Good Company: Business Success in the Worthiness Era

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A noted economist and human capital expert, together with a multidisciplinary team, show that we've entered a new era in which good corporate behavior is no longer optional, it's the new imperative for success-and they have the data to prove it. Their Good Company Index ranking of the Fortune 100 takes the belief in the bottom-line benefits of good behavior out of the realm of faith and into the realm of facts.

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1 The Worthiness Imperative

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The Home Depot didn’t look bad on paper in early 2007. But online, I the home improvement giant didn’t look good. And the story of that disconnect gets at the heart of this book: we’re entering an age when goodness matters for companies like never before.

In January 2007, Home Depot ousted an unpopular, highly paid CEO, Robert Nardelli. And although Nardelli’s whopping $210 million severance package irked investors, the company signed a much more reasonable deal with his successor, Frank Blake.1 The Nardelli-Blake transition earned Home Depot positive press.2 And although Home Depot was suffering from the housing market decline, Blake announced a hopeful outlook in late February.

“The long-term fundamentals of our company are strong,” Blake said, “and we believe we can improve our performance and grow at, or faster than, the market beyond 2007.”3 He also outlined investments for better employee engagement, improved product innovation, and tidier stores.

But one month later, this corporate giant—which in 2006 had ranked 14th in the Fortune 100—was beset by the consumer equivalent of a mosquito swarm. The trouble started with an essay by personal finance columnist Scott Burns at Web site MSN Money. In the article, Burns lamented that Home Depot no longer held an intimate place in his life.

 

2 The Economic Imperative

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The Disneyland employees most pivotal to the famed theme park’s customer satisfaction aren’t the ones roaming around in Mickey Mouse and Goofy costumes.

They’re the folks carrying brooms.

Scholars John Boudreau and Peter Ramstad have shown that the sweepers who continually tidy up the park and often answer guest questions are vital to Disney. The caliber of these workers and their ability to solve problems are crucial to the holistic “magic” Disney aims to create for visitors.

“Disney sweepers have the opportunity to make adjustments to the customer-service process on-the-fly, reacting to variations in customer demands, unforeseen circumstances and changes in the customer experience,” Boudreau and Ramstad have written. “These are things that make pivotal differences in the ‘Happiest Place on Earth.’… At Disney, sweepers are actually frontline customer representatives with brooms in their hands.”1

The importance of sweepers to Disney speaks to the way in which consumers’ desire for integrated experiences is propelling companies to greater worthiness. For Disney to delight customers on premium-priced vacation packages, the company can’t just focus on excellent rides, good food, and friendly costumed characters. It has to make sure even the employees carrying out clean-up duties are sharp thinkers and sociable to boot. It has to recruit the right people to be sweepers, train them, engage them, and retain them—it must be a good employer.

 

3 The Social Imperative

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On November 10, 2004, the fiancée of an employee at video game maker Electronic Arts (EA) posted a blog entry. It was an anonymous, emotional essay published at a free blogging site. And it transformed the video game industry.

In her nearly 2,000-word essay titled “EA: The Human Story,” the author, who referred to herself as “ea_spouse,” spoke in personal terms about the toll long work weeks were taking on her fiancé and herself.1 At first, she explained, her fiancé’s project team was expected to work eight hours a day, six days a week. Then twelve hours a day, six days a week. Then eventually extended hours for seven days a week. “The love of my life comes home late at night complaining of a headache that will not go away and a chronically upset stomach, and my happy supportive smile is running out,” she wrote. She also argued that routine weeks of 85 hours on the job without overtime pay by game developers were illegal, ill conceived, and the product of corporate greed.

In another era, her essay might have been the sort of complaint shared merely with family and friends. Or perhaps, if she was particularly determined, she might have sent it to mainstream media outlets or a labor attorney with the hope that a sympathetic journalist or lawyer would take up her case.

 

4 The Political Imperative

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Computer chip maker Intel, famous for its “Intel inside” motto, got dinged from the outside in 2009.

Outside the marketplace, that is. European regulators slapped Intel with a record-large fine of $1.45 billion for abusing its dominant position in the market for a class of computer chips.1 After a lengthy probe of the market for chips known as x86 central processing units, the European Commission concluded that Intel engaged in illegal anticompetitive practices such as making direct payments to a major retailer on condition it stock only computers with Intel x86 chips.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said European Commissioner for Competition Neelie Kroes. “Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”2

Kroes’s indignant tone is telling. The antitrust penalty her organization levied on Intel is part of a pendulum swing back toward greater regulation of businesses by governments around the world. That regulatory push is among several political factors forcing companies in the direction of greater goodness. We define political here broadly to refer to the way people and organizations make decisions. In that light, this chapter looks at two other political trends besides the growth in government intervention. They are the increase in shareholder activism and the emergence of workplace democracy.

 

5 Goodness Matters

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A growing body of evidence shows that companies can do well by doing good. But that’s only part of the story in the world taking shape. The individual trends outlined in Chapters 2, 3, and 4—when taken together—indicate that goodness is rapidly becoming necessary to doing well.

What’s more, the convergence of the trends we’ve identified calls for a comprehensive response. Many companies during the past decade have launched disparate initiatives such as becoming an employer of choice, reducing carbon footprints, and beefing up compliance efforts. But firms that aim to succeed in sustainable ways must move to become good companies through and through.

This chapter summarizes some of the best available hard-nosed evidence that companies are doing well by doing good and risk doing poorly by doing bad. Although much of this evidence is based on large, publicly traded U.S.-based firms, the arguments presented in earlier chapters strongly point to the growing imperative for all organizations—private or public, large or small—to become thoroughly worthy.

 

6 Ranking Companies

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More and more, people are demanding that companies in their lives be “good company.” The convergence of economic, social, and political forces that we describe in Chapters 2, 3, and 4 put us at the dawn of a new economic era in which genuine, broad-based worthiness is no longer an added bonus but a necessity. Some of the world’s largest companies are in the vanguard, pointing the way and serving as examples for others to follow. Many others, however, are laggards, apparently oblivious to these forces—and to the fact that ignoring them imperils their existence, their employees’ livelihoods, and their shareholders’ investments.

In this chapter, we quantitatively rank the publicly traded companies in the Fortune 100 on the Good Company Index and describe how you can qualitatively assess other companies outside the Fortune 100 with which you do business as a consumer, investor, or employee.

In our framework, being a good company is based on how a company acts in three different arenas: as an employer, as a seller, and as a steward of its community, the environment, and society overall. In order to (1) identify which organizations are already behaving as good companies, (2) identify which ones have a long way to go, and (3) track progress in the years ahead, we sought to create an objective system of ranking companies’ actions in these areas. We explored multiple sources of information to feed into this ranking system, seeking data that ideally had all of the following characteristics:

 

7 The Good Employer

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Paul Levy walked the halls of Beth Israel Deaconess Medical Center.

But he may as well have been walking a tightrope.

The Great Recession had hit, and Levy, CEO of the Boston hospital, had to cut labor costs while somehow preserving a high level of patient care. As he considered his options, Levy watched as a janitor emptied the wastebasket, a food service worker delivered meals, and other low-wage employees pushed patients through the halls on gurneys. He listened as they spoke kind words to patients and their families, he witnessed their cheerful presence and gentle care, and he realized that these “low-skill” workers were delivering health care.

As layoffs loomed large, this was not an idle insight. Levy knew that these workers are normally the first to go. But he also knew that patients would suffer in small but real ways as a result. Levy was not content with “normal,” and so he called a meeting of all employees who were able to attend in the hospital’s auditorium.

He struggled to find the right words that would explain to all present what he had seen and heard: that each of them, down to the lowest-paid employee, was critical to delivering quality health care, and that perhaps there was some way that high-wage employees could find to save the jobs of their colleagues who earned less. He didn’t have to struggle for long. Before he was able to finish his thought, the auditorium erupted in applause. He had spoken a truth that touched the hearts of those present. Money-saving ideas poured in, and the hospital managed to save almost all of the positions targeted for layoffs.

 

8 The Good Seller

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From its origins as a shipper of valuables in the 1850s to its charge card with the famous tag line, “Don’t leave home without it,” American Express has had a long legacy of strong service. But the company left the 20th century without it. AmEx hovered in the 50th percentile for service quality during the years 1999 to 2004, according to research firm wRatings.

Like many companies, American Express was focused on cost containment. The priority was reducing time on the phone with customers. American Express’s nod to service came primarily in the form of a checklist for such behaviors as saying the customer’s name three times during a call and avoiding 10 seconds of awkward dead time on the phone.1

This not only led to a stiff experience for customers but also robbed employees of the autonomy that helps make for meaningful work. Annual turnover in its service centers, although not as high as the 100 percent annual turnover sometimes experienced in the call-center field, was nonetheless in the double digits.

 

9 The Good Steward

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Seventh Generation is among the most environmentally responsible companies in the world today. But leaders of the household and personal care products company will be the first to tell you they aren’t perfect.

They did just that in their 2008 Corporate Consciousness Report. “We are still working to replace the remaining synthetic ingredients in our products and to eliminate the contaminant 1,4-dioxane from our cleaning products,” cofounder Jeffrey Hollender wrote.1

A likely carcinogen, 1,4-dioxane can form in cleaning products when modifying natural oils with the petrochemical ethylene oxide and sulfur trioxide.2 Both Seventh Generation’s fabric softener and its dish soap liquid tested positive for 1,4-dioxane, the company said in the report.

Despite this admitted black eye, Seventh Generation’s track record has been a bright shade of green. Among numerous environmental awards, it was ranked as the best company on the planet by Better World Shopping Guide, a buying resource for ethically minded consumers.3 And Seventh Generation’s actions back up this honor. For example, the company in 2008 upgraded its product-testing regime, which led it to discover phthalates in its automatic dishwasher gel with a synthetic green apple scent. Although the particular phthalate found—DEP—is not a suspected carcinogen or endocrine disrupter, other phthalates have been found to be probable or possible health hazards.4 The company discontinued use of the green apple scent, replacing it with a natural grapefruit fragrance.5

 

10 The Worthiness Era

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The forces we’ve sketched out in this book dovetail with other key, emerging business trends—all of which are converging to create a future in which companies increasingly must prove they are worthy of consumers’ business, employees’ best efforts, and investors’ dollars. The growing importance of organizational agility and the rise of Asia as an economic power have worked against the arrival of the Worthiness Era. But in both cases, factors in play are now propelling company goodness to the fore.

The stakes are high that companies take goodness to heart in the coming years. Without better stewardship of communities and the environment, humanity will continue on the path toward climatic disaster. Without better employer practices, millions of people will suffer unnecessarily in dissatisfying, anxiety-producing jobs. And without increased worthiness as sellers, companies will continue to sell products and services that too often harm customers physically and financially. The degree to which the Worthiness Era takes hold also has implications for the future of capitalism and America’s prosperity in the years ahead.

 

11 A Hopefully Idealistic Vision

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We hope we’ve made our case that the Worthiness Era is at hand. That companies, more and more, will have to prove to be good employers, sellers, and stewards to succeed. And that companies that don’t do this risk being left behind, out in the cold by a public that is increasingly ethical in its economic choices.

But we realize you may remain skeptical. You may be saying: “This sunny vision is too good to be true. Companies may be talking up sustainability, being an employer of choice, and taking care of customers, but they haven’t truly changed their stripes. They’re still profit-maximizing organizations obsessed with shareholders’ short-term gains. This Worthiness Era business is hopelessly idealistic.”

Conversely, the more conservative of you may be saying, “This vision is unrealistic. Companies may try to tap green consumer trends and fire up workers. But they can’t put excess attention on employees, communities, and the environment. Profitability will suffer, and their ultimate stakeholders—shareholders—may lose everything. This Worthiness Era business is hopelessly idealistic.”

 

Appendix. Good Company Index: Scoring and Sources

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In calculating the Good Company Index Scores for the companies represented in this book, we used data from a variety of sources, which are listed at the end. (The most up-to-date information on the Good Company Index can be found at http://www.goodcompanyindex.com.)

In some categories, companies were ranked from high to low into octiles, or eighths, which were used to assign category scores that make up the Good Company Index ratings. For example, a company that falls in the top 12.5 percent (the equivalent of the top one-eighth of the overall distribution) would be in the first, or top, octile. A company that falls between 75 percent and 87.5 percent would be in the second octile, and so on.

Overall Good Company Grades and
Corresponding Numerical Scores

In order to calculate a score for a given company, we begin by measuring how good an employer it is. Using companies that have at least 25 employee reviews as of April 2010, we get a starting number based on the octile into which a company falls in Glassdoor.com’s overall ratings, relative to other Fortune 100 companies.

 

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