In the Shift

Continuing extracts from my forthcoming book, Business and Sustainability, here is a draft case study.  It encourages people to think about the role of business schools in building the capabilities of managers whose work will be significantly influenced by sustainability challenges.  The final version will be published as part of a partnership between London Business School and the Pears Foundation.

Between now and publication day, I will continue to be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

A call for action

Professor Marquez, the newly appointed dean of Maxwell School of Management[1], was ten minutes away from a management committee meeting. Maxwell’s new vision was on the agenda. But at this particular moment, sat in his comfortable office, his mind was more on the contents of the piece of paper he kept folding and unfolding in his fingers.

It was a print out of an email he had received earlier that morning from an eminent Maxwell graduate whom the school was trying to get more active on campus. The person in question was a senior executive at a very reputable private bank, and an active promoter of young entrepreneurs. But the email had nothing to do with an idea Dean Marquez had floated by her about an alumni fund-raising event.

Instead, she had emailed Dean Marquez in her typically abrupt style. She wanted to know what Maxwell was doing to teach its students about sustainability. She said she was shocked at the lack of awareness some senior managers had of social and environmental trends, even when they appeared to have material consequences for their operations. Moreover, she was horrified at the very different levels of knowledge amongst her clients on these issues, ranging from panic to obliviousness. Why, she asked, weren’t these issues at the heart of the school’s curriculum?

The school’s management committee was waiting for an update on his thoughts on strategy. He had done his homework and had clear ideas, but this email about sustainability and the curriculum had caught him unawares. Was he missing a trick or should he put it in the dusty file where most alumni brainwaves ended up?

His secretary stuck her head round the door: five minutes until the meeting was due to start.

Maxwell School of Management – a typical business school

Professor Marquez had been dean of Maxwell School of Management for less than a month. He had made his name for his research into equity derivatives, although later on he had distanced himself from trends he saw as confirming Warren Buffet’s view that they can turn into ‘financial weapons of mass destruction.’ He had also published a couple of papers on liquidity and exit strategies for investors in social enterprises.

That all seemed a long time ago, before he became more famous as a ‘turnaround dean’ coming to the rescue of struggling business schools. However, he had been reminded of some of those ideas by an email from an eminent Maxwell graduate whom the school was trying to get to be more active on campus.

Maxwell is a small school, well-regarded by its students, but stuck in the middle of the business school rankings. The appointments committee had made no bones about why they wanted Dean Marquez: they wanted to see the school grow, in terms of student numbers, campus size, revenues, and reputation. They had agreed to give him a free hand about how to achieve these goals, and in turn he had agreed to link his performance to Maxwell’s showing in the all important rankings. Since then, the size of the challenge had become yet more obvious. The plans for a new block of lecture theatres and student accommodation could not be paid for without an increase in student numbers; without more students the school would not have enough income for future improvements and would struggle to improve.

Like many schools, ratings were an important part of this. When they had first been introduced, there had been a lot of protest that the business school experience could not be reduced to a few key indicators. However, today every school tried to interpret the ratings to their advantage, and for the major schools it came down to quality of student experience, salaries on entering and leaving, employability, and quality of faculty. Dean Marquez had every sympathy for the alum’s message about sustainability, but it was not a simple decision. Taking sustainability seriously as an area of teaching would require a significant investment: in terms of new faculty, new research assistants, course development, and promotion. It would probably require the creation of a chair in sustainability or corporate responsibility, and Marquez could see that this would ruffle feathers if not handled properly. Maxwell gave chairs to people with records of academic excellence, typically measured by articles in well-ranked journals. Was there such a thing as a well-ranked sustainability journal? If he was to use school money to create a new chair, was sustainability really his top priority?

At the same time, a senior faculty member had mentioned Beyond Grey Pinstripes (the alternative corporate responsibility business school rankings), and it was rumoured that the government (which provided research funding and also validated Maxwell’s charitable status) was testing a sustainability ranking system for higher education generally. The alum’s ‘suggestion’ that she survey the alumni on sustainability issues for business schools could not be taken lightly. Marquez was also vaguely aware, as she had pointed out, that several schools were developing sustainability electives, trying to integrate sustainability into the core courses, perhaps even create a core course or a capstone on sustainability. However, were these the leading schools that Maxwell aspired to stand amongst? A few of the top ranked schools in Beyond Grey Pinstripes were also prominent in the Financial Times rankings, but most were not, and the Harvards, Whartons, and London Business Schools were noticeable by their absence. Was it going to help Maxwell grow if it was associated with Hixville Little Pixie School of Administration?

Although a few of the longest-serving faculty were quite happy with the old vision, Marquez sensed there was an appetite for change at the school: most faculty seemed unhappy with Maxwell’s old strategy that Marquez summarized as ‘adequacy without excellence’. The school did a lot of things fairly well, but did not stand out in anything. This was reflected in two key indicators for students: their salary on leaving the school, and how quickly they got a job. A Maxwell MBA seemed less in demand now there was a recession on: it stood for competence but not irreplaceable.

There had already been some suggestions about new directions. One faculty member was very keen on social enterprise, and Dean Marquez himself was patron of a children’s charity he had set up in his youth. But to put it bluntly what kind of fees would budding social entrepreneurs be willing to pay, and how would the salaries of even senior managers of NGOs affect the rankings? Maxwell ran programmes with a neighbouring engineering department, and one of its strengths over the years had been producing good manufacturing managers. Perhaps there was something that could be developed further here. Finance was the backbone of top schools, and there was plenty of opportunity for increasing Maxwell’s reputation in that area (although finance professors were not cheap).

Whatever route the school took, it would need to help put the school on a firmer financial footing in terms of fees, corporate donations, and alumni gifts. But the good news was that in the short-term there was a reasonable investment fund that could be used to recruit people, establish new programmes, and promote them. At least for now, finances were not a big item on the management’s agenda, although that would change if Maxwell did not rethink itself.

Sustainable Management

The sustainability challenges of the twenty-first century are likely to profoundly affect how companies are managed and what constitutes business success.[2] Transitioning to a renewable energy based economy is one of the most well-known of these challenges but there are others such as water, land use, population growth, climate change, ecosystem management, and biodiversity that companies are already having to actively manage.

Each of these challenges has it own implications for the new competencies managers will need. For example, if the energy transition cannot be achieved, then we are left either managing an increased risk of climate change, or of trying to decouple economic prosperity from growth in energy usage. The challenges are compounded if alongside growing demand for energy, there is increased competition for food, water, land, and non-renewable natural resources as a result of population growth and demographic shifts. Companies will need to become much more skilled at managing their environmental footprints, and living within the Earth’s carrying capacity.

The situation grows more complex still if we factor in human development as a right, and how over nine billion people will experience improving standards of living in a world where there appears to be natural limits to economic growth. Prosperous companies of the future will be ones that succeed in a resource-constrained economy (RCE). There are all manner of changes that this implies. Short-termism by investors and executives, for example, is often blamed for decisions and behaviours that run counter to the requirements of a RCE; for instance, encouraging actions that boost short-term share price irrespective of any negative social or environmental ramifications. Therefore, the capability to manage companies for the long term, and to understand the long-term value of particular investments is an important shift that is often associated with sustainability. Similarly, company performance as currently construed has been criticized for encouraging practices incompatible with sustainability. Management accounting measures such as return on investment and depreciation, the non-inclusion of externalities in company valuations, and the overwhelming emphasis on financial returns rather than social or environmental impacts are all aspects of current practice that might need rethinking in a RCE .

The shift from competition to collaboration is another area that has been highlighted in relation to RCE prosperity. For several generations, company managers have been taught to focus on the competitive enterprise, but transforming successfully to a new business environment is often associated with effective collaborations and partnerships. Effective collaboration involves certain hard skills (e.g. the negotiation of partnerships), but it also requires a change in mindset.

The same is true of the fourth major shift implicit in building companies suited to a RCE. Economic growth rests at the heart of current business models, and there are those who see growth itself as incompatible with a RCE.[3] However, in terms of business competencies, it is probably more appropriate to think in terms of a different kind of growth; a form of smarter growth that is supportive of, and not a threat to, the prosperous RCE.

Sustainability and the Business School

From short-term to long-term, from financial profitability to a triple bottom-line, from competition to collaboration, and from growth to smart growth, each of these represents a fundamental shift in the way companies do business, and the competencies they require to succeed. Business schools fill only one part of the capability jigsaw, but rightly or wrongly they are often placed at the centre of any portrayal of what business is and can be. The one or two years spent at business school are a small part of a manager’s education, but there is a strong sense that what is taught here are the essential building blocks of managerial success: an impression not discouraged by the schools themselves who are some of the most expensive providers of higher education in the world.

In recent years, business schools have come under fire for encouraging the wrong sort of management, the kind that is too focused on short-term financial returns, individualism, and harmful innovation. This in turn has led to demands that business schools focus more on the type and quality of leadership, and pay attention to subjects that were at best marginal to the curriculum such as business ethics, corporate responsibility, and increasingly sustainability.

Beyond Grey Pinstripes until recently was the most well-known attempt to rank business schools according to how well they tackle these areas. It evaluates schools in four main areas: relevant coursework, student exposure, business impact, and faculty research.  As well as what is taught on core courses, and what electives are offered, it tries to unpack how well the issues are integrated across different subjects, and how much they are treated as specialisms. The Ross School of Management (Michigan) is a consistently well-ranked school in Beyond Grey Pinstripes: its students can take a joint MBA and MSc degree focused on integrating economic, social, and environmental interests, and all students receive a one-week leadership programme exploring ethical leadership and the business-society relationship. Smaller business schools have often been the most innovative in this respect: San Francisco’s Presidio School of Management, for example, and the University of Exeter (UK) have both created MBA programmes solely focused on sustainability management issues.

How much to integrate and how much to separate out sustainability issues is an ongoing debate amongst those responsible for curriculum development. Many people feel that integration should be the ultimate goal so that sustainability becomes the equivalent of a concept like globalization, i.e. present in every part of the curriculum but rarely mentioned explicitly, so strong is its normative power. Others, who might not disagree with this goal, argue that for the time-being it is better to treat sustainability as a specialist area for fear that if it is integrated too quickly it will be lost beneath the conventions and wisdom of the disciplinary status quo.

Tepper Business School at Carnegie Mellon (USA) offers faculty a professional development programme on ethics and governance, and they also receive guidance on weaving sustainability into class projects. Teaching faculty at Brigham Young University (USA) have corporate responsibility and sustainability included in their annual reviews.

Another question being asked in business schools is how much should they rely on the curriculum to enhance student awareness, and how much they should invest in creating a learning environment that also includes extra-curricular activities such as clubs, awards, guest speakers, conferences, and involving the student body in the school’s own sustainability issues such as the design of new facilities, and the environmental impact of inter-continental teaching.

These questions do not exist in isolation: rather, they are relevant to any attempts to improve management. Criticism of business schools has resulted in more attention being paid to leadership, change management, and risk management as part of better decision-making. Many of the competencies associated with sustainability are relevant to this shift (e.g. stakeholder engagement, managing uncertainty, collaboration), and there are signs that soft skills are becoming more accepted as essential to good management generally, not just in a sustainability context. Joseph Wharton, founder of the first business school, wanted business to be as honourable a profession as medicine, the law, or theology, and its practitioners to be equipped to address the social problems of civilization. More recently, Roger Martin, dean of Rotman School of Management (Toronto), blames business schools in part for promoting self-interest to the point where employees are being paid to bet on ‘the high-stakes game’ of modern capitalism.   INSEAD Dean, Dipak Jain, says that the role of business schools should be to turn students “from success to significance.”

Barriers to Business School Change         

Business schools constantly face the dichotomy of what to do, how much, and when. They are one part of a person’s education, and are typically short, intensive experiences that people encounter as the last part of formal learning. Students have varying expectations, but they are willing to pay high fees because they will give a strong return on investment in a fairly short space of time. The link between high fees and high remuneration packages is only made possible by companies’ accepting that what students learn at business school is worth having. Company expectations of the competencies management graduates possess is therefore a key determinant of what business schools offer.

Companies are constantly reassessing this situation, and are well-represented on the governing bodies of schools as well as providing the funding for a significant (if declining) proportion of the class of any given year. Some companies have criticized the established curriculum, but it is hard to detect a strong groundswell for major change. Business schools have come under attack during the ongoing global financial crisis, not least because of the role of financial institutions staffed by many masters in finance and business administration. Some prominent schools (e.g. Harvard) are paying more attention to business ethics as a result of this, but it is hard to discern major changes in what is taught in finance, accounting, or economics – all disciplines that have been blamed in one way or another for what has happened.

Is it, therefore, a case of business schools being resilient to change, or reflecting the demands of their market? In the past, they have changed; for instance, in the shift from Wharton’s vision of a professional institution to something akin to a vocational college teaching the essential tools of management practice.  There are calls (perhaps growing) for business schools to rediscover their social purpose, and this reflects the debate about the new competencies needed to manage sustainability challenges. This raises the question of how much business schools should lead in the rethinking of business rather than disseminate accepted best practice.

Supply and Demand

In 2010, Accenture and the UN Global Compact conducted a worldwide survey of CEOs, and found that 96 percent believed sustainability should be fully integrated into the strategy and operations of their companies.[4] Ninety-three percent of respondents also believed sustainability is critical to their company’s future success.  Eight-eight percent pointed to the need for new competencies from business schools and other parts of the education system as necessary to reach a tipping point where sustainability is embedded within companies. Peter Lacy, Accenture’s then Managing Director for Sustainability in Europe, the Middle East and Latin America, divides these competencies between execution and transformation. Execution competencies are knowledge of science, technology, and engineering, plus certain  management competencies. Transformation competencies are those that require a more fundamental shift in the way business helps society address sustainability challenges, and broadly equates to the new skills, capabilities, and mindsets – what are often called soft skills (Exhibit 3).

This distinction echoes the findings of a 2009 report, Developing the Global Leader of Tomorrow, which identified three sets of required competencies[5]:

•           Context: Understanding and being able to respond to changes in the external environment

•           Complexity: Having the skills to survive and thrive in situations of low certainty and low agreement

•           Connectedness: The ability to understand actors in the wider political landscape, and to engage and build effective relationships with new kinds of external partners

The overall interest in sustainability as an area for building new competencies is evident from a variety of studies, typically at senior management levels (Exhibit.1).

Sustainability in management education is a recent phenomenon, appearing as academic theory in the 1990s.  It appeared not because of any internal demand from business, but due to rising public awareness of environmental issues. NGOs that had targeted business since the 1980s, began to consider how to educate it on sustainability: for example, the World Resources Institute developed an online resource for relevant case studies, and initiated biennial social and environmental assessment of business schools’ curricula and research. These initiatives became Caseplace.org and Beyond Grey Pinstripes[6], and there are now also publishing houses such as Greenleaf, Earthscan, and Island Press that have helped increase the amount and quality of teaching resources.

For an area to flourish in academia, it also needs good quality journals for academics to publish in because this is a significant element of their career progression. Gladwin et al published a groundbreaking article in the prestigious Academy of Management Review in 1995, and there has been a trickle of articles in top-ranked journals since then. However, only a handful of journals in the influential Financial Times top 45 business journals regularly publish articles on sustainability (e.g. Journal of Business Ethics), and most articles on the business-sustainability relationship appear in smaller, specialist journals such as Journal of Global Responsibility and International Journal of Sustainable Strategic Management. As Starik et al point out[7], there are many aspects of management such as human resources, operations, supply chains, and accounting which have only very recently paid attention to sustainability as it affects their disciplines.

Since the World Resources Institute’s initial efforts, a number of initiatives have emerged aimed at effecting change in how companies are managed. These include the Global Foundation for Management Education, a joint initiative by the Association to Advance Collegiate Schools of Business (AACSB) and the European Foundation for Management Development (EFMD), the Aspen Institute’s Business and Society Programme, the Graduate Management Admission Council’s TeamMBA initiative, the European Academy of Business in Society (EABIS), the Global Responsible Leaders’ Initiative, and the MBA network organization, Net Impact. The achievements and difficulties of these initiatives inspired the creation of the Principles for Responsible Management Education (PRME), organized by the United Nations. PRME signatories agree to six principles concerning the learning and educational activities within business schools (Exhibit 2). The more than 400 strong signatories include INSEAD, Shantou University Business School, London Business School, and Babson College. Many of the top business schools in Europe are on that list, but few of their USA counterparts have endorsed the principles.

For deans such as Marquez, making sense of this new and largely unexplored space was something that seemed less and less prudent to ignore.

We are now nearly half way into the extracts from my forthcoming book, Business and Sustainability.  Between now and publication day, I will continue to be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

Each chapter has a Case Study to allow students to explore in more detail the ideas in the chapter.  The following is the case study for a chapter on Innovation.  As you will see, there are three sets of questions at the end designed to stimulate discussion.  There will also be case studies available at the book’s online resource centre.

CASE STUDY

SELCO-India – bringing energy to the rural poor

Like many of the largest emerging economies, India is fuelling its economic growth with high carbon energy plus nuclear power. The country has substantial coal reserves, and in international it is at pains to assert its right to exploit these just as OECD countries have done in the past. Yet, according to SELCO founder, Harish Hande, coal and nuclear – the backbone of India’s electricity grid – are an irrelevance to vast sections of the population. Forty-four percent of Indians lack mains electricity, and for many more the supply is erratic.

Hande established SELCO in 1995. It is based in Bangalore and employs nearly 200 people at its HQ and 21 branch offices across South India. SELCO’s purpose is to provide sustainable energy services to photovoltaic solar home systems to low income households and businesses. It has served over 150,000 customers, and in the process developed a unique business model that  makes solar energy available at an affordable price to underserved markets.

SELCO’s success hinges on two types of innovation that are welded together in the company’s business model. The first type is technological innovation. SELCO designs and sells photovoltaic energy systems for the home. These are primarily to provide lighting that is cleaner, more reliable, and more affordable than the kerosene lamps found in most rural homes. A typical unit is sufficient to power four 7W compact fluorescent lights, although consumers also use electricity for radios and fans. SELCO’s engineers install the systems which typically comprise a 35W PV module on the house’s roof, and a lead-acid battery to store the power inside. Both the cells and batteries have been specifically designed to meet the needs of their users so that, for example, the batteries can cope with daily discharge in a way that would destabilize conventional car batteries.

Technological innovation is not limited to PV and batteries. SELCO helps customers modify their homes to get the most use out of their installations. For example, a lamp installed in a corner can serve several rooms if parts of the dividing walls are removed; or bulbs can be moved from one room to another if sufficient wiring and sockets are installed. Whether it be the hardware, the installation, or the subsequent service contract that forms part of the package, SELCO sources as locally as possible. Its PV modules are made in India, although the success of the Indian solar energy industry has resulted in one supplier ceasing manufacture of the smaller units SELCO needs. SELCO has developed a network of local installers in what has become a new trade in the areas the company operates.

Installations typically cost about Rs. 18,000: a significant outlay for customers whose daily income could be Rs. 400 (under £5) a day. However, energy is a significant outlay for poorer people, and while SELCO’s target market could not afford Rs. 18,000 in one payment, paying in instalments of about Rs. 400 a month over five years is an attractive proposition. Moreover, in many cases the extra productivity that a steady supply of light throughout the day is more than sufficient to pay for the installation and maintenance. For street traders, PV modules might be too expensive, but a battery and a fluorescent lamp are within their means, so SELCO has encouraged a network of PV battery-charging businesses. To pay the initial deposit and to organize monthly payments, potential customers can go to local development banks that India’s state-owned banks were compelled to set up in the 1980s. Government has also supported SELCO’s expansion with 33 percent subsidies of installations, but this agreement has now ended.

SELCO itself says its model is sustainable. It has a long-term financing partnership with E+Co , a non-profit that provides debt and equity investments in clean energy businesses in developing countries. More recently it has received support from the Lemelson Foundation (USA) and Good Energies (Switzerland). Amongst its proudest claims is that its success has demonstrated that clean energy need not be expensive, and that a low-carbon economy does not have to deprive poor people of electricity. The next step in innovation will be making better use of the power people have access to. For example, many women would like to power sewing machines, but the PV modules do not generate enough watts. However, on further investigation, the problem is that the sewing machines on the market are over-powered for what rural women need them to do, and if a less powerful machine were available it could run off the current modules and still meet the women’s aspirations.

Questions

1. SELCO-India is an example of innovation by a social enterprise.

a   What are the essential elements in the company’s success so far?

b   Is the SELCO model replicable in other countries?

c   Is the SELCO model only applicable in rural areas?

2. The company has won various awards for creating a viable business model that addresses social and environmental issues.

a   What are the main sustainability impacts the company delivers?

b   Could a mainstream energy company adopt a similar approach?

c   What will the company need to do differently in order to increase its impact?

3. SELCO-India is an example of technological and financial innovation .

a   Under what conditions is PV technology more affordable than coal-based energy?

b   How could you develop a similarly innovative approach to a different sustainability challenge such as clean water?

c   Are there other examples of clean energy being provided to poor communities? How are they similar and how are they different to SELCO?

This is the latest posting of draft material from my forthcoming book, Business and Sustainability.  Between now and publication day, I will be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

The following extract comes from a chapter on strategy.  Several of the chapters place sustainability in the context of mainstream business thinking such as strategy, accounting, and marketing.  The fit isn’t always comfortable but it’s a useful place to start the disucssion …

Strategy can be a difficult concept to pin down. It has strayed a long way from when business first borrowed the term from the military where it referred to the art of a commander-in-chief in projecting and directing the movements and operations of a campaign. Since the term was adopted by business, its meaning has been broadened and in some senses diluted. While it still refers to the grand idea of determining and acting upon the corporate purpose, it can also refer to quite narrow business functions, so that a company can have a marketing or an ICT strategy, and even a health and safety or public relations strategy.

Mintzberg, following Andrews, attempted to reclaim strategy as the grand idea by identifying five forms of strategy:

• Strategy as a consciously and purposively developed plan for how to get from one place to another. This is the original meaning of strategy in a business context.
• Strategy as a ploy to gain typically short term advantage over competitors.
• Strategy as a pattern in a stream of decisions and actions over time. For example, targeting a particular group of consumers will give rise to an array of actions intended to meet their wants.
• Strategy as a position, the offering by companies of particular products to specific markets.
• Strategy as a perspective. More than a position, strategy reflects ingrained way of perceiving the world, and is to the company what personality is to the individual.

Like a battle plan, corporate strategies can be decided in advance, but they rarely last in their pure form once they are launched. Real strategy is not the plan, but what emerges over time as intentions collide with reality, and is the upshot of accommodating shifts in the internal and external environment of the firm.

Different notions of strategy gain and shed popularity over time. There has been a loss of faith in strategy as a plan in recent years with the demise of iconic business figures such as Jack Welch at GE or Rupert Murdoch, and shareholder’s wariness of the overly powerful CEO. In the 1980s when green marketing first came to prominence, sustainability was often linked to strategy as a ploy with companies developing so-called green products to outwit their competitors. However, today obvious ploys are treated with suspicion, not least because the products and marketing lost credibility amongst consumers. Companies that have established and leveraged social or environmental credentials over time are more likely to be ones with strategies discernible from a pattern of actions. For example, Aveda has built its hair and skin care business by targeting fashion-conscious but also ecologically aware consumers, tailoring its product development, marketing, price structure, and value chain management around this clearly defined audience.

For larger companies, strategy is more likely to be about position, with diverse innovation, customer, market segmentation and geographical strategies. Strategy as position is determined by an array of factors such as the products on offer, the nature of the customer, production capability, technology, size and growth, and return and profit.[i] Some sustainability thinkers have treated sustainability strategy and position as synonymous, arguing for instance that strategic environmental management is the positioning of business to take advantage of environmental challenges, turning them from threats into opportunities.[ii]

Treating sustainability as part of position is still common but perhaps less so than it used to be. For example, in the late 1990s supermarkets such as Migros and Sainsbury’s were lauded for giving shelf space to fairtrade and ethically traded products, but a few years later they were being asked why more of their product lines did not carry this assurance, and now the multiple retail sector in many countries from the UK to South Africa to Holland has adopted ethical criteria. In each case, early adopters of sustainability-related production or marketing have found that it is impossible to be a little bit pregnant, and instead of being celebrated for having a few specialized sustainability items, they are pressured into making sustainability as fundamental as quality control.

Cadbury is an interesting example of how this can evolve … Contact me if you’d like to discuss the Cadbury case further.

This is the latest posting of draft material from my forthcoming book, Business and Sustainability.  Between now and publication day, I will be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

Each chapter contains ‘snapshots’ of what is happening in business as it addresses sustainability challenges.  These are shorter than the end of chapter case studies, and they are designed to form the basis of quick, in-class discussions.  The following example is taken from the chapter on Leadership …

SNAPSHOT

Sensemaking at the top – Paul Polman, Unilever

Since joining Unilever from Nestlé in 2008, CEO Paul Polman has garnered a reputation as champion of the consumer goods company’s sustainability agenda. His predecessors, Patrick Cescau and Niall Fitzgerald had both taken significant steps in identifying sustainability with Unilever’s brands, but it was under Polman that the Sustainable Living Plan was launched with the aim of doubling the company’s size while reducing its environmental footprint.

By tackling the issue of absolute decoupling (Chapter 3) in this way, Polman challenged his company, its industry peers, and governments to think seriously about what a sustainable business means. He has set out three big goals for 2020: sustainable sourcing for all of Unilever’s agricultural raw materials; halving the environmental impact of its products; and reaching a billion poor people to improve their health and well-being. He is open in saying that the company’s brands should have a social mission, and is outspoken in acknowledging the constraints financial analysts put on long-term company thinking. “Unilever recognises that growth at any cost is not viable. We have to develop new ways of doing business which will increase the positive social benefits arising from our activities while at the same time reducing our environmental impacts.”

((CPSL 2011); www.sustainable-living.unilever.com/news-resources/news/sustainable-sourcing/paul-polman-on-sustainability/, accessed 1 August 2011)

Questions

Paul Polman’s role as CEO could be described as sensemaker in the sustainability context.

1   What uncertainties and anxieties within the company is he addressing?

2     Is sensemaking about a social mission more important for some Unilever brands than others?

3     How important are Polman’s own values in the sensemaking process?

This is the fourth posting where I’m presenting draft material from my forthcoming book, Business and Sustainability.  Between now and publication day, I will be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

Every chapter has an overview at the start and a summary at the end.  It also has suggested list of further readings, as well as the book’s wide-ranging bibliography.  This chapter is on what business will look like in a resource-constrained economy, and the extracts below are the summary and further readings …

Business is a very important element in addressing the world’s sustainability challenges, but the nature of the challenges means that conventional business thinking is not guaranteed to work: indeed, in some instances, it may increase business risk. Private enterprise is variously praised as a solution to society’s difficulties in achieving sustainability, and blamed as the cause of our problems. But regardless of whether business is considered a saviour or a sinner, the bulk of what companies are doing under a sustainability umbrella is connected to innovation and efficiency. This is in line with established ideas about company strategy, but despite many examples of individual companies incorporating sustainability into their strategic thinking, it is not obvious if these will help achieve the kinds of transformation sustainability appears to demand.

At a time when the gap between targets and performance in areas of sustainability such as carbon emissions is growing rapidly, it is understandable that business should look to other elements of society for assistance. However, if one looks at the law, consumer behaviour, politics, or economics, it is easy to conclude that business is being encouraged to continue practices that exacerbate rather than mitigate the wider problem. We can conclude from this that business should be doing more, but that could simply result in it doing more ineffective or even harmful things. We might also conclude on a desperate note that business should do as little as possible because the cause is lost, but that would put in jeopardy its licence to operate, and could increase the pressure to seize assets and limit its activities. Business might feel it is in a fire at the cinema and its future is at risk, but rather than speed up the rush to the exits, or sitting pessimistically in its seat, it needs to recognize why it behaves as it does, and what would need to be different in order for it do more.

1. Further Reading

Jackson, T. 2009, Prosperity without growth : economics for a finite planet, Earthscan, London.

A well-constructed argument against the need for economic growth from an ecological economics perspective.

Sandberg, P., Khan, N. & Leong, L. 2010, “Vision 2050. The new agenda for business“, World Business Council for Sustainable Development, Genève.

Scenarios for achieving a sustainable world economy by 2050 based on consultations with several multinational companies.

Senge, P.M. 2008, The necessary revolution : how individuals and organizations are working together to create a sustainable world, Nicholas Brealey, London.

Business strategists’ take on the implications of sustainability for the way companies are run in the future.

Chang, H. 2010, 23 things they don’t tell you about capitalism, Allen Lane, London.

Not a book about business or about sustainability, but it challenges all sorts of conventional wisdom about why some countries prosper and the way capitalism works in the real world.

PWC 2011, Low Carbon Economy Index , PricewaterhouseCoopers LLC, London.

A biannual assessment of how well global society is doing in reducing greenhouse gas emissions.

This is the third posting where I’m presenting draft material from my forthcoming book, Business and Sustainability.  Between now and publication day, I will be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

The following is an extract from Chapter 2 which looks as the sustainability challenges business faces in what I’m calling a resource-constrained economy.  This section discusses some of the ways a resource-constrained economy will need to be organised …

A resource constrained economy will be significantly different to anything experienced since the industrial revolution. Unless there is a vast leap in geoengineering that allows us to continue to emit greenhouse gases with impunity, we will have to reduce our carbon intensity at unprecedented rates. Even if there is such a leap – something we have seen is highly unlikely – it may compound other parts of the sustainability riddle such as the water crisis, poverty, and biodiversity. Until now, industrialized society has been organized to enable the exploitation of natural resources for humanity’s benefit. Our laws, economic systems, and political institutions reflect this: we may put limits on who benefits from exploitation and who suffers, but we rarely limit exploitation itself. Governments in liberal economies, for example, prefer demand side policies intended to influence price rather than supply side ones that would require governments to interfere with individual choice or the availability of certain types of resource. Worldwide, many governments currently promote demand for oil through subsidies estimated to be worth US$ 312 billion, or more than five times the government support for renewable energy.[i] Such policies encourage oil demand and the use of oil in transport, and thereby limit the possibility of higher prices that would stimulate investment in alternative energy. This leaves alternative energy having to demonstrate its cost and energy security advantages over conventional resources if it is going to be more attractive from an economic perspective than exploiting new fossil fuel resources such as the oil and gas in the Caspian region.

A RCE is, therefore, something quite different to what we currently know because, barring the kind of innovation and dissemination miracle that is not supported by the evidence presented in this chapter, a prosperous society will need to discover new ways of organizing itself. Governments will need to exercise more political will in interfering with supply side factors, as well as stimulating demand that is sustainability oriented. This was the hope of the ‘green investment packages’ that were part of several countries’ economic stimulus packages in 2008-2009. This is discussed more in Chapter 10, but while countries such as South Korea, China and the USA made significant sums available, the projects were overwhelmingly focused on demand (e.g. mass transit, smart grid, renewable energy), and moreover important economies such as Brazil, India and Russia made no commitments towards a green stimulus.[ii]

According to Barbier, a global green new deal worthy of the name “must encourage the widespread adoption by national government of fiscal measures and other policies in the short-term that will expedite economic recovery and create jobs while being consistent with the medium-term objectives of reducing carbon dependency, environmental deterioration and extreme world poverty” ((Barbier, United Nations Environment Programme. 2010), page 32). However, for all of the talk about the link between a green new deal and growth, governments have proved more concerned about the latter, and shown a lack of consistency or thoroughness in linking economic recovery with sustainability.

This may change: for instance, Germany’s rejection of nuclear power at least in part seems to have been supported by a willingness to take seriously a green growth strategy.[iii] However, government is only one element of organizing society, and the idea that companies fulfill their obligations to society if they abide by the law is not only outmoded but was probably never true (pace Friedman). Many of the social and environmental issues raised in this chapter were initially championed by NGOs, and as the P&G Pur example shows (Snapshot 2.2), many companies now choose to partner with civil society to tackle sustainability challenges. But NGOs have traditionally been focused on single issues such as conservation, poverty alleviation and water, and do not have a track record of dealing with the kind of complex, multi-dimensional problems characteristic of sustainability. These problems often require trade-offs between the vital issues of particular NGOs as mentioned in the section on Poverty (page ?????), and organizing a RCE will present as many challenges for the established model of NGOs as it does for government (Chapter 11).

Companies will typically look to the law in deciding how to act. Governments have been reluctant to enact sustainability-related legislation that would put industries in their jurisdiction at a disadvantage, or that might reduce the private sector’s ability to generate economic growth. This has not been universally welcomed by business, and for example led to the creation of the Corporate Leaders Group on Climate Change through which major companies worldwide are lobbying for new, long-term policies for tackling climate change.[iv] Yet, fundamental legislation pertaining to corporate governance limit how companies can respond to sustainability challenges. Although countries such as the USA and the UK require companies to report on climate change related risks, there are no requirements on other facets of sustainability. More importantly, company law almost without exception gives paramountcy to the interests of the company’s shareholders, and these are measured in terms of share price and dividend payments that are lagging indicators of short-term performance. Time and again in debates about business and sustainability a key barrier to more aggressive corporate action is said to be the clash between this short-term focus and the long-term perspective needed to address issues such as climate change. (See Chapters 3 and 7.)

Whether one is referring to government, civil society, or corporate law, there are questions to be asked about whether our current means for organizing society are fit for purpose in tackling sustainability challenges. This is a potential risk for business because in the current climate of high expectation that business should and can do something about these challenges, inadequacies on the part of others may not be an excuse for private sector inaction, and may well ramp up the demand for more corporate engagement. This is already evident in the retail sector where companies are expected to mediate in the area of consumer behaviour. For example, Home Depot, IKEA, Wal-Mart and Woolworth have all introduced policies to influence customers in areas of sustainability, and as the cases in Chapters 5 and 6 demonstrate, company responsibility for consumer behaviour is part of maintaining a firm’s licence to operate. Yet, this poses all manner of risks for companies that need simultaneously to demonstrate bottom-line growth to maintain their legitimacy with shareholders, to meet the consumption demands of customers, and to maintain their licence to operate with wider society by managing multiple, interconnected sustainability challenges that other social organizations are struggling to address. When Drucker called business the ‘representative institution’ of modern society[v], he was talking about companies having a prominent role in creating wealth in a society that was organized to allow this. Now business retains that image of being the representative institution, but in a society that is not organized to meet the challenges of sustainability, and that in many ways is looking to business to reorganize it in ways congruent with being a prosperous resource constrained economy.

2012 will see the publication of my new text book – Business and Sustainability.  Between now and publication day, I will be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

Here is the opening to Chapter 1: Business and Sustainability Overview …

This chapter provides the basis for thinking about sustainability and its relationship to business. It introduces the concept of sustainability and some of the main arguments about why it matters to business. It reviews scientific theories of sustainability, and how they have been interpreted. It identifies three main areas of sustainability – demography, ecosystems and climate change – and provides the basis for thinking about their importance to business. It discusses doubts about sustainability, and whether they are justified.

Imagine. You have the chance to invest in a government chartered monopoly giving you revenues from 45,000 kilometres of toll roads. The monopoly comes with a nationwide network of 8,000 vending outlets, and there are additional opportunities to establish restaurants, accommodation and refreshment outlets for weary travellers.

Before you contact your broker, however, consider this other opportunity. You have the chance to join Shell and Unilever in investing in the largest supplier of lighting fuel in the world. The company also has patents on key fuel processing technologies, and its strategy of buying up natural resources means it is well hedged against fluctuations in supply.

These seem to be two great opportunities. And if you invested in either you would lose a fortune. The lighting industry opportunity was for the material used in making candles, and the proposition landed on your desk on 26 January 1880, the day before Thomas Edison patented the electric light bulb. The roads in question were toll roads for horse-drawn carriages, and the share offer was made on 26 September 1825, the day before the first steam-hauled passenger train came into service. In both cases, incumbent industries were wiped out almost overnight, turned into historical curiosities just as Gutenberg’s printing press had done to hand-copying previously, and the personal computer would do to typewriters a century further on.

The steam age, harnessing electricity, printing, and the IT revolution are not simply examples of innovation: they are exemplars of Schumpeter’s notion of creative destruction where not only technologies but society as a whole experiences profound change due to radical innovation. Printing allowed the dissemination of ideas as never before, and enabled the spread and interchange of intellectual ideas found in the European Renaissance and Protestant Reformation. Railways were essential to rapid urbanization, industrialization, and the creation of new political powers such as the USA and Bismarck’s Germany.

At one level, sustainability can be seen as the latest example of creative destruction. Global warming in particular is inspiring changes in the way we think about energy production and consumption, transportation, and consumerism that threaten to make incumbent technologies such as coal-fired power plants and the internal combustion engine redundant. During the financial crisis of the later 2000s, countries such as South Korea and China earmarked significant portions of their recovery packages for investment in the needs of a low carbon economy, i.e. one where emissions of carbon dioxide and other greenhouse gases would be much lower than today. The European Union has announced its 20-20-20 targets whereby it aims to reduce greenhouse gas emissions by 20 percent, and produce 20 percent of its energy from renewable sources by 2020. Be it through investment, policy, or regulation, governments around the world are anticipating a major shift in their economies, and these shifts will have a significant impact on business. Industries from aviation to oil palm to coal have come under attack because of their environmental impacts. Away from climate change, the practices of companies such as Coca-Cola, Findus, and IKEA have come under the spotlight because of responsible water, fisheries, and forestry management respectively. Moreover, new industries are emerging to meet the challenges, and companies such as Suzlon (wind power), Sindicatum Carbon Capital (finance), and d.light (solar lighting) all view sustainability challenges as an innovation opportunity.

However, as with any period of creative destruction, there is much tension, conflict, confusion, and disruption associated with sustainability …

Contact me via the blog if you want to discuss this and any of the other chapters.

Thanks

Mick

Sorry if it seems I’ve been out of action for a while.  The truth is I’ve been writing like crazy and the thought of posting something vaguely worth reading at the end of days at the keyboard … Well it was never likley to happen.

Anyway, now the time spent reading, searching, drafting and typing is startng to pay off.  I’m over two-thirds of the way through my latest book, Business and Sustainability.  It will be my second text book, and as far as my publisher or I can tell, it will be the first book in the business education market to offer a comprehensive overview of understanding and managing business’ relationship with the wide range of sustainability issues on company radar screens.

In the coming months, I will be posting extracts from the manuscript to share with you and to get your thoughts and feedback.

Four years ago co-author Alan Murray and I did something similar about business and corporate responsibility – an objective overview of what was happening in the field, specifically aimed at the needs of the classroom.  The result, Corporate Responsibility: a critical introduction, entered its second edition in 2011.

A short while ago, we found that it had made the shortlist for the Chartered Management Institute/British Library’s business book of the year.  We will find out the results in February 2012, but it was great to be recognised by our peers.

I hope that Business and Sustainability will do as well in terms of sales and impact.  If it does, 2012 will be a busy year.

For the next few months, the In the Shift blog will be dedicated to discussing and testing materials for my forthcoming book, Business and Sustainability. The first post will be in early January 2012.

Yesterday saw pledges of $2.3 billion made at a conference for GAVI, the Global Alliance for Vaccines and Immunisation. Saving lives and improving productivity are self-evident goods said UNICEF director, Anthony Lake. Scanning the press and the vox pops this was greeted in different quarters as an act of great generosity, a slap in the face for the recession hit poor in the richer countries, a morally courageous leap, and a boost to the global economy.

Clearly helping poor people is a moral act.  But given how over-population and demographic change are all part of the climate change equation, is alleviating poverty fundamentally at odds with what is needed to meet the various challenges around sustainability?

Coincidentally, I was writing a section on this for a new book I’m working on. The big question is whether or not tackling poverty is a sustainability issue.  Here are some thoughts …

We have seen how sustainability challenges affect poor people differently to others. In affluent societies, the energy challenge is about the type and amount of energy consumed, but for the poor it is about getting access to more reliable, affordable, safer forms of energy. In the richest countries, the mobility challenge is about reducing the impact of transport; for the poor it is about experiencing the benefits of mobility in the first place. Similarly, in poor regions overuse of water is much less of an issue than access to clean water. The sustainability challenges of the poor also differ depending on where one lives, so that in richer countries the poor are confronted by obesity due to their diet whereas in poorer ones the issue is one of hunger. For many, the challenge of sustainability is how to address these various facets while narrowing the gap between rich and poor.[i]

This gives rise to all manner of ethical questions about the consequences of tackling sustainability challenges. Should poor countries be given special treatment because of ‘ecological debt’, i.e. the poor should not suffer today because of the historical behaviour of the wealthy in the past? Is it fair that the poorest billion people who account for about three percent of GHG emissions should be amongst the ones most affected by climate change?[ii] Do the poor have the right to rapid economic growth even if that leads to increased GHG emissions and exacerbates food and water challenges? Is it acceptable for wealthy economies to ‘outsource’ their emissions to poorer ones by encouraging manufacturing overseas? Do all people have the right to a comparable standard of living?

It is a fact that global society is highly inequitable with about half of the world living in extreme poverty, and estimates that even as emerging economies such as South Africa and the Philippines reach middle income status, they will still have ten percent of their populations living on less than two dollars a day.[iii] Theorists of different moral positions such as Sen, Rawls and Singer[iv] agree that poverty represents an injustice, and if sustainability were simply an ethical issue, addressing poverty would clearly be amongst the challenges. Furthermore, from both a moral and instrumental perspective, there can be good reasons for business to engage in tackling poverty.[v]

However, the insistence of some that sustainability and poverty alleviation are inextricably linked and one cannot be achieved without the other[vi], gives the impression that poverty itself is a sustainability challenge. This is debatable because poverty is ultimately an ethical issue (is it right that wealth is distributed inequitably), whereas sustainability is viewed by some as an existential issue concerning the maintenance of the Earth in ways that allows society to exist. Environmental and human ethicists do not agree with this, but one does not need to take a particular ethical stance to make a compelling case for sustainability, even though, as noted, there are clear ethical dimensions to sustainability. Poverty has been a feature of the human condition since time immemorial, and hence one can argue that it is quite sustainable. It is quite possible to imagine scenarios where sustainability challenges are met, and the rich benefit while the poor do not. There may be even be a business case for taking this direction, mirroring Ajay Kapur’s idea of ‘plutonomy’ where companies are encouraged to target the rich as a market because 40 percent of household wealth lies with one percent of the world’s population.[vii] Unmitigated climate change may be incompatible with sustainable development for the poor as it is currently defined ({{1870 World Bank 2010}}: 39), but how viable is that development model in the context of a RCE? From a sustainability perspective, it is valid to ask if and under what conditions the accepted model of sustainable development (including the central role given to economic growth) is compatible with mitigating or adapting to climate change. Indeed, some of the objections to tackling climate change (Chapter 1) are rooted in the express or implicit belief that the means of doing this would infringe upon individuals’ moral right to choose and achieve their own level of well-being.

Again, this is not to deny that there are ethical questions relating to sustainability challenges as outlined above. However, none of these questions leads us to conclude that in the sustainability context tackling poverty is an ethical imperative. Indeed, it might be argued that an insistence on treating poverty as a moral dimension to what are otherwise the instrumental crises of sustainability is hindering our effectiveness in dealing with either.[viii] A major World Bank report on poverty and climate change makes only three mentions of population growth, and the USA, the largest international development donor, does not fund family planning.[ix] Both cases highlight how aspects of poverty are treated as ethical issues, something that prevents their consequences for sustainability being addressed adequately. Yet it is exactly this kind of issue that constrains how we tackle sustainability challenges such as water, food, and energy.

In the context of business and sustainability, therefore, the question is not whether poverty is a moral issue, but to what degree a failure to address poverty will exacerbate other sustainability challenges. As discussed in Chapter 1, population growth is a major factor in natural resource exploitation, and most of this growth is happening in poorer countries. Companies could benefit from this growth if it leads to new markets, a better workforce, and more investment. They will equally be at risk if the growth is unequal, and the new markets come to be characterized as exploitative as happened, for instance, in the 1990s with labour rights in Asian factories. Absence of growth could also present a threat if it leads to more migration to richer countries and the accompanying political instability as citizens fear for their jobs and call for protectionism. More likely, though less discussed, it will lead to migration into neighbouring countries with similar political consequences.

With mass migration come increased health problems as health services, social services, and sanitation providers struggle to meet unanticipated demand. The health risks to the poor of climate change could also be material to business. Climate change is already associated with ill health and mortality due to increased incidents of malaria, flood-related accidents, diarrhoea, and food shortages. It is reckoned that relatively slight changes in the risk for climate-sensitive health conditions such as diarrhoea and malnutrition will significantly increase the overall disease burden.[x] Changes in food availability and yields will affect nutrition amongst the poor, and inland flooding will bring its own fatalities unless the vulnerable are equipped to deal with water run-off and landslides. All told, insofar as poverty is an obstacle to business prosperity as the likes of Hart and Easterly claim[xi], sustainability challenges worsen that situation. However, it remains debatable how and in what ways poverty has to be addressed to resolve those challenges.