Credos and a fair return

I was reminded in a chat this week of the Credo published by US pharma and consumer company Johnson & Johnson, and in particular its all-important final sentence: “When we operate according to these principles, the stockholders [shareholders] should realize a fair return.” The word ‘fair’ appears 4 times, once in each of the short paragraphs.

What does this focus on fairness, on a fair return, look like? Of what is it the outcome? 

The Credo was created by Robert Wood Johnson, a member of the founding family and J&J’s chair from 1932 to 1963. It was written in 1943, just before Johnson & Johnson became a publicly traded company; J&J claims it as a bedrock of how the business still runs 75 years on: “Our Credo is more than just a moral compass. We believe it’s a recipe for business success.”

What is that recipe? Simply, that its customers come first, that suppliers have a right to a fair profit, that employees need to be respected and given scope to prosper, and that local communities matter; and that J&J needs to be a good corporate citizen (including expecting to “bear our fair share of taxes”). Only once all that is delivered do the shareholders gain any consideration: “Our final responsibility is to our stockholders.” It is clear that shareholders’ fair return is an outcome of running the business well and delivering value for all the other stakeholders, it is not an end in itself.

screen shot 2019-01-25 at 14.03.07
The Credo’s first paragraph, and first priority

And the consequence of this focus away from shareholder value maximisation and towards business success through delivering value to customers, suppliers, employees and the broader community? Value creation for shareholders too, with an impressive share price chart and still more impressive progressive dividend record dating back to the early 1970s.

So, long before the current debate on corporate purpose, and even long before the nonsense suggestions that US businesses are obliged to focus only on narrow shareholder value maximisation (both discussed in Accountable Capitalism, my article in October’s Governance), here was a US company going to the market with the explicit statement that shareholders do not come first, rather all other interests in the business do. And one that has amply demonstrated that the outcome of seeing shareholder value creation as an outcome not an aim is prolonged business success.

Some inevitably will criticise J&J and suggest that the Credo is mere words that deliver no substance. And of course, as a US healthcare business it faces multiple lawsuits regarding its products, a number of which it has lost. But my experience was that representatives of the company, both staff and independent board members, did talk about it differently from the way one hears from many US businesses. In particular, there was a pride in the company’s record of voluntary recalls of its products ahead of being obliged to by regulators or any certain evidence of problems — perhaps a putting into practice of the ‘first responsibility’ being to customers. It was never quite clear that problems were always avoided in the first place, but it was clear in discussions that this was a company with something of a different mindset.

I believe its Credo has something to do with that. Others might prosper by thinking in a similar way.

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