Published in CommPRO.BIZ 2013.05.22

Reputation, Reputation, Reputation

A disconnect between public perception and reality when it comes to ethics in business is perhaps the most costly economic factor in America. Companies that follow the highest ethical standards make way more money than those following any other model. Communication professionals are –or should be– guarding the most valuable asset in any business, reputation, the fountainhead of profits.

Surprise! Ethics has always been the road to profits. Reputation Rocks! The ethical business model and the United States share came to be in the same era. The late 1700s were a very trying time for the Brits. They were tied up in nasty military conflicts with France, Spain, the Dutch, and Colonial America. The Industrial Revolution was turning society inside out, snatching work and workers from a home-based production model to machine dominated mass production concepts. Great for a new class of factory owners, not so much for those whose living space was dominated by a spinning wheel and a loom worked to the point of exhaustion to eek out a livelihood.

The lucky ones found work at the “Mill,” jobs that look pretty bleak, and were very bleak. Long hours in windowless buildings (windows were taxed), breathing foul air filled with fabric particles, enduring unending, unbearable noise levels, all the while facing the risk to life-and-limb the clattering machines presented. By 1800 the misery of home-based labor had given way to the despair of the mill and the tenement. Bad as this picture was, strangely it was a tad better than the brain and body numbing efforts of the home-based model it replaced.

However, the ethical business model was growing on the fly. Late in the 1700s a ten-year-old lad, Robert Owen, set off to make his fortune in London. He became a commission salesman at a men’s clothing establishment.  By the time he was eighteen Owen had saved £100, a small fortune in that day. Enough to go into business for himself turning raw cotton into cloth; within a year he tripled his fortune.

At nineteen he made the acquaintance of a large mill owner with a Dickensesque name, Peter Drinkwater.  Drinkwater purchased Robert Owen’s equipment and goods and hired him at £300 a year to manage his mill.  For six weeks Robert changed nothing, he just walked about the mill and got to know the employees. Once he felt he knew what was needed, he began to act.

Owen improved working conditions, visited the workers in their homes offering help and advice.  He set up schools for them and for their children. The first year he quadrupled Drinkwater’s profit.  When the owner came up to his Manchester mill from London to see what this young genius had done, he found his mill clean and tidy, his workers happy and productive.  He gave Owen a £100 bonus and a new contract with a percentage of the profits built in.

Now in his early twenties, Robert Owen kept improving the lot of his workers and Drinkwater’s profits kept soaring.  He added windows and ventilation to the mill. He refused to hire very young children. Not only was the mill well run and extraordinarily profitable, the quality of the goods was the finest in the land. When Drinkwater wanted to buy out his contract, he happily agreed. At twenty-seven Robert Owen had become a “brand.”

On a visit to Scotland, he met the charming daughter of a mill owner and bought her father out for £60,000. Now with a mill of his own and the love of his life at his side Owen was ready to show what the ethical business model could really do. He cut the workday from twelve to ten hours. He put in showers and provided healthy meals, often eating with his workers. He leveled the tenements and built comfortable cottages. He lived among his workers. He gave prizes for the most beautiful gardens grown from flower seeds he provided.

Owen built a combination nursery, kindergarten, and school. It ran day and night caring for the small children of his workers, teaching older children and anyone else who wanted to learn. Teachers could not strike the children; Owen explained that it only taught them violence. He poured money into improving the lot of his workers. He believed that clean water, a sewage system, trees, flowers, and healthy employees were a benefit to everyone and to his bottom line.  A bottom line that made him very wealthy. Owen is just one of many who adopted an early ethical business model. Through the 1800s and into the 1900s this model became the hallmark of many great and highly profitable enterprises. 

Peter Cooper was born in New York City in 1791, the year Owen turned twenty. An extraordinary human being, Cooper’s serendipitous life melded his remarkable intellect and resourcefulness to turn both opportunities and disasters into useful and profitable enterprises. He continued to live a simple life even after he became the richest man in New York. His idol, Benjamin Franklin, died the year before Cooper was born. Like him, Franklin had only one year of formal education. And like Franklin, Cooper felt America’s future lay in education. He was determined to found an institution of higher learning for the poor.

In his sixties, Cooper began to build his school, The Cooper Union.  And to be sure he got the school he wanted, he maintained total control: his money, his plan, his school. He believed education should be “as free as the air we breathe.”  He offered night classes for adults. He encouraged both men and women to attend; devising special classes to be sure young women gained useful skills. His dream endures. Cooper Union continues to serve —as he put it— “the boys and girls of this city, who have had no better opportunity than I enjoyed.”

Peter Cooper was in his mid-forties when Jamie Oliver arrived in America from Scotland. His father had been content to scratch out a living tending another man’s sheep. His mother was determined to come to America.  They finally made it in 1836 and found themselves in Mishawaka, just outside South Bend, Indiana. That state was giving a farm, a rich piece of fertile earth, to anyone willing to live on it and work it. What a far cry from keeping someone else’s sheep in the rocky hills of Scotland.

Jamie loved farming every day of his life. He found it necessary, however, to work at almost any odd job he could find. Along the way he learned how to smelt iron, so when a fellow in South Bend wanted to sell his struggling foundry Jamie came up with $88 to buy it. The plant cast the one-horse plows farmers relied on to turn the soil. Jamie knew from backbreaking personal experience that the plows of the day could stand considerable improvement.  In 1870 he sold his first Oliver “Chilled” Plow – so named for a unique method of cooling white-hot metal as it was formed.  In just a few years his little foundry grew to a 30-acre complex, the

Oliver Chilled Plow Works, capable of producing a half-million plows a year. Jamie’s innovative design reduced by half the effort of both the horse and the man behind the plow.

Through it all Jamie never saw himself as a factory owner or a businessman. He saw himself as a farmer, solving farmers’ problems.  He saw his workers as vital to solving those problems and felt responsible for giving them comfortable lives so they could focus on that task. When financial woes struck the nation, Oliver kept his plant producing, storing the plows he couldn’t sell until better times came.  He never laid off workers and never reduced wages.

To put the importance of Oliver’s ideas in perspective, remember in his time, 60% of Americans lived on farms. He made the lives of the farmers easier and more productive. Jamie played a vital role in the largest sector of America’s economy.  Jamie Oliver considered himself a farmer, a friend of the farmer, a partner of the farmer, and a partner of nature. His success came while seeking to benefit his fellow men, the very essence of the ethical business model.

The Industrial Revolution was in high gear in the late 1800s and no place on earth illustrates the extremes it created more than Pittsburgh, Pennsylvania. Nestled along the Monongahela River on one side of Pittsburgh were Andrew Carnegie’s steel mills. The gutsy little Scot built his enterprise on benevolent principles. But when he needed it most his resolve and moral fiber failed him.

The defining moment in Carnegie’s life came in 1892 at his Homestead Works. He was bent on nipping a tiny union movement in the bud. He saw it as elitist because membership was not open to the vast majority of his workers. A minor dispute spiraled into war. Carnegie locked out all of his workers and called in a private Pinkerton army. A battle ensued resulting in 16 deaths and over 20 seriously wounded, forever tarnishing Carnegie’s legacy.  All the libraries, a great university, and his other numerous charities will never erase this tragedy.

A lesson learned in Homestead was not lost on another Pittsburgh business man, Harry Heinz. He had started out packing horseradish in his parents’ basement. A talented promoter and salesman, he was forced into bankruptcy as a result of (as his competitors saw it) his out-of-touch-with-reality idea that preserving food intended for human beings should be done under sanitary conditions.  Heinz persisted, however, starting over again and even going back and paying off those who lost money when his earlier enterprise went under. He called those “moral debts.”

By 1892 –the year of the violent Homestead strike– Heinz was growing his food packing enterprise a few miles away on the north shore of the Allegheny River across from Pittsburgh. He hoped to create an atmosphere that would make violence unnecessary. His plant was to grow larger and larger in the last decade of the nineteenth century, and as it grew it became a model for enlightened employee working conditions. Like Owen, Cooper, Oliver, and others, Heinz was out of step with some of the conventional thinking of the day.

The H.J. Heinz plant that emerged as the century turned was unique in almost every way. It was bright and sparkling clean.  It preserved and packed a wide range of foods by natural processes under pristine conditions. Workers (mostly women) wore clean blue and white uniforms and were trained in high standards of personal cleanliness. Every employee was given a weekly manicure.

Heinz employees were offered a wide range of educational, recreational, and social opportunities.  A roof garden and reading room were provided for their use; a swimming pool, regular outings and picnics made it an ideal place to work.  Far ahead of its time and not bad even by today’s standards.  Sounds almost like life at the Googleplex.

The ethical business model was supported mostly by anecdotal evidence until two academics and a writer published Firms of Endearment that documented their groundbreaking business ethics research. They set out to find companies with the highest ethical standards. Companies that dealt with all their stakeholders on the highest ethical plane: their customers, their employees, their community, their vendors, and the environment. But how about their bottom line? How about their shareholders?

It turned out that over the ten years prior to the Firms of Endearment study, the public companies that met their ethical bar returned eight times the Standard & Poor’s average. Not eight times the worst, eight times the average return. That’s pretty impressive. It shows that if you take care of everything else your bottom line will take care of itself. It doesn’t mean it’s always easy to follow this path or that everyone who follows it will succeed. Unforeseeable factors such as market trends, economic downturns, competitive issues –even a natural disaster like Super Storm Sandy– come into play.

It takes smarts. It takes hard work. It takes courage to succeed. You have to be lucky and you have to follow the oldest of moral guides, the Golden Rule. That’s what ethics is really all about. Nor is it writ large that cutthroat bad guys don’t succeed. It just means that all things being equal, an ethical business model will dramatically outperform any alternative. Instinctively we know that; it’s why the vast majority of us are out there trying to do the right thing every day, enjoying the great feeling that comes from that effort win or lose.

In the end that’s what it’s all about, the satisfaction we gain from our endeavors. We want to be able to hold our heads up when we head out to work. We want to end the day fulfilled. We don’t want to spend our life looking over our shoulder. Just as nobody wants to do business with a crook, nobody wants to look back on their life and feel like a crook. Crooks can always justify their behavior, but deep down in the dead of the night they know who they are and what they are, they are crooks.