Giving Power to the People Will Make You Rich
As the head of Conscious Capitalism, Alexander McCobin doesn’t just encourage businesses to be honest; he fights human instinct. Dishonesty, he points out, is a “human endeavor” that gets in the way of our business (and personal) success. If you’re not quite buying that honesty is the first step in business innovation, don’t worry, we’ll get there. First, invite yourself to consider an extension of honesty that’s getting more scarce every day: trust. If you can’t trust the people you work with, the vendors you buy from, the executives who surround you, or your managers or employees, then how can your organization move forward at all? If dishonesty creates distrust, then honesty is our only way out of a world filled with fake news, fake accounts, fake emissions reports, fake social media profiles, fake advertising claims, and other falsehoods that we live with every day.
Some blame famed economist Milton Friedman. In his book, Capitalism and Freedom, published in 1962, he wrote, “There is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits.” Profit-hungry executives were all too happy to receive that message over the latter half of the twentieth century. And sure, some benefitted from the innovations that came from the pursuit of cash. But others, like our environment or Enron’s investors, suffered because of it.
In truth, the pursuit of profits is not where Friedman’s dictum stopped; in fact, his caveat continues. It was a grave one, and one that now defines the elephant in the (board)room. After “there is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits,” Friedman wrote, “so long as it stays in the rules of the game . . . without deception or fraud.” (Emphasis mine.)
“There is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays in the rules of the game . . . without deception or fraud.” —Milton Friedman
Today, the currency of business isn’t dollars or bitcoin; it’s trust. With trust, a business can inspire a movement and destroy its competitors. The more honesty, the more trust. The more trust, the more profits. It’s a strategy as simple as it was on the day we were taught that honesty is the best policy. Only now, we have more data to back up the claim.
LEARNING WHAT PEOPLE WANT GIVES YOUR BUSINESS POWER
In a world where it’s easier to see what’s honestly happening and harder to get away with lyin’ like a rug, the logical next step for any business is to get its own values into alignment with the values of its customers. The big question is, how can we get better data about what our customers are thinking and feeling so we can catch a profitable wave and ride it, lest we get swept under it and drown?
To get at those critical signals in the noise, allow me to ask you a different question (and no, this isn’t the start of a joke): What do a hedge fund manager, media mogul, serial entrepreneur, and New Age alternative medicine guru have in common?
Answer: They all think that the state of business today is in deep, deep doo-doo.
In 2013, a motley but powerful group of leaders came together to form JUST Capital. That group—including hedge fund manager Paul Tudor Jones II, media mogul Arianna Huffington, serial entrepreneur Rinaldo Brutoco, and alternative medicine advocate Deepak Chopra—decided that enough was enough with the greed, corporate abuse, and institutional dishonesty in today’s business climate. Formed as a 501(c)(3) registered charity, JUST Capital “helps people, companies, and markets do the right thing by tracking the business behaviors Americans care about most.” Like Conscious Capitalism, the folks at JUST believe that business should be a positive force for change, and that organizations today have a responsibility to win back the public’s trust, which has been lost in our scandalous times. JUST’s thesis goes on to say that the nonprofit sector alone can’t solve the world’s most pressing issues—and that the private sector, with its market cap worth tens of trillions of dollars, is needed if we’re going to solve the big, systemic problems of our time.
The folks at JUST believe that business should be a positive force for change, and that organizations today have a responsibility to win back the public’s trust, which has been lost in our scandalous times.
JUST Capital decided early on that it would be honest with itself, which meant that the executive leaders at JUST had to admit they couldn’t speak for the values and expectations of the entire American public. Instead, they agreed that the only people who could decide what a “just” company looks like is the American people themselves—not the executives but the customers.
JUST’s ranking—called the JUST 100—lists the top 100 most “just” companies out of 922 of America’s largest publicly traded firms (the Russell 1000 minus REITs and pending mergers, for the 2019 list).1 JUST categorizes and awards firms according to the public’s idea of how a just, fair, and honest company should be. They capture the public’s preferences using nationwide polls of real Americans—in other words, they simply call up ordinary people across the country and ask what’s important (I know . . . asking customers what they think. Crazy, right?). Those surveys have revealed five main “issues” that influence buyer behavior, weighted according to how important each issue is in the eyes of the American public. The five issues, in order of importance at the time of writing, are:
1.Workers: How a company invests in its employees.
2.Customers: How a company treats its customers.
3.Communities: How a company supports its communities.
4.Environment: How a company reduces its environmental impact.
5.Shareholders: How a company delivers value to its shareholders.
One critical takeaway emerges from this mix that directly conflicts with today’s typical business practices: the American people want businesses to care about people, and even our planet, over profits. That might not surprise you, yet listen in to the next quarterly earnings call from your favorite publicly traded company. C’mon, you know you love to do that on a sunny Sunday morning in your cartoon pj’s. As you’re listening, notice how many times the company says “people” vs. how many times it says “profits.”
Customers Care about People over Profits . . . Period
To better understand this strange dichotomy, I sat down with the CEO of JUST Capital and longtime leader in the impact investing space, Martin Whittaker. Whittaker, who has testified to the US Senate on environmental markets and has dedicated his life to creating a more just business climate, joined JUST Capital knowing full well that its Sisyphean challenge would face enormous headwinds, as one would expect going up against a status quo driven by some of the most powerful companies in the world.
So why take it on? And what makes Whittaker think that judging businesses on their justness might provide a better world for us all? Ultimately, he recognized that we “can’t solve systemic social, economic, or even environmental health challenges without the private sector. Our government doesn’t have the money, and our philanthropic organizations aren’t big enough to be able to promote sustainable solutions.”
In other words, and perhaps paradoxically, we need those big corporate behemoths—their time, money, manpower, and even political power—to help change the way workers are mistreated, customers are cheated, harmful products are created, or environments are polluted. Of course, that might be problematic for companies who ignore or even create those problems in the first place (if you’re having trouble thinking of a few, pick up today’s news for some fresh examples). Up until the twenty-first century, companies have willingly bent the rules in pursuit of profits because they could, just like the Egyptians and Romans could. But times are changing, and with no thanks to governmental doctrines or new laws. Think about it: throughout the last century, regulations have come and gone, with rules and fines and laws. Did fines stop the financial crisis? Did laws stop VW from falsifying their emissions testing? Did the foundation of meritocracy stop elite universities from taking bribes? Of course not . . . because as long as the motives exist to make money, and we can trick our amygdalae into building up a tolerance for deceit, we inexorably end up in the business environment we experienced over the twentieth century. But here, in this century, information transparency is giving us a different set of incentives.
The American people want businesses to care about people over profits, yet listen in to the next quarterly earnings call from your favorite publicly traded company. How many times does the company say “people” vs. how many times it says “profits”?
As Whittaker notes, the line between “business success” and “profits” appears murkier as of late, and our understanding of exactly what drives business performance and high profitability is rapidly evolving. We do know that ending up in the headlines is decidedly not good for profits. Luckily, the components that make for outsized profits are getting clearer as we can measure more data, which is exactly what JUST Capital and its rankings are seeking to accomplish.
“Any good accountant will admit that whether a company is making a profit or loss is an art, not a science,” Whittaker pointed out, “so imagine the complex drivers of value that include things like people and community relations and product development, and it’s not surprising that those drivers haven’t been exactly quantified and systematized and turned into tools that can help connect those things to financial performance in business.” If we want to make more money in business, we have to be honest: the formula we’ve used to assess profit is at best only partially correct. It’s now time to expand our understanding of how buyers buy, which does translate directly into revenues and profits.
Consumers Want a More Just Business (and Will Reward You for It)
The most skeptical among us—a group that, by the way, includes yours truly—might be wondering how we can abandon focusing on the income statement in favor of such touchy-feelies as nurturing our communities and taking better care of employees. I don’t know about you, but that sounds exhausting. But consider this: if you look back to the Industrial Revolution and consider how companies treated their workers then compared with how companies treat workers today, you’ll see that things have improved. In times past, employees literally put their lives at risk to fatten the coffers of owners and executives. Today, unions have enabled better working conditions, workplace safety is a top priority, and perks like gyms, unlimited vacation, and flexible hours run rampant. Don’t forget the power of the almighty ping-pong table, either. And if employees’ choices have steadily improved, what makes us think that customers’ options haven’t improved and broadened as well?
Formerly, the difference between those two constituencies was only in the degree of transparency—employees could know for sure how they were treated, while customers didn’t have that inside information about product quality, company policies, worker treatment, environmental impact, and so on. Fast-forward to today, when companies are getting exposed in the best and worst of ways, and you can quickly see a future where some companies might be at DEFCON 1 when it comes to their internal policies and practices. When JUST Capital conducted its nationwide poll to measure how much consumers even cared about justness, 96 percent said they believe it’s important to measure just behavior; more than 80 percent indicated they would seek out and use information on justness in purchasing; 63 percent continue to believe in business, which is sort of a sad figure; but 56 percent believe that corporations have become less just over the last decade.2
In times past, employees literally put their lives at risk to fatten the coffers of owners and executives. Today, unions have enabled better working conditions, workplace safety is a top priority, and perks like gyms, unlimited vacation, and flexible hours run rampant.
Ouch.
The numbers don’t lie, and fortunately our crystal ball doesn’t have to look far to see that meaningful money is flowing into more just businesses as consumers get more information and make better choices. As Whittaker noted, “When I started out doing impact investing twenty years ago, you had to telephone the investor relations person to say, ‘I’m interested in your company’s environmental profile or how you treat your workers well,’ and they would respond, ‘What? Who do you represent?’ Finally, if you were lucky, you would receive a little glossy corporate social responsibility [CSR] report, which was more of an exercise in creative writing and photography than in mathematical analysis.”
Of course, today is completely different, with companies creating entire CSR departments with the sole focus of enhancing responsible practices, including but certainly not limited to the value drivers that JUST Capital has found to be important to the American people. But is that enough? Is a relatively small team of CSR-focused employees enough to prevent VW lying about its emissions tests, or Wells Fargo creating fake accounts to boost sales? How can we regulate against those deceptive practices to create a more honest business climate so organizations start doing the right thing?
According to Whittaker, that’s exactly the wrong question to ask.
THE REAL, UNAVOIDABLE DRIVER OF ORGANIZATIONAL CHANGE
“When you look at what makes businesses tick,” Whittaker told me, “I don’t believe that changing the rules is necessarily the best way to go—force disclosure, change the definition of what a corporation can and can’t do, and so on. That kind of change is great and important, but at the core, you have to provide the market incentives and rewards for more just behavior.”
Bringing fairness and equality into a boardroom that only speaks “profit” is like bringing a knife to a gunfight. We must fight corporate behavior with corporate behavior.
If we must fight fire with fire, then it follows that we must fight corporate behavior with corporate behavior. Put another way, bringing fairness and equality into a boardroom that only speaks “profit” is like bringing a knife to a gunfight. But Whittaker and his team stumbled on something even more powerful than fairness and equality. They found a weapon so powerful, even the most staunch CEOs in the most capitalist C Suites can’t resist it.
What is this source of insurmountable power, you ask? Easy: customers voting with their wallets, otherwise known as “sales.”
That’s why it’s so critical that the JUST 100 doesn’t rank businesses on the basis of what a few executives think; instead, it ranks them according to what customers find most important in their buying decisions. Regulation, I would agree with Whittaker, hasn’t done a whole lot to change corporate attitudes. How well regulated is the pharmaceutical industry? Very. How many scandals have we endured in that industry? Many. Instead of regulation, the consumer public’s decision to support a business (or not) by purchasing products and services is the tiny underwater earthquake that can begin the tidal wave of change.
Irony of ironies: in the beginning, Whittaker and his team received negative feedback about polling the public. “The public doesn’t know about these things—sustainability or climate change or the connections between gender-pay equity and performance, and the trade-offs between jobs in America and low-cost goods,” Whittaker quoted from some early naysayers, shaking his head. But it turns out that we lowly consumers actually do know about those things. Yep—we’re smarter than we look (*fist bump*).
Both our government and corporate America have shown a long history of ignoring what we ordinary folks think because, well, they could, and it’s made many of us feel relatively hopeless about the opportunity to create large-scale change.
Ultimately, JUST’s research turns up a set of basic values that any business leader would recognize as vital to a well-run organization. The results legitimize an intrinsic, human point of view we all possess—the very same point of view that we consumers use when we make decisions to buy. It turns out that when you ask Americans about their values, you develop some really interesting insights. Every year, JUST’s research team conducts new focus groups that yield surprisingly consistent results concerning what the interviewees care about: treating people well, supporting the community, and generally being honest and trustworthy. Sadly, both our government and corporate America have shown a long history of ignoring what we ordinary folks think because, well, they could. It’s made many of us feel relatively hopeless about the opportunity to create large-scale change, even if that change is simply a reversion to the values we all agree are the bedrock of our individual, organizational, and societal identity.
Unfortunately, we’re living in a tremendously dichotomous time, where some leaders are being rewarded for being just (like the leaders featured in this book), while others are being rewarded for being unjust (did the CEOs of VW and Wells Fargo give back their mansions or yachts?). But what’s at stake here isn’t just profits, as I hope you’ll agree. What JUST’s researchers have found is that people want to feel they can trust their institutions and their neighbors alike, and that they can live in a country we’re all proud of. It’ll be up to us as individuals to define who we are, and to decide whether our shift toward honest values is simply a generational fad (darn you, millennials!) or something more. By the way, we’re deciding that fate every day, simply by voting with our wallets.
People want to feel they can trust their institutions and their neighbors alike, and that they can live in a country we’re all proud of.
If you’re a leader interested only in short-term profits, I have no strategy to offer. I can only appeal to your identity, core values, and willingness to make the world a better place. But if you want to thrive long-term, then wow do I have the strategy for you.
Let’s be brutally honest for a moment about where we are as a society. If we think about society as a whole—our politics, social norms, even casual conversations—we’ve been on a journey over the last fifty years in this country to stop treating people as manufacturing inputs and start treating them like humans. Many elements of social life that were simply part of the way the world worked have forever changed, and the way we do business is changing, too. As a nation and throughout the world, we’ve been on a trajectory toward treating people better—whether interpersonally, between neighbors, or organizationally, as employers and employees and vendors and customers. Play it forward, and anyone with even a small amount of foresight can see that the businesses that ultimately win will be those that lead with honesty and transparency.
THE SHOCKING BUSINESS CASE FOR BEING A JUST ORGANIZATION
Each year, JUST Capital illuminates what the consumer public wants and how today’s largest companies stack up to those expectations. JUST is tracking company performance on data points that have never been tracked before, so we can all see what happens when people gain access to more information than they’ve ever had about their beloved brands. Chances are, most of those brands will begin to behave differently, more justly. Companies, after all, are made up of humans, and, as Whittaker offered, “People behave differently in the dark than they do in the light.”
As more companies have reported data, JUST has been able to collate that data into a phenomenally compelling case for justness; companies who make the JUST 100 list also, on average:
pay their median US employees 33 percent more than other companies
employ an average 38 percent more workers in the US than other companies
have paid no consumer product safety fines over the last three years
have zero FDA fines
donate 3.8 times more to charity per dollar of revenue
emit 72 percent less greenhouse gases per dollar of revenue
pay 99 percent fewer environmental fines per dollar of revenue
pay 96 percent fewer sales term fines per dollar of revenue
face 74 percent fewer employment discrimination cases per dollar of revenue
face 73 percent fewer labeling controversies per dollar of revenue
use 80 percent less fossil fuel per dollar of revenue
And the metric you’ve been waiting for: it doesn’t cost these companies even a dime to live by generally honest business practices. In fact, JUST 100 companies deliver an average 8 percent higher return on equity than their peer companies,3 which makes acting justly, according to JUST Capital, “just plain smart.”
Now we know. We consumers know that making the choice to buy from a just company makes it possible for its employees to earn better wages, for the environment to sustain less damage, and for us to be better protected, knowing that what we buy has better quality. And if that level of transparency excites you, we’re only at the beginning.
“In the next twenty years,” Whittaker mused, “I imagine you’ll be able to know what women and men get paid in the same job in the same company. All that data is going to be out there. You’ll know exactly whether or not a company is polluting locally or not in the zip code where you live. Think about corporate disclosure reporting going back to the Depression, and you’ll see that companies have been resistant to giving out information. Fifty years ago, companies didn’t even give up where they were getting their revenues from because of ‘competition,’ which today is totally different. It’s inevitable to me that anyone’s going to be able to get the kind of information that we struggle to get today, and once you embrace the fact that that’s going to happen, it requires an honesty about what actually drives performance.”
Whittaker and JUST Capital’s founding team have bet big that the business world is ready to expose the honest drivers of profitability, and they firmly believe that all that’s missing is access to more data. Already, big multinational companies are thinking more critically about how to more deeply measure all the components of business success, and the more serious businesspeople there are who are willing to be honest and transparent, the more this snowball will accumulate.
This being a book about honesty, there are, admittedly, some holes worth addressing. For instance, fossil-fuel-producing oil and gas companies grace the JUST 100 list, as does Facebook, despite recent scandals. To that, JUST Capital’s staff members explained that, ultimately, the American public is the judge, jury, and executioner when it comes to which companies deserve to be on the list and which don’t. That’s why, each year, JUST redoes its nationwide polls to gauge which issues are important and how those issues change in importance over time. Thus, the public might be willing to forgive Facebook because data privacy may not be a strong enough criteria, while fracking for natural gas might be much more egregious. In fact, as one researcher put it, the rankings “do allow for companies to make mistakes, or, for instance, to be ongoing polluters, and still be just in other ways.”
Nuances indeed exist; for instance, when you fill up your car with gas, it might be difficult to pinpoint whether the gas company, your automobile manufacturer, or you are the one to hold responsible for polluting the environment. JUST also found that for some companies, treating employees well or giving to charities couldn’t offset the core of the business. For example, tobacco producers couldn’t overcome creating a product that inherently damages people’s health, so JUST Capital made the decision to permanently pull cigarette maker Philip Morris International from the list in 2017, as the public demanded.
Furthermore, there exists a conspicuously large number of technology companies on the JUST 100, which made me wonder whether justness was a function of profitability (instead of the other way around), or perhaps simply a birthmark of newer, millennial-driven cultures. To that, the JUST researchers noted that tech companies do inherently tick a lot of boxes by being in a high-wage industry with products that people love, close relationships with end consumers, and so on. But even more importantly, tech companies are often younger, nimbler organizations that can move more quickly on the issues that people care about, and they’re less likely to be stuck in practices they developed decades ago that today aren’t socially relevant or appropriate.
Now that companies can see us consumers coming for their data, they will doubtless move to clean up their acts.
Even more frustrating, the rankings are still constrained by publicly available and crowdsourced information. Of note, there are issues bubbling up in the tech community around sexual harassment, gender pay gaps, how those companies treat contractors who are outside the purview of the employer-employee relationship, and so on. Those are factors that, over time and with evermore data, the JUST team can integrate into their rankings to create a more complete picture of organizational honesty. Hopefully, with help from Wall Street analysts who are keen to collect more information to produce more accurate guidance, companies will have an incentive to create and share more data over time. And now that companies can see us consumers coming for their data, they will doubtless move to clean up their acts.
IF YOU WANT TO COMPETE, THE TIME FOR HONESTY IS NOW
The race is on to be the most honest, most transparent, most conscientious company, and we won’t have to wait too long for organizations worldwide to fall in line. “It’s not that all business is adapting to a changing culture,” one JUST researcher noted, “but that businesses exist on a continuum of competitiveness, so the ones that are leading anticipate what’s coming and adjust as a result.” The entire distribution curve for organizational honesty is shifting, and the opportunity standing before you gives you the chance to occupy the leading edge of that curve. By definition, being a leader means exploring new ground and charting new territory, which is what the JUST researchers, CEO Martin Whittaker, and JUST Capital’s powerful founders hope to inspire.
Honesty isn’t a cost; it’s an investment that will drive better products, experiences, sales, marketing, finance, culture, and more.
No matter where you are—on the left or on the right, on the front lines of an oil and gas company or the C Suite of a tech firm—you can see from JUST’s mission that you have a compelling excuse to be honest about what needs to change. Trust is at an all-time low, and we don’t need data to look around and notice how skeptical we’ve all become. Capitalism is increasingly being called into question as a sustainable system. And if that’s true, it’s time to bring America’s values and America’s firms into alignment so that businesses can sustainably benefit everyone as we move into our transparent future. If you’re thinking, We can’t afford to do good, you need to know that there’s a business case here. Honesty isn’t a cost; it’s an investment that will drive better products, experiences, sales, marketing, finance, culture, and more. If you don’t believe me—and I don’t blame you—I’ll soon prove it.
For JUST, the how is probably best left to market forces—peer pressure, the desire to attract and retain the best talent, the pursuit of industry awards, the perils of public perception, the ubiquity of social media, and, of course, the pursuit of profit. A company that does as it says, keeps promises, and acts honestly will, ultimately, win that race—along with a nearly insurmountable competitive advantage, as we’ll soon see with the cases in this book. Mark my words: the firm that embraces honesty will always win in a world where consumers have near-perfect information. Sadly, many leaders I encounter would rather plunge a chopstick into their eyeballs than admit they must finally stop pulling the wool over the eyes of customers and employees.
Consumers buy things when they believe the products they’re purchasing hold more value than the money they’re paying. When consumers have bad information, they make bad choices—choices that they wouldn’t make if they had better information about the value of what they’re buying.
Yet the age-old principles of microeconomics hold fast here: consumers buy things when they believe the products they’re purchasing hold more value than the money they’re paying. When consumers have bad information, they make bad choices—choices that they wouldn’t make if they had better information about the value of what they’re buying. We’re already making better, more informed decisions as more information becomes available, and the organizations that hold out will lose out to their more transparent competitors.
Finally, it’s worth noting that JUST’s rankings contain the largest companies in the United States—not Patagonia or Zappos, which have more obvious connections to just values. However, JUST’s founders recognize that creating systemic change—the movement toward a more just business climate—takes some of the largest resources in the world to achieve. According to Just Capital, a tiny shift in spending by the largest publicly traded firms could create more than a trillion-dollar flow into greater employee benefits, better product development, better customer experiences, and more, so it makes sense to try to move the biggest ships in order to produce the greatest impact.
Meanwhile, some bold individuals, public companies, and private organizations—some of which are in this book—are bravely holding short-term initiatives at bay while considering the long-term sustainability and profitability of their firms. Those brave leaders have realized that success exists in the mind-set shift from “we need to cut costs” to “we need to invest in being just so we’re here for the long term.” If you’re not a brave leader—and bravo for your honest self-assessment—consider JUST’s findings that 56 percent of people think CEOs should take a stand on social issues related to the business. If that’s impressive, consider that even more—63 percent—think that CEOs have a responsibility to take a stand on important social issues whether they concern the business or not.4 Unsurprisingly, young people seek out justness more than any other generation: a Glassdoor survey from 2017 found that 75 percent of eighteen- to thirty-four-year-olds expect their company to “take a stand on important issues affecting the country and their constitutional rights, including immigration, equal rights, and climate change,” and that young people are increasingly forgoing higher compensation in favor of companies that “align with their beliefs.”5
And “just” in case you wanted an even bigger financial incentive, consider that on June 13, 2018, Goldman Sachs launched the JUST U.S. Large Cap Equity ETF (Ticker: JUST)—the first ever exchange-traded fund (ETF) designed to match the American public’s priorities to a publicly traded investment. With both the firepower of its supporters and the zeitgeist of our time, the JUST ETF was the single most successful Environmental, Social, and Governance (ESG) ETF launch to date, and in the top ten equity ETF launches in history—proving that investors are truly interested in putting their money into companies that do good.
The movement toward information transparency and consumer choice is already here, like it or not. It’s honestly up to you whether you’ll capitalize on this movement or choose to hang on for as long as possible to the status quo until you’re forced to spend egregious amounts of time and money playing catch-up to your bolder peers. Ultimately, if your organization can inch its way a little closer to what America cares about—leaders and organizations being just, fair, and honest—you’ll be ready for the meaningful change lurking just around the corner . . . the corner of Wall Street and Main Street.
QUESTIONS FOR HONEST REFLECTION
1.To what extent does your organization behave the way everyday Americans want it to?
2.How much do you know about the brands you buy, and what could you do to learn more about their business practices?
3.Would you describe your organization as innovative or sticking to the status quo?