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Customers look first and foremost to corporations for quality goods at a fair price. They can most easily reward or punish companies by remaining loyal customers or taking their business elsewhere. However, customers also have more at risk than the simple price of their purchase when they patronize a corporation. They risk their physical well-being when it comes to product safety and health, their financial well-being when it comes to financial services, and their peace of mind more generally when it comes to appropriate levels of customer service and satisfaction. Corporations that invest in long-term relations with customers through exceptional attention to innovation, product quality, and customer service can expect to be rewarded by increased market share and longer-lasting customer loyalty.


The following are the five major themes by which we assess the strength of corporations’ relationships with their customer and client partners. While other issues are also important in this regard, these five are those which we believe we can most meaningfully and consistently assess.

Harmful and Addictive Products: Tobacco, Gambling, Alcohol

Certain products — such as tobacco, gambling, and alcohol — are both harmful and addictive. Tobacco is highly addictive, causes more than 400,000 deaths annually in the United States alone, and can cause health problems for those in the vicinity of its users. Alcohol abuse was estimated to have been responsible for some 85,000 deaths in the United States in 2000 and cost the economy an estimated $185 billion in 1998. Approximately 16,000 of the 40,000 automobile fatalities each year in the U.S. are caused by drunk drivers. Pathological gamblers make up an estimated 1% to 2% of the U.S. population, and problem gamblers make up an additional 3%.

These products can play a useful role in society, providing individual pleasure, and in the case of alcohol even health benefits, if appropriately used. However, we believe that putting these products in the hands of large publicly traded corporations dramatically increases the potential for their abuse and their costs to society. Large public corporations are relentlessly driven to innovate and expand their reach, marketing their products as aggressively as possible to as many customers as possible. For these companies, effective marketing often means exploiting customers’ addictions to these products or ignorance of their risks. For these reasons, we do not invest in companies that are significant manufacturers of alcoholic beverages or tobacco products, or significant providers of gambling goods and services.

Commitment to Safety, Quality, and Customer Service

The benefits to companies from providing their customers with quality goods and services are substantial and the costs from product safety lapses are high. Companies that are willing to invest in improvements in their manufacturing processes, and in the customer-service training of their employees, can look forward to long-term rewards in the marketplace. High-profile scandals from product safety issues can cost companies not only in short-term legal bills and loss of customer confidence, but in long-term damage to their public reputation that is particularly hard to undo. A drug company that handles a highly publicized safety problem well can enjoy decades of high esteem. One that handles such a problem poorly can be embroiled in equally long controversy. We consequently look for companies that understand the long-term benefit of investing in product safety, quality manufacturing processes and training, and company-wide commitments to customer service.

Bridging the Divide in Access to Products

All too often, companies neglect markets in the mistaken belief that customers cannot afford their products. Whether it is the poorer neighborhoods of urban centers or the rural regions of the developing world, potential markets are often neglected through ignorance, prejudice, or simple laziness. Yet investing in creative ways to serve these markets not only provides companies with an expanding customer base, but speeds economic development and poverty alleviation around the world.

We therefore value highly companies that have, among other things, found ways to bridge the digital divide by making computing technology available around the globe, to site retail outlets in depressed inner cities of the United States, to provide drugs at affordable prices in poverty-stricken regions, or to bring personal care products to the rural poor in the developing world.

Innovation and Creativity

One of the great benefits of capitalism is its ability to drive companies to innovate. Such innovation, often with the support of government, leads to improvements in existing products or development of new products, the discovery of new technologies, or the application of old technologies to new purposes. True innovation and creativity can bring about transformative advances such as personal computers and the Internet, or cell phones and mobile communication.

However, innovation can be a two-edged sword. Failure is, almost by definition, a part of the process of innovation. Investments in research and development can be wasted by management that lacks the ability to bring products to market. More seriously, new products or technologies can cause more harm than good. Lead additives to boost the octane of gasoline, chlorofluorocarbons to manufacture packing materials, asbestos as a fire-retardant insulator, and persistent organic pesticides for use in agriculture are examples of products that in retrospect it is safe to say should never have come to market. However, hindsight is not always possible and it is often difficult to evaluate new products that depart radically from today’s norm, such as genetically modified foods or chemical compounds created with new nanotechnologies.

Moreover, lack of proper attention to product testing and evaluation procedures can lead to controversy. Two areas of particular concern to us are proper procedures in the clinical trials for drugs and efforts to reduce the use of animals in product safety testing. Elaborate trials for approval of new drugs are a necessary part of our pharmaceutical industry. However, their very complexity opens them up to the possibility of abuse. Among other things, data can be faked, trials can be used as a covert form of marketing, and inappropriate procedures can be used to solicit human participants in these trials. We expect drug companies to minimize the risk of such abuses.

In addition, for these and other products, the use of animals may also be required. We look for companies that are not only minimizing their use of animals in all required safety tests, but also investing in, and advocating the use of, new testing technologies, so that adequate substitutes for animals can be found. 

Companies’ investments in innovation and testing must be judicious and effective, and management needs to take appropriate actions when evidence of harm or failure is at hand. Firms that strike this difficult balance successfully have every reason to expect to be market leaders. We therefore look for companies that are committed to research and development, are effective in bringing innovative products to market, take due considerations in the management of their product safety testing, and appropriately recognize and manage the potential for failure or for harm of new products and technologies.

Marketing and Pricing Practices

Appropriate decisions about marketing and pricing are the daily bread and butter of well-run firms. These are the fundamental market mechanisms through which managers can learn what customers want and need, how their firms can best operate efficiently, and how best to allocate their capital. However, the pressures of the marketplace all too often lead weak management to abuse and distort these market mechanisms through such short-sighted practices as  colluding to fix prices, offering doctors rewards for prescribing medicines, aggressively marketing to children who can’t exercise independent judgment, and other steps that often tread on the edge of legality. These practices not only harm customers, but weaken the very markets they were meant to enhance.

Price-fixing controversies are a frequent occurrence and we evaluate them on a case-by-case basis. In doing so we take into account the often effective role governmental regulators already play, the extent of the harm done to customers and other stakeholders, and the type of customer harmed. We usually do not take into consideration patent disputes and charges of unfair marketing practices so often made between business competitors. We view with concern, however, such disputes when they occur between corporations and communities or governments, such as those concerning the rights to indigenous knowledge, or other intellectual property disputes.