By: John Bee, Managing Director, White Space Strategy
Julian Richer established Richer Sounds in 1978, and has grown it into one of the UK’s leading technology retailers. His stores consistently achieve some of the highest sales per square foot of any retailer in the world, and have repeatedly won awards for the quality of their offering. Business ethics and a commitment to social responsibility lie at the heart of this success story.
Richer’s book, The Ethical Capitalist, outlines his management ethos, arguing that a fairness-first mindset is essential to maximise long-term commercial performance. It also focuses on how, practically, business ethics can underpin success and innovation, and deliver competitive advantage – whilst, at the same time, enabling business to work better for society.
I think these ideas and this mindset are incredibly useful reference points for all business leaders – so have summarised the key points and concepts in this blog.
The Ethical Capitalist was a big influence on me, as I write Growing Uphill: The 15 Forces Shaping Our World in 2023. The article is available as a free download on Whiteboard – but I’d recommend reading this summary of Julian Richer’s ethos first.
1. It’s all about people
Part One of The Ethical Capitalist focuses on outlining what an ethical business looks like – that is, a business that’s able to benefit society and succeed commercially. Julian Richer distils this into three principles. The first is ‘it’s all about people’. This relates to employees, customers, suppliers, contractors and anyone else a business comes into contact with. It’s based on Richer’s personal experience:
“I have found that by treating people well, they appreciate it and almost always reciprocate. An overall aim for a business is to create a positive, caring, committed culture, in which everyone can thrive and feels motivated to contribute”
Delivering on this begins with paying fair wages, providing job security and decent pensions. It also involves treating people with honesty, respect and fairness, based on actions and commitment as well as words. This needs to cut across everything a business does, right down to the brass tacks. Richer’s mindset on job adverts demonstrates this:
“I’ve noticed that companies are often tempted to exaggerate or even misrepresent the scope or nature of a post in the belief that this will secure the best candidate. The fact is, though, that even this very minor departure from the truth will invariably backfire, because it will attract people who are either unsuited to the role or who will become disillusioned when they discover it’s not all that it’s cracked up to be”
So, in short, it pays to look after your people – and to be honest with them from the very start of the relationship.
2. What goes around comes around
Julian Richer’s second principle of an ethical business relates to reciprocation. Positively, most people try to return favours. But, negatively:
“Those who cheat end up being cheated”
This principle underpins relationships with each of the different groups of people outlined in the section above about people. If a company hikes prices for existing customers, they will eventually shop elsewhere and bad mouth about their treatment. If staff are taken advantage of, they will find alternative employment, or work with lower levels of commitment and diligence. If suppliers are paid on time and fairly, they will be more likely to collaborate with you on product innovation. And so virtuous and viscous circles are created.
3. You get nowt for nowt
This is Richer’s third principle of an ethical business, stated as a proud businessman who lives in Yorkshire: all business comes down to trade, and trade needs to be fair to be sustainable long term.
It might be possible to increase sales and profits in the short term by ripping customers off or by treating suppliers badly but, longer term, this will fail. Examples ranging from The Body Shop, Lush and Green & Blacks show how companies who trade fairly also prosper.
Fair trade doesn’t necessarily lead to high prices, or require premium positioning. Aldi are renowned for their low prices, and have won the approval of 94% of their suppliers.
As Richer explains, many companies choose to take a less supportive and ultimately less fair approach – running the risks of losing supply or of huge reputational harm if they become embroiled in controversy:
“Any company worth its salt will strain every muscle to be well regarded by society as a whole”
As an aside, this sounds like exactly the kind of thing the founder of many Japanese company could have said. I’ve worked with some of these companies, and have been struck by how they approach capitalism differently. Search for “quotes by Kōnosuke Matsushita” on Google. He founded Panasonic in 1917, and is legendary in Japan for his pearls of philosophical business wisdom.
4. Social responsibility is essential to maximise long term business success
The three core principles summarised above each link into an overarching theme which runs through The Ethical Capitalist: every business exists within a complex web of symbiotic relationships with employees, customers, suppliers and, more broadly, with society itself.
Committing to and nurturing each one of these relationships is required to maximise success in the long term. This ultimately includes helping foster the development of society itself, as a good corporate citizen.
If a business wants the next generation of potential recruits to have the skills it needs or for future customers to be able to afford your products, it’s in their interests for society to be based around high levels of education and broadly distributed prosperity. Businesses also benefit from good roads, pavements and cycle routes to connect them with staff, customers and supplies.
In short, businesses need society, and society needs businesses.
How can businesses – and business leaders – help ensure society supports their success? In short, by paying tax. Richer argues against the aggressive tax avoidance practised by many multinational companies and wealthy individuals, and for a broader acknowledgement of the importance of taxation as an enabler of business success.
5. Being ethical is hard work (and requires commitment from the top)
It’s striking how personally involved Richer is as a champion of and driving force behind fairness in his business. Some of the choices that need to be taken – for longer term benefit – require sacrifice in the short term and/ or hard work:
“Creating an ethically minded company is not something that’s achieved the moment a list of company values has been put together. It’s a process that involves very hard work and requires constant attention”
The Richer Sounds recruitment process demonstrates this. Given the importance of staff and culture within the ethical business model, hiring the right people is critically important, even for the most junior of roles. A rigorous approach is therefore taken: no one is hired without a (paid) trial day, which is followed by interviews with HR and the operations directors.
This resonates with my own experiences of running a business. Ultimately, ethical business practices and fairness emerge from company culture – and positive company culture is usually set by the leadership, requiring constant hard work, focusing on recruitment, staff incentivisation and values.
How does this translate into profits?
There are plenty of academic books about the importance of profit with purpose. Many are excellent. They’ve generally not been written by people who’ve run businesses, though – so they lack the credibility the Richer brings.
You could read Richer’s book for some fascinating detail on this.
Or you could watch this video.
It’s only possible to have a customer offer like this if you’ve got a business like Julian Richer’s. And, remember that statistic at the top of this blog: his shops have achieved some of the highest sales per square foot anywhere in the world:
Personal experiences of Ethical Capitalism
The Ethical Capitalist also looks at the limits of capitalism and the importance of regulation. These are both themes I’ve discussed at length with other business leaders recently. Thinking about these conversations, regulation, especially around the environment, is increasingly being seen as helpful, to prevent races to the bottom which senior management don’t want to be involved in (who, at a personal level, wants to have been part of climate change, or of mass obesity?).
I’ve also seen first-hand many examples of companies receiving significant benefits from acting in a socially responsible way, At a personal level, Volvo come to mind. They invented the three point seat belt in 1959, and made this life-saving IP freely available to their competitors to maximise adoption. This was one of the reasons I offered to do a free project for them on cyclist safety in 2019, and has generated goodwill for their brand in the automotive industry more generally.
I’ve also observed how capitalism varies in different countries. Aggressive profit maximisation is less of a focus in Japan, as has already been mentioned. A longer term business outlook is more common, alongside lower margin expectations and a commitment to social contribution. I think it’s similar for many Chinese companies.
My own company, White Space Strategy, has benefited significantly from taking an ethical approach to business. This starts with delivering what we promise to customers – and being honest with them when we’re not the best consultancy for the job. Our average project satisfaction score from clients is 9.1 / 10, and our clients have voted us onto the Financial Times’ list of leading strategy consultancies for the last 2 years running.
Regarding staff, we’re one of the few strategy consultancies to genuinely offer a true work-life balance. We do this by looking out for staff, ensuring they’ve got interesting, meaningful work to do and by avoiding the 60 hour weeks that can be common in our industry. I think our outputs are more creative and more accurate because of this, and our staff stay with us for longer. We gave everyone a free paid week off before Christmas last year in recognition of how hard 2021 was due to the pandemic. January 2022 was our record ever month for sales, so it was useful to have everyone back fresh and ready to go in the new year.
We’ve also had really positive experiences from supporting charities. I set up our pro-bono division out of a sense of social commitment, and so far we’ve delivered over £400k of free work through it. It’s not all driven by altruism, though: pro-bono projects allow us to experiment with new methodologies, give our team new skills and experiences of leadership and help us attract new staff.
In short, in my experience, everyone benefits from an ethical approach, just as Julian Richer asserts in The Ethical Capitalist.
To explore this idea further, and delve deeper into the concepts summarised above, buy a copy of the book – it’s less than 200 pages long and is full of examples, anecdotes and practical suggestions.
Or go hi-fi shopping and chat with some of his staff
About the author:
Managing Director, White Space Strategy
John founded White Space Strategy in 2005, and has worked on over 300 growth strategy projects worldwide.
White Space Strategy was named as one of the UK’s leading strategy and innovation consultancies by the Financial Times in 2021 and 2022.
He is currently also working with Oxford University within their UN Sustainable Development Goals Impact Lab, and has lectured at Warwick Business School.