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Newman’s Own Corporate Responsibility

Travis says:

The news of Paul Newman’s passing and the debate over the bailout/rescue plan have me thinking about corporate citizenship. Can you do good and do well at the same time, or is the business world simply Monopoly played with real money?

You don’t have to be a socialist to recognize that there is something wrong with the way our pseudo-capitalist economy is operating. The pressure to achieve good quarterly reports creates a race to the bottom in safety, maintenance, research and development, and accounting practices. Do whatever it takes to keep the stock price high and maintain the letter of the law, or at least maintain plausible deniability for the executives. In this context, so-called “corporate social responsibility” is simply public relations by another name. Freddie Mac made the list of Business Ethics Magazine’s 100 Best Corporate Citizens for 2007 at #28. Given the comparison, the three members of the PM40 that were also on the list: Kimberly Clark (23), 3M (30), and McGraw-Hill (43), might wonder if they are being honored or vilified.

Taking a more extreme view of corporate citizenship, Paul Newman’s food empire – Newman’s Own – exists not to enrich its owner, but to generate proceeds to distribute to charity – as much as a quarter billion dollars in the history of the company. To be sure, most businesses run on a private-profit model, but does this have to be the case? Don’t laugh. There are other examples of nongovernmental entities that provide good, honest jobs and succeed without making stock offerings or distributing earnings to shareholders – credit unions, electrical co-operatives, charity retail operations such as Goodwill Industries and Ten Thousand Villages, and my favorite grocery store – Wheatsville Co-op in Austin, Texas. Google might challenge Microsoft’s corporate dominance, but Mozilla – a not-for-profit corporation – could provide the best hope for challenging software hegemony.

Obviously, there are some challenges to running a production operation on a not-for-profit basis. Start-up or restart costs are high, and competitors with market power could take short-term losses to re-establish market share. On the other hand, protectionism seems to be making a comeback, and an entity that exists for the sole purpose of providing (American) jobs and creating quality products has a built in marketing campaign that might resonate. Sales of organic food and fair-trade handicrafts are booming as people of conscience try to find products that match their values or self-images. Is there a market for nonprofit toilet tissue?

Jim says:

It is hard to talk against one of my favorite actors and an all-around class act of a guy — Paul Newman. Not only do I like his movies, I use his salad dressings and Fred the dog eats his treats (although Fred has not indicated whether he likes his movies or not).

What you say is noble and good, but there are several points worth making.

First, co-ops (I actually won a week long all-expenses paid teenage retreat for coming in second in our local Farm Bureau Co-op education contest when I was a teenager — I know the co-op principles!) and charitable organizations are right and good. Nothing wrong with any of them.

Secondly, we have a real financial mess created by real people of all political and business walks of life right now. I actually wrote about this in the current issue of Nip Impressions® (and you may be happy to know I did that without prompting before I looked at this column). I see two things that went wrong: 1) corruption through complicity and lack of oversight and 2) a violation of the irrefutable laws of economics. The corruption came through congressional malfeasance (do you know there are 70 paid lobbyists for every member of the U.S. House of Representatives and Senate?) and lack of adoption of modern regulations to meet the modern banking system (exacerbated by the repeal of the Glass-Steagall Act). The violation of the irrefutable laws of economics was the loosening of lending standards to allow virtually anyone breathing the ability to buy a USD 300,000 house. Our parents’ generation had it right—20% down and proof of enough income to afford the monthly mortgage.

Thirdly, one has to recognize from whence for-profit businesses come. They are the result of humans with capital wishing to make an investment that will earn them a superior return on their capital. This might be called greed, however, the capitalistic system, as practiced in the United States, at least until recently, has harnessed a fairly nefarious human trait (greed), to produce an astounding success and a level of standard of living beyond anything imaginable as recently as 200 years ago. So, the system has some flaws and we will probably over correct, but in the past we have usually had the ability, given enough time, to right the ship and improve it a bit.

Fourthly, let us talk about Paul Newman the actor and his political beliefs a bit. I would be the first to admit that Mr. Newman was far more liberal than I am. However, he was the kind of liberal I could love, for he put his beliefs into very good actions that did a tremendous amount of good. Being an actor or an actress does not make anyone a particularly brilliant political pundit and there are many good performers who do not get my entertainment dollars because they have become confused as to their expertise and thoroughly alienated me.

There are many a reader of our work here that may agree with you that there has been “race to the bottom in safety, maintenance, research and development, and accounting practices.” However, I believe your statement to be a bit too general. In safety, your friends the tort lawyers keep industry pretty much in line (with help from the Occupational Safety and health Administration and others). The coal mine where my grandfather was killed in 1930, for instance, would not pass the most minimal of safety standards today—that hole in the ground would not even qualify as a safe recreational cave. I probably agree with you whole-heartedly on maintenance and R&D. Accounting practices of today, however, when within the purview of the Securities and Exchange Commission in the United States, i.e., a public company, must be followed as a legal matter. When they are not, people go to jail (Enron, WorldCom, and so forth). Perhaps a destination for some congressional members with oversight responsibilities for Freddie Mac and Fannie Mae?

I think there may be a market for nonprofit toilet tissue, if you can find investors. There are two companies, though, that are indeed seriously for-profit that are good corporate examples in our industry. Procter & Gamble is spending a tremendous amount of money using their commercial technology to distribute clean drinking water kits throughout the third world. I heard the chairman and CEO, A. G. Lafley, talk about this last spring. He said he hoped this effort would break even in a few years, but even if it did not, P&G is going to keep doing it because it is the right thing to do. Likewise, SCA, through its Bodyform subsidiary in the United Kingdom (I mentioned this in the Thompson Private Letter, November 2007) is providing modern feminine sanitary products to every woman between the age of 15 and 50 years in Zimbabwe through an organization called Action for Southern Africa (ACTSA). Corporations do have a heart.


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