"Best Practices" -- Advancing our Shared Agenda

Good morning. While it's a little lonely being the only businessman, I'm still delighted to be here. As you know, business looms large as a player on the world stage. All of us---especially you here today---know that its behavior has often been associated with exploitation of people, of natural resources and of indigenous culture and values.

It is not hard to understand why so many committed to the public interest think of the private sector as an adversary and not as an ally.

But the world is changing in rather dramatic and desirable ways. There are advances ininformation technology and biotechnology, dictatorships are turning into democracies, and there is a growing awareness that we all share, for a brief time, a small planet increasingly perceived as a global village.

Well, the private sector-- believe it or not-- is changing too – in a remarkable way as well. I have been asked to talk about some of these changes that are taking place.

First. I will talk specifically about some of the initiatives developed at one company that I have been intimately involved with for three decades and explain why they were launched, their costs and benefits, the effect of these programs on the employees, the community, the consumers, and last -- but certainly riot least -- the stockholders.

Then I will talk in a broader context about how and why more companies are coming together to reshape business in a way that will foster a healthier society and a more competitive economy.

I arrived at Stride Rite-a company that manufactures children's shoes, Keds, and Sperry Top-Siders-- 30 years ago. I remember looking out the window of my office in Roxbury, a minority neighborhood in Boston in decay, and seeing small children playing in the streets -- streets that were littered with the debris of poverty.

The children I saw as l watched from the safety of my office were at serious dsk in this environment. Many of them were children of singly, parents who couldn't work even if they wanted to.

And so, we decided to respond to a need that wasn't being met, by opening a -day care center right in our corporate headquarters to provide many of these community children with the support services that were missing from their lives. Six months later, the Center was enlarged to accommodate employee children as well.

We launched other initiatives at Stride Rite. As life expectancy has grown, so has our aging society, And, as families became more nuclear, more older people lived alone and became more isolated and alienated. Again, Stride Rite responded to a need that wasn't being met:. We opened an lntergenerational Center at our corporate headquarters that provided a special setting for the young and the old, reconnecting these two otherwise Isolated groups who then discovered -the joy of enriching each others lives. Children and older people arriving in the morning in the elevators and corridors with the employees added to a corporate sense of family:

We developed a mentoring program that allowed Stride Rite employees -- on company time -- to work with high-risk children at inner city schools - with a rather dramatic impact tin both – the children and the; mentor.

While some of our programs were expensive, we discovered that we didn't need to spend a lot of money to be socially responsible. As an example, Stride Rite became the first public company to establish a clean air policy when we banned smoking in the workplace. Shortly after, other companies followed our lead, and today, clean air in the workplace is common. Indeed, a host of environmental practices have keen adopted by companies around the world that even in the short run increase their value.

But I must back up and remind you that Stride Rite is in the business of manufacturing, marketing, and retailing footwear In a very competitive industry. You may wonder, as many of my peers in the corporate world did, why this public company became involved with these seemingly non-related social programs.

The Stride Rite Corp. had been giving five percent of its pre-tax earnings to the Stride Rite Charitable Foundation, which in turn -has been funding thEae initiatives. In my last year as Chairman, 1992, 5% amounted to $5 million since our pre-tax earnings exceeded $100 million.

In order to divert that much money _- $5 million -- from Stride Rite's earnings to the Stride Rite Foundation, I had to prove to the Board of Directors that being a socially responsible company was fiscally responsible, as well. I had to identify benefits to the company, its employees, and to the community.

Let's start with the company. A$ you would guess, absenteeism was% reduced and the company was able to attract better employees. Turnover was also very low, not an insignificant matter when you consider that the Conference Board estimates that it cost $21,000 to recruit and train each new worker up to the productivity level of the departed worker.

More difficult too measure, but no less valuable, was the pride employees felt as Stride Rite was perceived in the community as a special place to work. Pride is a key to productivity, quality, and service which were indispensable to maintaining our competitive advantage:- our brands--Stride Rite, Keds, Sperry Top-Sider have value in direct proportion to the high. standards we maintain in these areas.

Apart from cur ability to attract and retain workers more readily than most companies, Stride Rite received an enormous amount of good will and credibility with consumers that no amount of paid advertising can generate. Being identified as a socially responsible company also paid dividends by helping to create a more loyal customer base. Consumers are increasingly discriminating about the kind of company from which they purchase products. In fact, women who most often make the family's purchasing decisions, especially favor companies considered to be socially responsible. Walker Research -- 'l000 households – 50 per cent pay higher price -- socially responsible companies. 70 per cent avoid products from companies not socially responsible.

Now -- what about the bottom fire? How did these expenses --or investments as I saw them -- affect our financial performance?

When I stepped down in June of '92, Stride Rite was listed as one of the top companies on the New York Stock Exchange. Stride Rite increased its earnings every year over the prior 20 years except for 1984 when we restructured Keds. And its return on equity grew to 3I per cent. During my tenure, the market value of the company grew from $38 million to $'t .5 billion in 1992, despite 5 per cent of pretax earrings going into The Stride Rite Foundation.

You can not sustain significant earnings momentum like this over a 20 year period all by yourself. You need an organization with a sense of purpose shared by every individual within the company. In addition to this kind of commitment from your colleagues within the company, investors, too, were moving toward socially responsible companies. Since 1995, investment in socially responsible companies has jumped 85 per cent to 1.2 trillion dollars. The Domini Index shows the performance of socially responsible companies, over time has been consistently higher than the S&P.

Milton Freedman, the high priest of free markets, says that the business of business is profit - period. As you carp readily see, even if Milton can't -- the most effective way to add value to the company is to add values to the company. Clearly our stockholders benefited over this period as did the employees, the consumers, and the community.

In my judgement, today's business leaders are much less inclined to insulate themselves and their thinking from the problems of the world in which we live. For example, some are beginning to understand that if today's young children Care going to be able to succeed later as a productive

work force and provide the leadership our country and our world needs, they need help now.

As U.S. taxpayers, we are each affected by the financial cost of the resulting poverty arid violence which is now estimated td be at $750 billion a year.

The good news however is that prevention costs far less. E.g., it costs Stride Rite $8,500 to maintain a child in our day care center for one year. It costs the Commonwealth of Massachusetts $32,000 to maintain !a 17 year old in a youth detention center who didn't have a head start. (Many of the children who went through the Stride Rite Children's Center in the early 70's are now productive members of society -- having gone further in school than those who didn't have a hand up and are now tax papers instead of tax consumers.

Clearly business is the most powerful force in our society, especially if it is willing to accept some moral and civic leadership as well as financial leadership.

In the early years, I tried to bring some of these new practices to the attention of a broader segment of business leaders. it vas a hard sell. It is progressively less sty today. It is difficult to imagine how we can move towards a more just society and a more sustainable economy without engaging the private sector and transforming its behavior. For me, one of the most promising

developments of cur time is the new cross-sector collaboration that is bring the private and voluntary sectors together to promote the public interest.

In Bangladesh, for example, a major effort to end industrial child labor is a collaborative effort involving local companies., their North American customers, the government, and UN agencies such as the I.L.O. and UNICEF. These efforts are being enhanced by a cluster of intermediaries that are part of the business community, but have been termed to promote, business practices that honor ethical values a3id demonstrate respect for people, communities, and the natural environment.

I chair one such group based in the U.S., but working globally, called Business for Social Responsibility. Our mission at BSR is to help companies, to define and meet standards of corporate citizenship. We. do research and publish information about best corporate practices, and nova have launched on the Internet the Global Resource Center accessible to business worldwide. We provide technical assistance and consulting to individual companies; for example, we have promoted collaboration between public utilities and industrial customers to develop energy conservation programs. We help companies like Nike to develop an international code of conduct with respect for human rights issues In developing countries -- like child labor, worker health and safety; wages and hours, the right to organize, environmental standards.

This past year!' we conducted many workshops throughout the U.S, to advise companies on how to implement more environmentally responsible policies. We believe that environmental sustainability is not in conflict with profitability but in fact can enhance it. For example, one member, Monsanto Chemical Company, has demonstrated that it costs far less to reduce toxic emissions than to clean up toxic sites and has reduced its pollution dramatically.

BSR has worked with companies and NGOs to protect old growth forests, promoted the rights of workers in factories and on farms, and to brine enhanced economic opportunities to communities of poverty.

BSR has helped to start and partner with similar groups in Europe, the Middle East, Latin America, and Asia: In the coming year, it plans to extend these efforts to Africa as well.

BSR further believes that business and society can prosper only when aU citizens have access to quality education, health care and a healthy and sustainable environment.

Well -- business in America has come a long way from 25 years ago when the actions of executives like me were considered to be strange or "flaky". Fortunately, business leaders are increasingly aware that the well being of our companies cannot be separated from the well being of our society.

There is no doubt that raising the levels of corporate responsibility will be greatly enhanced if pressure is brought to bear by civil society-- both consumers and workers and investors. You, as NGO representatives-are in a particularly strong position to advocate for the new focus ors human values as a guiding principle behind dynamic economies and healthy communities.

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22-23 Feb. 2006 Annual DPI/NGO Orientation
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