For decades, many people have considered corporate efforts to fund social and environmental programs public relations campaigns designed more to boost brand reputation at best and, at worst, a way to right wrongs. Positive reactions to exposed negative actions – part of a zero sum game (negative behavior + positive response = zero sum) rather than a net positive for society.
Since the Great Recession, Deepwater Horizon, Occupy Wall Street, record long-term unemployment and government cutbacks on funding of social programs, the zero sum corporate responsibility game has come under even greater scrutiny. And as a result, doing good is becoming a practical reality for corporate survival across industries. A growing cost of doing business, that is at odds with our historically idealistic images of doing good. Yet, in a technologically interconnected world where coopetiton, hybrid cars, mixed racial backgrounds and gay marriage are becoming mainstream concepts, should the notions of idealism and realism remain at odds with one another? Should integrating sustainability and social responsibility initiatives into brand development be considered self-promotion? Or should it be seen as operating transparently and enabling consumers to buy products from companies that share their values and invest in things they care about?
Intrinsic values produce consumer value
More and more CEOs are acknowledging that fair and ethical business practices are as essential a criteria for lasting business success as is earning a profit. In a world where businesses are forced to adapt to the challenges globalized sourcing, production and sales present, economics and ethics cannot be viewed as separate constructs. In other words, values have become essential for value production. And, in 2015, consumers will look up to brands that demonstrate strong values and, in turn, rely on them.
So what does this mean for investors?
Based on our research, in the not too distant future, the focus of due diligence and disclosure will likely shift to equally emphasize financial statements and the strength and character of brand reputation. How a brand brings its products to market already matters more than ever before. Production processes, once secret, are readily investigated around the globe and conditions deemed unacceptable make news in a flash. When a product is made through unfair treatment to workers, it can have long lasting, negative impact on brand reputation and demand. Heritage, provenance, quality and health will all matter more in 2015. People want transparency from the brands they buy – especially the ones they trust the most. More good purpose brands that stand for principles or causes are surfacing. And, while they are still the minority, the impact they are having on our collective psyche is growing.
Fairtrade. Organic. Eco-friendly. Sci-fi innovation. Prospective customers consider more than the functional exchange of almost any purchase – both consciously and sub-consciously. People want more for their dollar: a great product that does what it says it will do, and so much the better if buying that product benefits the environment or others along the way and badges the purchaser as someone who cares. So, in 2015, investors should bet less on opaque high performers and more on committed leadership brands that have a transparent, long term focus.