Wednesday, April 28, 2010

Out on a limb.

One of the first things they tell you in strategy wonk school is, “Correlation is not the same as causation.” It’s great advice, heeded too seldom in our business and rarely if at all in the popular media. We all know, for example, that peanut butter and jelly are frequently found together, but only an over-caffeinated headline writer would make the leap to “Peanut butter results in jelly outbreak!”

But that’s not to say that correlations should be ignored. Where there is smoke, fire isn’t usually far away, and here’s an example I thought was pretty interesting.

Far away in organized, sober Switzerland, there is a research company called Covalence. Their business is to rate the ethical performance of corporations around the world. They do this with apparent discipline, reporting quarterly on scores that combine measures of everything from environmental stewardship to labour relations to human rights records. They rank 581 companies in 18 sectors of the global economy. I mentioned this list in my No Logo piece back in January, and it’s interesting reading. And for those of us who think that brands are possibly not the work of the devil, there are two correlations that are tough to dismiss.

The first is obvious from just looking at the list, and it was the point of my January 28 post: The closer you get to the top, the more likely it seems to be that the corporation is or has consumer-facing brands. And the closer to the bottom of the list you get, the more likely it seems to be that the corporation drills for oil, or makes chemicals, or mines for minerals, or does something else that is pretty much invisible to those of us who wander the mall. Every one of the top 10 in the latest report, in fact, is a name you can find on products you might have in your own house. The correlation: Fame and/or a dependence on consumer preference seem to be peanut butter to the jelly of corporate accountability.

The second involves an unrelated list (and the flouting of yet another statistical convention), this one Interbrand’s annual ranking of 100 Best Global Brands, a list that ranks brands on the basis of their cash value. Put those two lists together, and to your delight you will find that fully a third of the 100 most ethical companies rated by Covalence are also on Interbrand’s list of 100 most valuable brands, despite the fact that Covalence’s list includes corporations that would never be considered for the Interbrand study.

What’s it mean? Well, I guess if you want to get all orthodox on me, we can’t say we know for sure. But taking these two observations together, I think you could make a pretty good case that branded corporations are likely to behave better as corporate citizens than unbranded ones, and that the reason for this is those brands are too valuable to gamble on being naughty. I’ve seen guys taken away in handcuffs on CSI Miami with less to go on than this.

And now that I’m drunk on speculation, here’s a bonus fun fact: Of the 39 holdings reported by Berkshire Hathaway at the end of last year – you know, the world’s most successful investor, captained by the Oracle of Omaha himself, Warren Buffett – 28 had consumer facing brands. 17 of them, by the way, also appeared on at least one of those other two lists. So, apparently, if fame begets accountability, it’s just possible that the two together produce wealth.

(This is when, were I David Caruso, I would take my sunglasses off and say something trenchant).

So I guess you could say that brands are good business and leave it at that, sparing yourself the expense of buying my upcoming book. But I think the real message is much, much bigger and worth some Swiss-style sober thought. I think it demonstrates the colossal power of the consumer so long as there is choice in the marketplace, and the good that power is capable of doing. Those people may have, as it turns out, something more than the power of life and death over a business and its brand. Those people may, in fact, be its conscience.

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