Conscious Capitalism: A Mechanism for Prosperity

Companies that practice conscious capitalism benefit from putting their employees first. The Container StoreREI and Joie de Vivre have shown this to be true, even as the lagging economy has pushed other companies to downsize.

The Container Store's 'We Love Our Employees Day' falls on Valentine's Day

At The Container Store, employees are prioritized over customers and shareholders. It’s a core company principle that influences all business decisions. Full-time employees earn an average of $46,000 per year, which is 50-100% higher than the retail store average. They also receive an average o 260 hours of training in their first year, compared to the retail average of 8.5 hours.

But the company’s most ambitious commitment since the economic collapse in 2008 was to retain all of its employees. It’s a striking accomplishment given the atrophy of the retail industry. To compensate for the drop in consumer spending, most businesses cut costs by laying off workers. But Kip Tindell, co-founder and CEO of The Container Store, is a practitioner of conscious capitalism (which rejects the zero-sum view of business, viewing it instead as a web of connected stakeholders). To safeguard jobs, Kip froze salaries and 401(k) matches, brokered better deals with suppliers and worked with employees to help them reach their sales targets. His strategy relied on the company’s core asset–its employees–and drew on the foundation of trust between company and employee. And it worked.

“If you really and truly put the employee first, they’ll take care of the customer better than anybody else and ultimately the shareholders and other stakeholders benefit as well.”

Sales were down just half as much compared to other housewares retailers and the company met its usual 10% profit margin. The salary freeze has since been lifted and matching 401(k) contributions restarted.

REI made a similar promise to forgo lay-offs during the recession, focusing particularly on protecting part-time workers–typically the first to be pink-slipped. Rather than reducing pay, benefits or hours for part-time employees, the company asked all salaried staff to accept a pay freeze, or even reduction. This approach protected the most vulnerable in the company and divided the sacrifice equally among those who could afford it.

I’ve written before about Joie de Vivre (JDV) founder Chip Conley’s approach to business: Take your largest and most expensive asset, your employees, and use it to build your company. Like REI, Chip used salary freezes and pay-cuts for executives and managers to fund the wages for the housekeeping, maintenance and restaurant staff. When I asked Chip how he persuaded management to accept the cuts, he pointed to the strength of JDV’s culture.

”If you have a great culture, it leads to people being willing to do things they might not be willing to do in a different environment.”

In a recent interview with Fortune, Raj Sisodia, who heads the Conscious Capitalism Institute (The Container Store, REI, Joie de Vivre and Whole Foods are supporters) gives a critique-proof explanation of Conscious Capitalism:

“[It provides] a built-in mechanism to make sure that everybody prospers at the same time. Any exploitation of one element for the benefit of others in the long run is not going to work. It’s basic system theory. The system is only as good as its overall ability to function, and to be healthy all the components have to be healthy.”

 

 

Tags: , , , , , , , , , , ,

3 Comments

Leave a comment
  1. Greg Hertzke April 15, 2011 at 5:48 pm #

    I don’t think it is any accident that leaders who build their companies with a cause capitalism mindset also know that their success is based on how they treat their employees.

    Just like doing good for society, the bottom line actually increases from just being good people.

    Great lessons from these great companies. Thanks Olivia.

  2. Olivia Khalili April 15, 2011 at 7:04 pm #

    Greg, I agree. It’s a wonderful formula, no?!

    Thanks,
    Olivia

  3. Bill McIntosh April 17, 2011 at 12:48 pm #

    Great article Olivia! Thank you!

Leave a Reply