Jeffrey Jones, a professor at Harvard Business School, said that while shareholders still hold the highest positions in many companies, a widespread shift to more responsible business practices means that more leaders today are focusing on social issues. and environmental issues.
Jones said the recent rise of “responsible corporations” is moving beyond current environmental, social and governance (ESG) standards by prioritizing the well-being of local communities over profit maximization. I predict that it will.
“Over the past decade, societal expectations of how business should be conducted have changed.”
“Younger generations of entrepreneurs have really institutionalized deep responsibility within companies. [economic] It’s a system,” Jones said. “Over the past decade, society’s expectations of how business should be conducted have changed. Consider the pressure on companies to exit Russia after the invasion of Ukraine. That would not have happened a generation ago.”
Jones, the Isidore Strauss Professor of Business History, examines two centuries of such adventures and looks to the future in his new book. Deeply Responsible Business: A World History of Values-Driven Leadership. The book comes as corporate executives feel increasing pressure to address societal concerns while continuing to meet investors’ profit expectations.
Two centuries of ethical capitalism
From George Cadbury, the British chocolate magnate in the 19th century who helped educate and house residents in mill towns, to the rise of “B Corp” startups in the 21st century, Jones looks at two centuries of companies that have behaved responsibly. It is recorded. Better for our employees, communities and the environment. Jones says the counterculture ethos associated with brands like Ben & Jerry’s ice cream and Patagonia clothing, which advocate for environmental protection, has long motivated business leaders to take socially responsible steps. .
Pioneers chronicled in his comprehensive story include Edward Filene, a Boston department store owner who promoted credit unions and led a 1930s campaign against Nazi-era anti-Semitism; Masu. Robert Bosch protected Nazi resisters. and computer company founder Anne Wang, who helped revive the small Massachusetts mill town of Lowell. Jones wrote that although all had flaws, “principles of honesty and fairness guided their actions.” They recognized that there was more to life than making money and accumulating wealth. ”
The rise of modern industry in England in the 18th century was marked by what Jones calls “an astonishing example of crass behavior and moral failure.” But he says the situation has also led to a “push towards greater philanthropy.” Much of this came from Cadbury and other devout 19th-century Quakers, who provided housing, education, and other benefits to their workers.
Cadbury, rebelling against the poverty and inequality of Dickensian England, cared about the welfare of its employees. He paid their hospital bills and built housing developments, soccer and cricket fields, a gymnasium, and an outdoor swimming pool. (Jones grew up in Birmingham, not far from the Cadbury factory.)
Around the same time, colonial Indian textile manufacturer JN Tata brought Parsi and Zoroastrian spirituality to the development of what Jones describes as a nineteenth-century version of stakeholder capitalism. In addition to independent-minded industries, Tata envisioned hydroelectric power plants, tree planting, and wildlife sanctuaries to improve life in the city. After Tata’s death, his son completed the project. Currently, Tata Group is one of the largest and most respected companies in India.
Three Responsibility Practices
Jones says all responsible business ventures demonstrate three practices:
- They create and sell products and services that are truly useful.
- As a company that operates “within society, not apart from it,” they cooperate with stakeholders with “respect and humility.”
- And they believe in the importance of communities and the role of businesses in contributing to their vitality.
For many responsible founders, “religion was a huge asset,” Jones said. Because his religion prevented him from cutting corners financially. “They were in another place. [ethical] game. ”
Still, not all were successful or sustained. For example, after World War II, George Romney, CEO of the American Motor Company and future governor of Michigan, tried to sell Americans smaller cars as part of his belief in “modest consumerism.” . But back then, as now, Americans wanted big cars. When Romney left to become governor of Michigan in 1962, executives turned to larger cars. After 1979, AMC was in the hands of Renault and Chrysler, and by 1990 it was completely gone.
Additionally, small businesses may lose their original social purpose when acquired by larger companies that may not embody the same mission. Cadbury is now owned by Kraft spin-off company Mondelez. Consumer giant Unilever bought Ben & Jerry’s, Colgate-Palmolive bought Tom’s of Maine, and Jeff Bezos’ Amazon is promoting what founder John Mackey touts as “conscious capitalism.” acquired Whole Foods.
It’s a “cool brand,” but what about its values?
As Jones writes, these acquisitions are often made by “traditional giants interested in cool brands but not the values associated with them.” Patagonia is one of the few companies to escape this fate, he notes. Founder Yvon Chouinard placed the company in a “purpose trust” and created a non-profit organization to protect its values. All profits are donated to the trust and used to fund climate change programs and protect wildlands.
“There are a lot of companies doing Patagonia, and whether or not they actually do it, it’s very expensive to research what they’re doing.”
In an economy dominated by publicly traded companies, business leaders often find it difficult to follow Patagonia’s ambitious example, but many are nonetheless flirting with the prospect of adopting Patagonia’s formula for purpose-driven success. Jones says.
“A whole lot of companies come to Patagonia to find out what we’re doing, whether they actually do it or not, because it’s all very expensive,” says Jones. he says. “But Patagonia has shown that it can be done. They make products that are pretty expensive, but they’re high quality so they last a long time. And that’s clearly a way forward compared to fast fashion.”
Jones said Chouinard, like the early entrepreneurs, thought he could inspire others to take a different path. “Because it’s the right thing to do,” he says. But he was disappointed in his inability to make a broader impact, and a trust seemed like the surest way to maintain Patagonia’s purpose.
Jones expects more companies to establish similar trusts. One reason for this is that the pressure for short-term profits on traditional companies is so strong that they may need to put formal structures in place to ensure they do not deviate from their social mission.
“It costs money, but it’s important.”
B Corporation certification, or “B Corp,” is also emerging as a way to make a company’s social and environmental performance part of its statutory charter and protect those values if the company is sold.
Stanford Graduate School of Business classmates Jay Cohen Gilbert, Bert Hoolahan, and Andrew Kassoy started a campaign to expand B Corp certification in 2006. That was the year after they launched AND1, a popular brand of streetball basketball shoes and clothing. Gilbert founded it in 1993 (Kevin Garnett of the Boston Celtics served as creative director, and numerous NBA players endorsed the brand).
“ESG investing is based on the premise that if companies check the boxes, they will reap impressive returns.”
Based on the U.S. Supreme Court’s ruling, they felt obligated to sell AND1 to the highest bidder, even if they knew the buyer would abandon their social responsibility values. Rather than start another company, Gilbert and his friends started his B Lab program to write their values into state law.
As of 2022, 37 states had enacted such laws, and 5,000 B troops were operating around the world, including Patagonia and eyewear retailer Warby Parker.
Jones says trust law and B Corp law are “expensive,” reflecting a less-discussed reality of responsible business. As a result, Jones is skeptical about the popularity of ESG funds. This is because ESG standards are “ubiquitous” and are often set independently by companies within regulations that vary by industry and region.
“ESG investing is based on the premise that if companies check the boxes, they will get great returns,” he says.
More important than checking boxes, Jones says, companies need to be honest and tell investors, “It’s expensive, but it’s important.”
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