While shareholders still reign supreme at many companies, a widespread shift toward more responsible business practices is driving more leaders to take a stand on social and environmental issues today, says Harvard Business School Professor Geoffrey Jones.
Jones predicts the recent rise of “deeply responsible businesses” will reach beyond the lens of current environmental, social, and governance (ESG) standards by putting the welfare of communities ahead of maximizing profits.
“The last 10 years have seen a change in societal expectations of how business behaves.”
“A younger generation of entrepreneurs really institutionalized a deep responsibility within the [economic] system,” Jones says. “The last 10 years have seen a change in societal expectations of how business behaves. Think of the pressure on companies to pull out of Russia after the Ukraine invasion. That didn't happen a generation ago.”
Jones, the Isidor Straus Professor of Business History, explores two centuries of such ventures—and looks ahead to the future—in his new book Deeply Responsible Business: A Global History of Values-Driven Leadership. The book emerges as business executives feel increasing pressure to commit to addressing social concerns while continuing to meet investors’ profit expectations.
Two centuries of ethical capitalism
Jones chronicles two centuries of enterprises that have acted responsibly, from the 19th century British chocolate magnate George Cadbury, who helped educate and house residents of the factory town, to the 21st-century emergence of “B Corp” startups, businesses that are intended to be better for employees, communities, and the environment. Jones says the countercultural ethos associated with brands like Ben & Jerry’s ice cream and Patagonia clothing, which both advocate for the environment, has motivated business leaders to take socially responsible steps for many years.
The pioneers chronicled in his comprehensive narrative include Boston department store owner Edward Filene, who promoted credit unions and led a 1930s campaign against Nazi-era anti-Semitism; Robert Bosch, who sheltered Nazi resisters; and computer company founder An Wang, who helped revive Lowell, a small Massachusetts mill town. Jones writes that while all had their flaws, “the principles of honesty and fairness guided their actions. They perceived that there was more to life than making money and accumulating possessions.”
The rise of modern industry in 18th-century Great Britain featured what Jones calls “breathtaking examples of skullduggery and moral failure.” But he says those conditions also led to “a push for greater benevolence.” Much of it came from Cadbury and other devout 19th-century Quakers, who provided worker housing, education, and other benefits.
Repelled by England’s Dickensian poverty and inequality, Cadbury attended to his employees’ well-being. He paid their hospital bills, and built a housing development, soccer and cricket fields, a gymnasium, and an outdoor pool. (Jones grew up in Birmingham, not far from Cadbury’s factory.)
Around the same time, colonial India textile manufacturer J. N. Tata brought his Parsi and Zoroastrian spirituality to the development of what Jones describes as a 19th-century version of stakeholder capitalism. Along with an independence-minded industry, Tata envisioned a hydroelectric plant, tree plantings, and a wildlife sanctuary to improve life in the city. His son completed the project after Tata’s death. Today, the Tata Group is one of the largest and most respected corporations in India.
Three practices of responsibility
Jones says all deeply responsible ventures exemplify three practices:
- They create and sell genuinely useful products and services;
- They work with stakeholders with “respect and humility,” as companies that operate “within a society and not apart from it”;
- And they believe in the importance of community and the role a business has in contributing to its vitality.
For many deeply responsible founders, “their religion was a huge asset,” Jones says, because it kept them from cutting financial corners. “They were in a different [ethical] game.”
Even so, not all were successful or enduring. After World War II, for example, American Motor Company CEO and future Michigan Governor George Romney tried to sell small cars to Americans as part of his belief in “modest consumerism.” But then, as now, Americans wanted big cars. When Romney left to become Governor of Michigan in 1962, the management turned to larger cars. After 1979, AMC passed successively through the hands of Renault and Chrysler and had disappeared entirely by 1990.
Plus, a smaller company’s initial social purpose can get lost when it’s acquired by large corporations that may not embody the same mission. Cadbury is now owned by the Kraft spinoff Mondelez. Consumer giant Unilever bought Ben & Jerry’s, Colgate-Palmolive bought Tom’s of Maine, and Jeff Bezos’s Amazon bought Whole Foods, which founder John Mackey had marketed as “conscious capitalism.”
‘Cool brands,’ but what about their values?
As Jones writes, such acquisitions are often made by “conventional behemoths interested in cool brands but not their associated values.” Patagonia is one of the few to escape this fate, he notes. Founder Yvon Chouinard put the company into a “purpose trust” and created a nonprofit to preserve its values. All profits go to the trust and are used to fund climate change programs and protect wildlands.
“Endless companies go to Patagonia to explore what it’s doing, whether or not they actually execute it, because it’s all very costly. ”
In an economy dominated by publicly traded companies, business leaders often find it challenging to follow Patagonia’s ambitious example, yet many still flirt with the possibility of adopting the company’s formula for purpose-driven success, Jones says.
“Endless companies go to Patagonia to explore what it’s doing, whether or not they actually execute it, because it’s all very costly,” Jones says. “But Patagonia shows that you can do it. They make quite expensive products, but high quality, so they last. And that’s clearly a way to go compared to fast fashion.”
Like earlier entrepreneurs, Jones says Chouinard thought he could inspire others to follow him on a different path “because it was the right thing to do.” But he grew disappointed at the lack of a wider impact, and a trust looked like the surest way to preserve Patagonia’s purpose.
Jones expects to see more companies creating similar trusts, partly because the pressure on conventional firms to produce short-term profits is so intense that companies may need a formal structure in place to avoid straying from their social missions.
‘It costs a lot, but it matters’
B corporation certification, or “B Corp,” is also emerging as a way to make a company’s social and environmental performance part of its legal charter and protect those values if the company is sold.
Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy—classmates at Stanford’s Graduate School of Business—launched a campaign to expand B Corp certification in 2006. That was a year after they sold AND1, a popular streetball-oriented basketball shoe and clothing brand that Gilbert had founded in 1993. (Boston Celtics player Kevin Garnett was the creative director, and numerous NBA players endorsed the brand.)
“ESG investing is based on the premise that you could get wonderful returns if companies check the boxes. ”
Based on a US Supreme Court ruling, they felt obligated to sell AND1 to the highest bidder, even though they knew the buyer would discard their social responsibility values. Rather than start another company, Gilbert and his friends started the B Lab program to get their values written into state statutes.
As of 2022, 37 states had such laws, and 5,000 B Corps were operating worldwide, including Patagonia, as well as Warby Parker, which sells eyewear.
Jones says trusts and B Corp laws reflect a little-discussed reality of deeply responsible business: “It’s expensive.” For that reason, Jones is skeptical of the popularity of ESG funds, since ESG standards are “all over the place,” with companies largely setting their own amid regulations that differ by industry and geographic area.
“ESG investing is based on the premise that you could get wonderful returns if companies check the boxes,” he says.
More important than checking boxes, Jones says, companies need to be honest and tell investors, “You know, it costs a lot, but it matters.”
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