Tuesday, December 13, 2011

"Good Company": Is Ethics the New Corporate Bottom Line?

Book Synopsis

Good Company: Business in the Worthiness Era

By Laurie Bassi, Ed Frauenheim & Dan McMurrer (with Larry Costello)

John's Bottom Line: Recommended 

In “Good Company”, the authors argue that a fundamental change in the how businesses approach successful marketing & outreach is taking place.   Well, to be precise,  they argue that a new mindset is growing, a trend that is deepening and taking hold.

Are your eyes glazing over yet?

What is fascinating is they passionately argue and – more importantly – back up with quantitative analysis – that ethical behavior is becoming progressively central to how big corporations do business, attract customers.  This is swimming against the growing tides of skepticism that -  heck, outright contempt – that is sweeping the general public.  And, most certainly, those that are to the left politically.

While this book is about a new trend in business,  a topic that causes left-of-center folk to nervously look for the exit – the tone of the book is meant to appeal simultaneously to the lefty idealism and the profit-minded folks on the right.

It does that well:  an impressive accomplishment.  More impressive is that it effectively argues well that concerns over workers and the environment is becoming the wave of the future for big business.

Thankfully, the book avoids the hoary phrase, “enlightened self-interest” – certainly, an expression that causes me to look for the exit.  Instead, it argues that the gestalt of global change is making ethics a part of overall operational strategy and sales philosophy.  This is something bolder and more elemental than the old canard of “Social Responsibility”.  That refers to a PR patina: Good Company argues that we are in a Worthiness Era. Circumstance is pushing large businesses to incorporate a Worthiness ethic.  To thrive in new era, a company must redefine its core to be a good employer, seller & steward.  These three company worldviews are central to Worthiness, which  must define companies to survive and thrive.

Tough sell, indeed. Especially like a skeptic such as yours truly.

Nonetheless, Good Company sells the idea the future of business is systemic corporate ethics. And sells it well.  To quote from the book:

“The oft-heard aphorism that companies can’ do well by doing good’ requires an update . Companies will not be able to do well unless they do good.  What has been a nice-to-have over the past deacade or so is becoming a necessity.”

Bold words and, perhaps, counterintuitive.  To quote again:” A combination of social, economic and political forces are pressuring companies to become ‘good companies’ to their employer, customers & Investors”.

Let’s consider just one of the many variables (numerous changes in society, economy & technology)discussed in the book, which interact to change the fundamental character of both global society & business

Marriage of Personal Disclosure & the Internet (“Web 2.0 Technologies”).

The book opens with the account of a corporate shakeup & service changes in 2006 at the home improvement retail giant Home Depot.  Before the problem started Home Depot was doing well: it was ranked 14th in the Forbes.

Scott Burns – a personal finance columnist with the Web Site MSN Money-  wrote a blog bemoaning the decline of customer service at  Home Depot.  In the era of print, such a column would be forgotten the next day.  Burns encouraged his readers to share their frustrating. Experiences: there were 4,700 comments in the first week.

As a result, the CEO was replaced.  The new one issued a statement addressing concerns expressed.

An even more dramatic example was an on-line essay called “EA: The Human Story” ( posted on www.livejournal.com ) and was signed with the moniker “ea_spouse”.  In it, the author complains about the forced overtime her significant other had to put in at Electronic Arts.  The essay  generate 20,000 comments within weeks.  Ultimately, the essay received mainstream coverage: the relt was management changes.  In this case , an anonymous person caused a Corporate overhaul.

Also, the inner workings of organizations are exposed by a variety of inner active tools, including Face Book, Yelp, Twitter , www.Glassdoor.com   , www.advisor.com.  Often, a single complaint or observation snowballs

Good Company lays out several more variables and how they all work together.

As mentioned earlier, there are three pillars to a Corporate concept of Worthiness: . employer, seller & steward.  Good Company outlines several global systemic changes (I only outline one) that work together to make ethical behavior – in these three area –  part of the corporate fabric.

Good Employer

As the Home Depot and Electronic Arts  examples make clear, an employee is able to communicate his/her dissatisfaction to the general public with ease.

There are other considerations.

In retail, a consumer is looking for “transformational” experience.  That is, there is a trend to view the retail experience as valuable. Starbucks is an example.  It is more than a coffee outlet .  A consumer goes to Starbucks for the Starbucks experience.  People with smooth customer service skills are in greater demand.  A company wants to retain skilled people.

While this is a tough job market, companies do not want to lose skilled help: forcing a company to deal with the chaotic hiring process – only to retrain (again).

For these reasons – and others – corporations are becoming less hierarchical, flatter and more democratic

Good Seller

Transparency & accountability is on the rise.  Awareness of Executive pay and benefits are but one one example.  Good Seller includes four key elements:

Safety: Good sellers offer safe products and services, which requires avoiding an over-emphasis on cost-cutting and profits.
Reciprocity: This requires consistency, creativity, and fulfilling promises by delivering the products that a company says it will.
Honest communication: Good sellers reveal what their products are made of, how they’re made, and how they operate and should be used. Problems are communicated to customers promptly and not covered up. Transparency creates trust among customers, leading to competitive advantage.
Restraint: Good sellers avoid “crossing the line” toward corporate greed or invasive marketing.  Companies that do cross the line are increasingly viewed disdainfully by consumers.

Good Steward

Public concern about the environment is encouraging companies to go green. 

A scientific survey of 18- to 30-year-old found that young consumers will not pay a premium price for an automobile simply because it is environmentally friendly. Instead, the determining factor -- by far -- is fuel efficiency.

Walmart – in reaction, perhaps, to horrible publicity – is cited as an example of a business becoming increasingly green.

Good Company backs up the contention that corporate responsibility (worthiness) is trending with some in-depth analysis.  What is especially cool about this book is that it has a companion website: http://www.goodcompanyindex.com/.  This site rates the Forbes 100 for worthiness and gives a detailed explanation of methodology.  To fully appreciate the site, I recommend the book.

From the site:

“The grade that a company earned on the Good Company Index™ is a powerful predictor of stock prices.  We examined all “industry-matched pairs” (pairs of companies in the same industry) in the Fortune 100 and found twelve pairs in which the companies’ Good Company grades differed by one or more grade levels (for example, a grade of B versus a grade of C).  Across those twelve pairs, the stock price of the company with the higher grade outperformed that of its competitor with the lower grade by an average of 19.8 percentage points in the subsequent 12-month period.”

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