Management and Organization
Modeling Transformational Leadership In Business And In Government
Friday, August 01, 2008 / AS
As the 2008 presidential campaign heats up, perhaps the only point of agreement between Barack Obama and John McCain is that our country needs dramatic change. Both candidates are campaigning as change agents: Obama's slogan is "Change you can trust," while McCain campaigns on "Reform, Prosperity and Peace," which, if you stop to think about where America is today, is just another way of saying "change."
Neither candidate has been specific about what change is needed nor about how he plans to make the change, and I doubt that either one has a detailed plan for change that goes much beyond the hope to change his own address to 1600 Pennsylvania Avenue.
Perhaps you're wondering what this has to do with the theme of sustainable business. Actually, the connection is simple. In the world of sustainability, corporate executives are trying to change their organizations in all sorts of ways, from culture and systems to the way they recruit and compensate their people to how they measure and report their performance. What can this year's presidential candidates learn from business leaders about creating change?
I've written before about how Mike Morris, one of my favorite CEOs (and clients, although I had very little to do with what follows) has created culture change at the electric companies he has been invited to lead, from Consumers Energy to Northeast Utilities (NU) and now American Electric Power.
At NU, Morris worked with his deputy Dennis Welch, the VP of Environment, Health and Safety, to turn New England's largest power company from a cantankerous, arrogant, regulatory scofflaw into a model of environmental compliance.
On arrival, he announced that he would not tolerate obstructionism or hardball tactics when it came to dealing with regulators. Within days, he set an example by going to see the Connecticut Attorney General and legislative leaders, and traveling to meet with employees at the plants for face-to-face discussions on critical compliance issues. At the same time, he appointed Welch to create a company-wide environmental management system. Plant managers and employees would now be evaluated on their ability to make their programs compliant and keep them that way.
As a result, NU drastically reduced its legal problems and was ultimately able to sell its "troubled" (i.e. historically non-compliant) nuclear power plant (aptly named Millstone), for hundreds of millions of dollars more than its predicted sale price.
Now Morris and Welch are making change again at AEP, one of the nation's largest electric companies, which also happens to be the single largest consumer of coal on the planet. For over a century, AEP has been an innovator in the electric business, with hundreds of patents to its credit. But the company's ability to create solutions, along with its gigantic size and financial success, led to a sense of hubris and an our-way-or-the-highway approach to doing business.
When Morris arrived, deregulation and climate change were already rocking AEP's world. Reliance on coal, our dirtiest source of energy, was increasingly under attack He realized that the company's culture needed to change, and change quickly.
Morris sent a strong message, first to his leadership team and then through the ranks: "In today’s interdependent world, our ability to succeed as a business will be based on our willingness and ability to work collaboratively with all of our stakeholders, not just tell them what we plan to do." He then modeled this behavior, not only by demonstrating direct, solid and useful relations with political and industry leaders, and with AEP unions and employees, but also by showing candor and honesty in discussing the company's strengths and weaknesses.
For example, Morris wrote in the company’s first sustainability report that, despite many accomplishments, "2006 cannot be counted as a good year for us. One of our employees died on the job doing what should have been a routine task, and a contract worker died in a fire at a construction site ... [T]his is completely unacceptable to me, to our company and to our employees." The report also detailed the company’s positive and negative environmental, health, and safety impacts — unlike many sustainability reports, which are filled with pure "happy talk."
Once again, Welsh began to create programs to back up Morris' words. He buttressed the company's health and safety programs with clear accountability standards. He launched a stakeholder engagement process with Ceres and national environmental organizations, and held periodic environmental calls with them like those the company held with investors and financial analysts. This year, the company has expanded the process to include stakeholder engagement at the regional, state, and local levels.
Will this new approach provide AEP with the breathing room it needs to develop the new clean-coal and other technologies it needs to succeed for another hundred years? The jury is still out. But it's fair to say that Morris and AEP have been a breath of fresh air in the debate over how to address climate change.
Which brings me back to our presidential candidates. If they're serious about change, Morris and other corporate sustainability leaders like Chad Holiday at DuPont and Katsuaki Watanabe at Toyota, who are transforming their companies for leadership in the 21st century, have a lot to teach them — about sending clear, unambiguous messages concerning the need for cultural change, and then matching their own actions to their words; about altering processes and incentives within an organization (or an administration) so as to reward new modes of behavior; about establishing lines of communication and accountability with outside stakeholders of every kind, including those usually considered adversaries; and, above all, about practicing genuine transparency — which, of course, is possible only when you really have nothing to hide.
If the next president practices policies like these, he'll go a long way to restoring the faith in government that millions of Americans have lost in the last decade.
Apocalypse Nau? No, Just Business Reality
Wednesday, May 14, 2008 / KW
It seems as if there's a bit of angst among believers in sustainable business over the demise of Nau, an apparel company based in Portland, Oregon, that aimed to make and sell outdoor clothes and sportswear made from recycled materials using environmentally friendly business methods. "Is this a bad omen for sustainable startups?" wonders at least one blogger.
For what it's worth, my answer is No. The failure of Nau reflects less the inherent weakness of the sustainable business concept and more a series of miscalculations made by the company's management, most of which had nothing to do with environmentalism or social consciousness but rather with plain old business sense.
As this article details, Nau committed some of the same management blunders that have doomed thousands of other startups. They counted on a website to generate 50 percent of their sales, then dawdled over repairing the site when it proved to be awkward and difficult to use. They chose not to make their products available through traditional retailers, thereby eliminating a potential source of vitally-needed early revenue. They decided to "mute" the appearance of their logo on their garments, eschewing a powerful tool for building brand awareness and loyalty.
And most dangerously, they overspent, especially on personnel: "Among the 60 employees at [Nau's] Pearl District headquarters, about 10 held the title of vice president or higher ... Most hailed from large companies such as Nike." In other words, they hired pricey talent accustomed to big-company perks and working conditions — always a risky choice for a brand-new company.
Given these mistakes — all of which, I hasten to add, are easier to spot in retrospect than they would have been at the time — it's not hard to see why Nau ran out of funds and couldn't find a venture capitalist willing to provide another infusion of money.
The lesson of Nau's collapse? A would-be sustainable company needs to be run at least as well as a traditional firm — because having great environmental and social goals doesn't exempt you from the laws of business physics.
Globalization Meets Localization — Trends In Collision That Can Work For You
Tuesday, April 15, 2008 / KW
Andy Savitz and Melissa Tritter have penned this story in the current edition of Ethical Corporation, highlighting a shift that has sneaked up on many of us in business — the emergence of "localization" as a force that is beginning to rival globalization in importance. (Actually those crazy Brits at EC insist on spelling it "localisation" — go figure.)
The story explains the new trend, describes how companies like PepsiCo and Whole Foods are capitalizing on it, and offers some advice for business managers on what it all means. The elevator version of their take-away:
The key is to be both big and small at the same time — big in terms of resources, scale, and positive impact; small in terms of supporting local economies and the consumers who care about them. To the extent that a large company can do all this, the same forces that are currently fuelling the localisation movement will support them, making it easier to do business in a profitable, sustainable fashion.
Follow the link to read the whole thing — worth a look, in our not-so-humble opinion.
Robert Reich: Right on "Supercapitalism," Not So Right on CSR
Wednesday, November 28, 2007 / KW
Supercapitalism, the new book by Bill Clinton's secretary of labor Robert Reich, is an interesting analysis of how the rules of business have changed in recent decades, and the implications for public policy.
The nutshell version of Reich's thesis is that today's hypercompetitive global marketplace has stretched the traditional boundaries between business and government almost to the breaking point. Reich wants citizens to demand that those boundaries be redrawn, so that democratic institutions can reassert their control over vital quality-of-life issues (such as economic equality, health care, and the environment) rather than ceding them to the free market.
Reich's book is worth a look — it's well written and a quick, easy read. For the purposes of this blog, I want to focus on chapter 5, "Politics Diverted," in which Reich casts a skeptical eye at the corporate social responsibility (CSR) movement. Because this is a position one might not expect a political liberal to take, it is one of the "counterintuitive" elements of the book that is drawing considerable attention.
The arguments Reich deploys against CSR Reich fall into two broad categories. First, he makes the point that CSR may actually damage efforts to improve the behavior of businesses by diverting attention from the need for tough government regulations. For example, after listing some of the famous books written by reformers about industry abuses of the public trust (The Jungle, Unsafe at Any Speed), Reich comments:
The purpose of these and other exposes was not to pressure individual companies to change their ways but to incite political action so all companies would have to. These efforts were not substitutes for political action but preconditions for it.
Reich's point here is well taken, insofar as some kinds of business reform can't be based purely on voluntary efforts but require government action, with teeth, to be effective. (I for one wouldn't be happy about buying medicines that had never been tested by the FDA but only by some voluntary, industry-sponsored, and industry-run agency.)
But Reich's other criticisms of CSR seem less well considered. At times, he writes as if there is really no such thing as CSR. For example, he is loath to credit companies with behaving "responsibly" when their choices are driven, in part, by profit considerations:
Logically, when the extra benefits of some product accrue to consumers individually, they may be willing to pay more for it. This doesn't make the product "socially responsible" ... Wendy's restaurants have stopped frying their food in trans fats, which have also been banished from Oreo cookies and Frito-Lay snacks. General Mills now makes its Cheerios and Wheaties out of whole grain. These changes were not made because these firms became more socially virtuous but because consumers have become more conscious about their own health.
Similarly, companies that pay good wages and offer good benefits in order to attract and retain high-caliber employees are not being "socially responsible"; they are merely practicing good management.
I think this redefinition of "socially responsible" business as merely "good management" over-simplifies the question. For example, it leaves unexplained why the definition of "good management" in the snack business has changed in recent years to include the notion of meeting basic health standards. Isn't this a positive phenomenon that deserves some explanation rather than being explained away as if it didn't exist?
By the same token, Reich's account fails to explain why some companies choose not to switch to healthier snack recipes, or why others continue to underpay their employees. How and why do competing firms follow such conflicting definitions of "good management"? Don't social or ethical values have something to do with the choices these companies make?
Reich then goes further, asserting that, in fully competitive free markets like those existing under today's "supercapitalism," CSR is, strictly speaking, impossible:
A 2004 report by the World Economic Forum at Davos applauded the efforts of some forward-looking multinational companies to reduce greenhouse gas emissions but concluded that voluntary actions were inadequate to counter effects of climate change.
Of course they're inadequate. Supercapitalism does not permit acts of corporate virtue that erode the bottom line. No company can "voluntarily" take on an extra cost that its competitors don't also take on — which is why, under supercapitalism, regulations are the only means of getting companies to do things that hurt their bottom lines.
Part of Reich's point is certainly valid: Most people agree that the problem of global warming is too big to be dealt with on a purely voluntary basis. But notice the scare quotes Reich uses around the word "voluntarily." He is casting doubt on the very notion that corporations have any choice about the policies they pursue. In Reich's world, CEOs don't even have free will. Driven by the unyielding demands of a personified "Supercapitalism," they have no choice but to obey the dictates of the marketplace, which, in the case of global warming, means emitting greenhouse gases as long as they can get away with it.
The real world is a little more complicated — as suggested by the fact that various companies have, in fact, adapted widely different policies in regard to carbon emissions.
And Reich's dismissal of CSR as inadequate, or even purely mythical,shouldn't be taken too literally. In the real world, where consumer demands, public opinion, pressures from interest groups, market dynamics, and government involvement interact in complex ways, the CSR movement has had a definite impact.
For example, when a few major corporations respond to public demands by adopting pro-environmental or pro-labor policies, it ratchets up the pressure on Congress and the administration to implement regulations requiring such policies, so as to "level the playing field" among competitors. If government fails to act, voluntary organizations may be formed to set and enforce industry-wide standards, with similar effect.
These kinds of phenomena don't appear in the overly simplistic landscape Reich paints, but in the real world, they do happen. And they wouldn't happen without pressure from the CSR movement.
Bob Reich is smart, he writes well, and his central thesis is dead-on — that the new economy demands a re-examination of the relationship between democracy and capitalism. But when it comes to CSR, I think he's off the mark.
Sustainability Stumbling Block: Being Too Shy To Pick Up the Phone
Sunday, September 30, 2007 / KW
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.
Integrating Sustainability
Saturday, September 08, 2007 / MT
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.
Teaching Your Company To "Think Sustainability": It's the Systems, Baby
Thursday, August 30, 2007 / KW
Another fine post by Joel Makower at his blog Two Steps Forward — this one dealing with the complexities of greeen construction.
You've probably encountered the sound-bite version of the story, which was based on a survey conducted by the World Business Council on Sustainable Development. The sound-bite, which was widely picked up in the mainstream media, said that real estate executives and developers wildly overestimate the costs involved in sustainable construction — and greatly underestimate the benefits.
Interesting and significant in itself. But give Makower credit for digging deeper and uncovering the less-noticed story, which lies in the fact that the chief obstacles to green building lie not in high costs or even in misperceptions by developers but rather in the complex decision-making systems involved in construction planning.
These systems disperse responsibility and create perverse incentives, as individual players in the building game find it easier (and sometimes more profitable) to take traditional paths-of-least-resistance rather than trying new technologies that could save energy, reduce pollutants, and otherwise benefit the environment. Makower quotes Bill Sisson, Director of Sustainability at United Technologies: "It's sad, but in many cases you find the marble in the lobby gets higher preference to a new higher-performing chiller or mechanical system because of who makes the decision, and which one is valued more."
Joel's entire piece is, as usual, well worth reading, especially if you're involved in construction decisions. But it indirectly raises a broader point that applies to anyone pursuing sustainability strategies. Whether you're focusing on environmental issues, community relations, workers' rights, or the entire range of sustainability challenges, you'll almost certainly find yourself interacting with several company departments as well as people and organizations outside your company.
And that means that developing and implementing sustainability strategies will be more challenging than you think — more challenging, certainly, than simply vowing to "do the right thing" or even to "incorporate sustainability concerns into every decision." It also means examining your internal and external systems to understand how choices typically get made. Who makes each decision? What is the context in which decisions are considered? How are options framed? Whose input is routinely considered? How is the "rightness" or "wrongness" of a decision judged, both before and after the fact? Are managers penalized for long-term thinking and rewarded for short-term thinking?
The answers to questions like these will help you figure out whether and how you need to redesign your decision-making processes. That can be a thorny, complicated, and politically-sensitive challenge in itself. But it's also essential. Because unless you get your decision-making systems right, all the good intentions in the world won't carry you very far.
Adam Werbach: Sustainability Visionary or Betrayer of the Cause?
Thursday, August 23, 2007 / KW
Here is a not-to-be-missed cover story from the current issue of Fast Company magazine — a profile of Adam Werbach, the former president of the Sierra Club who is now working as a sustainability consultant for one of the world's most powerful (and notorious) companies: Wal-Mart.
Writer Danielle Sacks does a great job of vividly depicting the personal sides of this story — the mixed motivations behind the controversial career move by the complex Werbach; the emotional price he is paying in terms of broken friendships and even veiled threats from former environmentalist friends; and the struggles Werbach is living through as he strives to introduce meaningful change to a huge organization that employs one percent of the American workforce.
She also captures well the important issues raised by the Werbach/Wal-Mart partnership: Is a company famed for its ultra-low prices really serious about getting customers to pay more for green products? Will employees struggling under Wal-Mart's famously tight-fisted labor practices take the company's new commitment to ethical management to heart? How will the "personal sustainability projects" Werbach's team is introducing at individual stores translate in corporate-wide change — or will it?
If you're at all interested in the real-world pressures and conflicts involved in bringing the sustainability movement mainstream — and no business in America defines mainstream like Wal-Mart — you don't want to miss this story.
Joel Makower: A Sustainability Tipping Point — Or Does It Matter?
Sunday, August 05, 2007 / KW
If you're not already visiting Joel Makower's blog on a regular basis, you should be. Joel is one of the most consistently interesting commentators on the environmental and sustainability front — and an excellent writer, to boot.
His last post is a great example. It tackles the much-debated question of whether sustainability has achieved a "tipping point" in the public consciousness. To Joel's credit, his answer is an honest, cautious "Not yet." (It's tempting for all of us who have been working in the field for years to want to cheer-lead rather than analyze issues like this objectively.) But then Joel goes on to make an even more important point — namely, that reaching a tipping point in terms of public relations or poll responses is, in a sense, irrelevant to the longer arc of how business practices are evolving:
The quality movement of yore represents a good analogy. During the late 1980s and early 1990s, "total quality management," popularized by American statistician W. Edwards Deming, was the rage. There were books, magazines, conferences, and untold experts making the rounds, preaching the gospel of kaizen, quality circles, and other business practices. Inevitably, it ran its course.
But when TQM faded from the limelight and the business media turned its collective gaze elsewhere, quality didn't go away; companies didn't revert to their old, inefficient ways. Quality became part of the fabric, eventually showing up in the form of six sigma, lean manufacturing, just-in-time inventory, and other business processes and strategies.
So, too, with the greening of business. Yes, some green products and companies will, inevitably, fail or lose favor. But the hardcore (and largely unsexy) stuff — energy efficiency, waste reduction, pollution prevention, supply-chain management, environmental reporting, etc. — will be around in one form or another for decades. So will the innovations, which are increasingly coming into the marketplace: green chemistry, biobased materials, nature-inspired design, cradle-to-cradle products, and all the rest. They're not going away once the green fever cools down.
Joel is right. Fads come and go, and there's little doubt that sooner or later the intense media spotlight attracted by Hollywood stars, Oscar-winning documentaries, and best-selling books will shift away from the environment to other important topics. But the underlying issues that the sustainability movement is grappling with are too important and too closely bound up with companies' bottom line to disappear altogether.
A decade from now, we may not still be reading magazine stories listing "Today's Top Ten Green Businesses"; we may not be seeing major corporations building entire marketing campaigns around their environmental innovations. Instead, environmental issues — along with social and economic issues — will have been incorporated into the fabric of everyday business, just as product quality, customer service, and efficiency have been today.
We'll still read about great sustainability programs — but they will be discussed in roundups of "Today's Greatest Companies," rather than being relegated to an environmental sideshow.
The embedding of sustainability into the structure of business processes will be the real measure of success for leaders of this movement — not feature articles in Fortune or stories on Entertainment Tonight.
