THE ETHICAL EDGE by Jon Entine

May/June 1998

Exploiting Idealism

"The secret of success is honesty and fair dealing. If you can fake these,
you've got it made." --Mark Twain

Remember how you felt when the kid sitting next to you in junior high got A's on tests and bouquets of praise from the teacher, yet you knew that she had been cheating? You were mad and felt betrayed--by your fellow student and by the teacher for not being more vigilant.

So you can imagine my reaction when, in my very first week in the Ventura area--my wife is a senior executive at Kinko's--I happened across the spring issue of Business Digest. On the cover was the smiling face of Anita Roddick, the founder of The Body Shop, a U.K.-based franchiser of cosmetic products, who along with her husband had purchased a home in Montecito. She has become, it appears, a local celebrity.

The lead article profiling her speech at the Digest's Annual Awards Luncheon was sprinkled with references of how she had "built a billion-dollar enterprise based on values," was a "formidable threat to evil, waste, and poverty," called on business to demonstrate a "moral code of behavior." According to the account, she was showered with a standing ovation.

I was horrified. Not for myself, but for those who attended the ceremony and believed the high-minded pronouncements.

Ms. Roddick's address may have been peachy fantastic, but like the un-natural ingredients that are the basis of her "natural" products, the gap between her self-congratulatory rhetoric and her company's practices is huge. The reality beneath the green veneer is that The Body Shop is an ethically challenged company with a precarious future, particularly in the United States.

"Body Shop International faces a flood of court cases in the U.S. that could threaten Anita Roddick's empire," reads a recent article in the Financial Mail of London, one of a spate of news stories detailing the financial and ethical woes of The Body Shop. "Franchisees there complain of 'fraudulent' presentations by the company when they bought franchises. There is talk of a group action that could involve claims totaling hundreds of millions of pounds."

This is just the latest in a spate of recent news stories detailing its escalating woes. Sales in the U.S. and Asia are plummeting, angry franchisees are dumping their stores at pennies-on-the dollar, and the company has paid out more than $35 million in recent years in an attempt to quell the franchisee rebellion. According to the Jerusalem Post, The Body Shop was kicked out of Israel for kowtowing to the Arab boycott. As for its reputation as a 'socially responsible company,' Roddick has found herself enmeshed in at least two sex discrimination cases and animal rights groups have labeled The Body Shop's campaign against animal testing a "complete sham." As a result, its stock has plunged by more than half, stripping $400 million in stockholder value. The money-draining U.S. stores are reportedly on the auction block.

Most importantly--and the reason for this article--is that The Body Shop is a poor model for any person who believes that "business ethics" is more than just a marketing slogan. Recklessly executed and misleadingly promoted corporate ideals--The Body Shop is nothing if not a collection of hyperbolic 'vision statements'--undermine the credibility of those businesses that play it straight.

Lurid Details
Now that I've got your attention, let's fill in the background. In 1994, my article "Shattered Image: Is The Body Shop Too Good to Be True?"-- later given a National Press Club award for consumer journalism-- made these key points:

- Roddick stole the name, color scheme, products, catalogue design and virtually every aspect of her company from The Body Shop, a cosmetic company founded in Berkeley, California, which Roddick had visited--and taken brochures from--six years before she opened her first store;

-She and her early colleagues had fabricated stories of uncovering exotic cosmetic ingredients in her world-wide travel;

-Her products are the antithesis of natural, based on petrochemical fragrances and colorings, and base ingredients such as mineral oil and petrolatum which even drug-store lines are phasing out. Judged "low-end products at a premium price" by Women's Wear Daily, its products have in the past been found to contain formaldehyde, including its baby cream.

- While making public statements about "giving most of my profits to charity," Roddick gave not a penny to charity over The Body Shop's first eleven years. By 1994, when my article appeared, The Body Shop was giving a paltry far-less-than-one percent --half the average contribution by major corporations.

--Its vaunted "trade-not-aid" program, which Roddick had bragged was the "centerpiece of the company" was nothing more than the marketing centerpiece. According to The Body Shop's own figures, less than .165 percent of its turnover went to Third World producers. The hype was so outrageous that University of Chicago anthropologist Terrence Turner, a leading expert on the Kayapo tribe with whom The Body Shop does such a meager business, re-dubbed its trade efforts "aid-not-trade"--aid by poverty-stricken Third World countries to exploitative First World marketers like The Body Shop with almost no trade in return.

How could this be true? How could The Body Shop, the subject of so many glowing stories, be other than an ethical leader?

Calls from Former Loyalists
I have been an investigative journalist for more than 25 years, known in part for populist reports on ABC's PrimeTime Live and 20/20 and the NBC Nightly News. One day five years ago, I received a desperate call out-of-the-blue from a woman, a Body Shop Franchisee. To cut a long story short, she told a sad but remarkable tale of her family's heartbreaking (and financially trying) experiences with Roddick and her company. Frankly, I didn't believe her, at least at first.

This franchisee persisted, sending word out to a loose network of former Body Shop loyalists who had remarkable similar Body Shop horror stories--and had documents to back up their allegations. Within a week, I was fielding angst-ridden calls--from franchisees in France, Singapore, Britain, and the U.S.; from four of her five product-quality staff, upset that UK headquarters had suspended proper bacteria testing of cosmetics to meet the Christmas rush; from its environmental director who suffered the hypocrisy first-hand; and from many top executives including the former CFO, Corporate Counsel, and head of international franchising. Most troubling, I got scores of unsolicited calls from shell-shocked employees. They were upset, angry, and hurt. They felt betrayed.

Reason for Cynicism
Their comments stand as a lesson to those who believe that the cart -- the abstract idea of a campaigning, 'value-driven' company--can be put before the horse of running a business in a conscientious manner.

The Body Shop's ideals? It was like swimming with the sharks," said Marilyn Gettinger, who had been in charge of sourcing ingredients. "They treat their own staff horribly. And they're not truthful about what they say. They irradiate some of their products. They buy the cheapest ingredients and containers. Many of their products are from animals. They seem to have no hesitation about buying from repressive countries like China."

"The lie is what upsets me," says ZeZe Weiss, director of Amanakaa, an Amazon relief agency. They're not helping the Kayapo Indians. It's all a show. Anita Roddick is lying about how she helps the rainforest; but who would believe some Brazilian activists?"

"Body Shop is not more ethical than a heap of beans," writes Stephen Correy, head of Survival International, a Third World activist organization which once ran a joint promotion with The Body Shop. He now heads a growing list of disillusioned social activists. "It's sleazy and bullying and hides behind a veneer of rubbishy and manipulative propaganda which is actually only skin deep."

In contrast to its pristine reputation in some quarters, The Body Shop has developed a nasty reputation among franchisees and journalists for its hard-ball tactics. "It stinks to high heaven," says Stacie Benes, echoing many franchisees. "I hope people will speak up and with attribution. I am quite frankly, afraid of them. I felt like I was dealing with the Gambino
family."

"It's a gangsterish operation beneath its kindly exterior," says the former editor of International Management magazine which first exposed how The Body Shop lifted its name and concept from the Berkeley store--and was viciously threatened as a result. "This woman has lost touch with reality. She's a clever PR operator who has held the press at bay. She doesn't play by other people's standards."

Lessons of Character
Why such outrage? It's the sense of betrayal of the real stakeholders in a business--customers, employees, franchisees, trading partners, even investors--who took the hyperbole to heart. Here's a wake-up call: Ethics in business is not about soaring rhetoric but character; it's not promise but practice. Businesses that aspire to be more "socially responsible" must struggle with the reality that ethics is not about good intentions or striving for perfection. All businesses make mistakes. The key is setting up systems of accountability, being 'transparent' about your practices, and most importantly, turning out a fair-priced, quality product. Integrity begins at home.

Oversimplifying complex moral issues and iconizing visionary pronouncements ultimately breeds cynicism--and a backlash. "It's a lot worse," said a former systems manager at The Body Shop who quit the company in disgust, "when you find out the robber who's been stealing from you is the local cop." But should we expect The Body Shop to act any different from politically correct consumers, who have long since traded in VW Beetles for BMW's and Broncos?

Unfortunately, many Baby Boomers want it both ways: praise (and profits) for promoting human rights and blanket forgiveness for not being in a position to practice such ideals. "So many so-called progressive companies have noble corporate philosophies," says John Lickerman, director of research at the Calvert Group of 'socially responsible' mutual funds, "but mistreat their own employees, vendors, and customers." And, for many of us, eating Rainforest Crunch ice cream made from natural, not-tested-on-animals Brazil nuts constitutes an ethical stand.

Character demonstrated by actions, not by 'good intentions,' is the only reliable measure of corporate ethics. "The secret of success is honesty and fair dealing," Mark Twain once said. "If you can fake these, you've got it made."

Lets hope that in our image-dominated society, business and consumers aspire to more than just perceptions.