Dick Hubbard: The cereal socialist

Dick Hubbard is shouting above the hum and clatter of machinery, explaining the processes that transform a humble grain of rice into a breakfast cereal. Around him, white-coated workers are busily roasting, toasting, flaking, coating and syruping. A sickly-sweet smell hangs heavy in the air. "Cocoa pops," he says, wrinkling his nose.

Hubbard's food-processing factory in Auckland is a hive of harmonious activity and, while the course of muesli and cereal production has not always run smooth – his first batches of rice crispies looked more like rice pudding – he has built up a multi-million-pound enterprise with a repertoire of two dozen products in little over a decade. In the process, the entrepreneur has made himself a household name in New Zealand and an international reputation as a highly unconventional capitalist who works shifts on his own factory floor, shares 10 per cent of profits among staff, shuns advertising as unethical and deliberately keeps his operation labour-intensive. His aims are grand; he seeks to give New Zealanders – and the world – not only breakfast, but also inspiration and moral leadership: sustenance for mind, body and soul.

Hubbard is New Zealand's leading advocate of social responsibility in business, a philosophy embraced – in theory, if not always in practice – by a growing number of companies including British Telecom, BP, Cadbury and the Body Shop in Britain, Benetton, the Italian fashion house, and Ben & Jerry's, the US ice-cream manufacturer. These are organisations that claim to consider the social and environmental impact of their activities, rather than being fixated on the financial bottom line. Instead of pandering to shareholders, they say, they take account of all their "stakeholders", including staff, customers and suppliers.

As Hubbard walks around his factory in Mangere, a southern Auckland suburb with a large population of Polynesian migrants, workers pause to smile and wave. "Morning, Dick," says a middle-aged man watching freshly toasted cornflakes cascade into a huge metal vat. Hubbard is famous in New Zealand for treating his employees well; he invites them to brain-storming lunches of chicken from KFC (apparently their favourite food) and took the entire workforce on holiday to Samoa to celebrate the company's 10th anniversary.

But what really distinguishes him from other corporate idealists is the dialogue he conducts with the people who consume his Yours Fruitfully muesli and Berry Berry porridge every morning. Each packet that rolls off the Hubbard production line contains – alongside the usual ingredients such as oats, barley, wheat, dried fruit, nuts and seeds, all carefully sourced, locally if possible – a pint-sized newsletter conveying the thoughts and aspirations of the chief executive himself.

The leaflets, called "clipboards", are a mix of jokes, anecdotes, parables, homespun wisdom and uplifting quotations to send muesli lovers off to work with a spring in their step. In recent editions, Hubbard explains the origin of the cornflake, agonises about split infinitives and describes his ascent of Mount Cook, the country's highest peak. He ponders such ethical dilemmas as whether the economic benefits of exporting cereal (foreign-exchange earnings) outweigh the environmental costs (carbon dioxide discharged into the air during shipping). The clipboards are adapted to local audiences; Britons, for instance, might read an account of a trip that Hubbard made to Selby, in Yorkshire, to visit family graves.

Far from finding these topics an irritant at breakfast time, consumers apparently love the clipboards, which are printed on recycled paper, using soy ink and citrus cleaners. They send in poems and heartwarming stories and write to Hubbard requesting advice on matters as esoteric as, in the case of a teenage girl recently, contraception. They hoard the empty cereal packets, with their colourful artwork, personal pledges from Hubbard ("No artificial ingredients. Honestly there isn't!") and treacly marketing blurb ("Home Sweet Home cereal – just the thing for families living in one of the best little environments in the world"). Annette Lusk, the company's marketing manager, says it has a unique customer base. "People buy the product because they trust Dick utterly."

Sitting in his brightly decorated office, surrounded by books with titles such as Gung ho! and Passion for Excellence, Hubbard says the clipboards are the most important ingredient in the packets. "Breakfast is the perfect time to inspire people, because they feel upbeat. One woman came into the factory and left a message to say she enjoys having breakfast with Dick every morning." Hubbard's wife didn't mind? He laughs, but not uproariously.

The interaction is proof, he believes, of the public's desire for a softer, gentler mode of doing business. "Out there in consumerland, customers are yearning to have relationships with companies," he says. "I get amazing letters about how I've touched people's lives. One woman wrote to me when she was on the verge of committing suicide. I managed to bring her back on track."

The feedback has also furnished some penetrating insights into the market. "There's a huge amount of conservatism in cereal," he says. "People have got enough stresses and strains without having their day mucked up by coming unstuck on an untried cereal." He likes to sample rival products and even – shock, horror – periodically tucks into an unhealthy fry-up.

If muesli is an unexpected medium for changing the world, Hubbard is an unlikely prophet. A slightly shambolic figure with creased, boyish features and a lopsided grin, he acquired his passion for social justice in Niue, a tiny South Pacific island state, where – armed with a degree in food technology – he set up a tropical-fruit factory as part of an aid programme to provide impoverished locals with jobs and an income.

Hubbard subsequently ran a similar project in Fiji. By then, though, he was working for a private firm which, he felt, existed solely "to make a wealthy Auckland family even wealthier". He was formulating strong ideas about social responsibility in business, and in 1988 he set up his own company to put them into practice.

Hubbard Foods had a shaky start, not least because Hubbard took consumers at their word when they told him they wanted a healthy, low-fat muesli. He duly produced a variety that didn't sell. Once he replaced it with a sweeter, tastier product, the company blossomed and grew, recording sales of £8m last year. The mueslis are distinctive for their high fruit content and unusual flavours such as feijoa, a guava-like fruit. "With muesli, you're only limited by your imagination," Hubbard says excitedly. "You can have oats, puffed wheat, toasted things, all manner of fruits." Thanks to Yours Fruitfully, New Zealanders now consume more muesli per capita than the Swiss. In fact, some Swiss tourists who visited New Zealand begged Hubbard to export Yours Fruitfully to their homeland.

While he was forced to disappoint them, he does export selected lines to Australia, Hong Kong and Kenya, as well as to Britain, where Tesco stocks them. The latter are tailored to British palates; the Berry Berry Nice muesli, for instance, comes in clusters rather than a "free-flow" texture.

Hubbard Foods is staffed by 100 or so men and women, most of whom are Samoan, many of them formerly long-term unemployed. Social problems are acute in the sprawl of suburbs where the factory is located, and one of Hubbard's priorities is job creation, which is why areas such as packaging are kept labour-intensive.

"People often fall into the trap of seeing the corporate structure as non-human, with a different morality and different codes of behaviour," he says. "I passionately believe a company should function as a community of people. You need discipline and rules to create a viable organisation, but it still revolves around treating people with dignity and respect. Legally, my wife, Diana, and I are shareholders. Morally, we're trustees. Can you own a company in the same way that you own a house or a car?"

The white overalls that Hubbard dons to tour the factory state simply "Dick" on the pocket. Everyone at Hubbard Foods is known by their first name, and staff eat together in a communal lunch room decorated with Polynesian artworks and photographs of the workforce. There is no executive car park, nor any of the other "artificial trappings of status", as Hubbard calls them. He has not worn a tie since a female production-line worker told him it was a barrier to communication. "I took off my tie, got out a pair of scissors and cut it into pieces," he says. "I told her, 'That's the end of that problem.'"

Every six months he turns off his mobile phone, rolls up his sleeves and works a shift on the factory floor. "It sends a strong message of social equality," he says. Similar motives inspired the profit-sharing scheme, which sees money apportioned solely according to length of service – thus, as Hubbard proudly points out, a worker who has swept the factory floor for 10 years receives 10 times more than an accountant employed for a year.

It was the staff outing to Samoa that put Hubbard Foods on the map in New Zealand. The media loved the feel-good story and a "culturally appropriate" holiday turned into a public-relations coup. But there was no lounging about on beaches. The group was adopted by a local village, where it attended a traditional feast and watched Hubbard made an honorary high chief.

Hubbard appears to be a dream boss, but does he also want to make money? "Yip, yip, it would be socially irresponsible not to make money," he says, poker-faced. "But we put emphasis on the quality, not the quantity, of the profit."

Fortunately, as he explains, being socially responsible also makes good business sense, because managers operate more efficiently and consumers like it. Take Barclays, whose share price rose when it announced a plan to give half a per cent of profits to Britain's Business in the Community fund. "That's the paradox," he says. "You take your eye off the maximisation of profit and end up being more profitable in the long term."

So is Hubbard perpetrating a double-bluff, charming the public in order to make a fortune? His response is that he "walks the talk". He put £22,000 of his own money into establishing New Zealand Businesses for Social Responsibility, an organisation for like-minded companies. He supports a raft of worthy causes, particularly the local Outward Bound school, through sales of his Outward Bound Multigrain Flake Cereal. He demonstrated his commitment to transparency by publishing a "triple bottom line" annual report, setting out the social and environmental pros and cons of his business, as well as the financial results.

Not everyone is impressed. Two years ago, staff demonstrated outside the factory to press a claim for better pay and conditions. The dispute was swiftly resolved and Hubbard claims it was stoked by an over-zealous union official from Wellington – although he admits he pays only "medium" wages in order to maximise jobs. For Hubbard, the affair was enlightening; he realised that while he was patting himself on the back, his workers did not necessarily share his altruism. When they were unemployed, they applauded the priority he gave to job creation. Once they had jobs, they wanted to improve their own lot. Hubbard sympathises. "If I were a factory worker with four children and living moderately hand to mouth, I'd find it hard not to be driven by self-interest, too."

Hubbard and his wife share an architect-designed house on a large plot of land in an affluent suburb of Auckland. They drive a nice car, take overseas holidays and own a half-share of a yacht in Auckland Harbour, as well as a holiday home in Queenstown, on New Zealand's South Island. But considering their theoretical wealth, they live relatively modest lives. Their two sons are grown up and work in computers. The long-term plan is for the company to be turned into a charitable trust.

He, apparently, has no indulgences. Or has he? Hubbard leans back on the sofa, with his hands clasped behind his head, and gazes into the distance for some minutes. "No, not hugely, no," he replies finally. "It's not my nature."

What does he do for relaxation? Again he looks a little stumped. "Well, fortunately for me, business is a hobby, too. I read books about business dynamics and so forth, the Harvard Business Review." He also climbs mountains, used to fly light planes and plans to ride a motorbike around Australia next year. But he detests comparisons with Richard Branson. For him, the adventures are not about self-promotion, but about stretching his limits – building up mental toughness, perseverance and the other qualities that distinguish heroes from ordinary mortals.

A church-going Anglican, Hubbard says that his business philosophy has nothing to do with his religious beliefs, although he thinks that people need spirituality in the workplace. Asked whether his employees appreciate how well they are treated, he replies: "I can't say they're jumping with glee. But I don't do it for that reason, and I don't expect an immediate, tangible effect. It's in the long term that it will make a significant difference. Over time, working in a caring environment will have a beneficial effect on their home lives."