The Character of the Corporation: ESG Is On Costco's Board Agenda
By Eve Tahmincioglu

Chairman Hamilton E. “Tony” James discusses the company’s focus on environmental, social and governance (ESG) issues. 

When it comes to environmental, social and governance issues, Costco chairman Hamilton E. “Tony” James says most companies are playing catch up. ESG, he maintains, has been “central to the company’s mission since its creation over 30 years ago.”

Right from the start, he explains, “Costco was set up with the feeling that they’re there to serve the community in the broadest definition,” including charitable giving and providing good jobs.

Costco, the membership warehouse club, has often been derided by Wall Street for paying their employees more than industry standards. To that, James says, “We’re very committed to our employees. It’s in the company’s business interest to do that. We get better quality employees who are motivated to work hard. They’re proud to be at Costco.”

Pay and benefits for the rank and file is an issue the board addresses periodically. “We try to make sure our employees, all of them, have the wherewithal to retire comfortably. We encourage them to save, including through automatic enrollment in the 401(k) program and company contributions (including matching),” says James, who is executive vice chairman at investment firm Blackstone and the author of “Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans.”

SPECIAL REPORT:

• The Character of the Corporation. (Intro)
Delaware Supreme Court Chief Justice Leo Strine tells Directors 
& Boards that it is not “sustainable to have societies where large 
corporations do not have to align their business practices with
the interests of living, breathing human beings who deserve a safe 
environment, economic security and consumer protection.” 

• Profit and PurposeIndra Nooyi, former PepsiCo chairman, talks about balancing bottom line and societal success.

• ESG Is On Costco's Board AgendaChairman Hamilton E. "Tony" James discusses the company's focus on environmental, social, governance issues.

 

• The Story of "S"What does "social" in ESG encompass? We talk to governance experts about their take.

• Best Buy's Road to Gender Parity in the Boardroom: It's not about tokenism, it's about business strategy and doing the right thing.

• Courageous Boards Can Drive the Profit-People-Planet Agenda: CEO of The B Team talks about the role boards need to play.

• How Can Boards Wrestle the ESG Agenda? Questions to ask the CEO.

• ESG Faces Tests of Staying Power: Will a potential economic downturn, or the ghost of Milton Friedman, dampen the social-purpose movement?

• Stop Fighting ESG: Tips for becoming environmental, social and governance board leaders despite the lack of ESG clarity and standards.

• To Figure out the "S" in ESG, Look Within: Directors need to assess how their core business connects to society.

 ESG Point/Counterpoint: Should environmental, social and governance reporting be standardized and mandated?

Focusing on ESG issues isn’t just about the bottom line for the company’s leadership. It is one of the reasons people feel so good about Costco and why there’s such a cult following by consumers, maintains James.

“That’s just how we run Costco. It’s not just shareholder value,” he says. “Our belief is we’re not running this for the next quarter, we’re running it to build a great company for the long term. We think corporate citizenship is a core character value and a matter of principle. We’re not worried about just maximizing the short term.”

To that end, the board spends a lot of time discussing ESG issues, issues that are increasingly being brought to the table by a host of stakeholders and shareholders.

Recent proxy proposals submitted to Costco include prison labor and farmed salmon, and James says the board talks about every one of the ESG-related matters, in addition to what the company is paying employees, its carbon footprint and food waste.

“Some people don’t like farmed salmon because some of those farms have had pollution issues,” he says. “On the other hand, other people would much rather we not sell wild salmon because it’s a dwindling species. We try to (source) farmed salmon with higher standards and address negative issues around farming.”

The public can find extensive information about Costco’s ESG efforts on the company website, he adds, and the management team presents an annual sustainability report to the board. The company finds that the most successful sustainability efforts are those that lower costs, like reducing water and energy consumption, and improving the supply and quality of merchandise.

If the board doesn’t talk about these issues, he stressed, “We’re not reinforcing to our employees that these issues are important to us.”

When asked about pushback from activists, he says, “Activist investors often result from underperformance. At Costco, we have a top-notch management, a company firing on all cylinders operationally — and a stock that has performed well over the long term.”

There is a short-term cost to bolster ESG, he acknowledges, “but we believe passionately in the long-term payoff. Companies that want to move in this direction have to be ready for an initial cost, before they see the benefits to reputation, culture, management, customers and, ultimately, profitability.” 

 


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