[NOTE: This blog post is based on an interview by Rick Goossen of Richard Galanti, CFO, Costco on January 25, 2010 at Costco Headquarters in Issaquah, WA. Mr. Galanti's comments are in quotation marks and were reviewed by him for accuracy. Please note that the interview has been edited for brevity.]
GOOSSEN: What is Costco’s approach to corporate social responsibility? Is it an integral part of your competitive advantage and, if so, in which way? How does Costco practice CSR?
GALANTI: “I think that before CSR had a fancy name we were already doing a lot of those things. One example relates to how we treat our employees. The approach of Jim Sinegal [Costco co-founder and public face] came from his mentor, Sol Price, founder of the Price Club and president of Fed-Mart, who just died in his 90’s.
The basic premise was let’s start not with how little we pay our hourly employees, and 90% of our employees are hourly, but what is a living wage? What is affordable high quality health care? Let’s then figure out how to make the model work with that.
We don’t seek publicity for what we do. Whether it’s a local newspaper, a regional magazine, or even a national magazine that comes out with the most responsible companies in that area, we are often not on the list. It may be because we don’t fill out the forms. We don’t apply to the “beauty contest.” In addition, once you start touting your “accomplishments”, you are not going to make everybody happy. There is always going to be some other more extreme view that you are not doing enough.
We think we do a lot of things right! Starting with the basic things, we’ve always treated our employees well, we’ve promoted from within, we’ve treated our customers well by figuring out how we can improve the quality and lower the price–if we sell more we can do that. It’s always about being honest and up front.
We decided years ago that we would give away 1% of the prior year’s pre-tax earnings and, which is about $20 million a year now, on a $2 billion dollar pre-tax. About 30% of it goes to the United Ways in communities where we operate or a comparable organization in other countries. About 30% goes to Children’s Hospitals; about 70 Children’s Hospitals. About 30% goes to youth-related activities and education. Every warehouse adopts an elementary school, and it can’t be your kid’s private school, it has to be a school in need. They do a third or fourth grade backpack program filled with supplies. The encourage employees to tutor one hour a week. Not only is it the right thing to do but it feels good and it engages employees.
What Jim [Sinegal] doesn’t want to have is a big 20-person staff in community and development trying to spend half their time figuring out how to allocate money. I remember anecdotally something very silly. We were collecting canned goods for something in the US. All of a sudden we are having a contest to make the cutest pallet to collect the stuff in. Jim’s view is that’s nice and this is nothing necessarily bad about it. The fact is, first of all, we have a department that’s bigger than it needs to be . Then they’ve got to fund their existence; they’re coming up with ideas which take more time in the warehouse. We’re a low cost operation and we can’t do that.”