My Journey to Conscious Capitalism

By Ramon Mendiola, CEO, FIFCO (Costa Rica)

I joined FIFCO in 2004. Back then, the company was pretty much concentrated on brewing beer, which we’ve been doing for about 108 years. FIFCO is a very traditional, well-established company in Costa Rica.

2004–2006: Becoming More Efficient

I focused initially on becoming more efficient. I found many areas in which we could become more efficient and then pour the savings from those efficiencies back into the business, rather than just applying them to the bottom line. For example, we took out 18 percent of the total cost base at that time, which was equivalent to $22 million, and repurposed it in much better ways.

I had to reduce many expenses that were not adding value to our revenues. This meant that I had to lay off employees who were adding only bureaucratic layers and complexity to our processes. I call it “putting the house in better order”: making things more efficient. I put a lot of emphasis on innovation, on compensating ourselves for performance. Compensation was then 70 percent fixed and 30 percent variable. Over four months, I made the change to 70 percent variable compensation for the sales folks and 30 percent fixed. Along the way, many people left the company, because they were really not into what I was doing. But I thought we were making the right decisions to face the competition from the multinationals coming into our market. I created a business-unit organizational structure that was focused on alcoholic and nonalcoholic drinks, primarily juices and water. Previously, the beer business was subsidizing the losses we were carrying on the nonalcoholic side; I needed to bring more accountability to each of the business units.

2006–2008: Aggressive Growth

All those steps in my first two years were, I would say, what you’re normally expected to do as a CEO. Then, in 2006, I put a new challenge to my team: to double the size of the business. Historically, it had taken us seven years to double in size. I said to my fifty top executives, “Okay, guys, I am very proud of what we’ve been doing around efficiency and productivity across the organization. I now want to put a new challenge to you: to double the size of the business in terms of revenues and profits—not in seven years, but in two years.” I wanted 70 percent of the increase to come from organic growth and 30 percent from new business expansion. My goal in the beer category was to increase per-capita consumption. Previously, we had grown around 1 or 2 percent a year. From 2006 to 2008, we grew 9, 10, 11 percent, year after year. We were able to grow like this because we brought a lot of innovation into the category in terms of pack sizes, flavors, portfolio management, and strengthening our distribution. I also put forward specific key performance indicators (KPIs) that I wanted: for instance, 10 percent of our total volume would come from new products every year.

While we were growing the beer category, we were also significantly diminishing our losses in nonalcoholic drinks by strengthening our portfolio and entering new segments. For instance, we entered the iced-tea category, which was more “good for you” and in line with healthy trends.

2008: Becoming a Triple-Bottom-Line Company

After a year and a half—in 2007—I knew we were going to double the size of the business, including profits. I felt that my team was ready for a bigger challenge. As my management team (now around seventy-five top leaders) and I celebrated that achievement toward the end of 2008, we made a visionary decision. I gave the team a new challenge: to become a triple-bottom-line-oriented company. That meant that we would need to merge our business strategy with our environmental and corporate social-responsibility strategies. We set out to improve on our social and environmental dimensions with the same rigor that we used to improve our financial performance.

The impetus for this challenge was the signals we were getting from the public—especially signals about alcohol. When we started growing our business by 10 or 11 percent a year, we overheated a little in terms of the consumption of alcoholic products. For example, there were concerns about drinking and driving. I really started paying attention to the messages the public was sending to us. Inspired by the stakeholder model, we decided to do a comprehensive stakeholder mapping—a qualitative and quantitative consultation with all our stakeholders. We normally do a very good job with our consumers and customers, but I decided to expand our focus to nongovernment organizations (NGOs), society in general, regulators, our shareholders, and our employees.

When we asked those stakeholders what they expected from us as a responsible company, they mentioned four things. These expectations addressed both our social and environmental footprints. First they told us, “You have to do something about the excessive consumption of alcohol.” That was by far our biggest footprint. Number two was waste; they said they saw our bottles floating in the rivers and beaches. Number three was water, because they believed that we were taking water away from our communities to produce our products. Fourth, they were concerned about carbon emissions from our distribution system and manufacturing facilities.

We went forward on these concerns very boldly. Assembling my team, I said, “Okay, guys, we need to do something about excessive consumption of alcohol.” I didn’t know exactly how to go about it, but we eventually teamed up with a Canadian NGO that has been changing alcohol consumption patterns in Quebec for the past twenty-five years. We adopted this NGO’s philosophy. First, we measured the consumption patterns in our society. We found out that in Costa Rica, on average, consumers were drinking 1.75 times a week—meaning Friday and Saturday. Every time they drank, they consumed an average of 5 drinks. After five drinks, a person is typically intoxicated, depending on how many hours the drinker has waited and other factors. In the Canadian example, drinkers had much better consumption patterns, because they drank on average four times a week, but each time, they only had 2.25 drinks. Comparing the data, we had an aha moment. We realized that we should focus on changing the consumption patterns. We could continue increasing per-capita consumption, but could do it responsibly by recommending greater frequency but fewer drinks per occasion.

Changing consumption patterns takes generations; it doesn’t happen overnight. I went to the minister of health, who never wanted to see me, because I was the opposite of the kind of person she wanted to meet. But I sent the research to her anyway, and after she saw it, she called me to her office. “Ramon,” she said, “this is the best piece of information I’ve ever seen in my life, and I’m willing to work with you to find a solution.”

Subsequently, I became president of the Latin America Brewers Association. It took me three and a half years to mobilize the industry in Latin America—from Argentina to Mexico—to do the same research we had started here in Costa Rica. With some exceptions, the consumptions patterns were pretty much the same in all the countries. With that data, I then went to the World Health Organization in Geneva. The WHO wanted to do what it had done with the tobacco industry: reduce per-capita consumption. I said to the organization, “We can prove to you that it’s okay to increase per-capita consumption if we do it in a responsible manner, by changing the consumption patterns. Alcohol is not good or bad as a product. It depends on who consumes it and how (the consumption pattern).”

For four years now, we have been improving. Coming from little Costa Rica, we have tried to encourage the industry in a positive way to embrace these principles of smart consumption, as we call it, and we are educating our consumer base in a different way. So this is what we have been doing about the number one footprint that we create as a business: the excessive consumption of alcohol.

Also in 2008 we made an environmental commitment: by 2011, we would become a zero-solid-waste company. This meant that we would send no more garbage to the landfills. We met that commitment and became a zero-solid-waste company by 2011.

We also committed to become a water-neutral company by 2012 and a carbon-neutral one by 2017. All these commitments can be measured. As a publicly traded company, we have been audited by Deloitte on these Global Reporting Initiative principles. We’re very pleased and proud that we achieved our goals and became a zero-solid-waste and a water-neutral company. We are on our way to becoming a carbon-neutral company by the end of 2017.

Why those years, you might ask? Our goals were based on our stakeholders’ point of view. For instance, because waste was much more of a concern to the public than were emissions, we focused on waste first.

We became a water-neutral company by first reducing the amount of water we use in our manufacturing processes. We measure everything—even the water in the toilets! We started with fourteen hectoliters of water used for each hectoliter of beverage produced and sold. Now we use less than four hectoliters per hectoliter of beverage. Then we set out to compensate for the water consumption we couldn’t reduce. We adopted the Water Footprint Network guidelines and teamed up with other companies and NGOs to bring water to Costa Rica communities that lack access to potable water. We’ve done four such projects so far. For other ways to compensate for the water we use, we also harvest rainwater in schools and contribute to efforts to protect the rain forest here in Costa Rica.

2012–2014: Growth through Acquisitions

In 2012, we decided to continue expanding our business dramatically. We made four acquisitions in eighteen months, entered the US market, and continued expanding our beverages, adding new categories like wine and spirits. We vertically integrated our processes and set up small convenience stores. When I joined FIFCO, it had eighteen hundred employees. Now we have sixty-three hundred: four thousand in Costa Rica, a thousand in Guatemala and El Salvador, and about thirteen hundred in the United States. When I joined the company, our turnover was $150 million; currently we’re at $1.3 billion. We started with $70 million in profit, and now we’re closing in on $320 million. But if you were to ask me the most important decision I have made, it was in 2008, when I merged our business strategy with our corporate social responsibility and we became a triple-bottom-line company. For me, that was the most important decision we have ever made as a company.

2014: The Search for a Higher Purpose

The second-most important decision was in 2014, after the very long expansion of new businesses that I mentioned. To be honest, I think we lost some connection with our employees, because we had stretched them too far, with all the initiatives and four acquisitions in eighteen months. We were missing something very important to me: the higher purpose of FIFCO. So we went out to search for our purpose. We have a very good vision and mission and very good strategies, but a purpose is different. It must answer the question “Why? Why are we here? Why do we wake up every day and come to work?” I wanted something that could truly unify all our employees, no matter which businesses they were with. I wanted them to wake up every day aspiring to get to a higher place.

So we literally went up to a mountain for a three-day retreat. Twelve people joined me on this quest, and we discovered the higher purpose of our organization. Finding the purpose should not be an exercise delegated to an advertising agency; it was very introspective for each of us. The purpose is so important because it really touches the hearts of the employees. Strategies and vision all affect you mentally, in the mind. But a purpose is very different. We needed to open our hearts to our employees.

I believe very strongly that if we can win the hearts of our employees, we will have their minds forever. When my team members and I became more human, we were able to open a new way of doing things and embrace this principle of a higher purpose, which also led us to refresh our values: what we do and don’t stand for. Over the past few years, we have become more human in this way.

Here is how we articulated our purpose: we bring a better way of living to the world.

I live a daily tension between living my purpose and complying with the performance I am expected to deliver. It may sound weird, but I love that tension. I’ve embedded this tension into my leadership team: that we are the guardians of this purpose for the company, and for every decision we make daily, we have to put the purpose in front of us. Sometimes, our purpose goes against performance, but overall, we always try to make the right decision. We live in that tension of fulfilling our purpose while still achieving the performance that is expected of us.

Making the Purpose Real

One strong example of the tension between purpose and performance occurred when I was sharing the higher purpose with all our employees. I started with the twelve people with whom I had gone on the mountain retreat. I then shared the purpose with my hundred top executives, then with five hundred middle managers, and eventually with the whole organization. I went to every country and region to share our purpose. In one of those meetings, an employee grabbed the microphone and said to me, “Ramon, listen. I am very proud of everything this company has been doing in terms of water, emissions, our policy on alcohol, all that. I read about it, I see you on TV, I see what you’re doing. But you know what, Ramon? Do you know that we have employees living in poverty?”

I was stunned by that comment. “You’re right,” I said. “I don’t know how many of our employees are living under poverty conditions, but give me six months to work out a comprehensive plan with my management team. I’ll come back to this.”

Being confronted with the reality of many of our workers’ lives was an absolutely incredible thing. We looked around and took the best benchmarks and practices from other companies and from the UN’s protocols. It took us six months to create our program, which we call FIFCO Opportunities.

In Costa Rica, about 22 percent of our total population lives in poverty, as measured by the United Nations. We hired social workers to help us. I went with the social workers and interviewed the people living in poverty—not only our employees but also their families. I wanted to find out how many employees were in this vulnerable condition and, more importantly, the reasons behind it. It’s not because we pay bad salaries; FIFCO actually has some of the best salaries in the entire country and beyond in Central America. But an employee might be in a vulnerable situation for many reasons: bad financial decisions, debt, health issues, having more than one companion, and so on. We heard about all these things along the way. Ultimately, we discovered that 3.6 percent of our four thousand employees were living in conditions of poverty. I publicly promised the company, these employees, and their families that although it takes the government ten years to bring a person out of poverty, we would do it in three.

We developed a 360-degree program to help each of these families, with their agreement and input. We don’t say “You’re poor” or “You’re in a vulnerable situation” or anything like that. They have to participate in counseling, and more importantly, they learn how to manage their finances. Many of them also have issues with health or education. We launched this program less than a year and a half ago, and we have already brought twenty-seven families out of poverty. Every single employee has a mentor, who is one of our executives. I gave the most complicated and difficult case to our chief financial officer. I said to him, “Carlos, if you cannot bring this guy out of poverty, nobody can!”

What I did not realize at first was the effect that this whole thing would have. Not only did we gain the loyalty and engagement of the employees and families participating in this program, but the program had a huge effect on the other 97 percent of our employees. They really felt like, “Wow, the company is doing all this to help our fellow employees who are living in very difficult situations.” Our engagement, commitment, and indexes on Great Place to Work all skyrocketed. I’m told that normally, when you do something right in terms of improving the organization’s culture, you go up at most three points a year. Last year, we improved twelve points on our Great Place to Work scorecard! In fact, the people at the regional Great Place to Work organization didn’t believe the score at first, so they redid it. When they interviewed me, I said, “Do you know why I think we had such an incredible bump this year? I think it’s all related to our purpose initiatives.”

In addition to the example about poverty, we have done many other initiatives in the entrepreneurial area and are fostering new ideas among our employees.

Changing the Compensation System

Back in 2008, one of our most important decisions was to change the way we were compensating our executives and other leaders. We changed from 100 percent economic KPIs, which was related to our variable compensation. There were the usual suspects: earnings per share, market share, and so on. We lowered the economic indicators from 100 percent to 60 percent and incorporated 30 percent social KPIs and 10 percent environmental KPIs. It’s a much more balanced scorecard, and it is accessible and visible to all employees.

Right now, this compensation system is for top executives. Out of some six thousand total employees, twelve hundred really have an influence on the well-being of the company today. Currently compensation is based on KPIs that are 60 percent economic, 30 percent social, and 10 percent environmental; the idea for me would be to lower the 60 percent economic to 50 percent—but that decision has to be made by the Compensation Committee.

By the way, when we acquired the business in the United States, we used 100 percent economic KPIs for the first year, because we really needed to bring the financial side under control. This year, it is down to 80 percent. An economic-based KPI is especially important when you are acquiring a new business, because you have to get the financials, the economics, all sorted out. Once you have a solid base, then you can start bringing in all these other elements.

Putting People First

We have explicitly used Conscious Capitalism ideas in this journey, without calling it that—we call it holistic capitalism instead. That’s our own term for it, but it embraces the same principles that Conscious Capitalism holds.

I strongly believe that you can have the best production facilities and technologies, but ultimately, it’s all about the people. The more your people are engaged, motivated, and committed to you—the more they believe in what you’re trying to do—the better off you will be. They will do anything for you; they will climb Mount Everest, because at the end of the day, they believe in what we are trying to do. We are evolving in how we do business; we are evolving way beyond what we were taught in business school, which was to maximize shareholders’ profits.

As business leaders, we need to evolve our thinking. We have an obligation to better share among all stakeholders, not just shareholders, the value we create. The more companies can embrace this fundamental principle, the better off we will be as a society. We can build a better planet all together, and I think it will start by all of us being humble in recognizing our social and environmental footprints. No matter which industry you work in, we all have to start by recognizing the footprints we generate. From there, you can move on and make a different kind of impact: a positive impact on society and the environment.

Often when I speak with businesspeople, they say, “Okay, Ramon, I generate so much employment, I pay all my taxes—what else do you want me to do?” We all need to go much further.

I’m a firm believer that more and more companies will come to embrace these principles.

Why is this journey important to you as a leader?

I think it’s important because we need to be an example of the idea that companies can do much more than just generate employment and pay taxes. We’re living in a society that has not quite failed yet, but we have so many social and environmental issues to cope with, and our governments—especially in this part of the world—do not have all the resources or competence to deal with them. We from the private sector must play a role in this and try to be part of the solution. I also firmly believe that we need to adjust our business practices and bring our skills to help out where it is most needed.

How do you define success?

For me, success will be the day that all businesses (especially the 145 businesses that control 45 percent of the world’s wealth) can embrace the triple-bottom-line principles and become more conscious. That is how I would define success.

How do you define greatness as a business? What makes a great business?

Greatness is when we do the right thing, not only for the business but also for society in general. I can share with you how we’re moving toward our 2020 vision: from neutral processes to a net positive. It’s a fascinating topic that I’m working on with my management team as we speak. My intention now is not merely to move to water-neutral or carbon-neutral processes. We want to have positive footprints. We don’t just want to do less harm; we want to do more good. That’s a fascinating concept going forward.

Why I Am a Conscious Capitalist

By Steve Hall, CEO, Driversselect

There are many reasons I am passionate about the journey to Conscious Capitalism. I could refer to the fact that since we integrated this philosophy into my company six years ago, revenues have grown from $47 million to over $240 million and net profits have increased ninefold. But it’s not the financial performance alone that makes this journey worthwhile. The journey to Conscious Capitalism has made me realize that the most essential part of my business is my relationship with my stakeholders. And the more I clearly define the type of relationship I want to hold with each of them, the more fulfilling the journey becomes for me.

One of the most important things this journey has taught me is who comes on the journey with me matters more than what I am building or how much I achieve. I have learned to recognize the difference that comes from thinking about my business in decades rather than quarters—the impact it can make on people and the sheer joy of leading a company when it reflects my personal values. Figure 2-1 shows how we present our core values and mission to customers.

Source: Driversselect, “Core Values,” accessed August 17, 2017, http://driversselect.com/custom/experience_our_core_values.

In building my business on the tenets of Conscious Capitalism, I have come to realize that what stops most companies from scaling in a sustainable way is not capital, customer demand, or any other outside factor in the marketplace. Companies fail to reach their full potential mostly because of internal factors: places where they don’t realize the interdependency of their stakeholders. Therefore, the firms can’t find a path to create enough value to keep these stakeholders engaged and committed long enough to fulfill the company’s mission, purpose, and vision. Conscious Capitalism has helped me recognize the importance of creating real and lasting value for all key stakeholders and how to balance the right amount of equity to invest in each group of stakeholders at various life cycles of the business.

Before embracing Conscious Capitalism, I found it is easy to overlook certain stakeholders, like the truck drivers who deliver our vehicles from auctions across the country. I didn’t appreciate the value these people were providing us. But when you consider that the aging of vehicles affects our margins more than any other factor does and how trucking time plays a big role in how quickly a vehicle is ready for sale, I started to see this group of stakeholders differently. If we treated our trucking partners like key members of our tribe, they would be more committed to getting our cars to us quicker, safer, and at lower costs. It is simple things like greeting the truck drivers with water and food when they arrive after a fifteen-hour drive, making them feel welcome and appreciated for their efforts, and showing them that the work they are doing matters to us. We want them to feel a sense of pride in what they do for a living.

I now see business as a way to fulfill my purpose of infecting the workplace with highly contagious care. The more my business grows, the more profits we have to invest in helping our stakeholders fulfill their mission, purpose, and vision. Something magical happens when the stakeholders in a business show up caring about creating meaningful value for each other.

Conscious Capitalism can change not just your own life for the better by focusing on what really matters but also the lives of every person your business touches. There is nothing more rewarding for an entrepreneur, a CEO, or any other top executive.

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