No soft-and-cuddly corporate tale

MONTPELIER, Vt. — The straitjacketed "Crazy For You" bear one day may be a case study in America's business schools.

The decision by Vermont Teddy Bear to market the stuffed toy — and to keep doing so despite widespread criticism that the firm was insensitive toward the mentally ill — has intrigued business ethicists and public-relations executives.

Was the bear a brilliant marketing ploy or a big mistake? And did the company violate a code of ethics in the same state where Ben & Jerry's ice cream set a high standard for socially responsible business with such causes as its save-the-rainforest campaign?

"Even though it has that kind of cutesy flavor, it brings up issues about corporate behavior and how corporations should be sensitive and interact with society," said W. Michael Hoffman, director of the Center for Business Ethics at Bentley College in Waltham, Mass.

Hoffman said he may use the bear as a case study in one of his graduate seminars. Among the questions he would ask students: "Does the company need to be more sensitive?" and "Does the fact that the bear sold out mean you were right to put it on the market?"

The company started selling the "Crazy for You" bears in January for Valentine's Day; they sold out Feb. 3. The $69.95 brown, furry bear comes with a straitjacket and commitment papers that read: "Can't Eat. Can't Sleep. My Heart's Racing. Diagnosis: Crazy for You."

Vermont Teddy Bear CEO Elisabeth Robert: "We're not in a position to be told what we can and cannot sell."

It is one of dozens of novelty bears the company sells, including a pompom-holding Cheerleader Bear, a stethoscope-wearing Doctor Bear and a sunglasses-and-leather-clad Rocker Bear.

Vermont Teddy Bear also offers gift pajamas and flowers. It employs about 290 people, doing most of its business by mail and over the Internet.

When mental-health groups and Vermont Gov. James Douglas complained about the "Crazy for You" bear, the company said it was sorry if it had offended anyone but would continue selling it until its inventory was gone.

"We're not in a position to be told what we can and cannot sell," Chief Executive Elisabeth Robert (pronounced roh-BEAR) said during interviews last month.

Those remarks did not score any points with critics, especially considering the company is a member of the group Vermont Businesses for Social Responsibility.

"In Vermont of all places," said Ken Libertoff, executive director of the Vermont Association for Mental Health. He noted that the state was the first, in 1997, to require health insurers to cover mental illnesses on par with physical ailments. Washington's lawmakers are considering such legislation this year.

From a bottom-line standpoint, the company's strategy appears to be a winning one — at least in the short term. Vermont Teddy Bear said the media frenzy over the bears provided a big boost to sales during the Valentine season.

The company received 214,000 orders during January and the first half of February, a 33 percent increase from last year, though much of that growth was in the pajama line. The company has not said how many Crazy for You bears it sold.

The company's stock climbed while the Crazy For You controversy raged, from $6.45 at the beginning of January to $7.23 last week.

But there has been a personal cost to Robert, who joined Vermont Teddy Bear in 1995 and was appointed president and CEO two years later.

She resigned from the board of Vermont's largest hospital, Fletcher Allen Health Care, after both its chairman and CEO said disparaging the mentally ill is contrary to its mission.

Hoffman said there could be longer-term costs to the company. "The capitalist system has a way of punishing companies that misbehave, either through lost sales or because some segments of society no longer want to invest," he said.

To Howard Rubenstein, a New York public-relations executive, "the cost to them is dramatic. It hurts their reputation."

Clarke Caywood, a professor of communications at Northwestern University in Evanston, Ill., said the company's stance "undercuts their goodwill, and they live on goodwill. They're trying to be warm and cuddly. What's warm and cuddly about a straitjacket?"

Does the old saw that any publicity is good publicity apply here? No, said Paul Argenti, who specializes in corporate reputations at the Tuck School of Business at Dartmouth College and hopes to use the controversy as a classroom case study.

"They're going to lose this battle eventually," he said. "It's just a question of when."