Don’t Ignore the Transparency Imperative
Nell Minow, coauthor of Corporate Governance, introduces a lesson in corporate transparency from The Responsibility Revolution: How the Next Generation of Businesses Will Win, by Jeffrey Hollender and Bill Breen.
Supreme Court Justice Louis Brandeis famously wrote almost 100 years ago, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” Disclosure can be a powerful deterrent, and information is what makes markets efficient. Furthermore, giving interested parties an opportunity to respond to, even object to, corporate actions is better than having regulators try to control them.
But more disclosure does not always mean better understanding, especially when facts are revealed out of context. As this excerpt from The Responsibility Revolution: How the Next Generation of Businesses Will Win by Seventh Generation cofounder and chairperson Jeffrey Hollender and editorial director Bill Breen shows, companies can have transparency requirements thrust upon them unexpectedly and must find a way to respond quickly and effectively.
Note the way the authors see the solution to their dilemma as candor, not defensiveness. The information that Seventh Generation executives had at first thought too premature to reveal was in fact essential. Immediate disclosure would have been the only way to prevent the perception that they were unaware that their product had trace amounts of a carcinogen — or that they knew about it and had kept it hidden. It also might have created a sense of partnership with affected parties, who then could have shared ideas for solving the problem. For a company like Seventh Generation, the integrity of its product disclosures is just as vital as the purity of its products.
— Nell Minow
Excerpt from Chapter 4 of The Responsibility Revolution: How the Next Generation of Businesses Will Win
One morning in mid-March 2008, Seventh Generation’s senior management team awoke to these hellacious headlines:
“Seventh Generation Battles Carcinogenic Chemical Controversy”
“‘Organic’ and ‘Natural’ Consumer Products Found Contaminated with Cancer-Causing Chemical”
The Organic Consumers Association [OCA], a public interest nonprofit, had released a report showing that forty-seven organic and natural consumer products contained detectable levels of the contaminant 1,4-dioxane. Seventh Generation’s dish liquid was one of the brands named in the study. This revelation challenged our honesty and threatened one of our most valuable assets: our reputation.
Of course, we would not intentionally add 1,4-dioxane to our dish liquid. As the Los Angeles Times noted, the compound is a by-product of a process used to improve the degreasing agent in detergents. Our manufacturers vacuum strip the dioxane to minute levels; the OCA report showed that in terms of 1,4-dioxane, our dish liquid was the safest of all the dish liquids tested. That said, we didn’t argue with the OCA’s core assertion. We agreed that 1,4-dioxane doesn’t belong in our products — the by-product is not consistent with who we are and what we stand for.
Having worked for more than five years to remove dioxane from our dish products as well as our laundry products, we were saddened to see our incomplete progress characterized as a dishonest act. But the truth is that our effort was simply not good enough. Not because we hadn’t yet succeeded in getting rid of dioxane — working with our supplier, we’ve since eliminated the contaminant from our products. Our real mistake was to exclude consumers and key stakeholders from our ongoing dialogue about dioxane. The problem wasn’t highlighted on our Web site or detailed in our earlier corporate responsibility report. In short, we flunked the transparency test.
And therein lies the larger lesson about what it takes to be a transparent company. We had hundreds of meetings and conversations about how to purge dioxane. We ran many of our own tests and worked closely with suppliers and manufacturers. But we didn’t take that one necessary step: to share our trials and tribulations with everyone outside the company who might have wanted to weigh in, express concerns, ask questions, and challenge our progress.
Five or six years ago, the expectations about transparency were somewhat more relaxed than they are today. Perhaps we hoped that by the time 1,4-dioxane became a public issue, we would have found a way to completely vanquish it (exactly the wrong approach). But dioxane endured, and in the rush to confront an unceasing array of new challenges and opportunities, we never took a hard look at whether to publicly discuss the problem. In a sense, our dioxane dilemma got “grandfathered in” under a new set of transparency rules. Predictably and painfully, it was soon revealed to the outside world. The breathless headlines quickly followed.
Many of us at Seventh Generation had spent our careers working to avoid just such an experience. But viewed another way, dioxane presented us with a rather extreme opportunity to absorb the new rules about transparency.
— Jeffrey Hollender and Bill Breen
Excerpted with permission of the publisher Jossey-Bass, a Wiley imprint, from The Responsibility Revolution: How the Next Generation of Businesses Will Win. Copyright (c) 2010 by Jeffrey Hollender and Bill Breen.