Why Responsible Companies Perform Better
By Shel Horowitz
(Adapted from Guerrilla Marketing to Heal the World by Jay Conrad Levinson and Shel Horowitz)
Study after study shows that companies known for sticking to their values perform better on financial metrics. While this may be as a surprise, it actually makes total sense that socially responsible investments do better. Several factors increase the likelihood that conscious companies perform well:
- Clean-hands companies don’t have to pay expensive lawsuit settlements around pollution, safety violations, or discrimination.
- Brands that tell only the truth don’t worry about being caught in an embarrassing and profit-killing lie
- When customers believe that a firm has their best interests at heart, they come back again and again—and since it’s far more profitable to bring back an existing customer than to bring in a new one, the profit ratios on repeat business are much higher
- If faced with a choice between a company known as an ethical leader or one that is not, many consumers will choose to place their shopping dollars with the values-based company
- Companies with a stellar reputation find it much easier to market
- People like working for good companies with strong values and excellent working conditions; these companies waste a lot fewer resources on hiring and training, because they retain the people they have, and those employees will be quick to recruit their friends when you need to hire
- When customers fall in love with the way a company does business, they start recruiting other customers—they actually become that firm’s unpaid sales force, and that leads to greater profits through reduced marketing expenditures (we’ll talk more about this later).
- Ethical, eco-friendly companies are much more likely to build a lasting business, and build it more easily
- Joint ventures are much easier to organize, because the other partners expect that they’ll be treated ethically and respected for what they bring
- The high value of goodwill will be factored into the sale price if the business is sold
And the number one reason…
- Ethical companies never have to worry about seeing their CEO’s picture on the front page, in handcuffs.
Need a practical example? Consider superpremium ice cream. How is that a funky hippie company in northern Vermont, whose founders had no experience in either making ice cream or running a business when they started, grabbed almost half the market in a crowded field?
My theory is that Ben & Jerry’s succeeded precisely because of its branding as a socially conscious brand. Customers who knew about the company’s projects to help farmers, disability-friendly hiring practices, and commitment to renewable energy would choose Ben & Jerry’s over competing brands right next to them in supermarket freezers, precisely because they wanted to support a company that supported the community.
Not surprisingly, socially and environmentally responsible companies perform well in the financial markets, too.
Merrill Lynch put the value of “values based investing” at $6.57 trillion by the end of 2013. Earlier Merrill Lynch reports noted that “companies that ranked high in responsible economic, environmental, social and corporate governance issues demonstrated lower volatility globally and provided higher dividend yields in the US than those with lower scores” and that “the question, then, is no longer about whether VBI is profitable but about how individual investors can define their priorities around sustainable investing.”
In other words, CSR policies reduce investment risk. Which leads to wondering: would Merrill Lynch have gotten into so much trouble in 2007 and 2008 if the company had itself pushed an agenda of economic, environmental, and social responsibility?
The top-tier consulting company Deloitte wrote an entire white paper on the advantages of strong CSR programs and the disadvantages of environmental liabilities during mergers and acquisitions. Risk assessment and due diligence lead to lower prices for companies whose acquisition could bring in toxic “assets” that result in lawsuits and negative publicity—while companies have increased their worth to a buyer by exercising CSR and environmental leadership, especially if they market these virtues properly. For example, a grocery retailer paid more to acquire a company known for its community focus and sustainable approach to procurement, store operations, and distribution, community involvement programs.
Green/social change business profitability expert Shel Horowitz, “The Transformpreneur,sm” shows you how profit by greening your business, turning hunger and poverty into sufficiency, war into peace, and catastrophic climate change into planetary balance, and marketing these commitments. Reprinted with permission from Shel’s 10th book, Guerrilla Marketing to Heal the World (with Jay Conrad Levinson; Morgan James Publishing, 2016). The book highlights profitable and successful socially responsible strategies used by companies from Fortune 100 to solopreneurs:http://goingbeyondsustainability.com/guerrilla-marketing-to-heal-the-world/ To discuss your next project with him or schedule a no-charge 15-minute strategy session: shel [AT] greenandprofitable.com, 413-586-2388 (8 a.m. to 10 p.m., US Eastern Time), Twitter: @ShelHorowitz