How to Identify Companies that Are Truly Responsible and Profitable

Anita Brick: Hi, this is Anita Brick and welcome to CareerCast at the Chicago GSB. To help you advance in your career. Today we're speaking to Christine Arena, who is an award-winning author of two books: Cause for Success: 10 Companies that Put Profits Second and Came in First, and The High-Purpose Company: The Truly Responsible (and Highly Profitable) Firms That Are Changing Business Now.

Christine serves as a strategic partner to change management consulting firm Interaction Associates, and sits on the advisory board of Green Business Ventures, IdealBite.com and Re:Vision. A master's graduate of New York University, she lives in San Francisco with her husband, and her website is High-Purpose.com. How are you today, Christine?

Christine Arena: Fine. I know the titles of my books—when you read the title and subtitle, it's a tongue twister, so kudos to you.

Anita Brick: Thank you. The whole idea of corporate social responsibility is this mystery, and different people define it differently. How do you define CSR?

Christine Arena: To start off with? I do think it's a problem that there are so many definitions out there. For instance, a lot of people in the CSR industry regard the practice as a form of philanthropy in a sense, because they think about corporate responsibility as a company's efforts to do good or to give back to the community. And I really disagree with that, because in my view, true corporate responsibility is simply about taking responsibility for things for a company's past, its present, and its future behavior.

And in the best cases, it really is about being responsive to the increasing demands of stakeholders, to changing market conditions, even to changes in the global climatic system, to any number of things that affect a company's ability to perform now and in the future. I think real corporate responsibility is about meeting unmet needs, and that is how companies can profit through the practice.

Anita Brick: So what are some of the myths that you … You said philanthropy being the core is one myth. Are there any other myths?

Christine Arena: Yes. You know, I think that a lot of advocates tell companies, especially in the marketing world, to invest in corporate responsibility because it's a great way to set a brand apart. And this claim leads a lot of company executives that I've been talking to to ask a really valid question, which is, hey, look, if everyone else in my sector is doing this, if they are positioning themselves as a CSR company, then why should I?

The fact is that brand differentiation is absolutely not the top benefit of CSR, nor should it be the goal. Really, the goal and the top benefit is innovation. And as the companies featured throughout my books—from Walmart to Wainwright Bank and Trust, even to companies like John Deere and IKEA—those companies really show how outstanding corporate responsibility leads to better-quality products, services, operational innovations, and other things that can really advance a company forward.

So the advantages gleaned by a slightly better brand position really do pale in comparison.

Anita Brick: You know, one of the things I was reading about on page 255 of your book, you talk about the anchoring priorities. It's a circle that just continues. But things that struck me as I was reading the book are taking care of people inside the company, maintaining an inspired corporate culture, staying true to core beliefs, identifying what quote unquote better performance is, reaching better performance goals, and then finding enterprising ways—or I guess that's where innovation comes in—fulfilling the overall purpose of the organization.

And one company that came to mind that you highlighted—and it's in an industry that is … just the margin is so razor thin and people try to innovate, but it doesn't seem to work too well—was Wegmans in the grocery industry. Because they do, in a lot of ways, everything wrong from a profitability standpoint. But yet they're incredibly profitable. Why do you think that's true?

Christine Arena: The thing about Wegmans is that it broke with traditional industry ranks. That's what this visual that you're pointing out on 255. Imagine a huge pair of scissors, and the companies literally cut the cord that connects them with industry norms. So they completely go in their own direction and figure out what does society need? What do our stakeholders need that other companies in our category are not delivering?

And for Wegmans, the answer to that question was there was a real need on the part of employees to work for a company that actually listened to them, and that really empowered them to be great leaders. What's really interesting about Wegmans is a management philosophy—and I could go on and on about how special that is and how that breaks down from everybody from, you know, the guy who selects wine to the customer experience. The data behind all these neat, fluffy stories are Wegmans has one of the highest rates of employee retention, the highest rates of customer retention of any other grocery store chain in America.

So it does translate to really substantial business results for Wegmans and for a number of other companies that I highlight.

Anita Brick: Are they more profitable than other companies in their segment?

Christine Arena: In terms of size, Wegmans is a privately held company. So for Wegmans, no, it's not a huge multinational. It's a regional business. So in terms of the size of their profits now in terms of gross margin, yes. What Wegmans is doing is it's bringing in really very well selected products, bringing in less products per category than, say, Safeway.

It's charging a lot more for those products, and it's charging for what I guess you could call service because, you know, there's this real affinity that every buyer at Wegmans has for its category. And that is really translated to the customer experience. So it is a premium store. So its margins are definitely higher than industry norms.

Anita Brick: And how has their CSR policy or their approach translated into their business strategy?

Christine Arena: It is their business strategy. And that is true at the best companies and the best examples in the sense that without Wegmans’ focus on people, putting people first, putting people before profits—it sounds like such a cliche, but if Wegmans didn't do that, if Wegmans didn't invest in learning experiences and invest in letting its people kind of take the lead and listening to its people and getting rid of corporate hierarchies and instead creating systems inside the companies that allow ideas to permeate up and down throughout the company—and unless Wegmans really reached out to its community, it wouldn't be Wegmans.

It wouldn't win all of the awards that it wins. It wouldn't profit the way it does. So it is … literally, Wegmans has gotten to the point where you really can't separate out its, quote, corporate responsibility strategy from its business strategy, because those two things are one and the same strategy.

Anita Brick: And it's a fabulous customer experience. I mean, my mother was going on and on and on and on and on, because we don't have them in the Midwest, and I was like, yeah, right. Well, you've been to one grocery store, you know, you've been to all of them, especially when you've been to the high-end premium ones. And it's a completely different experience.

Christine Arena: It is. And, you know, you can also look at things like Wegmans has won… I think it's eight years in a row, it's either been number one or number two in terms of Fortune magazine's best companies to work for. The company keeps performing again and again in terms of customers’ favorite, customer appreciation, as well as employee appreciation awards.

And you have to imagine, I mean, that is really helpful for a company that's trying to compete, that builds a really solid foundation.

Anita Brick: Well, here's something I thought that was very interesting when I was reading the book, is … you were talking about how their approach and their configuration, physical and cultural and otherwise hasn't been able to be copied. Why is that?

Christine Arena: They don't share that information. I think it's like Whole Foods. No reporters get to go inside Whole Foods and talk about Whole Foods’ methodology for managing its people. And that's because it's a closely guarded secret. I think the same thing is true for Wegmans. I got in there, I got to talk to all the executives. I got a lot of the executives; got to talk to some customers, and of course went in and experienced it myself as well as I had a student research team.

And, you know, we kind of all took part in taking advantage of the Wegmans experience. So we could really understand it. And it is fascinating because it's something that is very difficult to replicate. And I think that's been a great strategic advantage for Wegmans. But having said that, a lot of the really terrific business advantages that a lot of these companies that are profiting through, quote unquote, corporate responsibility are achieving, they are replicable.

So, in other words, you could take a small bank like Wainwright Bank and Trust in Boston, and you can look at some of the advantages that set that company apart. It's producing very similar results to Wegmans. And you can replicate those as a larger bank. Some of them you can translate; some of them you can't. And the ones you can't, of course, are the ones that are most precious to the firm.

Anita Brick: Let's go to a completely different industry and tell us how does social responsibility strategy help Trillium Asset Management stand above many others?

Christine Arena: Well, Trillium Asset Management was in my book as part of Wainwright Bank and Trust, which owns 30 percent of Trillium.

Anita Brick: Got it.

Christine Arena: So Trillium Asset Management is in a socially responsible investment research company, or a fund company. So what they do is they put together for investors funds that are filled with, quote, companies that meet certain criteria in the realm of corporate responsibility.

So naturally, 100 percent of their business and 100 percent of their profits are gleaned from this business strategy. That is very sort of mindful of the environmental and social impact that companies have.

Anita Brick: There was something else I thought was very interesting when you were talking about hybrid cars. And Honda had the first hybrid car, but the Prius really took off. How do you relate that to corporate social responsibility?

Christine Arena: OK. So this is really important. The most important point in this book is that you don't have to be a small niche company like Wegmans to be socially responsible. And in fact, I hate the term socially responsible. I don't think it says anything, and I think people should just stop using it. If you look at companies like Toyota, like DuPont, like GE, even to a degree, Walmart, these are huge multinationals.

Now, you ask specifically about Toyota. By 2015, Toyota hopes to drive roughly, I think, about a third of its revenue from products related to Hybrid Synergy Drive and the next generation thereof. So what that means from a financial point of view is that Toyota is investing hugely in environmental technologies. Those environmental technologies have infiltrated now, I think, to the Lexus versions to the Camrys in addition to the Prius, and it's going to be rolled out in more of the company's fleet going forward.

So between that and its operational policies, which now are very green compared to other automakers, especially US automakers, we're talking about a major competitive advantage. So companies like DuPont, GE, Toyota—they don't invest in this, quote, green phenomenon or in corporate responsibility because it's moral or trendy. They're doing it because there's real growth there and because it's the right thing for their shareholders. So I think that's a really important point.

Anita Brick: So what's another company that if we thought about it on the surface, many people would assume doesn't really have a good CSR program but surprisingly does?

Christine Arena: Well, you know, I think it's so interesting. you can even take a company like SC Johnson. You know, SC Johnson makes like Reynolds Wrap and Off—you know, that mosquito repellent. These products—and Windex—these products that you would think, oh my God, those are so bad for the environment. It's so not seventh generation. But what was really interesting about SC Johnson is that when I asked the executives there to explain, I wanted to know the purpose and the results of their, quote, corporate responsibility program, and I wanted them to show me how they were allocating their wealth in this area, and the company couldn't do it.

They could not separate out, for instance, the financial resources they were investing in environmental management from the money they were investing in developing new products. And that's not because they're not taking this seriously. It's quite to the contrary. It's because these two processes are really one and the same. So every single product that SC Johnson develops in markets stems from a really sophisticated system called Green List that effectively matches market and consumer needs with environmentally benign and even beneficial ingredients.

So what this means is, again, that like at GE and Toyota and DuPont, environmental innovation is a growth strategy at SC Johnson. This company's gotten to the point where it no longer defines what it's doing as environmental sustainability or corporate responsibility. it just innovates in a new and better way. So I think that that is, again, it really shows how we really need to think more strategically about this area and forget the old kind of boundaries that we used to associate with it.

Anita Brick: So it's in fact not just for PR now.

Christine Arena: I mean, and actually, you know, this—my research showed that when it was just for PR purposes, companies either created abysmal returns in the sense that they got a little blip, but then those returns diminished as soon as the PR stopped.

Or in a lot of cases like at Exxon, Chevron, Merck, we could measure substantial financial liabilities created by companies that just invested in CSR from a marketing point of view and then didn't focus on it as a form of innovation, because what happened was stakeholders kind of called them out and said, hey, you know, your revenues depend on one thing, and yet you're talking about this other thing, and those two things run in conflict with one another.

So my advice to companies who are just going to sort of dip their toe in the water and talk the talk is don't bother. Literally put the money back in shareholders’ pockets where it belongs, because unless you're going to substantially approach this area, you might as well not invest at all.

Anita Brick: All right. So let's say I'm a student or I'm from the GSB and I'm trying to identify organizations where their purpose and profit are both present and they're real. And I noticed that you had a four-part definition of corporate health: one was healthier people, healthier processes. The third was healthier products, and the fourth was healthier projections.

How would you recommend that someone listening identify companies that kind of meet all of those?

Christine Arena: OK, the first thing I would do is go to the fourth measure: healthier projections, healthier projections. It seems really strange to say that, like, a measure of corporate health is a goal that a company has.

But the minute a multinational, especially a publicly traded company, announces a certain goal—like, by the year 2010, 25 percent of our revenues will be generated from nondepleted resources—that's DuPont's goal—you know the company is really invested. So it may not be a quote perfect company. It may not have a flawless history. It's investing big. And the future financial viability of the company really depends on its ability to meet that goal and to grow. So I would really look at what companies say. So it's one thing for a company to say we take matters of environmental responsibility and social responsibility seriously.

That's OK, fine. But what's really, really significant is when, you know, companies put metrics to those promises. So when they say, OK, by this year we're going to have done this. And they're, you know, you're dealing with a company that has really first of all, developed internal metrics. Secondly, they've set goals based on shareholder expectations. And so, you know that that company is kind of passing the point of no return.

Anita Brick: So how do you know if those projections are really durable?

Christine Arena: Companies, especially multinationals, in this day and age will not … they will normally not make those pledges unless they are positive that they can meet those expectations. It's a disaster. For instance, when Ford promised to make 250,000 hybrid vehicles and it only made 25,000, they created like literally a PR maelstrom for the company. I mean, it was a disaster, and the company had to keep investing in PR and even legal.

And then, you know, try to go back and explain why it didn't meet its goals. It's really, really hard. And it's very, very rare and increasingly rare for a company to make a … in terms of a metric, a promise to the public and then not meet it. So I think especially if the promise is big, you’ve got to know that the company has total buy-in throughout the organization, and they are very confident that they will meet that goal.

Anita Brick: All right. So you start with the projections, and then how do you filter through the other three elements: the people, the processes, and the products?

Christine Arena: Well, I would definitely say that the products are the second thing that people should look at. What is it that the company is selling? That's in the nature of—what companies sell makes the biggest impact. It doesn't really matter how much it gives to philanthropy. What matters is what kind of stuff does it sell and what kind of benefits do those products produce?

What kind of impact does that produce to society, to stakeholders, and to shareholders? So really do look at a company's portfolio and look at, you know, even products and development, but certainly look at the current portfolio. And if you can pick out 3 or 4 interesting products that have a real social and environmental advantage, that's pretty substantial, depending on the size of the company and the size of its portfolio.

Anita Brick: Just to finish the other two, how do you look at processes, and also how do you look for companies with quote unquote healthier people?

Christine Arena: Sure. Processes refers to the way a company manages its environmental footprint. So when I say … OK, so products is clearly stuff the company sells, processes refers to the way the company makes what it sells. So if you look at the way a company's manufacturing policies work, if we're talking about Starbucks, you're talking about hundreds of millions of people that are affected by the coffee crisis.

What, in terms of Starbucks’ ethical supply chain standards, what is that company doing to better quality of life for those people and to ensure the quality of the products that it sells? So those are the issues. Now, those issues are very difficult for an outsider looking in to assess. You almost have to depend on the company's CSR report in order to get some of those metrics.

Unless you have an in with the company and you can really get to the nitty gritty. But if a company is reporting on its waste, on its methods, on its sourcing policies, then you know at least it's looking at those areas strategically.

Finally, in terms of people, we're talking about corporate health in a literal way. In some cases, you could be talking about health and safety issues. So if it's a manufacturing company, does the company report how many people are injured on the job? How many people collect disability insurance? For instance, in the oil industry, hundreds of people die a year working on oil platforms. It's a real estate development company or a construction company. I mean, those kinds of issues are important in different categories.

And also, again, are people happy working there? If you go to Ikea.com and you look at the employee board, I mean, go to Vault.com, read about what people who work at the companies are saying about the companies, because that's going to tell you a lot about the corporate culture. So if we're dealing with a really top down, hierarchical, numbers-driven culture that is only interested really in short-term profits and doesn't necessarily walk its talk, people working for the company probably won't be as happy as people who are working for a company that listens to them, and that really allows innovation to flow.

Anita Brick: You mentioned Vault. You mentioned the CSR report. Are there any other information resources or databases that people could use to identify the four things we just talked about?

Christine Arena: I would go to CorpWatch.org, I believe. CorpWatch is fantastic because they are a watchdog organization. So they're really good at calling companies like Monsanto out when they say one thing and do another. They're also really good at reporting stories that do not get printed in the American press. There's so many issues that—this idea of what gets printed and what gets reported to American consumers versus European consumers is really fascinating.

And CorpWatch tries to keep American consumers and activists really informed about the real, you know, sort of behind-the-scenes happenings in corporations that, for instance, operate overseas or, you know, the real story. So there—I think that they're a credible source. They're not just a whistleblower. They don't make unfounded accusations. The reporters are very, very good, seasoned.

And they do get, I think, in a lot of cases, true stories. And I know I've used them as a resource.

Anita Brick: Our focus has been very US based, and our audience is pretty diverse. I mean, we have alumni all over the globe, and we have a campus in London and one in Singapore. Are you seeing any regional differences in the way that corporate social responsibility is implemented throughout the world?

Christine Arena: Yes, and I would say, in short, Europe is ahead of America by 2 to 3 years at least. What I mean by that is that if you look at CSR reporting trends, you will notice—and I got a lot of data through KPMG and some other big companies that help European businesses and American businesses create CSR reports—Europe as a market is ahead of America in terms of the companies' sophistication to track and monitor metrics and to transparently report those metrics and to set, again, goals with metrics.

And that's not across the board. That does not mean that every single European company is ahead of its American counterpart. But in general, in terms of trends, the experts that I've spoken to and the data that I've seen really does show that we are slightly trailing. But I think that gap is starting to close.

Anita Brick: What about Asia?

Christine Arena: It depends on what you're talking about. If we're talking China, we have one huge problem, you know, of a complete lack of transparency, which is a nightmare for American companies. Now, the … especially, you know, the ones that are bringing over ingredients and certain products from China that now have questionable integrity. So in … China is behind, clearly.

But that's because they don't have the infrastructure. And we're putting so much pressure on those companies to give us the cheapest thing as quickly as possible. Of course, we're not going to pay for that infrastructure to be built. So I think they're in a tough position. Japan is in a totally different position. So, you know, really, Asia's I think hard to call.

I think you'd have to ask an analyst at a bank maybe to answer that question because we have such a diverse … if we're talking about India; if we're talking about China, there's lots of different things going on. But in general, I'd say there's definitely movement. But in some countries it's much more advanced than others.

Anita Brick: If you look at the company that you're working for, it … one, someone who's listening, a student or alum, and maybe you see that there's a lot being done, or maybe there's a little being done. What can individual contributors, mid-level managers, offer in the way of bringing authentic CSR into their organization?

Christine Arena: I think the best thing that any strategic thinker, particularly an MBA, can do, no matter where you are, if you're in the marketing team or if you're number crunching, is to help senior executives connect the dots between, quote, sustainability from an environmental social point of view and financial profitability. Without the links that bind those two interests together, the solutions are not sustainable.

So that's really important. So companies must profit from this area. Otherwise they won't reinvest. And if they don't continually reinvest, then some of the worst social and environmental problems we're facing as a world may remain unsolved. So I think the best thing you can do is to figure out, to try to look at ways that can build a good business result and also increase the integrity of what the company is doing.

And that sounds like a tall order. And if anybody needs any help, there are dozens and dozens of case examples in my books and in other books that are out there.

Anita Brick: Great. Anything you'd like to leave us with in terms of kind of what you envision the future or any final words of wisdom you'd like to share with us?

Christine Arena: Well, I'd like to say to everybody, good luck. And—because I think this is probably the most important growth area in business today, and I think that the markets are proving that—and I think in five years we will no longer be having the conversation, is there a business case for corporate responsibility? Because that will be abundantly clear.

I think it's abundantly clear now. And it kind of freaks me out that people are still asking the question. So I think this is really an area of incredible innovation, and I hope that everybody will really approach it that way.

Anita Brick: Well, Christine, thank you so much, and thank you for taking the time. I know you're incredibly busy, and for those of you on the call, a couple of things. Please do go visit Christine's website. High-Purpose.com. And also on our site you can download a chapter of her book. Really very practical, and it's called The High-Purpose Company.

Thanks again, Christine, and thank you all for listening. This is Anita Brick with CareerCast at the Chicago GSB. Keep advancing.