In the furniture business, there's plenty of opportunity to do the wrong thing: making chairs and desks consumes timber, applies chemicals, and emits gasses. Herman Miller is working to reduce its environmental impact by integrating sustainability into its product and process design. So far, so good: It's one of the inaugural winners of our experimental Social Profit Awards. Here, Brian Walker, the company's president and chief executive, discusses the tension between financial and social impact, and how Herman Miller negotiates it.
We see two sorts of for-profit companies among the winners of our inaugural Social Profit Awards. The first incorporates social responsibility/sustainability into business strategy, but still seeks to maximize financial performance. The other combines business strategy and social performance in a way that per se produces explicitly lower returns for investors. Where does Herman Miller fall in that spectrum?
We would place ourselves in the first category. Ultimately, we believe a company's long-term ability to contribute to society is dependant on creating a competitive return for its owners—and in our case, that includes employee-owners. Earning a superior return on capital is the only way to ensure you're sustainable as a business.
But over time that also means you also have to smartly manage and protect the resources that are vital inputs to your business—the communities and people which are the source for both your customers and your employees, as well as the natural resources that are the source of raw materials, energy, etc. If we do these things well, we participate in a virtuous cycle that can drive and sustain great business performance.
Regardless of how you and Herman Miller's board feel about the importance of addressing social performance/sustainability, how do the capital markets assess it, if at all? Is there an emerging investor that's more aware of and comfortable with the idea of social returns? Is that context any different than, say, a decade ago?
We see both ends of the spectrum. There clearly is a growing number of people and funds that are asking more questions and expecting companies to be more holistic in their outlook. But that's also still a relative minority of people in the investing community. They may well have that in their personal worldview, but it's not always reflected in their work because of pressures they face to perform at or above the market. So the number of institutional players who are largely or solely focused on social responsibility as a stock screen has grown but is still a clear minority.
On other hand, some in the investing public have even begun to see sustainability as contributing to the valuation of the enterprise. That may be the most significant difference from a decade ago—today there is actually a value creation opportunity in being socially responsible. It's also clear that investors are expecting companies, all companies, to be at minimum mindful of the risks associated with not being responsible and expecting vigilance against violations of regulations or public opinion that could harm their reputation.
There was a question on our awards application to the effect of, How does being a for-profit help further your company's social performance? Which, loosely translated, is perhaps asking, why is being a for-profit better than being a non-profit?
As a for-profit entity, if you're successful in getting a good return on capital, you will attract more investment. You become a magnet for resources with which, in turn, you can do more. Taking that a step further, if you're a socially responsible for-profit, and you're successful in earning a return on capital, you will attract further investment, to create still more value, and be able to have a greater positive impact on society and the world. Essentially being a for-profit creates opportunity for doing greater good. And financial success as a for-profit with a social conscious carries greater credibility with your peers, potentially influencing actions of other businesses.