UK: THE VOGUE FOR LOOKING GOOD. - Companies are now realising that their interests may not be best served by aiming solely at bottom-line profits and shareholder returns. 'Niceness' can bring long-term benefits.

by Nigel Cope.
Last Updated: 31 Aug 2010

Companies are now realising that their interests may not be best served by aiming solely at bottom-line profits and shareholder returns. 'Niceness' can bring long-term benefits.

A couple of years ago, things were looking pretty grim for Dixons the electrical retailer. Profits, which had topped £100 million in 1988, were down to £70 million and the company was getting a lot of flak about poor customer service in its shops. Dixons had never been exactly upmarket. Its niche was lower order brands like Amstrad word processors and Matsui videos pushed out at keen prices. But as the '80s turned into the '90s, Dixons found that competition on price was no longer enough. Customers wanted good service from polite, knowledgeable, helpful staff and if they couldn't get it at Dixons then they would go elsewhere. And they did.

So company chairman and founder Stanley Kalms set about making Dixons 'nicer'. He introduced a customer service training scheme for all new recruits and ensured that the existing weekly one-hour training schemes in stores included a section on one new product each week so that staff would know what they were talking about.

At the same time Dixons stumped up £1 million spread over five years to fund a chair in business ethics and corpo-rate responsiblity at London Business School (Professor James Mahoney, a former Jesuit priest and director of the business ethics research centre at Kings College, was finally appointed in June). The company also began a scheme whereby Dixons pledged to match funds raised by staff for their nominated charities. A whole page of the 1991-92 annual report was devoted to the issue of corporate governance. And the front cover - which featured a group of Dixons' now well-trained employees - bore the slogan, 'Quality people, quality products, quality service', not something Dixons would have dared to boast previously.

Dixons' experience says something about a concept that appears to be increasingly discussed in business circles: corporate responsibility. The theory runs that nice guys can finish first, that a company's best interests may not be best served in the long term simply by aiming at bottom line profits and shareholder return. Being nice - or, perhaps more significantly, appearing to be nice - to staff, suppliers and the environment is perhaps the way to longer-term success.

It is a theory taken up by Tom Lloyd, a former editor of Management Today in his 1990 book, The Nice Company. In the introduction Lloyd states: 'The nice company will become more dominant not because it is more ethical, but because it is, in the long run, more profitable.'

Lloyd's point is that there is so much information now available that corporate delinquents have nowhere to hide. Customers have more information about companies through the media. Companies can check out suppliers' track records more easily. The environmental lobby will hound a company that fails to meet accepted standards.

This implies that companies are being bullied into niceness. Some have been, of course, but it is in a company's interests to be seen as a volunteer to the cause rather than as an objector that had to be press-ganged into joining.

But what does nice mean? Does it really mean a company that fundamentally reappraises the way in which it conducts its business? Or does it mean something more cynical - that is, a company that appears to be nice, that shapes its public image in such a way as to be viewed kindly? After all, it is unlikely that Stanley Kalms of Dixons underwent a Pauline conversion on business ethics. Dixons is far from saintly - it still has a problem with staff pilfering, for example. About 400 Dixons staff are arrested or fired each year for theft or related crimes. But Kalms recognised which way the ethical wind was blowing and got in early. And he is not alone. The Co-operative Bank has sponsored a chair in corporate responsibility at Manchester Business School.

Academics working in the field - and the field is becoming increasingly crowded - tend to focus on the relations companies have with various stakeholding groups, such as customers, staff, suppliers, the community and the environment. Some, like Brian Harvey, professor of corporate responsibility at Manchester Business School, feel that a nice company must be run by a board of directors which regularly reflects on the company's response to new social or technological demands. Others such as John Stopford, professor of international relations at London Business School, place great emphasis on the development of a skilled motivated workforce. 'I see a nice company as one where there is a buzz about the place and people at quite a low level understand what the company is all about,' he says.

The Royal Society of Arts has thrown its hat into the ring, too. It launched a major inquiry last year entitled Tomorrow's Company: the Role of Business in a Changing World. The three-year inquiry aims to look at the role of business in society and at new methods of measuring business success. Sponsored by such organisations as British Gas, Guinness, IBM, Thorn EMI and Whitbread, it intends to publish its interim report early next year and a full report a year later.

'It is not so much that you have nice companies and nasty ones,' says Mark Goyder, the inquiry's co-ordinator. 'But some companies have thought through certain obligations and others haven't. Too many companies are simple happy to drift along without a set of core values.' There are examples of companies that have learnt these lessons early, and profited from them. Anita Roddick's Body Shop is a case in point. The company's well-knownpolicy on animal-testing received a form of endorsement in the courts this summer, when the Roddicks brought a libel action against Channel 4. Last year Body Shop announced plans to spend the equivalent of its annual energy bill on funding a wind farm in Wales. Ironically, the project has been held up on environmental grounds - there are fears that the turbines may trap rare birds.

Marks and Spencer and the John Lewis Partnership are examples of companies that have captured the profitable, moral high ground through enlightened staff policies.

M and S, with its on-site doctors, thorough training and subsidised canteens, has set the standards for staff care. John Lewis, a partnership since 1929, pays out a bonus based on profits each year to all members of staff, who the company always refers to as partners. The partnership even has a central council which can in theory remove the chairman, if it thinks he is not doing a good job. The council has 130 members, some of whom - a maximum of one fifth - are appointed by the chairman, while the rest are all elected by the workers. Any staff member can attend.

Such policies have enabled these companies to handle painful decisions well. M and S is again an example. When it made 600 people redundant at its London head office in April 1991 the move was a virtually unheard-of step for such a 'caring' employer. But the company carefully limited the damage. It flagged the decision by announcing a review, the progress of which was communicated to staff. When the axe fell, the programme was carried out in one day, with every one of the 4,000 head office staff being seen by a senior manager and told whether he or she would be staying or going. No one was left waiting for a phone call.

Outplacement counselling was made available to all the staff that were leaving. Though the company would not reveal the redundancy terms, they were believed to be well in excess of the minimum requirement. M and S also made it clear that this exercise was a once-and-for-all solution to management de-layering. This was important, as keeping up the morale of those who are left is just as crucial as the sensitive treatment of those who are going. The staff newspaper covered the redundancy programme in depth, saying that it had now been implemented and everything was back to normal.

John Gray, managing director of MCC, the management career consultants, believes that more companies should try to behave in this way. Those that think, with three million unemployed, they can hire and fire at will may find such actions come back to haunt them. Gray says that he has known people who received several job offers where the job, salary and conditions were comparable, to reject the companies that had a poor staff relations record. 'These things are important and people don't forget,' Gray says.

Relations with suppliers are important, too. M and S is again a benchmark. Some of its suppliers, such as Dewhurst and Courtaulds, have been with the company for decades. Relations are chummy to the point of sister company status. Monty Sumray, chairman of FII, which is one of M and S's footwear suppliers, even moved his head office from Hackney to central London three years ago so he could be just around the corner from the M and S head office in Baker Street. The two companies use each other's boardrooms for meetings (even if they are not meeting each other) and Sumray pops into the Marble Arch shop three times a week to see how his shoes are selling and to talk to customers.

Unipart, the car parts maker bought out by its management in 1987, is learning slowly. The company used to have terrible relations with its unions and, at best, mixed relations with its suppliers. But recently it has been putting its house in order. A variety of programmes, personally championed by chief executive John Neill, have been introduced to get people working closer together. The 'nice' approach seems to have paid off. Since the buy-out, sales are up 50% and profits have doubled.

Economic trends suggest more should follow the example of Unipart, M and S, the Body Shop et al. During this recession, price has been a key factor in the purchasing decision. As the economy evens out, consumers are more likely to opt for quality - and to be prepared to pay for it.

Demographics will also play a part. Britain's ageing population - there are now approximately one third fewer 16-year-olds than there were 15 years ago - is shifting spending power to the middle-aged. This group wants quality products, polite, knowledgeable service and good after-sales care. The shift in demand means that companies are going to have to work closer with their suppliers to ensure that they are getting it right. They might not go as far as M and S - which apparently hands out guidelines to suppliers on the shape of tomatoes and the kind of food Australian sheep should eat to improve the wool's consistency - but the phenomenal success(£732 million profits last year) suggests it must be doing something right.

How deep the concept of niceness can go in fiercely competitive times is a moot point. The benefits are long-term and converts might lose ground in the short run to those preferring sharper practices. But the number of companies now lending their voice to the debate shows that a significant re-evaluation of corporate behaviour has begun. Those that choose to stand on the sidelines might find themselves stuck there for good.

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