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Business From the Magazine

Can Companies be ‘Good’?

(Illustration: Toma Vagner)

Call it the year of the open letter.

As more and more businesses claim to be “good” companies with a social purpose greater than the bottom line, employees are publicly holding them to account.  One tactic of choice?  The “Dear CEO” letter.

In June, Microsoft employees wrote to CEO Satya Nadella demanding the company cancel a $19.4 million contract with the U.S. Immigration and Customs Enforcement agency. Earlier, a petition signed by 4,000 Google employees sought “a clear policy stating that neither Google nor its contractors will ever build warfare technology.” And separately, Amazon employees wrote CEO Jeff Bezos, aiming to stop the company from selling facial recognition services to law enforcement agencies.

Microsoft, Google, and Amazon all profess to be purpose-driven companies, and all three took their employees’ perspective seriously.  Still, they needed a public nudge to live up to the expectations of the people who work there.

So what makes a company good?

We hear a lot lately about corporate purpose and the benefits that can accrue from it, but most companies still haven’t figured out what that means.  A study conducted by the Harvard Business Review found that although there is near-unanimity in the business community about the value of purpose in driving performance, less than half of companies surveyed had articulated a strong sense of purpose and used it to make decisions. But for those organizations that built a strategy around their sense of purpose, executives reported a greater ability to grow revenue, be innovative, and to execute successful transformation.

Research released this spring by The Economist Group also showed a disconnect between brands that recognize the need to take a stand on social issues and their willingness to actually do so. Speaking up is one of the most visible ways a company can demonstrate their values, according to consumers in the global study. While 63 percent of executives surveyed say operating with social purpose benefits their customers and the communities in which they do business, and 61 percent say operating with a social purpose improves the lives of employees, only 10 percent connect such a commitment to financial performance and growth.

What’s more, while 70 percent of executives in The Economist survey say their customers are holding them accountable for their corporate values, almost 90 percent say it’s hard to tell if a company truly cares about a social cause or is just using it as a marketing tactic.

Corporate authenticity becomes clearer when a company takes a real risk. In March 2018, Citigroup stepped into one of the most contentious issues in American politics: gun control. The bank said it would not do business with retailers that did not restrict the sale of guns to those under 21, with those that sold bump stocks and high-capacity magazines or that did not perform background checks. It was a measured step, yet it had dramatic impact. Citi was a rare corporate brand willing to enter a societal debate fraught with strong opinion.

“It was not something that we took on lightly,” Edward Skyler, Citi’s Executive Vice President for Global Public Affairs, said at Techonomy NYC in May 2018. “but it felt in keeping with the mission of our company and our general quest to contribute to society. We don’t know whether it’s too much or too little, but the sense was that nothing was really changing in our society. And there was that heartbreaking quote after Sandy Hook. Somebody said that, ‘When we decided that killing children in school was bearable, we sort of lost the urge to try to regulate firearms.’ My company doesn’t think it’s bearable. I don’t think our country thinks it’s bearable, so we’re trying to do our part.”

Citi was followed by Dick’s Sporting Goods, which stopped selling assault-style rifles, and later by Levi Strauss, which teamed with Michael Bloomberg’s Everytown for Gun Safety group to fund efforts at promoting gun control legislation. All of the companies received some strong criticism, but the positive seemed to outweigh the negative. Dick’s stock gained 26 percent in the quarter after the announcement and investors applauded Citi’s leadership. The board of the California State Teachers’ Retirement System, a pension fund that is one of the country’s largest investors, praised Citi for “modeling best practices and demonstrating actionable steps that others can take.”

Skyler said Citi’s decision to take on gun control was driven in part by its customers: “We’ve been asked at various points, what are your policies on firearms?” he said. “And the reality was, we didn’t really have a clear policy, unlike other issues that carried reputational risk.”

(Illustration: Toma Vagner)

As Citi learned, customers expect companies to have a point of view. In fact, they reward those who share their values and punish those who do not. According to The Economist study, nearly three-quarters of executives believe consumers are increasingly judging companies on their corporate character, a number that will only rise as younger people come of age. Almost 80 percent of the world’s millennials prefer to buy from companies that operate with social purpose, while 75 percent say they are proud to be a customer of a purpose-driven company, according to The Economist’s research.

Earlier this year, no less of a figure than Laurence Fink, the CEO of BlackRock, the world’s biggest investment manager with $6 trillion under management, underscored just how disruptive purpose is becoming. He laid down a warning to the world’s CEOs: Make societal progress part of your strategic plan or suffer the consequences. “Without a sense of purpose, no company, either public or private, can achieve its full potential,” Fink wrote in his annual letter to CEOs. “It will ultimately lose the license to operate from key stakeholders.”

Part of what motivated Fink was his sense that companies need to step in where governments have been ineffective, BlackRock’s global head of sustainable investing Brian Deese said at Techonomy NYC.

“There’s an increasing frustration,” he said, “with the lack of ability, across the globe, of big institutions, including political institutions, to solve some of the world’s greatest challenges, which is turning more focus to what role companies can play in that process.”

That same insight lead Airbnb to take on the refugee crisis. At the same Techonomy session, Kim Rubey, global head of social impact and philanthropy for Airbnb, said “We hear from a lot of NGO partners about political solutions failing, diplomatic solutions failing. And really, they’re relying on that private sector to lead the way in speaking out, adapting policy changes, and really pushing change forward.” She added that “we want to speak out, but there’s so much more we can do. By taking a big commitment and making a big pledge to house 100,000 displaced people over the next five years, we could both walk the walk and talk the talk.”

Housing the displaced is a natural fit for Airbnb, one that reinforces its brand position. But as more businesses enter public debates, they have to be thoughtful about exactly which public issues they want to take on. If their effort seems inauthentic or opportunistic, it can boomerang. “We should only speak when we have certain knowledge to bring to the subject,” Apple CEO Tim Cook said earlier this year.

Apple has opposed the Trump administration’s immigration policy, has been an advocate for data privacy, and this summer was the first platform to remove Alex Jones, the conspiracy theorist, from its channels, a move that was quickly echoed by Facebook and YouTube. Apple confronted another Silicon Valley heavyweight on ethical grounds, when it made Facebook remove an app from its App Store after discovering it used personal data in a way that violated Apple’s policies.

So what makes a company good? Despite much ongoing national discord, the country is pretty clear on the indicators. According to an annual survey of American attitudes about corporate behavior conducted by Goldman Sachs and JUST Capital, the number one value is how a company treats its workers, followed by how it treats its customers, including its position on privacy issues. Those are followed by, in descending order of importance: how much it builds its products to benefit society; the way it affects the environment; the degree it supports local communities; whether it is creating good jobs; and, whether it’s well managed and pays its fair share of taxes.

The survey is the basis for a new exchange-traded fund (ETF) comprised of 500 companies that Americans judge to act responsibly. The ETF was created by Goldman and JUST Capital, a nonprofit founded by billionaire hedge fund manager Paul Tudor Jones. Nine of the top 10 JUST companies in 2017 were from the tech sector: Intel at number one, followed by Texas Instruments, Nvidia, Microsoft, IBM, Accenture, Cisco, Alphabet, Salesforce, and Symantec. Other companies in the top 20 include Nike, Procter & Gamble, Colgate-Palmolive, and PepsiCo. (Apple ranks 34th; Facebook is 71st.)

While it’s easy to argue with any one company’s ranking, the idea reflects a larger movement toward accountability beyond earnings, one that seems to be validated by investors. When the ETF launched in June, it ended its first day of trading with $251 million in assets, putting it in the top 10 equity ETF launches.

Clearly, we are seeing a significant shift in what we all expect from a business.

In 2010, Google took a stand against internet censorship when it left the Chinese search market. This summer we learned that the company is planning to reverse direction. The news came to light thanks to a letter signed by 1,400 Google employees who were angry about a company project to secretly build a censored search engine for China. In this case, the market opportunity is far greater than a few individual contracts and the outcome less clear at press time. Still, the backlash is a vivid example of employees publicly holding their leadership accountable to their shared values.

What makes a company good? Employees who demand it. Customers who expect it. Society that requires it.

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