No Company is an Island
“No man is an island entire of itself; every man is a piece of the continent, a part of the main; if a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as any manner of thy friends or of thine own were; any man’s death diminishes me, because I am involved in mankind. And therefore never send to know for whom the bell tolls; it tolls for thee.” – John Donne
When we study a great company, we frame it as an individual entity. Makes sense – when we think about great tennis players, we consider individuals like Roger Federer or Serena Williams.
But behind the scenes, Federer and Williams built their championship status with the help of others – trainers, nutritionists, agents, coaches, etc.
Great companies are no different. Every company is part of an ecosystem that includes customers, suppliers, shareholders, and their communities. As such, the way a company interacts with stakeholders in its ecosystem plays a major role in its success or failure.
In a 2013 interview, Costco co-founder Jim Sinegal described his company’s stakeholder philosophy as such:
“We’ve got essentially four things to do in our business. We have to obey the law, we’ve got to take care of our customers, take care of our people, and respect our suppliers.
We think if we do those four things, pretty much in that order, that we’re going to do what we have to do in the long term, which is to reward our shareholders. We think it’s possible to reward them without paying attention to those four things in the short term, but if you don’t pay attention to them in the long term, we think you stub your toe somewhere along the line.”
While it’s true that companies can generate high returns for shareholders at the expense of one or more stakeholders, at least for a time, we see this as risky behavior. When there’s systematic mistreatment of a key stakeholder, the company opens itself up to competition, distracting lawsuits, or internal unrest.
That said, it would be naïve to think every stakeholder of a company is delighted all the time. A supplier might feel taken advantage of in a recent deal or employees may feel that management isn’t hearing them. Humans run companies. They make mistakes and should correct them. Problems arise, however, when a company is aware of stakeholder mistreatment and continues doing it anyway for short-term profitability purposes.
Similarly, a company’s stakeholders are not treated equally. Some will take precedence over others. But trouble pops up when the hierarchy is out of whack. When shareholders come before customers and employees, for instance, it can produce the opposite of what the company intended.
In good times, it can be easy to miss a company’s stakeholder shortcomings. Much is brought to the light during a crisis.
We were pleased to see – although not surprised in the slightest – that many of our companies went above and beyond to support their stakeholders during the coronavirus outbreak. Here are six examples.
With production ground to a halt, in March Netflix announced a $100 million relief fund to support out-of-work production professionals. And the fund wasn’t just for those working on its original series – $15 million was set aside for third-parties and non-profits who support out-of-work crew and cast.
In the memo announcing the plan, chief content officer Ted Sarandos concluded by saying, “We are only as strong as the people we work with and Netflix is fortunate to be able to help those hardest hit in our industry through this challenging time.”
Medical technology company Masimo moved quickly to help medical professionals, hospitals, and patients impacted by COVID to deliver better outcomes and reduce cost of care, in line with the company’s mission statement. For example, in response to worldwide blood shortages, Masimo provided its non-invasive and continuous hemoglobin monitoring technology at no additional cost to hospitals who had the hardware but had not activated the license.
Additionally, Masimo worked quickly with the FDA and leading medical institutions to launch Patient SafetyNet – a tetherless medical grade monitoring system that can be used to monitor patients away from hospital beds via a mobile phone app, whether they are at home or in a field hospital. This allows hospitals to dedicate beds to the most critical patients. Patient Safetynet also provides non-critical patients the peace of mind that they are being medically observed and will be alerted to return to the hospital in the event that their vitals worsen. Masimo is selling the kits, which provide up to eight days of observation, for $150.
Landstar’s asset-light truckload platform features a group of independent drivers called Business Capacity Owners (BCOs) who operate exclusively for the Landstar network. While these drivers are not Landstar employees, in March Landstar announced it would offer $1,000 a week (up to two weeks) for any BCO driver diagnosed with COVID-19 or required to be quarantined. Independent drivers only get paid if “you’re rolling,” so drivers were understandably concerned about generating income if they fell ill or were under mandatory quarantine. Landstar’s program helped assuage those concerns. Given the shortage of long-haul drivers in the market, it was important that Landstar take care of one of its most valuable stakeholders.
Ferrari’s reaction to the pandemic was so exceptional that it was profiled by Harvard Business School as a model for how other companies should respond.
On the most recent earnings call, CEO Louis Camilleri called out these efforts:
“Our first and foremost priority has been and remains the well-being and welfare of our employees, while full compliance with national or regional prescriptions to combat the spread of this virulent disease has been a key factor in all decisions taken. We have gone well beyond the spirit to support and protect what is ultimately our greatest assets.
In spite of the fact that our facilities have seized production since March 14, not a single employee has been furloughed or laid off and all have received their full pay during this period. We’ve provided medical support and assistance to our employees and their families and furnished vital in-kind of monetary assistance to the communities in which they reside. Solidarity and empathy have been our guiding principles.”
Beyond caring for its highly-skilled employees, Ferrari also noted its efforts to support its 400 direct suppliers. Camilleri noted, “We have been very carefully monitoring any supplier that may find itself in a precarious financial condition to determine any actions that we may take to assist them directly or indirectly.”
Going into March, Chipotle planned on putting its full marketing efforts behind its new Queso Blanco cheese dip offering. But as states began to close and customers began to quarantine, the company quickly pivoted its efforts to provide free delivery. It also launched a e-gift card program to support healthcare workers with free meals. For restaurant employees, Chipotle significantly expanded its already-generous benefits program including a 10% boost in hourly rates and granted almost $7 million in discretionary bonuses to general managers and eligible hourly employees for their efforts. Finally, Chipotle announced it would provide $5,000 grants to 50 young local farmers who supply the restaurant with sustainable meat and produce.
During its first quarter, Home Depot paid $850 million in enhanced employee pay and benefits, which included paid leave for employees aged 65 and older or at high risk, weekly bonuses for hourly associates and distribution centers, double overtime pay, and extended dependent care benefits.
The culture established by the founders helped inform these decisions. “These values are the foundation for our business,” management noted on the latest earnings call, “and provide the lens through which we evaluate our decisions. Anchoring to these values in this time of crisis has never been more critical. Our decisions and actions are rooted in a commitment to do the right thing, to take care of our people and be there for our customers and communities.”
Were these actions “business” motivated? Absolutely. But there’s no rule that business and kindness have to be mutually exclusive. In fact, we believe they should be inclusive.
We want to own championship-caliber companies in our portfolio. To reach (or stay at) that level, companies need to be durable and that means being a part of a healthy ecosystem of stakeholders in which all participants view the relationship as a win-win. Our companies tend to be the largest, most-financially resourced parts of their ecosystems. In times of crisis, then, they should be supporting smaller stakeholders who helped them achieve their good fortune. When the tide shifts again, we believe it will be thoughtful and considerate companies who come out stronger on the other side.
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