Updated: Jul 10, 2020
There seems to be a move to conscious capital, as the aging of the population in the vast majority of nations in the world today raises the prospects for a “kinder and gentler society”. Unfortunately, we have experienced a rapacious capitalism over the past few decades driven by insatiable greed, particularly at an executive level, which has lead to unethical and illegal behaviour, e.g. Enron, Tyco, Worldcom, Steinhoff, Valeant, Arthur Andersen, KPMG, Lehmann Brothers, etc. Most of what is in this blog is taken from an extremely enlightening book called "Firms of Endearment : How World class companies profit from passion and purpose." . Companies should have a well articulated and authentically lived purpose that goes beyond profit maximisation. They create emotional, spiritual, social, cultural, intellectual, ecological and, of course, financial value - the entire company is involved in campaign to "make the world a better place". The book defines the Age of Transcendence which signifies a cultural watershed in which the physical (materialistic) influences that dominated culture in the twentieth century ebb while metaphysical (experiential) influences become stronger. A Firm of Endearment (FOE) is a company that endears itself to all stakeholders by bringing the interests of all stakeholder groups into alignment. FOE's embrace terms of endearment such as affection, love, empathy, joy, authenticity, compassion and soulfulness. The SPICE stakeholder model includes, society, partners, investors, consumers and employees. Perhaps the best examples of FOE's that embrace these virtues are Amazon, google, Costco, Harley Davidson, IBM, BMW, Patagonia, New Balance, BMW, Ikea, Honda, Toyota, Unilever. Publicly listed Firms of Endearment (FOE's) returned 1,026% for investors over a 10 year period ending 30 June 2006, compared to 122% for the S&P: that's more than an 8 to 1 ratio. This demonstrates that, despite the supposed "increased costs" of providing more employee benefits, supplier benefits and "costs" of dealing with and resolving environmental and social issues, these companies have demonstrated the ability to generate excessive shareholder returns on a sustainable basis. Firms of Endearment (FOE) subscribe to set of core values
they subscribe to a purpose for being that is different from and goes beyond making money
they actively align the interests of all stakeholder groups, not just balance them
Their executive salaries are relatively modest.
They operate at the executive level with an open door policy.
Their employee compensation and benefits are significantly greater
They devote considerably more time than their competitors to employee training.
Their employee turnover is far lower than the industry average.
They empower employees to make sure customers leave every transaction experience fully satisfied.
They make a conscious effort to hire people who are passionate about the company and its products.
They consciously humanize the company experience for customers and employees, as well as creating a nurturing work environment.
They project a genuine passion for customers, and emotionally connect with them at a deep level. By earning a larger share of customers’ hearts,
Their marketing costs are far lower than those of their industry peers, while customer satisfaction and retention are far higher.
They view their suppliers as true partners and collaborate with them to move both their companies forward.
They honor the spirit of laws rather than merely following the letter of the law.
They consider their corporate culture to be their greatest asset and primary source of competitive advantage.
Voting against executive remuneration at a number of JSE listed company AGM's demonstrates that shareholders are fed up with excessive executive remuneration. Hopefully, this shareholder activism will continue to ensure that executive remuneration is relatively modest and the difference between the highest and lowest paid employees narrows, particularly in SA, where the difference between rich and poor is so stark. In addition, shareholders will need to adopt a longer term view to enable companies to embrace these values, which may have a short term impact.