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Corporate Breakaways

[whitespace] Corporate Breakaways

Three progressive companies leading the way to a new century

By Marjorie Kelly

HOW IS BUSINESS likely to evolve ethically in the next century? Or to put the question in a slightly different way, how would we like business to evolve? I went out looking for the answer recently--calling on experts in the field of socially responsible business, to help me find companies on the cutting edge of social awareness, really showing the way to a new century. And I'm happy to report, the future looks good.

If other companies follow the lead of the three companies I found, the world will be in pretty good shape.

"Future possible," as these three companies exemplify it, has to do with employee ownership that is genuine, making a company a real democracy.

It has to do with fair trade, deliberately paying fair prices to suppliers in underdeveloped countries.

And it has to do with environmental stewardship, not just a recycling bin here or there around the office, but thoroughgoing stewardship from top to bottom.

It has to do, in short, with making social awareness as integral to business as financial awareness.

Herewith, my choice for three companies leading the way, ethically, to a new century:

Fetzer Vineyards

A California vineyard combining across-the-board environmental sustainability with high profits

IMAGINE A FOOTBALL field covered in garbage. It's a foot deep, so when you walk around in it--slogging through office paper, food pulp, old Bic pens--it reaches up past your ankles. Now imagine someone's cleaned that field. The waste is the same depth, but now it reaches only from the first to the seventh yard line, and 93 percent of the field is pristine and green again. That's a major cleanup. And that's what Fetzer Vineyards in Hopland has accomplished with its own waste since 1991. It's done it during a time when sales more than doubled.

Not being one to rest on its laurels, the Fetzer winery aims to go further--to zero waste by the year 2009. "We are already recognized as a zero-waste company by the state of California," says Patrick Healy, environmental coordinator at Fetzer. What they do with all that non-waste is instructive. They recycle everything from cardboard to antifreeze; compost organic waste and turn it into fertilizer; and work to keep materials out of the waste stream--by restoring oak barrels rather than discarding them, for example.

There's almost no aspect of the winery that escapes this kind of detailed environmental scrutiny. Take the administration building, for example. This 10,000-square-foot facility, completed in 1996, is one of the world's first large-scale examples of rammed-earth (underground) construction. It was built almost entirely with recycled wood. Carpets are natural fiber. Lights are on motion sensors so they go off as you leave the room. Heat comes from waste heat off chillers used in winemaking. And instead of air conditioning, the building uses night-air cooling.

"Computerized and motorized windows open at night to admit cool air," Healy explains. Even landscaping is environmentally conscious. It's "zeroscape," he says, because the drought-resistant plants take little water.

And then, of course, there's the photovoltaic array on the roof, which got up and running in June. "It's the largest photovoltaic display in Northern California not owned by a utility company," Healy says. It supplies three quarters of the building's energy needs. All other power used by the winery is from renewable sources, thanks to a unique utility contract signed in May.

Most telling, perhaps, is the vineyard's approach to grape growing itself: an organic approach that relies on natural pest control and soil management. Techniques include the use of "cover crops" grown between the vines, like crimson clover and purple vetch, which attract beneficial insects.

"They keep the bad guys in check, so to speak," says president Paul Dolan. Another technique is "canopy management," in which the leaf-and-cane canopy is opened to bring in sunlight, reduce the chance of mold and rot, and eliminate the need for fungicides.

The process "brings us closer to the vine," Dolan says. "We don't have the quick fixes of chemicals, so we're in the vineyards more. We find our farmers are better farmers as a result."

And the grapes simply taste better. That's where the financial payoff lies. There's some demand for specially labeled "organic" wine, which Fetzer meets with an organic label, Bonterra. But it doesn't label most of its wine organic. Organic growing "is part of who we are," Dolan says. "It's not something the consumer is aware of."

About 20 to 30 percent of grapes used now are organic, but Fetzer plans to reach 100 percent by 2010. Toward that end, it formed "Club Bonterra" to help share ideas on sustainable farming among its outside farmers, who provide over 90 percent of grapes.

Does all of this environmental focus cost more? Yes and no. Organic methods are a little more expensive to begin with, but not in the long run. The solar array really won't pay for itself, but it was built with the help of grants. Renewable power is slightly more expensive, but Fetzer is offsetting that by pursuing efficiencies in usage.

And recycling is decidedly less expensive than landfilling. It all does make economic sense. "But it's not like we're using it as a competitive edge," Dolan says. It simply fits with how the company does business. Fetzer's vision statement is to enhance the quality of life.

What's remarkable is that Fetzer takes this holistic approach as a publicly held company. This $160 million firm is owned by the $2 billion Brown-Forman Corp. based in Louisville, Ky. "They've been great about it," Dolan says. Fetzer runs its own show, as long as the profit is there. And as Dolan says, Fetzer is "very profitable."

Over the last six years, profits and revenues have grown at a 15 percent annual compounded rate.

It's a model worth showcasing for a new century: a thoughtful and deep commitment to the environment, combined with financial excellence. As Dolan says, "it helps other people see it can be done."

Equal Exchange

A gourmet coffee company in Massachusetts pioneering a new model of fair trade practices

WHEN YOU buy a pound of gourmet coffee for $8 or $9, as little as 40 cents of that may go to the farmers who grew it. Much is siphoned off by middlemen in the export country, known to Latin American farmers as "coyotes," who offer the lowest possible price--leaving some 20 million coffee farmers trapped in poverty. But some are fortunate. They do business directly with Equal Exchange, a fair trade company in Canton, Mass. By cutting out the middlemen, these farmers reap as much as 50 cents extra per pound. They're people like Don Miguel Sifontes in El Salvador.

"We used to live in houses made of corn husks," he told Equal Exchange. "Now we have better work, better schools, homes of adobe, and a greater brotherhood of decision-makers."

That's fair trade at work. It's a way of doing business that defines supplier welfare as part of business success. And its premier practitioner in the United States is Equal Exchange, a gourmet coffee company founded in 1986 with the goal of building a more just system of trade between consumers in the North and producers in the South.

The concept of fair trade itself is 15 years old, and began in Europe as a faith-based movement, says Rob Everts, co-director of Equal Exchange with Rink Dickinson, one of the founders. A few crafts stores and catalogs in the United States also practice fair trade, but Equal Exchange is the only company with mass distribution, and the only company offering a fairly traded commodity like coffee. This uniqueness puts Equal Exchange alone at the pinnacle of fair trade in the United States

"For a long time, Equal Exchange was a very lonely voice in the wilderness," Everts told Business Ethics. "Virtually no other people were doing fair trade for 11 years." In 1991, it became the first U.S. company to officially adopt the TransFair internationally recognized standards of fair trade as guiding principles for its business. But since 1998, thanks to its example, over a dozen other coffee importers have adopted fair trade for a portion of their product lines.

Currently, over 95 percent of Equal Exchange's coffees and teas are purchased using the following standards:

1. Purchase directly from small farmer cooperatives, owned and controlled by farmers themselves. In the last four years, Equal Exchange has widened its community of producers from six to 15 farmer cooperatives.

2. Pay a fair price, including a guaranteed minimum of $1.26 per pound (world price in mid-September was as low as 80 cents per pound).

3. Offer affordable, pre-shipment credit. "When we sign a contract with producers, we pay up to 60 percent of the contract six months in advance," explains marketing manager Erbin Crowell. "If a hurricane hits, we share the risk."

4. Encourage ecologically sustainable farming practices. Equal Exchange pays a premium of 15 cents per pound for certified organic and shade-grown coffee, offering an incentive to farm sustainably. All of the company's teas are organically grown, and 70 percent of its coffee is shade-grown and certified organic. To decaffeinate coffee, it uses the world's most environmentally progressive, chemical-free facility, in Germany.

5. Build long-term partnershipsbased on trust. When Nicaraguan partners suffered from Hurricane Mitch, for example, Equal Exchange worked with Lutheran World Relief to raise relief funds.

Equal Exchange is a run as a worker-owned cooperative, though it has an unusual hybrid legal form--combining a normal C corporation with a cooperative form--which allows it to bring in outside investors. Employees elect the board, approve important company decisions, and receive 20 percent of profits. No one in the company can be paid more than three times anyone else.

The company has some 200 outside, non-voting shareholders--"blue-chip socially responsible folk," says capital coordinator Clark Arrington--who have collectively invested over $1 million. They receive annual dividends averaging 5 percent (which take preference over profit payments to workers). "It's our ownership structure at Equal Exchange that enables us to make farmers and consumers our priorities, rather than profits," as co-founder Michael Rozyne put it in one company brochure.

"The limits we set on return to investors help make it possible to transfer financial benefits to farmers."

For 13 consecutive years, the company has grown steadily, with 1998 sales of $5.7 million, up 18 percent from the year prior. It's been profitable 10 of the last 11 years--and when it suffered a small loss in 1998, it still paid shareholders a dividend.

Equal Exchange is ideal for an end-of-millennium role model, for it is much more than a company with progressive policies. As co-founder Rink Dickinson said in company literature, "We're setting up a different economic model. That's why we're here." And here's hoping it's a model that enters the mainstream in the coming century.

St. Luke's

A visionary employee-owned ad agency in London changing the DNA of business

TALK ABOUT a dream coming true: St. Luke's ad agency in London began as a kind of dreaming, abstract exercise in imagining the Advertising Agency of the Future. At the time, in 1992, St. Luke's was still the London branch of the Chiat/Day agency. London staffers Andy Law and David Abraham had joined the agency's task force on the future, the Chrysalis Committee, where they conjured a vision of an ad agency as a force for good in the world.

In the coming millennium, they believed, businesses would be judged not by products alone, but by their "Total Role in Society." The agency would help clients design this TRS. Law and Abraham spent hours musing on a new model for business--where employees would no longer be nobodies, where the focus would be on "stakeholders" rather than stockholders--and they put these visions on paper.

When the group presented its findings to Jay Chiat, he hit the roof. The committee was toast. But the dream was to linger.

Fast forward to 1995: Andy Law has received a call from Jay Chiat, announcing he's selling Chiat/Day to Omnicon. Law's task is to discard as many employees as he can. And he wants none of it. Before long his London colleagues are joining him in a mass mutiny: the London office is breaking away. They call clients, finding them happy to follow the mutineers. And Chiat, once again, goes ballistic.

As Law recounts the tale in his new book, Creative Company: How St. Luke's Became "the Ad Agency to End All Ad Agencies" (Wiley & Sons), what began then was "a fight that would go all 15 rounds and which would take a staggering ten months to complete." In T-shirt and jeans, Law met with Fred Meyer--the chief financial officer of Omnicon Worldwide--presenting his reasons for spurning the merger "like a soapbox agitator trying to stir a crowd."

At his home, late at night, Law took countless anguished calls from colleagues urging him to embrace the merger. "I dreamt one night that a large black Mercedes had pulled up outside my son's school and whisked him off," he wrote. " 'We have Tom,' a Slavic voice said. 'Sign the deal and merge, or else!' "

But Law and Abraham stood firm--and they remained determined to break away ethically. In the end, both Jay Chiat and Fred Meyer supported them.

As Law said in a recent phone interview, Chiat became "the genie spirit" helping to smooth the deal through. And Meyer designed the generous deal, by which Law and cohorts bought the London branch: for one dollar, plus a percentage of profits for seven years (with an option to buy it outright for $2 million, roughly 1 times revenue).

At last the London office was free to follow its dreams. The mutineers renamed the agency St. Luke's, the patron saint of creative people. They took as their purpose, in Law's words, "to elevate the human spirit, to offer the opportunity for personal transformation."

They set about turning St. Luke's into a democracy--where ownership is free, a guaranteed right, like the right to vote. Shares are distributed to all employees equally each year. Any employee may run for the six-member governing body, the QUEST (Qualifying Employee Share Ownership Trust). When they run, employees write "manifestos," Law said. "Some even have campaign managers."

There are no secretaries at St. Luke's, but there are "hubsters," who function like air traffic controllers, keeping track of folks--since there are no desks and no fixed working hours.

The free-form office is arranged around clients, each of which has its own room. And then, of course, there's the Chill-out Room, where employees might be found getting a massage, or sleeping.

"It's mad, it's mess, it's untidy," Law said. And it works. In its second year, St. Luke's was named Agency of the Year by the British trade journal Campaign. Its billings have grown from $35 million in 1995 to nearly $200 million now. Client fees climbed from $2 million to $8 million. And employees went from 32 to 110.

"We have the lowest staff turnover rate in the business, the best client retention, and margins around 23 percent, which is fabulous," Law said.

And all that is achieved with high salaries and generous benefits (like 10 weeks time off after five years, or six months paid maternity leave).

St. Luke's is a good choice for an end-of-millennium role model, for one hopes it does represent the agency of the future, and a model of employee ownership for the future: where ownership is not a paternalistic gift from on high, but a right employees themselves claim.

The three companies profiled here were all recipients of 1999 Business Ethics Awards, given by Business Ethics magazine in Minneapolis, of which Marjorie Kelly is co-founder and editor.

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From the December 30, 1999-January 5, 2000 issue of the Sonoma County Independent.

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