2.03.2004 ET

(CSRwire) What is the book about?

What Matters Most is about the fundamental change that is occurring in society and business that is making responsible corporate behavior an imperative rather than something a handful of businesses choose to do. The book deals with the question of the costs involved in being a responsible business and the long held assumption that being responsible adversely affects financial performance. We cite a wealth of research that convincingly demonstrates that responsible businesses not only perform as well as values neutral businesses, but in most cases actually out perform them based upon traditional financial metrics.

A third area that the book deals with is the question of 'why should businesses be responsible?' The answer is that the question is no longer relevant because business no longer has a choice. When business becomes the most powerful institution in our society, it can't escape being held to some level of ethical and moral accountability. If the most powerful institutions in our world refuse to be held accountable then certainly there is no hope for the future. Fortunately, our society has awoken to this obligation and our citizens will no longer let business avoid taking responsibility.

The last area that the book highlights is the fact that changes impacting the business community are really representative of a larger cultural shift affecting our society as a whole. Whether you look at the change in the way that the Middle East war was covered with five hundred embedded reports today versus zero reporters eleven years ago, or the recent Columbia Space Shuttle disaster where NASA bent over backwards to create transparency versus the Challenger accident 13 years ago where they were totally tight lipped with no discloser whatsoever, or the revolution within the Catholic Church where for years people whispered about abuses that were covered over or denied versus today when those whispers find a receptive and open audience who in turn is forcing change that would have been inconceivable only a few years back, we are finding more and more evidence that responsibility, transparency and accountability are becoming the new cultural norm. This exponentially expanded level of openness, honesty and disclosure are defining new social norms that are affecting all of our institutions in society.

Why did your write the book?

I wrote the book because my whole life has been a dance with issues about values and responsibility. I felt that through my experience as President and CEO of Seventh Generation, the nation's leading brand of natural household products, I could help explain the history of social responsibility, where it has come from - where it is today and most importantly, how we as businesses, as employees, as customers, and as investors can engage and help move the rest of the business community forward in a direction that will maximize its positive impact on the world.

When I started out to write the book I started from the perspective of a cynic that, in reaction to the Enron/WorldCom/Martha Stewart scandals, businesses were going to create expensive and elaborate window dressing to create the appearance and illusion that they were good corporate citizens. I set out to unmask what I thought was going to become a massive "green washing" phenomenon. However, after spending over a year writing, researching and interviewing leaders at numerous companies, I came to a conclusion that I never expected - that business is changing and that there is tremendous reason for optimism because business really has taken these challenges to heart. I'm not talking about just the usual group of responsible businesses like Patagonia and Working Assets, but companies like Chiquita, Intel and Toyota who, often quietly, have become leaders in this whole new way of doing business. Businesses have not just come to the conclusion that they don't want to end up like Enron, they have actually engaged in very fundamental processes of change - even though it's often not fast enough or deep enough for everyone's satisfaction.

How do you run Seventh Generation as a Socially Responsible Business?

It's a fascinating challenge to a large part because there are so few rules, benchmarks and clearly defined road maps. The first thing I would say is that Seventh Generation is far from perfect, and a core part of corporate responsibility is being open about our failures and shortcomings. We do practice a whole variety of techniques to help ensure that we behave in a manner that is in keeping with our values - it all starts with those values. Developing a culture that both understands and is committed to those values is essential. Articulating the behaviors that are consistent with those values and creating benchmarks to monitor your behavior against your values is a discipline we are just learning to master.

While excellent employee benefits, community involvement, charitable donations, outstanding customer service and products that exceed customer expectations are all important, if not critical, we practice corporate responsibility based upon a new set of metrics: how honest and complete is the communication between staff members as well as with customers and other stakeholders; how safe is it to challenge your boss (how many people are willing to show up and sit across from me and let me know that they feel that my own behavior seems to conflict with our stated values?); what's employee turnover like, and why are people leaving; To what extent do our products and our entire company deplete the planet of non-renewable resources, create greenhouse gasses or produce solid waste: and so on. These are just a few of hundreds of questions we ask and track on a daily basis.

We do a variety of other things, too. Every year we take several days and have a staff retreat where we explore what our values mean, how well we are doing at living them and in what ways can we make changes to better live those values. We are just completing our first corporate social responsibility report to publicly set forth how well we are doing - how we intend to measure ourselves - what a good job means and what goals we are setting for ourselves in the future. We integrate personal, community and value based goals into everyone's job description and performance expectations. How well our employees do on dealing with their personal and community goals impacts how much of a bonus they earn. We also do 360 degree reviews, use coaches to facilitate interpersonal development, provide on site massages, take two days a year to snow shoe, raft or just walk through the woods together, insist that everyone in the company serves on a committee like our "green team" or "community service group" and a long list of other activities - we focus pretty obsessively on the importance of work-life balance. Does all this take away from our business success? Not at all, we've been growing at about 25% a year for the past five years. We are profitable and have become the nation's leading brand of natural, non-toxic household products.

What are the key issues that a business must address to become a socially responsible company?

As I said, it all starts with values. First, you have to develop and build consensus and understanding around a clear set of values and operating principles. This doesn't mean a list that is mounted on a plaque and hung on the wall - it must live in the hearts and minds of every employee. Second, commitment from the top of the company is key because if the head of the company is not committed to being open and honest how can you expect anyone else to be. Once you are clear on your values, you then move into a more formal process of determining what structure, benchmarks and measurements are needed to evaluate your progress toward achieving a set of goals based on your values. There are a whole variety of structures. Most of them are framed in the kind of Corporate Social Responsibility (CSR) reporting companies do to determine and disclose their socially responsible activities. The benefit of these reports is that they ask you a series of questions that force you to address different aspects of your business. Next you need to decide how operationally change will happen - who is responsible for what, where are the conflicts, challenges, roadblocks etc.

I also think the notion of transparency and disclosure is something you have to come to terms with early on, because the kind of transparency and disclosure that is required of a responsible business is very different than what most businesses are used to. Most businesses are used to only disclosing financial information, or positive news about new products, new customers or new hires. They are not used to having to report, how much pollution they are creating, what the impact of that pollution is on the environment and what the health impacts of the pollution might be. There could be other issues that pertain to their products: safety, problems with quality control, conflicts with local community groups or allegations from other businesses of unfair competition that are all within the appropriate scope of disclosure and transparency. Companies need to understand and come to terms with what is required from a transparency and disclosure perspective because if you don't, you will never create trust which I think is the fundamental part of being a socially responsible business.

Often businesses will look for non-profit partners. If you are operating in a third world country and you are extracting natural resources, it was probably not on your agenda to build constructive community relations with the indigenous people in the area. You may not have the experience needed to develop those relationships so you create partnerships with NGOs who can help you address those challenges in a responsible manner. These organizations now can become your allies, as opposed to your critics.

I think it is important to remember that we are in the middle of this fundamental change and while we have learned many lessons on what works and what doesn't, there are many unresolved questions that we are still in the process of seeking answers to. It's a messy process. And, it is a new process. It's also a process that has poorly defined boundaries - when we talk about responsibility, what exactly are we responsible for, how broadly does that responsibility extend, where does it start, where does it end? I think one of the scariest things for businesses is being responsible to something that has no limits. Simon Zadek relays this story from a frustrated executive in his new book The Civil Corporation:

"As a water utility, we are a major landowner. We have been approached by representatives of the anti-hunting league and asked to stop renting out a parcel of land for use by sports-hunters. To be honest we don't have a corporate view on hunting and do not particularly want to have one. Where does this all end? If there is a church but no mosque on our land, will we eventually have to have a view on God?"

We have seen how difficult it is for businesses to live in a time of such rapid change, where the expectations of their stakeholders can change from month to month. A company's responsibility often seems to grow ever wider in concentric circles, bringing greater territory and increasing the tension between what they are obligated to account for and what critics feel is fair to take aim at. If you think about a company like Nike, everyone today can say they should have been responsible for the way the laborers employed by the contract manufacturers and who made their products were treated; however, ten years ago there were thousands of American companies who did not think twice about this and would never have considered it part of their responsibility. Our whole economy was built in part upon goods and services provided by third world countries at very cheap prices. We as consumers have benefited from that structure and no one asked the question "why is it so cheap to get things made in China?" Today, I think that most businesses that sell a consumer product that bears their brand name understand risk and the responsibility equation that goes along with third world manufacturing. What they don't understand is what's next, what will they be accountable for tomorrow that they haven't thought about today.

Is Corporate Social Responsibility a movement?

Yes. This is a very wide spread movement, and it is wide spread for three reasons: first, 2,500 companies around the world, including many of the largest multinational corporations have voluntarily decided to start creating corporate social responsibility reports that look at their behavior and articulate the types of commitments they are willing to make in this area. Second, beyond voluntary participation, you also have many companies who have been forced into becoming more transparent and responsible whether they like it or not. Today, The Association of British Insurers, the largest insurance company in Britain, requires every company that it insures to make disclosures with regard to environmental risks, human rights risks, risks in relationship with community organizations and so on, because this insurance carrier sees these areas as business risk that they as insurers need to understand before deciding whether or not they will continue to provide insurance to those companies. Those companies represent over twenty five percent of the total value of British Stock Exchange.

So you have structural change with governments and insurance companies that is forcing companies to move in this direction - you have voluntary participation by companies who are committed to being leaders and innovators in this area, and the third force is driven by businesses that have decided not for altruistic reasons but for purely business and financial reasons that by being more responsible they can mitigate financial risks that they would otherwise encounter. An example of this third force is the response of many companies to global warming, where they have said to themselves I need to deal with this not because I believe in global warming or care about the environment, but that the liability associated in contributing to global warming is too great - so I need to take responsibility for my company's role in contributing to CO2 emissions. For these three reasons this is a wide spread movement, and the growth has been dramatic. If you go back even two years ago, you would only see only a fraction of the companies that are participating today.

How can CSR impact the public's impression of the corporation?

The challenge is that CSR issues are not black and white. There is no such thing as a perfectly responsible company. You can find something wrong with every business on the face of the earth including Seventh Generation. Even those companies like Patagonia, Tom's of Maine, and Ben and Jerry's that you might think are wonderful, have issues of responsibility that they need to deal with. That's a challenging picture for the public, because once the consumer comes to terms with the fact that every company is somewhat good and somewhat bad, the question for them becomes "how good is good enough?" How good does a company have to be for the consumers and shareholders and investors to feel like "this is a company I want to support?" This is one the most challenging questions both the corporate world and the public face. You have many companies like Nike who became very well known for mishandling one significant aspect of their business, in their case labor relations and supply chain management, who is not known, and in fact has failed to effectively communicate, many of the positive things they have accomplished on the environmental front. This challenge is compounded by the fact that the media tends to publicize the bad and largely ignore the good. Often companies are reluctant to promote their positive accomplishments for fear that by holding themselves up for doing something good will only attract more criticism - which then becomes part of a never ending spiral of confrontation, positive change, followed by closer examination, followed by more confrontation.

Again, it is through this concept of transparency and disclosure that we as employees, consumers and investors can get enough information to come to those conclusions ourselves. Today, thankfully, there are an increasing number of third parties who read and evaluate these corporate disclosers, much the way financial analysts attempt to decode corporate financial statements, and who can help draw conclusions with which we can agree or disagree. What is so hard is that the playing field does not yet have defined and agreed upon boundaries - there is no consensus about what is an acceptable balance between the positives and negatives, or a rate of change that is fast enough and deep enough to clearly conclude that a business is doing a "good" job in fulfilling its obligation to be a responsible corporate citizen. This is a new world that business has to navigate through, and why they need help.

CSR has been evolving more rapidly in the EU - the corporate scandals in the US over the last two years have made CSR much more relevant to US companies, will this continue and how?

Yes, it absolutely will continue, and I believe that one of the most important things that will accelerate this positive change is our voice as stakeholders - whether we are employees, investors, customers or members of the communities in which a business operates. The more vocal we are to corporate America and the more aggressive we are in letting them know that these things matter, the quicker they are going to change. This means sending letters and emails, filling out proxy statements, boycotting companies who refuse to respond, supporting the NGOs who you feel are the most effective watchdogs and voting for the politicians who are willing to stand up to lobbyists and corporate interests. As I have said, there are many positive signs already.

For all of the years we have had shareholder initiatives on proxy statements from public companies, none of these shareholder initiatives - whether they were about dealing with global warming, eliminating chlorine from manufacturing, minority purchasing or diversity on the board of directors, ever got more than a ten to fifteen percent vote from shareholders. In the past year, some of those same shareholder initiatives received up to eighty percent of all shareholder votes. That sends a strong message - when eighty percent of your shareholders tell you that you need to make a fundamental change in your corporate governance or you need to make a fundamental change in your environmental behavior, that message is inescapable to the management of the company. The same power is true for us as consumers by what brand we buy and don't buy. We have been brainwashed into thinking that we as individuals are not powerful. In fact we are very powerful, more powerful than we realize, especially when we come together and act as a group. The Internet provides us with a great opportunity to come together as a collective voice and share our opinions with companies.

Where do you think CSR will be in five years?

I believe that we are on a path that will fundamentally raise the expectations the public has of the role business should play in society. As we have seen with the alacrity with which Dick Grasso stepped down from the New York Stock Exchange or the speed in which the president of American Airlines stepped down from his job when he was caught dealing dishonestly behind closed doors with the Labor Unions, there are signs that the public won't tolerate the kind of behavior that they have accepted from business for hundreds of years. I think that this new level of expectation will change the guidelines in which business must behave in the years to come. That doesn't mean that every business will become a good business, but we will set the bar higher for business than it has ever been set before. And the setting of the bar higher will force business to consider its responsibility and contribution to society as a fundamental part for what it needs to do to have a license to operate. It will never just be about how much money do you make because you will have to make that money in a responsible fashion.

How has the role of the Non Governmental Organizations changed?

The role of NGOs has also changed as dramatically as the role of businesses has changed. We think of Greenpeace as this endlessly combative organization, casting a bright light on all the corporate misdeeds around the world, and yet today, you have Greenpeace in England working in deep collaboration with a company like Shell not over a few months, but over many years. This collaborative relationship is helping Shell find a way to change, creating a positive impact on the environment. In many cases behind the scenes, more and more previously combative NGOs are seeing that they can accomplish much more by working in collaboration with business. This is a tremendously important and positive change. It does not mean that those relationships are without conflict, the book articulates how difficult and strained those relationships often can be, but in the end those relationships are responsible for producing positive change. At BP and Shell, at Chiquita, at Starbucks, at Nike, at almost every company I can think of, some significant part of the positive change has come about because of a relationship with a NGO.

What did you learn in writing the book?

I learned that underneath the senior management at almost every company, there is a tremendous desire to do the right thing. And in most cases when things go seriously wrong, it is the lack of leadership or poor leadership that sends the company in the wrong direction and not thousands of employees who have conspired to do the wrong thing. In most cases employees are waiting for the opportunity to be part of the solution - waiting for someone to structure an activity that they can participate in that will allow them to make a positive contribution in their job or community. The biggest obstacle is usually corporate leadership.

But I also learned that far more corporate leaders than I would have ever imagined have seen the light and made "becoming responsible" a fundamental part of where they want to take their companies. There are the well-known examples like Ray Anderson at Interface, but there are thousands of unknowns who have gone through the same process, made many of the same changes, but have not received or chosen to receive the publicity. The third thing I learned was that society from here on will expect and in fact demand business to be responsible and make a positive contribution to our society. This theory, put forth by Professor Lynn Sharpe Paine, author of the wonderful book Value Shift is an accurate portrayal of a shift that has taken place in our society. Everyday that I read the newspaper, I see more affirmation of some behavior that would have been acceptable only two years ago is no longer acceptable today. It led me to be optimistic about the change that is taking place. Because truly, the only way we are going to survive as people on this planet is if business becomes fundamentally enjoined with the problems that we face globally. We don't know if it will happen quick enough - we don't know whether it will unfold in a way that significantly reduces pain and suffering, but I do feel like this large tanker is slowly turning itself and heading in the right direction.

Who should buy this book?

This book is not just written to be a valuable tool for business leaders and business management, it is written for employees who want to understand what is reasonable to expect of the company they work. It is also written for us the consumer, so we can clarify what to expect from the companies we support through our purchasing choices. And finally, those who work in the nonprofit sector who want to better understand how they can constructively and strategically engage with businesses and find ways to work collaboratively rather than in conflict should find the book of great interest.

You have accomplished a great deal at Seventh Generation, a relatively small company. Is this process scalable to large corporations?

Resoundingly, yes, because some of the leading examples of companies who are becoming more responsible and are cited in the book are some of the world's largest companies. If you look at a company like Intel that has sixty thousand people, they appear to have a culture, a philosophy and a structure that is in keeping with many of the ideas contained in this book. There are other examples like Hewlett Packard or even companies that are in the process of changing like BP and Shell. When you look at what is happening with the world's biggest companies, you simply can't say this is only possible among small companies. Yes, it started among smaller companies - it started with The Body Shop and Ben and Jerry's and Patagonia, but that baton is being passed to medium and large companies today. These larger companies do face different challenges, none of which they can't overcome to become truly responsible businesses.

How did you get interested in the whole idea of responsible business?

Much of my interest in responsible business started from my experience of growing up in the sixties when I became aware that we all have a responsibility as citizens to make the most positive contribution to our society. This individual experience is something I have carried with me as a founder and leader of businesses. I do truly see that business is the most powerful force that can effect positive change in the world - once you realize this, you want to harness the power and the resources to ensure that your company makes a positive impact and contribution. A positive contribution can be educating your customers, making more responsible products, making a positive contribution to the community - it is truly a process without end. Once you see the opportunity and accept the responsibility, you have no choice but to participate.

The first book I wrote back in 1988 was How to Make the World a Better Place - a beginners guide which was an exploration of what we can do as individuals. This new book is essentially "how to make the world a better place for businesses."

What is your advice to other CEOs?

Before you jump head first into becoming a socially responsible business you want to look very carefully at what that means for you as an individual and as a leader, because it will require a lot of you. You need to examine the way you lead and the way you manage people. As Gandhi once said, "You have to be the change you want to see." That means being a roll model of what you want your company to be and how you want your employees to relate to each other. You have to be an example of that level of honesty - you have to be an example of that level of disclosure - you have to be an example of how trust is created. I would hope that CEOs would welcome knowing where they stood with regard to these important issues. Every year I am evaluated anonymously by all of the employees at my company. They let me know how much they trust me. They tell me how effectively they think I live the company's values, where my blind spots and weaknesses are, where I need to grow and change. Without that kind of evaluation it is really hard to know how others see you. It's sort a like driving in a foreign country with out a map.

If you can't be an example of what you want your company to be, I don't believe your company stands a chance of succeeding in becoming a truly responsible business. You need to be committed to the personal growth, the personal work and the personal change that will unquestionably be required of you to succeed in making these kinds of changes at your business.

WHAT MATTERS MOST:How a small group of pioneers are teaching social responsibility to big business - and why big business is listening
By Jeffrey Hollender with Stephen Fenichell Publisher: Basic Books
Publication Date: February 2004
Price: $26.00/hardcover //
ISBN: 0-7382-0902-3

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