Creating real value

Here’s a question for you:

Which American company, in a section of its 2000 annual report called ”our values,” said it was committed to open communication, treating people with respect and integrity? ”We work with customers and prospects openly, honestly, and sincerely,” the company declared.

By Charles Stein, Globe Columnist

You probably already guessed it was Enron. I discovered this little gem courtesy of Jon Fay, a consultant with Park Loop LLC in Concord, and a longtime student of corporate values statements. Fay got interested in values statements, not because he anticipated CEOs going to jail, but because he wanted to know whether there was any link between corporate values and financial performance. If you’ve got the right values, does that translate into something tangible on the bottom line?

It turns out that many of America’s best-known companies have taken the trouble to draft values statements. Fay has collected quite a few of them, which he graciously shared with me. I found a few more on my own. I’m not sure what lesson you can draw from them, but in light of the recent spate of scandals, they certainly make for interesting reading.

It seems to me you can put the statements into three categories.

Category one could be labeled, ”Don’t believe a word I say.” The Enron values statement clearly falls into this camp. Fay says many companies put together values statements for the sole purpose of putting them on a conference room wall. Any tie between the words and how a company behaves in the real world is purely coincidental.

In category two are the companies that combine great values and lousy performance. Levi Strauss is a perfect example. The blue jeans company has four core values: empathy, originality, integrity, and courage. What’s not to like? Levi Strauss has backed the words with actions, everything from extending health benefits to gay couples to refusing to do business with sweatshops. You’d want Levi Strauss as a neighbor. You wouldn’t want it in your portfolio, however. The company’s sales have dropped 40 percent in the past six years.

Finally there are the companies with impressive values and equally impressive numbers. Consider the case of Johnson & Johnson. In 1943 company founder Robert Wood Johnson composed a one-page document called ”our credo,” which described the medical firm’s four key responsibilities. Had it been written in the go-go 1990s, the credo would have been dismissed as hopelessly out of date. In the credo, shareholders are the fourth priority, after customers, employees, and communities. ”When we operate according to these principles,” wrote Johnson, ”the stockholders should realize a fair return.”

In fact, Johnson & Johnson stockholders have done much better than fair. Fay doesn’t think that is an accident. He argues that the company’s credo puts the focus where it should be: on the long term. By taking care of its constituents, says Fay, Johnson & Johnson creates so much value that there is plenty left for the executives and shareholders. Said Fay: ”We lost sight of that idea in the 1980s and 1990s. The emphasis shifted to: `How much can I take for myself and how fast can I extract it?”’

The land-grab mentality ultimately turned out to be bad for shareholders and some executives – at least the ones on their way to prison.

Fay may be on to something. Some excellent companies, including Wal-Mart, have simple values statements that reflect the firms’ approach to business. And then there are the others. Take Adelphia. The cable company made headlines recently when its founder, John Rigas, and his two sons were indicted for allegedly stealing hundreds of millions of dollars from the company for personal use.

Out of curiosity, I checked Adelphia’s Web site for a values statement. And you know what? The company has one. And it sounds suspiciously like Johnson & Johnson’s. Can you be indicted for stealing someone else’s values statement?

Charles Stein is a Globe columnist. He can be reached at [email protected].

This story ran on page D1 of the Boston Globe on 10/1/2002.
© Copyright 2002 Globe Newspaper Company.

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