require consideration of non-financial interests when making decisions; and 3)

reports on its overall social and environmental performance using recognized

third party standards.158

CSR Newsletters: Patagonia

An article in Environmental Leader159 reports Patagonia’s decision to re-

structure itself as a Benefit Corporation. It is the first company in California
to do so:

The legal status affords a company’s directors legal cover to consider

environmental and social benefits over financial returns.

California is one of twelve states (plus Washington D.C.) that have either
passed or introduced legislation allowing B corporations (see:
http://www.benefitcorp.net/state-by-state-legislative-status). In California,
the law became effective on January 1, 2012. Once a law is passed in a state,
then a firm can restructure itself as a Benefit Corporation. Whether in a state
with such legislation, however, any company can apply for b-corp
certification. This certification is awarded by B Lab
(http://www.bcorporation.net/) to those firms that pass specific criteria
related to the broader fiduciary responsibilities of a Benefit Corporation. In
this case, B Lab is a nonprofit organization that acts “the same way TransFair
certifies Fair Trade coffee or USGBC certifies LEED buildings.”
Rather than an endpoint, therefore, becoming a Benefit Corporation
(either the formal change of legal status or the certification) is the starting
point of a process for firms that forces them to operate at higher standards of
transparency and accountability. In order to enable this transformation, B Lab
places specific reporting requirements on firms to ensure accurate
information about operations is disseminated to stakeholders:

Through a company’s public B Impact Report, anyone can access

performance data about the social and environmental practices that
stand behind their products. . . . As a result, individuals will have
greater economic opportunity, society will move closer to achieving a
positive environmental footprint, more people will be employed in
great places to work, and we will have built stronger communities at
home and across the world.

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 underlying psychology helps explain why ethical lapses in the corporate world
seem so pervasive and intractable.419

This is important because there is evidence that students understand the

conundrum that awaits them and expect to be challenged by it:

Fifty-two percent of MBA students say they expect to have to make decisions
[at work] that conflict with their values.420

Increasingly, firms are being held accountable for all aspects of operations by
the societies in which they are located. Those firms that do not appreciate this, or
attempt to circumvent responsibility with superficial commitments to CSR, run the
risk of exposure in our always-on, media-driven world. Different firms and
different industries have different CSR thresholds (see Chapter 5). Firms that avoid
crossing their threshold by adopting an effective CSR perspective stand a much
better chance of long term survival. Those firms that ignore the threshold, like
Enron, eventually are held accountable for their actions. Those firms that embrace
stakeholder relations and act with ethical integrity via employees devoted to pro-
social change, however, will be rewarded in the marketplace.

Case Study: Ben & Jerry’s

One of the earliest corporate pioneers in the area of values-based business was
Ben & Jerry’s, which opened its first shop in Vermont in 1981 and went public in
1984.421 In building Ben & Jerry’s into a global brand, the company’s cofounders,
Ben Cohen and Jerry Greenfield, set new standards in defining the concept of a
concerned and responsive employer. Although the importance of addressing
stakeholder needs and concerns were values on which the firm was established, it
also felt it necessary to codify these values as part of its groundbreaking Social
Audit—first commissioned in 1989. Ben & Jerry’s was the first major corporation
to allow an independent social audit of their business operations:

This social auditor recommended that the report be called a “Stakeholders

Report” (the concept of stakeholders existed but this was possibly the first-ever
report to stakeholders) and that it be divided into the major stakeholder
categories: Communities (Community Outreach, Philanthropic Giving,
Environmental Awareness, Global Awareness), Employees, Customers,
Suppliers, Investors. After this first social audit in 1989, B&J continued to
issue annual social reports, rotating to different social auditors as they sought to
develop the concept.422

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 Ben & Jerry’s has continued developing the concept of a business that places its
stakeholder concerns at the core of its business model ever since, a stance that is
reflected in the firm’s Mission Statement.

Ben & Jerry’s Mission Statement

Ben & Jerry’s is founded on and dedicated to a sustainable corporate

concept of linked prosperity. Our mission consists of 3 interrelated parts:
Social Mission: To operate the Company in a way that actively recognizes
the central role that business plays in society by initiating innovative ways to
improve the quality of life locally, nationally, and internationally.
Product Mission: To make, distribute and sell the finest quality all natural
ice cream and euphoric concoctions with a continued commitment to
incorporating wholesome, natural ingredients and promoting business
practices that respect the Earth and the Environment.
Economic Mission: To operate the Company on a sustainable financial basis
of profitable growth, increasing value for our stakeholders and expanding
opportunities for development and career growth for our employees.
Underlying the mission of Ben & Jerry’s is the determination to seek new and
creative ways of addressing all three parts, while holding a deep respect for
individuals inside and outside the company and for the communities of which
they are a part.423

One practical example of Ben & Jerry’s approach to business is the issue of
executive pay, which was important to Ben and Jerry when they founded the firm.
Specifically, no employee could earn more than seven times the salary of the lowest
paid worker in the company:

The gap between CEO salaries and those on the factory floor is widening. In
1973, for example, the typical CEO made 45 times the wage of the average
worker. Today, it’s as much as 500 times [in the US]. . . . Japanese executives
earn 20 to 30 times the lowest-paid worker while, in Europe, the ratio is about
40 times. Ben Cohen and Jerry Greenfield, the quirky entrepreneurs behind Ben
& Jerry’s ice cream, kept the [salary] ratio of top to bottom earners at 7:1—
though that did not last after the two stepped down in 1995.424

As noted earlier, stakeholder interests often conflict and resolving these

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conflicts on this issue (and all issues) is not easy:

Costco Wholesale Corp. often is held up as a retailer that does it right, paying
well and offering generous benefits. But Costco’s kind-hearted philosophy
toward its 100,000 cashiers, shelf-stockers and other workers is drawing
criticism from Wall Street. Some analysts and investors contend that the
Issaquah, Wash., warehouse-club operator actually is too good to employees,
with Costco shareholders suffering as a result.425

In addition to the top-to-bottom pay ratio, other aspects of working for Ben &
Jerry’s, such as the firm’s benefits (including an onsite day-care center) and its “no-
layoff policy,” ensured the commitment and loyalty of one of the firm’s key
stakeholder groups—its employees:

If a position required revamping or removal, the employee holding the position

would be transferred to another position, with attention given to matching
responsibilities and qualifications.426

As Ben & Jerry’s became more successful, it began to attract the attention of
other firms. As people began to worry about the prospect of a merger or
acquisition, calls increased to protect the firm’s independence and its stakeholder-
centric approach to business. The Vermont state government responded by passing
legislation “allowing a company’s directors to reject a bid if ‘they deem it to be not
in the best interests of employees, suppliers, and the economy of the state.’”427 In
Vermont, the law became known as the “Ben & Jerry’s law”:

Thus, even when a company was offered a financial premium in a buyout

situation, its directors where permitted to reject the offer based on the best
interests of the State of Vermont.428

In spite of this legislation, Ben & Jerry’s board agreed to a $326m takeover by
the corporate giant Unilever in August 2000.429 Although Unilever’s management
gave assurances that Ben & Jerry’s unique approach to business would be
maintained, the firm’s cult status was tarnished by the takeover. One example:
Business Ethics dropped Ben & Jerry’s out of its list of 100 Best Corporate
Citizens in 2001 because of its unfavorable evaluation of Unilever, the new parent
company. A second example: The top-to-bottom compensation ratio, referred to
above, (including benefits and bonuses) jumped to an average of 16:1 in 1999,
2000, and 2001.430
Today, at several points on the company’s website, the firm’s managers continue

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to reaffirm a strong activist message, while claiming to run Ben & Jerry’s by
“leading with progressive values across our business.”431 In addition, the following
message is relayed by Ben & Jerry’s CEO to visitors at “the world-famous Ben &
Jerry’s ice-cream factory” in Vermont:

. . . our commitment to social and economic justice and the environment is as

important to us as profitability. It’s our heritage. . . . this isn’t a short-term
strategy to drive up sales. These are issues that are important for our society to
address.432

Still, the suspicion remains that things have changed and the firm’s commitment
to its cofounders’ original values is not as strong as it once was. This accusation is
voiced by critics who say that the firm’s activist message has become “just a slick
Madison Avenue advertising gimmick to hike profits.”433 But, this position is
becoming less and less easy to defend given the firm’s recent actions that have
emerged as Unilever’s position regarding CSR has also evolved. For example, on
its website today, the firm prominently claims that “We have a progressive,
nonpartisan social mission that seeks to meet human needs and eliminate injustices
in our local, national and international communities by integrating these concerns
into our day-to-day business activities.”434 And the firm’s commitment to social
justice and progressive political platforms appears to be as strong as ever:

Capitalism and the wealth it produces do not create opportunity for everyone
equally. . . . We strive to create economic opportunities for those who have
been denied them and to advance new models of economic justice that are
sustainable and replicable. . . . We strive to minimize our negative impact on
the environment. We seek and support nonviolent ways to achieve peace and
justice. We believe government resources are more productively used in
meeting human needs than in building and maintaining weapons systems. . . . We
strive to show a deep respect for human beings inside and outside our company
and for the communities in which they live.435

While, today, Ben & Jerry’s is clearly a subsidiary of a corporate umbrella as a

result of Unilever’s steps to match Ben & Jerry’s operating policies more closely
with the corporate brand (such as the emphasis immediately after the acquisition of
Ben & Jerry’s being “Unilever legal”),436 there is evidence that this discipline is
paying off in that Ben & Jerry’s is now a more stable organization that has
continued to expand and build on its initial success. But, there is also evidence to
suggest that the influence is not all one-way and that Unilever has also learned
some lessons from Ben & Jerry’s. For example, “Ben & Jerry’s was the first ice-

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cream company in the world to use Fairtrade-certified ingredients in 2005;
Unilever has a broader target of sourcing all agricultural raw materials sustainably
by 2020.”437
Today, Unilever is recognized as being one of the most proactive large
companies with respect to CSR (see Issues: Profit, Chapter 7). And it appears that,
as Unilever continues to push the boundaries in relation to CSR,438 it is also seeing
the value in allowing Ben & Jerry’s to retain its broad stakeholder-focused, values-
based business model. This is evident in Ben Cohen’s involvement with the
financing of Occupy Wall Street439 and also when the firm “decided to celebrate the
legalization of gay marriage in the US by rechristening its Chubby Hubby ice-cream
Hubby Hubby in 2009.”440 It is also evident in the October 2012 press statement
that Ben & Jerry’s released, announcing the firm had received Benefit Corporation
certification (see Issue: Corporate Responsibilities, above):

A quarter-century after pioneering the socially responsible business movement,

Ben & Jerry’s is throwing its support behind the growing B Corporation (B
Corp) movement, a network of companies that meet what Inc. magazine has
called “the highest standard for socially responsible businesses.” Ben & Jerry’s
is the first wholly-owned subsidiary to gain B Corp certification. The move
was supported by Unilever, Ben & Jerry’s parent company, as consistent with
Ben & Jerry’s core values and mission and fully aligned with Unilever’s own
ambitious sustainability agenda.441

CEO Perspective

Gandhi

Gandhi’s Seven Social Sins442 are the seven things that he believed would
destroy us as a civilized society:

Wealth without Work

Pleasure without Conscience
Knowledge without Character
Commerce (Business) without Morality (Ethics)
Science without Humanity
Religion without Sacrifice
Politics without Principle

Some of these are more pertinent today than others, but it is hard not to

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 conclude that we are failing Gandhi’s test on multiple levels. Many of the
sins are, of course, directly relevant to the CSR debate. What is most striking
about the list is Gandhi’s emphasis on process, rather than outcome. Today,
in contrast, we worry more about where we are, rather than how we got here
(let alone where we are going). Just thinking through the implications of the
first sin (wealth without work), for example, speaks volumes about the extent
to which our values have shifted.

Online Resources
Association for Integrity in Accounting (Citizen Works), http://www.citizen-
works.org/actions/aia.php
Ben & Jerry’s, http://www.benjerry.com/
Business Civic Leadership Center, http://bclc.uschamber.com/
Corporate Responsibility Officers Association (CROA),
http://www.croassociation.org/
CRO Magazine (formerly Business Ethics Magazine),
http://www.thecro.com/
Ethics & Enron (ethics online bookstore) has a collection of books, papers,
SEC filings, and other documents about Enron,
http://www.ethicsweb.ca/books/enron.htm
Ethical Leadership Group, http://www.ethicalleadershipgroup.com/
Ethics and Compliance Officers Association (ECOA),
http://www.theecoa.org/Ethics Resource Center (ERC),
http://www.ethics.org/
Graduation Pledge Alliance, http://www.graduationpledge.org/
Society of Corporate Compliance and Ethics (SCCE),
http://corporatecompliance.org/
The Ethics Classroom, http://www.ethicsclassroom.info/
The Smoking Gun (TSG, Web site) presents a copy of Enron’s in-house Code
of Ethics at http://www.thesmokinggun.com/enron/enronethics1.shtml
United Nations Principles of Responsible Management Education (PRME),443
http://www.unprme.org/

Pro/Con Debate

Pro/Con Debate: It is not the responsibility of business schools to teach

ethics to students (either undergraduate or graduate).

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