What Matters Most
An Interview with Jeffrey Hollender
Recently we talked to Jeffrey Hollender, CEO of Seventh Generation (an environmentally responsible producer of home products), and author of What Matters Most.
This is an important book that discusses corporate responsibility from both the financial and environmental perspectives. For us supply chain people, Jeffrey Hollender has a broader definition of the Value Chain that includes the true end-to-end responsibilities as well as sustainability, a term that includes not only recognizing all the costs incurred in the chain (human, environmental etc.), but also thinking about the impacts on society over many generations, on a global scale.
This is a profound book for supply chain professionals, who are having a huge global impact, which is frequently not well thought out, and which is not always appreciated by participants from supply markets to the end customer.
ChainLink: Jeffrey, please tell us a little about yourself.
Jeffrey: I was born in NYC, and grew up in the 60’s, which had profound impact on my life. This created a sense of responsibility – and possibility. At 20, I started my own business which was a nonprofit. My father thought I was ‘silly to be kind – working seven days a week – and in the end, you won’t own anything.’ After this, I started another profit driven business. That was all about making money! And once I sold it (to Warner – now part of Time Warner), I began to think that it was not working for me to segregate my personal philosophy and values from my business.
ChainLink: Jeffrey, what motivated you to write What Matters Most?
Jeffrey: Well, firstly I wrote a book called How to Make the World a Better Place, and then I began to think about a business where I could attempt to unite my personal values with my business goals. From there we started Seventh Generation. Through this I have learned that business is the most powerful force on the planet. But I questioned how could it be a better force? So, I wanted to write about how we could be a better influence. I also wanted to unmask the businesses that appear to look good, but aren’t. But as I did my research and interviews, I discovered many companies who are doing good and are attempting to significantly change their corporate cultures and long-term goals.
ChainLink: Doing good. It is sounds good, but there must be some real business motivators?
Jeffrey: The business case of being responsible was strong enough that many businesses were doing it or contemplating it. I was very surprised to see many businesses doing a whole bunch of impressive things – and just not for the PR – because it made sense.
ChainLink: So the business case is…?
Jeffrey: The business case has a lot to do with Risk Management. The chances of getting exposed or caught are high. And the costs, once caught, are even higher. Much research has shown that socially responsible firms – well run firms – actually have positive effective on shareholder value. Morgan Stanley did a study of 602 companies. The highest socially responsible, the top 186, out performed the bottom 416 companies by 23%. And Arthur D. Little did a study – there really is an avalanche of research on social responsibility – on the perception of CEOs. 70% of the CEOs felt it was vital to corporate performance. They may not like it, but it’s important. No matter what the industry, Food, High Tech, etc., consumers expect responsibility out of the companies they buy from. And in this tough business climate, the CEO cannot afford not to listen to the market place.
In addition, insurance companies place a value on this – from safety and other liabilities. These companies know that socially responsible firms are financially less risky. The implications are, you never know when an issue can overcome a company.
And finally, there is the issue of Intellectual Property development and employee retainment. People want to work for and be associated with a firm with a good reputation.
ChainLink: I think many Americans – even business people – are ignorant of the economics in the global supply chain – what we pay, and what the distribution of cash and profits are. We see so many imports, from crafts to cars, and we don’t understand the positive and negative ramifications/impacts to underdeveloped economies.
Jeffrey: You know we have over simplified many of these issues. Like labor standards. As bad as we think it is, say a $2.50 an hour job in a developing country, it is way better than the 50cent an hour job. As bad as we think it is, sometimes the alternatives are worse.
ChainLink: The problem also is if a product – like coffee – becomes a successful product with some margin to share, then the big corporations will seek the lowest cost level. This then ruins the chance for the producers to share in the opportunities. Yet the consumer sees a cup of coffee mostly as a price issue.
Jeffrey: It’s a hard concept in part because the costs are externalized. But if printed on the cheap cut of coffee (by Maxwell house etc.) was the names of the farmers who have gone under, or of the businesses that were paid under market value for their coffee, then I think most consumers would understand. Most consumers don’t have any visibility to what below market pricing has done to these people – their children have to leave school to work in the fields, they are exposed to pesticides, etc.
When we buy a cup of coffee or a t-shirt, we don’t understand the impact through the value chain because of these decisions. These are stark choices! Like organic vs. inorganic cotton. There are fields filled with pesticides, sweat shops for manufacturing, where the labor conditions are terrible!
ChainLink: Jeffrey, you have given us a new definition of the Value Chain, which includes the whole lifecycle, the sustainability/re-use and recycle view, as well as a way to think about the total cost—including environmental costs of products. Can you explain this to our readers?
Jeffrey: The Value Chain is growing wider – like the ripple in the pond. The concept in outsourcing is that you don’t care where or what the conditions are like that your product comes from. But you need to care. We saw the example with Nike who misread the concept of the Value Chain and saw it quite narrowly. The factories in Asia were outside their model. HP is another example. Although they had nothing to do with the recycle business in Asia, where workers were exposed to toxic chemicals, they attempted to defend their innocence. But ultimately HP saw their moral responsibility. They changed their mind 180 degrees and even supported legislation in California. To a great degree they were driven by business concerns. They thought: what a terrible thing this has done to our brand!
So, there is a case to be intentional – and it’s not about government—we businesses need to think about this. Do we have a plant that 60 Minutes should not visit? Some of these issues can be farfetched, but it makes you think, what do I have to do? Under what circumstances was my product made? And where could it wind up? And in the age of the internet and over done media and communications, bad news travels fast.
And it is amazing how fast it happens. Look at Arthur Andersen – no one even wanted to admit that Andersen did their audit. Even the wrong partner can damage your reputation. And the converse is also true. We are proud to announce our partnerships that enhance our image and value.
ChainLink: Let’s talk about the Petro/Chem Industry. They are basically ubiquitous – in every nation – across the value chain – and even in the US they have a bad reputation. Yet, we have DuPont and Shell, trying to stake a moral high ground. Are these companies for real?
Jeffrey: I think companies do have more of a focus on values today. But we are in a transition – the change that business makes is a different and messy process that most businesses haven’t figured out how to do – or there are leaders that are just not interested. How many more years are they going to litigate what happened in Alaska? Soon they will run out of places they can litigate this. Shell saw that consumers can choose what gas they want to buy, and bad publicity affects sales at the pump. There is an impact to revenue due to reputation.
ChainLink: I think many Americans are confused why the government doesn’t help enable more alternate energy sources. I would think this would be a better endeavor for the economy, the environment and the war on terror.
Jeffrey: What I find encouraging is that even though government in the US currently is not helping, the business case is strong enough. Smart companies are saying: why wait for a problem, something that will depress my market value by 30% and tarnish the corporate reputation?
ChainLink: My cynicism in all this is the PR vs. the reality. I have found that as big companies ‘buy-out’ the little guys, it is not necessarily good for the consumer. For example, the Whole Foods Company now has many private labels, replacing many brands – some of the products are not as ‘healthy’ as the products they are pushing out.
Jeffrey: Today, many of the so-called health brands are owned by the big companies like General Foods, etc. And this issue you bring up applies in many industries. The question it poses is, how influential the small principled acquired company will be in the parent company – what happens to their values when the acquisition happens? Will values migrate up, or will values migrate down? And I think the jury is still out on that.
For the consumer, it means you have to look beyond the brand and understand the parent company—where this really comes from and what are their values? One example is James River (Fort James) Green Forest tissue paper. Green Forest sounds like a nice natural product, but in reality very little of the paper content comes from recycle, but from basic forest product waste that is bleached in chlorine – not a very natural product.
The challenge we business people face, (who support sustainable value chain processes) is to make it obvious and easier for consumers to make choices. Today it is not all that clear how the consumer can know and support responsible business practices.
But it’s not just the CEO who is responsible. All of us have a responsibility in what we buy and what legacy we leave in terms of ethics and responsibility. Change won’t happen without us. Consumers, media, government, etc., put pressure and have an impact – we are the market. This is a project and a process for all of us. We can make a difference.
ChainLink: It matters more than ever.