Sunday, March 22, 2015

The Paradox of Corporate Philanthropy

I sympathize with companies that do their best to demonstrate to society that they are good corporate citizens.  In the past, the norm was for companies to contribute to any possible charity to demonstrate that they have a conscience, despite heavy criticism for the negative impacts their business has on society.  But these companies have received a lot of slack for contributing to causes that have little or nothing to do with their business, claiming that they are doing so as a cover up for what constitutes their daily core operations as a business.  In response, companies have worked to connect their philanthropic endeavors with their core products and services.  Wal-Mart gives millions in grants to nonprofit organizations to provide training and education for their retail workers to help address the chronic problem of low pay in the retail sector. Coca-Cola has as its priority areas water conservation in response to the drain their core operations have on water resources.  They have recycling programs to counter the negative environmental impact of waste their products produce.  They also promote active healthy living to counter the association of their products to obesity.  In both cases, their philanthropic endeavors are aiming to address major social or environmental issues for which their company and industry are largely responsible.

Ironically, doing so oftentimes illuminates the corrosive nature of their business.  This is because companies typically justify why they are contributing to a particular cause by explaining how pervasive and serious the issue is.  But they rarely connect the severity of the issue they are trying to address with their own operations, leaving them quite vulnerable to criticism as eager corporate critics pounce on the hypocrisy.  The anti-corporate message is appealing because it criticizes companies for contributing residual profits to a cause that their own operations is helping to create rather than looking in the mirror at their own operations to curb the impact they have on these issues.  These companies continue to use the old wealth distribution model where they set out to maximize profit levels and then from those profits donate a small percentage to address the negative externalities they helped to create.  Dow Chemicals is one such example where they contributed to a charity organized by Al Gore to improve clean drinking water.  But a major cause of polluted drinking water is the many chemicals developed and produced by Dow Chemical that ends up in water systems.  

The Dow Chemical example is a bit more discreet unlike other examples where companies are a bit blind by the hypocrisy of their efforts.  Consider Tim Horton’s SmileCookie program that aims to raise money by contributing 100% of the proceeds from cookies sold to children food nutrition programs.  In this example, Tim Horton’s is aware of the obesity issue but rather than focus on exercise and healthy living as the charity of choice, they target the lack of nutritional knowledge associated with the very crap that can be found in their food.  But the ironic thing is that they do this by selling the very product that spawns the need for the charity.  This is a comedy skit waiting to happen. 

While the above is quite comical, there is a darker side to recent philanthropic trends that I think was brought out in a report criticizing the Ronald McDonald’s Children’s Charity. Companies are constantly criticized for marketing products that create high levels of environmental and social harm in some cases to the point where they are prohibited from doing so.  Marketing fast food to children, for instance, has become a marketing faux pas.  The report I mention above found that the Ronald McDonald’s Children’s Charity is a sneaky yet affective way to overcome McDonald’s inability to market to children directly.  Like the Tim Horton’s example above, McDonald’s can promote its products under the guise of a charity because it’s suggesting that by purchasing their products, people are contributing to a worthy cause. 

So how do companies avoid the onslaught of criticism that ultimately comes back to haunt their brand down the road?  Or, perhaps more importantly, how do employees of these companies that aren’t particularly comfortable by this hypocrisy go about changing this?  Companies need to realize that philanthropy – whether it’s related or unrelated to its core business – will always be ripe for criticism.  And while it might provide companies with a temporary marketing edge, not only can it be easily replicated by competitors, the downside risk of the above hypocrisy is massive.  Companies need to stop trying to have their cake and eat it too by making billions off of the backs of society yet looking good through charitable donations. Consumers, employees, and shareholders are increasingly seeing through it. 

The opportunity for strategic competitive advantage comes to those companies that climb the proverbial waterfall and make a genuine effort to address the underlying cause of the issue they are proclaiming to address.  This means challenging norms in their industry, revolutionizing the existing product or service portfolio, creating industry level social and environmental standards, building networks of actors who possess the necessary complementary capabilities to shift the system of activity that is highly entrenched in their industry.  Those companies that take on these tasks have figured out how to embed sustainability and corporate responsibility into whatever they do.  Philanthropy doesn’t make much sense to them because they would rather use those resources to further entrench a competitive position that leaves their competitors relying on a philanthropy strategy that is highly replicable.

Wednesday, February 11, 2015

Student Stress in Business Schools: For What?!

This week my students wrote their midterm exams.  The exams only take up half of the class, so I used the rest of the class to discuss the topic of stress in the workplace. No doubt the onslaught of exams and assignments due right now provided them with a way to personalize the key messages of the textbook.  I began the discussion with an alarming study done by the Association of Universities and Colleges of Canada where they found that of 30,000 post-secondary students surveyed:

  • 89% were overwhelmed by obligations
  • 54% have feelings of hopelessness
  • 64% felt lonely in the last 12 months
  • 56% felt overwhelming anxiety
  • 10% seriously considered suicide

Even more interesting was that the study attributed stress and anxiety as the two main causes of poor academic performance, each explaining 39% and 28% respectively. 

What struck a chord with me is that my students didn’t seem at all surprised by these statistics.  In this backdrop of unprecedented student stress, I then asked them to think about what might be causing this level of stress in their lives and of the lives of a good chunk of the 30,000 students in the study.  I was quite taken by the honesty of the opinions put forward by my students.  But I was more importantly concerned by what they were telling me.  What came from this discussion was an expression of immense pressure imposed on them by those who ironically were meant to support and nurture them.  Students discussed the role of their parents in setting expectations that were highly unrealistic, such as the need to maintain the 91% average that got them into university even though the expected average of undergraduate students during the program is 77%.  In addition, although business programs tend to admit students on the basis of a balance between good grades and a demonstration of leadership, commitment to extracurricular activities, and community involvement - the very things that might reduce their stress level - these very programs all but snuff out these latter qualities by failing to reward them for continuing along these lines.

Another point of discussion was the stress levels associated with getting good grades that impact their ability to get a job upon graduation.  There is a sense among students that their grades are paramount in determining whether or not they will succeed in life, despite the fact that a majority of employers do not look at grades.  In my teaching career, and even compared with my own time as a business student, I have witnessed an increase among students in the prioritization of getting a job and a simultaneous relegation of what many would argue is the spirit of university life: to learn, contribute to a learning community, develop as a person, give back to the community. 

I worry that this has particularly important consequence for business students.

Consider a recent US study done that compared satisfaction levels of university/college graduates across different degrees (e.g. business, humanities, science).  They found that only 37% of business graduates were deeply interested in the work that they do, which is significantly lower than graduates in non-business disciplines where 45% were deeply interested.  What is particularly striking is that business graduates lag behind their non-business peers in “liking what they do each day and being motivated to achieve their goals”.  And all of this comes with a slap in the face as business graduates are not making any more than their non-business counterparts. While this is a US study, I have a sinking suspicion that the same results would emerge in Canada.

So if I were a business student, I’d be asking, "Why am I going through all this stress when it’s only going to lead to huge dissatisfaction in the job I’m in afterwards in comparison with my non-business peers?".  These studies suggest to me that we have imposed on our students an expectation that they endure high levels of stress and anxiety for jobs that they don’t really care about doing. 

To this very point, I was in a meeting a couple of years back when one of my colleagues was befuddled by the fact that a majority of our undergraduate students go on to jobs in what are known as the ABCs – Accounting, Banking, and Consulting.  He wondered why so few of our graduates are interested in jobs at Google, Amazon, Apple, Facebook or their equivalents.  Notice that unlike the ABCs, these jobs create new value for society by introducing products or services that have the potential to revolutionize how we live and resolve some of the most important problems we endure today.   In fact, a study done a few years ago by economists Stephen Cecchetti and Enisse Kharroubi found in a 2012 study that when too many business graduates go to the finance sector, economies decline because strong talent is wasted for financial projects that don't do much to create growth over the long haul.  

At the beginning of the term, I asked students to fill out a profile card to tell me a bit about them.  During the coffee breaks of each class, I ask students one-on-one for elaboration of what they’ve written on their profile.  From these conversations, I’m constantly amazed by the passion they exude for particular things, their diverse backgrounds, interests, hobbies, uniqueness and their general perspective.  But there is a sad but real disconnect between these characteristics and what they indicate, in the same stroke of their pen, as their area of intended specialization in business - the ABCs - even though they are passionate to do much more.

Rarely do business students get credit for engaging in activities that do not fall within a narrowly defined scope of business acumen, a model of curricula that predates even my time.  When I think of it this way, I’m not entirely surprised by the stress and anxiety levels of students and the lack of satisfaction and meaning they get from their jobs post-graduation. 

To any business students reading this right now, in the midst of the daily pressure of writing your exams and completing your assignments, try to infuse your time here with what university was meant to be about – self-development, learning, harnessing your passion, and finding meaning.  Not only will this help manage your stress level, it will also ensure that you find yourself in a career that is meaningful, has purpose and interests you to your core. 

Saturday, October 25, 2014

Tim Hortons: Hiding Behind A Façade of Corporate Citizenship

Tim Horton’s is an iconic Canadian brand, known for its doughnuts and signature coffee that I’ve recently learned is a top secret recipe known only by three people.  Indeed, it’s critical for Tim Horton’s to keep this intellectual property out of the hands of competitors especially given the fact that many visitors to  Canada liken the coffee to the liquid that would ring out of soaked dirty dress socks. 

This past week, I attended a presentation by the manager of sustainability at Tim Horton’s that outlined the many impressive initiatives the company pursues across social, ecological and economic dimensions.  They have a coffee partnership with coffee farmers, an aboriginal community initiative called Horizons, LEED-certified retail stores, an alternative hen housing system for 12 million sourced eggs, and millions of dollars donated to various charities including Timbits Sports.

But there were a few things that left me puzzled.

Canada’s largest fast food service chain touts the range of healthy options they provide consumers.  Yogurt, soups, sandwiches and “fresh” fruit smoothies.  An added benefit is that the smoothies are void of any fibre and protein, which we all know are two destructive ingredients to the human body.

Wait, what? 

No fibre or protein in the smoothie means that Tim Horton’s doesn’t put any fresh fruit into the blender.  Nope, why use fresh fruit when they can just use purees and juices, which slow down the pace at which consumers assimilate the sugar that fruit naturally contains.  No doubt our society is facing a major epidemic of skinniness because we are assimilating sugar too quickly.  So thank you Tim Horton’s for doing your part to slow things down and fatten us up a bit. 

So what if the Smoothies’ 30 grams of sugar is more than the sugar content of a Tim Horton’s doughnut!  In comparison to all those sugary drinks and sports drinks on the market today, Tim Horton’s smoothies are technically healthier.  I can just see the marketing slogan now, “Drink Tim Horton’s Smoothies, we only shorten your life by 15 years not 20 like leading competitor brands”, or how about, “Tim Horton’s Smoothies, not as bad as soda”.  

Then there is the yogurt.  Plain Greek yogurt has 6.5 grams of sugar per 6 ounces of yogurt while regular plain yogurt has 12 grams of sugar per 6 ounces.  Tim Horton’s yogurt has 25 grams of sugar per 6 ounces of yogurt.  To put this into perspective, a can of Coca-Cola has 19.5 grams of sugar per 6 ounce.  Or take something of similar substance to yogurt like chocolate pudding.  There are approximately 30 grams of sugar per 6 ounces of chocolate pudding.  You mean to tell me that all this time I’ve been eating yogurt and fruit when I could have been eating chocolate pudding?!?!

But nothing shows Tim Hortons “commitment” to the community than its Smile Cookie program.  At the beginning of a video clip I posted below, the caption reads: “Tim Horton’s believes it has a positive role to play in enabling communities to thrive and grow”. 

The once a year event sees franchise owners bake and sell chocolate chip cookies with icing happy faces.   100% of the proceeds go to over 500 charities. The charity chosen by the franchisee in the video is…

Wait for it…

Here it comes…

“Nutrition for Learning”. 

Later in the video, Brian Banks, Community Development Officer of Nutrition for Learning, struggles with the hypocrisy of the whole initiative when he says, “Nutrition for learning is all about enhancing the ability of every student to get a proper education by having the proper nutrition throughout the day”. 
There are comedians out there praising their own god for this sort of hypocrisy because they honestly couldn’t write anything better than this.  The video continues with: “Over 3200 students will have the proper nutrition throughout the day to make sure that they can focus on learning”. 

Are you kidding me????!!!?!?!? 

Let me put this simply:  You’re selling cookies – the same sort of products that dominate the shelves in your 4592 stores across Canada that likely have the same or similar nutritional value as your unhealthiest donuts that contribute to a national obesity epidemic – to raise money for nutritional education among children.  Do you realize how hilarious this is? 

The Smile Cookie Program is like Air Canada giving away free flights to help educate air travelers of the worst possible service experience in the airline industry.  Or AT&T or Verizon in the US or Rogers and Bell in Canada contributing a portion of their internet service fees to fund a consumer education program about how much consumers “get it up the ass” on a consistent basis from the telecommunications industry.

Here’s some advice Tim Horton’s…how about you shift the program to one where you try to sell as many cookies as possible to show the negative effects of these cookies on society as the means by which you educate children.

In other words, sell the cookies to show children that you really shouldn't eat these cookies!

Here's the video, that will surely warm your heart.

What gets me the most about Tim Horton’s is that they proclaim to be a company that delivers quality products to communities.  But do we understand the real impact that Tim Horton’s has on their communities?  They use a classic profit distribution approach to corporate citizenship where they make huge sums of money off the backs of the obese and then use part of that money to resolve any pent up guilt or stakeholder pressure to stop by contributing money to charity. 

This is no different from my post on CIBC’s Run for the Cure program where the bank claims to support cancer research yet continues to provide capital to the very companies producing or emitting the chemicals that cause cancer.   Tim Horton’s has done a great job at marketing a façade of corporate citizenship that masks their underlying business model which, unfortunately, will go down in history as one of the major contributors to Canadian obesity in the 21st century. 

I get very frustrated as a business professor when companies aim to have their pie and eat it too in the sense that they get to bathe in the profits that come from their core operations that cause harm to society yet at the same time disguise this very act through impressive marketing campaigns that show how wonderful they are to the community.

At the end of the day, I don’t mind that there are companies out there that provide consumers with unhealthy food or toxic products that leach into their bodies, or banks that loan to dirty companies.  What gets me is when trained marketers of these very companies – or more egregious the social responsibility employees in these marketing departments – create the image in the minds of consumers that they have made dramatic improvements and that they are taking sustainability and social responsibility seriously. 

That’s the problem. 

There is no doubt in my mind that when looking at the net impact companies have on society, those that are honest and transparent about who they are and what they represent, even if they produce toxic products, are better for society than those who are dishonest about who they really are.  In other words, Harvey’s doesn’t hide the fact that they are the unhealthy option but a company like Tim Horton’s, in their broad market pitch about community commitment, is dishonest about its role in society when you net out the negative effect of their products with their seemingly positive effects of the charity programs and social responsibility efforts. 

Sunday, September 7, 2014

I’m Starving!

Last Thursday afternoon, having forgotten my lunch at home, I spent an hour trying to find something to eat.  I walked and drove up and down a number of streets in a small corner of the GTA, passing by 4 Tim Hortons, 3 Pizza Pizzas, 8 Subways, a Wendy’s, a KFC, 2 McDonald’s, and a Pizza Hut.  One day later, driving north from Toronto on highway 400, I was overtaken again by hunger.  I passed a couple of large service stations that had a wide array of food options from Pizza Pizza to Starbucks to Wendy’s to McDonald’s to Tim Hortons.  Avoiding these, I then I took a number of exits between Toronto and Barrie but had no luck in finding something that would cure my appetite. 
Some might say that my ravenous hunger was left unresolved because of the overwhelming selection that paralyzed me with decision anxiety.  Others might say that I must just be an elitist food snob who just can’t bring himself to fast food outlets unless they serve lattés and filet mignon.  Nope, that’s not it.  I just prefer not stuff my body with food that will kill me prematurely!

Over the last several years, it seems harder and harder to find something relatively quick to eat that doesn’t involve ingesting crap!  There are several reasons for this difficulty, but here are two:  First, knowledge of what constitutes unhealthy food has grown substantially in the last decade so people's awareness of what to stay away from now casts a fairly wide net around many food outlets.  Oh, how the phrase “ignorance is bliss” carries particular relevance right now.  Second, major routes and populated areas are overwhelmed with a relatively small number of familiar brands that may seem diverse on the surface (pizza versus subs versus hamburgers) but are in fact identical in the egregious ingredients that make up their menus. 

If one wants a legitimate reason why obesity has become such a major issue in our society, you only need to consider that, in the two scenarios above, my options are to starve myself or succumb to what is available to the mainstream public.  I balk at those pundits, especially those from the food and beverage outlets themselves, who argue that obesity is a matter of personal responsibility where consumers need to simply choose those foods that are healthy for them.  But this argument assumes that consumers do have a choice in the market.  Consider a young family or single mom in a suburban neighborhood with their children famished after a day of school shopping.  What are the parents’ options?  How can they be responsible when their options are 1) to feed them this deplorable food or 2) to avoid these outlets and let them starve?

An Ottawa food bank declined to provide those in need foods that don’t meet nutritional standards such as Kraft Dinner, hotdogs, pop, potato chips, candy among other foods.  Although the manager has received tremendous slack from critics arguing that some food is better than no food, she argues the whole point of helping people is to make sure that the food available to them isn’t going to make their situation worse.  First of all, shame on those donors who provide food banks with the bottom of the so-called nutrition barrel.  Ya, let’s stick it to those welfare leaches!!  Second of all, it’s no wonder that there is a strong correlation between income level and obesity rates when you have the cheapest unhealthy food widely available to the poor.  Third, recipients of the food bank are in an even more precarious position when it comes to food choice.  Blaming these people for being a burden on our health care system would be like the Police in a small Missouri town beating the crap out of an unarmed black man and then suing him for bleeding on their uniforms.  Oh wait, that already happened

In the fog of a totally screwed up restaurant industry, there is a beacon of hope and opportunity for those moral entrepreneurs who want to fill a clear void in healthy alternatives to match an ever-growing demand by increasingly educated consumers.  If you see a middle-aged Italian wondering the streets a bit pale with hunger, I’m interested in spending some cash for something, anything that doesn’t shorten my life or push me into the next weight bracket.

Tuesday, April 1, 2014

Thank You Menchie's for Promoting a Healthy Lifestyle

Just the other day, I took my family to Menchie’s, a new frozen yogurt franchise, among a growing number of self-serve frozen dessert locations popping up in and around the greater Toronto area.  While eating my pure chocolate and cupcake frozen yogurt covered with an array of toppings, my wife and I scanned the store and were pleased to note the many health claims of the Menchie's brand:

“Menchie’s yogurt comes from ‘Happy Canadian Cows’”

“Our frozen yogurt contains live and active cultures that promote a healthy lifestyle”

“Canadian milk contains protein and calcium for healthy lifestyles”

Finally, an alternative dessert option that really understands our values.  I mean who wants yogurt from those oppressed North Korean cows or those socialist French cows or those Chinese cows that are ruled under a dictatorship.  And unlike Canadian milk, cows in countries like Japan are stuffed with uranium and plutonium and those Italian cows, well, we know they are merely vessels to transport money, drugs and sopressata for the mafia. 

Menchie’s yogurt contains the live and active cultures found in real yogurt.  Never mind that it’s the 6th ingredient after sugar, corn syrup solids, skim powder and stabilizer.  That’s missing the point.  Menchie’s has worked hard to eliminate ingredients like high fructose corn syrup from its yogurt and instead has glucose-fructose, propylene glycol, citric acid, ethyl alcohol, and sodium benzoate. 

And to those cynics out there who proclaim that this is just as bad, let me remind you of the alternative socialist regime where options beyond sliced bread are limited.  A capitalist society requires that we forgo our health for the greater good…of Menchies.  Menchie’s has to have some unhealthy ingredients in its products, otherwise it would cease to exist.  I mean, there are no other options.

Think about it, natural yogurt ingredients are prohibitively expensive.  Why waste time with natural ingredients when we can replace them with cheap artificial ones?  Sure, corn isn’t a natural ingredient in yogurt but it’s really cheap so why not replace some of the more expensive natural ingredients with corn syrup solids and guar gum?  And to those leftists out there who argue that it’s not really yogurt anymore, all we need to do is add the vitamins and active cultures afterwards.  What’s the difference?

And what about the flavours?  One option is to use real food such as mango slices or pure mango juice in the yogurt.  But why do that when you can simply engineer flavours.  Let’s be honest, the 4 billion years it took to create the complex array of chemical components found in nature’s bounty is no match to the intellectual prowess we gained these last 200 years in chemical engineering.  That’s why Menchie’s prides itself on a team of taste engineers who can engineer flavours without having to resort to the use of natural ingredients.  Take blue raspberry, for example (what the f*&* is blue raspberry?).  Sure one option is to combine blueberries and raspberries to provide our customers with the nutritional value of real fruit, value that nature figured out a long time ago.  But that’s really expensive and difficult to work with.  Not only that, we’re way smarter than Mother Nature.  Another option is to create the impression of blue raspberry with a picture of a blue raspberry at the dispenser that disguises the fact that what constitutes the flavour is sugar, water, citric acid, natural and artificial flavours, potassium sorbate, sodium benzoate, and food colouring blue #1. 

Another reason why Menchies avoids the burden of nature’s bounty is because they are so very excited to see us again.  You see, nature doesn’t have the same level of addictive qualities found in refined sugar.  That’s why they have a wide array of toppings that, on the one hand are so incredibly cheap, but on the other psychologically wire you to come back for more.  And no doubt we as consumers are eager to return.  So why bother providing real fruit and real yogurt when all we’re going to do is return at a rate that would keep obesity levels at an all time low.  Who wants that? 

No, thank you Menchies…thank you for a revolutionary business model that reverse engineers Mother Nature and provide us with what we really need – ingredients that are as cheap in cost as they are in nutrition and that share addictive qualities of tobacco.

Monday, February 3, 2014

The Reinvention of Shoppers Drug Mart

Shoppers Drug Mart is no doubt an iconic brand here in Canada.  With over 1200 retail outlets across the country, Canadians can count on this leading drug store retailer to provide us with the vital medicines we all need to survive and flourish in the modern age.  Founder Murray Koffler’s ambition was to “build a national organization of pharmacies without sacrificing the personalized service of the local community pharmacist”.  Yes, indeed, it’s that personal touch we get from those community-oriented employees.  Never mind that these wages oftentimes prohibit them from living in the very community they work in. 

But that’s just the realities of the free market. We can’t obstruct that which has provided us with so much good.   As a reputable, responsible company, they can’t go around paying people community living wages and still benefit from sky high margins that come with pricing well beyond their competitors.  Where else can you see discrepancies in prices as high as 40-50% range compared with their competitors?

 And it’s indeed the spirit of this free market we so hold dear that brings us the many innovative and life-saving products that now populate today’s Shoppers Drug Mart.  Just walking through the doors, consumers are instantaneously greeted with the light aroma of toxic chemicals that pervade their cosmetics and beauty products section.  And at one-third of the store’s footprint, you can’t possibly miss it.  And what about all the wonderfully processed food that can wait months on shelves for us to purchase them, topped off by a barrage of refined sugar and salt packed confectionery products that together make up a second third of the store. 

But be weary of those liberal pinko critics who lambaste such a fine community citizen as Shoppers drug mart.  All we need to do is look at the remaining third of the store, spearheaded by a responsible pharmacy with professionals in lab coats meant to put to shame any claim of hypocrisy put forward by those leftist 'nutbars' as my idol Kevin O’Leary would likely put it.  Sure, it may be strategically placed so that you have to walk by the high margin beauty products on the way in accompanied by a barrage of advertisements telling you how unhealthy a lifestyle you lead or the high margin addictive salt, sugar and fat products you need to pass on the way out that are linked to one of society’s greatest health epidemics.  But that’s beside the point.

What’s important here is that Shoppers Drug Mart is there to provide you with all the health care products you need to cope with the irritated eyes and skin, headache, heart disease, stomach ache, diabetes and obesity that you’ll likely get as you consume the rest of the products in the store. 

Ladies and gentlemen, Shoppers Drug Mart is truly a pioneer in the one-stop shopping experience where you can literally start with products laced with cancer-causing chemicals then move on to the processed food aisles, not to fret because you can just pick up the health remedies you need to overcome the onslaught of destruction to your body.  Indeed, the free market is really the only mechanism where a company, calling itself a community citizen, can survive by bringing their consumers to the brink of death only to revive them for another round of shopping.  After all, who would buy their health products if its own consumers weren’t overwhelmed with addictive products, accompanied by coercive advertising?  We can’t have them promoting natural beauty or fresh fruits and vegetables.  Where’s the money in that?  More importantly, they’d be out of business if they didn't provide us consumers with the products with consequences that guarantee a market for expensive health care remedies.

Tuesday, November 12, 2013

Business' Role in Social Problems: Villain or Hero?

Business strategy scholar Michael Porter recently presented a TED Talk entitled “Why business can be good at solving social problems”.   While I admire his optimism, he tends to ignore some very fundamental business strategy frameworks that not only contributed to the social problems he’s talking about but would ultimately usurp any ambition to resolve them.  I present three of his main messages and then discuss what I believe he fundamentally overlooks.

1.  Business as Source of Problems:  Porter motivates his talk by remarking on the growing consensus that business is seen as the main contributor to today’s societal problems rather than the solution.  That said, he appears to struggle with “why we’re having so much trouble dealing with these problems”.  I’m fascinated by this because he fails to connect these social problems to the very frameworks that he devised three decades ago.  Back in the 1980s[1], Michael Porter started building an iconic name in business strategy when he flipped around the industrial organization (IO) model that associated firm conduct and performance with industry structure.  In this economic model, firm returns are a function of certain industry conditions such as entry barriers faced by entrepreneurs, the number and relative size of competitors, the existence and degree of product differentiation in the industry, the amount of power buyers and suppliers have in the industry and the number of substitutes available.  As business scholar Jay Barney explained in 1986[2], the IO model was developed to assist government policy makers to achieve “socially optimal levels of intra-industry competition” by devising regulation that would structure industries in ways that maximized benefits for society.

In his development of a normative theory of competitive strategy, Porter and other strategy scholars turned the policy objectives of this model upside down.  Rather than use this model to assist policy makers to keep industries more competitive, strategy was born with the idea that business, in their effort to generate greater profit, should focus on creating or modifying industry characteristics in ways that generate higher returns.  In effect, firms should create higher barriers to entry, reduce the number of competitors, reduce buyer power by increasing product differentiation, eliminate substitutes, and reduce supplier power by achieving market power or holding suppliers hostage.   We see this behaviour all the time as part of routine business practice.  The blatant irony in Porter’s talk is that the main reason why societal problems persist today is that business graduates enter management with an injection of competitive strategy thinking that advises them quite explicitly to appropriate the value that would have otherwise gone to society.

2)  Business as Part of the Solution:  Porter spends a lot of time explaining why business has to be part of the solution.  To do so, he tends to revert back to the bare bones of capitalism that Adam Smith introduced in the 1700s.  The whole point of capitalism is to represent an efficient mechanism through which resources can be allocated to address social issues/needs.  Porter explains that, unlike other actors in society, business is the only actor that can generate the wealth needed to scale the solution to social problems.  Profit, he states, is “magic” because it allows business to reinvest capital into a solution to a societal problem so that it can be sustained and scaled.  He brags that other actors in society, be they non-governmental or governmental organizations, are completely dependent on the business enterprise to generate this wealth that would then be distributed in the form of taxes to governments and donations to NGOs. 

While he acknowledges the unprecedented growth of NGOs in recent decades, he doesn’t at all attribute this growth to the fact that the conventional non-governmental actor – business – has failed to do its job as Adam Smith had intended.  Ironically, Porter advises that we go back to business as the solution, as it was originally intended, even though his teachings have instructed business on how to usurp this system for its own ends, which created the NGOs in the first place. 

Porter explains that NGOs and governments have not always appreciated the connection between social and economic value.  In his 2006 article entitled Strategy and Society [3], he explains that “if governments, NGOs, and other participants in civil society weaken the ability of business to operate productively, they may win battles but will lose the war, as corporate and regional competitiveness fade, wages stagnate, jobs disappear, and the wealth that pays taxes and supports nonprofit contributions evaporates” (pg. 83).  His point is that NGOs fail to grasp the idea that healthy societies need healthy business, explaining that “no social program can rival the business sector when it comes to creating jobs, wealth, and innovation that improves standards of living and social conditions over time”.  He explains that governments and NGOs forget the “basic truth” that “by providing jobs, investing capital, purchasing goods, and doing business every day, corporations have a profound and positive influence on society.  The most important thing a corporation can do for society, and for any community, is contribute to a prosperous economy”.  Porter appears to criticize non-business actors for not acknowledging the role of business in society, almost to suggest that had these non-business actors realized this, we wouldn’t have the problems we have today. 

What drives me absolutely bonkers about this rhetoric is that Porter’s referral back to basic capitalism ignores the very fact that despite this model being introduced in the 1700s, business strategists in the last few decades have advised managers on how to avoid creating value for society and to instead appropriate value from society.  Porter is silent on this and instead offers a Utopian solution that suggests that business should really do this because it makes business sense to do so.  But if it did, then why are so many businesses resisting?  Porter blames this on short-termism.   The reality is that since Porter’s scholarly work in the 1980s, business has grown quite effective at taking his teachings to an unprecedented level.  For instance, why bother pursuing the arduous task of addressing societal issues when you can create an industry structure that generates more profit?  Why bother meeting consumer needs when you can manipulate those needs or at the very least reduce consumer power and choice to products/services that allow you to capture more profit?  Porter essentially taught business to manipulate those very structures that were meant to encourage them to address social needs.  Interestingly, when we line up the key time periods when things when irreversibly ‘south’ for society, we see a rather striking correlation with the timing of Porter’s teachings (see adjacent figure below). 

3.  False Tradeoff.  Porter ends his talk by highlighting the false tradeoff that tends to exist in the minds of managers between profit and social good.  For instance, it is costly to create a safe working environment or to reduce pollution.  He argues that the reality is the opposite by referring to the proverbial low-hanging fruit where businesses can save on costs if they pollute less because they are more efficiently using resources or if they create a safe working environment because there are less accidents and productivity levels increase.  To Porter, there is a fundamental synergy between business and societal goals. 

No doubt there are many examples of business demonstrating this sort of synergy.  Scholars and practitioners have been talking about social entrepreneurship quite extensively for over a decade; much of what Porter is referring to is not new.  But let’s try to understand why these sorts of examples are not dominating business behaviour.   Again, it is important to go back to the fundamentals of strategic management that Porter helped establish.  One of the primary reasons social entrepreneurs and NGOs struggle is because they are typically up against a system that is rigged against them.  Consider entrepreneurs in green energy.  Despite climate change and our dependence on fossil fuel sources of energy representing a major social issue, these entrepreneurs are up against a very aggressive lobbying effort to erode any political effort to regulate fossil fuel intensive industries or to subsidize green energy initiatives.  Or consider Better Place, an innovative company that aims to establish a transportation platform that would replace the internal combustion engine.  There is no doubt that despite the fact that many of today’s social issues can be traced to oil, there have been and will continue to be a small group of very powerful interests that will work hard to make sure this business model doesn’t happen. 

Now where does this behaviour come from?  Remember how the industry-conduct-performance framework was meant to assist government in regulating industries so that they remain competitive and committed to societal interests?  Well corporate political activity, a branch of business strategy, studies how companies work to manipulate the political landscape in ways that favour their interests.  This is precisely what Michael Porter advised companies to do when he suggested that business should work to create favorable industry environments.  By favourable, one can easily extend that to favourable political environments.  Rather than sit passively and hope that such a regulatory environment will emerge for your business, managers have learned to create such environments.  This sort of behaviour takes place all over the world as many activists refer to crony capitalism and the realities of our plutocracy.    

As a business strategist myself, it’s repugnant to see Michael Porter standing up on TED touting the need to unleash the power of business and the capitalist system as if society was unaware of what this system was intended to accomplish, completely ignoring that it was his teachings and frameworks that played an important role in derailing this system.  The core issue is not that the model is wrong.  I agree with Porter that business can be a critical actor when it comes to social issues because it does have the power to generate the residual capital to reinvest and scale the solution to some of our most intractable problems.  The issue is that the power imbalance among societal actors, alongside the neoliberal ideology that dominates our global economy, has allowed business to usurp this model to achieve its own ends at the expense of society.  Before we arrogantly present business as the hero, we should first discuss how and why business has been, and continues to be, the villain.

[1] Porter, M. (1980). Competitive strategy:  Techniques for analyzing industries and competitors.  The Free Press:  New York, NY.
[2] Barney, J (1986).  Types of competition and the theory of strategy:  Toward and integrative framework.  Academy of Management Review, 1194): 791-800.
[3] Porter, M. & Kramer, M. (2006). Strategy and society:  The link between competitive advantage and corporate social responsibility.  Harvard Business Review (December: 78-92).

Monday, September 9, 2013

CIBC Run for the Cure OR Run from Prevention?

This year, CIBC celebrated its 17th anniversary as the title sponsor of the Canadian Breast Cancer Foundation CIBC Run for the Cure.  In 2012, they raised over $3 million in support.  CIBC’s homepage invites people to join them on October 6th to “Invest in a future without breast cancer”.  They play a significant role in encouraging local and national communities to raise funds for “the cause”. 

The objective of the Canadian Breast Cancer Foundation is to raise funds for breast cancer research, education and awareness programs.  According to their website, Canadians raised over $30 million in the CIBC Run for the Cure in the past year.  The $274 million in funds raised over the years is allocated towards “breast cancer research, health promotion, advocacy, education and awareness programs”. 

It is no doubt incredibly important that we fundraise for causes that fight cancer, heart disease, diabetes, and other debilitating diseases that are so destructive to our society.  The money raised for these types of causes is truly remarkable and indeed a testament to our society’s commitment to eliminating these diseases. 

That said, a common focus of these sorts of fundraising initiatives is on the cure for the disease and less so on prevention.  Does this tendency represent a distraction, inhibiting us from separating cause from symptom? 

Focusing on the cure permits us to ignore the underlying causes of the problem.  Rather than deal with how our behaviours cause cancer, we presume that cancer is inevitable and donate to find a cure.  We see this sort of logic among both individual everyday donors and companies like CIBC.  When we think about cancer as a symptom or outcome of certain behaviour, it starts to become clear that while our efforts to donate might find a cure for cancer, the fact that our behaviour hasn’t changed is likely going to produce another cancer-like disease.  Study after study associates cancer with those chemicals and pollutants that we blindly purchase and that fall under the radar of regulatory bodies.  In the book “Slow Death by Rubber Duck”, Rick Smith and Bruce Lourie uncover a wide range of products and behaviours that are likely associated with our cancer rates.  David Suzuki released the "Dirty Dozen", a group of cosmetics that possess the most cancer-causing agents such as carcinogens.  But rather than putting ‘our dollars to work” by creating a demand for things that don’t carry these properties or investing in companies that don’t use them, we put the money we save by buying the inexpensive and toxic-abundant things towards the cure.  As irrational beings, this logic seems completely rational! 

This same argument can be applied to companies like CIBC who support cancer research or the grocery industry who supports diabetes research.  Rather than think about how their own behaviour causes these diseases, they focus on using their profits to help find a cure for the symptom.  I wrote about this very concept in a critique of the grocery industry’s sponsorship of diabetes research despite the fact that 90% of the products in every grocery store tends to be processed in ways that have substantial health and ecological impacts, particularly obesity rates.  Ignoring the cause and focusing on the symptom simply makes good business sense because it allows companies to avoid disrupting a status quo that is largely dependent on low-cost highly toxic processes while having a marketing campaign like the Run for the Cure to repel those who might criticize their contribution to the problem.  If CIBC were serious about fighting cancer, they would focus on incorporating cancer causing criteria into their financing decisions.  So in addition to the creditworthiness of a company they are thinking of financing, CIBC would incorporate the extent to which this company or the project they are financing engages in activities that are known to be linked to cancer.  Similarly, Loblaw, in their commitment to reducing diabetes, would decide what products to put on their shelves based on the degree to which the food and beverage manufacture (their supplier) is using ingredients that are particularly responsible for obesity.  So why don’t they do this?  Well, it boils down to economics and the important fact that those who have the power to punish these companies (i.e. consumers and investors) don’t evaluate them on the everyday decisions made that contribute to these issues and instead evaluate them on how much money they’ve contributed to a particular cause. 

Ironically, another force against a greater focus on the causes of cancer are the fundraising institution itself.  While organizations like the Canadian Breast Cancer Foundation are truly remarkable, they tend to represent an institution that encourages activists to mentally disassociate their everyday behaviour from donations.  They do this because if donors really thought about the underlying causes of these issues, they would soon realize, as already mentioned, that it makes more sense to change the criteria used to purchase products or invest in companies.  This means that rather than putting your money towards finding a cure for cancer, it would make better sense to support businesses that make efforts to avoid the use of those ingredients that are linked with cancer or investing in firms that avoid the use of these cancer causing processes.  But encouraging this sort of allocation of money would shift the money away from the foundations. What is more, if these foundations were serious about prevention, they would isolate themselves from the very large donors that have made them so successful.  Unfortunately, we don't yet have as many multi-billion dollar companies that engage in processes that prevent cancer-like diseases as we do multi-billion dollar companies that take the easy road and focus on treatment.

Cognitive psychology suggests that we tend to gravitate towards simple associations rather than complex ones.  Cognitively, we see a direct connection between donating money to finding a cure for cancer and the cure itself.  In other words, more of A leads to B:  the more we donate, the greater chance we’ll find a cure, at least in theory.  But we struggle to draw connections between things like cancer and the underlying complexity of the causes.  This is partly because no one variable explains cancer and also because the distance between the change of behaviour and the change in outcome is perceptually greater.  The Run for the Cure campaign allows me to see an almost immediate connection between my donation and the contribution to a cure for cancer but rewarding companies that sell non-toxic toilet paper or non-Teflon frying pans is more difficult to draw a connection with eliminating cancer.  On top of this, the low cost of products higher in toxicity is an especially difficult barrier to overcome. 

But the good news is that there is information out there for the average consumer to use to make these decisions.  And yes, the cost will be (perceptually) higher but that’s because there were hidden health and ecological costs associated with the production of things that cause cancer that are not worked into the shelf price.  We just struggle to see the connection between saving a few bucks on toxic soap and the health costs we will endure down the road individually and as a public health care society.  So perhaps we should rethink how we contribute to the elimination of a disease like cancer or, at least, spread our contribution across both treatment and prevention.

Thursday, May 30, 2013

Exxon CEO Claims to Know What's Good for Humanity

Yesterday, CEO of ExxonMobil Corp, Mr. Rex Tillerson argued the following to his shareholders when defining the relentless pursuit of oil production: “What good is it to save the planet if humanity suffers?”  He added, “We do not see a viable pathway with any known technology today to achieve the 350 (parts per million of carbon) outcome that is not devastating to economies, societies and people’s health and well-being around the world”. According to the Globe and Mail, Tillerson made these comments in response to environmental activists’ demands for greenhouse gas emission targets. 

Since when did Rex Tillerson develop the expertise to comment on the welfare of humanity, or people’s health and well-being?  The very fact that he sees no connection between environmental destruction brought on by oil production today and in the future and people’s health is one thing but the fact that he believes that he is well-positioned, as an executive of an oil and gas company, to publicly comment on the “well-being” of people is another and, in my view, astounding. 

A quick glance at his credentials, Mr. Tillerson earned a Bachelor of Science in civil engineering from the University of Texas at Austin in 1975, at which time he started at Exxon as an engineer.  According to Wikipedia, Mr. Tillerson held various positions in Exxon, domestically and internationally until becoming Executive Vice President of ExxonMobil Development Company in 1999.  He was elected chairman and CEO on January 1st, 2006.  I was unable to find any background information on Tillerson that would lead one to suggest that his views on what is good or bad for humanity should be taken seriously and/or is backed by a trail of work and sound science that would permit him to make such judgments. 

Tillersman’s comments are particularly striking for a number of reasons but for the sake of space, I'll focus on one.  Notice the assumption that what's best for humanity is an unfettered flow of oil.  This is a loaded statement because it overlooks any ability on the public’s part to innovate outside of oil and suggests that if we don’t allow oil to continue unabated, we’ll de-evolve to our caves.  The hypocrisy is so vivid when you consider that in the same article Tillersman talks about our ability to adapt when he says “or do you want to talk about what’s the path we should be on and how do we mitigate and prepare for the consequences as they present themselves”.

Just a week or so ago, Seth Kursman, VP of communications, sustainability and government affairs at Canadian softwood lumber company Resolute explained, in reaction to the failed talks with environmental groups, that environmentalist demands “would have affected thousands of people’s lives”, adding. “for us to accept that, it would not only be inappropriate, it would be downright irresponsible”.  He expressed his disappointment that a workable plan could not be reached that would balance conservation efforts with social and economic considerations.   Since when did a softwood lumber company develop the expertise to comment on the what does or does not represent social and economic value to a community?  I'm struggling to understand how expertise in lumber production is transferable to expertise on socio-economic welfare.  Am I missing something?  

Canada’s Ezra Levant, along with a number of oil sands executives and conservative pundits such as Kathryn Marshall (spokesperson for, constantly argue for the importance of exploiting the oil sands because it is the ethical oil source.  They argue that doing so would represent an opportunity to combat tyrannical governments, oppression, and human rights abuses that tend to pervade in those regions where oil tends to exist.  Since when did oil and gas companies and their puppets become experts on developing country governments and human rights?  As I mention in a previous post, Kathryn Marshall shows her deep concern that President Barack Obama has not kept his promise to the American public to wean the US off of oil coming from the Middle East.  To justify her ends, she points to the president’s broken promises to his people, the government's complicity in supporting despotic regimes, and his failure to look out for the country’s best interests.  How sincere of Marshall.  I didn’t know that the spokesperson for had such expertise in US politics and knowledge of the American people. 

Likewise, in July of 2010, Pierre Duhaime, the now shamed former CEO of SNC-Lavalin, explained in an article that the exploitation of the oil sands is critical because it is a “major contributor to employment, investment and income”.  He added that the government revenue of $19.6 billion gained from oil sands production in a given year “can pay for the schools, hospitals, roads and services that sustain our living standard”.  Since when does an executive in the oil and gas supply chain have the expertise to comment on employment, investment and income at a national level?  And are you Mr. Duhaime well positioned to comment on our living standard?  I don’t see anything in your CV to suggest that you have expertise in providing views on what living standard we should be aiming for, let alone sustaining. 

Of course, I haven’t yet mentioned the obvious conflict of interest screaming out to those reading these views.  What’s most disturbing is the façade these influential people exhibit, a façade that disguises the real objective to increase production of the finite natural resources to enhance their bottom line, salary, and bonus.  Because they know how the public will react to such a self-serving objective, they need to translate this desire into something that resonates with the public, even though they are not at all qualified to make such claims.  I feel sorry for these people because they have to resort to making spurious connections between their core business/expertise/interest with the public interest to self-justify their own individual interests. But that’s just it, because these public ends (e.g. health care, well-being) are so disconnected from the means of their core business, they completely miss the fact that there are multiple ways in which to achieve these ends, thereby overlooking the self-fulfilling prophecy they’ve just created.

The unwarranted claiming of expertise is not limited to business.  Scientists and environmental activists have also been known to put forth views on topics on which they have no expertise.  Bill McKibbon, a well-known Canadian environmentalist, talked about how oil sands development is "starting to do real damage to the country’s character”.  He added that “Indigenous groups have explained over and over that the tar sands are damaging traditional ways of life, not to mention life and health”.  I’m sorry Mr. McKibbon, since when were you qualified to make claims about Canada’s character?  If you’re not qualified to do so as an environmental scientist, which I doubt you are, on what empirical basis are you able to make these claims?  Do you have evidence that Canada's character is being damaged by this industrial development? Likewise, climatologists too often push the limits of their expertise when they get into discussions of the need for certain kinds of renewable energy such as Andrew Weaver’s view that we should focus on nuclear energy to simply move away from coal based on his notion that because renewables are far from mainstream commercial viability, nuclear is the best way to go despite the non-carbon implications.  Why is the media giving a climatologist the public platform through which to comment on energy policy? 

It’s downright insulting in my view to listen to these influential individuals - that the media unfortunately props up - put forth views without the backing of any credible competence or reference to empirical research in the area upon which they base their view.  Their perceived power makes it difficult for the layperson to step back and question whether these individuals have any right or competence to make comments in this regard. 

Wednesday, May 29, 2013

Loblaw Response to Bangladesh Disaster Hollow

The garment factory collapse in Bangladesh was one of the most tragic industrial catastrophes in recent decades.  Over 1100 dead textile workers have been recovered, making it the largest textile industry tragedy and the second worst industrial disaster after Bhopal where 2,259 people died in 1984.  This particular catastrophe hit home to Canadians because one of our major corporations, Loblaw, sources garments from this factory for their Joe Fresh line. 

The public’s response to the tragedy is one of shock and horror, with many consumers pleading ignorance that they were completely unaware of the conditions surrounding the making of the very products they wear.  Some have promised to boycott the Joe Fresh line to voice their dissatisfaction with the conditions in Bangladesh.   Perhaps not surprisingly, the general public has a short memory when it comes to the working conditions of those manufacturing their garments.  Issues of unfair and unsafe working conditions in Asia have been around for decades with Nike taking a brunt of the blame back in the 1990s when they were boycotted for purchasing from suppliers employing children and paying workers below living wage. 

In response to immense social pressure and a potentially damaged brand, Loblaw and other retailers have promised to do everything in their power to prevent these conditions from continuing.   Scholars in corporate social responsibility have identified four major approaches through which companies respond to social pressures.  A reactive approach is one where companies deny responsibility for social issues by claiming that they are the responsibility of someone else, typically government.  A defensive approach is one where the company admits responsibility but fights it, doing the very least that seems to be required.  Their approach may be based primarily on superficial public relations rather than positive action.  An accommodative approach is one where the company accepts responsibility and implements what is demanded of it by relevant groups.  Finally a proactive approach is one where the company goes beyond industry norms and anticipates future expectations by doing more than what is expected.  

At first blush, it appears that Loblaw is taking on an accommodative or even proactive strategy in light of their recent commitments to provide financial assistance to injured workers and families, rehabilitation efforts for injured workers, as well as a joint program with Save the Children Canada and Save the Children Bangladesh to “provide life skills and workplace support for garment industry workers and their families”.  The company also committed to joining other international retailers to source garments from regularly inspected individual factories and to make the reports public. 

So far so good…impressed? 

I would argue that this approach is not accommodative or proactive but at best defensive.  The response by companies like Loblaw is meant to communicate to their consumers that they will not stand for conditions like these in their supply chain.  Yet the mere decision, however many years ago, to source from a place like Bangladesh is an explicit position enacted by Loblaw that it is interested and willing to exploit a labour market that represents a huge cost saving to the company.  But this cost saving is not some fluke opportunity for an international retailer.  It is instead an outcome that is completely dependent on particular worker conditions enabled by poor regulatory and legal institutions and citizen desperation.  What is more, these sorts of conditions are not new to the textile industry.  As already mentioned, these issues have been around for over 20 years with case after case of major brand names demonstrating complicity in some unethical supplier behaviour.

So, to me, companies like Loblaw fail to demonstrate responsibility in their decisions until they are forced to as a result of some tragedy that could irreparably damage their image.  But until that happens, we will see no valiant effort to address worker rights.  What we see now in their response is merely an attempt to distract the consumer and the broader public that they are at best complicit as a result of their strategic decision to reduce costs by sourcing from an exploitative supplier context and that the lessons learned by their peers well before Joe Fresh even existed were completely ignored for the sake of shareholder wealth creation.