Monday, February 15, 2010

Better Place, Waste, and Vision 2050

Bit of an update on Better Place. Looks like they’re setting up in Israel as their first pilot market:

Better Place Update

Also, there’s a growing interest in waste incineration as a form of energy.

Waste as Energy

The concept of turning all forms of waste into a resource is how TerraCycle, a small entrepreneurial outfit from New Jersey, positions itself in the marketplace. What got them started was the fantastic idea of turning worm poop into fertilizer, packaging it in recycled water bottles collected by school kids, and distributing it to Wal-Mart and Home Depot. They expanded to a range of other products including ‘upcycling’ Tetra Paks by turning them into school accessories (e.g. pencil cases and duffle bags). Very cool company.

Finally, with population growth estimated to reach 9 billion by 2050, The World Business Council for Sustainable Development launched the Vision 2050 Report highlighting the need for a radical change in thinking about how we define growth and progress. Few people are talking yet about what this means for business specifically.

WBCSD Vision 2050 Report

Monday, February 8, 2010

Business Ethics VS CSR

One of my strategy students sent along a blog posting by a Business Ethics professor in Halifax claiming that CSR is essentially wasteful and that we need to focus more on business ethics.

See posting here

I was surprised to read the very Milton Friedmanist approach from a Business Ethicist. Although I agree with the criticisms associated with CSR, I think there is a danger in relying too exclusively on ethical behaviour in addressing social and ecological issues. I offer a few counter-criticisms to this posting:

Types of CSR: The CSR approach to which this professor is referring may be outdated. While there are many companies still taking on a very philanthropic approach to CSR, this was more prevalent in the 1970s and 1980s. Since that time though the notion of CSR has evolved to take on a wide range of meanings and adoption levels according to the degree to which it is integrated into the strategy of a firm (in other words, how the firm differentiates itself from competitors). For instance, CEMEX is a cement manufacturer in Mexico and part of its CSR strategy is to target the rural poor in Mexico as a market diversification opportunity by providing them with housing services. They’ve helped the rural poor with hundreds of housing projects under their Patrimonio Hoy initiative. Its core operations are limited to providing cement to large distributors and retailers in urban centers. Now is it enough that CEMEX conduct its core operations ethically? Would they have thought about targeting this rural market if they were acting ethically? Would they have had the tools necessary to enter this market? As the dominant actor in society, now more powerful than governments, is it enough that firms continue on with core operations? While we can criticize CSR, this “movement” has instigated a very interesting array of strategic trajectories that have demonstrated simultaneous social/ecological and economic value.

Subjective Nature of Ethics: One issue of business ethics is that judgments of what is determined ethical varies by a number of factors, including the managers’ own personal values, the firm’s culture, it’s operating context, national cultural factors, NGO perspectives, activist perspectives, etc. So managers of Pepsi and other companies creating systemic social and ecological devastation may think that by creating shareholder value and following all the rules is ethical and ‘good enough’. You can be ethical but ignore the social and ecological pillars of the triple bottom line because the mainstream definition of what is ethical is dependent on market demand and societal norms. A Pepsi manager may believe that systematically diffusing high fructose corn syrup to the masses is honest and demonstrates integrity so long as they report it. But is it sustainable?

Failure of Markets: Markets and government regulation are much too slow to address the social and ecological issues we’re seeing today. We know for a fact that business molds markets. When the former CEO of General Motors asked why he didn’t make more fuel efficient cars, he said that GM “builds what the market wants”. Evidence then indicated that GM had played a huge role in influencing government policy that would reduce gasoline taxes thus making it more affordable for American consumers to drive SUVs – a very lucrative product segment. Would an ethical GM have prevented this? I’m not so sure. I bet many people would suggest that this was ethical as the company was looking out for its best interests and those of the shareholders. If we flip this around, we see companies creating new markets and industries based on social and ecological sustainability. Interface, deemed the most sustainable carpet manufacturer in the world, did this. TerraCycle created a market for waste and Grameen Bank created a market for microfinance. To me, this is a very different version of CSR that Tom overlooks.

Business Ethics is not Enough: Perhaps where we do agree is that before we can talk about embedding CSR into a firm, we need to curb unethical behaviour. Otherwise we do have a society where companies represent hypocrites. The issues of governance, greed, and fraud are real and enfolding business ethics into business curriculum will certainly help. But I would suggest that business ethics may not be enough if business is going to be a force for social change. I fear that relying on this exclusively may result in firms ethically playing the rules of the game and relying on other organizations and governments to clean up the mess they create that doesn’t breach the market’s definition of ethical behaviour. Companies like Coca-Cola, Pepsi, McDonald’s can make useful products, provide employment, and investment opportunity for investors, abide by the law and pay its taxes and still contribute to major social and ecological issues.

So while I agree that there is a waste of money towards superficial things, existing approaches to business are insufficient in today’s society. We need tools and frameworks that will assist managers in not only doing things honestly and with integrity but addressing some of the major issues we’re facing today. As the dominant actor in today’s society, business must take on a responsibility to leverage its power for good without presuming that other actors will fix up their mess

Monday, February 1, 2010

Coca-Cola©: Eradicating or Exacerbating Poverty

I had the opportunity to read a very interesting case on Coca-Cola© and their efforts to assist in achieving the Millennium Development Goals, one of which is to eradicate poverty and hunger. The initiative they have in place has been touted by the World Bank and the United Nations as a leading 'Inclusive Business Model'. Here’s how it works. To get their products into the far reaches of rural Africa, they created Manual Distribution Centres whereby a local community person purchases Coke products and sells them to retailers in these rural areas. Because these individuals know the terrain, culture, and access routes, they are well equipped to get the product to these once inaccessible locations. By employing these community members, Coca-Cola is contributing to the local economy, empowering locals to earn a living to pay for education, health care and food.

This initiative falls under Coca-Cola’s corporate social responsibility (CSR) strategy. Quoted below are statements from their website related to their vision and mission:

Vision: “Be a responsible citizen that makes a difference by helping build and support sustainable communities”

Mission: “…to refresh consumers and inspire moments of happiness, partner with customers to create value and make a difference and reward stakeholders while enriching the lives of local communities”

There is no doubt that multinational corporations around the world work hard to convey their CSR initiatives and are indeed doing some pretty impressive things. But examining the finer details of these initiatives and critiquing the claims they make about outcomes may uncover an important degree of hypocrisy that is typically overlooked. While it is true that Coca-Cola has created many jobs and boosted national GDP of the countries it operates in, is it wise to overlook the fact that much of what Coca-Cola does is in fact opposite to what it claims? On the surface, the presence of the company in these regions does appear to enrich the lives of local communities but once we look at some of the implications of the company’s broader operations, we begin to recognize that these former initiatives are merely drops in the bucket.

Coca-Cola procures 300 billion liters of water. A substantial chunk of that amount is water that is being taken away from communities around the world. Several powerful documentaries have spoken of this impact across the food and beverage industry (e.g. Blue Gold). It is estimated that Coca-Cola and its competitors use 2.5 liters of fresh water to produce every liter of product. So, on average, when you purchase a litre of bottled water, it took 2.5 litres to get to you. Moreover, they are putting this water in plastic bottles, of which only 23% get recycled in the US with, I’m sure, a lower number in developing regions. Most importantly, the drinks themselves come with a number of very unhealthy ingredients, one of which is high fructose corn syrup: a substance that demands an incredible amount of energy to produce, not to mention being linked to obesity and diabetes. I’ve posted the following link before: have a look at New York City’s perception of the negative implications of Coca-Cola and competitors:

New York City Ad

Muhtar Keng, Coca-Cola’s president and CEO said, “We have seen throughout our own experience – time and again – that our business in any market is only as strong and sustainable as the communities in which we operate. For our company and our bottling partners, sustainability reflects an understanding of the role business must play in society if we are to be successful in the 21st century”.

Should we be at all concerned about the claims made by senior executives regarding their positive yet very isolated impact in developing regions when we know about the more systemic negative impact on the long-term sustainability of societies? Does the above quotation suggest that Coca-Cola is unable, or chooses not, to see the bigger picture of its operations? While they may be contributing, however minutely, to economic development (these entrepreneurs receive 3-5% margins), is the bigger issue not that their core operations systematically and inherently undermine these contributions by diffusing a completely unsustainable business model to the far reaches of the planet?

If the issue is not that they are spreading a very unhealthy product, perhaps it is their claim that they are alleviating poverty through this supposedly ‘inclusive business model’. To me, this is merely one of many marketing and distribution strategies aimed to extend product reach and thus revenues. The entrepreneurial benefits for the community and the income generated for a very small number of individuals are welcomed but are they the primary motivation or merely a convenient side benefit? Unfortunately, companies like this make claims that they are out to address poverty issues when it just so happens that, as with all low-hanging fruit, there is a natural alignment between getting more of their products out there and employing some people in the community. But once these fruits are picked, companies resist making difficult decisions that put society first.

I think it’s important to ask whether it is wrong for companies like Coca-Cola to be touting their role as a force for poverty alleviation and whether their claims should be limited to successful efforts in diversifying their markets. Is it not greenwashing when a company claims to be a force for social good when the implications of their core operations on communities around the world and the environment are as negative as pundits claim? Put in place a similar business model for more basic needs such as gaining access to finance, delivering locally procured fresh water, distributing pharmaceutical drugs, or providing housing services, and then we may start to claim real impact on poverty reduction. But should we be fooling ourselves into thinking that spreading a product claimed to be toxic both environmentally and socially in the long-term, despite its economic benefit in the short term, is good for communities?

Embedding sustainability in organizations is no easy task especially because the very notion of sustainability, in many ways, flies in the face of corporate level strategy. If companies truly want to adopt sustainability they need to consider the interconnectedness of their behaviours and actions the corresponding long-term effects of their operations across multiple dimensions. Until companies are making the difficult decisions about their core operations, it may be morally unethical to make claims that the company is committed so sustainability.