Role of Government
The Penobscot Will Flow Free
Wednesday, August 27, 2008 / KW
If you've read our book The Triple Bottom Line, you know the story of the Penobscot River in Maine, which has long been a subject of contention between environmentalists and business forces.
Like many rivers in the Northeast (and elsewhere), the Penobscot has been blocked by a series of dams that generate electric power but also harm wildlife — in particular, the Atlantic salmon that must travel up the river in order to spawn. For years, the utility company that manages those dams — PPL Corporation — battled relentlessly against any effort to remove those dams or even to mitigate their effects.
But as we recount in our book, several years ago, under new, enlightened management, PPL began to work with its critics, including not only environmental activists but sport fishermen and Native American tribes (for whom the Penobscot River is holy territory). Complex negotiations produced a landmark plan for restoring the river. Now a milestone in the project has been reached: a Maine environmental coalition, the Penobscot River Restoration Trust, has raised $25 million needed to purchase three dams from PPL.
It's a classic win/win solution: The dams will be dismantled, allowing salmon and other fish to travel freely up the river, while PPL and its shareholders will receive fair compensation for the loss of productive capacity. In addition, the utility has been granted by the state the right to increase its electrical generation capacity at other dams in the Penobscot system, so there should be no difficulty in keeping up with the growing demand for power in the region.
The tale of the Penobscot is a remarkable illustration of what can happen when an embattled company gets out of its defensive crouch and starts collaborating with opponents in search of creative solutions to shared problems.
Tell Your Employees How To Vote, Shoot Yourself In The Foot
Friday, August 08, 2008 / KW
We've given Wal-Mart a fair amount of credit for some of the smart sustainable business moves they've made in recent months — for example, see what we wrote here, here, and here. Thanks to the favorable coverage Wal-Mart has (deservedly) received for some of its current initiatives, the company's bad reputation among citizen stakeholder groups has begun to dissipate.
On the other hand, it won't take too many stories like this one to undo all the good from a year's worth of well-meaning environmental and social efforts:
Wal-Mart Stores Inc. is mobilizing its store managers and department supervisors around the country to warn that if Democrats win power in November, they'll likely change federal law to make it easier for workers to unionize companies — including Wal-Mart.
In recent weeks, thousands of Wal-Mart store managers and department heads have been summoned to mandatory meetings at which the retailer stresses the downside for workers if stores were to be unionized...
Wal-Mart may be walking a fine legal line by holding meetings with its store department heads that link politics with a strong antiunion message. Federal election rules permit companies to advocate for specific political candidates to its executives, stockholders and salaried managers, but not to hourly employees. While store managers are on salary, department supervisors are hourly workers.
Not only is this terrible public relations for Wal-Mart, it's a very clumsy way of trying to influence the political climate regarding labor. In the words of Daniel Gross, the Slate magazine commentator on business and economics, "Wal-Mart may be a master of many domains: global supply chains and logistics, local politics and zoning, anti-union warfare and branding. But on the stage of national politics, it has proved to be strikingly inept."
For one thing, why shift your political spending from overwhelmingly Republican to half-Democratic — as Wal-Mart has done in recent years — and then get caught awkwardly trying to torpedo Democratic electoral chances? If your goal is to make friends on both sides of the aisle (a wise strategy, especially during a period of political volatility), this is no way to go about it.
Gross goes on to point out that, in any case, Wal-Mart's assumption that having a Democrat in the White House would be bad for business is quite possibly wrong:
Despite Clinton's Arkansas roots, most Wal-Mart executives probably opposed Clinton in both his successful campaigns. But during his presidency, Wal-Mart's stock more than tripled. By contrast, Wal-Mart executives polled in 2000 would have been exultant at the prospect of two George W. Bush terms, especially if they were to be coupled with mostly Republican control of the House and Senate. And yet this decade has been a lost one for Wal-Mart shareholders: In the Bush years, the stock hasn't budged at all.
Yes, politics matters. But in the end, the macroeconomic climate matters a lot more. Wal-Mart's success ultimately depends on whether the lower-income and middle-income customers on whom it depends are doing well or getting eaten up by stagnant incomes and rising costs for health care and gas.
As Talleyrand once said, Wal-Mart's ham-handed political manuevering is worse than a crime — it's a blunder.
Lesson for business leaders: If you're going to get involved in politics, better rely on a team of people with shrewd political instincts and know-how. Otherwise you may end up doing yourself more harm than good.
Crises Make Strange Bedfellows
Tuesday, August 05, 2008 / KW
Because I worked with Jimmy Carter on three of his books (a decade or more ago), I am on the Carter Center's mailing list for periodic reports about the ex-president's overseas travels. They tend to be a little more interesting than my family slide shows from Disney World, since they deal with things like peace negotiations, monitoring elections, and trying to wipe out infectious diseases in Africa. I guess everyone has a different idea of fun.
The latest report I received is from a trip to the Arctic that Jimmy and Rosalynn took in July aboard the Endeavor, a National Geographic ship operated by Lindblad Explorations. The passenger list was rather unusual. Carter writes:
Participants included Madeleine Albright, Tom Daschle, Chevy Chase, Larry Brilliant and Larry Page from Google, CEO of National Geographic John Fahey, Director of the Centers for Disease Control Julie Gerberding, CEO of Monsanto Hugh Grant, CEO of DuPont Chad Holliday, CEO of Aspen Institute Walter Isaacson, Governor of Colorado Bill Ritter, eBay CEO Meg Whitman, and President of Lindblad Explorations Sven Lindblad.
If you're like me, you don't know most of these people personally, but the list certainly includes some folks I think of as "good guys" and some as "not so good." (I recently saw an advance copy of a film about the industrialization of agriculture that depicts the behavior of Monsanto in the most dire terms imaginable — more on this as the movie gets closer to its release.) Of course, President Carter brought Yasir Arafat and Menachem Begin to the same conference table, so I guess he is used to being in the same room with people whose goals and motives are (to the say the least) divergent.
The entire trip focused on environmental issues. Carter spoke "regarding my experience as president dealing with an inherited energy crisis (reduced oil imports from 8.6 million barrels/day to 4.3 million/day — it's now 15!)." That much-maligned malaise speech about the need to address environmental challenges isn't looking so silly now, is it? A couple of other notable points from his report, with my comments:
The leaders of Google, Monsanto, DuPont, Aspen, CDC, Alliance of Automobile manufacturers, eBay, German CEOs of huge wind-power companies, NGOs, etc. reported on current plans and progress.
(That must have been interesting. Obviously a cruise like this would be no place to launch a fierce debate or even to ask harsh questions, but it certainly seems as though the organizations represented have one or two differences of opinion and practice when it comes to sustainability.)
Biggest international interest now is how to extract more from Arctic region (fishing, minerals, transport, military) and not how minimize global damage. U.S. has refused to ratify the Law of the Sea treaty while Russia and other Arctic nations are making claims and taking action.
(Am I crazy or does this sound like a very big problem that is not getting anything like the attention it deserves from the mainstream media?)
Overall, the U.S. (and therefore the world) can act only if the next president can inspire the public and work harmoniously with a bi-partisan Congress, business, labor, science, environmentalists, educators, news media, etc.
(While undoubtedly true, this strikes me as a fairly depressing statement, since it will take a lot more than "inspiration" to get this motley group of self-interested players to work together harmoniously.)
All in all, I'm afraid the environmental crises we are facing are going to have to get worse before we have much chance of making them better.
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.
Where Has Your Breakfast Been? Practically Anywhere
Wednesday, April 30, 2008 / KW
Check out this excellent article from the New York Times about the environmental costs of shipping foodstuffs around the globe. It's filled with remarkable facts like these:
Cod caught off Norway is shipped to China to be turned into filets, then shipped back to Norway for sale. Argentine lemons fill supermarket shelves on the Citrus Coast of Spain, as local lemons rot on the ground. Half of Europe's peas are grown and packaged in Kenya.
In the United States, FreshDirect proclaims kiwi season has expanded to "All year!" now that Italy has become the world's leading supplier of New Zealand's national fruit, taking over in the Southern Hemisphere's winter.
But perhaps the most revealing paragraph of the article is this one, which helps to explain why it (counter-intuitively) makes economic sense for food processing firms to move stuff from one continent to another:
Under a little-known international treaty called the Convention on International Civil Aviation, signed in Chicago in 1944 to help the fledgling airline industry, fuel for international travel and transport of goods, including food, is exempt from taxes, unlike trucks, cars and buses. There is also no tax on fuel used by ocean freighters.
Get that? Shipping foods around the world is not some market-tested, economically efficient business strategy developed in response to consumer demand. It's actually the perverse result of an indirect subsidy originally created for an entirely different purpose more than half a century ago.
Free-market fundamentalists often criticize environmentalists (and other non-fundamentalists) for wanting to interfere with the natural, unfettered workings of the economy, which are supposed to embody some quasi-mystical perfection. Their argument would carry more weight if those supposedly simon-pure markets hadn't already been endlessly tinkered with in order to tilt the playing field in favor of one business interest or another.
Six Ways That Businesses Are Prodding and Dragging Government Toward Sustainability
Monday, April 28, 2008 / AS
I had the opportunity to speak last week about the relationship of sustainability to public policy in Washington's chandeliered, blue-carpeted Senate Caucus Room where, I was informed, John Fitzgerald Kennedy announced his candidacy for President of the United States 48 years ago.
That was only one of the day’s many humbling moments. Another was that I was addressing an awesome group of CEOs from Massachusetts who have formed the Progressive Business Leaders Network, dedicated to creating sustainable companies and pushing for public policy that will advance sustainable business development.
(Sometimes, despite the weather, the traffic, and the persistent but badly outdated attitude that Boston is the "Hub of the Universe," I love living here. This is one of those times.)
I'm blogging today because I saved the public policy part of the presentation for last, and ended up being severely time-constrained because an annoyingly tall, tanned, and dapper senator, also from Massachusetts, showed up and took most of my air time, which everyone present, I am sure, felt was a good trade. But here is what I was going to say . . .
Companies have a mind-boggling number of ways to advance public policy in favor of sustainability. The following are some proven approaches, presented in order from least to most obvious.
Regulating government: Here I am referring to businesses applying pressure to governments to do the right thing. Over the years, a public expectation has developed (at least in some quarters) that businesses with use their influence in this way. For example, most people expect Google to stand up to the Chinese government on censorship. The big precedent, of course, is the battle against apartheid. South Africa's racist regime finally fell apart when enough businesses threatened to leave the country over the issue.
The Extractive Industries Transparency Initiative, a voluntary agreement by the oil and gas companies to publish details on bogus extraction fees or facilitation payments they must pay in certain countries, is another example of businesses working to regulate government practices — in this case bribery demanded by corrupt officials. The companies are acting in concert since they cannot hope to win by acting individually. I believe the verdict is still out on whether this is working, and I would welcome any update.
Leading government: Many companies in the U.S. are leading the administration and Congress on climate change by participating in the Chicago Climate Exchange or other voluntary mechanisms for addressing the crisis. The Wall Street Journal (subscription required) recently reported:
Mr. Bush has opposed comprehensive legislation to curb emissions. But like an increasing number of utilities and manufacturers, he is aiming to join the discussions in the hopes of shaping the debate and creating a system that won't be too costly to industry or consumers.
Well, hello, Mr. President! This breathtaking piece of reportage by the nation's leading business newspaper underscores the fact that that proactive companies have already framed the debate to the point that this administration is and forever will be on the outside looking in at one of the most important public policy issues of its time.
Partnering with government (and with NGOs): This approach is considered the holy grail by many people — the only way to get the needed traction and speed to climb out of the all the holes we are digging — and it was the basis for any progress made at the World Summit on Sustainable Development in 2002. No treaties were signed there (as compared to the five or six multi-national treaties signed the Rio Earth Summit in 1992), but 300 or so voluntary partnerships were created before, during, and afterwards. (Does anyone know how those have worked out?)
Another example: Wal-Mart met with a coalition of mayors last week, including NYC's Mayor Bloomberg and Boston's Mayor Menno, and reached (per the New York Times) a "ten-point agreement with Wal-Mart, the country's largest seller of guns, to track the sale of firearms more closely."
This is likely an important and hopefully effective partnership and I thought it was telling that the mayors, not Wal-Mart, announced the agreement. Governments now need the active participation and, in many cases, the leadership of private companies to provide even basic goods and services like public safety. Our public agencies are increasingly dwarfed in stature and effectiveness by the world's largest companies. (Remember how FEMA's ineptitude during Katrina was emphasized by the fact that some of the nation's largest companies got private rescue operations going days before the federal group of bozos figured out where New Orleans was.)
Forming your own government: Many industries are, or at least purport to be, self-regulating with various certification schemes sponsored by entire industries, including Responsible Care, established by the chemical companies in the aftermath of Bhopal, the Sustainable Forestry Initiative by the American Forestry and Paper Association, and the recent proliferation of Fair Trade certification programs. Many of these schemes have real teeth: a company cannot belong to its industry's primary trade association unless it is on the program.
Regulate as if you are government: Wal-Mart again. The behemoth has such enormous purchasing power that almost anything it says has the force and effect of law with its 60,000 suppliers. The company's recent packaging guidelines are but one example of the way in which large companies now regulate their suppliers.
Even small companies are now working with their suppliers on environmental or social issues, creating supplier codes of conduct that supplement standard contract language.
Influence the real government: This is good old fashioned lobbying, and many companies have banded together to push Congress or state legislatures for changes in law or regulation that advance the cause of sustainability, usually with their own economic self-interest in mind. (There is nothing wrong with finding that sweet spot.) US CAP consists of corporate climate leaders like DuPont and GE pushing for climate change legislation which will be good for the planet and good for business.
I like to call this "sustainability ju-jitsu": taking the sustainable side of an issue, like investing in clean coal technology and then pushing to make it more expensive for your competitors who are lagging — turning your responsibility into an opportunity and making the other guy pay.
All in all, it's a pretty amazing assortment of strategies (some of them quite new) that businesses are using to pursue sustainability — and their own corporate interests — through governmental and quasi-governmental action.
And that's more or less what I would have said in Washington last week had I not been big-footed by an actual policy maker. But it's my blog, and nobody can pull rank on me here . . . .
Friendly Adversaries — Green Activists And Environmental Executives
Tuesday, April 15, 2008 / KW
Our friend Joel Makower sends us a link to the latest issue of GreenBiz.com, one of the best online sites for sustainability news. Joel also links to stories about how diverse companies — Ford, Wal-Mart, Fiji Water, and Sierra Pacific — are all shifting their business plans in response to pressure from environmental activists. In his email, Joel then comments:
Such developments notwithstanding, my sense is that many of the environmental watchdogs have lost their bite. One reason is that while times have changed, many activists haven't. Yesterday's politics of complaint — of saying no and accepting nothing less than perfect — resonate less in a world where companies increasingly are on the march, proactively examining and addressing their impacts. With few exceptions (Environmental Defense Fund being the most prominent), NGOs haven't yet learned how to play "good cop," saying to companies the equivalent of "Thank you, now do more." It's always, "No, that's not good enough."
Still, as these stories suggest, the bad cop is still very much on the beat. This is a good thing. A healthy activist sector is much needed — and even welcomed by some corporate types. More than a few environmental professionals inside big companies have confessed to me their appreciation of activists in prodding their bosses in ways that the professionals hadn't succeeded in doing themselves. In some cases, activist campaigns justify the professionals' existence, giving them a new lease on life — or, at least, their jobs.
There's an old story about Franklin D. Roosevelt that captures some of this interplay. A group of activists met with FDR in the Oval Office to urge his support for some liberal reform (it doesn't matter what). After listening to their arguments, Roosevelt responded, "Okay, you've convinced me. Now go out and put pressure on me."
Roosevelt's point: Even a president can't always act with perfect freedom. He too faces constraints — powerful leaders in Congress, bureaucratic resistance and inertia, opposition from state and local government leaders, potential roadblocks in the courts, and so on. Sometimes a president needs "pressure" in the form of a visible, well-organized, vocal, and articulate public movement to provide him with both political cover and supportive energy that permits him to do what he really wants to do anyway.
Environmental activists can play a similar role as "friendly adversaries" for sympathetic executives inside corporate America.
Lee Scott and Bill Gates Make It Official: Sustainability Is Mainstream
Tuesday, January 29, 2008 / KW
By now, you've probably heard about the newsworthy speeches recently delivered by Lee Scott, the president of Wal-Mart, and Bill Gates, chairman of Microsoft. Scott was speaking at his company's annual start-of-the-year meeting, delivering what amounts to his "state of the company" address and setting corporate goals for the coming year. Gates was addressing the world's richest and most powerful business and political leaders at Davos. You can find the complete text of Scott's remarks here, Gates's comments here.
The speeches have gotten a lot of press because each, in its own way, offered a challenge to traditional views of capitalism and a call for a new direction, one that makes human, environmental, and social needs a corporate priority alongside profit.
Scott emphasized the leadership role that Wal-Mart can play in the world because of its vast size and influence:
It is important for all of us to understand that there are a number of issues facing the world that will profoundly affect our lives and our company. I am talking to you about issues like international trade, climate change, water shortages, social and economic inequities, infrastructure and foreign oil.
You may be wondering: "What can Wal-Mart do about issues as big as these? What can I do?" I will tell you that people have always looked at Wal-Mart as a problem solver. Over the course of nearly a half-century, we have helped hundreds of millions of people stretch their monthly budgets and make ends meet. But now people are looking at your company in a brand new light. They are seeing a retailer take on tough challenges and make a difference.
This is powerful for all of us. We live in a time when people are losing confidence in the ability of government to solve problems. But at Wal-Mart, we don't see the sidelines that politicians see. And we do not wait for someone else to solve problems that might hurt our business or affect our customers in a negative way. We have a culture of teamwork, a culture of innovation, and above all, a culture of action.
In the years ahead, we might not be able do everything that everyone wants us to do. But we will do things that need to be done and that you and your company can do. Wal-Mart can take a leadership role, get out in front of the future, and make a difference that is good for our business and the world.
Scott then went on to list a number of specific initiatives he was launching to help Wal-Mart fill this leadership role — by providing more affordable health care for its associates and customers, promoting energy-efficient appliances and fixtures, and improving control over its supply chain to ensure humane and sustainable production practices.
Gates's speech was more abstract and theoretical:
As I see it, there are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in a helpful and sustainable way, but only on behalf of those who can pay. Government aid and philanthropy channel our caring for those who can't pay. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.
Such a system would have a twin mission: making profits and also improving lives of those who don't fully benefit from today's market forces. For sustainability we need to use profit incentives wherever we can. At the same time, profits are not always possible when business tries to serve the very poor. In such cases there needs to be another incentive, and that incentive is recognition. Recognition enhances a company's reputation and appeals to customers; above all, it attracts good people to an organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive. . . .
I like to call this idea creative capitalism, an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world's inequities.
It's pretty remarkable that these two major business leaders are offering such similar, compatible messages at the same moment in history — a bellwether of changing attitudes that history may find significant.
And equally significant, I think, has been the reaction to the two speeches. Based on my scanning of the world's media, it is both overwhelmingly positive and surprisingly matter-of-fact. Few commentators are responding with shock or even surprise; a more common reaction is, "Of course, this makes sense, let's get on with it." It doesn't appear as though Scott and Gates are out in front of public opinion or even corporate opinion on this issue; rather, they are basically in tune with it and responding to it (which is of course exactly where smart leaders want to be).
Surprisingly few dissenting voices have been heard. In the Washington Times, unreconstructured free-marketeer Larry Kudlow offered a grouchy complaint about Gates's speech:
Bill Gates, bloviating at the World Economic Forum in Davos, Switzerland, is issuing a clarion call for a "kinder capitalism" to aid the world's poor. Mr. Gates says he has grown impatient with the shortcomings of capitalism. He thinks it's failing much of the world.
This, of course, from a guy who's worth around $35 billion (give or take a billion). Don't you just love it? A guy without a college degree who invented a new technology process in his garage that literally changed the entire world, a guy who took advantage of all the great opportunities that a free and capitalist society has to offer and got filthy rich in the process, is now trashing capitalism and telling us it doesn't work. What chutzpah.
Of course, one could easily turn the logic of Kudlow's column back on itself. Who better to offer a reasoned, informed critique of capitalism than the likes of Bill Gates and Lee Scott, two of its most successful practitioners? If these men, having both conquered and benefited from the world of traditional business, believe that a new frontier for capitalism offers even greater potential, who is Larry Kudlow to dismiss their insights as "bloviating"?
(And by the way, isn't it amusing to see someone like Kudlow, the arch-defender of capitalism, denouncing Gates for his wealth and his supposed hypocrisy with all the gusto of an old-time Marxist? I guess Kudlow admires successful entrepreneurs only so long as they agree with Kudlow about how the system is supposed to work.)
In fact, both speeches indirectly expose the self-contradictory nature of much free-market fundamentalism. Dogmatic defenders of laissez-faire, like Kudlow, insist that the only legitimate goal of business is profit maximization. They also insist that the best government is minimal government, which interferes with individual initiative as little as possible, keeps taxes to a bare-bones minimum, and leaves people in need either to fend for themselves or to rely on charity.
The problem with this philosophy is that, in effect, it provides no pathway by which society can pursue broader human, social, and environmental goals — feeding the poor, protecting the environment, educating and housing the needy, making health care universally affordable, and so on. Free-market dogma forbids businesses from pursuing these goals, and it forbids governments from pursuing them as well. Which leaves — who? The Salvation Army? The Red Cross? If groups like these were capable of solving the problems facing the world, and especially its bottom billion, those problems would have been solved by now.
After a generation of conservative ascendancy in government and business, the social void is too big to ignore. That's why business leaders like Gates and Scott are explicitly pointing to the failures of government and proposing that business step up to fill the gap.
Pace the Larry Kudlows, most people want to live in a world where basic human needs are met, the environment is protected, and extreme poverty and needless suffering are minimized. Gates and Scott are proposing that business can help us attain these objectives, and can do so by harnessing the creativity of the free market.
This belief, once on the fringe of corporate thinking, is now in the mainstream — and that simple, remarkable fact is the true significance of the Gates and Scott speeches.
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.
Dipping Your Toe in the Lobbying Waters: Some Good Advice For Small Businesses
Saturday, September 29, 2007 / KW
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.
