Jeffrey Hollender
Jeffrey Hollender is cofounder and chairman of Seventh Generation, and the author of How to Make the World a Better Place and What Matters Most. In his book, The Responsibility Revolution: How the Next Generation of Businesses Will Win, Hollender gives his perspective on the opportunities and obstacles business leaders face now and in the future.
McLaughlin: If you asked ten people to define corporate responsibility, you’d probably get ten different answers. What’s your definition?
Hollender: Well, you’re right—there are many divergent views on what corporate responsibility means. I often joke that if you put all the Fortune 500 CEOs in a room and asked who was running a responsible business, 500 hands would go up.
For me, there are two essential dimensions to corporate responsibility. The first is transparency. It’s vital that companies disclose, according to independently established standards, their social and environmental shortcomings as well as their success. If they don’t, I would argue that they can’t call themselves responsible.
Of course, then you get into the question of how much “good” action is enough, and that’s a challenging question to answer. Walmart, for example, falls short in many areas, but the company is working on transparency and has made specific, time-bound commitments as to how they will improve their performance.
The second imperative for corporate responsibility is recognition that generating maximum returns for shareholders cannot be the sole purpose of a business. You must act for all the diverse stakeholders in your business, including employees, the community, and the planet.
McLaughlin: Some people would argue that history supports the notion that businesses exist just to create wealth for shareholders. Are you saying that’s not as deeply rooted in history as we think?
Hollender: There are two great myths about business, and this is one of them. If you analyze the purpose and mission of a lot of companies, you might be surprised to find how many place other priorities ahead of shareholders.
There’s certainly good historical evidence that shows you can’t run a successful business over the long term if you put making money ahead of taking care of your customers. Your customers keep you in business, so whenever you make a compromise in favor of your investors, particularly for short-term gain, you’re risking the long-term health of the business.
The second great myth is that politics should stay out of business—that anything the government does to push business in a more responsible direction is bad. The fact is, government is already deeply involved in business and has been for a long time.
McLaughlin: In your earlier book, you said that businesses were starting to pay attention to the importance of corporate responsibility. Since then, what kind of change have you seen?
Hollender: Businesses have made many changes in the right direction, but with two negative hallmarks: most of that change has been too incremental, and it is still not embedded deeply enough in corporate strategy.
Very often, you find companies doing something good with one hand while they’re still doing something bad with the other. Toyota, for example, is working hard to build a reputation as a company that makes energy efficient automobiles. But to protect their truck selling business, they aggressively lobbied against fuel efficiency standards in California.
Given the challenges we face, we really need to pick up the pace of change. Some of that increased pace will come from the innovation of companies. But it also has to be in partnership with government, which needs to level the playing field so that companies will step out ahead. The government’s role would then be to help push other companies to that same ground.
A real impediment to substantial change is that businesses find creative ways to externalize their costs, thus not taking financial responsibility for the social, medical, and environmental consequences of their actions. That keeps their prices artificially lower.
Why should organic food, for example, cost more money? It should really be less expensive. If farmers had to pay to clean up the pollution they cause by using pesticides, and pay for the increased health costs of workers exposed to pesticides, or for the impact of soil erosion, their production costs would rise. Then, organic food would be comparatively less expensive.
As a society, we have allowed businesses to avoid responsibility for their impacts. As a result, good stuff often costs more than the bad stuff.
McLaughlin: Don’t many of the large corporations object to government intervention in their affairs?
Hollender: Yes, and that is often disingenuous. Exxon, for instance, is actively working against new regulation on carbon emissions, claiming they don’t want the government involved in their business. And yet Exxon receives billions of dollars in government subsidies. Government intervention is fine when Exxon is getting the benefit. That is hypocrisy.
It’s hard to find any business that is not in some way affected by the policies of government. But when anybody calls for government action that business doesn’t like, they start waving the flag and call it socialism.
McLaughlin: A PriceWaterhouseCoopers survey showed that a large percentage of consumers now buy based on the social and political values of a company. If that’s true, why do we see only incremental progress?
Hollender: I think the confusion arises from what qualifies in the consumer’s mind as beneficial corporate activity. And I suspect that most of what those consumers are reflecting comes from the media, particularly advertisers.
Toyota runs ads showing how environmentally responsible the Prius is, or GE runs an ad about eco-imagination. I believe that advertising is what consumers are responding to. Even if they wanted to do the research, most consumers can’t readily access reliable data on how responsible a business is.
McLaughlin: Does executive compensation play a role in corporate responsibility?
Hollender: Too often, companies incentivize their executives to do the wrong thing, and then pay them way too much to do that wrong thing successfully.
My company is unusual in that we have a salary cap of 14:1 from the lowest to the highest paid person in the company. I think it’s sad that so few companies are willing to use salary caps. The argument that you can’t find highly talented people who are satisfied making half a million to $1 million a year is ridiculous.
It is also critical that we incentivize executives to confront the issues that affect stakeholders other than investors. If the way an executive earns a bonus is to maximize the company’s profitability in the short term, it should come as no surprise what that person will focus on.
This is not just the failing of executives. It is dramatically the failure of each company’s Board of Directors. It is, after all, the Board’s responsibility to set the goals for senior management. I think Boards have to step up to accept that responsibility.
McLaughlin: Many of these directors sit on each other’s Boards. Do you think they then have a vested interest in keeping executive compensation at a high level?
Hollender: Yes. And what compounds the problem is that shareholders don’t even act in their own best interests. We see pension funds that are allowing Boards to behave in ways that are totally antithetical to the interests of their pensioners.
McLaughlin: If you were going to talk to a business leader about how to make more consistent progress toward social and environmental responsibility, what would you say?
Hollender: When I sit down with the CEO of a large company, it’s rare that I’m sitting across the table from a bad person. Usually, as a result of their education and training, leaders adopt particular patterns for how they should run a business.
Those patterns are increasingly at odds with the changes we need to make. But a successful leader is going to continue following the pattern that led to success. The question is how do you jolt someone out of that pattern?
I try to find ways to show leaders why doing something good for diverse stakeholders will also be in their best interest. A caveat is that the deck is often stacked against you in that argument.
You have to make the business case for doing what’s responsible because it’s hard to get a CEO to do something that he or she believes is against the interests of the company. In many cases, people have not taken the time to properly evaluate the business case for enlightened action.
Hopefully, my book provides some inspiration about the exciting and compelling chances to be more responsible in ways that benefit business. You have to create a dynamic that makes people want to move in the right direction, because it’s really hard to get anywhere just by pushing them.
McLaughlin: Thanks for your time.
You can find out more about Jeffrey Hollender, his books, and his company at www.seventhgeneration.com.
You might also be interested in our interview, Jeffrey Hollender: Corporate Social Responsibility.
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