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A Quiet Revolution

In 1924, the president of the J. C. Penney Co. wrote to the manager of a company store in Eureka, Oregon, to praise him and his team for a job well done. "You did the most business that has ever been done in Eureka, and made the most money that has ever been made. I congratulate each and every one of you," said the executive. Then he delivered a gentle rebuke. "I don't want you to get the idea, Mr. Hughes, that we want you to make too much profit. There is danger in doing that very thing. There is a certain service that we owe to our community. Now, don't misunderstand me, I am not censuring you, but somewhere in the operations of the Eureka business there is a profit that we owe to the public."

Profits mattered to James C. Penney Jr., the company's founder and its guiding spirit for fifty years, but his Christian values mattered even more. The son, grandson and great-grandson of preachers, Penney had started his chain of stores, which were originally called the Golden Rule stores, with a single outlet in Kemmerer, Wyoming, in 1902. Operating in small towns at first, he dedicated the company to service—service to its working-class customers, who expected quality goods at fair prices, and service to its employees, whom he treated like family. Long before the advent of stock options, Penney gave every one of his store manager’s shares in the parent company so that they could share in its profits and success. "Business never was and never will be anything more or less than people serving other people," Penney wrote in Fifty Years with the Golden Rule, his autobiography.

So committed was Penney to his values that Penney Co. stores did not offer credit for many years because he believed that his customers needed to cultivate the virtue of thrift. When the company's board of directors finally voted to make credit available in 1957, long after rivals like Sears had done so, Penney continued to voice his reservations. "You will end up encouraging people to buy things they can not afford and should not buy," he told the board. "By offering credit, we encourage them to overbuy. With me, it is a moral issue of getting people in financial trouble." His ethic of service proved to be good for business. By the time of his death in 1971, the J. C. Penney Co. employed 162,000 people in 1,570 stores that rang up sales of $4.7 billion.

For Milton S. Hershey, too, business was about more than making money. What excited the inventor of the nickel candy bar was the opportunity to make the world, or at least his little corner of it, into a happier place. To that end, he transformed twelve hundred acres of rolling Pennsylvania farmland into America's most famous company town, a place where, as he put it, "the things of modern progress all center in a town that has no poverty, no nuisances and no evil." In contrast to the faceless company towns erected by nineteenth-century industrialists, Hershey, Pennsylvania, offered parks and swimming pools, a golf course and a roller coaster, a hotel, a sports arena, an ice-skating rink, a library and a two-year junior college where tuition was free.

Raised by his mother, Fannie, a dour Mennonite who disdained worldly pleasures, Milton Hershey rebelled by starting a business that brought smiles to the faces of millions of children. His bedrock values included charity, modesty and service. "Business is a matter of Human Service," read a sign on his office wall. After his wife, Kitty, died in 1915, Hershey gave all of his shares in the company to a school for orphan boys that he and his wife had started. "I have no heirs—that is, children," he explained. "So I decided to make the orphan boys of the U.S. my heirs."

Hershey's paternalistic dream faded over time. To his dismay, workers seeking higher wages struck the company in 1937. After his death in 1945, professional managers began to separate the company from the town. They cut back on the services provided by the company, and turned a public park, lake and gardens into a Disney-style theme park that charged admission. But Hershey's legacy persisted. When Hershey Foods was put up for sale in 2002, the people of Hershey knew what to do. Arguing that the company had an obligation to support the town and the school, they hired lawyers to oppose the deal, petitioned state legislators and marched in protest under the Kiss-shaped streetlights on Chocolate Avenue. They won—the nonprofit trust that still owns most of Hershey Foods turned down a $12.5 billion offer from Wrigley and elected to stay independent. "For once," my colleague John Helyar wrote in Fortune, "the almighty dollar had lost."

Born in the nineteenth century and shaped by small-town America, James C. Penney and Milton S. Hershey were old-fashioned men who lived traditional values at work. The ideals that guided them—industry, thrift, charity and service—are not often spoken of anymore in corporate America. But as architects of great companies, Penney and Hershey were in some respects ahead of their time. Each man imbued his company with a purpose that was more inspiring than making money. Both knew that profits were essential, but profits were not the reason to do business. They saw their role as serving their workers and their customers, as well as making money for themselves and their owners. And, in contrast to many executives, then and now, they did not think about business as a series of discrete transactions. Instead, their companies built long-lasting relationships with workers, customers and communities that depended on fairness and trust. Relationships mattered to Penney and Hershey because they focused on the long term. They managed not for the next quarter, but for the next quarter of a century.

In the wake of Enron, WorldCom, Tyco and too many other corporate scandals to enumerate, and at a time when most CEOs are grossly overpaid, workers are seen as expendable and production is shifting to so-called third-world sweatshops, the notion that corporations exist, above all, to provide service to others and to society may sound outdated or naive. It is not.

Forget about the headlines for a moment. You've surely had personal experience with businesses that are driven by an ethic of service. Most are small. Think of your favorite neighborhood merchant, the auto repair shop known for square dealing, or a family-owned restaurant that employs local teenagers. Their owners understand that doing the right thing is good for business, and that reputation is a valuable asset. There's nothing surprising about this. When people say "It's good business to treat your employees well" or "It's good business to go the extra mile for a customer" or "It's good business to give back to the community," we understand what they mean. What is surprising is that more big companies don't think that way.

That has begun to change—dramatically. A growing number of big corporations now believe that doing good is good business, and they are acting accordingly. Some are guided by leaders with spiritual values or by a sense of social responsibility that has been built into their corporate cultures. Others have been rocked by outside forces and all but required to rethink their obligations. Implausibly, the corporate scandals have turned out to be a boon for those who want business to serve the common good. A senior executive at a big software company recently told me: "Companies need to show that they are not just greedy institutions."

You may not have read or heard much about the ways that corporate America is changing for the better. The bad news about business gets more exposure than the good. But consider these examples:

*The industrial giant DuPont, which was once labeled America's worst polluter, is remaking itself from an old economy oil-and-chemicals company into an environmentally friendly life sciences firm. DuPont is committed to a strategy called sustainable growth—that means building businesses that can grow, indefinitely, without depleting natural resources—and so it sold of Conoco, its oil-and-gas unit, and bought Pioneer Hi-Bred International, the world's largest seed company. DuPont also sharply curbed energy usage, emissions and waste and set the gold standard for industrial safety. This $25-billion-a year company, which got its start in 1802 as a manufacturer of gunpowder, now makes soy protein, a corn-based stretchable fabric called Sarona and Tyvek, a versatile material that's made into home insulation and thin, lightweight, hard-to-tear envelopes for FedEx. (Using lightweight envelopes saves fuel in trucks and planes.) Paul Gilding, a former executive director of Greenpeace International who now consults for DuPont, makes the argument for going green in business terms. "It's almost a complete waste of time to talk about ethics and moral values if you want to change business behavior," Gilding told me. "The only thing that's going to drive sustainability in a lasting way is if it leads to profit and growth in big corporations."

*In another remarkable turnaround, Chiquita Brands has become a social and environmental leader in the $5-billion-a-year banana industry. That's an unexpected twist in the story of the 103-year-old company once known as United Fruit, which backed a military coup that toppled the elected government in Guatemala in 1954. (Back then, "banana republic" did not mean the place to shop for khakis.) In 2001, Chiquita, which provides 25 percent of the bananas sold in the United States and Europe, signed a historic labor agreement with a global coalition of banana workers' unions, promising to provide safe and healthy workplaces, eliminate child or forced labor and protect workers' rights to organize. The company also has promised to abide by a set of environmental practices, including eliminating deforestation and reducing pesticide use. "Chiquita has been gradually reinventing the banana business," said Tensie Whelan, executive director of the nonprofit Rainforest Alliance. Chiquita has arranged for third-party verification of its workplace and environmental practices, and the company issues a detailed corporate social responsibility report every year, complete with the photos and phone numbers of senior executives.

*David Pottruck, the hard-charging CEO of the Charles Schwab Co., has become one of a new breed of corporate leaders—humble and collaborative, empathetic, a good listener and focused on values. Speaking at a conference called Spirit in Business 2003, he argued that great companies need to talk more and do more about values, spirit and service. "Serving, serving, serving," he said. "It is the heartthrob of a company that works." Although Pottruck is by no means a touchy-feely guy—he wrestled and played football at the University of Pennsylvania and earned a Wharton MBA—he now believes that the best way to lead people is to inspire them to find meaning in what they do. For Schwab, that means helping people to save and invest their money so they can put their kids through college or enjoy retirement. "What are we doing? What difference are we making?" Pottruck asked. "To me, spirit in business is about that larger context." Pottruck's vision of business goes beyond the bottom line. "There's an enormous gravitational pull on every CEO in America, including me, to view the company just as an economic machine," he said. "But companies are also communities. They are communities of like-minded people who get together to, hopefully, accomplish something extraordinary."

*At the Container Store, a chain of about thirty big-box stores that sell stuff to help people get organized, the Golden Rule--treat people as you want to be treated—is given policy status. So its employees actually feel like they are the company's most important assets. Why? For starters, first-year employees get about 235 hours of training, in an industry—retail—where the average is about 7 hours. Salespeople get wages that are well above industry norms, a 401(k) plan with a company match, health and dental benefits and, most of all, the good feeling that comes from working at a place where they are valued. For four years in a row, the company placed number one or number two on Fortune's 100 Best Companies to Work For list, which is mostly based on worker surveys. Not bad for a place where most people work selling boxes, shelves and garbage cans, albeit in designer hues.

*Led by the fast-growing supermarket chains Whole Foods Markets and Wild Oats, as well as such food manufacturers as Stonyfield Yogurt and Horizon Organic, the U.S. organic food industry has grown from a niche business with $1 billion in sales in 1990 to a $13 billion industry in 2003. More than 2.3 million acres of farmland have been certified as organic, according to the U.S. Department of Agriculture, a figure that's growing by nearly 20 percent a year. Although there's no definitive proof that organic foods are actually better for you, organic farming reduces the use of pesticides and chemicals that get into the air, earth and water, and it provides a lifeline for many small farmers. "I started this business because I wanted to make the world a better place," said John Mackey, the CEO of Whole Foods, who began with one health food store in Austin, Texas, in 1980. Today there are more than 120 Whole Foods Markets. A vegetarian baby boomer, Mackey said: "Food has been altered tremendously over the last hundred years with chemical fertilizers, pesticides, growth hormones and antibiotics. Whole Foods stands, not politically against that, but as an alternative for people who want to eat food as close to its natural state as possible. I believe that's a better way to live." His customers, who are willing to pay inflated prices for their groceries, evidently agree.

*Even Wal-Mart Stores, the nation's largest private employer and a company better known for its conservative mores than for an expansive sense of social responsibility, revised its antidiscrimination policy to include gay and lesbian employees in 2003 after a coalition of socially responsible investors brought pressure on the firm. The decision by Wal-Mart, which employs 1.1 million workers, means that nine of the ten largest companies in America, in terms of revenues, have rules barring discrimination against gay employees. (Exxon Mobil is the exception.) More than three hundred of the Fortune 500 companies have antidiscrimination policies protecting gays, and nearly two hundred, including General Motors and Ford, provide domestic partners with medical benefits. By contrast, the federal government offers no special protection for gay and lesbian employees, and only thirteen states bar workplace discrimination against gays. "It's very gratifying to see corporate America taking the lead on this," said David Smith of the Human Rights Campaign, a gay and lesbian advocacy group.

These are examples of companies that are becoming more socially and environmentally responsible. I could cite many others—Merck with its giveaway of Mectizan, a drug that treats river blindness, in Africa and Latin America, McDonald's with its demand that antibiotic growth hormones be removed from the diet of chickens, American Electric Power with its projects to plant trees in Bolivia, Brazil and southern Louisiana to offset carbon emissions and slow down global warming. None of these companies is perfect, and some are far from it. Wal-Mart buys goods from sweatshops, pays poverty-level wages and faces thousands of sex-discrimination lawsuits. Chiquita upgraded its own banana farms, but it buys fruit from farmers who don't meet its high standards. Investors in DuPont have not fared well since the company began its pursuit of sustainable growth, and Schwab laid off thousands of people after the stock market bubble burst. Whole Foods has battled union organizers.