The Triple Bottom Line Blog

Jeffrey Swartz, chief executive of Timberland, makes some intriguing comments in this interview, which unfortunately got somewhat buried in the Saturday edition of the New York Times (the least-read edition of the week).

Swartz expresses frustration with the slowness of the athletic footwear industry to adapt well-documented green manufacturing techniques for shoe production. Whereas companies like Nike, Patagonia, and his own firm have done a reasonable job of working together to improve practices in areas like child labor, progress has been much slower when it comes to, for example, encouraging suppliers to use wind or solar power.

What's most interesting is the reason Swartz cites. It has nothing to do with consumer awareness and motivation, which he says is equally low on all social indicators:

We ask people who just bought a pair of shoes how they made their choice, and the immediate answer is that the price was right, or they liked the look or the color.

Ask people what they know about the human rights or environmental track record of the brand they just bought, and they walk away. People buy on the basis of product attributes, not brand attributes.

Instead, the problem (as so often) relates to decision-making processes. Labor rights, he says, can get dealt with effectively at the middle levels of organizations, where like-minded individuals often have strong networks across the industry: "It's not Timberland and Patagonia collaborating, it's Betsy from Timberland networking with Casey from Patagonia. It's activist to activist, not company to company." But reforming manufacturing methods along eco-friendly lines calls for commitment and coordination at higher levels of the corporation, which is much harder to arrenge.

Of course, Swartz himself occupies that "higher level," so he is in a position to do something about it. The interview ends with an unusually self-reflective, even self-judgmental comment about why he hasn't:

Our competitors are so much bigger than we are, and that makes me reluctant to place the call. But maybe I really should do less lamenting that C.E.O.'s aren’t getting together, and pick up a phone. Maybe that's the answer: I should lament less and dial more.

Yes, we all should. But maybe one of Swartz's fellow CEOs will read the interview and save him a dime by picking up the phone himself.

Meanwhile, the story offers an interesting mini-case-study of how corporate change and the obstacles to such change are both embedded in the nuts-and-bolts of organizational life . . . right down to such petty personal details as whose number is on speed dial in the phones of which competing companies. It's why business leaders who aspire to be change agents can't be satisfied with crafted inspiring mission statements or making powerful speeches. They also have to get deep down into the weeds of what it actually takes to make change happen, which may sometimes mean figuring out who needs to pick up the phone and make the first call.

Labels: Jeffrey Swartz, Management and Organization, Timberland

Over at Sustainable Industries--a "green business leadership" magazine we've just added to our blogroll--columnist Kevin Sweeney offers some thoughtful advice about how small businesses should interact with government. Although he doesn't use the phrase, his suggestions are all designed to maximize the "sweet spot" you can hope to find through lobbying efforts--the area where social benefit and business advantage overlap.

Sweeney's chief recommendations for effective lobbying include:

"No secrets." In other words, don't say or do anything in private that you wouldn't want reported on the front page of tomorrow's Wall Street Journal.

"Focus on frameworks." That is, look for ways to influence the philosophical direction and broad regulatory structure of government policies in ways that will be good for the environment and good for your business.

"Don't go it alone." Look for partners in the environmental community who can give your efforts greater expertise and credibility. (We would add: Partnerships with others in the business community can also be a valuable source of added strength.)

Oddly, Sweeney ends his column with a seemingly contradictory point: That, in the long run, business and society would be better off if companies were completely uninvolved in lobbying efforts. We're not sure we agree, and we're not even sure we fully understand Sweeney's argument here. (If companies pay taxes, like other "citizens," shouldn't they have a right to express opinions about the government policies and programs they pay to support? Seems logical to us.) But you should read and decide for yourself--Sweeney's a smart guy with much to say that's relevant and worth learning from.

Labels: Kevin Sweeney, lobbying, Role of Government, Small Business

For your "law of unexpected consequences" file, check out this column from the current Economist. We're all familiar with the concept of the "race to the bottom" driven by globalization. The idea is that companies in manufacturing and other fields that are capable of relocation will shift their operations to countries that cater to them through weak regulatory regimes. The expected result: competition among nations to offer the "most attractive" business environments--even if that makes them among the "least attractive" from an environmental or labor-rights perspective.

There's some evidence that the race-to-the-bottom phenomenon is real. But now an American researcher named Mark Schapiro (whose book provoked the Economist column) suggests that an opposite pressure is being exerted by tough European regulators in a marketplace where global corporations want uniform international standards:

When [Schapiro] began his research, he found firms resisting the notion that the American market would follow EU standards for items like cosmetics, insisting that their American products were already safe. But as the book neared completion, firm after firm gave in and began applying EU standards worldwide, as third countries copied European rules on things like suspected carcinogens in lipstick. . . .

[Schapiro's] book [Exposed] records similar American reactions to the spread of EU directives insisting that cars must be recycled, or banning toxins such as lead and mercury from electrical gadgets. Obey EU rules or watch your markets "evaporating", a computer industry lobbyist tells Mr Schapiro. "We've been hit by a tsunami," says a big wheel from General Motors. American multinationals that spend money adjusting to European rules may lose their taste for lighter domestic regulations that may serve only to offer a competitive advantage to rivals that do not export.

In effect, European regulators are setting the agenda for businesses around the globe--especially since companies that want to do business among the 500 million customers of the EU have to meet EU standards anyway.

It seems likely that, in the long run, globalization may well promote higher rather than lower standards across the board--not just in regard to product quality but also environmental protection and even workers' rights. After all, the more unified the world's markets, the more fully pressures from consumer groups, human rights organizations, and environmental crusaders should eventually impact companies everywhere, producing not only rough equality across borders but also gradually rising standards of corporate behavior.

But only in the long run. In the short run, forces driving toward the top and toward the bottom will continue to compete, and watching how they interact will make for some fascinating business drama.

Labels: European Union, globalization, Mark Schapiro, Role of Government

The bar is getting set higher and higher when it comes to triple bottom line performance. Whether industries are seeking to avoid onerous regulation or just trying to beat the competition, the drive towards sustainabilty will surely increase.

One strategy that is indicated here is to get into partnership with government. Almost every federal and state regulatory body now invites companies to work with them on a voluntary basis to find better ways to do business. There is no better way to "stay in the loop" when it comes to the likely course of future regulation than to establish strong personal and business connections with the regulators in your industry. It also might put you in the catbird seat when it comes to influencing the course of new requirements.

Partnering with NGOs is another way to both foresee and influence future developments. Companies that have been working with CERES, for example, are plugged in to what the future may hold regading climate-change regulation and how a wide range of NGOs is trying to influence those outcomes.

The very best approach, when it's possible, is to get involved in a project with government and NGOs that offers positive business outcomes for your company or industry. Such projects can be time-consuming and difficult, but read Chapter 7 of our book The Triple Bottom Line to see how they can lead to gigantic win-win-win situations.

In that chapter, we describe how the utility company PPL, the government, and the stakeholders on the Penobscot River in Maine all benefited from an environmental deal that PPL helped create. Rather than waiting to be forced by the government to tear down some dams to protect endangered salmon, PPL negotiated a deal to allow the NGOs to buy two dams for $25 million, which they will then decommission. In return, PPL gets federal approval to replace the lost power and revenues by increasing flows over its remaining dams.

Talk about a sweet spot!

Labels: CERES, Penobscot River, PPL, Role of Government, The Triple Bottom Line

A fine roundup in today's New York Times concerning the deeply ironic trend of industries begging for federal regulation in hopes of fending off worse problems--consumer backlash, foreign competition, tough state rules, and massive lawsuits. The industries and products involved range from toys, cars, and home mortgages to popcorn flavoring, spinach, and fireworks. One key quote:

"It's definitely a strange-bedfellow situation," said Sarah Klein, a lawyer at the Center for Science in the Public Interest, which is seeking, along with grocery stores and produce growers, new requirements to prevent food-borne illnesses. "The voluntary system is not working from a food-safety perspective, and it's creating real problems for the industry."

The ironies here cut in several directions. First, it's always surprising to see business people asking for government intervention. Of course, the companies leading the charge have self-interest and the interests of their shareholders in mind: They hope that reasonably soft federal regulations will fend off harsher requirements imposed either through litigation or public pressure, allowing them to go back to "business as usual" with just a few new easy-to-manage rules to follow.

Still, a touch of schadenfreude is unavoidable among sustainability advocates as they witness defenders of laissez-faire forced to make the tacit admission that self-regulation and the "invisible hand" of the free market may not be enough to protect the safety of consumers and the quality of the environment.

Second, it's curious to see industry groups expressing frustration over the unwillingness of the current Republican regime to impose the kinds of pre-emptive regulations they are now advocating:

The slow response by the Bush administration to several of these proposals has been a source of frustration to some industry groups.

"We have had a very, very uphill battle trying to get regulation," said David H. Baker, a lawyer for the Lighter Association. The organization, representing cigarette lighter manufacturers, has been seeking a mandatory standard because unsafe, inexpensive Chinese imports were flooding the market, but staff members at the Consumer Product Safety Commission recommended against such a rule, saying the number of deaths and injuries did not justify it.

Similarly, the Bush administration is opposing legislative efforts, endorsed by popcorn makers and health and labor groups, that would impose strict limits on the levels of fake butter that can be found in the air in microwave popcorns plants. An ingredient in synthetic butter can cause deadly lung damage in workers, but the administration says the science on the issue is not conclusive.

Again, the irony is rather delicious: Once-staunch standard-bearers for Adam Smith and Milton Friedman are annoyed to find that officials of the Bush administration took their propaganda a bit too seriously. Now that business leaders are ready to backtrack on their commitment to unfettered competition, they are frustrated that their conservative allies in government aren't doing their own 180 quickly enough to suit them.

Of course, the urgency felt by the industry advocates is understandable. With the 2008 elections looming, and with public opinion shifting in cyclical fashion back toward re-regulation, they are nervous about the kind of drastic policy shifts that might be launched by a Clinton, Obama, or Edwards administration, perhaps abetted by a Democratic Congress. If new federal rules are in the offing, they'd rather have them written by relatively friendly Republican administrators. And that means the clock is ticking.

The gamesmanship of the business advocates profiled in the Times is perhaps inevitable. But those overseeing corporate policy at a higher level should be clear on one thing: Whatever the outcome of the current maneuvering, it will not be possible to put the current controversies about product safety, worker health, environmental contamination, and executive malfeasance "behind us." No set of government regulations, friendly or otherwise, will enable managers to relegate sustainability to the category of "problems solved" and allow them to concentrate solely on the more comfortable, familiar challenges of growing your revenues and maximizing their profits.

One need only look at the automobile and food industries, two of the businesses currently seeking (slightly) tougher federal regulations. Are these industries that have been exempt from government scrutiny in the past? Not at all. And has the existence of regulatory oversight exempted them from being caught up in consumer or environmental controversies? Again, no. Living up to government rules doesn't win you a free pass in the arena of public opinion. In fact, nothing does. There are no more free passes.

The reality is that, in today's interconnected world, sustainability is a never-ending challenge that must be tackled on many fronts simultaneously: through working conscientiously for fair, open, and constructive government regulations; through developing industry-wide self-policing programs and voluntary improvement regimes; through partnering with groups of citizens, activists, and interest groups to find positive solutions to problems and disagreements; and through striving continuously to practice good corporate citizenship, even at times when the TV cameras aren't on you.

That's what "business as usual" amounts to in the twenty-first century, and that's what corporations can look forward to once the current mini-crisis over public confidence in business gets resolved, one way or another.

Labels: Role of Government

What a difference two years makes. Back in 2005, Britain's respected, slightly-right-of-center newsmagazine The Economist published an entire special section (subscription required) devoted to "debunking" the concept of corporate social responsibility. Taking the Milton Friedmanesque stance that "The selfish pursuit of profit serves a social purpose," the magazine argued that companies have no business spending shareholders' money on needless frills like worker-friendly or eco-sensitive policies. The editors didn't quite declare "Greed is good," but they came close.

Now, after two years in which CSR has grown steadily more mainstream--and Friedman's assaults on it have become more marginalized--we find The Economist rushing to defend CSR. The context is an article about Supercapitalism, the new book by Robert Reich, secretary of labor in the Clinton administration.

In an interesting twist, Supercapitalism (which we haven't yet read) criticizes CSR from a left-wing perspective. Reich makes a twofold argument. First, he says (as summarized by The Economist), that many companies use CSR simply to grab credit for the incidental social benefits produced by policies whose real objective is maximizing profits.

Second--and more important--Reich worries that liberals who praise companies that act responsibly are being lulled into ignoring a more important issue: namely, the need for tougher government regulations that could prevent corporate misbehavior altogether.

And here, of course, is the reason for The Economist's turnaround. If there's anything a conservative defender of corporate prerogatives fears and hates worse than left-wing agitators demanding reform, it's government officials demanding reform--and enforcing those demands through the power of law. So now, in the face of Reich's call for re-regulation, the magazine leaps to the defense of the same CSR it viewed as a threat not so long ago:

[D]one well, CSR can motivate employees and strengthen brands, while also providing benefits to society. Understanding and responding to the social context in which firms operate is increasingly a source of new products and services, observes Jane Nelson of the Prince of Wales International Business Leaders Forum. Telling firms they need not act responsibly might cause them to under-invest in these opportunities, and to focus excessively on short-term profits.

Well, yes. Corporate social responsibility can indeed produce good results for both shareholders and the broader society. And it does so by encouraging long-term rather than short-term thinking and the search for lasting rather than patchwork solutions to society's biggest economic, social, and environmental challenges.

You might call such a philosophy "sustainability." It's a worldview some of us have been advocating for quite some time. And it's nice to welcome such a prominent convert to the case as The Economist. Isn't it interesting to see how a renewed threat from the left--and, perhaps, the resurgent political fortunes of Democrats in the United States--can open some people's eyes to the value of a reasonable middle ground?

Labels: Robert Reich, Role of Government, Supercapitalism, The Economist

A recent article in ScienceAlert argued very persuasively that CSR should not be simply a communications function, but should be “be seen as an embodiment of the organisation’s culture and values and be embedded in all operations.” Quite true.

In my experience, however, it is very difficult to add a CSR perspective to a large corporation. Not impossible, of course, but extremely difficult. If you’ve ever been involved in such an effort, I suspect you know what I mean – and it would be interesting to see your thoughts in comments below.

All too often, once a CEO or management team has taken the significant step of realizing that it is in the company’s interests to focus on environmental and social impacts, the temptation is to “add on” a CSR competency. This might take the form of hiring a CSR manager, writing up a CSR strategy, devoting funds to CSR activities, and so on. All of them good and necessary steps – but insufficient for the real task at hand: the integration of a sustainability mindset into all of the company’s normal operations.

Sounds simple, right? Just remember to integrate CSR into business operations, and voila! You’re all set! Not so. Here are some common problems companies can face:

• Denial – if you’ve been working for a company very long, as have many key decision-makers at any firm, you’ve probably come to see what you do as right and just. If it weren’t, you wouldn’t be doing it, would you? But there’s a concept you might remember from Psych 101 called “cognitive dissonance” and it says, essentially, that people abhor contradictions. If they run across one, they find a way to get rid of it. Someone who thinks, I am a good person, and yet acts unethically, will resolve that disconnect somehow – if not by changing their actions than by changing their perception of those actions.
  
  In the corporate world, we often feel we don’t have a choice about certain decisions; over the long run, it is easy to start assuming they are right, because if we questioned our impact on the world every day, it might be hard to live with ourselves. As a result, many experienced managers find it extremely difficult to look objectively at what they’ve been doing for the past 20 years, and ask themselves if they’ve been having a negative impact on the world. Asking them to do so goes against our very nature, and puts them in a tough spot both professionally and emotionally.
• Dispersed responsibility – Let’s say that everyone in a given company has been sufficiently convinced that CSR needs to become a higher priority. Now, a common trap is: Great idea, but it’s not my job. In other words, it’s difficult for managers and employees to see the relevance of a new CSR focus on their own day-to-day decision making.

For example, those who source contractors still look at the same list of criteria, price being primary; those who design marketing materials still have the same single goal of selling more stuff; those who hire new employees are still buried so deep under a pile of applications without the time, never mind the authority, to work on making current employees happier.

Somehow, each and every one of these people needs to accept that CSR is his or her job, and to think about how that relates to his or her specific job description. Employees should become better able to recognize their impact, and be empowered (and budgeted!) to make socially-responsible decisions.

• Core activities – if your basic business model is to blame for a less-than-stellar footprint, and if you’ve managed to admit this to yourself, what to do next? Some companies have managed to reinvent themselves.

For example, BP re-branded itself as “Beyond Petroleum” and has begun investing in clean energy technology. Landfill companies have begun to re-shape themselves as waste-management companies, with an emphasis on waste reduction and recycling. International Paper has taken on major forestry initiatives, creating biodiverse ecosystems that recreational users help maintain.

The important thing is to see whatever problems your industry has as an opportunity to do better, and to carve out a role in solving those problems – by providing cleaner energy, less waste, more trees, and so on.

These are only a few of the stumbling blocks I’ve noticed on the path to sustainability; I’m certain there are more. But keep in mind, not every company faces them equally:

• Some firms, especially in recent years, began their existence with a triple-bottom-line focus, and built that into every process from the ground up.
• Other firms are small, or closely held, and can therefore change themselves more quickly than their larger and publicly-held counterparts.
• Still others have been motivated by a reputational crisis, which can act as a blessing in disguise by breaking through denial and opening the coffers – helping, in the end, to focus a significant amount of energy on making things right.

So if your firm finds it difficult to push sustainability into every nook and cranny of your operations, just keep this in mind: it may be a Herculean effort for you, but it may be much easier for some of your competitors. As survey after survey tells us, sustainability is a growth industry right now, and you’ll want to be out ahead of the curve.

Labels: BP, International Paper, Management and Organization

Fascinating, isn't it, how boring, "mature," old-fashioned industries can become sexy growth businesses when new thinking is applied--as in this example (courtesy of Business Week) of a European-based water utility company that is being refashioned as a sustainability pioneer:

As the world's largest water company, Veolia is riding soaring demand for water supply and treatment in China. In the U.S. it's focusing on the fast-growing energy-services business—helping large industrial and commercial customers trim their heating and cooling bills with more-efficient generation and distribution. Even in relatively slow-growth Europe, which accounts for 70% of revenues, Veolia is powering ahead by taking stakes in government-owned water and waste-treatment businesses that are now being partially privatized.

It's an impressive story. But then you dig a little further and run across a story with a different slant on Veolia:

Once again an impoverished Texas neighborhood, in this case in the town of Port Arthur, has become the disposal point for hazardous waste, only this time the waste is potentially so lethal that a drop the size of a pinhead can kill.

A chemical-weapons facility in Indiana is destroying obsolete weapons containing VX nerve agent, producing caustic wastewater that the Army is shipping to Veolia Environmental Services for incineration. The Army has claimed the waste is no more dangerous than kitchen cleaners. But when environmental scientists began looking at the disposal process, they found scary scenarios. The "neutralized" waste still contains some VX, and the incinerators might not destroy all of it. There are no monitors on the incinerator smokestacks to sound the alert if it isn’t eliminated. And VX components in the water could reconstitute in shipping tanks under certain conditions, endangering lives along the transportation route.

The article in The Texas Observer seems to do a responsible job of citing opinions on both sides of the controversy, including the comment, "It's just wastewater," offered by Dan Duncan, who is in charge of safety at the Veolia incinerator at Port Arthur. Who is right? I don't know, and it will take time for the dispute to get sorted out.

Fortunately, it appears that the key issues--the safety and transparency of Veolia's processes, the accuracy of the monitoring techniques in use, and the integrity of the local officials overseeing it all--are on the table, thanks in part to media like the Observer. Hopefully, one way or another, the rights of all parties will be respected by the courts and regulators now addressing the case, and the proper resolution will be reached.

I don't have the expertise to adjudicate in this matter, and I wouldn't want to pass judgment on the folks at Veolia, who for all I know may be utterly blameless. But I can offer a few observations that business people may find relevant:

1. With sustainability issues now high on the agenda of communities, governments, activist groups, and the media, green business opportunities are (finally) becoming exciting, even sexy. But that same sex appeal makes them lightning rods for controversy. Don't expect to take advantage of the boom in green business unless you're ready to take seriously the life-and-death responsibilities that go with it.

2. Business Week notes that Veolia's attractiveness as an investment is due, in large part, to its current acquisition spree. Since being spun off by its former owner, the Vivendi conglomerate, Veolia has been shedding debt and using increased profits to buy environmentally-minded companies around the world. That's fine--but most business people know that acquiring companies and imbuing them with your corporate culture and values can be quite challenging, time-consuming, and at times perilous.

I would be nervous about engaging in a rapid-fire series of acquisitions in an area as sensitive as environmental remediation, where a single procedural misstep (or even a mere misunderstanding) can cause real harm, both to the environment and to your corporate reputation.

Is a strategy of rapid expansion an absolute no-no for an environmental company? I wouldn't go that far--but I would wave a yellow caution flag if I were a corporate manager or an investor.

3. A business involved in sensitive environmental issues can't afford to rely on government assurances or regulatory clearances to shield it from accountability. In the Texas case, Veolia is working under contract for the U.S. Army, and local government officials (including the mayor of Port Arthur) have pooh-poohed the concerns of community activists.

One might think that this would clear Veolia of any further responsibility, particularly in a conservative state like Texas, where respect for the military and for government authority is a strong tradition. But no. If green groups on the local, state, or national levels decide to press Veolia on this issue, all the government sign-offs in the world won't matter. The company's name can still be dragged effectively through the mud--with potentially serious effects on its future business prospects and stock price.

The moral: If you're a business executive and are lucky enough to get laudatory press coverage like that given to Veolia by Business Week, enjoy it--but don't let it go to your head. It's nice to be a leader in this quarter's "sexiest" business, but remember what your junior high school Phys Ed teacher told you: The fun of sex comes with plenty of risks and consequences.

Labels: Port Arthur, Reporting and Transparency, Role of Government, Veolia, Waste

Some observers are still wondering whether Wal-Mart is really serious about going green. But lots of people and businesses in and around the megaretailer's hometown of Bentonville, Arkansas, think so. In fact, they are betting their livelihoods on it, according to this story from today's Washington Post. Here's a key graf from the story, posted from nearby Fayetteville:

A wave of start-ups developing the technology to help suppliers prove their green credentials has swept into this sleepy college town, half an hour from the company's headquarters in Bentonville. [Eco-entrepreneur Daniel] Sanker is looking at ways to improve fuel efficiency in shipping. Others are developing agricultural-based alternatives to petroleum or studying how electronics can function at higher temperatures, thereby cutting energy use. The University of Arkansas has established the Applied Sustainability Center at the campus here using a $1.5 million grant from Wal-Mart.

The story goes on to say that space in a local research park that caters to green companies is already fully leased--and that the town has hired its first "sustainability director," whose salary is paid out of the energy savings his innovations produce.

Call me a latte-drinking New Yorker (actually I prefer a plain old java from Dunkin Donuts), but I was surprised a couple of weeks ago when the latest polls showed Hillary Clinton with big double-digit leads over every Republican rival in Arkansas, which is evidently the red state that Clinton has the best hope of carrying in next year's presidential race.

Maybe Clinton's years as the state's first lady aren't the only reason for the state's leftward drift. If the WaPo story is correct, Battleship Wal-Mart may be changing course surprisingly swiftly--and leading an entire flotilla of businesses in a new, more progressive direction. The long-term implications for the corporate and political culture of this corner of the American South will be interesting to watch.

Labels: Arkansas, Personal Musings, Wal-Mart