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How "ethical consumption" can change corporate behavior

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In the words of 19th-Century English author, editor and economist Walter Bagehot, money is power. Many factors influence how consumers invoke their monetary power, but increasingly, perhaps, personal ethics determine spending habits.

Questionable practices such as animal testing and the personal moral actions of corporate executives, from big game hunting to discrimination, can — and maybe should — affect consumer choices.

Last year saw the slaying of Cecil the lion, the Religious Freedom Restoration Act, a Kentucky county clerk who refused to issue same-sex marriage licenses, a "controversial" Starbucks holiday cup and many more divisive issues that pitted the public against their conscience and against companies they perceived to be in conflict with their ideologies.

Doing business

Consumers support — or don't support — issues with their dollars, states Dr. Terry J. Schindler, assistant professor of management at the University of Indianapolis.

According to the 2003 and 2008 General Social Surveys, "ethical consumption" increased seven percent in those five years, with the largest proportion of consumers (30 percent) who chose products in accordance with their personal ethics falling between the ages of 45 and 54.

That trend has continued in the ensuing years, believes Josh Driver, founder of Open for Service, a non-profit inclusive network aimed at promoting businesses and organizations that won't turn away people based on sexual orientation, gender, race, disability, or political/religious affiliation. He anticipates seeing "more and more" of this tendency. "People are looking to support businesses in line with their morals."

Conversely, Schindler believes these ethical shopping inclinations are generally short-lived, and always after the fact. "They always arise after something has happened, never before. Do you investigate companies?" he asks. Do consumers intentionally practice corporate responsibility? Usually not, he says, unless they hear that a company has done something wrong; then they stop patronizing that business.

That raises deep philosophical questions. "Do morals, ethics and beliefs change?" Schindler contemplates. He suggests that our moral codes are pretty much developed by age 6-10 and are formed in response to what we're exposed to. Most people change their ethical behavior only in response to significant emotional events that raise everyone's values, such as the terrorist attacks on September 11 — but even that can be a temporary deviation.

Another game changer in purchasing is the impact of social media. "Social media is huge," Schindler continues. He describes it as "mob mentality" and a "feeding frenzy," questioning whether people are truly upset over an issue or just joining in. "In many cases, it's emotional highjacking, trying to elicit empathy. It's peer pressure."

Peer pressure, or social consensus, can have a very real impact on businesses, behavior and even beyond. The power of social media after a Minnesota hunter killed Cecil the lion in Africa led to the closure of his dental practice for an extended period of time. The outrage expressed by millions worldwide in regard to trophy-hunting, particularly of endangered species, inspired some airlines to establish policies against transporting animal "trophies" and motivated legislators in some countries, including Australia and the U.S., to ban importation of lions killed in canned hunts.

As a result of the uproar, the Conserving Ecosystems by Ceasing the Importation of Large (CECIL) Animal Trophies Act passed the House of Representatives in November. This Global Anti-Poaching Act increases penalties for wildlife traffickers, making them comparable to those faced by weapons and drug traffickers. It also targets countries that don't do enough to stop poaching. The U.S. Fish and Wildlife Service, which suspended importation of elephant "trophies" in 2014, is also working on new regulatory protections for lions.

Choosing sides

While the killing of Cecil prompted an almost unanimous outcry, Schindler says other issues raise ethical dilemmas. "Whose rights get protected? For example, when Native Americans protest the Redskins [football team] name, whose rights prevail? It's a matter of individual rights vs. ethical universalism." Right or wrong, he muses, societal norms drive the answers.

Universal values in society commonly include not harming others or the environment; honesty and integrity; and individual rights. Honesty is always number one, Schindler says. Other values or principles include trustworthiness, respecting the rights of others, the Golden Rule, due diligence and product safety.

"What determines business ethics is social ethics," Schindler says. "Every ethical dilemma starts with a cost/benefit analysis: what does it cost me to do what's right or wrong?"

When faced with an ethical dilemma, consumers must examine their motives. Why are they making a purchase from a specific company? Price and convenience are the most common reasons. However, Schindler says, the depth of a person's ideology influences their decision-making. "It's a matter of what's important to people."

People who choose products based on ethical criteria often do so because they believe that their actions have an impact. Those with the greatest feeling of personal control are also more likely to participate in ethical consumption (43 percent) compared with those who felt they had less control (18 percent).

If the consumer has a strong ideology, watchdog groups, which primarily work to raise awareness, can have significant impact. Animal rights groups, civil rights advocates and others work to bring about cultural change by making it acceptable — expected, even — to consider ethical issues when doing business. "It's about personal integrity," Schindler summarizes, while acknowledging that many people are able to rationalize their behavior when it doesn't align with the moral majority.

The cost of ethics

Does it pay to be ethical? According to Schindler, businesses that are perceived as ethical outperform the S&P Index.

Driver conducted surveys of his supporters and found that most experienced increases in business after posting the Open for Service stickers. "Out of 6,000 businesses, 87 percent report customers came because of the sticker," he indicates. A mobile app resulted in an additional 20 percent increase in new customers and coupons texted to phones increased sales another 11 percent.

Perhaps a better question is: Does it pay to not be ethical?

In 2011 GoDaddy experienced a mass exodus of customers after CEO Bob Parsons posted a video of himself killing an elephant. People for the Ethical Treatment of Animals was one of those customers, and the group encouraged others to leave with them. "People went nuts," recalls Ingrid Newkirk, founder and president. "Lots of people canceled their contracts, wouldn't do business with the company. It was huge."

Similarly, The Calgary Zoo severed ties with Safari Club International, the hunting group with ties to Cecil-slayer Walter Palmer, refunding their deposit for the use of the zoo as a venue for their annual fundraiser.

Boycotts can inflict an economic blow. The Ethical Consumer estimates that a 2011 boycott of the state of Arizona in response to its passage of controversial immigration laws cost the state $141 million in just seven months.

Likewise, Indianapolis business owners anticipate long-lasting economic repercussions from RFRA in the form of loss of conventions and tourism, as well as reduced business investment.

The Religious Freedom Restoration Act is a state law that stipulates that "a governmental entity may not substantially burden a person's exercise of religion...[unless it] (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest."

Twenty states have existing RFRA laws and 16 more have proposed similar legislation. Opponents of the law claim it targets LGBT people.

Within a week of RFRA being signed into law, Memories Pizza, a family-owned restaurant in Walkerton, was asked by a local TV station if the business would refuse to cater a same-sex wedding. Their response — that they'd deny service — was followed by a blitz of negative reviews on Yelp, fake orders and threats, which caused the restaurant to close temporarily.

RFRA has proven bad for the state's economy, resulting in travel bans and boycotts of Indianapolis. Last fall the Indianapolis Star reported that Salesforce, a tech company that acquired Indianapolis-based ExactTarget for $2.5 billion, promised to "dramatically reduce" its investment in Indiana and to stop sending its employees to the state for various programs.

Angie's List withdrew its plan for a $40 million expansion with planned workforce additions.

Despite being contractually bound to Indianapolis through 2020, GenCon initially threatened to pull its popular gaming convention if the governor signed the RFRA bill. That would have cost the city $50 million in annual economic impact.

The American Federation of State, County and Municipal Employees conference did leave, taking its $500,000 of business with it.

The Christian Church (Disciples of Christ) contemplated finding another location for its 2017 General Assembly convention that generates $5.9 million and draws around 8,000 people to Indianapolis. The church decided to keep the convention in Indianapolis after lawmakers passed a "fix" to RFRA, claiming the legislation could not be used as a defense for discrimination.

Visit Indy, the city's nonprofit organization to promote tourism, released information to the Associated Press last month indicating the city probably lost 12 conventions and more than $60 million in associated revenue because of RFRA.

The NCAA is evaluating potential effects the discriminatory bill might have on hosting the Men's Final Four basketball tournament scheduled in 2021, which is projected to bring $71 million to the city, and the Women's Final Four scheduled this year, expected to generate $25 million.

Correspondingly, the Big Ten men's basketball playoffs in 2020 for $8 million and women's basketball play-offs in 2017-2021 at $2 million per year are in jeopardy, as is the Big Ten football conference in 2016-2021 at $16 million per year.

Altogether, the Center for American Progress estimates the impact of RFRA on Indiana's economy at $256.4 million over the next six years.

Take the money and run

Regarding consumer power over companies, consumer activist Ralph Nader once said, "Most people think that you've got to reduce sales a lot, but if you reduce any company's sales from two to five per cent you've won. Having said that, it is very hard to reduce a company's sales by five per cent because it takes a massive degree of organization."

One form of organization is a boycott. A boycott, as defined by the Albert Einstein Institute, is the "withdrawal or withholding of economic cooperation in the form of buying, selling or handling of goods or services, often accompanied by efforts to induce others to do likewise."

Boycotts — a form of company-based purchasing — offer people an opportunity to exert economic pressure on businesses through the process of actively rejecting a product and encouraging others to follow suit.

Boycotts are as American as apple pie, beginning as long ago as 1773 in response to the Tea Act (eventually leading to the Boston Tea Party). A boycott of Montgomery, Alabama's public transportation system lasted 13 months after Rosa Parks was arrested in 1955.

And they have only become more common since the "radical" 1960s that made them commonplace, reports IN Fashion, which describes the boycott as "a well-respected, effective and legal means of nonviolent protest, as well as a vehicle of change."

In fact, Maurice Schweitzer, a professor of operations and information management at U.Penn's Wharton School, calls them "shockingly common" and says almost every major company has been boycotted at some point. Two examples he gives include Procter & Gamble for their treatment of animals and Kentucky Fried Chicken for their treatment of chickens.

Do they work? Yes and no.

Boycotts succeed in part by "putting a corporation on a defensive footing, generating potentially damaging publicity and giving its competitors an unearned opportunity," writes Dale D. Buss in Ethics and Economics: Holding Corporate America Accountable.

The Harvard Business Review says that in order for a boycott to be successful, the customers must care passionately. "The main driver is moral outrage." In addition, the cost of participation must be low and alternative sources of a product must be readily available. The issue, like the message, must be clear and simple. Boycotting fur, for example, is easy to understand.

Christianity Today published results of two polls, one indicating that 78 percent of consumers avoided or refused to buy from certain companies because of negative perceptions, the other stating that 48 percent based their decisions on unethical or unlawful business practices.

And finally, media helps. Widespread media coverage can even be a recruitment tool, informing and attracting others who are passionate about an issue. Social media can intensify the situation by spreading news faster over a broader platform and simultaneously making it difficult for companies to control the message.

When media coverage is figured into the mix, companies may be more likely to concede, according to King's report. PETA is the master at getting media attention for boycotts. When Whole Foods CEO John Mackey wouldn't listen to polite appeals to stop selling rabbit meat, PETA joined others in demonstrations and followed up by filing formal complaints with the Federal Trade Commission for misleading consumers over the myth of "humane meat." Due to the publicity, Newkirk reports that some suppliers canceled contracts or refused to deliver goods over objections to the way animals were treated. In the end, Whole Foods pulled rabbit meat from its inventory.

Similarly, when Target faced a media blast over its contribution to a group that supported a political candidate who opposed same-sex marriage, the company tried to defuse the issue by selling gay marriage greeting cards.

According to Ethical Consumer, once boycotted, a company often loses customers for life; few consumers return to a brand. Maybe that's why many corporate executives eager to avoid bad publicity and loss of revenue resulting from boycotts make concessions.

According to Marshall Glickman, owner of Glickman Global, a nationwide survey of business execs indicated that they consider boycotts more effective than class-action suits, lobbying and stand alone letter-writing campaigns. In addition to lost revenue, boycotts create an image problem for the companies under fire, and the impact of that negative publicity can linger for years.

In fact, companies are more likely to give in to demands when their reputation is at stake than when profits are at risk, according to a report on the social movement of boycotts by Brayden King that studied 221 boycotts between 1990 and 2005.

"Boycotts don't tend to work in the way people think, meaning by hurting the bottom line," says King. British Petroleum didn't suffer financially as a result of boycotts after the massive 2010 oil spill. The bigger cost was the money spent in an attempt to improve its image.

Other times, all is seemingly forgiven. Michael Vick paid his debt for dog fighting, Schindler says. Currently playing for the Pittsburgh Steelers, the quarterback earns millions and appears to have put his past behind him, to the consternation of animal rights advocates. Halliburton, Enron, the Catholic Church, baseball: all had "a failure," as Schindler describes it. Some can fix and recover, he says. Some can't.

Regardless of the eventual outcome and corporate response, it's clear that activists are taking matters into their own hands by trying to force companies to align with their point of view on issues ranging from sustainability to civil rights to animal rights. And they aren't stopping with individual companies; they want to change industry practices. However, as PETA has learned, sometimes targeting a well-known company with a large market presence and industry leadership can convince the rest of the industry to fall in line. This tactic was successful in their 2009 "McCruelty" campaign against McDonald's over unethical practices of slaughtering chickens.

The flip side

The other aspect of ethical consumerism is support for "good" companies and products. A "buycott" is an attempt to induce shoppers to buy products or services from approved companies as a reward for aligning with the activists' ethics.

It's a more positive form of activism, and one Driver favors. "Picketing is negative; blacklists are polarizing." He was also infuriated by the free publicity some companies were getting for turning away people.

When he saw questions on social media asking what businesses do and don't discriminate, he got the idea for Open for Service. Allowing businesses to self-designate their policy of service helped him build a directory of 6,000 businesses worldwide ... and growing.

"It's celebrating instead of shaming," Driver explains, adding that many use the directory "like a safe space map" that allows them to avoid discrimination and make educated purchasing decisions.

Unlike the passivity of social media, this offers an active way to get involved. For business owners who welcome everyone, Driver says it's an inexpensive way to gain thousands in free marketing.

Lists, transparency and naming names

For years, PETA has maintained a list of companies that do not test their products on animals. It has become a handy reference guide for animal rights advocates in an ever-changing world where once-ethical companies may come and go on the list.

There are other lists and other companies. "Most ethical companies understand the value of corporate social responsibility," Schindler says. He names several longstanding members of ethical corporation lists: Campbell's, Cummins, Target, Pepsi, Google, Duke Energy, GE, Aflack, UPS and the Colts. "Dupont just got back on the ethical list," he notes.

One group is asking for another list. American Atheists, based in New Jersey, is campaigning to pass legislation called the "Patients' Right To Know Act," requiring medical providers who refuse to provide certain services on religious grounds to inform their patients in writing of all services not available. The act would also require health providers to inform insurers of the religiously motivated restrictions so insurers can pass on the information to consumers. 

Can you legislate ethical behavior? Schindler ponders. In an article in the Journal of Consumer Behavior in 2007, William Low and Eileen Davenport suggest that individualized political action in the form of personal boycotts, while simple and easy, "will never be as effective as legislation and regulations when it comes to changing things."

Others, such as Dietlind Stolle, Marc Hooghe and Michele Michelatti, in a 2005 article for the International Political Science Review, use historical examples to demonstrate that consumers do have power to influence corporate conduct and government policy.

Whether or not it brings about change in the behavior of others, how we choose to spend our money should support our beliefs, values, morals and all the things that matter to us.

As Henry Kravis, co-founder of Kohlberg Kravis Roberts & Co., a private equity firm, says, you can't buy integrity. "You can have all the money in the world, but if you are not a moral and ethical person, you really have nothing."


Ethical Consumer magazine outlines four types of ethical buying

Positive buying: Choosing ethical products like energy-saving lightbulbs.

Negative purchasing: Avoiding products you disapprove of, such as factory-farmed meat and dairy.

Company-based purchasing: Targeting a business and avoiding all the products made or sold by that company. For example, many animal rights advocates boycott Jimmy Johns because CEO Jimmy John Liautaud is a big game hunter.

Fully-screened approach: Evaluating both products and companies in order to select the most ethical.

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