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October 12, 2007
"Living" Companies Perform Better
by Anne Moore Odell
Corporations that care about people more than things are more sustainable and profitable, puts
forth author and financial counselor Jay Bragdon.
SocialFunds.com --
Instead of thinking about companies as Newtonian machines built of materials to make money, Jay
Bragdon looks for companies that mimic living organisms. These living companies evolve over time,
valuing people and nature over capital, and generally perform better than their static peers.
Bragdon's 2006 book, Profit for Life: How Capitalism Excels outlines how by working toward life
affirming goals, "live" companies profit, attracting shareholders, employees, and customers.
 "Companies that mimic life are
extraordinarily open and tolerant of new ideas," said Bragdon, General Partner at Conservest Management Company. "In common
with all living systems, they draw strength from diversity, energy from the spontaneous
self-organization of individuals within their networks, and stability from strengthening the living
systems of which they are a part--biosphere, society and markets. Research that illuminates
corporate behavior in these areas will provide the best guidance for investment decisions."
Profit for Life is founded on Bragdon's long experience with sustainability and environmental
stewardship. In the late 1960's and early 1970's Bradgon could already see a strong correlation
between corporate responsibility and profitability, and in 1972, he co-chaired the first national
symposium on ethics and investments at the Harvard Business School. For the last 22, years Bradgon
has run Conservest Management, a boutique investment management firm.
However, Bradgon
didn't have his eureka moment until 1995, when he read Peter Senge's book The Fifth Discipline,
which introduced a holistic way of analyzing companies using the disciplines of "systems thinking."
Arie deGeus' book The Living Company helped Bradgon clarify his ideas of companies as living
systems.
The Global Living Asset Management Performance 60 (LAMP60) Index is a learning
lab of 60 "living" companies in Profit for Life. Sixteen of the 60 companies in the LAMP60 are
explored in depth in the book. Interestingly, it is not the new technology companies that are
necessarily "living," but rather some of the older, one hundred year old companies like Nokia,
HSBC, and Stora Enso that are classified as mimicking living systems.
These older
corporations are flexible like sugar maples that bend in the wind and grow toward the sun, changing
season by season. Other mid-age companies like Toyota, Nucor, and Southwest Airlines, the book
argues, have firmly planted themselves in the natural world and can weather changing times that
other companies could not.
"Rather than looking for correlations between certain corporate
behaviors and profitability, I began analyzing corporate cultures as a whole," Bradgon told
SocialFunds.com. "This gave me a capacity to see whether stewardship - which I broadly defined as
'respect for life' - was consistently and congruently practiced in a company or whether it was
present only in certain areas. This eventually became the key focal point of my research and led to
the creation of the Global LAMP Index."
Bragdon thinks that more companies are moving
toward an organic model: "I believe General Electric's 'ecomagination' initiative is a call to
arms, an effort to focus the company on something higher than next quarter's profit," Bradgon
offered. "It is beginning to act more like a trustee for society and nature - committing
substantial resources to cleaning up its old PCB wastes from the Hudson River, which prior GE
leaders tried to dodge. GE is also trying to become a global leader in renewable energy
technologies."
Bradgon outlined five common attributes that can be found in companies
that mimic living systems:
1. The companies are built of layers of networks that relay
information and feedback both internally and externally. Many of the networks are informal between
people inside and outside of the company.
2. The companies are managed with people and
relationships in mind, or in Bradgon's words, "managed by means." Companies actively let employees
make decisions and hold employees accountable.
3. Living companies use natural resources
wisely, conserving energy and materials, with the waste of one process, feeding other processes.
Conservation of financial resources mirrors conservation of natural resources.
4. Living
companies are open to input from all shareholders and employees, building trust and capacity.
5. Living companies are aware of the larger systems they are part of, i.e. nature, communities
and markets.
All companies must be profitable to survive. Yet Bradgon asks the question,
how does a company achieve profitability? The difference between most companies and "living"
companies is that while most companies manage by numerical objectives, companies that mimic living
systems alternatively manage by qualitative means.
"Rather than ordering people to produce
numbers, the companies that mimic living systems aim to build productive capacity by mentoring
employees, serving their career growth, and encouraging them to spontaneously network in pursuit of
knowledge - a practice called 'servant leadership,'" said Bragdon. "They believe that when
employees are well served, the spirit of caring and service will extend out to customers. Employees
at these companies feel they have a purpose that transcends profit."
LAMP60's
industry/sector weighting is roughly comparable to the S&P 500 and the MSCI World indices, Bradgon
noted. Northfield Information Services, a
global financial consultancy on investment risk and reward, studied LAMP60's performance between
1996 and 2006. Over this 11-year period, Northfield found the LAMP60 consistently outperformed the
S&P 500 and other large cap benchmarks on both equal and market cap weighted bases. Moreover,
LAMP60 outperformed in both rising and falling markets. Northfield's report called LAMP60's results
over this period "statistically and economically significant."
Bradgon remarked on the
Northfield findings, "The equal-weighted LAMP60 returned about double its primary benchmarks for
the 11-year period. It also outran the S&P 500 and other large cap benchmarks each year for all of
those years. This is extraordinary because the test period was volatile with a powerful bull market
(1996 - 1999), a sharp bear market (2000 - 2002) and a period of erratic recovery (2003 -
present)."
For the first three quarters of 2007, the period ending September 30, the
market value of the equal weighted LAMP60 grew by 12.9%. If dividends are included, the return
would be in excess of 14%. This compares to a total return of 9.1 % for the S&P 500 during the same
time period.
"Change happens," said Bradgon. "The best we can do is think systemically
about corporate cultures most likely to produce the learning and adaptation needed to survive and
thrive into the next generation."
©
SRI World Group, Inc. All Rights Reserved.
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