How culture works in the real, messy world

One company questions itself, another moves away, and researchers make a link between doing good and doing well

By Bill Hatton

The mission’s baked in, or supported to be

Ice Cream Social: The Struggle for the Soul of Ben & Jerry’s
by Brad Edmondson. 280 pp. Berret-Koehler Publishers, Inc. $18.95.

Plot summary: Vermont hippies learn how to make homemade ice cream. They sell some, try out ideas about some cool new flavors, and before they know it they perfect a way to mass-produce chunks of flavorful stuff in ice cream. They become major players in the premium ice cream market. Their business success gives them the opportunity to run a social- mission-oriented business, operating the company in a way they’d always thought one should be run—promoting values others would imitate such as sustainable agriculture and environmental awareness. Happy ending; cue closing credits.

Not so fast: Success breeds its own problems, as we all know. The “struggle for the soul” of the title is a long one. It started with a three-part mission: Social mission. Product quality. Economic performance. To preserve those tri-goals, they had to face up to numerous challenges:

1. Growth. The company decided early to share the wealth, and put in place a seven-to-one salary ratio. As Ben & Jerry’s became enormously popular by the mid-90s, the company had outgrown its founders’ abilities. They struggled to manufacture the required quantities of ice cream, and they had to bring in outside experts. These experts had to be paid more than seven times the lowest-paid employee. That affected the company culture, and Jeff Furman, a crucial member of Ben & Jerry’s from the beginning, wrote in an epilogue that while that ratio was not workable by 1994, the company still should have done more to limit top management’s salaries and stock options.

2. Real world lessons in the difficulties of doing good.
The company has always paid attention to who its suppliers are, and has tried to choose suppliers in a way that improves people’s lives.

For example, the La Soul bakery in New Jersey was run by recovering addicts. Ben & Jerry’s purchased apple pie from them and sold it in an ice cream flavor called La Soul. Unfortunately, the flavor was unpopular and worse, Ben & Jerry’s was La Soul’s major customer, almost to the exclusion of anyone else. Shutting down the flavor shut down the bakery, and with it, what the owners considered a valuable social mission.

After that, Ben & Jerry’s sought to ensure their suppliers weren’t vulnerable to a single product’s success (e.g., using the supplied ingredient in several flavors, such as Mexican-co-op- grown coffee) and not dominate the supplier through orders (i.e., they tried to only be 25 percent of a suppliers’ business). These were important early lessons in sustainable sourcing, which required helping their suppliers remain sustainable.

Another real-world issue was worker safety. Despite their desire to protect workers, Ben & Jerry’s factories had higher- than-industry-average injury-rates. Only when they brought in outsiders with more experiencing running ice-cream manufacturing facilities were they able to bring the injury rates down.

3. Trying to maintain the culture despite the threat of takeovers.
One exchange shows the importance of knowing a company’s culture. A CEO hired from the outside brought in a cause- related marketing expert to help strengthen the company’s brand in a marketing-driven industry.

The new executive wanted to use Ben & Jerry’s social mission in marketing, and suggested cartoon characters, such as a talking ice cream cone. The response from the front lines: That’s not how things work around here.
The company archivist, Lisa Wernhoff, is quoted: “We know that social mission boosts sales sometimes, and it costs us money sometimes, but that isn’t supposed to be the point of it. We have a social mission because it’s the right thing to do. Sometimes the social benefit alone is enough.”

This theme—how the social mission is integrated—runs throughout Ice Cream Social. Sometimes culture is a matter of getting things in the right order, or a question of emphasis, or how things fit together.

In this case, workers saw the social mission as part of their identity as a company. Highlighting that as a reason to buy their ice cream was off base—customers buy the ice cream because it’s great, and the employees complete the social mission because that is who they are.

Wernhoff is quoted: “The clash of principles began almost immediately. [Incoming CEO] Perry [Odak] and some of the people he hired acted as if making a profit and using business to create social change were two separate goals, and that mixing them only made sense if it sold more ice cream.” The conflict was philosophical, as author Brad Edmondson describes it: Shareholder primacy versus multiple bottom lines.

How it turned out
In the end, Unilever bought Ben & Jerry’s. There was a special social mission agreement as part of the purchase. The last few chapters of the book concern what Furman perceives as ignoring the social missions in the sales agreement, and eventually getting the conglomerate to live up to its end of the agreement. Jeff Furman isn’t happy at the end.

So what’s the take-home?

One big one: The shared-value concept worked in this case. If you take the social-mission storylines out of the story, you end up with a very typical story of a business that grows, succeeds, struggles, and gets purchased. A lot of the struggle is business- related, and the social mission doesn’t get in the way of it.

Reducing waste, helping suppliers, paying people fairly—none of that hurt economic performance and in many cases helped. And it always served as a way for the employees to establish their corporate identity. Those are key reminders for businesses seeking sustainable business practices.

Case study in how not to respond to pollution—or direct action

Toms River: A Story of Science and Salvation by Dan Fagin. 462 pp. Bantam Books. $12.95.

Spoilers, simplified: The Toms River, N.J. cancer cluster may have been caused by the release of toxic chemicals, but there remains a lot of ambiguity.

A state-commissioned study in 2001 said there were more cases of leukemia in certain populations than should be expected by statistical variation, and a federal study released in 2010 said it wasn’t certain if a suspected pollutants was cancer-causing. The company at the heart of the investigation settled with a group of 69 families for an undisclosed amount (possibly $35 million, according to the book) and didn’t admit wrongdoing. Some children died; others recovered.

The good news:
The pollution has been cleaned up, the town’s water supply was eventually filtered more effectively, and the rates of cancer dropped to normal during the “aughts.” However, that good news didn’t prove a lot as far as causation because that is exactly what would happen if:

  1. cancer was being caused by environmental pollution and the pollution was cleaned up/stopped, or
  2. cancer was not being caused by environment pollution and a statistical variance regressed to the mean.

No one really ends up happy. The author concludes that since cancer clusters are probably under-estimated, not over- estimated, the cancer was likely caused by pollution from a chemical plant and/or water contamination from illegally disposed-of waste.

Remains controversial
The topic remains contentious in Toms River; the administrator of a Facebook page dedicated to Toms River recently deleted a posting because of arguments over this book and the cancer cluster, and lawyers had apparently contacted people who had posted.

In the course of his reporting, author Dan Fagin strengthened his case by looking at the chemical plant’s new location in China, where people are now reportedly getting sick. He also looks backward at cancers reported at a DuPont factory in mid- 20th century caused by similar chemicals.

Backstory: Toms River, N.J. is a New Jersey-shore community probably most famous today for being adjacent to Seaside Heights of reality television’s Jersey Shore fame. It’s where actress Piper Perabo went to high school, and also known for the 1998 Little League World Series champions, and a 1984-murder that was made into a Joe McGinniss book and television movie.

It’s also known for the cancer cluster from the 80s and 90s – one of only two communities in the U.S. where a cancer cluster in the community is linked to specific pollution sites (Woburn, MA of A Civil Action fame is the other). In Toms River’s case, there were two potential sources, both Superfund sites now:

(1) Reich Farm, where the landlords rented their land to an unscrupulous waste hauler, who in 1971 dumped thousands of barrels of toxic waste from manufacturer Union Carbide in the sandy soil. Initial cleanups were insufficient, and over decades the waste leached into the aquifer and into the main wells of the township water supply.

(2) The former Ciba-Geigy chemical-dye plant, where the company (now Novartis) was heavily fined for dumping hazardous waste on site. Ciba-Geigy also operated a pipeline from its plant about eight miles inland to an outlet about three-quarters of a mile into the ocean. The plant site has undergone considerable cleanup and the pipeline is closed.

The town came to the attention of environmental group Greenpeace, which chose direct action in 1984, anchoring a ship off Ortley Beach, N.J., and trying to block the ocean pipeline. That brought attention to the goings-on at the Ciba-Geigy plant. There was a raid by county and state officials on the plant a few months later, but it happened on the same night as the most famous murder in Toms River … events which were later made into a television movie.

Take homes

It’s difficult to keep track of all the threads in this story, especially since it ends without a firm “case closed.” But there are solid take-home lessons for companies today:

1. Bring in experts if you face direct action. Direct action has a way of attracting a lot of attention—it’s time to bring in experts right away. When Greenpeace trespassed and climbed up the Ciba-Geigy water tower and hung banners, the initial management reaction was to handle it themselves, locally. But it attracted regional news, and it kept going on through one news cycle after another.

The answer may or may not to bring protestors lunch, as Ciba- Geigy did, and try to laugh it off. The larger problem was the reaction was ad hoc, uncoordinated, inconsistent, and ineffective. It’s understandable that protestors using direct action will have the element of surprise, and they specialize in attention-getting actions. But there needs to be a plan to react, and someone to call.

2. Once trust is lost, it’s very difficult to get it back. Ciba-Geigy was looking, in the 90s, to change the plant from chemical dyes to relatively light-polluting pharmaceuticals. They still wanted to use the pipeline that they’d installed across the town, though. The town, burned by the discovery of massive dumping on the Ciba-Geigy site and spooked by the cancer cluster, wasn’tin a mood to listen. Jobs were lost and they didn’t come back.

That pipeline, rightly or wrongly, had become a symbol. Using the pipeline again may have been safe and practical, and from the company’s perspective merely the good use of a very valuable company asset. But it would take a big educational push and lots of independent reassurances to sell that to the local population.

3. Change can happen around your business. One of the most tempting things to do with a successful business is to maintain the status quo. Ciba-Geigy started in 1952 in a sleepy shore town with a population of a few thousand. Its pipeline was built in 1966 through a growing town, but still was constructed largely through and alongside farmlands, fields, and marshes.

Only a few years later, that was no longer true. By the mid-70s, developments had sprung up the entire length of the pipeline and the area was densely populated. The risks had changed, and the company didn’t address them until the 1984 direct action by Greenpeace triggered county officials’ actions.

Questions to ask periodically: Has the environment around your facilities changed? Even if the engineers say something is safe (and they’re right), how will it look to others who are not engineers and may not understand the science?

There’s no ‘elsewhere’

The fundamental issue is – elsewhere. Make it elsewhere. Dump it elsewhere. Move it elsewhere. Bury this stuff over there. Punch holes in the drum and pour it in a trench here. Then it’s supposed to be out of sight, out of mind. Except as this case shows, it doesn’t really go away.

Do some things right, do a lot of things right…

Companies that skimp on corporate social responsibility tend to take liberties with paying their taxes, a recent study has shown. Researchers at Rensselaer Polytechnic and Rochester Institute of Technology say companies with “excessively irresponsible” CSR practices have a higher likelihood of engaging in tax shelters and greater “discretionary/permanent book-tax differences.”

The researchers looked at 11,006 firm year observations between 2003-2009, and found that companies that experienced four “egregious” CSR practices had a much higher chance of having one tax-avoidance practice in that year.

Additionally, firms with irresponsible CSR practices had more uncertain tax positions, and their initial tax positions were supported by weaker evidence. They had to settle more often with tax authorities, and in greater amounts. Investigators’ conclusions: Corporate culture drives policies, so the “bad guys” in one arena are more likely to be the bad guys in another.

Works both ways

Is the flip side also true? A different study indicates there’s a connection between responsible CSR and financial responsibility, too.

“We find that socially responsible firms are less likely (1) to manage earnings through discretionary accruals, (2) to manipulate real operating activities, and (3) to be the subject of SEC investigations, as evidenced by Accounting and Auditing Enforcement Releases against top executives,” stated researchers from Virginia Commonwealth University and Santa Clara University.

The researchers, similar to the RIT research study above, also identified responsible CSR firms through the use of an analytics firm, which used surveys, financial statements, press articles, and academic journals to identify responsible companies. Dimensions included: corporate governance, community relations, diversity, employee relations, and the environment.

They found a link between the good guys and good financial practices, and they identified culture as a critical factor:

“If a firm values its reputation, the desire to protect that reputation can inhibit the firm and its managers from engaging in socially unacceptable activities,” the researchers stated. “Thus, managers may use CSR to enhance the firm’s reputation and constrain earnings management to reduce the potential damage to its reputation, which is consistent with a negative association between CSR and earnings management.”

Even more broadly, the study suggests a link between CSR and performance, mostly likely because high performance cultures do CSR, too.

“[W]e observe that CSR firms are larger, have higher grown opportunities, have better earnings performance, and have lower leverage than non-CSR firms,” the researchers stated. “We also find that CSR firms are less likely to issue new equities …”

Take home: One way or the other, there’s a connection between the organizational culture that produces CSR and responsible activities in other areas of the business.

Sources: Chun Keung Hoi, Qiang Wu, and Hao Zhang (2013). Is Corporate Social Responsibility (CSR) Associated with Tax Avoidance? Evidence from Irresponsible CSR Activities. The Accounting Review: November 2013, Vol. 88, No. 6, pp. 2025- 2059. Y. Kim, M.S. Park and B. Weir (2012). Is Earnings Quality Associated with Corporate Social Responsibility?

Posted February 12, 2014 in 25115