After quarantines, business failures and massive unemployment in every country from the Coronavirus pandemic, the world has changed forever. More and more entrepreneurs will follow the example of business leaders who combined their purpose in life with supporting the community they live in. The crisis we have all gone through will have a dramatic effect on the meaningful decisions being made in the pursuit of profits. John Lowe of Money Doctors investigates.
Ever since the Body Shop was founded in the 1970s, an increasing number of entrepreneurs have chosen to launch socially responsible businesses. Such businesses outperform purely profit driven ventures (I’ll come back to this in a moment) proving that it is possible both to make money and make a difference. Let me offer you a few examples:
- When you buy a pair of shoes from Tom’s ( based in Los Angeles California ) they give a pair away to someone in need and when you buy a pair of their sunglasses they save or restore someone’s sight. The company also campaigns to ensure a fair wage for workers and against human trafficking and slavery.
- Madecasse, based in the Pfizer building in Brooklyn New York, is a chocolate company founded by two US Peace Corps volunteers that makes and packages its entire range in Madagascar. It goes ‘beyond fair trade’ in terms of paying workers and creating employment and it also conserves the environment and improves biodiversity.
- Divine, another chocolate producer originally established in the UK in 1998 as a company limited by shares co-owned by the Kuapa Kokoo cocoa farmers’ co-operative in Ghana, has actually given 44% of the shares to the farmers who produce the cocoa.
- Satya Jewellery based in New York (Satya means truth in Sanskrit) was started by two friends who wanted to support children’s charities in developing nations. So far they have donated over $1m to good causes.
- Ecoigo is a London-based limousine service that only uses environmentally friendly vehicles, offsets 100% of its carbon and makes sizeable charitable donations every year.
- The John Lewis Partnership, the third largest privately held company in the UK, consists of a chain of eponymous department stores and a chain of food stores called Waitrose. The son of the original founder effectively gave the business to the staff in 1929 (although he carried on running and expanding it until 1955) and since 1950 it has been an employee managed partnership. The chain, which is well known for its ethical sourcing and pricing policies, is a wonderful example of how turning employees into owners can produce a highly profitable and yet socially responsible business.
The above examples all incorporate ethics into their ordinary commercial activities. Some socially responsible businesses, however, were started purely in order to pursue a social, moral and/or environmental programme. My favourite example of this is Dr Bronner’s Magic Soap. The ‘Dr Bronner’ after which the soap is named was a third-generation Jewish master soap maker from a tiny little town in Germany. In the late 1920s he emigrated to America, where he began lecturing about ‘The Moral ABC’ his plan for achieving world peace. As a thank you to the people who came to listen to him he used to hand out a free bar of soap. After a while he realised that people were coming for the soap not the lectures so he printed the lecture on the packaging and started selling the soap. Today Dr Bronner’s Magic soap turns over $50m a year and is managed by the founder’s grandson. Pretty much all the profits are given away to charity and the business is run for the benefit of the employees not the shareholders. For instance, the highest paid executive can’t earn more than five times the lowest paid employee. Interestingly, the company never spends a single penny on advertising or marketing.
The reasons why socially responsible businesses seem to do so well include:
- Consumer interest in this area is huge. Businesses that are not- just-for-profit tap into a huge community of customers who choose where to spend their money based primarily on their principles.
- There is increased customer loyalty. Where a business and its customers share the same principles and values there is a much stronger relationship. Like attracts like.
- The customers promote the business for the owners. Ethical businesses frequently don’t have to spend a penny on advertising or marketing because all their customers come by word of mouth.
- People prefer to work for a company that is helping others or the planet and they may even be willing to work for less because of it.
- Socially responsible businesses can look forward to much higher levels of media coverage. Getting publicity will be considerably easier.
- Given a choice of two identical products, one ethically produced and one not, consumers will opt for the one with the socially responsible story.
There are lots of different terms in use to describe not-just-for-profit businesses, including ‘socially responsible businesses’, ‘ethical businesses’ and ‘conscious businesses’. Whatever label you apply, to my mind what we are talking about is any commercial organisation that aims to:
- do no harm to humans or the environment
- promote a social and environmental agenda
- support one or more social and/or environmental causes
Investing in businesses like these makes sound financial and moral sense especially coming at a time when the world has changed for ever and there is a greater sense of community post coronavirus. Stay safe.