Monday, April 27, 2015

Can "Conscious Capitalism" and Profit Maximization Coexist?

Can corporate executives of public companies practice conscious capitalism without running afoul of shareholder expectations?  The current CEO of the "Container Store" Kip Tindell is currently in the trenches as that question confronts him directly. 

According to Bloomberg:  "A few years ago, the CEO of the Container Store, Kip Tindell, wanted to expand the chain beyond big metropolitan areas into smaller cities, but he also wanted to offer more employees stock in the company. Financing that with debt, additional private equity, or by selling the company were not acceptable options so he decided the best option was to take the company public.

Tindell’s personal philosophy is crucial to the company’s identity. He adheres to a model for conducting business without any trade-offs: Pay employees well and treat them with respect; consider suppliers and customers as family; have fun. This sort of management model has been called conscious capitalism. Companies that practice conscious capitalism are supposed to have a higher purpose. Costco aspires to this ethic, as do public companies such as, Starbucks, Southwest Airlines, and Whole Foods Market."

As expected, when profits were sky high, conscious capitalism was fine with shareholders, but as profits have stagnated in recent years, Tindell is facing criticism and scrutiny from them as prizing employee satisfaction and supplier familiarity should not substitute for shareholder gain, at least to some of the shareholders. 

Again, as reported by Bloomberg BusinessWeek:  "Most executives who practice conscious capitalism confront the tension between those measuring in months and those measuring in years. Tindell has been trimming costs, though not salaries, and looking for other ways to increase productivity in the stores. Growth presents challenges, too. It’s possible that the impulse, and the means, to organize a home isn’t as strong in the less affluent cities and suburbs where the company is expanding. The company's gross profit margin is still high, but if sales don't improve Tindell will be in a difficult position. His principles won't substitute for a better plan."

Short of organizing as a Benefit Corporation or a L3C, can Tindell practice capitalism consciously and keep shareholders happy?

1 comment:

  1. K. Aaron Heifner comments on T
    Conscious capitalism is smart business. CEO's must take care of their employees and customers or someone else will. Happy and invested employees are more productive for their employer. The best employee is one who enjoys their job, is proud to work for the company, and speaks well to others about the company. Therefore, there is a payoff when a company takes "good" care of their employees. Taking care of an employee must have limits. The employee must understand that it is a give and take relationship. The employee who gives more to the company should be compensated more than the entitled lazy worker who does no more than the status quo.
    Although taking care of your employees is necessary, profitability is essential for any business to succeed. Eliminating waste and any unnecessary expenses should be the goal of every company.
    The answer needs to be balance. Every CEO should care for his employees. In addition every CEO must take care of the bottom line also. In a publicly traded company like The Container Store, the CEO is working for the shareholders. He or She, and Here, Kip has a fiduciary duty to make all decisions as the CEO in a way that will not do harm to the company. Kip must have the company's best interests in mind when considering all decisions.
    Therefore, Kip must keep the shareholders happy and he can by balancing the company in a conscious capitalism manner while also maximizing the company profits..
    Comment posted by K. Aaron Heifner