Levi Strauss, a company that has been in its founding family’s hands for most of its 166-year history, was derided as a “failed utopian management experiment” back in 1999 by Fortune magazine, but now it has a long-term strategy for investment.
The company had seen its market share eroded by more nimble competitors.
But zip forward to this year, and Levi’s finds itself the focus of those – including Warren Buffet – who believe investors are too concentrated on quick profits and quarterly earnings, which in turn hampers sustainable growth.
And when Levi Strauss went to Wall Street earlier this year, the Financial Times reports, it represented a test case of whether there were enough investors out there who agreed, and who shared the long view.
Levi’s let it be known there would be no quarterly earnings forecasts. Only long–term investors need apply. The novel approach was successful, with the offer over-subscribed, and shares rising 30% on day one.
“I think what the [IPO’s reception] said is investors have an appetite for companies that have a strong moral purpose and … are committed to running the business for the long-term,” chief executive Chip Bergh told the FT.
A recent study by FCLTGlobal found that companies investing more than average, and that avoid excessive payouts to shareholders, as well as scandals, perform best over the long run. A McKinsey Global Institute analysis, the FT reports, also found that companies with a focus on the long-term generate higher profits.
But Levi’s long-term strategy and its ethos of “profits through principles doesn’t mean we’re a non-profit organisation”, stresses Bergh, who has seen annual net income more than double from $135m to $285m since 2011 when he became chief executive.
“The more profits we earn, the more we can reinvest . . . in the things that will make the biggest difference from a social and economic benefit standpoint in the places where we do business,” said Bergh.
Activities include insisting on acceptable standards in third-party factories in the company’s supply chain, as well as taking a stand on political issues ranging from refugees to gun control laws.
This “higher calling of business” even works in the short term, he said, as it attracts the best talent to the company, as well as consumers who are ready to reward brands that share their ethical values.
“I hope I don’t live to regret these words, but I think we have an opportunity to show that you can run a company with profits through principles . . . and be thinking about not just shareholder returns, but stakeholder returns more broadly,” Bergh said.
In fact, he believes, it goes further. Companies have “almost a moral obligation” to address societal issues. “If you sit on the sidelines on some of these things, you’re not really doing what companies have the potential to do,” he added.
Sourced from Financial Times, FCLTGlobal, McKinsey Global Institute; additional content by WARC staff