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.
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