Saturday, January 29, 2011

Does Business Fear WikiLeaks?

The recent spate of companies working to crimp access to funds for WikiLeaks has unearthed another instance of blurring lines between business and politics. Mastercard, Visa Europe, Amazon, and PayPal over the past several months have blocked donations to WikiLeaks and continue to do so. Deciding whether or not to allow funding for an organization whose value proposition is to provide a public service ultimately puts these companies in a situation where they are clearly deciding, however indirectly, the degree of censorship that should be permitted in a given society.

Google’s stance against censorship in China is very similar to what is going on here because Google took a stand against what many would call a public right – freedom of speech. But the WikiLeaks example is interesting because we’re talking, among other things, about US politics and the protection of US secret documents. On the one hand some would argue that the credit card companies are defending the interests of the public because they are using their power to keep these secrets safe. On the other hand, some would argue that the credit card companies are breaching what is considered a public right to access information.

My colleagues Dirk Matten and Andy Crane nicely point out the hypocrisy associated with the stance these companies are taking where, for example, Mastercard permits payments using its card for donations to the Klu Klux Klan but not WikiLeaks.

So what’s going on here? PayPal admitted in December that their decision to freeze the WikiLeaks account was a result of pressure from the U.S. State Department. The VP of platform Osama Bedier said, “[The] State Dept told us these were illegal activities. It was straightforward”. Recently though an independent inquiry contracted by Visa found no proof WikiLeaks has been breaking any law. But despite the ruling, Visa says that they will continue blocking donations until they conduct their own investigation. Isn’t it fantastic that Visa is going through all this effort for public welfare?

Perhaps there is an alternative reason for this behavior? The Economist wrote an interesting piece several weeks back speaking of the plethora of private sector political lobbying efforts that tend to fall off the public radar screen. Kock Industries is one such company, spending billions of dollars supporting organizations that take a stance on denying climate change. The interesting thing is that companies like Kock, Exxon, and General Motors have created layers of separation between their financial contribution and the organization or individual at the center of trumping regulation meant to protect public interests. James Hoggan, in Climate Cover-Up, chronicles the elaborate approaches companies use to create layers of activity that perceptually disconnects the company from propaganda associated with climate change denial.

Could WikiLeaks change all that? Could we see a whole host of cables linking company political contributions to causes that trump societal interests in favor of private or even political interests? We all know that this is happening already but what would happen if it was exposed with hard proof? The economist issued an article called “Be Afraid: Companies Must Adapt to a World Where no Secret is Safe”. In September 2009 WikiLeaks posted a leaked internal report from Trafigura, a commodities giant, discussing a hazardous waste spill in Côte d’Ivoire. In January 2008 WikiLeaks released stolen documents from Julius Baer, a Swiss bank, including bank records of about 1,600 clients with accounts at a subsidiary in the Cayman Islands. The bank sued to stop WikiLeaks publishing the documents, but then dropped the suit.

Worse, as the Economist notes, many firms do not have the right policies or procedures in place that allow them to track down some of their own behavior. According to a new study by Kroll Ontrack, more than half of companies in America and Britain do not have a “data map”, a document describing what information is being stored and who has access to it.

What are the implications of this? Could this mean the end of greenwashing? Or could greenwashing simply become the norm? What about behind the scenes lobbying? Would it stop or would the world just now accept that this is going on and continue on as before? The advancements in technology are unraveling faster than even the most ruthless and cunning companies can respond. The next few years will likely be an interesting gong show where WikiLeaks-like companies reveal the skeletons in the closet of some of the most well respected companies. WikiLeaks may in effect cut through the layers of propaganda that has kept the consumer ill-informed of what companies are up to.

Friday, January 21, 2011

Stephen Colbert Makes Fun of PepsiCo's Tropolis

In previous blogs, I’ve discussed the inherent tension between our increasing realization that we should stick to raw and whole foods and the need of food and beverage companies to add value to these foods by processing and fortifying them. Stephen Colbert hilariously demonstrated this tension with a hammer and a banana, cleverly making fun of PepsiCo’s recent initiative to sell fruit puree in plastic non-recyclable containers by commending them for making it easier to eat such "difficult" food.

I wonder if PepsiCo realizes how absurd some of their initiatives are or whether they really think that they represent constructive members of society.

The interesting thing that comes out of this is that as food and beverage companies like PepsiCo attempt to demonstrate their commitment to real food, they may in fact make themselves obsolete. As Colbert nicely shows, why not just eat the apple!!

Have a look:

Colbert Clip on Comedy Network - Canadian audience
Colbert Clip on Colbert Nation - Non-Canadian audience

Sunday, January 16, 2011

Who's to Blame: Society or the Manager?

Throughout the last week or so, there has been a lot of debate about whether individuals should be expected to control their actions or whether they are at the mercy of the society in which they live. Pundits on both sides of this debate have put forward some interesting arguments in trying to explain the behaviour of Jared Loughner in Arizona the Saturday before last. Whereas Sarah Palin in the quoting of Ronald Reagan implies that society should not be blamed for the acts of an individual, there are others who would argue that individuals are heavily influenced by the institutional environment in which they exist.

"We must reject the idea that every time a law's broken, society is guilty rather than the lawbreaker. It is time to restore the American precept that each individual is accountable for his actions" (Ronald Reagen)

The institutional environment represents the norms and taken for granted beliefs that guide the behaviour of an individual, group or organization. Those young families who aim to “keep up with the Jones’” would be an example of conforming to the institutional environment of what is expected of young families.

The events that transpired a week ago Saturday were indeed tragic but I’d like to extend this debate to understand business behaviour. I need you to bear with me as I try to draw a connection between the behaviour of a schizophrenic 21 year old and the behaviour of managers – okay perhaps this isn’t a huge stretch in some cases.

In the movie The Corporation, Noam Chomsky draws the analogy of a slave owner to suggest that CEOs and managers can be genuinely nice people but show their monstrous side when they are in their societal role as managers of corporations:

“When you look at a corporation, just like when you look at a slave owner, you want to distinguish between the institution and the individual. As individuals they may be nice to their slaves, benevolent, friendly, nice to their children, caring about other people. But in their institutional role they may be monsters, because the institution is monstrous” (Chomsky from The Corporation).

Here’s my question: Does Western society’s relentless pursuit for material and economic wealth represent a monstrous institution that has created monstrous behaviour among managers? If so, then who holds the moral responsibility for the consequences of the actions of managers?

Is Tony Hayward (former BP CEO) a nasty blood-sucking serpent? Were those BP employees who cut corners on the oil platform that failed last April shady individuals with a poor moral compass? Would these same people cut similar corners at home? What does it tell us when farmers shockingly testify that they would never feed their families the same food that they produce for the grocery store?

There is not doubt that our society has imposed pressures on managers to create as much financial return for shareholders within the confines of the law. In most cases, the investors who expect this return have very little knowledge of or don’t really care about what the company actually does. I would bet that 95% of those people reading this blog who have investments knowingly or unknowingly are investing in industries that produce unsustainable products like oil and gas, mining, and tobacco.

When we criticize Exxon’s lack of any substantive commitment to renewable energy and their over-emphasis on fossil fuels, we tend to forget the pressure of institutional investors like pension funds who, to assure a comfortable retirement, demand that Exxon stick to the high cash yielding lower-risk forms of energy rather than the higher risk, low-cash yielding renewable energy. If Exxon executives were to ignore these pleas, the board of directors is expected to fire them and replace them with new managers willing to play this role.

It is also arguable to suggest that managers are limited in their ability to change behaviour of society if the consumer market isn’t ready to purchase sustainable products. If the public doesn’t yet care about how their purchasing decisions are connected with nature, is it up to managers to convince them to care? Is it not the role of business to provide the goods and services that the market demands in a way that creates value? The same could be said for employees who demand high salaries at the expense of a company’s commitment to more social and ecological endeavors. Why is it that the labour pool leans heavily to the private sector over the lower-paying non-governmental organizations?

Companies do not live in a proverbial vacuum where managers can rely on their individual values to make decisions at the firm level. They are very much at the mercy of a broader institutional environment that is predicated on economic value creation as the ultimate priority. This is not just a guide for business, it is fundamental to our way of life in Western society. So if this is part of our taken-for-granted beliefs, should we expect any more of business than we do of our role as consumers, investors, and employees? If not, then does this mean that any systemic change of business is a function of a change in a number of segments of society?

So I’m not so sure that we can rely on Ronald Reagan’s claim that society is not to blame when we’re talking about business behaviour. I’m certainty not an expert in human psychology to suggest the same for Jared Loughner but my point is that we live in a very complex society where understanding behaviour of an organization must go beyond the individual psyche of the decision-maker. I know that my left wing colleagues might be cringing at this post but at the very least I’m hoping that this will spark some dialogue on the need to understand the broader complexities of the society in which businesses operate when trying to understand the negative or positive effects of the manager making the decisions.

As a compromise, perhaps there is a line to be drawn where individuals must intervene to stand up to the pressures of his or her surrounding environment. Perhaps traders at Enron and executives at Goldman Sachs and General Motors relied too heavily on the institutional system of which they are apart and didn’t stand up to the taken for granted belief system that characterizes their role as creators of enormous short-term financial return. Perhaps those who are building businesses that go beyond this purpose are those who are standing up to their institutional environment. But let’s extend this expectation to consumers/investors/employees who are making purchasing/investment/employment decisions as well.

Sunday, January 9, 2011

Happy Meals Banned in San Francisco: Nanny State or Protection of Human Welfare?

One of the ongoing debates in the US is whether or not (or to what degree) the state should intervene in free market fundamentalism. To those in the republican camp, the free market is akin to individual freedom where citizens exercise their freedom in the market through their purchasing decisions. Any intervention by the government in the free market, such as regulation meant to promote food safety, is considered a breach of this freedom and, in effect, a cost to society. On the democrat side, government intervention is viewed as a necessary condition to freedom as a result of the enormous negative externalities imposed by the free market that impinge upon freedom.

This rather tiring Friedman-Keynesian debate consistently surfaces around the world and indeed represents a major ideological point of separation in American politics; a dichotomy some say motivated the shooting of Congresswomen Gabrielle Giffords. The Daily Show (clip here) does a great job at making fun of the absurdities associated with extremist views on both sides. In a recent episode, comedian Aasif Mandvi (see clip here) makes fun of the San Francisco policy to come into effect this year that would ban the selling of toys in Happy Meals at McDonald’s if the food does not meet certain nutritional standards. The parody tends to lean towards the view that government has no role in imposing such regulations on consumers and that it’s up to the market through parental discipline and child education to encourage changes in food of the Happy Meals in their purchasing of food. As the mayor of San Francisco said:

“It’s a bad idea. We’re getting into private business decisions. It’s not the role of government to decide what is in the best interests of kids, it’s up to parents to decide.”

This is an interesting way to frame the debate because it presumes that business decisions in the market represent a proxy for individual freedom because it is a reflection of what the market wants. The presumption here is that consumers, through the invisible hand, ultimately influence the decisions of companies and thus there is no need for the government to interfere. There are at least three fundamental flaws with this logic in a society where business plays a commanding role.

1. Today’s food system is very complex.
Decades of government subsidies for commodity crops lobbied by the private sector has resulted in a society addicted to unhealthy foods rich in sugar, fat, and salt. Even if parents were aware of the dangers of fast food, the food system makes it nearly impossible for low-income groups to survive without leaning heavily on the availability of unhealthy food. As a result, because some consumers are unable to make better purchasing decisions, the government is stepping in to impose restrictions on the food that companies provide.

2. Companies have a vested interest to make unhealthy food rich in sugar, salt and fat cheaper because it allows them to overcome the limitation of stagnant industry growth (people can only eat so much) by inserting these three ingredients that psychologists have confirmed are sources of addiction. As a result, companies driven by profitability are using this fact to incapacitate consumer choice. The role of government is to protect the public good in situations where the market is unable to correct negative externalities (i.e. obesity and disease). The government is not trying to be a nanny state but rather trying to offset companies’ inherent ambition to take advantage of this psychological vulnerability.

3. The primary objective of business is to make profit. We can only expect that managers of these companies will work hard to weaken the ability of the invisible hand to do its job – which the Daily Show doesn’t really consider. The below two points are examples of this:

a. The view that the market should work its magic to make changes in business presumes that companies merely represent passive recipients to market trends without any influence on that market. We’ve known for quite some time though that companies have played a proactively aggressive role in shaping the market and regulation for food, vehicles, and many other products and services. GM’s advocacy for lower gasoline taxes was a lobbying strategy to assure market interest in high margin vehicles like hummers and SUVs. So when Sarah Palin says that she doesn’t want the government telling her how to feed her children, she doesn’t realize that the private sector is playing an even stronger role in telling her how to feed her children.

b. This view also presumes that consumers have access to information to make informed decisions. Not only is the consumer capacity to absorb all the information related to food nutrition limited, it is in the best interests of businesses to limit or obscure this information. Companies for years have lobbied strongly against policies that would force them to display the nutritional content of food because they know that the market may force the firm to take on more costly practices. In effect, public interference in private sector decisions is reciprocal meaning that the private sector is as influential on public decisions as governments are on business decisions.

This last point is an important one because it illuminates the dangers of trying to separate business from government when in fact they highly overlap. The view that they are separated is a false perception; one conjured up by old school economists who fail to grasp the realities of a blurring of the line between public and private sectors. The ironic thing though is that the need for government regulation is largely due to the increasing influence the private sector has on society and public welfare.

The muzzling of the invisible hand through billion dollar marketing budgets that strongly influence society’s tastes and strong political lobbying that reduces competition and consumer power has, in effect, fostered a greater need for government intervention. Another way of saying this is that companies may have lobbied for the rope that will hang them. But this will ultimately depend on the public’s recognition that the free market isn’t as free as they think it is. Bringing this back to the Happy Meals, believing that business will remove these toys when the market (i.e. the parent) is ready to remove them by no longer buying them overlooks the complexity of business strategy and what students are taught in business schools around the world to prevent this from happening.

Wednesday, January 5, 2011

Carbon Accounting and Corporate Environmental Transparency

Carbon footprint calculations are becoming top of mind for many individuals and organizations. Anticipating future government regulation associated with climate change mitigation, many companies are scrambling to find ways in which to measure not only the greenhouse gas emissions resulting from their internal operations but also those emitted throughout their supply chain.

I've invited Hunter Richards, Accounting Market Analyst at Software Advice, to provide a guest posting on the available accounting software that helps companies do this.


Greenwash (verb, \ˈgrēn-wȯsh\) - to market a product or service by promoting a deceptive or misleading perception of environmental responsibility.

Companies are launching major ad campaigns to show off their eco-friendly products and services, but many of these claims are questionable. Greenwashing is threatening the credibility of legitimate environmental marketing and turning off would-be green consumers. So how can we know who’s telling the truth about supposedly green products and who’s just greenwashing? We can increase transparency and put an end to greenwashing through standardized adoption of carbon accounting. A new kind of software could speed up this transition.

The increasing scrutiny of green advertising campaigns and business environmental records is similar to the demand for transparent financial reporting. The U.S. is strong in financial accounting, but we need to develop the similar strength in infrastructure for environmental accounting to restore credibility to green businesses. Enterprise Carbon Accounting (ECA) software is becoming the foundation of this new infrastructure. ECA software enables companies to track their carbon emissions and find opportunities to lower costs by reducing unnecessary waste. It’s boosting the potential for corporate environmental transparency. When the transition fully takes hold, greenwashers could fade away entirely.

For ECA software and environmental accounting adoption to really make greenwashing obsolete, though, we need action in five main categories:
• Clear government action on regulations;
• Adoption of carbon accounting principles;
• Expansion of Scope 3 emissions accounting;
• Better green business incentives; and
• Demanding, informed consumers.

Clear Government Action on Regulations

lncreased coverage of existing new policies and decisive action on new legislation could quickly spread carbon accounting as well as the use of ECA software. The EPA’s Mandatory Greenhouse Gas Reporting Rule, which requires companies that emit 25,000 metric tons or more of greenhouse gases annually to disclose emissions to the EPA, can be expanded to include smaller businesses as well. New legislation in the future could also help expand ECA software adoption and end greenwashing.

Adoption of Carbon Accounting Principles
Stricter requirements for disclosure of standardized corporate emissions information, now more feasible than ever before with the emergence of ECA software, would provide a precise way to examine a company’s environmental record. When such a measure exists and becomes widely used, one will only need to refer to these numbers to get an impression of a company’s overall environmental performance. It will be a lot more difficult to conceal a greenwasher’s lack of real environmental initiatives.

Expansion of Scope 3 Emissions Accounting
Mandatory inclusion of suppliers’ emissions and other indirect emissions sources in company environmental reports (Scope 3) would prevent under-reporting of emissions; absolutely all emissions would be measured and reported without room for loopholes. Requiring Scope 3 measurement would also spread more adoption of general carbon accounting throughout the supply chain. When a company must account for Scope 3, it must ask its suppliers to track their carbon footprints as well to produce the required report. A chain reaction could quickly increase the number of companies with comprehensive carbon emissions reports and, in doing so, increase overall environmental business transparency.

Better Economic Incentives For Going Green
Using ECA software to identify eco-friendly savings opportunities can make it cheaper to truly go green, making it unneccessary for businesses to greenwash in the first place. Businesses will often find that shrinking their carbon footprints and minimizing costs can go hand-in-hand. Government incentives can also encourage eco-friendly business practices. ECA software could alert users to new opportunities to take advantage of government incentives as more of them emerge, pushing green sincerity into the best interests of businesses.

Demanding, Informed Consumers
Demanding the hard numbers from standardized carbon accounting reports, while boycotting the proven greenwashers, forces businesses with green marketing campaigns to prove their sincerity or risk failure. After all, fully informed consumers make deception by greenwashing impossible. When standardized carbon accounting is required and ECA software is available, companies won’t have any more excuses to conceal their carbon footprint. The remaining work will be done by informed, rational consumers.

This is a guest post by Hunter Richards. To learn more about his research on ECA software and greenwashing prevention, check out Software to Hold "Greenwashers" Accountable.