Normally, for a company like Calvert to lay off workers isn’t news. But the firm now joins the growing ranks of “socially responsible” capitalists that are struggling to balance their values against the demands of the marketplace. In the past year: Hanna Andersson, a mail-order merchant that prides itself on treating its workers like family, abruptly flied 10 percent of its phone-marketers and cut benefits; the Body Shop, maker of wholesome beauty products, came under investigation by the Federal Trade Commission over its franchising practices; and the ice-cream maker Ben & Jerry’s abandoned its much celebrated pay scale, which limited its CEO salary to seven times that of the folks who scoop ice cream. To their credit, companies like Calvert are still making strong efforts to preserve their corporate culture–cushioning cutbacks with generous severance packages, for example–while providing a return for investors. But clearly, middle age has changed their priorities. Says former Stride Rite chief and cochair of Businesses for Social Responsibility Arnold Hiatt: “The first act of social responsibility is to make money.”
Idealists like Hiatt first took corporate America by storm in the 1970s and 1980s, determined to refashion it in their own image. Scores of onetime hippies and activists created booming businesses with politically correct pedigrees. Hiatt, treasurer for the 1968 presidential campaign of liberal Sen. Eugene McCarthy, took over Stride Rite–the venerable maker of Keds sneakers–in 1969 and added the trappings of a social-service agency: on-site day care, scholarships for poor kids and company-sponsored trips to the Third World for graduate students.
In those early years socially responsible companies prospered. But as the start-ups made the transition to big-time enterprises, the business side of the equation became more complicated. For example, when Tom’s of Maine, which produces toothpaste made from natural ingredients, reached a 1 percent share of the nation’s market, Procter & Gamble caught on with its own brand of baking-soda toothpaste. Environmentally conscious outdoor-clothing maker Patagonia discovered that even good companies must lay off workers when they overexpand. And Stride Rite was forced to reconsider its commitment to employing America’s poor and shipped jobs to Asia like rival Nike. “Not one of us knew what was going to hit us when we set out,” says Joan Bavaria of Franklin Research and Development, a politically correct investment-management company.
The compromises wouldn’t be so conspicuous, of course, if companies like the Body Shop had not made such a to–do about their own purity. But the Body Shop trumpets its good deeds: simple, natural ingredients, harvested without harm to the environment and for the benefit of indigenous peoples. Founder Anita Roddick knew the appeal of searching for skin creams among the Wodaabe tribe in Niger and for cactus body scrubs among Mexican peasants. Her earthy, Third World sensibility was a smash hit among Yuppies, spurring sales to $700 million last year.
Yet under the glare of success, the Body Shop’s angelic image has lost some of its luster. In 1989, concerned that it couldn’t defend its extreme animal-rights claims, the company quietly changed the labels on its products from NOT TESTED ON ANIMALS to the more cryptic AGAINST ANIMAL TESTING. The current federal investigation into Roddick’s franchising practices comes amid another controversy for the company. The October issue of Business Ethics magazine claims that the Body Shop’s dealing with indigenous peoples has done more harm than good. The Body Shop acknowledges the FTC investigation but insists it is routine. Gordon Roddick, Anita’s husband and business partner, issued an angry, detailed refutation of the article, but the publicity has hurt. Many socially conscious investment houses sold their Body Shop stock, which has dropped 15 percent.
Other conscientious capitalists have less sensational, but equally troublesome, problems. When Tom and Gun Denhart started Hanna Andersson in 1984, they were looking only to make a living and to be their own bosses. By the time the company grew to $40 million in sales in the early 1990s, they wanted more: a nurturing workplace. The Denharts paid half of all day-care costs for employees, provided full benefits even to part-time employees and made sure the company cafeteria served low-fat meals heavy on garlic and herbs. But while the Denharts were absorbed in their workers’ well-being, competitors invaded their sales niche: trendy–and pricey–children’s clothing. When sales plummeted early last year, the Denharts cut 20 jobs. “When we started this business, we were the only ones who made really high-quality baby clothing,” says Gun Denhart. “Now we have over two dozen competitors.”
But while the cutbacks precipitated a lot of unhappy soul-searching, Denhart and others admit that they’re emerging with better-run businesses. Hanna Andersson, for the first time, is producing a five-year business plan. And while the company has rehired many of the employees it laid off, it has also cut benefits like free parking. Patagonia decided to cap the size of its work force for the long run and has reduced the number of products it sells in its catalogs. In addition, the company will expand only if it has enough money to pay for it. In other words: no borrowing.
Young upstart do-gooders (chart) are now hedging their bets against reaching liberal perfection. As a spokeswoman for Odwalla, a maker of all-natural juices, admits, “No company can live up to its values and visions all the time.” Nevertheless, emerging firms like Odwalla are still absorbed by the possibilities of their social mission. They, too, may have to learn the hard way that over the long haul, you can afford the luxury of goodness only if you also make a buck or two for shareholders.
Older “socially conscious” firms may be wrestling with their ideals, but these young companies hope to do the right thing and make a buck, too:
This maker of footwear from recycled soda bottles, tires and “vegetal leather” (based on latex) lets workers spend four hours a month on volunteer work. The two-year-old firm received a major environmental award from the U.N. this year. Sales: $2 million.
it’s the only national organic baby-food company, featuring strained dinners like Rice & Lentil. Founded in 1987, Earth’s Best uses recycled glass and steel to make its jars and jar caps. The company donates its products to disaster-relief programs. Sales: about $20 million.
“We use food to lure innocent customers into social activism,” says CEO Judy Wicks–with “Table Talk” lectures on social issues, a Native American Thanksgiving dinner and inner-city tours. In 1993, Inc. magazine named it one of the best small companies to work for. Founded in 1983. Sales: $3.6 million.
It has no products on the market yet, but the company is using native healers in the rain forest to help develop commercial drugs. Shaman established the non-profit Healing Forest Conservancy to compensate the indigenous communities. Founded in 1989. Sales: $0.
The company, which makes all-natural fruit juices, processes its organic waste into animal feed; dried citrus peels are used for potpourris and teas. Launched in 1980. Odwalla donates juices nearing expiration to food banks. Sales: $18.1 million.
