The Only Way is Ethics: L’Oreal and the mission-led challenge
Barely a decade after its purchase of ethical retail flagbearer, The Body Shop, L’Oreal has announced its intention to sell the company.
With profits sharply decreasing by 38 per cent in the year ending 31 December 2016, the business has faced increased competition from mainstream and ethical competitors, such as Lush, leaving some customers alienated by a perceived dilution of its values-based ethos.
The mission-led business sector is flourishing. 123,000 socially-conscious organisations in the UK place having a social ‘purpose’ at the centre of their operations and with consumers increasingly valuing ethics as part of the purchasing process, it is likely other commercially-successful companies are now in the sights of larger private buyers.
To avoid suffering the same fate as The Body Shop, mission-led businesses must make sure they safeguard their ethos, communicate their principles and continue to invest and reevaluate their purpose regularly to ensure they can compete in their commercial markets.
A pioneer of the ethical business model, The Body Shop, which prided itself on natural-based products, free from chemicals and animal testing, was an industry leader when it was sold to L’Oreal in 2006.
In mission-led business, customers actively pursue ethical offerings and, despite recent efforts to re-address its core philosophy, including setting 14 ethical targets for 2020, The Body Shop has failed to address a decline in sales – falling 6.3 per cent in the final quarter of last year.
Crucially, leaders in mission-led businesses must enshrine their philosophy in everything they do, or face losing customers. If a business is offered for sale, it must make sure that enduring safeguards are present in corporate governance and contractual commitments, such as supply chain transparency or a commitment to ethically sourced ingredients are protected.
This can prove particularly challenging when purchased by publicly listed companies that operate under the scrutiny of quarterly or annual trading statements and the consequent pressure from shareholders. There are lessons to be learned here: companies that buy mission-led businesses must resist the urge to prioritise short-term profit over longevity and support the ethos and purpose that have made it successful up to this point.
The ingredients for success as a mission-led business are two-fold. Firstly, mission and values need to be authentic, regularly re-evaluated and embedded throughout the organisation. Secondly, these values must be effectively and actively communicated to all stakeholders. If customer perception starts to fall away, and profits start to fall, it can be difficult to turn the ship around.
It is possible that a sale could be exactly the opportunity The Body Shop needs to realign itself with its core values. But this will not happen on its own. Through a commitment to staying true to values and by communicating these regularly and effectively to employees, customers and stakeholders alike, mission-led businesses can cement customer loyalty and ensure ethics remain at the heart of their operation.