Everything just might be bad for you!

My recent posts have suggested a certain optimism for the greening of the American consumer products business. Smart marketers such as Toyota, Target and even bleach maker Clorox are transforming their product lines to meet the expectations of health conscious consumers.

These companies are demonstrating a genuine concern for the health of living things and the planet. They are also motivated by fear -- a fear of losing market share if they do not meet the more demanding needs of health conscious consumers. Whatever the motivation, I predict continued progress towards a healthier set of products lining our supermarket shelves and mass market displays. Be on the watch for product reformulations, new product introductions, acquisitions and in limited cases, discontinued or divested products that don't make the grade.

This optimism is now challenged by a new book by Mark Schapiro, the Editorial Director of the Center for Investigating reporting. The book is called "Exposed: The Toxic Chemistry of Everyday Products and What's at Stake for American Power" (Chelsea Green, $22.95). link

In the book, Schapiro contends that the American public comes in daily contact with countless toxic chemicals and harmful substances used widely in our everyday products. Carcinogenic, gene mutating and birth-defect causing substances can be found in everything from cosmetics and personal care products to consumer electronics and computers. And there are plenty of toxins in toys, particularly plastic toys. If Mr. Schapiro is correct, the cynic may be right after all -- these days just about everything is bad for you...

Schapiro's further argues that European consumers have less to worry about in this regard. That is because the European Union has more stringent legislation and tougher regulations for consumer products manufacturers than the U.S. And, the EU is quicker to ban potentially bad substances even if the evidence is still forthcoming. How could this be? Are EU countries in fact environmentally safer than the U.S.?

The answer according to Schapiro is yes and for two solid reasons. First, political contributions are banned in Europe so the lobbying effort against legislation is completely non-effective (unlike the U.S. where lawmakers accept donations from lobbyists and companies and are then beholden to them). So, the EU regulators feel little need to protect company interests if consumer safety is in question. Second, European governments pay for health care for its citizens and are therefore more far sighted about potentially harmful factors in the environment. The governments have a vested interest in reducing the cost of health care and mitigating environmental factors in illness.

Interestingly, because the EU as a whole is a collectively larger economy than the U.S., companies (including U.S. based multinationals) have no choice but to follow the EU regulations for fear of having their products banned from the market. It is hard to believe this but some companies opt to produce two sets of products according to Schapiro -- the original formulation for U.S. consumers and a healthier version for EU consumers! This happens regularly in the case of toys (by the way, China produces 85% of the world's toy supply). Author Schapiro did an enlightening interview with NPR if you would like to listen to it or read the transcript. link



Makes you feel comfortable doesn't it? Well, here are a two thoughts to make you feel a little better.

First, even if government regulation is weaker in the U.S., companies will continue to innovate in an effort to strengthen the wellness claims of their product lines -- the U.S. market moves faster on market competition and consumer demand curves than it does on regulation.

And second, having two versions of the same product is not a recipe for long-term success. Large multi-nationals such as P&G standardize product, packaging and manufacturing process on a global basis -- because it makes economic sense to. And maybe I am a bit naive, but I believe companies would choose the healthier version of a product every time -- why risk damage to the brand?

And in the meantime, hold your breath when you are riding in your car. It turns out that a toxic chemical in the dashboard degrades over time and diffuses into the circulating air...

Values In Aisle Six

I reached under the kitchen sink on Friday to grab dishwashing liquid to take care of a couple of leftover wine glasses from Thanksgiving. I was a surprised to find a bottle of Seventh Generation rather than Palmolive or Dawn.

Seventh Generation, Inc. is a company, which makes household and personal care products that are healthy and safe for the environment. It was founded in Vermont almost 20 years ago -- way before environmental sustainability was fashionable in the suburbs. The name of the company comes from an Iroquois belief that "in our every deliberation, we must consider the impact of our decisions on the next seven generations".

I wasn’t surprised that my wife embeds values in her household shopping habits – she is a karma capitalist at heart too. Rather, my surprise had more to do with Seventh Generation's limited distribution. Historically, the brand was only available by mail order or in health food stores and Whole Foods. Now, it seems that Seventh Generation brands are available at Target (where my wife found the dishwashing liquid) and supermarkets such as Shoprite.

Do you know what the biggest threat to Whole Foods is? It is certainly not a slow down in the general wellness/earth-friendly marketplace – especially with categories such as organic foods growing at 15% a year. The biggest threat to Whole Foods is that it loses its point of differentiation versus the supermarkets and chains, which are more conveniently located in your town.

Mass retailers such as Wal-Mart, Target, Kroger and so on are eyeing Whole Foods’ success and hoping to copy key components of its business model. That’s what happened to Starbucks when McDonalds, Dunkin Donuts and just about every neighborhood café improved its coffee service to compete. Keeping abreast of key growth segments and copying successful competitors is a matter of staying in business.

Let's get back to Seventh Generation. Here is a company that quietly built its franchise over the last 20 years. Visit their website to find our more about the company, their focus on sustainability and full range of their products. link

This is a quiet company no more. Last year, revenues grow by 28% and it moved into a fancy new headquarters – good for them. Like most commercial enterprises, the owners of Seventh Generation want and need to grow – which expanding their product line and broadening their distribution are essential moves. This is not only about growth – it is about survival. Just as Target and Kroger’s are watching Whole Foods, Procter & Gamble, Colgate and Unilever are watching Seventh Generation. And if these packaged good giants can’t reinvent their product lines fast enough, they’ll transform them through acquisition. This is why Colgate purchased Tom's of Maine -- a natural ingredients, personal care products company.

Don’t be put off if large companies are hitching a ride on the latest trend – the LOHAS Market, which stands for Lifestyles of Health And Sustainability and represents 50 million adult consumers and close to $300 billion in spending. This is great news for the values-oriented consumer. The net result for you will be more wellness and earth friendly brands to choose from at lower prices and available in more places.

And, you need not be concerned about the prospects for Seventh Generation. The company seems to be superbly managed and may look to go public to raise expansion funds (why not, if Lululemon is worth billions!) or be acquired like Tom’s of Maine or Burt’s Bees. In any scenario, this will no longer be a sleepy Vermont based company.

That’s good news for the earth and all of us inhabiting it too.

Word!

No, not the hipsters' phrase.... I mean your word.

Do you want to conduct business in an ethical manner? Start with this -- never go back on your word. And, in today's world of changing environments and conflicting demands, consistently keeping your word will be a remarkable achievement. Not only will it enable people to trust and rely on you, it will help build unshakable team loyalty that holds together through up and down business cycles.

Just keep in mind that this takes considerable effort -- easier said than done.

The best boss I ever worked for never went back on his word. In the ten years I worked for him, his word was a guarantee. This particular boss also had an unusual method of saying “no” -- he would simply not say "yes", rather than vocalizing "no". While in some organizations this might breed frustration, in this case it actually created a high level of motivation, focused on developing new ideas and ventures. If you didn't hear "no", you kept coming back with stronger arguments and answers to his objections. The process was also a good test of your commitment to an idea. If you didn't come back at least two or three times how committed to the new idea were you? And, once you heard "yes" you knew you had his backing all the way.

This gentleman was an accidental business executive. Trained as a computer scientist, he turned around a small, money losing division and then steadily rose up the ladder. He catapulted over more polished and "sophisticated" executives surprising many with his unassuming and publicity shy manner. During his tenure, he delivered more than 40 consecutive quarters of record earnings.

In contrast, the worst boss I ever worked for kept his word only when conditions made it easy for him to do so. For him, going against his word was a strategy for dealing with tough times. Once, when we recognized that we had too much manufacturing capacity in Chicago, he ordered me to stop making lease payments on a rental facility. His logic was, "After a couple of months, the landlord might threaten to sue but eventually he’ll settle to avoid the legal expense. In the meantime, we will improve our cash flow and reduce our space commitments."

I just couldn't do it. I continued to pay the landlord at the risk of being fired. I had given the landlord my word.

After a few years, our company continued to be in dire straits financially. I offered to resign as a way of reducing overhead. He replied that this would not be good for the company in the long run as he viewed me as his choice to succeed him as CEO. Only a month later, he fired me, adding that he too was being forced out by the board. This turned out not to be true -- it was simply an easier way for him to break the news to me. Ultimately, getting fired was the best thing that could have ever happened to me.

In contrast to the high-integrity leader I mentioned first, this boss ran his company into the ground. Once publicly traded on the New York Stock Exchange, it repeatedly recorded losses for close to twenty years. Eventually, it was taken private and the new owners fired him. And, to top it off, he was later convicted of securities fraud and served time in a Federal prison. Word!

Give Thanks...

Be grateful if you have what you need.
And, be generous if you have more.
For others with far less than you,
live without what they desperately need.

Happy Thanksgiving from the Karma Capitalist.

WAL-MART: Great White Shark or T-Rex?

"There is a creature alive today who has survived millions of years of evolution without change, without passion, and without logic. It lives to kill. A mindless eating machine, it will attack and devour anything. It is as though God created the devil and gave him jaws."

- From the preview for 'JAWS' - 1975


For many people, Wal-Mart tops the list of feared and hated corporate giants. The retailer swept across the country during the last 50 years, devouring countless main street merchants and leaving in its wake a list of corporate offenses related to unfair labor policies, poor environmental practices, and ruthless tactics against competitors and suppliers alike.

Starting with one location -- a franchised Ben Franklin variety store in Arkansas, Sam Walton and his successors built what is today the largest retailing operation in the world. There are 5,000 Wal-Mart stores (in a variety of formats) and the company has 1.9 million full time employees -- that's right, 1.9 million employees.

With revenues of just over $300 billion, Wal-Mart is one and a half times larger than its next biggest 13 competitors combined. This list includes storied retailers such as Sears as well as trend setting newcomers like Target. In fact, Wal-Mart is six times larger than Target. Today, Wal-Mart stands at number two on the FORTUNE 500 list just behind Exxon Mobil.

There is a well organized and financed activist movement against Wal-Mart. One example is the organization -- "Wake Up Wal-Mart" -- which is backed by The United Food and Commercial Workers International Union. Wake Up Wal-Mart claims over 500,000 members (union card carriers perhaps?) and has a well-designed, multi-functional website prompting you to sign up, spread the word, adopt a Wal-Mart, donate and take action. link

Or, check out Wall-Mart Watch, which is a joint project of The Center for Community & Corporate Ethics and its advocacy arm, Five Stones. The Center is devoted to studying the impact of large corporations on society. link

Wal-Mart is clearly not invincible. The effort against Wal-Mart includes economic research, academic studies, film projects and other union movements. A growing number of communities have successfully rallied and prohibited Wal-Mart from opening. The company has repeatedly failed, attempting to expand internationally. While the company has long been noted for its extremely efficient supply chain model, 70% of its products are sourced in China, creating a new level of vulnerability.

Wal-Mart is a remarkable retailing achievement. Its low prices and breadth of inventory provide a measure of consumer value without competitive parity. And as such, it has many loyal consumers and business advocates. However, to grow -- which all public companies must do -- the Wal-Mart model must adapt. The social environment companies operate in today will not allow Wal-Mart to operate like it has in the past.

Will Wal-Mart face extinction like the once feared T-Rex? Or, will the retailer be destroyed like the man-eating Great White in Jaws? I doubt it. Rather, watch for Wal-Mart to strengthen its ethical values voluntarily and integrate these into its business model. Imagine low prices, a wide selection of merchandise AND a values driven approach to people, society and the planet -- that's an unbeatable business model for Wal-Mart over the next 50 years.

Lulu-lied!

The stock of Lululemon, the yoga-inspired, apparel company, has been on a tear since its summer IPO. While shares of the Canadian company have traded as high as $60, they have since settled to the low $40's. Lululemon still sports a $2.8 billion market capitalization -- not bad for a company with revenues of only $150 million and profits of just $7.7 million.

Enthusiasm for its brand imagery, unique fabrics and apparel design has been the key driver behind the company's rapid rise. An aggressive retail strategy is set to capitalize on the young company's loyal consumer following -- an expansion plan reminiscent of Starbucks in its early years.

Now, management is facing its first PR crisis and showing the strains of getting too much too soon. The focal point is a popular Lululemon clothing line called VitaSea, made from a cotton fabric with a one-quarter seaweed composition. Earlier this week, the New York Times reported that tests performed by an independent laboratory could find no trace of seaweed in the fabric. Founder and Chairman, Dennis Wilson, did not dispute the laboratory findings. link

Let's presume Lululemon did not intentionally mislead the public. Rather, this is most likely a case of sloppy management. A company spokesman admitted as much offering the excuse that Lululemon relied on its German fabric supplier, Smartfiber, to verify the VitaSea fabric composition and associated claims. This would be acceptable if it was not for the fact that VitaSea promotes revolutionary wellness benefits; "VitaSea reduces stress and provides anti-inflammatory, anti-bacterial, hydrating and detoxifying benefits". That's too much promotional copy to accept without demanding substantiation.

Don't short Lululemon stock just yet. Consumers seem unfazed by the controversy and the stock faced little downward pressure since the Times article. On the other hand, I would not load up your 401K with the stock either. Any company with a P/E ratio of 265 ought to have substance behind the hype to sustain its financial momentum. In comparison, public stocks trade at a P/E ratio of about 20 on average, indicating that the market supports a share price of 20 times its earnings. The fact that Lululemon trades at about 13 times greater than the average shows just how much Lululemon hype you need to believe before you should buy the stock.

Lululemon should pay close attention to its cultural "manifesto" to use its own words -- "That which matters the least should never give way to that which matters the most." Right now, growth and expansion matter the least and integrity matters the most.

Email Service Now Available

Good news! A number of readers have asked me about subscribing to Karma Capitalist so that it is automatically emailed to them. I am pleased to announce that this feature has been added -- please see the FeedBlitz box in the top right corner. Subscribing is as easy as 1-2-3.

In developments of a grander scale, I am pleased to report that the parent company of The Karma Capitalist -- Moon Day Media -- has completed its initial round of financing. If you would like to learn more about our company, you will find a presentation and a sampling of our development work: link

The files are large and take a while to load, but they are well worth the wait (in my opinion). Thank you!

Reinventing Bleach

The Clorox Company says it wants to transform itself into a company focused on health, wellness and environmental sustainability. My first impression was scepticism believing this is another attempt by a major company to latch onto a marketing trend. It turns out I was wrong to be sceptical.

Chief Executive Don Knauss plans a major push towards personal products with the first step being the purchase of lip balm and lotion maker Burt's Bees for $925 million. Knauss is also launching a line of natural cleaners under the label Green Works. Green Works cleaners are made from 99 percent natural plant-based ingredients and perform as well as conventional cleaners. And Green Works bottles are 100 percent recyclable.

These are exciting developments for a company that has not launched a new brand in 20 years. But how does Clorox intend on transforming its current product line up to fit this new image? How will Knauss make such major revenue producers as Clorox Bleach and Glad plastic trash bags environmentally friendly?

Regarding Clorox bleach, it turns out that the brand's least earth-friendly aspect is not the liquid in the bottle but the bottle itself. Much to my surprise, Clorox liquid bleach breaks down quickly once down the drain, primarily into salt and water. The same cannot be said for plastic trash bags -- which will never break down no matter how long they sit in the landfill. To credit Clorox though, Glad bags have been re-engineered to use less plastic and the plastic that is used in manufacturing is entirely recycled. The ultimate environmental solution for plastic trash bags has more to do with consumers (who should use less or none of them) than Clorox.

While no company is perfect, Clorox has a solid track record in environmental practices. Maybe transforming this 100 year old company will not be so difficult after all. link

Gratuitous Philanthropy

Al Gore made news today by joining forces with noted Silicon Valley venture capital firm, Kleiner Perkins link to spearhead investments in environmentally friendly energy sources and clean technology. link

The 45th Vice President of The United States is teaming with one of the most successful venture capitalist firms as a partner with the likes of John Doerr, who was behind Netscape and Google to name a few of his stellar hits.

Never shy about making headlines and leveraging the press to tell his story, Gore also announced that he would be donating his salary to the Alliance for Climate Protection -- the non-partisan foundation he chairs that focuses on the climate crisis. Unfortunately for the foundation, however, Gore will be keeping for himself the options and equity stakes he receives from his venture investments -- and this is where the real money is made in venture capital.

Don't get me wrong. I love what Al Gore has done to promote the dangers of global warming and I certainly wish he and not George W was in the White House. And I am all for making money AND doing good. But this donation is more about making headlines than making a difference.

Running And Spiritual Growth -- Part II

My friend Tom read my recent post about A-ROD and suggested I do a follow up piece on A-ROD's meditation practice, which has apparently turbocharged his baseball talents even further. Unfortunately, despite visiting the superstar's web page and doing a variety of Google searches, I could find nothing on the subject. My searches did reveal though that on the same day that A-ROD opted out of his Yankees' contract, 1960's legend, Donovan, announced the creation of a meditation center in Scotland. A-ROD is linked to meditation after all.

Google also led me to a wonderful interview with the recently departed Sri Chimnoy who built an entire spiritual following based on the dual tenets of meditation and endurance sports such as long distance running. Sri Chimnoy believed that physical feats such as marathons or power lifting were conduits to spiritual development -- somewhat contradicting the premise of my last post. Unfortunately, since Sri Chimnoy is no longer with us in the physical form, I am unable to ask him this question directly.

In that earlier post, I commented that working hard and running long distance were doing very little for my spiritual growth. I'll leave it to you to decide if my views coincide or conflict with those of Sri Chimnoy. link

And for more on the death of Sri Chimnoy, please visit the October 17Th entry of the hugely popular weblog -- Souljerky, produced by my dear partner, Spiros. link

Raise Your Arms and Bend Backwards

Yoga took me off the traditional career track. For me, the daily practice of yoga muted my raw ambition and gave me a broader sense of what I really wanted to accomplish in life.

For decades, I focused on "achievement" -- nothing unusual for a Harvard MBA. During this time, I was also an avid runner. And my running paralleled by career. Just as I pushed myself to run marathons at a faster pace, I pushed myself higher up the corporate ladder. Until I realized I could not sustain this pace over a lifetime. And that's when I discovered yoga.

The frame of reference for most business people is onward and upward. And over time you become less flexible both physically and emotionally. And this is not helped by long hours at work behind a desk. Business people are not geared to bend in all directions. And, this is damaging in the long run.

I am not suggesting you quit your job or derail your career aspirations. I continue to explore new growth opportunities and recently joined a new media start up. I am suggesting though that you find an activity that complements this mad rush forward. You'll find that twisting and bending backwards (even if only figuratively) provides many benefits, especially when everyone else around you seems to be racing forward with blinders on.

A little bending and twisting will make you more reflective and thoughtful. And, the added flexibility will enable you to adapt to the changing demands placed on you. At the very least, you will reduce your risk of back injury, the next time you bend over to pick up something. That's what a little yoga can do for you. And just maybe, it can do a whole lot more.

Sequential Philanthrophy

About 18 months ago, Warren Buffet made big news with the announcement of his $30.7 billion pledge to the Bill and Melinda Gates Foundation. At the time, this was estimated to be about 85% of his fortune.

In the event you have been living on Mars, Bill Gates (with $56 billion) and Warren Buffet (with $52 billion) are the 3rd and 4th richest people in the world. The Bill and Melinda Gates Foundation was started by the Microsoft founder with his wife in 2000 and now has an endowment of $34.6 billion.

Bill Gates and Warren Buffet each made an enormous sum of money over the course of their careers and now are beginning to give most of it away. This is a generous, noble and rational approach to philanthropy -- wait until you are older and have more money than you and your heirs can spend, and then give most of it away. And if you are Bill Gates, who for most of his life was viewed as the ruthless brain power behind the Microsoft monopoly, it is a wonderful way to redefine his legacy.

Gates and Buffet are engaging in what I will refer to as sequential philanthropy. First make a significant amount of money, and then give it away – in such a way as to not cause much personal hardship to you during your lifetime. There are other ways to give -- ways which involve much more personal sacrifice.

Let me give you an example. Over the weekend, I met a man in his 50’s who has volunteered for the Special Olympics for thirty years. He has been a year-round volunteer for most of those years and has worked on a daily basis for extended periods of time. He coordinates regional training activities and officiates at competitive events. His wife is a volunteer too and now that their children are grown, married and out on their own, they can travel together to Special Olympic events and meetings around the world.

I asked this gentleman if he had a special needs child or loved one, who instigated his volunteerism with the Special Olympics. He said he did not. I asked him if he had made his money very early in his career and chose to spend most of his adulthood “giving back.” He said he had not and that even today he holds down a full time job to pay the bills. I asked him if Special Olympics ever employed him during that 30-year period. He answered that he has given time and energy freely and has never been on the organization’s payroll.

This man has given an Olympic-sized donation of time and energy to an organization that serves people in need. He gave up opportunities to spend time with his family and perhaps make his own millions (or billions) had he channeled his energies in an entrepreneurial direction. His donation was not sequential – it has been continuous. While he may not make headlines or cure world hunger, this man has made a far bigger philanthropic sacrifice than either Gates or Buffet. There are many others like him who contribute in a quiet, sustained way.

If you want to support this gentleman, who asked to remain anonymous, you can visit the Special Olympics website and get involved yourself – or give a donation. link In any event, don’t wait until you’ve made your money or are too old to spend it—start helping others right now.

The Soul of Capitalism

Our good friend, Shreedevi Thacker, brought to our attention this incredible interview with John Bogle conducted by Bill Moyers for PBS. And if for some reason, you cannot watch the video, do take the time to read the transcript. link

As Shreedevi notes, Bogle does not mince words when speaking about what is driving capitalism today and the impact that this is having on society. In Bogle's view, the productive system (which makes things) adds value whereas the financial system (which provides the money to help companies makes things) subtracts it. In Bogle's view this is not inherently wrong -- just way out of balance.

Today, the economy is driven largely by the financial system and the bankers, mutual fund managers, hedge funds and CEO's who profit from it. Financial companies now make more money than agricultural companies; and energy companies; and technology companies; and manufacturing companies; and so on. The 25 highest paid hedge fund managers each made more than $129 million last year.

Bogle, the author of "The Soul of Capitalism" is no mere social critic or academician. He is the founder and retired CEO of The Vanguard Group. Under his leadership, the company grew to be the second largest mutual fund company in the world. His awards and distinctions include being named as one of the "world’s 100 most powerful and influential people" by Time magazine and one of the investment industry’s four "Giants of the 20th Century" by Fortune magazine.