Costco Corporate Social Responsibility
Can a for-profit multinational corporation seek to advance the welfare and common good of its employees while being profitable and a leader of industry? James Sinegal and Jeffrey Brotman founded Costco Wholesale Corporation in 1983 with three primary qualities that have guided the company for over three decades: a commitment to quality, an entrepreneurial spirit, and an employee focus (Costco, 2018a). In an age where the focus of most Fortune 500 companies looks to increase their shareholders dividends and profits, Costco pursues the option of emphasizing the well-being of its employees (O’Toole, 2009). James O’Toole’s (2009) work compares both the ethos of Costco to its main competitor, Sam’s Club. He concludes that “Wal-Mart is a non-union, low-wage company that offers scant health insurance to its hourly employees and invests little in their training and development” (O’Toole, 2018, para. 19). In comparison, Costco “is a unionized, high-wage, high-benefit company that invests heavily in employee training and development” (O’Toole, 2018, para. 19). Yet, does Costco truly “walk the talk?” This research paper examines Costco’s social responsibility, image, ranking, official regulatory records, and news/media reputation. It will conclude with a section denoting this author’s overall assessment and grading of Costco.
In examining Costco’s social responsibility webpage (or sustainability page), several vital factors drive their success. In order to prosper Costco’s owes their success to “remaining a profitable business while doing the right thing” (Costco, 2018c, para. 3). For this to actualize, Costco follows several guiding principles: commitment to doing its part to help the world thrive, devote attention to producing global impact, pursue continuous learning to help improve the world (Costco, 2018c). In addition, Costco commits to four sustainable responsibilities: seek the welfare of its employees, care for the communities that its employees and members reside, be environmentally conscientious, and use social responsible vendors. (Costco, 2018c, para. 5).
Though the leaders of Costco tout their socially conscious values, does the latest sustainability report submitted to the global reporting initiatives confirm their assertion? According to its 2015 Sustainability Report, Costco emphasized several elements: climate change statement, carbon emissions footprint, development and site design, energy management, packaging designs, recycling, and waste stream management. Regarding climate change, Costco admits that environmental transformations impact their business model (SDD – GRI Database, 2015). Additionally, “climate change could affect [their] ability to procure needed commodities at costs and in quantities [it] currently experience[s]” (SDD – GRI Database, 2015, Slide 3). Extreme weather anomalies like “intense hurricanes, thunderstorms, tornadoes, and snow or ice storms, as well as rising sea levels” contribute to Costco challenges (SDD – GRI Database, 2015, Slide 3). To reduce these effects, Costco pledged to continue its carbon-efficient practices that lead to it reportedly being an industry leader (SDD – GRI Database, 2015, Slide 5).
The global retailer also reports that, for both direct and indirect emissions, its goals align with industry standards set forth by the GHG Protocol Corporate Accounting and Reporting Agency (SDD – GRI Database, 2015, Slide 8). In addition, its construction development and site design programs provide the following sustainable and environmentally conscious practices:
- computerized building management systems for heating and cooling systems,
- energy efficient lighting systems,
- skylights to reduce energy,
- energy efficient transformers,
- well-insulated walls and floors,
- energy efficient air conditioning and water heating systems,
- eco-friendly refrigeration systems,
- avoidance of shopping bags,
- recycling/reuse of warehouse and office space, and
- high-efficiency restrooms. (SDD – GRI Database, 2015, Slide 16)
Also, Costco energy management reporting suggests that it is an industry leader. Costco constructs exterior wall packs, install LED canopies in its gas stations, install canopy lighting in entrances of all its stores, and installs energy efficient HVAC systems in its stores (SDD – GRI Database, 2015, Slides 30-33). Its packaging design reduces matter consumption by workers reusing and recycling materials (SDD – GRI Database, 2015, Slide 39). This recycling reduces greenhouse gases, decreases fuel consumption, and generates renewable electricity (SDD – GRI Database, 2015, Slide 55). Despite these achievements, Costco does not report any awards it has received on its website.
Costco’s website suggests that it requires suppliers to sign a Code of Conduct form that prohibits them from selling, processing, and producing goods that use illegal forms of labor (Costco, 2018b). This code outlaws the use of child labor, forced labor, and indentured servitude and promotes healthy and safe working conditions (Costco, 2018b). Costco does allow suppliers to use legal and harmless prison labor that allows inmates to provide restitution to society (Costco, 2018b).
According to McCarthy (2017), Costco’s employee-centric culture has led to it receiving the America Best Employer award from Forbes magazine in 2017. As a global leader in publishing content focused on business, entrepreneurship, finance, and marketing topics, Forbes, along with Fortune and Bloomberg, continues to be a gold standard in the business industry (Forbes, 2018). As such, Forbes underscores the successes of major, multinational corporations and start-ups (Forbes, 2018). Forbes ranking of Costco displays Costco’s distinction as an international trailblazer.
Comparably’s (2018) website named Costco as the Best Company Work-Life Balance, Best Company Perks & Benefits, Best CEOs for Women, Best CEOs for Diversity, Best Company Managers, and Best Company for Professional Development. In 2017, Comparably (2018) awarded Costco the Best Company Culture, Best CEO, Best Company for Women, Best Compensation, and the Best Company Leadership Awards. Comparably (2018), an employee-generated feedback site, is a data platform that assists employees in understanding the workplace and how to diagnose problems and create change.
Thirdly, Investopedia (2018) ranks Costco as the second leading retailer in the world (based on annual revenues). Investopedia (2018) positions itself as the world’s leader in providing financial online content. Using a trained team of financial gurus and data experts, Investopedia provides investors and probable investors with information to make informed decision (Investopedia, 2018). Two additional publication rankings of Costco suggest its national and global prominence: the National Retail Federation and Fortune 500. The National Retail Federation (2017) ranks Costco as the second leading retail company behind Walmart. This nationally recognized organization of retail companies publishes its Global Powers of Retailing guide that lists the top 250 retailers in the United States in a five-year period (National Retail Federation, 2018). Its latest report (that ranks Costco #2) covers 2015-2020 (National Retail Federation, 2018). Fortune magazine ranks Costco as the 15th most significant revenue generating company in its 2018 Fortune 500 ranking (Fortune, 2018). This prestigious publication releases an annual lists of the top American privately held or publicly held companies by total revenues earned in a fiscal year (Fortune, 2018). Costco’s rankings in Forbes, Comparably, Investopedia, the National Retail Federation, and Fortune 500 insinuates its global economic force.
Though Costco’s website lacks a reference to government agencies that it potentially works with, it does suggest that its leaders attempt to remedy problems and rectify employee and members’ issues (Costco, 2018 a, b, and c). Costco indicates that its business and operational paradigm highlights and emphasizes its commitment to maintaining trusting relationships with its members and employees (Costco, 2018c). As such, Costco’s leaders seek to correct violations and primary organizational offenses (Good Job First, 2018). For example, Costco maintains strict regulations for its gas stations through certifying gas station attendants, monitoring fuel leaks, controlling air pollution, instilling a fuel cleanup program in case of spills, and using top-tier gasoline with detergent additives that is five-times greater than government standards (Costco, 2018d). Good Job First (2018) reports that Costco has obtained forty-five infringements since 2000 totaling $42,772,156. According to Good Job First’s website, Costco’s infractions are divided into six categories: wage and hour violations (8), Controlled Substances Act violation (1), environmental violations (17), employment discrimination (1), workplace safety and health violations (16), and aviation safety violations (2) (2018, para. 1). Costco settled the majority of its claims via the following agencies:
- wage and hour (Wage and Hour Division),
- environmental (Environmental Protection Agency),
- controlled substance (Drug Enforcement Agency),
- employment discrimination (Equal Employment Opportunity Commission), and
- workplace safety (Occupational Safety and Health Administration (Good Jobs First, 2018, para 3).
Though Costco is far from perfect (with its violations and fines), this author has found no information, articles, and news reports that would cast its business model, its leadership team, and store management in negative view. Significant evidence points to Costco’s model as an industry standard and a benchmark for other global corporations to follow. Bloomberg magazine highlighted the efforts of Costco in its article entitled, “Why be an ethical company: They’re stronger and last longer.” The writer, Vivek Wadhwa, argues that Costco’s ethical practices have rejuvenated its sales and contributed to its global success (Wadhwa, 2009). He also indicates that Costco’s trend of promoting integrity and the ethos of doing right will add to its future value and worth (Wadhwa, 2009).
Regarding Costco’s support of non-governmental organizations (NGOs), its website includes several examples of the work of its leaders. In the Supplier Code of Conduct mentioned above, Costco uses the language and verbiage of several prominent global agencies including the United Nations, the International Labor Organization, the Responsible Business Alliance, and the Worldwide Responsible Accredited Production to craft it (Costco, 2018b). Additionally, it has worked with or helped organized the following NGOs:
- Truckers Against Trafficking (educating drivers and suppliers on the ills of human trafficking),
- the Seafood Task Force (evaluating the work systems and processing protocols of the fishing economies of Thailand, India, Vietnam, Indonesia, Mexico, and the United States),
- Equitable Food Initiative (improving and policing the labor procedures and safety measures of agricultural communities),
- Responsible Sourcing Network (keeping cotton processed by forced labor in Uzbekistan and Turkmenistan out of Costco’s product line),
- Alliance for Bangladesh Worker Safety (creating safe working conditions for suppliers and workers in Bangladesh), and
- Responsible Labor Initiative (promoting global rights of workers). Costco, 2018b
This paragraph includes this author’s assessments of Costco’s ethical practices and its leaders’ ability to “walk the walk.” Using a grading scale of A (excel in meeting expectations) to F (fail to meet expectations), this author would assign Costco a grade of A. Costco’s commitment to ensuring the happiness of their customers and employees is well-chronicled. Taylor (2016) contends that Costco’s business model of “minimally marking up offerings, passing along lower costs to customers, and providing ‘differentiated and high quality’ product” positions its leaders for greater, sustainable success (para. 3). Bhargava (2012), a leading innovation and marketing expert, concludes that Jim Sinegal willingness to take a pay cut demonstrates Costco’s intent to “walk the walk.” This self-sacrificial disposition creates an environment of trust, comradery, and servant leadership. Moreover, Costco’s generous compensation and benefit plan help its stores reduce larceny rates and employee retention issues (Bhargava, 2012; Ruggeri, 2009).
Another example of Costco’s code of ethics is evident in its leaders’ decision to waive a tax benefit. Dienhart and Thomas (n.d.) highlight Costco in a case study championing the company’s desire to abide by a code. In a potential move to the United Kingdom, Costco could structure a deal that would create “significant tax savings to and a lower effective rate of interest to Costco” (Dienhart & Thomas, n.d., p. 3). According to Dienhart and Thomas (n.d.), though this transaction was deemed legal in following “the letter of the law,” to Costco’s executives, it did not abide by “the spirit of the law” (p. 3). Because of this, Costco relinquished all tax benefits (Dienhart & Thomas, n.d., p. 3). This example serves as a stark reminder of Costco’s place as a highly ethical organization.
In conclusion, this research paper examined Costco’s corporate social responsibility and ethical practices. Also, this author included his assessment/grading of Costco’s business and operation model. Bhargava (2012) asserts that Costco’s business system has helped it become a highly successful company despite criticism from Wall Street. Some analysts believe that Costco’s emphasis on its customers and employees limits its effectiveness of lining shareholders’ pockets (Bhargava, 2012). Sinegal and Costco’s leadership team presupposes that their focus on these groups makes their company stronger and more sustainable, thereby enhancing their shareholders’ profits in both the present and the future (Bhargava, 2012). If an annual revenue of 130 billion dollars (2017) and a growing resume of awards for its focus on employees and customers have anything to say about this, then Costco’s future sustainability and growth are apparent. Their marketing as the Anti-Walmart” positions them as an alternative to Walmart’s low-wage, high employee turnover, and union-busting practices (Bhargava, 2012; O’Toole, 2009).
As a senior leader, this author regards several dimensions of Costco in high esteem. First, the personification of self-sacrificial and servant leadership among Costco’s senior executives is exemplary. With this author’s doctoral project potentially emphasizing the fusion of these two leadership theories (among others) into a new theory, Kingdom leadership, Costco’s serves as a model to study. Jesus’s teaching on the Kingdom of God emphasized serving and helping others (Stowell, 2014). Costco models this from a secular viewpoint. This author yearns to promote self-sacrifice and servant leadership in his organization. Second, Costco’s handling of violations and infractions is admirable. Understanding the massiveness of their organizational structure, Costco’s leaders understand that mistakes will happen. Their goal is to ensure that they fix errors and remedy problems in a timely fashion (O’Toole, 2009). This behavior reflects a commendable saying by Dave Willis (2017), “Your mistakes don’t define your character. It’s what you choose to do after you’ve made the mistake that makes all the difference.” This author concludes that Costco displays excellent character.
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- Taylor, K. (2016). Costco is beating Walmart and Amazon with the “best business model” in retail. Retrieved December 16, 2018, from https://www.businessinsider.com/why-costcos-business-model-is-so-great-2016-2
- Wadhwa, V. (2009). Why Be an Ethical Company? They’re Stronger and Last Longer. Retrieved from https://www.bloomberg.com/news/articles/2009-08-17/why-be-an-ethical-company-theyre-stronger-and-last-longer
- Willis, D. (2017). Your mistakes don’t define your character. It’s what you choose to do after you’ve made the mistake that makes all the difference. Retrieved December 17, 2018, from https://www.patheos.com/blogs/davewillis/31-day-marriage-devotional-free-online-resource-couples/your-mistakes-dont-define-your-character-its-what-you-choose-to-do-after-youve-made-the-mistake-that-makes-all-the-difference/