Exploring the relationship between corporate mergers and corporate social responsibility.
Timberland’s mission is unique for a shoe company: “to equip people to make a difference in their world.”
Then again, Timberland isn’t your average shoe company. For more than a decade, Timberland has been at the forefront of the corporate social responsibility space, showing the industry that it’s possible for a mainstream brand to operate sustainably without sacrificing profits. “It’s no longer enough to measure business by standards of profit, efficiency and market share,” wrote CEO Jeffrey Schwartz in the company’s first CSR report, published in 2000. “We must also ask how business contributes to social justice, environmental sustainability and the values by which we choose to live.”
On the surface, it seemed that Timberland was successful in achieving that balance, which is why many were surprised when the company announced in 2011 that it was being acquired by VF Corporation, one of the world’s largest lifestyle and apparel conglomerates.
With a portfolio of more than 30 brands including The North Face, Vans, Reef, Nautica, Jansport, Kipling, and 7 For All Mankind, VF seems perfectly positioned to expand the Timberland brand. But as Timberland itself admits, “there’s much more involved than simply adding up the two balance sheets.” This week’s Behind the Label explores the Timberland-VF merger and its implications for Timberland’s social responsibility efforts.
Timberland’s story dates back to 1952, when shoemaker Nathan Schwartz purchased shares of the Abington Shoe Company, a small manufacturer based out of Abington, Massachusetts. The company mostly focused on contract manufacturing until 1973, when it launched its first guaranteed water-proof boot under the Timberland brand name. Through the second part of the 20th century, Timberland was run as a family business, first by Nathan, and then later by his son Sidney and grandson Jeffrey.
With Jeffrey at the helm, Timberland became a pioneer in corporate social responsibility in the 1990s, with comprehensive reports and ambitious goals that raised the industry bar. Thankfully, it appears that Timberland is adequately equipped with the tools, structure, and leadership to continue working toward its sustainability goals under the VF umbrella.
One tool that will be invaluable is Timberland’s new online responsibility portal, hailed as a breakthrough in corporate transparency upon its launch in 2011. The portal is broken into sections exploring Climate, Product, Factories, and Service, providing status updates as well as hard graphs and data on the company’s progress in areas like carbon emissions, eco-conscious materials, factory conditions, employee engagement in service activities, and even number of trees planted.
For those who don’t wish or aren’t equipped to sift through the data, Timberland also releases a quarterly newsletter that provides summaries of its efforts, as well as podcasts, blog posts, and a section called “Voices of Challenge,” which brings together CSR professionals to discuss issues around sustainability.
“People can go granular as they want or stay as generalist as they’d like,” Mark Newton, Timberland’s Vice President of CSR, told Forbes. “What’s different about the portal is that we are not starting conversations by discussing one of our pillars or metrics but focusing on stories that matter and then getting to the things that are underneath those stories.”
The portal also includes an interactive scorecard that allows stakeholders to view Timberland’s progress toward its CSR goals for 2015. The scorecard reveals the good, including greater use of environmentally preferred materials and growth of the company’s eco-friendly Earthkeepers line, and the bad, like a 4.5% increase in greenhouse gas emissions from 2010 to 2011 (which Timberland recognizes as a function of increased growth and employee air travel).
During the acquisition process, VF Corporation has indicated a desire to continue working toward Timberland’s sustainability goals. “Regardless of what happens post-merger, we are all in this together,” Newton told Forbes. “Our values are integrated into all of us and everyone who works here.”
However, certain public comments and actions indicate that the transition process may have a larger impact on Timberland’s CSR efforts than leadership lets on. For one, it’s a given that VF’s multinational corporate interests will differ somewhat from Timberland’s triple bottom line approach. In a New York Times Dealbook article published at the start of the merger, it appeared that VF’s approach to the acquisition was primarily profit-driven.
VF executives appeared confident that it could wring profits by improving Timberland’s business performance, primarily by folding it into the apparel giant’s global platform and cutting costs. On an investor call with analysts, VF’s chief financial officer, Bob Shearer, said his company planned to raise its new acquisition’s operating margin to 15 percent, in line with the rest of the conglomerate’s brands.
Part of this “folding in” is the replacement of Timberland’s long-standing, well-respected, and notoriously strict factory Code of Conduct with VF’s Terms of Engagement and Global Compliance Principles, the same principles in place across all 30 of the company’s brands. According to Timberland, this will allow for a two-step approach to factory compliance: factory inspections and audits by the VF team, followed by remediation, training, and “beyond compliance” efforts from Timberland’s Supplier Sustainability Team. The success of this new approach is yet to be seen, but one has to wonder how continued “cost-cutting measures” will impact the socially responsible supply chain that Timberland already has in place.
Before the merger, Timberland was on oft-cited example of a homegrown family business that successfully grew into a mainstream brand, without sacrificing its commitment to sustainable business practices. However, comments from Schwartz before his departure from the company revealed that the endeavor was far from simple:
For three generations, we’ve tried to create and master a weird new kind of modern dance—the one that blends the foxtrot of “fiduciary responsibility to shareholders” with the tango of “authentic brand building,” with the Alvin Ailey contortion of “sustainable for profit business practice” … For 30 years, we’ve been trying, fighting, struggling, to choreograph the intricate interaction between shareholder value, consumer demand, and social accountability. I have the scars, and the long list of failed efforts, incomplete outcomes, unrealized dreams and frustrated ambitions before my eyes all the time that reflect this passionate effort.
By several accounts, it seems that Timberland’s troubles lay in its ability to scale its operations so as to continue operating sustainably while maintaining its responsibility to shareholders as a publicly traded company. The best option, it seems, was to align itself with a larger conglomerate, like the VF Corporation, that would be able to shepherd the company to the next level. In a research memo from Sterne Agee cited in Dealbook, analysts said that they “regard Timberland as a high-quality brand that has been operationally challenged for a number of years,” and that “VF has exhibited a strong track record and the capabilities to rectify many of the historical problems.”
Judging from his heartfelt farewell blog post, Schwartz seemed to agree with that analysis. He also seemed confident that he was leaving Timberland in the right hands, and that VF Corporation would be able to grow Timberland without abandoning the social responsibility that was central to its mission.
To illustrate his confidence, Schwartz shared a story from an employee town hall meeting that took place during the changing of hands.
An environmental activist in our ranks rose, way in the back, to ask the new guy, the Boss to Be, about sustainability.
“Tell us, please, why sustainability is important to you.”
Wow. That is town hall democracy the way Rockwell painted it. Nowhere to run, nowhere to hide — respectful, but a “no quarter granted” question.
And the man with whom I negotiated hard and long for the best possible deal for shareholders stood his ground, and answered, authentically and naturally. “The answer is simple—we believe that sustainability is good for the business and good for the world environmentally.”
… In this poignant moment of transition, from a business run by my family for three generations to a business to be run by relative strangers – here is the CEO of a 10B$ powerhouse, talking about sustainability simply and easily — good for business, good for the earth. And he means what he says.
Corporate acquisitions of sustainable brands tend to instinctually make me cringe. But in some cases, I have to wonder if they can actually be a positive thing, not only for the companies in question but also for the industry as a whole.
Although he’s no longer at the helm of Timberland, Schwartz certainly seems hopeful that this corporate undertaking is a step in the right direction.
It strikes me, hard, as I sit there — 30 years later, a vitally important conversation has shifted … Used to be, “what in the world does for-profit business have to do with social issues? That’s the purview of the government or the church.” And yet here, and now — I hear this powerful leader telling my colleagues, announcing to the whole damn world, that the question is not “if” corporations should be involved in questions of sustainability — not “if,” only “how.” Thirty years later–the corporate conversation turns from “if” to “how.”
Read more Behind the Label here.