// By Joseph Holt

The view of profits as a necessary and desired result of accomplishing the central purpose of a company rather than being that purpose itself is reflected in the comments of Costco CEO and co-founder Jim Sinegal in a Wall Street Journal interview. When asked to respond to the complaint on Wall Street that Costco placed the needs of its customers and employees over those of its shareholders, he responded as follows: “We want to obey the law, take care of our customers, take care of our people and respect our suppliers. And we think if we do those four things pretty much in that order, that we’re going to reward shareholders. By the way, we sell for a pretty rich multiple.”

It is surely better that individual executives and companies do the right thing for the wrong reason than not at all, but lasting positive change will occur only when they do the right thing for the right reason. Positive values and the behavior they give rise to will be authentic, effective and reliable only to the extent they are viewed as ends in themselves, rather than as means to financial ends.

There is an obvious and important difference, for example, between caring for your employees because you want higher levels of loyalty and productivity from them and caring for them because of a genuine concern for their well-being. And employees know and care about that difference. Only in the latter case is the care both authentic and reliable because only then does that care rest on a foundation that is authentic and reliable.

The contrast between Starbucks and Wal-Mart on the issue of employee health care benefits is telling in this respect. Starbucks offers generous employee health care benefits extending even to those who work no more than twenty hours a week. What is the impetus for that generosity? In True North, by Bill George, Starbucks CEO and Chairman Howard Schultz recalls growing up in federally subsidized housing in Brooklyn and being called home at the age of seven to find his father in a full-leg cast on the living room sofa. His father had slipped on the ice and broken his ankle while working as a delivery man. As a result of the accident, his father lost his job and the family’s health care benefits. Schultz’s mother was seven months pregnant and could not work. The family had no savings to fall back on, and Schultz’s parents dodged calls from bill collectors and argued about how to make ends meet.

In the wake of this formative experience, Schultz dreamed of building a company that would treat its employees the way he wishes his father had been treated rather than, well, icily. As he relates in True North, “My inspiration comes from seeing my father broken from the thirty terrible blue-collar jobs he had over his life, where an uneducated person just did not have a shot.” Further explaining the lasting significance of his father’s accident and its aftermath, Schultz adds, “That event is directly linked to the culture and values of Starbucks. I wanted to build the kind of company my father never had a chance to work for, where you would be valued and respected.”

Starbucks’ concern for its employees seems authentic rather than expedient. Schultz is certainly aware of the business advantages that flow from treating em-ployees well, but the dominant motivation for doing so seems linked to the shaping influence of his personal experience. “Offering health care was a transforming event in the equity of the Starbucks brand that created unbelievable trust with our people,” says Schultz in True North. “We wanted to build a company that linked shareholder value to the cultural values we create with our people.”

The behavior of Wal-Mart with respect to its employees contrasts sharply with that of Starbucks. Wal-Mart has improved its employee health care benefits in recent years in significant part because of strong and steady criticism from lawmakers and public interest groups. A New York Times article on those improved benefits took the widely-shared view that Wal-Mart’s actions in this regard were more a matter of submission to external pressure than of choice, suggesting, “The company’s turnabout demonstrates the power of public pressure to change even the biggest corporations like Wal-Mart, which has based its business strategy on low costs at all costs.”

It may be hoped that a company that undertakes such an initiative for reasons of expediency or necessity rather than authenticity will grow to have genuine concern in time. But until that happens, what Lynn Sharp Paine observes in Value Shift holds true with respect to employees and all company stakeholders: “If I perceive that your concern for my welfare is motivated only by your own need for my cooperation, I may well go along with your scheme for the benefits I stand to gain, but your concern will not earn my gratitude, trust or loyalty.” Of course, most executives and companies are not motivated “only” by expediency or “only” by genuine concern. In the complex reality of business, most executives and companies act from a blend of commercial, moral and other motives. Ethics initiatives should aim at improving the quality of that blend and at striving to ensure the moral motive is the dominant motive, rather than the unattainable ideal pure business intentions.

A compelling statement of the pragmatic blend in business of commercial and moral motives is found in a letter to the editor of Harvard Business Review from The Body Shop’s Anita Roddick. Responding to Martha Nichols’ suggestion that Roddick used values chiefly as a marketing tool, Roddick said, “Nichols suggests that my company’s values are nothing but a marketing tool because I let my customers know about them. I do think our values should make people feel better about buying from us. As a consumer, I shop for goods that are well made in all senses of the word: Functionally, environmentally, ethically. I have always assumed that others would do the same. I see no fundamental contradiction between my values and my entrepreneurial success, because I know people in my company work hard to live up to our ideals. Nichols wants me to choose between being a values-oriented businessperson and a streetsmart entrepreneur. I refuse to simplify myself in that way.”

In his autobiography, philosopher and economist John Stuart Mill wrote, “Those only are happy… who have their minds fixed on some object other than their own happiness; on the happiness of others, on the improvement of mankind, even on some art or pursuit, followed not as a means, but as itself an ideal end. Aiming thus at something else, they find happiness by the way.”

I believe that what Mill suggests with respect to individual happiness or well-being holds true by analogy for organizational well-being: To the extent a company aims at doing the right thing by its customers, employees, suppliers and local communities as an end in itself rather than as merely a means to greater financial results, it will accomplish that worthy aim and steadily reward its shareholders to boot.

The enduring financial success of many of the world’s most ethical companies is one reason among others to believe that not being bad really isn’t good enough. But for companies that want to excel in terms of ethical as well as financial performance, to surpass rather than merely match the achievement of others, it isn’t the best reason.

Joseph Holt is the Director for Executive Ethics at the University of Notre Dame’s Executive Education Program.
1 Harvard Business Review; May/Jun94, Vol. 72 Issue 3, p144-146.
2 “Turning Shopping Trips Into Treasure Hunts: Surprises, Bargains Keep Sinegal’s Costco Humming, But Should He Boost Prices?” By Kris Hudson, August 27, 2007; pB1