross-reference the company’s previous goals with subsequent years’ progress. Because the company has published 20 SEAR reports, the breadth and depth of information available about Ben & Jerry’s activities is astonishing. This is truly an area where Ben & Jerry’s excels. For the 2008 SEAR, Ben & Jerry’s took the extra step of hiring an independent auditor to examine the report’s contents and provide a secondary opinion of the company’s social and environmental activities. This extra step underscores Ben & Jerry’s commitment to implementing truly integrated and ethical programs: stakeholders don’t have to take only the company’s word that they’re doing well and reporting their results honestly. The inclusion of an independent audit is an admirable step, but Ben & Jerry’s stopped short of making a truly giant leap. The audit commissioned by the company included a study of financial and numerical data related to the programs under examination. It could have been taken a step further if Ben & Jerry’s had included an 42 independent assessment of the less empirical findings, such as how effective non- quantifiable programs have been at addressing the company’s more nebulous goals. • How does the company explain the need for these activities to shareholders? Ben & Jerry’s has been thoroughly invested in social and environmental projects from its inception: these endeavors are part of the company’s DNA. Because strategically ethical activities are included in the Ben & Jerry’s mission statement, investors—or in this case, Unilever—knew from the very beginning what they were investing in. Employee Activities • How clearly is the company’s commitment to strategically ethical activities articulated internally? Ben & Jerry’s communicates its commitment to ethics and its strategic vision through the company mission statement. These clearly articulated ideals combined with the “causal, carefree, employee-focused atmosphere,” mean that should be easy for Ben & Jerry’s employees to understand, from day one, how the company works. • What opportunities exist for employees to participate strategic ethics programs? Ben & Jerry’s employees are part of the main drive behind the company’s community building efforts, largely through employee volunteerism programs. For example, Community Action Teams (CATs) are employee-led and organized, and members of each CAT are responsible for choosing deserving projects in their 43 communities. In 2008, Ben & Jerry’s employees contributed almost 3,000 hours of community service through CATs and other volunteerism programs. Employees that perform remarkable community service are eligible to win the company’s Service Award or Golden Cone Award, which are bestowed upon a deserving employee each year. The 2008 SEAR report states, “employees are encouraged and supported in taking on individual service projects.” This is admirable: Ben & Jerry’s is attempting to strike a fine balance between allowing employees the freedom to contribute to the cause of their choice while ensuring that employee activities are aligned with the Ben & Jerry’s mission. Luckily for the company, some parts of that mission are very broad—promoting peace and justice, for example, could take many forms. However, allowing employees to volunteer for any organization could make the company’s efforts seem unfocused or overly broad, diluting the positive reputational effects of these programs. Ben & Jerry’s might be better served by developing a more defined strategy when it comes to what organizations and causes it pays its employees to volunteer for. If the set of partnerships were more cohesive, the Ben & Jerry’s core messages would be more likely to be communicated – and retained – effectively. • Does the company adhere to U.N. human rights and labor standards in all areas of operations? Ben & Jerry’s has a strict living wage policy for all of its full-time manufacturing workers. Using its own formula, the company calculates an hourly rate that is meant to provide a substantial increase in standard of living over the U.S. Federal and State 44 minimum wage programs. By the end of 2008, the Ben & Jerry’s minimum wage was $13.25 an hour, which was more than double the U.S. national minimum wage ($6.55 an hour). The company reports that it continually evaluates the current livable wage value to account for fluctuating prices such as gasoline (“Social and Environmental Assessment Report 2008”). Ben & Jerry’s also runs a wellness program aimed at elevating employee health levels beyond basic fitness. The company provides “health screenings, flu shots, and on- site massages,” and owns a community garden where employees can get fresh fruits and vegetables. (“Social and Environmental Assessment Report 2008”) Despite the company’s successes in employee treatment, one major Ben & Jerry’s policy has fallen by the wayside during the 21 st century. When Cohen and Greenfield founded the company, they were dedicated to establishing a relatively flat compensation structure: The gap between CEO salaries and those on the factory floor is widening. In 1973, for example, the typical CEO made 45 times the wage of the average worker. Today, it’s as much as 500 times [in the US]. . . .Ben Cohen and Jerry Greenfield, the quirky entrepreneurs behind Ben & Jerry’s ice cream, kept the [salary] ration of top to bottom earners at 7:1—though that did not last after the two stepped down in 1995. (Werther and Chandler 140) Still, even after Cohen and Greenfield stepped aside as top executive leaders, a binding salary ratio remained in place through the late 1990s (it was 16:1 as of 2000) (Werther and Chandler 140). When the company abolished the salary ratio in the early part of the 21 st century, Ben & Jerry’s may have marred its credibility as a company committed to transparent Strategic Ethics (Torres). • Are management decisions transparent? 45 Ben & Jerry’s has a multi-tiered strategy in pace to facilitate communication directly between employees and their managers. Meetings of various sizes and formality—from twenty-plus informal “Comfy Couch Meetings” a year to formal quarterly “Site Meetings” and bi-monthly “Town Halls” with Unilever leadership—keep Ben & Jerry’s employees thoroughly looped in on company news. (“Social and Environmental Assessment Report 2008”) Environmental Activities • Is the company engaged in proactive programs to mitigate environmental impact? • Are these activities strategically aligned with the company’s mission and output? • Are the activities substantive—do they have the potential for long-term effectiveness? • Is environmental consciousness extended to all aspects of the business? Ben & Jerry’s environmental programs are a cornerstone of the business. The company has invested tremendous time and energy into promoting sustainable dairy farming practices and avoiding genetically modified ingredients. Furthermore, Ben & Jerry’s projects with the Dairy Stewardship Alliance (which the company co-founded with the University of Vermont and the State of Vermont) have provided significant value to the dairy industry as a whole: in 2004, the company launched a comprehensive set of best practice guidelines for dairy farmers to improve performance and encourage sustainability. (“Social and Environmental Assessment Report 2008”) 46 Other Ben & Jerry’s environmental initiatives include waste management, packaging, climate impacts, and water use. No part of the company’s business appears exempt from environmental scrutiny. This is a category where Ben & Jerry’s work is a gold standard. Community Activities • Has the company proactively sought to be an active participant in the community? Ben & Jerry’s is thoroughly rooted in the state of Vermont. Various programs, from employee CATs to the Dairy Stewardship Alliance cement Ben & Jerry’s role as an integral part of the state and local communities. • Are the community activities strategically aligned with the company’s mission and output? Activities such as dairy sustainability programs and local volunteering efforts draw their inspiration directly from the company’s mission statement and core business competencies. As previously mentioned, the company might be best served by culling down community programs to those best aligned with the company’s mission and output— though this would have to be carefully enacted, since the freer guidelines have been in place for many years. • Has the company had a measurable positive community impact? • Has the community responded positively to the company’s involvement? 47 Ben & Jerry’s employees have provided thousands of community service hours throughout the company’s thirty-year history. Vermonters are proud of the company’s reputation—in a September 2009 interview, one Vermont native told me that she considers Ben & Jerry’s to be partly her company, because it is so fully integrated with Vermont. Ben & Jerry’s factory tours are promoted as a Vermont tourist attraction (“Ben & Jerry’s Ice Cream Vermont Factory Tours”). • Has the company developed strategic partnerships with appropriate community organizations? One of Ben & Jerry’s most visible partnerships is the Scoop Shop Partnershop Program. The company calls this a “form of social enterprise,” and Partnershops benefit from waived franchising fees while providing jobs and entrepreneurial training to youth who “face barriers to employment” (“Partnershops”). These Partnershops are run by non- profit organizations such as Goodwill, Life’sWork, and New Avenues for Youth (“About Our Partners”). Operational Activities • Is the company dedicating resources to improving efficiency? • Is the company dedicating resources to potential solutions to social problems? • How transparent is the company’s supply chain? • Do operational practices align with the company’s strategy? • Do operational practices align with the company’s environmental, community, shareholder and internal/employee activities? 48 • How effectively and transparently does the company communicate about its activities to the community? Applying these questions to Ben & Jerry’s is almost redundant, given the company’s thoroughly integrated three-pronged mission statement. Operationally, efficiency and innovation are areas in which Ben & Jerry’s excels. Philanthropic Activities • Are the recipients of the company’s charitable giving appropriately aligned with the company’s mission and output? • What portion of its assets does the company commit to philanthropy? • Does the company have an associated foundation? While the Ben & Jerry’s Foundation is a separate entity from Ben & Jerry’s the company, Unilever remains committed to donating 7.5% of Ben & Jerry’s pre-tax profits to the Foundation; in 2008, the company gave $1,944,700 to the Foundation. (“Social and Environmental Assessment Report 2008”) According to the 2008 SEAR, the Ben & Jerry’s Foundation is committed to organizations that: 1) help ameliorate an unjust or destructive situation by empowering constituents; 2) facilitate leadership development and strengthen the self-empowerment efforts of those who have traditionally been disenfranchised in our society; 3) support community movement-building and collective action. (“Social and Environmental Assessment Report 2008”) A portion of Foundation funds is given to the CATs for employee-led community work. Other grant recipients have wide-ranging missions, including supporting environmental action organizations, immigration reform groups and youth centers. 49 Ben & Jerry’s has a broad mission and roots in entrepreneurship, but this is another area where increased focus could improve the company’s social and environmental bottom lines. The work of the Foundation is so wide-ranging that it is hard to see a strong pattern among recipients. Though they certainly fall under the broad umbrella categories laid out in the company’s and the Foundation’s missions, an effort to tighten the scope of this work could result in clearer benchmarking and more tangible direct results. Crisis/issue Activities Ben & Jerry’s has not yet faced a serious public issue or crisis. Positive Reactive Event Activities • Was the response timely? Ben & Jerry’s has responded to several social and environmental events to leverage consumer attention. The company most often uses flavors and flavor names to engage with these events. The 2009 temporary re-naming of the “Chubby Hubby” to Hubby Hubby” to celebrate Vermont’s gay marriage law is one excellent example. Similarly, the company re-branded its Butter Pecan flavor as “Yes, Pecan!” in response to the election of President Barack Obama (“Yes, Pecan!...”). • How did the company communicate its response to stakeholders? Because Ben & Jerry’s is a quirky, fun company, announcements about its offbeat and topical flavors are frequently featured in mainstream news publications. 10 Furthermore, the company has been highly strategic in aligning itself with people who are 10 See, for example, Muhlke. 50 in the spotlight and willing to promote the flavors, such as Stephen Colbert with “Americone Dream.” Colbert’s following and popular television show created increased awareness of the new Ben & Jerry’s flavor (“Ben & Jerry’s names…”). • Was the response or responsive action strategically aligned with the company’s mission and output? Ben & Jerry’s chooses issues and people to honor with dedicated flavor names very carefully—all, from “Cherry Garcia” and “One Sweet Whirled,” which are named for progressive musicians, to “Rainforest Crunch” and “Hubby Hubby,” which support key causes, are aligned with the Ben & Jerry’s mission. • Does the company consistently take advantage of opportunities for positive reactive activities? Ben & Jerry’s does not shy away from tinkering with even well-known flavors to gain traction from an opportunity. On the contrary, it may be that the company’s willingness to change legendary flavors’ names, like “Chubby Hubby,” that draws stakeholder attention. STRATEGIC ETHICS UNDER PARENTAL GUIDANCE Ben & Jerry’s and Unilever have profoundly different business styles: “Ben & Jerry’s traditionally took highly visible political positions. In contrast, Unilever’s code of ethics required the company to remain apolitical” (Austin and Leonard 80). In running a company with social and environmental responsibility deeply engrained in its history and culture, Ben & Jerry’s leadership faced a significant challenge in the wake of the 51 Unilever’s acquisition: as a wholly owned subsidiary, would these parts of the company change? Even with the significant financial benefit of the Unilever acquisition, these intangible assets were (and remain) key pieces of the Ben & Jerry’s brand. Unilever is rated number one among food companies on the Dow Jones Sustainability Index (“Cultivating Sustainable Agriculture”). The company operates several social and environmental programs as part of its global operations, all of which are tied to the company’s core business: consumer food and hygiene products. The company’s sustainability initiatives include a partnership with the World Food Programme aimed at providing food and improving nutrition for children in the developing world (“Sustainability”), as well as a joint venture with Nestlé called the Sustainable Agriculture Initiative (“Working With Others”), through which Unilever supports the study and implementation of sustainable farming best practices throughout the world (“Cultivating Sustainable Agriculture”). Unilever gained additional reputational validity for associating itself with a company like Ben & Jerry’s. As Ben & Jerry’s CEO Walt Freese said about the acquisition: The company brought its super-premium products to Unilever…but perhaps more importantly, Ben & Jerry’s brought a deep sense of values-led decision making and progressive vision that would complement and push Unilever into new areas of social, environmental, and economic commitment. (Austin and Leonard 88) In terms of considering a company’s strategically ethical activities, it is appropriate to include the parent company’s actions if the company being evaluated is a wholly owned subsidiary. While the parent company’s actions could have different bearings on its subsidiary, these effects will vary depending on several factors, including 52 how closely the subsidiary is associated with its parent and whether the parent is committed to Strategic Ethics. Some additional questions to consider for wholly owned subsidiaries are: • How closely is the subsidiary associated with the parent company in terms of company leadership? • How closely is the subsidiary associated with the parent company in terms of reputation? In Ben & Jerry’s case, the two companies remain largely separate. They have separate CEOs and leadership, and are distinct especially in the minds of consumers. USC graduate student focus group participants were unaware of the companies’ relationship. • How strategically ethical is the parent company? Unilever’s programs have been generally well received. At the same time, the company has not yet taken a holistic approach to its CSR. Even as Unilever works to make the production and distribution of some of its products more sustainable, other processes do not seem to have been evaluated for potential adjustment. For example, despite Unilever’s work to create a sustainable supply chain through which to source tea, the company came under fire in 2005 for its sourcing practices in Asia (“Unilever targeted…”). Unilever has also struggled with consumer dissatisfaction over the company’s use of animal testing (Atwood). • Has the parent company had an influence on the subsidiary’s ethical behavior? While the Ben & Jerry’s commitment to ethical business is certainly more holistic and developed than Unilever’s, the acquisition was still arguably beneficial for both 53 entities. Ben & Jerry’s has been able to continue its strategically ethical programs and procedures, even, as previously noted, when these endeavors clash with some of Unilever’s activities. Unilever committed to keep the organizational culture of Ben & Jerry’s alive through various efforts, including maintaining the Vermont corporate and manufacturing headquarters, as well as continuing to buy milk from local farmers who do not use growth hormones (Austin and Leonard 81). Furthermore, Unilever pledged to contribute 7.5% of Ben & Jerry’s profits to the Ben & Jerry’s Foundation (Hays). In addition, as part of the initial transaction, Unilever distributed $5 million to the Ben & Jerry’s Foundation, $5 million to support minority-owned businesses and $5 million to Ben & Jerry’s employees, within the first six months of the new relationship (Hays). CONCLUSIONS AND PRESCRIPTIONS Ben & Jerry’s has done, on the whole, a commendable job of pursuing its mission in a strategically ethical way—in fact, political association aside, the Ben & Jerry’s mission is strategic ethics. However, as discussed above, there are some areas where the company could improve. For example, narrowing of the company’s philanthropic mission could increase effectiveness. As for Ben & Jerry’s relationship with its parent company, Unilever’s acquisition was beneficial to both companies: Ben & Jerry’s gained financial stability, and Unilever was able to bolster its portfolio of offerings as well as reputation. The two companies also were successful in ensuring that Ben & Jerry’s unique corporate culture was not disrupted by the transaction. 54 Still, the two companies will face significant challenges in the future, especially as social and environmental responsibility moves further and further into the mainstream. Ben & Jerry’s has historically taken a strong stand against genetically modified food, something food-giant Unilever has to date not adopted, and probably will not adopt. This disconnect could lead to future instability in the relationship. Similarly, Ben & Jerry’s has faced criticism, especially in the wake of the Unilever takeover, for eliminating its previously-lauded compensation system wherein company leadership could only make a fixed amount more than the lowest-paid staff members (Torres). The company’s departure from such policies could be seen as a departure from the brand’s core values, which might harm the company’s reputation if other departures are added. 55 CHAPTER 5: GREEN MOUNTAIN COFFEE ROASTERS BACKGROUND & HISTORY Robert Stiller incorporated Green Mountain Coffee Roasters (Nasdaq: GMCR) in 1981. Stiller bought into the company, which was then located in Waitsfield, Vermont (Schiffman), when it was a single coffee shop (“Company Background: Fast Facts”). In 1982, the GMCR operations were moved to Waterbury, Vermont (“Company Background: Our History”). Over the next ten years, Stiller expanded GMCR to include several more coffee shops, as well as a mail order business for wholesale beans and ground coffee (“About Our Company”). Today, GMCR also manufactures and sells coffee makers under the brand name Keurig, which sells home and office brewing machines that use proprietary single-serving packaging called K-Cups. GMCR and Keurig Inc. had worked together beginning in 1993, until GMCR officially acquired Keurig in 2006 (Company Background: Our History”). Stiller took GMCR public in 1993, and by the following year, GMCR ran 10 retail stores, in addition to its wholesale operation (Schiffman). Unfortunately, the retail side of the business was unsuccessful in the face of chain coffee giants like Starbucks and Peet’s (Schiffman). Even though the company turned its first profit in 1995 while the retail stores existed (“Company Background: Our History”), by 1998 GMCR leadership decided to close its retail operations and focus exclusively on wholesaling (Schiffman). The company continued expanding through the late 1990s and into the beginning of the 56 21 st century: GMCR brokered a deal for Exxon Mobil stations to exclusively serve Green Mountain coffee, and also developed its first Keurig at-home and office brewing systems (“Company Background: Our History”). As of 2009, GMCR is run by CEO Lawrence J. Blandford, though Bob Stiller remains chairman of the Board of Directors and a member of the company’s Social and Environmental Responsibility Committee. The company, which now employs over 1,100 people, remains headquartered in Waterbury. Currently, GMCR sells over 100 varieties of whole bean coffee, ground coffee, tea, and hot chocolate under brand names such as Newman’s Own Organics, Tully’s Coffee and Green Mountain Coffee. (“Green Mountain Coffee Roasters Inc. GMCR”) As GMCR expands its offerings and reach, consumers have responded positively: in 2009, GMCR’s sale went up by 46.40% (“Green Mountain Coffee Roasters Inc. GMCR”). GMCR is currently considered a hot stock by various publications. Business Week named GMCR as part of the “stock market’s coffee craze”—and attributes GMCR’s success partially to solid sales of Keurig brewers (Steverman). GMCR’s expansion of the Keurig system into hotels and through licensing deals with larger coffee maker manufacturers like Mr. Coffee will only serve to buttress the company’s excellent economic performance, according to industry analysts (Steverman). SOCIAL & ENVIRONMENTAL INITIATIVES AT GMCR As a business, GMCR leverages a differentiation advantage: they sell excellent home-brewed coffee that is of a comparable (or lower) price than other similar brands 57 and has been sustainably grown and sourced. GMCR’s leadership, starting with Stiller, has worked to integrate ethical behavior into the most basic fabric of the company. On the company’s “About” webpage, the following message is prominently displayed: For 25 years, we have been on a deliberate journey to create and sustain a values- driven company that views profit as a means to achieve a higher purpose. (“Corporate Social Responsibility”) This mission illuminates GMCR’s unique approach to business: the company strives to make profits expressly so that it can contribute more to its social and environmental endeavors once it has provided an adequate return to its shareholders. This is not just wishful thinking or a pie-in-the-sky promise: GMCR actively pursues the goals articulated in its mission statement. GMCR has strategically centered its CSR activities on coffee and coffee production. As a top line gesture of goodwill, GMCR leaders donate 5% of the company’s earnings to social and environmental causes (“About Our Company”). All additional GMCR CSR components are clearly and directly related to GMCR’s core business: selling coffee that people want to buy. Subsets of this business include coffee itself, coffee production and coffee-related products. GMCR’s social and environmental responsibility initiatives fall under the umbrella of the company’s “Brewing a Better World” campaign. GMCR has long been a pioneer in the organic and sustainable coffee industry: the company introduced its first organic blend to consumers in 1986 (“Company Background: Our History”). Since then, GMCR has worked to increase transparency in coffee sourcing, as well as improving the sustainability of its supply chain. To this end, 58 GMCR sources a significant amount of its beans through the Fair Trade Certified and Fair Trade Certified Organic systems (“Building Demand…”). Furthermore, GMCR has been at the forefront of innovation in incorporating environmentally conscious processes and products into its business. For example, in 1989, GMCR introduced its first recycling program (“Company Background: Our History”). In 1990, the company created eco-friendly, naturally-whitened coffee filters without dioxin (“Company Background: Our History”). GMCR began working to offset its greenhouse gas emissions beginning in 2003, and has worked to offer containers and packaging made with renewable materials (“Protecting the Environment”). While much of GMCR’s Brewing a Better World campaign is focused on the company’s environmental impact, the project also includes GMCR’s work on social issues in towns and regions that are involved in coffee production (“Partnering With Supply-Chain Communities”). The company offers both monetary grants and local programs in places like Mexico and Rwanda (“Partnering With Supply-Chain Communities”). GMCR has partnerships with NGOs like Coffee Kids and Heifer International to aid in the implementation of these programs (“Partnering With Supply- Chain Communities”). RECOGNITION AND PUBLIC PERCEPTION GMCR has won numerous accolades for its socially and environmentally ethical behavior: in 2009, it was named to Forbes’ list of 100 Most Trustworthy Companies (Ray and Murdoch). The company topped CRO magazine‘s list of Best Corporate Citizens two 59 years in a row (in 2006 and 2007), beating out better-known competition like The Timberland Company and Starbucks (Schultz). GMCR also is a member of the Ceres Network, a group of companies that includes Nike, Ford Motor Company, and Aveda Corporation and works with investment organizations to integrate the economic bottom line with social and environmental performance factors (Fleming). Despite the company’s presence in the business press and high level of product visibility—McDonald’s began selling Newman’s Own Organics coffee in all of its stores in 2005 (Warner)—GMCR has largely flown below the consumer radar. In a focus group of eight USC graduate students, none of the participants had heard of GMCR. Under the strategic ethics rubric, however, the impressive extent of GMCR’s efforts becomes clear. STRATEGIC ETHICS AT GMCR Shareholder Activities • How transparent is the company in informing its shareholders and providing information? GMCR offers investors up-to-date information through a dedicated Investor Relations website. The company is vocally adamant about being honest and open in all of its business dealings. GMCR’s Code of Ethics emphasizes that “integrity and honesty provide the backbone of [its] business dealings and success in the marketplace” (Code of Ethics: Introduction”). In the same document, company employees and officers are urged to “report any unethical behavior.” 60 • Does the company produce a yearly report that outlines its strategic ethics efforts? GMCR produces a yearly social Corporate Social Responsibility Report, with its most recent covering fiscal year 2007. Reports for 2006 and 2005 are available on the company website. The 2007 report covers GMCR’s Brewing a Better World components, which include the company’s partnerships with coffee-growing communities, its work in local communities, environmental initiatives, sustainable coffee projects, and employee volunteerism programs. The report is remarkably transparent, including mention of areas where GMCR has lost traction or needs improvement. For example, it references an overall decline in employee volunteerism hours, and suggests reasons and remedies for the backslide (“Employee Volunteerism”). • How does the company explain the need for these activities to shareholders? Like Ben & Jerry’s, GMCR’s commitment to social and environmental responsibility is clearly outlined in the company’s business mission. Thus, investors know what sort of company they are funding from the very beginning. GMCR’s successful business practices have made the stock very popular with individuals and organizations that engage in socially responsible investing (SRI). While GMCR must communicate its work and progress to these shareholders, justifying the company’s social and environmental commitment is unnecessary since these practices have contributed significantly to GMCR’s success. 61 Employee Activities • How clearly is the company’s commitment to strategically ethical activities articulated internally? GMCR has taken unique steps to engage their employees in their social and environmental programs and to elicit employee feedback. Using the Appreciative Inquiry method, the company convened 161 employees to “plan for future growth.” Employees simultaneously develop deep understandings of company policies and CSR processes. Since the first summit in 2003, GMCR has held several more Appreciative Inquiry events for employees, which help employees learn the framework within which GMCR functions, as well as to contribute ideas to how the company can better embody its vision and mission. (“Project Pack…”) • What opportunities exist for employees to participate in strategic ethics programs? In addition to opportunities to shape the company’s direction through participation in Appreciative Inquiry summits, GMCR employees can participate in the company’s Community Action for Employees (CAFE) program, which offers paid time for employees performing community service hours for a cause of their choice. In 2007, the dollar equivalent of time and talent that GMCR donated through the work of 237 employee volunteers was $94,000. GMCR also encourages direct employee monetary giving, by matching employee donations to IRS-registered 501 (c)(3) organizations up to $500 per year. Employees can 62 make direct donations to GMCR-selected charities through direct payroll deduction. In 2007, the company matched $21,000 in employee donations. (“Employee Giving”) • Does the company adhere to U.N. human rights and labor standards in all areas of operations? GMCR’s website states that the company is committed to enforcing U.N. human rights and labor standards throughout its supply chain, domestically and internationally (“Human Rights”). GMCR regularly audits its wages to ensure that employees are being compensated at levels that are on par with the Vermont Livable Wage. Employees also enjoy benefits like discounts on solar installation, an adoption assistance program, tuition assistance, and a scholarship program. Furthermore, GMCR encourages employee health and well being through a Self-Reflection and Mindfulness initiative, which offers employees mediation seminars and mentors. Environmental Activities • Is the company engaged in proactive programs to mitigate environmental impact? GMCR has a multi-faceted environmental agenda. First, the company has a long history of focusing on issues such as waste and energy reduction. Projects such as GMCR’s greenhouse gas offset program and its development of eco-friendly packaging systems make the company an industry leader in environmental innovation. Second, GMCR has spearheaded an effort to introduce sustainable practices throughout the coffee production chain. Twenty percent of the coffee the company sells is 63 certified organic, and the company recently gave a $200,000 grant to organizations dedicated to helping coffee growing communities “identify, evaluate, and implement adaptation strategies” to mitigate the impact of climate change (“Changing Climate Change”). • Are these activities strategically aligned with the company’s mission and output? In addition to operational efficiency, GMCR has focused its environmental activities on coffee sustainability and waste reduction. These areas are aligned with the company’s mission and output. • Is environmental consciousness extended to all aspects of the business? GMCR has done an excellent job of integrating environmental awareness into all aspects of its business. From packaging and sourcing policies to encouraging employees to make sustainable commuting choices, GMCR has sought ways to lessen its environmental impact. Community Activities • Has the company proactively sought to be an active participant in the community? GMCR has taken its community involvement to a remarkable level: the company is actively involved not only in its local Vermont community, but also in cities and towns where it sources coffee such as the Huatusco Cooperative in Mexico. • Are the community activities strategically aligned with the company’s mission and output? 64 Because GMCR is in the business of selling coffee, it makes perfect strategic sense for it to contribute to coffee-growing communities. The company’s grants and on- site support not only serve to help the people who count on growing coffee to survive, but also reinforce the strength of GMCR’s supply chain by ensuring long-term access to the communities’ coffee crops. GMCR’s initiatives in coffee-growing communities land in the perfect sweet spot of doing social good while contributing the company’s financial bottom line. • Has the company had a measurable positive community impact? GMCR’s programs have had lasting impact on the communities in which they operate. For example, GMCR’s support has allowed the Huatusco Cooperative to develop coffee with a more distinctive flavor, which, in turn, can be sold for a higher price. In Rwanda, GMCR representatives have held workshops in bean sorting, raising the efficiency and quality of the local coffee output. (“Partnering With Supply Chain Communities”) • Has the company developed strategic partnerships with appropriate community organizations? GMCR partners with various organizations. For example, Root Capital offers “affordable credit and financial education to community-based businesses in environmentally sensitive areas of the world” (“Root Capital”). Because the coffee industry is dependent on pre-harvest credit, GMCR’s partnership with Root Capital to support coffee-growing communities also secures GMCR’s stake in being able to obtain sufficient amounts of high quality beans. Coffee Kids is focused on Latin America, and 65 supports “economic diversification” (“Coffee Kids: Mission”) so that coffee-growing communities are not left trying to make a consistent living at the whim of the often- volatile coffee industry. GMCR also works with Heifer International, which makes donations of actual livestock to “foster self-sufficiency and individual empowerment” (“Our Approach”). While on its surface this affiliation may appear less directly tied to GMCR’s mission and core business, GMCR states that its partnership with Heifer International is aimed at helping coffee farmers become less dependent on coffee (“Heifer Hope Blend”). Without a direct link to the company’s core mission and business, however, GMCR’s work with Heifer International seems slightly less compelling than some of the company’s other partnerships. GMCR’s coffee-related efforts are part of the company’s work to transform the industry so that it provides a stable source of income to coffee-growing families. Working with an organization that could, in a way, be seen to provide the means to break away from coffee-growing dependence could theoretically be counterproductive in the long term for GMCR. Operational Activities • Is the company dedicating resources to improving efficiency? GMCR’s environmental mission means that the company is highly dedicated to improving basic operational efficiency. Increased operational efficiency can translate to decreased environmental impact, which is the company’s ultimate goal. • How transparent is the company’s supply chain? 66 Along with GMCR’s efforts to improve conditions in coffee-growing communities, the company’s work to develop more efficient and sustainable coffee sourcing methods can be considered a considerable social contribution. GMCR describes the problem eloquently in its 2007 Brewing a Better World report: Over the last few hundred years, economies have shifted from local, small-scale, diverse producers to a system of global trade. Materials move from production to consumption as money flows back the other way. This commodity system is extraordinarily complex and provides sustenance for billions of people. As with all commodities, much of the world’s coffee is traded anonymously, with little opportunity for transparency or traceability. Often, it can be difficult to know how purchases translate into income for the farmers who grow the coffee we buy, or into sustainability and hope for their communities. (“Building Demand…”) By contributing to the development of new, more transparent trading models, GMCR not only improves its operational efficiency and solidifies its supply chain, but also creates possible solutions to help improve the industry as a whole. • How effectively and transparently does the company communicate about its activities to the community? GMCR provides detailed background on conventional coffee sourcing as well as its new sourcing systems (“Building Demand…”). Because change in the industry is slow, GMCR still sources some of its coffee traditionally, from anonymous trading markets. By explaining and disclosing that it still engages in conventional sourcing practices, GMCR is acknowledging its continuing contribution to an industry that has been proven to be detrimental to many poor coffee growers (Fridell). The company is admitting to something that is less than flattering, while explaining its ongoing 67 commitment to improving conditions. All of this is carefully articulated in the 2007 Brewing a Better World report. Philanthropic Activities • Are the recipients of the company’s charitable giving appropriately aligned with the company’s mission and output? GMCR makes charitable donations to each of the organization with which it has established strategic partnerships. A possible misalignment could occur, however, in GMCR’s support of employee volunteer projects for charities of their choice. These employee-chosen organizations may be less aligned with the company’s overall mission and output. • What portion of its assets does the company commit to philanthropy? In addition to its 5% contribution policy, GMCR has created several special blends from which proceeds are donated to various causes. For example, sales of the Heifer Hope Blend support Heifer International (“Heifer Hope Blend”). The National Wildlife Blend supports the National Wildlife Federation (“National Wildlife Federation Blend”). This is an area of GMCR’s strategic programs where the company could improve. While logical links to these organizations do exist—for example, GMCR supports the National Wildlife Federation because coffee farms in Latin America produce beans grown under the shade of larger trees and shrubs, which support populations migratory songbirds (“National Wildlife Federation Blend”)—they are often complex and not always obvious. GMCR may be better served by more clearly articulating these 68 connections, or by choosing partners that are more obviously linked to GMCR’s core business. • Does the company have an associated foundation? The Green Mountain Coffee Roasters Foundation supports the mindfulness seminars offered to employees (“Green Mountain Coffee Foundation”). This is another area where the company could improve its strategy: while the practice of mindfulness is incorporated into GMCR’s business, it is not clearly linked to the company’s product— coffee. A better strategy might include funding GMCR’s charitable partnerships through the GMCR foundation. Crisis/Issue Activities GMCR has not yet faced a serious crisis or issue. It is unclear whether or not the company has a crisis plan in place, or to speculate on how it might respond in the face of a serious crisis issue. Positive Reactive Event Activities • Does the company consistently take advantage of opportunities for positive reactive activities? GMCR’s social and environmental responsibility work seems more long-term oriented and less fluid; fast reactions to topical events and issues are not apparent in GMCR’s communications and actions. This might be an area where GMCR could improve. 69 STRATEGIC ETHICS IN A NOTORIOUS INDUSTRY In evaluating the strategically ethical behavior of a company operating in an industry that has faced ongoing criticism, several additional questions should be considered. While a company such as GMCR—or an organization in another even more controversial industry, such as an oil company—could be doing excellently in many areas of the Strategic Ethics paradigm, the choice company founders have made to enter an historically exploitative or environmentally unfriendly business must be taken into consideration. Additional questions to consider for companies operating in historically socially or environmentally exploitative industries include: • To what extent has the company adopted or sought new business practices to mitigate negative impacts of the criticized industry practice? As discussed in the evaluation of GMCR’s supply chain, GMCR functions in an industry that has faced long-standing criticism for its sometimes-exploitative commodity sourcing practices. 11 While the company still uses traditional methods to an extent, GMCR has also developed new techniques and mechanisms to source coffee more responsibly. In the future, the effort to increase the company’s reliance on these new, responsible techniques and to what extent GMCR can distance itself from traditional coffee sourcing methods will determine how GMCR fares under this section of the Strategic Ethics rubric. Furthermore, the coffee industry has faced scrutiny for the amount of waste produced from things like disposable coffee cups and packaging (See Simon). This has 11 For an in-depth analysis of the coffee industry and its sourcing methods, as well as long-standing social and environmental concerns, see Jaffee (2007). 70 been especially problematic for GMCR because of the waste produced by its Keurig single-serving coffee makers: each single-serving K-cup is individually packaged, and the current packaging is non-recyclable (Kirsner). GMCR will have to find a quick, viable solution for the Keurig situation, since selling such environmentally harmful materials is contradictory to GMCR’s larger environmental mission. • Has the company acted as a thought leader, or initiated efforts to change these practices in the industry as a whole? In working on its own to develop alternative models for sourcing coffee, GMCR does contribute to the larger discourse on building a more responsible coffee industry. However, larger players like Starbucks arguably eclipse GMCR’s efforts in sourcing efforts and material recycling programs. Starbucks has publicly and vocally committed to 100% responsible sourcing by 2015, and is currently the largest fair trade coffee buyer in the world (“Ethical Sourcing”). Furthermore, Starbucks hosted the 2009 Cup Summit in May 2009, as a venue for industry leaders to develop plans for a fully recyclable coffee cup (“Starbucks Brings…”). CONCLUSIONS AND PRESCRIPTIONS Green Mountain Coffee Roasters does an excellent job in many areas of the strategic ethics rubric. The company’s dedication to environmental stewardship is impressive, as are its employee and community programs. Where GMCR lags, it seems at least partially due to fractures in the company’s adherence to projects closely aligned with its mission and core business. While 71 allegiances with organizations like Heifer International and the National Wildlife Federation do make some strategic and logical sense upon explanation, the alignments are not immediately apparent. Strong, obvious connections might serve to improve the impact of such partnerships. GMCR’s work with coffee-specific charities is more apparently strategic. Heifer International and the National Wildlife Federation are certainly not a stretch; they are simply less perfectly aligned than some of GMCR’s other work. Secondly, GMCR may be better served by adopting a more dynamic responsibility model. Currently, many GMCR programs seem static, and the company seems less able (or perhaps even less willing) to react to opportunities created through consumer attention to related social and environmental issues. The company, perhaps, might benefit from adopting a model like Ben & Jerry’s: it would be simple for GMCR to develop dedicated roasts or blends to support or bring awareness to topical causes or issues, thus creating broader visibility for the company and its brands. In particular, GMCR could leverage its Newman’s Own Organics coffee brand, which is more widely known and has a pre-existing brand affiliation with Strategically Ethical practices (Werther and Chandler 285). Lastly, because GMCR functions in a long-criticized industry, the company must increase efforts to be a visible thought leader for ethical coffee sourcing and environmentally-friendly packaging. How GMCR implements increased levels of responsible sourcing and finds a solution to its current K-Cup dilemma will prove central to future evaluations of GMCR as a Strategically Ethical company. 72 The third company to which I will apply the strategic ethics rubric is American Apparel. 73 CHAPTER 6: AMERICAN APPAREL BACKGROUND & HISTORY American Apparel (AMEX: APP) was founded in 1998 as the brainchild of ‘serial entrepreneur’ and current CEO Dov Charney (Palmeri). With help from his partner, Sam Lim, Charney has built a company dedicated to selling clothing that is manufactured exclusively in the United States. American Apparel sells cotton basics including t-shirts and underwear. The brand has recently expanded to include woven button-downs, swimwear, denim shorts and pants. Many of the products are woven from thin-fiber cotton, resulting in soft, thin fabric (Strasburg). A basic t-shirt’s retail price starts at $17. Charney attempted a similar endeavor in the early 1990s, but was put out of business by companies importing cheaper products (Palmeri). In 1996 Charney filed for bankruptcy, only to restart the company as American Apparel in 1998 (Palmeri). What began as a wholesale operation supplying shirts to bands and custom t-shirt printing shops has now become a multi-national company (American Apparel has retail stores throughout Europe and China) with $545 million in total sales in 2008 (“Company Profile”). Charney took American Apparel public in 2008 after securing a peaceful takeover by Endeavor Acquisition, aimed at smoothing the company’s transition into public ownership (Sorkin and Barbaro). 74 Charney opened the first American Apparel retail store in 2003. Currently, there are 260 American Apparel retail stores worldwide, and all of the clothing sold is manufactured in the company’s Los Angeles factory. The company, which remains under Charney’s leadership, employs 10,000 people, 5,000 of whom work in the LA flagship operation. (“Company Profile”) SOCIAL & ENVIRONMENTAL INITIATIVES AT AMERICAN APPAREL In a speech upon his acceptance of Counselor magazine’s Person of the Year in 2004, Dov Charney said: As American Apparel’s equity and strength grow, we’ll continually improve our product as well as the lives of our workers….Innovation and social responsibility are the new American dream. (qtd. in Bell) Charney runs a manufacturing company and thus, much of American Apparel’s responsibility focus is on the company’s workers. Company officials tout the firm as “Sweatshop Free:” American Apparel pays factory workers $12 an hour which is almost twice the 2009 federal minimum of $7.25 an hour (“Our Workers”). The company does not outsource labor—all American Apparel garments are made in the United States by workers directly employed by the company (“Our Workers”). American Apparel factory workers enjoy access to company-subsidized lunches, English classes and transportation (Del Barco). An on-site health clinic offers health services, and the company offers heavily subsidized private healthcare plans (“Our Workers”). Charney argues that keeping workers happy makes them work more efficiently, and thus he offsets the increased cost of producing the company’s wares through that increased efficiency (Bell). 75 In addition to internal worker initiatives, American Apparel leaders buy advertisements and support lobbying efforts that favor immigration reform as part of the company’s Legalize LA campaign. The company has a dedicated microsite that features information and news about immigration and immigration reform, and sells “Legalize LA” t-shirts as part of its standard clothing line (“Legalize LA”). In 2009, American Apparel spun its “Legalize LA” message into “Legalize Gay,” in support of gay marriage in California. The Legalize Gay t-shirts are also sold in stores (“Legalize Gay”). American Apparel is dedicated to various environmentally friendly products and processes. Cloth scraps and extra material are collected and used to create additional garments such as hats and ties (“Environmental Initiatives”). The company’s LA factory is outfitted with solar panels, which offset the building’s energy consumption by 15% (“Environmental Initiatives”). American Apparel also sells eco-friendly organic cotton clothing, as well as items made of sustainable fabrics like bamboo (Smuciak). SCANDAL American Apparel has faced significant controversy over several issues. Founder Dov Charney has been called a “hustler” and an “amateur pornographer” because of the content of the company’s ads, which Charney often shoots himself (Gumbel; “Dov Charney..”). American Apparel’s advertising has a “blatantly sexual side” (Palmeri) and Charney has been the subject of four sexual harassment lawsuits (Hall). In the most recent suit, filed in 2008, former American Apparel employee Mary Nelson alleged: Charney…created a ‘hostile work environment’ by using sexually explicit language and behaving in sexually inappropriate ways. During several meetings 76 with her—including one at his home—he was dressed only in his underwear…On another occasion, according to the suit, he appeared in a skimpier garment. (Hall) Charney admits to wearing such garments, stating that such actions must be understood in the context of the fashion industry (Mankiewicz). He has also admits to having had sexual relationships with his employees and even with reporters who were writing pieces on him or the company (Palmeri). Despite American Apparel’s pro-immigration reform stance and employment processes aimed at the avoidance of hiring illegal workers, the company has faced significant labor problems. In the fall of 2009, American Apparel fired 1,800 of its 5,000 Los Angeles factory workers due to paperwork irregularities. The mass firings resulted from a seventeen-month federal Immigration and Customs Enforcement agency investigation into the company’s employment practices. (Preston) RECOGNITION AND PUBLIC PERCEPTION The mainstream media have featured many positive pieces on American Apparel including profiles in the New York Times and Time (Colman; Fonda). At the same time, the company’s struggles also have been splashed across headlines (See Gumbel; Palmeri; Hall). Similarly, a focus group of USC graduate students produced a mixed result when they were asked about their perceptions of American Apparel. The students mentioned the wide variety of colorful clothing options and the company’s dedication to making its products locally. While they called the company “trendy,” they also were well aware of 77 American Apparel’s problems with sexual harassment. One student called the company “sketchy.” Under the Strategic Ethics rubric, American Apparel’s strengths as an employer and environmentally-conscious business bolster the company against potentially problematic leadership and possible ethical missteps. This stark contrast serves as a perfect example of the strengths of evaluating companies using the Strategic Ethics framework: both good and bad activities are highlighted. STRATEGIC ETHICS AT AMERICAN APPAREL Shareholder Activities • How transparent is the company in informing its shareholders and providing information? A publicly traded company, American Apparel has a dedicated shareholder website, which includes tools such as an electronic “Shareholder Briefcase” widget that allows visitors to download key document packages. • Are they strategic about how information is presented? Because American Apparel made its transition to being publicly traded recently (2007), the company was well established before the IPO. Thus, investors knew they were contributing to an edgy, vocal company. American Apparel continues to position itself transparently to investors as a fashion-forward brand that has “cult status” (“Investor Relations”). The company’s leadership has a history of arguably shocking behavior, but presenting this corporate culture openly to investors has been an excellent 78 strategy. Strong corporate culture, when it is aligned to enhance key business components—in American Apparel’s case, these include unique products and edgy advertising—can lead to improved performance (Kotter and Heskett). • Does the company produce a yearly report that outlines its strategic ethics efforts? American Apparel does not produce a separate yearly social and environmental responsibility report. • How does the company explain the need for these activities to shareholders? American Apparel was founded with its social and environmental missions fully integrated into the business strategy. Charney’s business strategy and “vertically integrated” manufacturing model are in and of themselves an attempt to bring socially responsible labor practices to the garment industry. Therefore, much like in the cases of Ben & Jerry’s and GMCR, shareholders do not need justifications for the company’s social and environmental programs: investors knew what they were buying from the beginning. Employee Activities • What opportunities exist for employees to participate in strategic ethics programs? American Apparel’s broader CSR program is largely focused on internal factors such as worker satisfaction, but the company does participate in lobbying efforts in favor of immigration reform. American Apparel encourages employees to be informed about 79 this issue, since immigration is, as Charney argues, a “critical matter at the core of [American Apparel]” (“Legalize LA”). Employees are given paid time off to attend large- scale annual immigration rallies (“Legalize LA”). • Does the company adhere to U.N. human rights and labor standards in all areas of operations? Standards in the garment manufacturing industry are notoriously poor (Tisch and Weber 68). American Apparel has centered its reputation on its excellent treatment of workers, which company leadership calls an “industrial revolution” (“Company Profile”). The company uses a unique vertically integrated business model, in which the vast majority of the production process happens in the American Apparel factory in downtown Los Angeles (“Vertical Integration”). Eliminating outsourcing means the company has greater control over how each and every worker is treated—and, as detailed previously, American Apparel treats many of them better than other clothing manufacturers. • Are management decisions transparent? Because employees are involved into every step of creating the garments, including design and advertising, and all of these processes happen in a centralized location, American Apparel employees have unique access to management decisions (“Vertical Integration”). Charney regularly sends emails and letters directly communicating with employees. When American Apparel found itself in the center of immigration crackdowns in October 2009, Charney wrote an open letter to employees that drew their 80 attention to the New York Times article on the situation, articulated his immigration position and urged them to stay informed and passionate about the ongoing debate. Charney also wrote and posted a farewell note to the workers who were fired as a result of the federal investigation. (“Legalize LA”) Environmental Activities • Is the company engaged in proactive programs to mitigate environmental impact? American Apparel has created various proactive programs to mitigate environmental impact, including projects focused on renewable energy and energy efficiency, solar power, recycling, “creative reuse” of leftover materials and sustainable transportation for employees. • Are these activities strategically aligned with the company’s mission and output? Several of American Apparel’s environmental initiatives are especially well connected to the company’s core business. The transportation programs, for example, underscore the company’s commitment to its workers and improving their lives. Subsidized public transit and access to shared bicycles serve to make employee commutes cheaper and more convenient, while simultaneously mitigating the company’s environmental impact by reducing the number of solo drivers. (“Environmental Initiatives”) • Are the activities substantive—do they have the potential for long-term effectiveness? 81 American Apparel’s environmental programs are substantial and sustainable. The company has invested in solar panels and more sustainable factory lighting, for example, both of which increase energy efficiency and save money. Because positive economic benefits are paired with significant energy conservation and positive environmental impact, it seems logical to expect that the company will continue finding additional renewable energy solutions. Similarly, American Apparel’s unique reuse of fabric scraps has created highly marketable products from what once would have been discarded (“Environmental Initiatives”). • Is environmental consciousness extended to all aspects of the business? As just described, American Apparel’s environmental initiatives touch all areas of the company, from employee transportation to its products. Community Activities • Has the company proactively sought to be an active participant in the community? American Apparel’s community involvement is mainly its role as a responsible employer and strong, visible advocate of immigration rights. However, its immigration programs could also be positioned as broader social commentary. In sum, American Apparel’s immigration programs are simultaneously local community involvement, since they empower immigrant workers in Los Angeles and a contribution to the larger American immigration dialogue. • Has the community responded positively to the company’s involvement? 82 Los Angeles residents and local government have publicly acknowledged American Apparel. Antonio Villaraigosa, Mayor of Los Angeles, praised the company’s community contributions in 2008, saying: Over the past number of years, American Apparel has played an important role in the revitalization of downtown Los Angeles and has created thousands of jobs in the process... American Apparel has consistently demonstrated itself to be an innovative and responsible employer, dedicated to progressive labor practices. By issuing stock to its factory workers, American Apparel has again raised the bar for what it means to be a good employer… (“Mayor Villaraigosa…”) Villaraigosa also vocalized his support for American Apparel in the face of the 2009 federal immigration investigation, calling the firings “devastating” (Rutten). Support for American Apparel extends beyond Los Angeles. In a September 30 2009 piece, the New York Times editorial board also questioned the aggressive regulation of illegal immigrants working for American Apparel and praised the company for providing jobs in a tough economy, arguing: A crackdown that forces 1,800 taxpaying would-be Americans into joblessness in a dismal economy is a law-enforcement victory only in the bitterest, narrowest sense. As a solution to the problem of unauthorized workers — 1,800 down, millions to go — it’s ludicrous. (“Broken in U.S.A.”) • Has the company developed strategic partnerships with appropriate community organizations? American Apparel does not publicize any partnerships with non-profits or NGOs. The Legalize LA and Legalize Gay campaigns seem to be largely independent undertakings on the company’s part. Operational Activities • Is the company dedicating resources to improving efficiency? 83 The American Apparel vertical business model is a tool for improved efficiency—as previously discussed, the company’s efforts to engage workers results in increased output. Environmental programs such as repurposing fabric scraps into saleable merchandise also demonstrate the company’s innovation in this area. Furthermore, American Apparel donates production waste to local schools to be used in craft projects that also serve to educate students about the importance of reuse and recycling (“Environmental Initiatives”). By reducing industrial waste and finding new ways to convert waste into profit (both monetary and reputational), American Apparel significantly increases the percentage of materials bought that are actually used. • Do operational practices align with the company’s strategy? In general, American Apparel’s operational practices—especially those centered on environmental measures—support and further its overarching strategy. There may be a disconnect, however, between American Apparel’s worker responsibility positioning and the company’s use of undocumented immigrant workers. While American Apparel is actively lobbying for immigration reform, employing undocumented immigrants is currently illegal. Furthermore, there may be a contradiction between the company’s “made in America” tagline, which conjures wholesome images of apple pie and baseball, and the company’s championing of marginalized populations; American Apparel’s messaging strives to evoke both the known and the alien at the same time. The garments are, indeed, made in America, but not by legal American workers. However, an argument can be made that American Apparel’s hiring of undocumented workers does fit into Charney’s broader strategy to run a maverick 84 organization that pushes the boundaries of social norms. In that light, the company’s choice to continue to hire workers illegally is a strategic choice—and one that brings press and attention to both the company and Charney’s larger social agenda for immigration reform when incidents like the fall 2009 crackdown occur. American Apparel is championing the idea that products made in the U.S. by non-citizens remain American products, and thus contributes to the broader immigration discourse. • How effectively and transparently does the company communicate about its activities to the community? The company positions itself as creative, innovative and dynamic, and its vertically integrated structure and initiatives serve to promote these attributes. That structure, and the operational processes that it has engendered, have attracted significant press attention, which American Apparel bolsters through advertising and word-of-mouth marketing programs. Because the production process is an integrated part of the brand and is, in fact, part of what the company is selling (consumers are willing to pay $17 for an American Apparel t-shirt because of how the company operates and the benefits it offers its workers), American Apparel has cultivated a high level of transparency about its operations. Philanthropic Activities • Are the recipients of the company’s charitable giving appropriately aligned with the company’s mission and output? American Apparel’s charitable contributions are far less transparent than other aspects of its operations. The company reports providing in-kind donations of apparel to 85 various causes, but details are not provided. American Apparel does not have an affiliated foundation. Crisis/issue Activities • Were preemptive steps taken to avoid the issue? The numerous lawsuits brought against company leader Dov Charney might be considered at best a serious issue and at worst a crisis. The frequency, recency and continued volume of such charges alleging sexual harassment might indicate a deep- seated problem at American Apparel. No preemptive steps seem to have been taken to mitigate the potential backlash; on the contrary, American Apparel leaders (and Charney in particular) seem to be largely unconcerned. • Did the tone of the response indicate genuine concern? American Apparel spokespeople have not indicated concern over the allegations against Charney. In an interview with Mission Loc@l, a San Francisco-based community newspaper, American Apparel spokesperson Ryan Holiday argued that sexual harassment charges are simply “something [that] follows fashion personalities” (Martinez). Rather than addressing the substance of the sexual harassment claims, Holiday referred readers to a website that attacks the credibility of a plaintiff’s attorney, Keith Fink. 12 Charney also does not communicate concern. Dateline reports that Charney holds tongue-in-cheek seminars for employees on how to avoid sexual harassment charges (Mankiewicz). 12 See http://www.hollywoodinterrupted.com/archives/naked_shakedown_dov_charney_is_the_victim.phtml 86 • Were safeguards established to address issues going forward or to avoid a subsequent occurrence? Numerous sexual harassment cases have been filed against Charney in recent years, indicating that American Apparel has not sufficiently addressed the problem. No safeguard seems to be in place to avoid future litigation or negative attention for what appears to be an ongoing issue. American Apparel’s treatment of Charney’s sexual conduct is troubling, and may have long-term adverse effects on the company’s reputation. In a study of applied attribution theory, Mark Martinko argues that the level of an organization’s perceived responsibility for a crisis and the organization’s history of similar problems will combine to negatively impact that company’s reputation (283-284). In American Apparel’s case, the company not only is responsible for Charney’s actions, which crisis theorists would categorize as management misconduct (Lerbinger 242), but the buildup of similar accusations and incidents will serve as an amplifier of negative public perception. American Apparel leadership’s response to the ongoing situation has placed the company’s reputation seriously at risk. Positive Reactive Event Activities • Was the response timely? American Apparel has demonstrated a willingness and ability to actively respond to social and environmental events relevant to its mission. For example, in response to California’s ban on gay marriage in November 2008, the company repurposed its long- standing and highly visible “Legalize LA” messaging to become “Legalize Gay.” 87 • How did the company communicate its response to stakeholders? Charney and other American Apparel officials are vocal about select social and environmental issues, and often use advertising buys to communicate their positions. Almost from the day of American Apparel’s inception, the company has bought ads in major publications in support of immigration reform, making its social agenda highly visible to current and potential consumers and shareholders. Similarly, Charney frequently contributes open letters stating his position on various issues on the company website, making it easy for any stakeholder interested in understanding American Apparel’s stance on an issue to understand Charney’s exact motives. • Was the response or responsive action strategically aligned with the company’s mission and output? Immigration reform and social and environmental responsibility are integrated in American Apparel’s mission and values. Taking positions on issues such as gay marriage is aligned with the company’s goal of raising awareness of social change efforts. These public stances provide valuable visibility for American Apparel among its target consumer audience: young people who are socially conscious and likely to care about a company’s position on social issues. • Does the company consistently take advantage of opportunities for positive reactive activities? American Apparel regularly contributes to public debates on relevant issues and occurrences, even creating its own campaigns. 88 CONCLUSIONS AND PRESCRIPTIONS In many areas, American Apparel is doing extremely well. The company has several admirable programs that can be held as best practices for Strategically Ethical initiatives, such as its supply chain management and operations, and its proactive stance on immigration reform. However, American Apparel leadership’s response to the serious allegations repeatedly leveled at Dov Charney is at best troubling and at worst highly offensive. Despite American Apparel’s other excellent work, Charney’s actions could have highly detrimental effects on the company in the long term. In an evaluation of the company’s Strategic Ethics, the severe ethical problem of repeated allegations of sexual harassment overshadow the company’s good deeds. In cases of ethical misconduct, it is impossible to evaluate a company positively on the whole. Just as Exxon Mobil’s significant environmental missteps make it hard to accept Forbes’ choice to name it Green Company of the Year, American Apparel cannot be called truly Strategically Ethical. The balancing act between American Apparel’s other good deeds and Dov Charney’s questionable activities serves to underscore the danger of companies being driven or defined by the leader’s strong personality. Companies like Apple have faced scrutiny due to their heavy reliance on a single leader—analysts have questioned whether Apple will continue to be successful without CEO Steve Jobs (Lyons). While American Apparel’s practices could be considered strategically ethical in many ways; the company’s leadership must work to ensure that American Apparel’s legacy is not permanently marred by Charney’s actions. 89 Additionally, American Apparel’s relationship with investors, especially those interested in SRI, could be improved if the company published a yearly report outlining its activities. Without a clear communication of American Apparel’s goals and progress in this area, it will be difficult to appreciate the magnitude of the company’s contributions to issues like immigration reform, environmental responsibility and worker treatment in the garment industry. 90 CHAPTER 7: CONCLUSION AN OVERVIEW This paper suggests a new theoretical paradigm and practical tool, Strategic Ethics, for understanding social and environmental responsibility programs. The Strategic Ethics rubric can be used for conducting audits of these programs. To illustrate how such an audit system night work, three companies were analyzed using the Strategic Ethics rubric guidelines and publicly available information. The companies chosen for study in this project were selected specifically because they have actively pursued social and environmental activities, and all three have enjoyed positive benefits from their engagement in those activities. Many of the programs described herein are commendable—from American Apparel’s scrap recycling program, to Green Mountain Coffee’s work to reshape the rules of the global trade, to Ben & Jerry’s flavors that have been cleverly renamed to shed awareness on social issues, the companies in this paper are all, to varying extents, Strategically Ethical. Such innovative social and environmental strategies should be considered models for other organizations looking for ways to integrate Strategic Ethics into their business practices. At the same time, all of the exemplary companies profiled have areas in which they could improve. Ben & Jerry’s may alienate consumers with alignments that are too politically polarized, and its leaders must tread carefully to avoid conflict with its parent company, Unilever. Green Mountain Coffee Roasters is at a critical moment and must find an environmentally friendly solution for its Keurig K-Cups, or risk continuing to undermine its broader environmental strategy. American Apparel is in a precarious 91 position, where one successful sexual harassment suit against Charney could seriously mar the company’s reputation. These evaluations of Ben & Jerry’s, Green Mountain Coffee and American Apparel may seem contradictory—are they Strategically Ethical, or not? However, the Strategic Ethics framework is effective precisely because it allows for such conflicting information to be considered simultaneously. Stakeholders are increasingly making decisions about what organizations they will interact with based on broad impressions of a company. While there are currently several assessment methods to try to provide insight to corporate social responsibility and ethical business practice, none of the existing tools provides a systematic and cohesive means of analyzing all companies in a comprehensive and standardized way. The Strategic Ethics framework allows all aspects of any company to be considered and evaluated. Even if a company is doing five things well and five things poorly, a stakeholder can look at that company’s Strategic Ethics assessment and choose which of those activities—the excellent or the problematic—are most compelling. The stakeholder can examine not only the factual parameters of social and environmental programs, but also how the company has communicated about itself and those projects. With such data all in one place, the stakeholder can decide: is the company honest? Does she trust the company’s executives? Is the company, on the whole, Strategically Ethical? The holistic Strategic Ethics approach makes informed decisions not only possible, but also easier to make. 92 NEXT STEPS What I have proposed thus far is largely subjective, and does not, as of yet, include any objective scale for building a comparative hierarchy of companies based on their Strategic Ethics evaluations. The next step in making the Strategic Ethics rubric a widely usable audit process will be to create such a rating scale, as well as a weighting system for the eight activity categories to establish their relative importance to an overall evaluation of Strategically Ethical practices. Quantifying the results of Strategic Ethics audits will allow stakeholders to make more efficient use of the rubric in comparing one company to another on the basis of CSR and ethics. In addition, a specific Strategic Ethics audit protocol needs to be developed to standardize procedures for gathering information and seeking stakeholder perceptions. Once these aspects of the process are developed, the Strategic Ethics rubric and audit process will be ready to be made available for use by stakeholders interested in evaluating companies, as well as by companies interested in determining where improvements in Strategic Ethics are needed and the steps they need to take. FINAL THOUGHTS: THE FUTURE OF BUSINESS In sum, all of the theory and application of the Strategic Ethics I have just presented rests on one simple assumption: the practice of business is changing. Simply put, stakeholders—community members, customers, governments, and even shareholders—are demanding more. The idea business can, and should, do good while concurrently striving to maximize profits is gaining popularity and empirical support. As 93 momentum continues to build, doing the right thing and being honest will be increasingly effective as strategies. Organizations need a coherent and reliable methodology to build, measure and communicate these strategies. I have proposed the Strategic Ethics model as one such possible methodology. Certainly there is much that could—and will—be done to expand and refine the framework I have suggested. There will doubtless be some who disagree with my proposal, or who think the concepts of CSR, corporate citizenship and the myriad other ways of thinking about companies doing good are fine just the way they are. While I will wholeheartedly and vehemently defend Strategic Ethics as a logical, viable and valuable tool, what is ultimately important to me is that business leaders and communicators accept some overarching definition and understanding for discussing business ethics and corporate responsibility projects. It is vital that even naysayers understand my broader goal. Beyond the precise term and methodology I have proposed, the idea of Strategic Ethics transcends the organizational framework I present in this paper. 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Abstract (if available)

Abstract This paper is a basic introduction to the Strategic Ethics model. As corporate responsibility and ethics programs continue to grow in importance in modern business, a uniform defining model like Strategic Ethics will be invaluable to evaluating those programs.

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Creator McClendon, Nichele Mikol (author)

Core Title Strategic ethics: a new theoretical paradigm and measurement rubric for corporate responsibility projects

School Annenberg School for Communication

Degree Master of Arts

Degree Program Strategic Public Relations

Publication Date 01/20/2010

Defense Date 12/17/2009

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag American Apparel,Ben,Business,corporate citizenship,corporate social responsibility,ethical business,ethics,Green Mountain Coffee Company,OAI-PMH Harvest,strategic ethics,sustainability

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Floto, Jennifer D. (committee chair), Cowan, Geoffrey (committee member), Jackson, Laura Min (committee member)

Creator Email nichele.mcclendon@gmail.com,nmcclend@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-m2805

Unique identifier UC1439130

Identifier etd-McClendon-3413 (filename),usctheses-m40 (legacy collection record id),usctheses-c127-289132 (legacy record id),usctheses-m2805 (legacy record id)

Legacy Identifier etd-McClendon-3413.pdf

Dmrecord 289132

Document Type Thesis

Rights McClendon, Nichele Mikol

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Repository Name Libraries, University of Southern California

Repository Location Los Angeles, California

Repository Email cisadmin@lib.usc.edu