Your customers are happy. Industry watchers eagerly await your next product. Your stock price is through the roof. Then there come reports that your suppliers may be violating child labor and environmental standards. Is this a serious issue — or simply a potential distraction?
While this might be a plot synopsis for one of the fictional HBR case studies I’ve written, it is the very real situation that confronts the executives at Apple. While the issues of overworked employees and lax environmental standards are not unique to Apple, they may be the brand with the most to lose. Apple has subsequently stepped up its efforts to monitor suppliers and is inviting third party verification of standards.
In a recent post for BecomeALeader.org, I used this tension between the needs of stakeholders as the jumping off point for a broader question for all leaders: where would you draw the line between values and financial performance? The post is below. I look forward to your thoughts.
Just a few months ago Steve Jobs was being lauded as one of the great CEOs of all time. I was a bit more reserved in my praise because I think it’s important to evaluate leaders on their legacy as well as their performance while in the job. Recently Apple was back in the news both for its stellar profits and the allegedly abhorent labor practices of the subcontractor that assembles many of its devices.
This juxtaposition presents an excellent opportunity to ask yourself the question: how far will you go to deliver financial performance?
First, a bit of background in case you missed these stories. Apple had a bang-up fourth quarter in 2011 selling 37 million iPhones and more than 15 million iPads. We love these products (full disclosure: I treasure my iPad but I am having second thoughts about an upcoming iPhone purchase). Apple’s profits for the quarter doubled over the previous year. Wall Street could not have been more jubilant:
“It almost defies words in terms of the strength across all products,” Toni Sacconaghi, an analyst at Sanford C. Bernstein & Company told the New York Times. “Everything about it eclipsed even the wildest expectations of analysts.”
Then came news of a darker side of our love affair with all things Apple. Following on earlier reporting of worker suicides at China-based Foxconn, a major supplier to Apple and other electronics makers, the New York Times published a major exposé on labor conditions in the plants from which our sleek, sexy devices emerge. It was not a pretty picture. The article described “harsh conditions” with problems ranging from “onerous work environments and serious—sometimes deadly—safety problems”:
“Employees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk. Under-age workers have helped build Apple’s products, and the company’s suppliers have improperly disposed of hazardous waste and falsified records, according to company reports and advocacy groups that, within China, are often considered reliable, independent monitors.”
Does this sound like a job you would take? Would you encourage your son or daughter to apply for a summer job on the assembly line? I doubt it. These are conditions that would not be tolerated in the United States or many other places around the globe. Yet lines form around the block whenever a new Apple product is released.
A critical leadership tension is brought into high relief: some of the hottest, most profitable products on the planet come from factories in which Apple would not want its customers walking around. This from a company whose “Think Different” advertising campaign featured human rights champion Mahatma Gandhi and labor leader Cesar Chavez.
I frame the larger leadership question in terms of clarity in three areas: purpose, values, and performance. I call this the PVP framework.
Purpose comprises two questions: What job is your customer hiring you to do? What are you trying to build? Your Values are the answer to the question: How will you conduct your activities? Performance also comprises two questions: How viable is your business model? How you will measure success?
I believe that the PVP framework can be applied to any organization whether it is for profit, nonprofit, or even a government agency. Every organization should have a clear purpose and values. Every organization needs to be financially sustainable. The challenge is that while most organizations have myriad processes for measuring and monitoring performance, they are less rigorous around purpose and values. Each needs equal attention.
I think that the case can be made that Apple’s leadership maintained greater clarity around purpose than its competitors. The company clearly delights its customers and elicits extraordinary loyalty from them. None of its competitors has been able to match the cachet of its products. The performance numbers above speak for themselves. They demonstrate that the organization is clear about its business model and executes well.
The wrinkle here is values. Perhaps Apple executives have made their peace with the labor conditions at Foxconn and other suppliers. Customers are clamoring for our products, one could imagine these executives saying to themselves—isn’t our job to make those customers happy? If improving labor conditions would add to the cost of an iPad, far fewer would be likely to sell, the logic would continue. That would wipe the smiles off the delirious investors who pushed the stock over $450 per share, which would, in turn, cut into the executives’ compensation.
What would you do? Your customers are not demanding changes. People are much more interested in when you’ll release the next iPhone. Your investors want you to keep doing what you are doing. The New York Times story didn’t cause a blip in the share price. Perhaps the public won’t care that much—Chinese workers are a world away and the newspaper stories are soon forgotten.
I am not writing this to provide an answer; my hope is to stimulate a discussion. As a leader, you have to be prepared for your situation to change in a heartbeat. Just ask the executives at the Susan G. Komen Foundation who experienced a furious values-driven backlash when they recently decided to stop funding Planned Parenthood. The best preparation for that moment is to be clear about your values from the beginnnig and use them to guide transparent decision making.
The question is on the table: if you were in charge at Apple, what would you do?