What is a Firm of Endearment? The authors argue that their example companies share a common set of core values, policies, and operating attributes which include:
1. aligning the interests of all stakeholder groups (customers, employees, partners, investors, and society) rather than seeking profit optimization
2. below-average executive compensation
3. open-door policies
4. employee compensation and benefits are above average for their industry
5. above-average employee training
6. empower employees to satisfy customers
7. hire employees who are passionate about the company's purpose
8. humanize customer and employee experiences
9. enjoy below-average marketing costs
10. honor the spirit as well as the letter of laws
11. focus on corporate culture as a competitive advantage
12. are often innovative in their industries
Companies identified include extensive examples drawn from Commerce Bank, Container Store, Costco, Harley-Davidson, Honda, IDEO, IKEA, jetBlue, Johnson & Johnson, Jordan's Furniture, New Balance, Patagonia, Southwest Airlines, Starbucks, Timberland, Toyota, Trader Joe's, UPS, Wegmans, and Whole Foods.
These companies are often contrasted with Wal-Mart and the Good to Great Companies identified by Jim Collins in 2001 in terms of stock price growth.
The authors argue that there is a new level of consciousness emerging that rewards those who do good while doing well. The implication is that all firms should shift to stakeholder optimization and the cultural values identified in the example companies.
While they don't make this argument, it's clear that the authors have identified many of the mindsets that lead a company to seek optimizing results for all stakeholders.
Before you assume total cause and effect, I would like to raise some issues not fully addressed in the book:
1. This is an after-the-fact evaluation. As such, (like Good to Great), we may mostly be seeing what the leaders are proud of . . . rather than what caused their success. For example, Southwest's success is focused on their corporate culture. But the company also has a better business model than almost any other airline (Ryanair's is better) and does a better job of fuel cost hedging than any other U.S. airline. Those factors aren't mentioned.
2. These companies are almost all in consumer products or services. A class of socially conscious consumers has sprung up who look hard for such firms. It's not clear that OEM and industrial buyers have evolved their preferences nearly to the same extent. So many of the lessons may only apply consumer goods and services (except for those validated by Gallup for having a motivated and effective group of people working for you).
3. Almost all of these firms are highly effective business model innovators who have gained enormous advantages over competitors who seldom innovate their business models. As a result, they can afford practices that may or may not pay off in profit without incurring any negative reaction. The next business model innovation will pay for the cost.
I was surprised that this book didn't look at the study I made from 1992-2001 that identified continuing business model innovation as the single best factor for explaining high levels of corporate performance (see The Ultimate Competitive Advantage). The books share some examples in common (including Jordan's Furniture and Timberland), but many of FoE's examples are also superior business model innovators (Amazon, BMW, CarMax, Caterpillar, Container Store, Costco, eBay, Google, Harley-Davidson, IDEO, IKEA, jetBlue, Patagonia, Starbucks, Trader Joe's, UPS, Wegmans, and Whole Food).
4. It often pays better to serve stakeholder interests than to ignore them. Why? Because ignoring stakeholders often burdens both the company and the stakeholder with costs and experiences that neither want. This economic case for stakeholder focus isn't fully developed outside of the customer arena.
5. The book emphasizes sustainability, but much of that argument is built around companies disappearing from the Fortune 500 (something that happens whenever a merger happens . . . which doesn't mean that the organization goes away, just the corporate headquarters in most cases). In the research of my students on environmental sustainability (see Hiroshi Fukushi's work, A Strategic Approach to the Environmentally Sustainable Business, for example), it's apparent that making the environment cleaner than when you touched it is economically advantaged in most situations. The idea of sustainability is based on the outmoded notion of not doing too much damage rather than finding profits in making the world better than you found it.
But it's a good book that creates more questions than it answers. This one will probably stimulate some more careful thinking in the area of where seeking to be more considerate of others is going to create better results as well as better sleep.
