Business Ethics 18th Annual Awards 

A salute to four companies, large and small, leading the way in corporate responsibility excellence. By Michael Connor

 

AwardsWinners’ Circle

Corporate Responsibility Management: Starbucks Coffee Company

Environmental Sustainability: Patagonia Inc.

General Excellence: Hypertherm Inc.

Stakeholder Accountability: Berrett-Koehler Publishers

 

A global coffee retailer. A manufacturer of outdoor clothing. An independent publisher. And a company that makes equipment to cut steel. Four very different businesses, with two things in common: each has a singular commitment to at least one aspect of corporate responsibility, and each is a winner of a 2006 Business Ethics Award.

This year’s awards are the first since Business Ethics magazine was merged into CRO magazine, but the criteria and process were the same as in previous years. Nominations for the awards came from a variety of sources, including companies themselves, and were reviewed by a panel of four judges with strong academic and professional credentials, well-versed in traditional and emerging models of corporate responsibility.

Winners were chosen this year in four categories: Corporate Responsibility Management, Environmental Sustainability, Stakeholder Accountability and General Excellence.

The judges were asked to also consider an award in the category of Corporate Governance, but they declined, citing a lack of clarity regarding standards of governance and metrics relative to this year’s nominees.

The Business Ethics Awards were launched in 1987, when three companies—Johnson & Johnson, Herman Miller and H.B. Fuller—were cited. For a complete listing of award winners since then, please visit The CRO website, www.thecro.com.

 

Starbucks Coffee Company, Corporate Responsibility Management

For leadership and excellence in best practices in the field of corporate responsibility.

Potential international business partners arrived in Seattle this November to meet with senior Starbucks executives to plan expansion, with a goal of tripling the number of Starbucks retail stores to more than 40,000 around the world. With growth outside the U.S. a major component of Starbucks’ strategy, these country partners are crucial to its execution.

Among those at the table: Sandra Taylor, Starbucks Senior Vice President, Corporate Social Responsibility: “I’m part of the team that interviews the potential partners. And they know that. As a result, these partners come to us with corporate social responsibility as part of their presentation.” At Starbucks, says Taylor, “I have a seat at the table when business decisions are made.”

Dramatic growth in its business—Starbucks opens an average of five new stores worldwide each day—presents enormous challenges for a company which advertises that “high ideals don’t have to conflict with the bottom line.” With 128,197 employees in 37 countries—and revenue of $6.4 billion in fiscal 2005—corporate responsibility isn’t likely to work if it’s not integrated into the core business.

And that’s the case at Starbucks, where decisions on workforce and the environment have bottom-line impact. The company has long been a leader in providing benefits to all employees, even part-timers; medical and dental benefits are available to anyone working at least 20 hours a week. And after four years of collaboration with its suppliers, Starbucks recently introduced the first-ever paper cup containing post-consumer fiber. In 2006 alone, the company estimates the new cup will reduce its need for five million pounds of virgin tree fiber—saving 60,000 trees.

As one of the largest coffee buyers in the world, Starbucks also has a vested interest in assuring long-term sustainable production by coffee farmers in Latin America, Africa and Southeast Asia. The company began work in 1998 with the non-profit Conservation International to develop its own C.A.F.E. (Coffee and Farmer Equity) Practices, in which farmers and suppliers are scored on social and environmental criteria for growing and processing coffee. By 2007, a majority of the company’s coffee will come from C.A.F.E. farmers. Starbucks also pays premium prices—last year, an average of $1.28 per pound of coffee, 28 percent higher than the average New York “C” market price during the same period.

Some critics note that only 3.7 percent of Starbucks’ total coffee purchases in fiscal 2005 was Fair Trade certified. Starbucks says that’s largely because the Fair Trade system only certifies owners of small, family-owned farms that currently produce only 2 percent of the world’s coffee supply.

Even Fair Trade advocates agree that the C.A.F.E. standards and the sheer volume of Starbucks’ purchases have made an enormous difference. “Starbucks’ work with Fair Trade has had a profound impact on the lives of farmers around the world,” says Steve Sellers, Chief Operating Officer of TransFair USA, who wrote in support of Starbucks award nomination. “Starbucks has assumed a leadership role in the effort to change the way the world does business.”

In managing all this, says Starbucks’ Taylor, the key is that corporate responsibility “is integrated into the business. In some companies, you can hear the business managers say, ‘Oh, here they come, the CSR people.’ That doesn’t happen here.” (For the latest on Starbucks and the world coffee market, see “Dueling Do-Gooders?”)

 

Patagonia, Environmental Sustainability

For its unique commitment to developing sustainable business practices

Our goal is by 2010 to have an entire line of closed loop fabrics, recycled endlessly,” explains Casey Sheahan, CEO of Patagonia Inc., the outdoor apparel company. Sheahan is describing the company’s Common Threads garment recycling program, which has just launched a line of Capilene polyester underwear made with more than 50 percent recycled content, including recycled soda bottles. By spring 2007, Patagonia plans a Capilene line that incorporates worn-out polyester apparel that has been returned by customers and recycled into new garments.

Patagonia says making new polyester fiber from recycled garments results in dramatic energy savings and reduced greenhouse gas emissions. Of course, there are also challenges—the biggest being the cost and energy involved in transporting used garments for recycling to manufacturing plants in Asia. For now, garments are transported via container ships. Longer-term, Sheahan says, a successful garment recycling program might require that factories be relocated closer to their end market, much of which is in the United States.

Pioneering sustainable economic models for the apparel industry is nothing new for Patagonia. In 1996, the company took the bold step of converting its entire sportswear line from conventional cotton—which requires chemicals considered harmful to farms and farmers—to 100 percent organic cotton. Not long after, competitors like Gap and Nike introduced organic cotton products, as did retailing giant Wal-Mart just last year.

In fact, Patagonia is the only repeat winner in the 18-year history of the Business Ethics Awards, having been similarly cited in 1990 for environmental contributions. Privately-held, with annual revenue of about $260 million, Patagonia has 1,289 employees, with headquarters in Ventura, CA, and a 375,000 square-foot distribution center in Reno, NV. In addition to its product innovations, Patagonia has ambitious programs to reduce energy consumption and waste in all of its operations.

Much of Patagonia’s environmental fervor can be traced to Yvon Chouinard, the company’s founder and owner, and a long-time environmentalist. Chouinard was co-founder of One Percent for the Planet, a non-profit in which member companies donate at least 1 percent of their annual sales to environmental groups worldwide. Under the program, Patagonia has contributed $26 million to groups since 1985.
CEO Sheahan agrees that the sustainability equation is also important to Patagonia’s positioning as a brand leader in outdoor clothing.

“People are buying us first for our quality reputation,” he says. “If there are choices, it’s the environmental factor that tips it over the top.” Geoffrey Heal, a professor at Columbia Business School, and one of the awards judges, says: “Being sustainable requires a long-term perspective. Patagonia has this—and has shown that its consumers are willing to take the long-term view too.”

 

Berrett-Koehler Publishers, Stakeholder Accountability

For its focus on creating quality product in collaboration with employees, business partners and customers

At first, Howard Karger says, he couldn’t figure it out. A Professor of Social Policy at the University of Houston and a two-time Senior Fulbright Scholar, Karger is the author of multiple books. In late summer 2004 he found himself working for the first time with Berrett-Koehler, the San Francisco-based independent publisher of his latest, “Shortchanged: Life and Debt in the Fringe Economy.”

“After 25 years of book publishing, I was suspicious,” he says. “I was made to feel like part of the organization. Almost like staff.” He grew more wary when the publisher insisted that he travel to San Francisco to meet editorial, marketing, design and publicity staff. He was shocked to find they had all read his book. Finally, he realized, “these were people doing what they believed in and producing books they were proud of. Democracy for Berrett-Koehler is not just a slogan.”

In the rough-and-tumble world of book publishing, Berrett-Koehler stands out not only for its treatment of authors, but also for the manner in which it engages employees, business partners, readers and the community. Launched in 1992, the company is 54 percent-owned by Founder and President Steve Piersanti and 46 percent-owned by more than 150 other stakeholders, including authors, customers, employees and suppliers.

Piersanti has established a salary structure in which he makes only about three times what the lowest-paid employee earns. Cash bonus payments are equal for all members of staff. And the staff is consulted on all major decisions: annual salary increases are discussed and agreed on at a staff meeting. “Sometimes it’s 3 percent, sometimes it’s 4 percent, and in more difficult times it’s zero,” says Piersanti.

With only 21 staff and 30 titles in 2006, Berrett-Koehler is a small publisher, but increasingly influential. Its self-described ambitious goal is “Creating a World that Works for All,” and it has become home to a number of authors writing on corporate responsibility and sustainability topics. Its “Confessions of an Economic Hit Man” by John Perkins was a New York Times Best Seller and sold more than 500,000 copies in the United States and internationally. The company has also collaborated with the non-profit Social Venture Network to create a series of low-priced paperback guides to starting and growing a socially responsible business.

For Berrett-Koehler, the formula seems to be working. 2006 revenue will be approximately $7 million, with expansion planned for next year. More than 80 of the company’s titles have sold 20,000 or more copies, comprising nearly one third of the company’s total list; 23 books have sold more than 100,000 copies.

“The media play a vital role in helping to create a culture that supports corporate responsibility,” says Paul Hilton of Calvert, and one of the awards judges. “By bringing all stakeholders into the process, Berrett-Koehler demonstrates that it’s possible to create a media platform that encourages corporate responsibility and the plurality of voices necessary in a democratic society.”

(Note: Awards judge Steve Lydenberg and former Business Ethics Editor Marjorie Kelly are both Berrett-Koehler authors. Lydenberg recused himself from voting on this nomination; Kelly did not participate in the awards process.)

 

Hypertherm, General Excellence

For workplace innovation focusing on development of people and products

When engineer Richard Couch launched Hypertherm Inc. in 1968, from a small garage in Hanover, NH, innovation was critical to his success plan for the manufacturer of metal cutting equipment. Today, Hypertherm’s electric arc process enables customers to cut steel from one-quarter-inch to one-inch thick, driving annual sales of about $250 million to customers all around the globe.

In the process, Couch’s garage been replaced with a 135,000-square foot manufacturing facility. And Hypertherm’s initial staff of 2 has grown to some 800 “associates” in the United States and abroad who work in cross-functional teams based on the company’s five major product lines. “I don’t like the ‘employee’ word,” says Couch. “We try to avoid terms that contribute to a ‘we-they’ type of atmosphere, with workers on one side and management in the other.”

Workplace innovation on a par with technical innovation is what attracted this year’s awards judges to Hypertherm. “It’s a continuous improvement culture. The philosophy is to continuously develop your people while developing the quality of your product,” says Couch. “And it’s important that that be demonstrated in meaningful, measurable, demonstrable ways.’”

For Hypertherm associates, that has translated into generous benefits that include continuing education for all and a no-layoff policy. The logic, according to Couch: “The worst thing you could do is have a tremendous productivity improvement, then use that productivity improvement to justify laying off people.” During one capital equipment downturn in 1981, rather than layoff any employee, Hypertherm implemented a four-day workweek for all employees for a period of six months.

Hypertherm associates also participate in a profit-sharing plan that paid out an average 32 percent of salary and wages in 2005 as well as an employee stock-ownership plan that will leave Hypertherm’s associates with 30 percent of the company’s equity by the year 2011. While generous, the benefits are rooted in business reality. “If there are no profits, there’s no profit-sharing,” notes Couch.

Hypertherm’s revenue outlook seems bright, with the company’s metal cutting technology popular among companies that make agricultural, earth-moving and shipbuilding equipment. While all of Hypertherm’s manufacturing remains in the United States, more than 50 percent of sales now originate in other countries, with strong growth in Europe, South America and Asia.

“As the company goes from 500 associates a few years ago, to 1,000 associates soon,” Couch says, “the question becomes how do you maintain that team-based organization? That’s the issue that will dominate our agenda for the next 10 years.”

Robbin Derry, a professor at the Kellogg School of Management, and an awards judge, says: “Growing a manufacturing business with a strong commitment to both local staff and quality product requires determination and vision. Hypertherm has both.”

Awards Judges

Robbin Derry, Research Professor, Ford Center for Global Citizenship, Kellogg School of Management, Northwestern University, Chicago, IL

Geoffrey Heal, Paul Garrett Professor of Public Policy and Business Responsibility, Columbia Business School, Columbia University, New York, NY

Paul A. Hilton, Director, Institutional and SRI Marketing, Calvert, Bethesda, MD

Steve Lydenberg, Chief Investment Officer, Domini Social Investments, Boston, MA

 

Awards Criteria
Award winners should meet many (though not necessarily all) of the following criteria:
1. Small, medium, and large companies with U.S. headquarters (or the U.S. operations only of a multinational company)—publicly or privately held—are eligible.
2. Be a leader in their field, out ahead of the pack, showing the way ethically.
3. Have programs or initiatives in social responsibility that demonstrate sincerity and ongoing vibrancy, and that reach deep into the company.
4. Have a significant presence on the national or world scene, so their ethical behavior sends a loud signal.
5. Be a stand-out in at least one area of social responsibility, though recipients need not be
exemplary in all areas.
6. Have faced a recent challenge and overcome it with integrity, or taken other recent steps to show their commitment is currently active.
7. Be profitable in the most recent year, or show a strong history of healthy profitability.