Every 90 days, I report to Wall Street and our shareholders on the financial health of our company--called to the carpet when results are bad, receiving a pat on the back (if memory serves) when numbers are good.
Many years ago, we put corporate social responsibility on the agenda for these quarterly financial calls, because as a critical component of our effort to be a responsible business--fiscally and socially--it felt not only appropriate, but necessary.
Guess how many times I've been called to the carpet by shareholders for not delivering satisfactory CSR results, or how often we've received a comment or question about our CSR programs on these quarterly calls? Never. The silence isn't an indication that we've perfected corporate responsibility--far from it--it's an indication that shareholders don't find CSR performance relevant.
Now, I understand clearly that quarterly earnings calls with Wall Street are going to be primarily focused on ... financial results. But we've been a public company for nearly 30 years--and we do a call every quarter--and so 120 calls later, not one reference to social responsibility?
Be a CEO trying to balance the demands of various stakeholders. You will feel gentle pressure from consumers to operate ethically and responsibly, and you will feel less-gentle pressure from activists to address what they perceive to be your social and environmental shortcomings ... and both stimuli are proof that for a subset of your stakeholders, social accountability is relevant. But nothing--nothing--from shareholders? What's a CEO to think? If shareholders don't give a whit about what an organization is doing to help strengthen the community or protect the environment, the CEO has to wonder ...
I hear it from my Board--without greater buy-in from shareholders, CSR practices face sharper scrutiny, especially in these challenging economic times.
To me, there are two ways forward that preserve the passion underlying our approach to commerce and justice. The first one is vitally important but indirect, in terms of shareholders--we have to entice consumers to reward us for what we do right and better than our competitors in terms of human rights in the supply chain, or sustainability in our products. If we make "responsible = sexy," then we will grow our brand and our business--and by proxy, we'll enlist shareholders in the commerce/justice mission.
Shareholders will nod their heads ... when we prove that commerce and justice pays out. But as many have noted, responsible consumption is hardly a commercial revolution right now. There's momentum, and enthusiasm, but the vast majority of our consumers buy Timberland products because the shoe fits, aesthetically, in terms of price/value, in terms of technical features--not because we maintain a measurably higher standard of human rights practice in our supply chain or because we label our products transparently with environmental "nutrition labels."
So, while we fight the good fight with consumers--which will eventually pay off with shareholders--how does the CEO justify CSR efforts with shareholders?
To me, this is where CSR funds could play a much more potent role. You know that there are more than 260 socially-screened mutual fund products in the U.S. currently, compared with just 55 SRI funds in 1995. Surely this is proof that the investment community does care about CSR and is interested in using their investment dollars to influence corporate responsibility.
On the point of interest, I agree--there is a small (very) subset of investors who really do align their investment practices with their social values. Ceres recently reported that a record 68 climate-related shareholder resolutions were filed by investors this year, which resulted in notable environmental wins including companies agreeing to use more renewable energy and setting emissions reductions targets. It's good news and further proves the power of the engaged investor--but--68 resolutions filed? And that's a record? While I'm grateful for the leadership of those investors, this is hardly an investor groundswell. And that is just what we need--more investors lining up dollars and values affirmatively.
Too much "social investing" seems to me "screen and criticize" rather than invest behind CEOs and Boards that make real commitments to commerce and justice. Although many CSR funds have updated their "screens" in recent years to ensure that they're considering a company based on both positive and negative merit, the punishment is still more powerful--and prevalent--than the reward.
Starbucks--widely regarded as a CSR leader--gets delisted from CSR funds because its product offerings include alcohol. Meanwhile, companies that pass the screen ("dry" companies, I guess) get to stay on the list ... and that's the end of the story. There's no incentive to do "more good," no affirmative influence coming from CSR funds on behalf of their shareholders.
We've earned a decent reputation as sustainable business and responsible brand ... and yet SRIs only hold about one percent of our shares. If anyone can share similar data on the SRI percentages of the top 50 CSR companies, I'd be very interested to see it ... because my guess is we're not alone. We hear constantly from shareholders about their expectations: improve the margin, increase sales-- but because CSR shareholdings are not concentrated, we never hear expectations about our CSR leadership. Imagine how much "more good" we could do under gentle, genuine pressure from our shareholders. Right now, it doesn't exist.
So, how to build shareholder interest in socially-responsible investing in a way that's effective for everyone involved? For starters, CSR funds need to take a more thoughtful approach to company screenings, in recognition that as the world of CSR has evolved, so too their criteria for judging a company's performance should be more sophisticated.
Then, and more controversially, CSR money managers should stop just Index investing--weighting their entire portfolio as per the market--and start making some principled, concentrated investments in companies whose social mission they believe in. Be the patient money, be the principled investor ... and provide the CEO and her Board with the support they need to see through the leadership agenda they dare on social responsibility. You expect me to "sell" social responsibility to my consumer and my Board and my shareholder--why shouldn't you do the same? Sell your concentrated, long view "bet" on socially responsible companies--to your investors?
Follow the money; if we really want to spark a revolution in corporate social responsibility, the revolution must include principled shareholders who put money behind the idea.
Read more of Jeff Swartz's blog For the Greener Good
Jeff Swartz is the third generation of the Swartz family to lead Timberland. His grandfather Nathan started the predecessor company to Timberland in 1952. Jeff's father Sidney and his uncle Herman launched the Timberland brand in the early 1970s. Jeff was promoted to President and CEO in 1998, after working in virtually every functional area of the company since 1986. Under Jeff's leadership, Timberland has grown rapidly.
Timberland today competes in countries around the world, designing, manufacturing and marketing footwear, apparel and accessories for men, women and children. Timberland has been listed on Business Ethics magazine's list of 100 Best Corporate Citizens and in 2002, Timberland received the Ron Brown Award, a Presidential award recognizing outstanding corporate leadership in social responsibility. Follow Jeff Swartz on Twitter @Timberland_Jeff
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Recent Comments | 10 Total
August 31, 2009 at 10:59pm by Alice Korngold
Jeff, first of all, you are a major leader in CSR, and you and your company are widely known for that. So, kudos for that. Secondly, this is a superb post, where you raise issues that I hear from other CEOs who are at the forefront of CSR--especially as they discuss their boards (especially in this economy). My question is this: Wouldn't you say that your approach to CSR creates a corporate culture that helps Timberland to attract and retain the most talented employees, and also motivates high productivity, and enthusiasm and loyalty? Isn't that an important factor in assessing the value of CSR to the company? Does that not have meaning for your board? I'm interested in your thoughts in this. Thanks. Alice
September 1, 2009 at 9:12am by David Connor
'Principled investor' is an oxymoron isn't it? I hate being cynical but human nature unfortunately has a talent for developing shortsighted planning horizons.
It would be easy to get stuck straight into the CSR v ethics debate here the education of shareholders always feels like the weakest link in the value chain. The traditional business case benefits argument has been too intangible in the past, although this does appear to gathering some momentum.
Unless we see a catastrophic incident in the financial, environmental or social arenas we're just going to have to wait for the painfully slow incremental cultral change. Maybe the Gen Y'ers can stir things up a bit?
September 1, 2009 at 12:22pm by Chris Slotten
Jeff, I'm not sure that you have captured the whole picture here. It certainly would be nice if investors were more concerned with CSR. However, I would like to point out that the consumers and the employees have the power to properly motivate even the most financially driven investors. If companies could not attract good customers or top employees without have good CSR practices, then the investors would move this to the front burner. Until the key stakeholders demand change from companies and their owners/investors, we will continue to get what we've always gotten. Fortunately, it seems as though there has been some movement in this direction. Let's hope that it continues. In the meantime, we can all take a moment and look in the mirror since change starts here.
September 1, 2009 at 12:23pm by Chris Slotten
Jeff, I'm not sure that you have captured the whole picture here. It certainly would be nice if investors were more concerned with CSR. However, I would like to point out that the consumers and the employees have the power to properly motivate even the most financially driven investors. If companies could not attract good customers or top employees without have good CSR practices, then the investors would move this to the front burner. Until the key stakeholders demand change from companies and their owners/investors, we will continue to get what we've always gotten. Fortunately, it seems as though there has been some movement in this direction. Let's hope that it continues. In the meantime, we can all take a moment and look in the mirror since change starts here.
September 1, 2009 at 2:45pm by Adam Seitchik
Jeff,
There has for many years been a market for multiple-bottom-line investors, those who want to fully integrate their values with their portfolios. This defines socially responsible investing (SRI), representing maybe 2-3% of US investors, primarily politically left-leaning individuals as well as religious institutions. The idealist in me wishes that all companies were like Timberland, and all investors were SRI investors. It would be a better world than the one we have.
The pragmatist in me is heartened by the fact that there is a much larger market of individuals and institutions who clearly understand that environmental, social and governance (ESG) concerns have long-term FINANCIAL consequences which are of interest to all investors. This audience is very hard-nosed, conservative and empirical. It includes the large-scale asset owners who have signed on to the UN Principles for Responsible Investment and the Investor Network on Climate Risk. These large asset owners are pushing their investment managers to take these issues more seriously as part of their fiduciary duty.
The kinds of corporate reporting that would resonate with this crowd would tie your CSR policies to either risk reduction or business opportunity, and eventually to the bottom line. For example, if you had a competitor that was roiled by a supply chain scandal, you could highlight in very concrete ways how your CSR policy reduces the risk that you will suffer similar brand damage. If you use resources more efficiently, you could demonstrate how your production costs are lower than your competitors. Putting CSR into a strategic and financial framework will help you get your message across more effectively.
Thanks for all that you do, and for taking the time to share your post.
Adam Seitchik
Auriel Capital
September 2, 2009 at 12:34am by Rudy Vetter
Jeff's arguments meet one of the key obstacles in today's investment arena: The short term fixation on quarterly profits that is ranked higher than the long term ability of an organization to provide sustainable cashflow.
CSR-investments simply do not meet such shortly defined horizon - and they should not, as they are mostly defined to be substantial for the long term existence and positioning of the company in its social environment. Thus it should not really surprise that they are not part of a discussion of quarterly result.
In the case of Jeff Swartz's Timberland where company and product brand are one, it might be wise to put the company's CSR focus in a more brand equity related context. Understanding Timberland's CSR-investments as a part of the brand's DNA may bring investors back to the table. It is brand equity that not only differs a brand from the crowd, that attracts new buyers and that does increase loyalty and retention of existing brand users. An aspect none of the investors will ignore.
Done a little more "sexy" and appealing, as Jeff is demanding it, the play of commerce and justice can find its entry into the investment world.
Timberland with its unique combination of brand, company and ownership may work as a great role model to create some "street talk " here.
September 8, 2009 at 2:45pm by Jeff Swartz
Alice, as you know too well, while the Board is glad to acknowledge the cultural value of trying to live as a responsible company, they continue to hammer me, to demonstrate that our investments in responsibility pay off. They ask, why isn’t a higher percentage of our shareholding held by so-called CSR funds? If CSR is a ‘good strategy,’ they hammer at, where is the “consumer proof?” So, while I appreciate the Board’s appreciation of our CSR efforts—I wish I had a more metric laden way to “prove” to the Board that our investments are paying off....
September 8, 2009 at 2:46pm by Jeff Swartz
Alice, as you know too well, while the Board is glad to acknowledge the cultural value of trying to live as a responsible company, they continue to hammer me, to demonstrate that our investments in responsibility pay off. They ask, why isn’t a higher percentage of our shareholding held by so-called CSR funds? If CSR is a ‘good strategy,’ they hammer at, where is the “consumer proof?” So, while I appreciate the Board’s appreciation of our CSR efforts—I wish I had a more metric laden way to “prove” to the Board that our investments are paying off....
November 3, 2009 at 9:38am by Bill Baue
Jeff,
Great to see you promoting progress on the investment side for advancing CSR! Just as I was surprised to hear you acknowledge that Timberland's core activities create pollution and thus are ultimately unsustainable in the Fall '08 climate stakeholder call, I'm also heartened to hear you practically begging for outside pressure to improve your CSR. And clearly, investors represent perhaps the most effective leverage point. Which is all the more disappointing that they're not hounding you every quarter!
I also applaud you for questioning negative screens. They'll always play a role, because a certain percentage of investors practice SRI to align their money with their VALUES, which often don't align with tobacco, firearms, etc... But of course the cutting edge of SRI is sustainable investing (as former Trillium VP Adam Seitchik suggests in his comment), which focuses on creating financial VALUE by avoiding environmental, social, and governance risks and harnessing ESG opportunities.
All this said, blaming the SRI community seems mis-placed to me. Your Pax example (divesting from Starbucks) doesn't really hold, because the company completely overhauled its screening process as a result of their archaic "zero-tolerance" policy (disclosure -- I write advertorials on Pax for Audubon Mag periodically and I have a measly amount of money in their Balanced Fund, so perhaps I'm "biased.")
The bigger target is the mainstream investment community, which follows in the corporate footsteps of treating ESG issues as "externalities" that are borne somewhere else on the proverbial spreadsheet ... like, on Mars? Worst in my mind are the mainstream firms that pay lip service to climate and other enviro issues, then act oppositely.
Why harangue the priests and nuns of ICCR for ONLY filing 68 climate resolutions (with others, of course), instead of criticizing those who VOTE AGAINST those resolutions? (disclosure -- I'm producing a podcast series for ICCR, so again, I may be "biased.") State Street, for example, which in 2008 sponsored the Ceres Conference AND the UN Investor Summit on Climate Risk, and has like one SRI-lite fund, but that same year it voted against ALL of the climate resolutions it faced (according to a report I wrote with Jackie Cook for Ceres.)
Change is all about identifying the most influential leverage points. As you point out, SRI funds hold only about 1 percent of your stock. Which means that the other 99 percent (well, not 99, because you and other managers own a lot of your stock) is held by investors (mostly institutions) who COULD factor ESG into the financial equations, but apparently aren't, judging by your quarterly experience.
BSR and Robeco have recently issued reports on the "mainstreaming" of ESG integration. While I'm dubious of the ability of large financial firms to truly fuse ESG onto an existing "perpetual growth" economic model, I do think that this is where to focus attention if we're going to create real change.
Thanks again for posing these GREAT questions and getting this dialogue started!
Best,
Bill Baue
Executive Director, Sea Change Media
November 19, 2009 at 11:00am by Jeff Swartz
Bill, appreciate your input on the conversation. Agree that it’s critical that mainstream investors (not just SRIs) begin to incorporate environmental, social and governance issues into their portfolios ... not as a sideline project, but as core to their analysis. It’s great to see some mainstream investors now have access to this information – how many folks know that Bloomberg terminals are now equipped with SRI indices? Question is, which analysts are using them and which don’t even know they exist. The role for business in this discussion is to help educate their investors that it IS possible to merge commerce and justice as a successful, public corporation.