Setting: January 1990
Levi Strauss’s San Antonio plant, which manufactures sports coats, is on the road to closure after leadership decided to shift its strategy to focus exclusively on the Original 501 and Dockers brands. This plant that has been operational since the 1920s employs 1150 workers who are all now on the path to being laid off, for good, many with skills that would be hard to transition to a new job.
David Vogel, in his paper, ‘The Limits of the Market for Virtue’, said that corporate social responsibility is intended to ameliorate specific problems such as employee welfare, fair wages and pricing, and conservation of the natural wealth of our planet. In the event of a plant closure, a corporate leader should take appropriate steps to soften the impact on the employees and work hard to preserve its reputation and relationships with the community it is exiting. This is in keeping with Levi Strauss’ stated core values of empathy, originality, integrity and courage. Levi Strauss should use an augmented decision process to arrive at an outcome that guarantees suitable redress to those being laid off such as providing a severance package that helps with loss of wages, provides career transition and welfare monitoring services, etc.
In their paper, ‘A New Era for Business’, Beardsley, Bonini, Mendonca and Oppenheim, have argued that corporations have a social contact with the communities in which they operate. The fates of the community and the corporation are intertwined: when the corporation is commercially successful the communities it operates in reap benefits of healthy employment and economic progress, but when the corporate decides to leave, the community suffers with lasting socio-economic impact. However, in the modern business setting, in times of crisis the community expects corporations to adhere to a high standard of morality and respect the social contract. This conflicts directly with the primary motive of a profit-making corporation which is to maximize returns for stakeholders. Levi Strauss must decide how to manage this conflict: close the plant for business effectiveness but also do well by its employees to effectively deliver on its social responsibilities.
The solution to managing the social contract effectively might lie in augmenting the decision process using the Five-R’s framework proposed by Beardsley, et. all. In this paper I will attempt to show that thinking in terms of Risk, Renewal, Regulation, Relationships and Reputation helps a leader arrive at the ethically optimal and socially responsible choice when faced with making a decision that will impact the lives of workers and their families.
Risk: In deciding the fate of the San Antonio plant, Levi Strauss is taking a significant risk of alienating the community. If the plant were to close, 1150 workers would lose their livelihood. There is already significant risk of bad publicity from moving operations over to Costa Rica. Add the layoffs of 1150 workers to that and Levi Strauss is in trouble unless sufficiently grand measures are taken to help the soon to be jobless workforce. Sufficient thought needs to go into designing the severance package to ensure that lost wages for several months are accounted for, health care costs are subsidized and that placement services are provided sufficiently into the future. These actions will have the dual advantage of keeping the news media reasonably happy and will also help workers transition to new jobs, or safely enter retirement.
Renewal: This is an opportunity for Levi Strauss to demonstrate strength of character and commitment to core values of empathy, originality, integrity and courage. With the impending plant closure there will be social discontent and a media campaign. It is worth the extra effort and cost for Levi Strauss to stand behind their commitment to employees and upon plant closure, give extraordinary benefits such as continuation of health insurance and generous seniority-based pay. Such a step would show that Levi Strauss cares about its employees. When Merck decided to produce and distribute ivermectin for free to help millions of suffering patients in Africa, it made a commitment to humanity and came through on its founding principle, “We try never to forget that medicine is for the people. It is not for profits. The profits follow, and if we have remembered that they never fail to appear. The better we have remembered, the larger they have been.” It built a reputation that others, in time, will strive to follow for the greater common good of humanity.
Regulation: Levi Strauss should shape short- and long-term policy agendas to reflect societal expectations. One way to do this is to appoint a committee of outreach members that would work with the San Antonio City to monitor the welfare of the workers until they have secured new jobs, or alternatively, have settled into permanent retirement. This group would also be responsible for setting policy and implementing corporate social responsibility mandates in other manufacturing and assembly locations as well.
Relationships: Closure of the San Antonio plant closure is bound to severe some relationships, such as those with suppliers to the plant and those with local businesses that were necessary earlier but will become redundant now. Since distributors and suppliers form a value chain and are strategic non-depreciating assets for Levi Strauss, it should consider preserving these relationships in some form or shape to continue having a voice in the community on social, economic and business issues in future.
Reputation: This is perhaps the most important lever and should be used with utmost care in deciding the exit strategy. After almost seventy years, a mutually beneficial relationship with two generations of employees at San Antonio will be coming to an end. It is therefore imperative for Levi Strauss to remember that relationships are just as important as profit motives for sustainable business. The company must inspire trust by providing complete transparency in the plant closure process and announce the impending outcome in a manner perceived by the affected workforce as fair. It is better to lay out the business situation as openly as is permissible, than to hide the facts from a community that has come to trust Levi Strauss.
Finally, achieving an amicable exit from San Antonio does not preclude Levi Strauss from uncovering an opportunity to create lasting value with the San Antonio residential and business community. As Porter and Kramer note in their article, ‘Creating Shared Value’, shared value is the practice of doing business in a way that benefits both the business as well as the community in both measurable and intangible, immeasurable ways.
Levi Strauss can extend its value chain by making San Antonio a part of its core business strategy. It does not have to be a zero-sum game where the San Antonio plant workers lose everything with the exit. Levi Strauss can spawn an entrepreneurial incubator in the community by leveraging its seven-decade old relationship with the city putting to good use its supplier and distributor network for budding entrepreneurs. By another creative strategy Levi Strauss can setup a health and housing initiative for the San Antonio residents to signal its continuing commitment to its former employees and their extended families. It can provide substantial subsidies to health organizations who wish to partner in the effort extending the value chain even more, and deeply discount care for former employees for a few years, further strengthening ties with the community. Such and other creative efforts will signal to the world that Levi Strauss continues to stand behind its core values of empathy, originality, integrity and courage despite the fundamental shift in its apparel business strategy.
The Berkeley MBA 