Peter Carlin's "Pure Profit" (Feb. 5) demonstrates the pitfalls of the modern business world. Entrepreneurs with the best of intentions get caught in a cycle of growth that's irresistible but destructive. Lured by profit and the chance to do more good, a small company with ideals tends to grow into a large bureaucracy in which the visionary founders gradually become removed from their product, thus losing control over both company and product.
The large bureaucracy has become a necessary evil. High start-up costs have created a situation in which certain commodities, such as electricity, cannot be effectively and reliably supplied by small companies. But products like outdoor clothing (Patagonia), coffee (Starbucks) and ice cream (Ben & Jerry's) are most effectively produced by small companies with owners who try to maintain their high standards of quality and social responsibility.
A trendy product depends in part on its scarcity. Witness the Ben & Jerry phenomenon: What's probably the best ice cream on earth is declining in popularity precisely at the peak of the company's growth, product variety and product availability. Ben & Jerry's ice cream is not quite as satisfying as when a pint of Chunky Monkey was a rare find. Overexposure will probably also cost Starbucks some of its market share over the next decade.
The three companies Carlin highlighted, although sincere in their devotion to social and environmental causes, publicly use that position to promote their products. The relatively small amount of resources that actually finds its way to "common causes" is disheartening.
In 1991, it wasn't that Patagonia "expelled some workers." The company actually fired 30% of its staff, not because the company was in deep financial trouble but because Yvon Chouinard's personal wealth was threatened. The situation resulted from his having surrounded himself with managers with too little experience (not dissimilar to the Ben & Jerry's situation where shareholders forced the founders to bring in a new chief operating officer).
Thousands of public and privately held corporations operate successful businesses using non-exploitative practices and provide huge resources to the social environment, not merely by transferring 1% of their annual revenue to charitable causes but by donating substantial pieces of ownership to such organizations. For example, Jim Stowers, founder and major shareholder of the Twentieth Century Group of Mutual Funds, established a medical research company funded by the gift of a major percentage of his stock in the firm. It would take Patagonia hundreds of years to make such a financial commitment.
Before we pass judgment on a business by how much of its pretax earnings go to water-starved Guatemalans and illiterate Kenyans, perhaps we should decide whether Cherry Garcia is indeed the best ice cream, if Starbucks' caffe latte is overpriced and if the Patagonia hooded sweat shirt shrinks too much when it's washed.
I've always thought that the most important thing in business was responsibility to the consumer.