Business in a Sustainable Society

Mitt Romney Accidentally Shines Spotlight on Free Market Capitalism

2012-02-09T13:14:00.000-08:00

Those of you following the circus surrounding the US Republican race likely noticed the recent criticism of frontrunner Mitt Romney on the empire of wealth he created through his firm Bain Capital and a favourable tax environment for investment income. Before democrats even had the chance to launch an attack on the candidate, Romney’s Republican opponents blasted the frontrunner using rhetoric that would be considered blasphemy within Republican circles. They were essentially attacking the very ideology that made Romney rich; that is, his efforts to pursue the American dream by creating individual wealth through self-interest. Almost biblical in the US and other Western countries, there is a strong belief that the pursuit of self-interest in a free market economy is synonymous with freedom and democracy. Yet here we have Republicans, defenders of this rhetoric, criticizing the prodigal son who is doing nothing more than practicing this ideology.

The fascinating thing is that the more popular Romney gets, the more he’ll unintentionally erode the highly conservative republican base of free market ideology. Below, I argue that both democrats and republicans, in their attempts to challenge his popularity, will bring to light the highly destructive and sinister effects of unfettered free market capitalism absent appropriate government intervention.

Stealing Society's Wealth: Let’s start with the relatively low 13.9 percent tax rate Romney has been paying on investment income. Is this Romney’s fault? Here’s a guy who happens to be making wise investment decisions and is fortuitously taking advantage of a low tax rate. What’s wrong with that? Those on the far right would say that there is nothing wrong with this and that changing the tax rate would imply interference by government and an obstruction of freedom. Those on the not so far right would blame government for allowing something like this to happen while releasing Romney of any blame.

Yet the grotesque irony behind the republican ideology is that it is the very advocacy for the free market that is usurping the interests of the middle class. Romney is the most telling example of this. In 2007/8, there was huge debate in the US about whether investment income should be taxed at a higher rate than the existing 15%. Through one of the most ambitious lobbying campaigns in US history, bands of investment banks, private equity, and hedge fund companies expressed their deep disagreement with such a regulation and pressured the US congress heavily against such a measure. Who was the main proponent behind the lobby? You guessed it, Romney’s firm Bain Capital. So people like Romney are not simply benefiting from the existing system, they are shaping the very system for their own benefit.

If Romney hadn’t gone for president, the American public may not have learned that one of the reasons why we have growing inequality is because the rich use their power and resources to ensure these sorts of regulations are in place. Only the wealthy can earn investment income at a magnitude that trumps regular employment income. Yet it is the investment income that gets the shelter, not he employment income. Another way to put this is that the rich like Romney are essentially stealing value from society because the resources paying for public services like roads and infrastructure need to be paid for by the middle class because the money that would otherwise be available from the rich is limited.

The implications of this realization by the mainstream public are profound when you look at this from a business perspective. Romney’s behaviour in influencing tax regulation for his own benefit is very symbolic of what we business school professors teach students to do in their role as a strategic manager. We teach students to mold the firm's competitive environment through for example the shaping of government regulation to favor the firm’s self-interest without considering the effect on broader society. We see this time and time again in the recent lobby of food companies to keep junk food on school menus and the more recent lobby of media companies to regulate internet traffic. Now many of my colleagues would argue that political lobbying is merely one voice in society alongside activists, the public and anyone else who wants to voice their views to regulators. This is a specious argument, one that neglects the complete imbalance of power in today’s society when considering corporate resources coupled with the Citizens United rule in the US.

Shareholder Value is Good for Society? The recent spate of criticism related to Romney’s Bain Capital is an extreme example of the naivety associated with the belief that the creation of shareholder return makes society better off. Bain purchases businesses that they perceive to be undervalued, “fixes” them up and then sells them at a higher price thereby making a return on their investment. Again, what’s wrong with this? By restructuring these companies, Bain is essentially creating value that wasn’t there before. But many commentators have discussed some of the implications of what Bain does with these companies. A New York Times piece a few weeks ago explained that to create this value, Bain needs to extract it from somewhere else. Eliminating jobs, freezing pensions, shutting down factories are but some of the ways in which they squeeze every last drop of financial value from the business. Not only that, after creating the value, Bain does whatever it can to appropriate that value for itself. This is not voodoo management, this is strategic thinking.

Interestingly, Bain borrows huge sums of money and uses the assets of the acquired firm as collateral for the debt. The implications of this are profound. By deferring risk to the acquired firm, Bain is free to engage in highly risky behaviour that would potentially benefit Bain immensely while eroding value of the acquired firm. There is no downside risk for Bain: if the company goes bankrupt, it’s no big deal because Bain doesn’t have that much invested. This is no different than how investment banks deferred risk associated with investments to mortgagees and investors, thereby eliminating any downside risk.

There is more to the story but what the reader should take away from this is that Romney’s Bain Capital is unintentionally illuminating how free enterprise in the last decade has built a strong capacity to make millions at the expense of broader society. As my colleagues Crane and Matten explained: "With Romney in the race, for the first time there seems to be a real public awareness and scrutiny of what has happened in corporate America in the last decade". Bain is showing that companies have an incentive to ultimately shift value from society to company coffers. For the first time, the public is beginning to see what is being taught behind the doors of Western Business classrooms.

How Relevant is Sustainability to Business Executives?

2012-01-29T11:24:00.000-08:00

There is no shortage of studies on the growing prevalence of sustainability in business. Below are some of the results from the more powerful ones:

Results from an Accenture study conducted for the UN Global Compact on the importance of sustainability found that 96 percent of CEOs surveyed thought that sustainability issues should be fully integrated into the strategy and operations of a company – up from 72 percent in 2007. Even CFOs, those typically more resistant to sustainability due to pressure of financial market judgments, have shown signs of acceptance. A study of 175 CFOs and other senior executives conducted in 2008 by CFO Research Services found that more than half believed that their companies’ sustainability programs will very likely or somewhat likely increase revenue, cut operating costs, improve employee retention and improve investor returns and shareholder value. They tended to cite reduced risk (78 percent), enhanced brand and reputation (77 percent), customer retention (72 percent) and improved employee health and productivity (68 percent) as the more popular opportunities.

In terms of around sustainability, it appears that regulatory compliance is most important for 61 percent of respondents while improving energy efficiency, reducing greenhouse gas emissions (47 percent) and reducing the environmental impact of operations (45 percent) – those priorities associated with being less unsustainable – came in second.

Some of the greatest challenges identified in these studies included the following:

- The inability to measure the effects of sustainability on shareholder value (46 percent of respondents)
- Inability to document the effects on finical performance (37 percent)
- Lack of standard decision-making frameworks that consider environmental factors

In a study conducted by the Network for Business and Sustainability that asked Canadian managers to define the sustainability challenges in 2012, the following were identified:

- How to redefine the traditional business case to include sustainability
- How can sustainability drive innovation within companies?
- How can companies mobilize citizens to take more sustainable actions?
- How to build sustainability into corporate budgeting and planning
- How to continually green the firm in tough economic times
- How can businesses attract and retain employees through sustainability?
- What are the best (and worst) practices in sustainability reporting?
- How can businesses effectively engage with NGOs on social and environmental issues?

Interestingly, one of the least significant challenges was organizational resistance to sustainability.

One observation from these studies is that while business is increasingly recognize that sustainability is here to stay, their response to the trend is highly incremental. As mentioned, the objective of executives appears to be to understand how to fit society and the environment into the business model rather than the other way around. Put another way, the business ideology is the starting point rather than the laws of nature or the fundamental values of society (e.g. democracy, freedom, equity, inclusion, justice), with which business is forced to align. This is the sort of radical leadership that does not come out of these studies…not yet anyways.

The Lengths We Go to Promote Our Oil

2012-01-19T18:11:00.001-08:00

I've been following Kathryn Marshall's postings on Huffington Post for some time. Marshall is the "spokesperson" for EthicalOil.org, an organization that promotes Canada’s tar sands as the ethical alternative when compared with the socio-political issues evident in traditional oil producing countries like Saudi Arabia and Venezuela. For months Marshall has been blasting political decisions against the Keystone Pipeline and of course those pesky environmentalists, promoting vigorously the claim that Alberta's oil is so much more ethical than oil sourced from virtuously anywhere else in the world. While I’ve been acknowledging these columns as right-wing conservative opinion deserving their own share of airtime, this last column crossed the line in its appalling hypocrisy. I think readers need to be aware that there is a very fine line these days between free speech in the media and clever rhetoric drawing on irrelevant argumentation meant to disguise the reality of a given situation.

Her latest post entitled "Obama Flushes Canadian Interests Down the Pipeline" is a beauty. In it she quotes Obama in a statement he made several years ago regarding his promise to wean the American economy off of oil from the entire Middle East and Venezuela. All of sudden Marshall has become an expert in political commentary and truly interested in whether a politician keeps his/her promises. How sincere! She also sounds so sincere when she explains that the US is going to lose its energy security and will be increasingly dependent on despotic regimes. Again, how nice of her.

What shocks me the most about Marshall and many others who push their agenda by latching on to completely irrelevant arguments is that she is not aware of how hypocritical her writing sounds. For instance, she writes tirelessly about the injustice to the American people of Obama’s decision to cancel Keystone but doesn’t at all consider how the decision to approve the pipeline is in fact a similar if not greater injustice when considering the environmental and economic implications of its approval. What many people don’t realize is that the tar sands really only postpones the much needed development in renewable energy that can represent a huge source of economic development in the US. So the question is not where the US should get its oil but where it should get its energy.

The hypocrisy continues when she appears to claim that the US government is committing a crime in their decision to maintain reliance on oil from terrorist-harboring nations. Now she’s qualified to comment on defense. How diversified in her skill set. Clearly she really cares for these Americans. Pardon my sarcasm, but humorously she sees no connection between the need to protect American citizens from foreign oil and the need to protect American citizens from its reliance on oil more generally.

The greatest irony in her writing is that she, among others, criticize Obama for making this decision for political gain. In particular, she criticizes Obama for masking his true ambition, which is to gain voters by claiming that the pipeline is not in the country’s national interests. Hmmm, that sounds familiar. How is this any different from Marshall, who masks her true ambition of finding markets for ethical oil by appealing to the American and Canadian public on issues that have nothing to do with the tar sands.

She also appeals to the notion that large OPEC oil suppliers are crippling Canada’s oil sands and that environmental extremists are usurping Alberta’s plans to bring their oil to market. Again, this sounds so familiar. Marshall is complaining that large social actors are influencing political decisions and the view of the public on these sorts of issues yet ignores the slew of political lobbyists and right wing extremists using the same strategies to accomplish the opposite. The Canadian government, for instance, has actively lobbied in state, municipal, and federal European capitals to promote policies that are tar sands friendly. It’s as if the tar sand companies are innocently operating a lemonade stand hoping that customers will pass by, yet the unfair police office is diverting traffic from their street. Come on now, let’s be a bit more realistic. Another way to look at this is that the left wing environmentalists have learned that the only way that they can truly induce change is to adopt the tactics of those actors who have influenced public policy for decades.

She then says that "Obama's self-serving decision should remind Canadians of the dangerous risks of relying on just one single customer, and toughen our resolve to build more pipelines.” Is it not also a self-serving decision on the part of Canada to promote these pipelines at the expense of the rest of the planet? She ends with, “we must make sure that our national ambitions and our prosperity aren’t left at someone else’s mercy”. Is it not true that our decisions to advance the oil sands very much strips the ambitions and prosperity of those countries that will suffer further from the implications of climate change? Are they not therefore left at someone else’s (Canada’s) mercy?

I therefore completely disagree with Marshall and other who say, “the Northern Gateway pipeline is an all-Canadian affair…it is our decision alone whether to approve that pipeline, not that of a foreign government, or foreign interest groups”. This view is highly naïve, self-centered, and completely absurd. Unfortunately, our Prime Minister shares the same view. Countries outside of South America have for the last decade imposed substantial pressure on countries surrounding the Amazon rainforest to put in place policies that preserve the forest. This is because they realize that any degradation of the rainforest will have catastrophic implications for the entire planet. Country boundaries are a social construction. The planet doesn’t discriminate along these lines meaning that decisions made by individual countries can have dramatic impacts on other countries. One only has to look at the severe environmental conditions of developing countries imposed by the actions of developed countries to see this. So I think that foreign interests have every right to voice their democratic right to oppose decisions of another country especially if those decisions affect their livelihood at home.

Now I recognize that Marshall is just doing her job. She has a cause and she’s finding every and any possible way to further that cause as spokesperson of EthicalOil.org. But at some point you have to draw a moral line in the sand that separates opinion to further a cause from the highly insidious attempt to distract the public from what is really underlying the implications of that cause. The sad thing is that Marshall’s strategy here is to instill a sense of frustration among readers by tapping into their emotional triggers. But at the end of the day, she doesn’t care about whether politicians in the US keep their promises. She doesn’t care about whether the US is less dependent on unethical sources of oil. She simply uses arguments to which the audience is sensitive to push her agenda, which is to get more oil to the US. That’s what she cares about and that’s what EthicalOil.org stands for. The mask behind which these individuals hide is as fascinating as it is shameful.

Perhaps this is the job of the editor of Huffington Post. Should they be publishing columns by someone who clearly has a conflict of interest?

What a Deal! Obesity for Only 7% of Your Income

2012-01-11T17:28:00.000-08:00

A very interesting study conducted by the Food Service Warehouse plotted worldwide food consumption levels and compared these with income levels. When you put the highest and lowest countries side by side, the outcome is rather striking:

The green line is the recommended daily allowance of calories (typically between 2000 and 2500). A quick glance confirms that western nations are well above the recommended caloric intake, which is no surprise when we consider their overly abundant waste lines. The fact that these are averages means that approximately half of Americans and Canadians consume more than 3800 and 3700 calories a day respectively. That’s a lot of food and/or a lot of really crappy food (i.e. high calories with low nutrients)!! Even France, a country once considered highly disciplined in the eating habits, is not immune to this trend.

Interestingly, the lowest consuming countries are not that far from the recommended daily allowance. This is despite the fact that many of these countries suffer from severe malnutrition, which suggests that much of the food these countries are consuming is likely unhealthy. It would be great to see these statistics over time to see if there is any heterogeneity by country in growing consumption rates. If not, then one has to wonder if the quality of the food available to the entire planet has eroded over time. Indeed, when considering our aggressive agricultural practices, research has shown that nutritional value in global soil levels have eroded over time meaning that we need to consume more of a given unit of food than we did decades earlier.

It gets more interesting when the study authors cross-reference the above data with the percentage of income spent on food in the graph below. With the exception of a few outliers, it’s fascinating that there is a direct and negative correlation between food consumption levels and the amount of income spent on food. With the exception of Romania, all of the biggest eaters dedicate little of their income to food. Fast Company attributes this to the fact that a majority of the high consuming nations consume mostly processed, unhealthy food, which is dramatically less expensive than “real food”.

But when you think about this in more depth, another explanation emerges. What strikes me most about the second graph is that the seemingly educated, more affluent countries are those that are not spending much of their disposable income on food. This goes against the view that we need more disposable income and education to eat better. If this were the case, then what’s going on here? Canadians are one of the lowest in the amount of disposable income that goes to the consumption of food – around 7%. That seems bizarre to me! That’s $2,240 spent on food out of $32,000 annual income. That’s $186 per month or $6.14 per day. Yet we manage to turn this $6 into 3700 calories. A quick glance online and the only foods that can muster such a caloric-bang for the buck include things like animal fat, vegetable oils, salad dressings, junk food, processed meats and fried food. Notice that many of these are highly dependent on caloric-intensive corn derivatives, a point I'll get to later.

On the one hand, Canadians seem to be doing everything they can to minimize the percentage of their income spent on food. As if eating is a necessary evil, it appears that Canadians are doing whatever is possible to leave available disposable income for other things; things that are more important than what we put into our bodies. In 2009, Canadians spent about the same on recreation as they did on food and double on transportation as they did on food. Canadians allocated three times the amount we spend on food to a place to live and a third of what we spend on food for alcohol and tobacco products; meaning that if we lumped tobacco and alcohol under food, they would represent 25%. Perhaps most ironic is that we pay just as much on personal insurance payments and pension contribution as we do on food. Yet food decisions lead to short- and long-term implications for our health. The more we compromise on food the higher our personal insurance fees, and the greater pointlessness of contributing to our pension!

But consumers are not the only ones to blame here. There is an inherent motivation on the part of processed food companies to inject as much processed, caloric-intensive food into the food system as possible. And because a majority of the ingredients in this food are highly subsidized, the price is quite low relative to real food. The fact that a 2 liter bottle of Coca-Cola costs less than the equivalent amount of water is a good illustration of this. This is not to mention the fact that processed food frees us from the seemingly burdening task of making our own food, which would actually encourage us to 1) pay attention to what’s in it, 2) consider eating as a substantial part of our day, and 3) eat slower and therefore not over-eat. Add the billions of dollars spent on marketing processed foods as convenient and complementary to a busy lifestyle and voila, you have people in the West who consume 3700 calories a day for cheap, nutrition-empty food yet with only a tiny portion of their budget. Together, this trend is incredibly frightening because we’ve relegated food to the level of a commodity similar to filling our vehicles up with gasoline. We eat at the office desk, in the car, on the go as if consuming food was as inconvenient as learning that your car is approaching empty.

There is a whole host of interpretations coming from these data. I’d be interested in hearing what you think these two graphs are telling us.

Exporting Canadian Asbestos: A Reminder of Supply Chain Responsibility

2011-12-18T12:51:00.000-08:00

Recently, two of Quebec’s asbestos mines shut down amid noisy political debates and a dramatic anti-asbestos news conference Thursday on Parliament Hill. I find this to be an interesting illustration of how fast-moving a relatively recent ballooning of criticism can turn into the dramatic stoppage of operations of an industry that has been left relatively untouched for years.

The growing interest was partly spawned by the Daily Show with Jon Stewart where Asaaf Manvi, one of the show’s correspondents, implicitly ridiculed Canada’s hypocrisy for exporting a substance (asbestos) that the country itself has banned in use domestically and is currently removing from federal buildings. What is more, Canada has fought tooth and nail any United Nations’ efforts to label asbestos a toxic substance, which would place a strong sanction against the use of asbestos in industrialized countries.

This is not unlike the long string of companies over the last two decades that have faced major public outcry and subsequent financial despair because they failed to take accountability for their supply chain. That is, companies think that the extent of their accountability is bound by their position in the supply chain rather than the actions of suppliers and customers that make up the supply chain.

Analogous to many CEOs and senior executives that have ignored the call for greater responsibility in the supply chain, Stephen Harper reacts to criticism by saying that the federal government’s actions are merely a response to global market forces. More specifically, if India is willing to purchase the product, we won’t stand in their way simply because they do not have the appropriate education and infrastructure in place to assure the substance’s safe handling, let alone the precautionary measures in place to withstand future exposure of the substance when buildings age and erode.

A very similar argument led to the boycott of Nike in the 1990s when then CEO Phil Knight argued that poor working conditions and penny wages in their supplier factories is not Nike’s concern and is merely a product of a global economic system. Company after company has fallen victim to "reacting" to criticism by arguing that what goes on in their supply chain is not their problem because they don't technically own those operations. Coca-Cola’s blatant disregard for killings in bottling factories, Apple’s disregard for suicides in its Foxconn factories, Hershey’s disregard for unfair treatment of cocoa farmers in Ghana, the list goes on and on. They typically begin with a reaction that absolves them of any responsibility. They then engage in a public relations campaign to distract the public from these problems before finally admitting that there is a problem and that they have to accommodate the requests put forward by activists and eventually the mainstream public. Unfortunately, companies do not engage in this “accommodative” stance until they’ve suffered financially or see fairly dramatic financial repercussions for not responding in a favorable way as determined by the public.

Why aren’t companies learning from other industries as they get lambasted in the form of heavy criticism? Is their memory that short? Is it a case of an evaluation of risk where they conduct a cost/benefit analysis of taking responsibility in the supply chain and comparing that with the potential implications of doing nothing? Is it the short-termism of the investor community that detracts from any consideration of longer-term financial implications?

Going back to the asbestos industry, the business community unfortunately operates under a very simplistic definition of value. Value, to economics and business, is the difference between the opportunity cost of holding on to the asbestos as an extractor (versus selling it) and the price customers are willing to pay for products that have asbestos in it. Notice that this definition is purely financial. That is, value is determined based on the cost of making the product and the cost of purchasing it. Nowhere in here is there room for calculating the erosion of value in terms of health or the environment.

So one answer to the above questions (why do managers continually fail to see the freight train associated with ignoring the supply chain), it becomes somewhat clear that managers are ill-equipped to incorporate social and environmental calculations into their decisions. And by ill-equipped I don’t only mean the skills required to understand the financial implications of these issues, I also mean the cognitive ability to first see their decisions in this way. So in effect, they cannot foresee that ignoring social and environmental considerations may someday influence how much a consumer is willing to pay for a product. Put another way, the executive is blind-sided by the perception that consumers only use financial-based variables in their purchasing decisions. But time and time again, firms have been railroaded for ignoring public perception on acceptable behaviour of business. Wouldn’t it be easier if consumers didn’t care about these sorts of issues?

The Globe and Mail Compromises Truth for Politics

2011-12-01T20:59:00.000-08:00

Margaret Wente, a right wing columnist for the Globe and Mail, recently argued that it is wrong and disastrous to science to suppress debate on climate change. She puts forward a string of anecdotal and disproven information to weave a web of doubt of climate change for the innocent and less-educated reader. She refers to Roger Pielke Jr. “one of the saner voices on the climate scene”, yet doesn’t point out that he presents no peer-reviewed empirical evidence to oppose the 97-98% (tens of thousands) of scientists who argue and have proven that climate change is real and man-made.

The question of whether Canada should or should not support a renewal of the Kyoto Protocol is a separate issue from what Wente is referring to here. Her objective is to create doubt when there is none in the science on climate change. It is perhaps no coincidence that this story has been published in the lead up to the UN Climate Conference on Monday, Dec. 5th, 2011 in Durban, South Africa. At this conference, Canada is expected to represent one of the strongest opponents to renewing the Kyoto protocol and, for that matter, any international commitments to mitigate climate change.

I fear that the newspaper’s decision to publish this highly inaccurate and misleading column is a political one rather than one that is in the best interests of the public. Here’s why:

The problem with these opinion pieces is that they plant seeds in the minds of readers that climate change is still debatable. That is, readers walk away with the belief that there is perhaps a 50% chance that the science behind climate change is accurate. The amount of news coverage in mainstream media reflects this with half the stories arguing that climate change is real and man-made and half the stories arguing the opposite. Yet if the media were doing its job and communicating to the public the truth based on sound science, we should see 97-98 out of 100 stories on climate change indicating that it is real and man-made and 2-3 out of every 100 stories with arguments against this science.

In effect, readers should understand that there is no longer any debate on climate change. The science is therefore clear. And by clear I don’t mean 100%. This is impossible. No concentration of scientific studies on a complex issue like this can claim 100% accuracy. We go on probabilities. Decisions are made everyday and conclusions to guide theory are made everyday based on 95% probability levels and sometimes 90% probability levels. This means that if we were to run experiments on a particular scenario, 19 out of 20 experiments would produce the same result. For climate change, we’re at a similar level of probability. This doesn’t dismiss the opportunity to prove these 97%ers wrong. But there needs to be a mountain of peer reviewed empirical studies to raise such doubt and there are few credible studies denying that climate change exists or is man-made.

Wente’s writing is outdated and completely inaccurate. Like most scientists who claim that climate change is not happening, she picks out isolated statistics yet overlooks the overwhelming evidence that opposes these outliers. The fact that we’ve experienced the warmest weather in 13 of the last 15 years is not discussed, nor is the rather remarkable rate at which the polar ice caps are melting, or the dramatic increase in freak weather events in the last decade. The list goes on and on and she speaks as if these rogue scientists represent mainstream thought.

Claims like “no one knows with any certainty the exact impact of carbon dioxide emissions” is completely inaccurate. So is, “what long-term climate trends will be or the effect of other factors, such as the sun”. These alternative explanations have been disproven time and time again and are therefore unrelated to the changes in climate we’re seeing today. She spends time talking about climategate despite the fact that three independent studies were conducted to see if the science behind climate change was compromised as a result of these emails. All three independently concluded that there is absolutely no evidence that the science on climate change has at all been put into doubt as a result of these scandals. Recently Exxon and other climate-change deniers funded an independent study which concluded that climate change is happening and that it is caused by man. Finally, she refers to old quotations from rogue scientists, many of whom, are not even experts in climatology and in some cases have been funded by oil and gas companies (see Climate Cover-Up by James Hoggan)

So Wente is completely hypocritical when she says that science needs healthy debate yet doesn’t produce any empirical evidence that such a debate is warranted. Put another way, she’s advocating for sound science based on healthy debate without using the very scientific principles upon which this is meant to occur.

I respect the views of the conservative right. They are legitimate and important in our society. But when these views ignore the unbiased science that is meant to provide society with knowledge to make decisions, they become an obstruction to democracy. A democratic society requires accurate information and opinions based on sound science. It needs media outlets that publish stories that reflect the findings of unbiased sources rather than stories that create inaccurate views in society.

The fact that this article has been published in Canada’s top newspaper is disgraceful. Wente’s views sadly align closely with the expected stance of our government in Durban on Monday. One has to wonder whether this column was published intentionally by the Globe and Mail as a political statement to defend against the tidal wave of criticism our country will face in the next week. When a media outlet like the Globe and Mail compromises its purpose of helping the public distinguish rhetoric from fact and myth from science, they have lost their role in society and, in my view, are no better than the infamous and highly misleading Fox News. Recently a study found that Fox News viewers were less informed than people who don’t watch the news at all. Is The Globe and Mail heading in that direction?

The Occupy Movement and Business Schools

2011-11-30T05:45:00.001-08:00

I was fortunate to take part in a panel discussion today at the Ivey School of Business on the relevance of the Occupy Movement to business schools. While there were some heated discussions, I think all four panel participants agreed that change is needed in business schools to produce leaders who can make decisions that consider a wider range of interests. There also appeared to be agreement that the old adage that profit maximization is how business contributes to society is outdated in light of the uncontroversial evidence of a negative correlation between profit levels and societal and/or environmental welfare.

This places business schools in a precarious position when their foundation largely hinges on the maximizing of the universal metric of financial performance. While all business schools have in their mission some reference to social good, ethics, and benefit to society, there is no doubt that the underlying objective behind all decisions in the classroom is financial accountability to shareholders within the confines of the law and, if necessary, at the expense of society and the environment. This is fundamental and while I acknowledge business schools’ fluffy wording on their commitment to society, it rings hallow when it comes down to class discussion.

But it was clear from student reactions today that they struggle with the notion that business is as bad as the occupy movement says it is. I can imagine that a 21-22 year old, part of one of the top business programs in the country and the world, would be disheartened to read about a movement that is against everything that they’ve pinned their future career on. Even as a business professor pushing for change in business schools, this is not an easy thing to read and hear about. But as I’ve written before, the occupation’s painting of business with the same brush is not only unfair but entirely inaccurate. That being said, there is no doubt that many businesses have and are continuing to play a major role in creating the inequality that the occupy movement is concerned about.

One area of disagreement among the panel members and perhaps among the students was the notion that consumers are ultimately accountable for their own decisions. So, going into unmanageable debt is nothing but irresponsibility of the consumer not the fault of companies. To me, this is a very naïve argument because it overlooks the fact that we all live in a society that is socially constructed. History has shown that when actors are powerful in society, they play a substantial role in shaping the norms and beliefs of that society, sometimes for millennia. Religious organizations, once the most powerful actors in society, institutionalized a number of taken-for-granted belief systems that we see followed today for good and bad. The dominant actor today is business, more powerful than religion and more powerful than most governments.

Here’s the kicker, what happens when a for-profit entity is able to wield power that intentionally or unintentionally influences social norms and beliefs? I discussed this in more detail in a previous posting.

Bringing this back to what we teach in a business school, company profit maximization largely hinges on the creation of a monopoly or near-monopoly situation wherever possible. By default then, the objective is to weaken the power of consumers by discouraging their search for information that would allow them to make informed decisions, influencing how that information is presented, influencing consumer interpretation of that information, and/or reducing the options available to consumers regardless of their absorption of information. The oil and gas industry’s attempts to create doubt in the science of climate change is an example here. Also the financial industry’s efforts as of late to destroy or at least weaken the Consumer Financial Protection Agency, a body meant to help educate and protect consumers from complicated financial innovation, proves quite remarkably that companies do not hope for consumer irresponsibility to pave their fortunes but instead create conditions that inhibit informed decisions.

This all comes down to a perverse incentive based on profit maximization exclusively with no consideration of the social and environmental consequences of these decisions. Combined with immense power that business as a social actor holds in shaping consumer behaviour, business’ role in influencing society is not the next conspiracy but merely an obvious and highly predictable outcome of what we’d expect these actors to do in our current socio-economic system.

So in my view, when the occupy movement voices its concerns over social inequality, they’re also implicitly referring to the disruptive effects on democracy when those in power work to maintain the status quo by shaping the views and beliefs of society.

My Experience at Occupy Toronto

2011-11-06T01:08:00.001-07:00

I joined Occupy Toronto on a Friday and Saturday in late October, 2011. On Friday, I was part of a silent march that started at St. James Park, passed through Toronto’s financial district at King and Bay, and ended at old city hall. The gathering at St. James Park was relatively small with a majority of the population exhibiting behaviours that many people would stereotypically associate with a very left wing persona: some meditation, incense, a Marxist table and a number of signs calling for the abolishment of capitalism and corporate greed. My conversations with people there indicated to me that while we may have differences in how we go about expressing what the problem is (a clear reason why the media perceives the protests to be incoherent and unfocused), we all seemed to agree that the current institutionalized economic system is not working for a majority of people.

But I was most struck by the reaction of Torontonians and working people to our silent march and our presence at old city hall. Many would stop and stare not with a look of criticism or repulsion but with a look of interest, curiosity and resonance. By resonance I mean their growing awareness that the movement, now present in dozens of locations around the world, was not for some marginalized, isolated cause but for the defense of the middle class. Where I could, I tried to talk with these people to learn what they thought of the protests. To my surprise, everyone I spoke with was very concerned that the status quo is not working for a majority of people and that change is needed. While their busy-schedules, mild temperaments, and hesitation to join what many perceive to be a “hippy-march” discourage their participation, they also feel obligated to respond to the seriousness of the issues around the world and the impact on future generations. One woman said to me, “I’m a working mom and quite successful in my career but I’m concerned for my kids and my grandkids”. It seemed like by observing the occupy Toronto protest, these people, for the first time, were able to personalize the very abstract and seemingly distant stories they’ve read about in the news.

On Saturday, I was part of a much larger march advocating the need for a Robin Hood Tax. This march began at St. James Park and made its way around downtown blocking one direction of traffic before ending up at King and Bay (see video here). While one could debate the merits of this Robin Hood tax idea I think the highlight of the day was the fact that the march was filled with a substantial number of the middle class. These people echoed much of the concerns I heard from people on the street the day before. While they didn’t have any answers or solutions, they felt that it was more important to be part of the conversation and to start a dialogue. As many have argued, the complexity and systemic nature of the issue commands a grassroots movement to kick start a global conversation on what needs to change and how, without any naïve and pre-conceived solutions.

But most important was the difference in the crowd between Friday and Saturday. This suggested to me that the wide range of people who have concerns with this inequality issue are not necessarily the ones doing the protesting. This results in an inaccurate depiction by the media of who is representing the movement. So when the media describes these protests as representing a certain demographic, they are presuming that those most concerned are only those doing the occupying on a full time basis not those hundreds of thousands of people who recognize the problem and want to do something about it, yet are simply not occupying. The Daily Show’s John Oliver nicely captured this in one of his satirical story coverages.

When I invited via email friends and colleagues to join me at the protests, it didn’t take long for the message to reach a wide number of audiences. My message to them was that I felt business schools and business more generally needed to be a part of this discussion rather than an actor in opposition. I received about 30 responses from executives, entrepreneurs, other business faculty, graduates, and business and non-business students. A majority of these were very supportive with apologies that they couldn’t join me. A colleague in the office next to me at Ivey mentioned that she was having dinner with a number of executives. Although she was expecting them to voice a rather smug and harsh discontent with the occupation, to her surprise they instead voiced support and a broader concern that what these people are protesting about is indeed a systemic problem that needs to be closely examined and talked about.

I received 5 harsh criticisms, surprisingly all from business students. I didn’t receive one criticism from a non-student audience. This was perplexing to me and some of my students shared their thoughts on why this might have been the case. They said that perhaps these students perceived the occupation to be a threat to the years of personal investment they’ve made to succeed in the existing system. They also said that perhaps business students naively view the protests as being a symbolic opposition to the very idea of business. Finally, like many others, these students are perhaps more strongly frustrated by the incoherent message of the occupation and the rather blanketed criticism of business more generally. But make no mistake, the people walking beside me at the march on Saturday and the many people occupying around the world are employees of business, executives of business, and owners of business and are therefore strong supporters that business needs to be part of the conversation.

Many people have asked me, somewhat out of frustration, what the purpose of the occupation actually is. Is it corporate greed, lack of jobs, the financial crisis, our current recessions, austerity measures, social inequality, environmental issues? (See Stiglitz' opinion piece in Aljazeera for a good summary) These same people exhibit a rather strong criticism that there is no point occupying unless the message is coherent and unless solutions are presented. Recently, my students voiced their preference for more solutions to the first half of a course that examines the relationship between corporations and society. Yet the focus of the first half of the course was not to uncover solutions but to understand how the interests of business do not always align with the interests of society and that instances of conflict are growing in number. Exploitative labour, environmental crises, the financial crisis, and social inequity represent a signal that business is perceived to be prospering at the expense of the broader community. Because solutions to these problems are not readily available under the current systems, our objective in this first half was to instead engage in critical thinking to understand the complexity of these problems, why they emerge, and what it means for business in society. Perhaps their struggle with this approach partly explains their frustration with the occupation movement.

But I did receive several emails from business students very supportive of my participation in the movement. Just the other day, 70 students from an Economics 10 course at Harvard walked out of class because of what they perceived to be an “an overly conservative bias in the course”.

I believe that business schools and economics faculties will have to face a decision about whether they are going to join the conversation about what needs to change so that our economic systems better reflect society’s needs or whether they are going to vehemently oppose the movement as the symbolic counterweight. Time will tell I’m sure. I’m of the opinion that the occupation represents an opportunity to start a conversation within business schools as educators of future managers. What does this mean for our programs? What does this mean for the overarching ideology of the business discipline? These are unnerving questions that need to be discussed in the hallways of a number of professional institutions. My students suggested that Ivey have a panel of business and non-business faculty to discuss what the occupation means more broadly to our current systems and way of life to reflect on how business can better serve the interests of society.

I couldn’t agree more. For anyone out there who doesn’t believe the occupation is doing anything of substance, they may be overlooking the many conversations taking place around the world, including the one I just had with future business leaders.

Business to Join Occupy Protest - Friday, Oct 28th at 4pm

2011-10-25T12:42:00.000-07:00

As you're all quite aware, the occupation that started on Wall Street in New York has ballooned into a social movement, extending to a number of cities around the world, including Toronto. Although its cause ranges from corporate greed to social inequity to the financial crisis, the underlying theme is an immense discontent with our current socio-economic system. More than 33% of Americans are in support of Occupy Wall Street and anyone who might argue that this is not relevant to Canadians overlooks the clear reality that we are all subject to the whims of a global economic system, that social inequity in Canada has reached unprecedented levels, that Canadian debt levels are tops in the world, and, more generally, that businesses in today's economic system are increasingly prospering at the expense of society.

I'm showing my support for these protests because I believe business needs to be part of the conversation. I recently posted on my blog why all Business Schools around the world should be part of this:

My colleagues Andy Crane and Dirk Matten at the Schulich School of Business posted a blog on why the protests should be top of mind for business leaders and employees in general.

This is a call to business students, business professors, business graduates, and business employees to join my peaceful walk around downtown Toronto on Friday, October 28th beginning at 4pm in front of the St James Anglican Cathedral on the corner of Church Street and King Street (65 Church St.). Anyone who would like to join me, please meet me there.

For those of you not in or near Toronto, I encourage you as actors of business (e.g. graduates, employees, faculty, students) to join the conversation in your municipality.

Feel free to pass this along.

Why Business Schools Should Join "Occupy Wall/Bay Street"

2011-10-14T18:13:00.000-07:00

The Occupy Wall Street protests have ballooned into one of the most powerful grassroots social movements since the Great Depression and there doesn’t seem to be an end in sight. Once perceived by the elite to be a trivial display of immature angst by a bunch of hippies, the mainstream media has had no choice but to cover the protests to the chagrin of their corporate owners. For this protest, as Caplan and Grzyb explained, is of “the larger, ugly truths about modern capitalism” and as business professor Michael Porter explains, reflects the perception that corporations are “prospering at the expense of the broader community”. I think Finance Minister Jim Flaherty and Central Bank Governor Mark Carney overlook the broader message the protest is conveying when they focus on the financial crisis as the source of angst among protesters. I would argue that his was only the catalyst for a greater march against the inequities of the existing capitalist system. As Ed Clark, CEO of TD Bank said, "If you think this system is working for everyone, it's not".

A rather polarized dynamic has played out between the right and left sides of the spectrum with the right relegating protesters to a bunch of “left wing nut bars” (Kevin O’Leary) or “a collection of ne’er doers” (Murdoch’s WSJ) and the left asserting that we live in a society of “government of the 1%, by the 1%, for the 1%” (J. Stiglitz) and that “we the people have found our voice” (Professor Cornell West). More than 33% of Americans are in support of Occupy Wall Street and anyone who might argue that this is not relevant to Canadians overlooks the clear reality that we are all subject to the whims of a global economic system, that social inequity in Canada has reached unprecedented levels (81% of Canadians agree with this), that Canadian debt levels are tops in the world, and, more generally, the troubling trend that business in today's economic system is increasingly prospering at the expense of society (51% of Canadians agree with this).

So where are business schools in all of this? Naturally, business is expected to side with the right, defending their powerful position in society by putting forth rhetoric that touts the societal benefits of free markets such as job creation, access to cheap goods and services, and (perhaps taken to the extreme) individual freedom. Yet, I would argue as a business academic, perhaps paradoxically, that business schools should be an active voice in the protests not as a mouthpiece for the right but as a stark supporter of the need for change.

Here are three reasons why:

First, the last decade has proven unequivocally that Adam Smith’s original supposition that the pursuit of commercial interests leads to optimal gains for society is misguided at best. An unprecedented number of circumstances have emerged where the pursuit of corporate interest has left society worse off. Smith’s ingenuity presumed that business would make decisions using a moral lens and therefore fit a time when business represented a relatively small actor in society shadowing the power of the church and the state. Since then, we’ve seen business become the dominant societal actor with the power to not only ignore broader societal interests but to circumvent those interests. As I’ve written before, why should business be passive players responding to regulatory constraints or market demands when they can wield their growing power to influence regulation and what the market demands. To that end, many executives have essentially taken business school fundamentals to the extreme by deliberately shaping those environments to their liking with little regard for society. Wall Street’s active suppression of government regulation of derivatives and their relentless effort to defer risk to the public is one such example. Reducing these behaviors to "corporate greed", as many protesters have voiced to be the crux of their cause, overlooks the broader fundamental practices of our current economic system. So business schools, in my view, are obligated to occupy wall/bay street to voice the need for change in the fundamentals of the business discipline.

Second, I think it’s important to make sure that we don’t paint all businesses with the same brush. There are a growing number of companies, large and small, that define their purpose and operations on precisely what these protesters stand for: equality, human rights, and environmental sustainability. They adopt triple bottom line businesses with the purpose to co-create value along social, environmental, and economic systems not as isolated endeavors but as an integrated value proposition to society. Businesses like Grameen Bank, Interface, Patagonia, Better Place, Frogbox, Terracycle, and SEKEM represent the hope for business in a sustainable society. They are challenging the practices of those companies in the previous paragraph and redefining the purpose of business in society. Business schools should be marching to demonstrate their commitment to understanding these sorts of businesses and to build theories and frameworks that educate future managers to replicate this role.

Finally, any academic at a university is held to an obligation to engage in activity that advances new knowledge for the purpose of contributing to the welfare of broader society. If we’ve reached a stage in history where our business school teachings and research are partly responsible for the negative impacts on society, then is it not our duty to lead the charge in understanding what needs to change? One approach of business schools, which I presume is the most common, is to distance ourselves from the protest thereby further fueling the polarization of society. Another is to be part of the conversation so that we are truly doing our job as academics and understanding how the private sector can better respond to the needs of society. This takes a combination of courage and humility because it suggests that what we’ve taken for granted in the classroom and in our management journals might need radical change.

Canada at Odds with Peace Laureates

2011-10-01T19:00:00.002-07:00

Of the first 50 and most popular comments in response to last Wednesday’s web-based front page Globe and Mail article describing the Nobel Laureates’ efforts to persuade Stephen Harper, and by default Canada, to cancel expansion of oil sands development, all 50 were harshly blasting the Laureates’ cause as repugnant and revolting. Some of the more common responses included the following:

The exploitation of Canadian resources is a decision left to Canadians…so mind your own business!
The demand for oil will persist and so it’s better to get it from a democratic nation with large reserves than a human rights suppressing nation in the Middle East, Africa, or Latin America
The environmental implications are overstated. Industry has put in impressive measures to reduce environmental issues
There are worst things in the world right now and Canada’s oil sands are way down the list. Why bother with us? These Laureates must have some kind of hidden agenda.

Aside from the complete embarrassment I felt in reading these highly ill informed, rash, and toxic comments, I thought it necessary to put forth my own response to these comments:

First, climate change is a global and complex issue. Decisions we make in one part of the world have huge consequences on other parts of the world not privy to those decisions. To suggest that we have a right to make decisions as one country that will undoubtedly leave other countries under water, plagued by drought, overwhelmed with forest fires, and/or bombarded with hurricanes and typhoons is either a demonstration of our blatant disregard for humanity, our primitive emphasis on national sovereignty at the expense of everyone else, or complete idiocy. On top of all this, future generations not yet born will be looking back at our ignorant, arrogant, and uneducated rants demonstrating our lack of understanding of complex systems such as the climate. I’m in a time warp if a good chunk of Canadians mistakenly strive for national sovereignty over global sovereignty now that we know how interconnected national decisions are to the welfare of the planet and our future generations.

Second, any environmental improvements made by the oil sands sector can only be evaluated with a starting point of how catastrophic this process is to begin with. I have not seen any evidence to refute the very common claims that the resources required to produce 1 barrel of oil from the oil sands are several times that of light crude and that the CO2 emissions to produce one barrel is several times more than that of other sources of oil. When scientists link the systematic extraction of oil sands to the planet’s tipping point on climate change – the point of no return – there is no way that incremental efficiencies by industry are going to make any difference.

Third, as I’ve written many times before, our continual reliance on fossil fuels is no accident. To make comparative judgments on other renewable sources of energy at a point in time when government policy has supported non-renewable sources and demand for these sources pale in comparison to other environmental devastating sources is preposterous and overlooks the role of inertia and momentum in locking societies into particular sources of energy. We are so dependent on oil that movement away from the substance is going to take more than just silver bullet technologies. It’s going to take political, economic, and social courage to be part of the transition to renewable sources.

Fourth, clearly many people do not understand how interconnected our planet really is. Many of the comments I read were blasting the Laureates’ decision to prioritize Canadian actions over other atrocities that are occurring in the world today. But as the article rightly mentioned, many of the issues we’re seeing today is largely brought on by climate change. Tribal conflicts in Sudan and Kenya are primarily based on drought conditions. Imagine what will happen for several countries in the future if we continue to exploit these resources. So the Laureates are bang on because they know exactly what sorts of decisions take place in the Western world that fuel the fire of conflict in other regions.

The proliferation of these sorts of comments and other articles in defense of the oil sands puts to rest any confusion I might have had about why the conservatives are in power. Even if these comments represent a minority, it’s very clear that this is indeed a rather pervasive sentiment in Canada. I for one do not want to be included in the company of my prime minister or anyone else who doesn’t recognize the sensitivity of this issue, perceived by Nobel Laureate Williams as someone “who doesn’t really care”.

It took all but an hour to remove this article from the front web page of the Globe and Mail to several screens down and then another few minutes before it was relegated from front news altogether. We can only speculate why G&M did this. Is this what they normally do? Are they responding to public sentiment rather than putting forward the facts? Or were they influenced by some powerful individuals who would prefer that Canadians not learn about this story?

The Meaning of Life According to Brands

2011-09-27T19:00:00.000-07:00

Naomi Klein's No Logo has become a rather influential book that discusses the growing presence of advertisements and branding in society and the corresponding effects it has on our daily lives. I had the pleasure of discussing some of the implications of her work with my students last week using the tobacco industry’s attempts to brand a cool and hip identity for their cigarettes.

Klein nicely chronicles the evolution of advertising over the past several decades where companies have shifted away from advertising a product to building a brand identity to which consumers can attribute meaning. Examples include Starbucks’ “It’s the romance of the coffee experience”, GM’s “New age of spirituality”, Polaroid’s “A social lubricant”, and Nike’s “Enhance people’s lives through sport and fitness”.

I asked my students whether they okay with a society where the mechanisms through which we attach meaning and identity to our lives originate from business? To my surprise, I received three common responses:

Most common is that this is ultimately okay because consumers will always have a choice to detach from these identities. Indeed many of these students will be able to step back from these messages. But there is a presumption here that the average consumer has the ability and foresight to decouple from the emotional messages they are receiving. This view also overlooks the inherent incentive on the part of business to influence what information is available to the consumer, how that information is interpreted, and what choices consumers do have to respond to that information. These three cognitive pivot points are important levers for companies who are searching for repeat consumers. The rather pervasive climate change denial campaign is an effective illustration of how companies can play an effective role in shifting how consumers interpret information related to climate change science.

The second response is that this is a good thing. Our lives revolve around finding meaning and companies are merely one of the actors in society that allow this to happen. On the bright side, is there is really something wrong with identifying yourself with the Body Shop’s brand of ethics and the environment? I often wonder whether people my students’ age are able to conceive of a life that isn’t solely dominated by commercial transactions when the only alternative to capitalism existed when they were 2 or 3 years old.

The third response is that this is a major issue and that if we allow this to go unchallenged in society, peoples’ interpretations of reality will be based on a confluence of company identity messages that dictate what a person should or should not be doing to find meaning in life. There was a time when the state assumed this role…a time when the church assumed this role. Now is the time when corporations assume this role. As Klein explained, this is where we start to see the profound imperialistic aspirations of capitalism. These students worry that in light of a corporation’s narrowly defined purpose of profit maximization, they are poorly positioned to determine what we as society define as meaningful.

There is no doubt that everything we see around us throughout our daily lives is a social construction. The very idea of an objective reality is indeed difficult to grasp. But does that mean that we should allow power imbalances to afford certain actors in society to inform that social construction in a way that benefits them? One of my students sent me a song that nicely answers this very question.

Canadians Losing Interest in the Environment

2011-09-13T19:48:00.000-07:00

Canadian concern about the environment has dropped off a cliff in only 3 years with only 27% of Canadians concerned compared with 38% in 2008, according to a study conducted by Bensimon Byrne. Women exhibited the most striking drop where only 32% are concerned compared with 46% in 2008. Only 23% of Canadians are very motivated to make personal changes to benefit the environment although I'm sure this would have dropped dramatically had there been a proviso in the question that there would be a cost attached.

The authors explain that marketers need to consider the fact that environmental concerns are waning as a tool to attract consumers to their products. But certain environmental issues were more important than others such as the use of less packaging, recyclability and re-usability of the product rather than whether the company used greener fuels to run their operations.

The study found that environmental issues fall well behind concerns related to the price of gas, adequate pensions, the state of the economy, and ethics in politics. Either unethical politics has in the last 3 years threatened to dismantle the trust of Canadians or we've done a complete 180 on the importance of the environment.

The study authors attribute the drop to the dire economic situation, although 2008, when we cared about the environment, was the year that we experienced the greatest economic low. I recall studies in 2008 suggesting that "despite the economic horizon, consumers are still committed to acting green". On top of all this, at the time of the study, the Canadian economy was looking really good (unlike now).

The study seems to suggest that environmental consumerism is a bit of a fad, which dangerously suggests that company interest in this area will wane. This is a scary thought. I only wish that the environmental destruction we're causing as Canadians and global citizens echoed the reversible luxuries of a fad. But unfortunately market behaviour doesn't seem to reflect the realities of the environment.

I think consumers' thinning wallets is only part of the explanation here. Environmental issues are so distant in our minds. We don't see them around us like we do the gas prices on every street corner, stock market trends on every business website, the fluctuations of our investments through online banking and the behaviour of our politicians on the front page of every newspaper and website. So the media has a role here!

I think humanity is incredibly fickle when it comes to these sorts of issues that command long-term views and personal sacrifice. Only when a highly provocative video like The Inconvenient Truth comes out do we stop to think and perhaps make a couple of sacrifices. But each new documentary that illuminates the environmental realities we face has to out-revolutionize the previous for any of us to pay attention to it, otherwise it's the same old thing...more environmental awareness campaigns that we start to ignore. In fact, Al Gore is trying to revive this once global concern.

I haven't given up on my fellow Canadians yet. We're all very busy. But i know of many organizations, including businesses, that are playing very active roles in educating consumers about environmental issues and developing technologies and products that avoid the perceived trade-off between economic and ecological sustainability.

My Experience in San Antonio Texas

2011-08-17T13:20:00.000-07:00

I just returned from the annual Academy of Management conference (AOM) this year held in San Antonio, Texas. AOM is a conference hosted by the Academy of Management, an organization whose vision is to "inspire and enable a better world through scholarship and teaching about management and organizations".

It's been 3 years since the largest financial crisis in history; a crisis that demonstrated the highly destructive behaviour business can have on society. Alongside such travesties as the BP oil debacle and the many documented atrocities on local indigenous communities, the financial crisis has shown quite unequivocally that business is prospering at the expense of society.

Nowhere in the conference was there discussion of our complicity in this behaviour as academics teaching future managers to make the very decisions that led to these crises. Like zombies we walk from session to session discussing trivial independent and dependent variables that ultimately mask the need for fundamental change in management thought. Is this any different from those incumbent businesses that ignore the problems they've created to preserve the status quo that has afforded them so much wealth?

At the conference, I endured the shame of eating breakfast at the hotels where food and drinks were served on styrofoam plates, all of which were slated for the garbage. Imagine 9000 conference attendees disposing of these plates, cups and cutlery over the 5 conference days multiplied by the dozens of conferences like these throughout the year.

With the very humid heat, the large energy-sucking conference rooms populating the hotels were pumped with air conditioning to the point where many participants were wearing scarves. The justification for the styrofoam cups was partly based on the fact that the coffee will get cold in the over-sized refrigerators we were working in.

On top of all this, I have never found it so hard to find a vegetable over a 4 day period. Waffles, eggs, muffins, tarts, white bread, cheerios, meat, chicken and tortillas were all I could find. Absolutely frozen from the air conditioning, a colleague joined me in a session and told me about her dinner experience the night before. She ordered a vegetarian dish at a restaurant and the server expressed her shock and fascination that such a plate had existed on the menu. Either no one ever orders it or the very thought of a vegetable plate appears absurd.

Finally, as I'm boarding my flight home, I'm noticing that one of the most well respected academics doing work in business and the natural environment is boarding the plane before the rest of us to fly First Class!!!

Oh, the irony!!

Fox and Friends Latest on Climate Change Denial

2011-08-04T17:31:00.000-07:00

Anyone who argues that Fox News is an objective, fair and balanced news network only has to take a look at the latest Fox and Friends episode on climate science. In the episode, they talk about the Department of Education's initiative to educate children on climate change using the Spongebob cartoon. On the Fox news channel screen read phrases like "Spongebog's Bias", "Cartoon blames man for global warming", and "Spongebob only tells one side of the debate". The subsequent comments from Fox's Steve Doocey and the sit-in across from him are absolutely ludicrous. There is no debate on the science, there is no concentration of scientists that believe climate change is not caused by humanity, manmade climate change is not unproven science, and, most importantly, this is not one of those natural "gigantic climactic phases".

Fox is consistently criticized for pushing a political debate on climate change and more generally for pushing a highly right-wing conservative ideology heavily influenced by those most in jeopardy of political action on climate change. You can see in their tone that their objective is not to convey fact but to sing the highly charged rhetoric of a few elite individuals and corporations. Fox is indeed one of the darkest institutions in global society today.

Take a look here at Gleick's criticism and the video

Rupert Murdock Fails Management 101

2011-07-20T20:07:00.000-07:00

Rupert Murdock apologized profusely today in response to accusations form the UK parliament but accepted no responsibility for all that happened under his watch as the leader of News Corp. Rebecca Brooks similarly seemed to suggest that her lack of awareness of the scandals absolves her of any responsibility. These remarks are particularly striking because they naively overlook the influence of institutions on the behaviour of individuals. By institution I mean the business itself that possesses an intricate array of complex systems and processes that shape norms, standards, belief systems, and principles resulting in collective behaviour and a well-defined and highly influential culture. Consider an organization's aggressive reward systems or promotion criteria that elicit a highly aggressive competitive environment or internal norms related to unethical behaviour that leaders endorse or ignore. As Noam Chomsky put it in describing the behaviour of organization members of particularly psychopathic 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).

Decades of research has concluded that leaders, executives, and managers shape and mold the culture of their organizations through the institution of these systems and structures and, most importantly, through their own behaviour. In explaining the downfall of Enron, “The Smartest Guys in the Room” nicely showed the similarity between the leadership style of President Jeff Skilling and the highly competitive and aggressive behaviour of their traders. The aggressive culture created by Enron leaders transcended to other parts of the organization. Management research would therefore predict that these traders may not have engaged in similar behaviour in another organization under a different culture.

The influence of leaders on the behaviour of their organizations is undeniable. Although Murdock might not have known about particular scandals, there is no question that he is indirectly responsible for the behaviour of his employees. In fact, I would argue that Murdock’s molding of News Corp’s culture is more destructive than his role in choreographing any individual hacking initiative. To absolve responsibility as a leader in situations like these ignores the fundamentals of Leadership 101. Rupert presumes that organizational culture is irrelevant and that individuals behave through their own devices. Large organizations are complex and leaders of these organizations accept a risk and responsibility of the actions of the organization. Otherwise, they do not belong in these positions.

Photo taken from greatpost.info reproduced through Creative Commons

Canada's Oil Sands and the Survival of Humanity

2011-07-11T19:22:00.000-07:00

In light of ongoing US debate about whether to go ahead with the Keystone XL oil pipeline that would connect Alberta to the southern states, a number of articles have emerged flagging the climactic consequences of extracting oil from the tar sands. While these assertions are not at all new, recent articles have stressed warnings put forward by James Hansen, which suggest that if all the oil were to be extracted tomorrow, CO2 emissions would increase from 390 parts per million today to 600 parts per million, well above the scientifically recommended 350 parts per million.

600 parts per million is an amount equivalent to a time millions of years ago when life on Earth nearly died. Several people are therefore positioning Canada’s decision to exploit this resource as the defining moment that will determine whether humanity curbed its effect on the climate or whether, as Stern worries, it is "essentially game over".

In a recent post, I argued that Canada's enthusiastic extraction of oil is ultimately a signal of our country's unsustainability. But lately, authors are extending the consequences of Canada’s decision to the survival of the human species.

Unfortunately the people of Canada, while seemingly concerned about these sorts of issues, are not at all eager to initiate pressure on their governments to stop this infernal machine. As I’ve written before, Canada’s culture fundamentally lacks the leadership required to initiate social change. This lack of leadership is particularly pervasive in our government but it is also evident in Canadian citizens. I asked a Calgarian the other day about her thoughts on the climate change impacts of oil sands extraction and her answer was, “but that’s where the money is right now”.

The climate change story is getting oil; so old that while people know it's a problem, serious action to curb our impact has taken a back seat. Nowhere is this more obvious than in Alberta where many (not all) people are raking in thousands at the expense of future generations. Keeping our heads in the "oil" sand is not only going to compromise future Canadian generations but, as Stern notes, the future of humanity. We have the power as Canadians to show leadership. The question is: will we exercise that power and re-brand our position in the world as thought leaders in curbing climate change? I sure hope so!

Barrick Gold's Failure to Engage Local Communities

2011-06-11T15:47:00.000-07:00

Barrick Gold has interestingly managed to escape relatively unscathed in the mainstream media thus far for its complicity in the massacre that is unraveling in its Tanzanian operations. Although several people have died and dozens have been injured and/or wrongfully imprisoned, the media seems to be quite silent in covering the story. Those who have paint the local community trespassers as “invaders” implicitly sympathizing with the corporation’s perceived innocence, quoting the apparently shocked executives as saying phrases like “highly disturbed”, “deeply distressed”, and “regret the loss of life”.

Barrick’s response thus far has been textbook PR demonstrating remorse for the events that have unfolded and deferring all investigations to the supposed independent local police force. But more interesting is the discrepancy between Barrick’s account of the events and information emerging on the ground. One Barrick executive said, “North Mara regularly faces illegal intruders who are armed and aggressive, and many are linked to organize crime”. But Mobhare Matinyl, writing for The Citizen in Tanzania, asked how it was possible for 1500 people to “meet, plan and carry out such an operation without the authorities noticing something unusual”. Most striking perhaps is Canadian journalist Geoffrey York’s correspondence in Africa where he interviewed a number of these supposed “invaders”. He found compelling evidence suggesting that the police and Barrick’s security forces were out of line in their attacks on the people uncovering a rather pervasive discrepancy between what Barrick is saying in terms of citizen attack on the police and what witnesses and the police themselves are saying, including the regional police commander who said that the “seven injuries among the police were all caused by stones”.

But clouded behind Barrick’s PR rhetoric and the details on the ground is the fact that what is happening in Tanzania is a symptom of a greater systemic problem that Barrick has chosen to ignore for some time. First, it’s important to consider how Barrick’s western ideology influences their judgment on how to operate in an environment like this. Based on what we teach in business and economics textbooks, Barrick appears to be the innocent victim in all of this. They are considered by many to be a company going about its business of extracting gold for export. It’s not their problem that the surrounding communities are living in extreme poverty and that public services are virtually non-existent. They are not breaking any laws and they have full approval from the Tanzanian government to extract the gold. They pay royalties and taxes that are meant to be filtered down to the local communities. It’s not their problem that the government isn’t doing their job to pass on these royalties or is corrupt. On top of all this, Barrick has an impressive CSR program that contributes resources for schools, hospitals and infrastructure…something that is beyond the law. So this is a problem that should be addressed by the Tanzanian government and local authorities so that companies like Barrick are encouraged to invest in these regions on an ongoing basis. (See Wente's column for this very misguided and outdated perspective)

Although this discourse continues to be plastered in business schools, it is becoming quickly outdated especially in the global south . Since the 1990s, we’ve seen example after example of intense foreign direct investment and supposed economic growth having little, no, or an exacerbating effect on social inequity. In fact, there are countless examples of companies operating under this philosophy and facing huge financial backlash as a result. Shell’s infamous Niger Delta debacle is very similar to Barrick’s reaction here where they are relying on existing institutional infrastructure to solve the problem. This is their first mistake. Companies operating in this region should not be under the false impression that there is a reliable institutional infrastructure to which to defer these issues. By institutional infrastructure, I’m referring to a reliable and objective police force whose priority is for the long-term welfare of local communities, a proper legal system with due process that addresses community issues and a democratic system that ensures those in power are accountable to the citizens who put them there. Deferring to the police force may be appropriate in the West but in many locations in this part of the world such a strategy is akin to handing the investigation over to the mob. And who can blame the police force for being corrupt when they too see millions of dollars leaving their countryside in the form of gold while they are making pennies a day.

But beyond this incident is the fact that a weak institutional environment implies substantial voids in public service for surrounding communities. By public services, I mean access to health care, education, water, proper infrastructure and, more importantly, opportunity for capacity building, entrepreneurship and grassroots economic growth. Combined with the export of rich natural resources like gold that sell for an amount that local villagers earn in three years (USD $1600), it’s no wonder why revolt ensues. This places companies in a very unfamiliar position where they must engage in political activity to fill voids in public services and to help build local governance structures to deal with poverty issues. While Barrick has been quite active in the corporate social responsibility arena by building schools and hospitals, they chose not to engage in a more systematic, long-term community building strategy that would ultimately prevent these sorts of instances from taking place (see this article for a description of the difference). In my view, the privilege of operating in this region along with the benefit of extracting rich natural resources at low cost means that companies must get involved politically to prevent what Hilary Clinton calls New Colonialism. This is not a nice thing to do but a must do!

For too long companies have been at odds with their local communities, keeping roles separated as they presume government agreement parallels local community acceptance rather than looking for opportunities to collaborate locally. A couple hundred kilometers north of the North Mara mine is a small village called Magadi in Kenya. Tata Chemicals Magadi (previously called Magadi Soda Ash) operates a large soda ash plant surrounded by 30,000 Masai who, after a massive drought in the 1990s, imposed similar pressure on the company as we’re seeing on Barrick today – albeit without the presence of gold. The company underwent a 5-year process of building close relations with the surrounding community and instituting a platform through which multiple stakeholders (senior chiefs, elected officials, NGOs, company representatives, community-based organizations) work together to address public service issues with the ultimate objective to reduce poverty through a self-sustained and informed community governance system. In effect, the company helped create a local governing body that encompassed all actors in the region emulating the very principles of sustainability – inclusion, interconnectedness, and equity.

But most companies like Barrick resort to exclusive and disconnected approaches to helping communities resulting in power imbalances, dependency inequality, corruption, and an unsustainable community situation. Building schools and hospitals and then touting on your website all that you’ve spent and built may address public service gaps in the short-term but doesn’t address the need for community capacity, integrity, and dignity that fuels grassroots economic development. What is happening in Tanzania is very sad but it is not inevitable. For-profit companies have a choice on how they deal with highly complex situations such as the extraction of a rich substance from an impoverished region. The easy way is to throw money at high-profile initiatives to create the impression that you’re a good company not there to merely take resources and to leave the rest to government. The hard way is to challenge corrupt governments and to build relationships, local capacity and local governance systems involving multiple stakeholders making decisions collaboratively for the long-term welfare of the community. Only then will companies begin to understand what sustainability means.

Photo acquired from Amnesty International reproduced under Creative Commons

Tim Horton's Drive-Thru Coffee Brought to You by Coca-Cola©

2011-05-26T12:20:00.000-07:00

Last year I found myself sitting in a Tim Horton’s drive-thru in Gravenhurst Ontario; a town of about 11,000 people located 100 miles north of Toronto, Canada. Not one who is privy to these sorts of experiences, I was somewhat in awe by two very interesting characteristics of this drive-thru. First, as I’m figuring out where the line of a dozen or so vehicles ends, I notice a second adjacent lane that is meant to absorb over-flow traffic so that the lineup doesn’t extend into the main street. Similar to the ending of a passing lane, vehicles are expected to merge into one lane as they approach the intercom. Drivers knew to take turns: left lane, right lane, left lane, right lane….it worked seamlessly. Customers either were frequent users of this drive-thru or, unlike me, were smart enough to figure it out.

Second, as you make your way around the corner to place your order, drivers are exposed to a string of advertisements posted on a long cement wall adjacent to the outlet. Printing companies, insurance companies, financial institutions, auto mechanics, you name it, a whole host of companies taking advantage of this apparently lucrative advertising space. As the driver behind me crudely leaned on his horn for me to close my jaw and move forward, I couldn't help but reflect on the absurdity of what I was observing and how this symbolized a number of very disturbing trends in our Western society.

First and perhaps more obviously, the popularity of the drive-thru illuminates our very sedentary lifestyle. If there are any doubters out there that our consumer-oriented society is linked to obesity, one only has to take a look at this fascinating phenomenon. The fact that there is now a market for advertising in what was once an unpopular or at least peripheral means of getting served shows that we live in a society where walking on our own two feet is a nuisance. Shopping complexes are built with stores separated by massive parking lots encouraging consumers to move their vehicle from one store to another. This reminds me of the creative Disney film Wall-E where an envisioned future shows human civilization restricted to a hovering chair that has all the amenities available at the touch of a button. In the same way that we hover to make our orders in the drive-thru would we hover into our houses if the technology were available?

Second, the drive-thru has become so commonplace that the line-ups in the store that originally motivated the drive-thru are all but gone. This means that the time actually saved is marginal. In fact, substantial time is lost when you are vehicle number 15 when no one is in the store. It’s no wonder that when one actually goes in the store, they are neglected because staff are catering to the onslaught of customers making their way through the drive-thru.

Third, and more striking to me, is the fact that there is an apparently lucrative market to offer advertising space along the drive-thru route. There is so much traffic that marketers consider this platform to be an effective means of spending their advertising dollars. This either means that we’ve come to a point where we slice and dice every possible combination of opportunities to bombard people with messages or it means that a majority of Gravenhurst citizens go through this drive-thru. Perhaps it’s a combination of these. Whatever the case, I can’t help but consider this to be a sad state of affairs that very likely extends beyond this sleepy town.

The documentary “The Greatest Movie Every Sold” by Morgan Spurlock (see his Ted talk) nicely illuminated the extreme nature of corporate involvement in society by symbolically funding the entire film with product placements. The film was likely trying to illustrate the potential dangers of living in a society that is wholly owned and funded by corporations. Recent public services such as education and health care, in light of tightening budget constraints, have explored corporate product placements as a means of generating revenue.

Is there anything wrong with the bombardment of advertising in our lives? Is the above Tim Horton's example merely the evolutionary nature of advertising doing its work? Or is this a warning of a potentially perverse future that derides our sense of reality and objectivity at a time when many of us are searching for truth and meaning?

Photos taken by the author

Apple and Google's Passive Approach to Privacy Issues

2011-05-13T16:36:00.000-07:00

Privacy concerns associated with Google and Apple’s smartphone locational services made headlines for a brief couple of days last week as the U.S. Judiciary Subcommittee on Privacy subpoenaed the two companies for questioning. Research by O’Reilly Radar found that Apple is collecting location data that is unencrypted and unprotected and storing it in a hidden file on the iPhone. In response, Apple's spokesperson said, “Apple does not track users’ locations…Apple has never done so and has no plans to ever do so”. Later though, the Apple spokesperson said that Apple “may collect, use and share precise location data”. When asked by subcommittee chair Senator Franken whether Apple’s and Google’s locational data are traceable and thus not anonymous, an independent researcher said that both were possible. Both Apple and Google scrambled to respond to a scolding by the US government.

Locational services have been a recent and highly instrumental service for customers using GPS and looking for nearby businesses. They have also been useful for companies aiming to conduct target advertising based on locational information of customers. It is this latter service that has sparked some debate on whether locational services may have some important drawbacks when we consider how much companies would be willing to pay for data breach disclosure. According to ABI Research, the market for location-based services is expected to increase to $4.7 billion by 2015 from $1.6 billion in 2010. Advertisers would be particularly interested in using locational data to develop consumer profiles to which they can target specific advertising. Those companies developing “apps” for the smartphones are motivated to give the apps away for very little so that they can collect and sell personal information on users to advertisers.

Is there anything wrong with this? On the one hand, some may argue that this targeted advertising allows consumers to avoid those messages that don’t appeal to them. Single people wouldn’t be exposed to baby and children advertisements and teenagers wouldn’t be bothered by advertisements targeted to their parents. But another argument is that consumers may slowly detach from reality as they become locked into their own bubbles in an ever-increasing digital world exposed to specific information that is based on their individual behaviour. Some may recall the film Minority Report where advertisements are automatically allocated to particular consumers through the reading of their eye-balls, the content of which is likely based on years of individual activity, behaviours, and routines. On the one hand, the fear is that we would be stuck in a perceptual loop, unable to challenge ourselves to think differently. On the other hand, consumers would be exposed to certain messages that benefit corporate interests rather than their own. Given that society is highly influenced by advertising, wouldn’t it be in the best interests of these advertisers to use the captive audience to tell them what to buy and what to do? Conspiracy theory? I don’t think so. This is merely a systemic outcome of a technology used by an actor (i.e. business) whose primary and often exclusive accountability is to shareholders. If you were in their position with data that allowed you to very effectively influence the purchase decisions of consumers, wouldn’t you be interested in doing so considering that you’re being evaluated on the amount of shareholder wealth you’re creating?

During the supposed “scolding”, Apple and Google were asked whether they felt it was their responsibility to control or at least influence the actions of app developers. Using an analogy, Apple spokesperson said, "We don't go after trucking companies because they happen to handle damaged goods…we go after the manufacturers." This is no different than Nike in the 1990s denying responsibility for the horrific labour conditions of their suppliers in Asia. These manufacturers of Nike products are independent companies outside the control and supposed responsibility of Nike, explained Phil Knight and several other Nike VPs. Given that app developers are not under Apple and Google’s control, they appear to be saying the same thing, this time for the digital supply chain. We all know the lessons Nike learned.

A major difference between what is happening now and what is happening to Nike is that the affected stakeholder is the Western consumer not the developing country worker. Because of that, government is eager to get involved. But as it stands now, “there is no comprehensive federal regulation that enforces data breach disclosure." Consider this gap in regulation against the philosophy among tech companies that "all data is good". Jason Weinstein, deputy assistant attorney general at the Department of Justice is bang on when he said that the proliferation of handheld devices is a breeding ground for data theft.

Whose responsibility is it then to deal with this? Is it the market to demand privacy protection? Jessica Rich, deputy director of the Bureau of Consumer Protection at the Federal Trade Commission, said the FTC believes "consumers have no idea about the layers of sharing [data] that goes on behind the scenes." Relying on government to build regulation as a response is time consuming and is highly dependent on the identification of the issue, which, in this case, happened somewhat by chance. What happens for those issues that are left unidentified or for those issues that are identified but take months, sometimes years, to be addressed? What happens until then?

As I regularly explain to my business students, managers need to make a decision about whether they will act passively in response to consumer demands and government regulation, or whether they will incorporate ethical criteria in their decisions proactively. Clearly, Google and Apple are blinded by the economic opportunities associated with locational services and do not have the mental models to consider non-economic factors such as breach of privacy until they demonstrate a direct and observable impact on their bottom line, which is essentially what happened last week. Will companies ever learn by being proactive or will they consistently go through the very reactive exercise of figuring out through negative media exposure what other social and ecological issues are inextricably tied to financial performance?

Photo taken from politics.co.uk reproduced under Creative Commons

Valuable Answers Lie in Old Traditions

2011-05-04T13:27:00.000-07:00

At seven years old I playfully follow my grandfather around his seemingly endless backyard garden as he harvests giant field tomatoes, prunes cucumbers and zucchinis, tastes a green grape for ripeness, and feels the tenderness of peaches, pears, and apples as we pass their respective trees. He asks me to hold on to some leaves and vines he pruned from some Sicilian zucchini plants that I presume is slated for the garbage until he tells me that it will add flavour to the soup we’re to have later. We pass two giant buckets of water stationed under the spout of the house’s eves trough, to which he attaches a hose to water some peppers. My grandmother comes out from her cantina with several empty mason jars scattering them on the back table, which is sheltered by a less than elegantly constructed canopy overrun with vines. He brings her dozens of tomatoes to prepare while he sets up an open pit fire underneath an oversized pot filled half-way with water. She fills the jars two-thirds with tomatoes, seals them tightly and inserts them into the pot to boil for 20 minutes, the time required to preserve the tomatoes for the winter months.

At a time when processed foods such as TV dinners, meat pies, and frozen pizzas are becoming increasingly popular on my and many other dinner tables in the West, I stand in amazement at how foreign this process is to me. Curiosity pushes me to mimic my grandmother as I help to remove stems from some green beans, twigs from some peaches, and residual soil from some tomatoes. Like a shrimp with its head still intact, these vegetables showed an element of completeness, revealing their umbilical cord to nature.

A few hours later we sit down for dinner: crisp lettuce, bean salad, pasta, peaches, and homemade bread, the eating of which garnered a uniquely fresh taste quite exotic to me. After experiencing a mere blush of this delicacy, I’m instructed to separate out the food waste from the ‘regular’ garbage; an unfamiliar task that impinges on valued playtime with cousins. As a respectable grandson, I ask few questions knowing that this second container is somehow for the garden.

Later, as a teenager immersed in western culture with several years to reflect on my grandparents’ behaviour, I judge them as primitive and cheap. How absurd it is to catch rainwater to save on the water bill, to use food compost rather than chemical fertilizer or to labour the same fruits and vegetables found ready to eat at the grocery store. I feel embarrassed that my grandparents choose to cling to what I perceive to be an outdated set of traditions inferior to the luxuries afforded to Western society.

Fast forward to today and we see countless studies and documentaries warning of the negative social and ecological effects of the existing food system. Obesity, diabetes, compromised food safety, nitrogen infested dead zones and biodiversity loss all have close linkages to how we grow, eat, and dispose of our food. Experts attribute these symptoms to the increasing disconnectedness between the food consumer and food producer where young children, when asked where food comes from, refer to the grocery store. We as consumers enter the food system at the point of consumption with no participation in or understanding of how the food got to our plate and how it may be used to grow more food. When I think of how troubling it is that we’ve become so removed from something so important to our wellbeing, I start to see the traditions my grandparents inherited in a different light.

Last summer I started my first garden. It was small and simple but I absorbed and employed as much knowledge as possible from the two individuals who taught me at a very young age about the beauty of becoming more intimate with the food we eat. Back at my grandparents, my grandfather shows me a flourishing avocado plant that grew from an avocado core he planted weeks earlier. I am perplexed when he explains that it’s almost impossible to grow avocados in southern Ontario. But then why plant it I ask? I realize that, to him, the core of the avocado is not waste but life and thus of value to his garden. The notion that food waste doesn’t exist is hard-wired into my grandparents’ subconscious, which explains why even leaves from zucchini plants are a rich flavouring for soup. When I stop and look at the vines overwhelming the now old canopy, I realize that their role in creating shade is no accident. To them, the harvested vegetable or fruit itself is only part of the value the plant provides. The different parts of the plant from its roots to its flower represent unique resources depending on the stage of the plant’s life cycle and its position in the garden.

To my grandparents the garden is a mini-ecosystem, the value of which is a function of the interdependencies of its parts across space and time. This is unlike today’s food system, which uses a reductionist approach of maximizing yield of one vegetable or fruit at the expense of all else, including its own plant parts. Intensive fertilizer and pesticide use, mono-cropping, and the disassociation from the food growing process fundamentally contradict how my grandparents would define agriculture. Now in their 80s, I wonder if their much more sustainable traditions will be lost; traditions that were built over centuries to overcome some of the greatest challenges humanity has ever faced including the Great Depression, plagues, and poverty. Should we not learn from this generation so that we can re-associate ourselves with the food we eat and perhaps use this valuable knowledge to address some of the social and ecological issues of OUR time? Perhaps it’s my generation’s responsibility, now aware of the tremendous health and ecological effects of the existing food system, to learn about and maintain these traditions before it’s too late.

Garden picture taken from Happy Living reproduced under Creative Commons
The second picture is Teresa and Cosimo Valente (my grandparents)

Chipotle Challenges Conventional Fast-Food

2011-03-31T16:58:00.000-07:00

With a philosophy of “Food with Integrity”, Steve Ells, the founder and chairman of fast-food chain Chipotle Mexican Grill believes that it’s really important that people know where their food is coming from.

Ells is a certified chef trying to defy the definition of fast food for the many consumers visiting its 870 restaurants. Chipotle buys no pork from factory farms and 100% of the chicken they serve is grown on a vegetarian diet, free-ranged with no antibiotics.

Steve’s main supplier is Joel Salatin, owner of family-owned Polyface Farms, who prides himself on sustainable farming practices that fundamentally challenge the existing food system. More details are available in ABC’s coverage of the story.

The ABC journalists’ skeptical demeanor is representative of those who struggle to understand why any business person would want to run a business that defies conventional wisdom in a well-established industry. Is it not suicide, or at least an oxymoron, to combine the ideology of fast food with sustainability?

The journalist asked about the exorbitant costs expected from the operation of a restaurant like Chipotle as if to suggest that it would be impossible to compete with the likes of McDonald's. But this misses the bigger point. Chipotle’s strategy is a really good example of how sustainability can be a differentiator in the $1 billion dollar fast food industry. For the first time, consumers can align their quest for convenience and relatively low-cost food with health, well-being and environmental sustainability.

The video ends with the journalist asking Ells whether he is more excited about the business model than the consumer. An interesting question indeed. Many of the businesses I’ve had the pleasure of visiting that embed sustainability in this way recognize that the market typically isn’t there waiting for the company to provide what this product or service. Otherwise all the reactionary unsustainable companies would have changed by now. Social entrepreneurs and the visionaries need to play a role in creating, or at least redefining, the market. A huge part of this involves educating the consumer on 1) the dangers socially and ecologically of the existing fast food industry and 2) the opportunity associated with having best of both worlds.

To the question: “Do you think consumers will appreciate it more? Steve responds:

“Well I think they will appreciate it more. Again, I think this is a journey. You can’t just flip a switch and have 100% free ranging chicken and pork…this is something that is going to take time.”

Unlike traditional entrepreneurs who build businesses based on existing market demands and trends, social entrepreneurs adopting sustainability need to play an active role in building a market for their products and services - perhaps an illustration of the difference between those who follow and those who lead.

Logo graphic taken from Chipotle Mexican Grill reproduced under Creative Commons

The Role of Business Schools in the Financial Crisis

2011-03-22T12:17:00.000-07:00

“Give it your best shot” says a frustrated and annoyed Dean of Columbia Business School as the interviewer in the Oscar winning documentary “Inside Job” questions him about a potential conflict of interest. The Dean, as Chairman of the Council of Economic Advisers under the Bush Administration, advised the deregulation of the derivatives market while earning hundreds of thousands of dollars as a consultant and director of financial firms that would ultimately benefit financially if the government followed his advice. But the President of the Economics Department at Harvard argues that economics and business academics Laura Tyson, Frederic Mishkin, and Larry Summers are not facing a conflict of interest despite their dual role as key public policy figures and advisers on the one hand and as consultants for hedge funds that rely heavily on derivatives, board members of financial institutions, or authors of financial market reports paid for by the Chamber of Commerce on the other.

The film does a fantastic job in laying out what led to the financial crisis, identifying those responsible, and describing its consequences. One of its broader conclusions is that the financial crisis was caused by the collusion of a small number of elite individuals looking out for their own self-interest – the same self-interest that economists continually boast to be the engine of a just and equitable society. John Cassidy, in his book “How Markets Fail: The Logic of Economic Calamities”, calls this “rational irrationality” where the rational self-interest of an individual – make money – is irrational when considering the broader negative impact on society. The revolving door syndrome is particularly pervasive whereby top executives of investment banks, public policy makers, and academics swap roles as part of an ‘incestual’ soup of elitism. According to the film, these untouchables have railroaded the world economy, have not been penalized for it, and shockingly remain in these powerful positions without any regulation to change behavior.

I was particularly intrigued by the blame placed upon the economics and business faculties of universities and colleges, the discussion of which focuses on the aforementioned conflicts of interest among professors. But the documentary falls a bit short in discussing the underlying ideology inherent in business schools and economics departments that end up as gospel in textbooks and curricula that instill a certain worldview and skill set among future executives. Many argue that the conventional business frameworks students learn in business schools are out of date and flawed in their ability to contribute to overall public welfare, making professors in those schools complicit, if not active agents, in the crisis.

Debate for a fundamental rethink of the field of finance, for instance, is practically non-existent while accounting for non-financial measures is presented anecdotally as some kind of nice to have in accounting textbooks. The marketing discipline tends to focus on execution and technological sophistication at the exclusion of social issues. But the crux of the problem, in my view, originates from my home discipline of strategic management which advises managers to increase power and influence over public opinion and public bodies, to create monopolistic environments, and to influence markets in ways that maximize benefit for the firm. Colleagues of mine, for instance, study and prescribe managerial behavior that proactively influences governmental bodies to put in place regulation that is aligned with the firm’s core competencies. Never mind public interests.

While the economics discipline can be blamed for its over emphasis on economic utilitarianism and the abolishing of government regulation in favor of the free market, the business strategy discipline can be blamed for teaching managers how to disrupt perfect markets for profit gains while at the same time limiting government intervention. Managers are taught to shape and mold their competitive environments in ways that build power over all other stakeholders (customers, suppliers, government, communities, environment, entrepreneurs, and competitors) such as the weakening of consumer protection agencies. They are taught to shape public opinion and market trends, engage in political lobbying to protect these positions, and build their organizations to be too big to fail. To this latter point, investment banks got to a size where the Securities Exchange Commission (SEC) heavily relied on their expertise when deciding whether they should raise leverage restrictions. SEC Commissioner, Roel Campos, was quoted as saying, “These are firms that do most of the derivative activity in the US. We talked with some of them about what their comfort level was”. The SEC Director then said, “The firms actually thought the number was appropriate”. The result is the creation of market imperfections that result in wealth for the firm - specifically its executives - at the expense of wealth for society.

It's important to remember that this behavior isn't a result of some mafia takeover of Wall Street or the devil himself paying a visit to the executives of these firms. These managers are simply pushing the envelope on what they learned at a fundamental level in their business school courses. The Economist nicely flagged the hypocrisy of corporate social responsibility where companies spend money on philanthropy and tout their socially responsible behavior when they work behind the scenes to build industries that make them too big to fail, command premium prices through industry concentration, and ultimately usurp the free market system. So while business schools may tout their attention to CSR and sustainability, it ultimately masks the underlying fundamental ideology of business which is, in fact, to usurp public interests if the opportunity arises.

Charging Bull photo taken from flickr.com reproduced under Creative Commons

No Nuclear? No Coal? Now What?

2011-03-17T15:45:00.000-07:00

I had the pleasure of meeting Stanford Professor Mark Jacobson during his visit to Ivey Business School a couple of weeks ago. Mark argues that there is no reason why we can’t power all our energy needs with renewable sources. Ranked in order of most sustainable, he suggests the following:

Wind
Concentrated solar power
Geothermal
Tidal Power
Photovoltaic
Wave Power
Hydro
Nuclear – this would drop to the bottom when considering the potential for nuclear fallout which is happening right now.
Coal using Carbon Capture and Storage (CCS) – carbon capture does not capture the carbon used to transport the coal and extract it out of the ground – which represents a large percentage of where coal related CO2 comes from

In a debate on Ted.com Mark goes up against one of the fathers of the environmental movement, Stewart Brand, who argues for nuclear energy as our solution to climate change. Although Brand puts forward some good arguments, Mark comes back with some impressive statistics that counters many of Brand’s claims. I asked Mark about the growing number of environmentalists and climatologists advocating nuclear power as the best approach to replace coal. He finds it frustrating when these scientists put forth opinions that are not based on their area of expertise. In Brand's argument he says that those who know the most about nuclear are least worried. But then he puts up James Hansen as an example of a person who is not worried about nuclear. Climatologists are not experts in energy and neither are environmentalists. James Hansen is an Earth and Environmental Scientist and Andrew Weaver is a climatologist – both of whom advocate for nuclear – perhaps until recent events in Japan. Listening to some of the experts on nuclear these last few days, I would say they're worried!

With the growing distaste towards nuclear energy, Mark’s assertions are likely to gain popularity. Mark is the first to accurately map out global wind and solar energy creating capacity. He published these findings in the Energy & Environmental Science Journal* where he reports that global wind capacity can generate up to 1700 terawatts of electricity while solar capacity can generate up to 6500 terawatts of electricity. On land, these sources of energy can generate up to 70-170 TW of electricity (excluding Antarctica) and 340 TW respectively. Today’s population demands 12.5 TW of electricity with an estimated 16.9 TW by 2030 – a small percentage next to what is possible.

So what’s the problem?

Mark tells me that wherever he goes to present his work, he receives a typical set of questions from the audience. The first is the issue of availability. How can we assure a stable supply of energy when the wind doesn’t always blow and the sun doesn’t always shine? Mark asserts that the energy solution requires a combination of energy sources that work in unison depending on what energy is available. In a pilot test in California over a two year period, Mark found that based on a stable supply of geothermal energy, available wind and solar energy, and hydro-electricity, the population in the experiment would not have to resort to natural gas sitting in reserve. His experiment ultimately trumps those who would argue that renewable energy is an unreliable source of energy. Mark calls this “load-matching” whereby the source of energy remains flexible so that energy utilities can draw on the source most available at a given point in time. Hydro-electricity is particularly useful as a backup because it allows for quick on and off if and when solar and wind are not available.

What about the ecological footprint and negative health effects of wind turbines? This is another popular question and was the source of resistance to an off-shore wind project in Ontario. In a presentation I attended here at UWO, a medical doctor from Doctors without Borders presented results of a study that showed no significant health effects originating from wind turbines. In fact, compared with coal and the potential fallout from nuclear, wind turbines are essentially benign. Mark too reamed off a number of studies suggesting no health effects. With respect to bird wildlife, he spoke of an interesting study showing that birds are in fact worse off from the indirect effect of coal than any direct effect of turbine blades. Finally, there’s the ecological footprint of the wind turbine itself. James Lovelock, another environmentalist and self-declared energy expert, is a nuclear supporter because of the impact wind turbines have on ecosystem health. But Mark says that this is a myth when you consider the fact that the base of the wind turbine is quite small and that turbines need to be a minimum distance from one another, leaving huge plots of undisturbed land. If we were to power the entire US vehicle fleet on wind energy, we would need 1-3 square kilometers of land for the bases of the turbines (larger once you consider the natural land between the turbine poles)

The final question he typically receives is related to the prohibitive costs and time of construction associated with renewable energy. He is alarmed that the Ontario government’s feed in tariff awarded individuals and organizations $0.11 for each kw of energy generated from wind and $0.41 from solar. He argues that wind should cost between $0.03 and $0.05 per kw hour whereas coal costs between $0.12 and $0.14 once you include health costs ($0.07 to $0.09 if you don’t). What about transmission of wind and solar power? This cost is included in the calculation. Wind and solar are two of the quickest in terms of construction.

Mark then goes so far as to advise what the global energy mix should be based on his findings. He says that wind should power 50% of global energy needs (6-8 TW of electricity), which means that we need 3.8 million wind turbines. Concentrated solar power should represent 20% of our power which would require 49,000 concentrated solar power plants (300 MW per plant). Photovoltaic comes in at 14% with 14,000 solar PV plants at 300 MW each. The rest is geothermal, hydro, tidal and wave power with relatively small proportions of the energy mix.

So what’s going on here? Why aren’t we moving in this direction? In asking him this very question, he says that this is where his work ends. He’s not a social scientist but knows that there are some very powerful players who would be quite upset if we moved away from coal, oil and nuclear energy. It’s estimated that existing energy companies receive 8-10 times in subsidies as renewable energy companies and spend 8-10 times more in political lobbying than their renewable counterparts**. I was saddened to hear a Professor in Anthropology in Japan talking about the attack on democracy as he describes how the interests of a few powerful actors pushed forward nuclear energy policy in the country in the past.

Although Mark’s study is the first of its kind, we’re likely going to see more of the same. This study is perhaps a starting point in refuting those who claim that renewable energy is too unreliable, costly, unproven, and not pragmatic. It may also show that resistance has more to do with protecting a group of elite interests who have a lot to lose from changing the status quo than it does with science or physics.

* Source: Jacobson (2009). Review of solutions to global warming, air pollution and energy security. Energy and Environmental Science. 2: 148-171
**Nick Parker, CEO of CleanTech. Presentation at the Ivey School of Business: Steering the Storm. March 9th, 2011.

Nuclear plant photo taken from Renewable Power News reproduced under Creative Commons
Wind turbine photo taken from Erie Shores Wind Farm Reproduced under Creative Commons

Air Canada Plays Hockey

2011-03-10T09:37:00.000-08:00

Yesterday, Air Canada sent letters to all 6 Canadian NHL teams expressing concern about the recent number of on-ice incidents that have made headlines in the hockey world. The letters came the day after Boston Bruins star Zdeno Chera hit a Montreal Canadiens player, leaving him with a fractured vertebrae and a severe concussion. Air Canada was quoted as saying:

“While we support countless sports, arts and community events, we are having difficulty rationalizing our sponsorship of hockey unless the NHL takes responsibility to protect both the players and the integrity of the game.”

As owner of the naming rights to Toronto’s Air Canada Center and major corporate sponsor of the 6 Canadian NHL teams, Montreal-based Air Canada is clearly exercising their power to influence the NHL.

I find this story fascinating for a number of reasons:

First, part of the explanation for Air Canada’s move could be attributed to an increasing pressure on companies to extend their responsibility beyond economic and legal obligations. As Denis Vandal, Air Canada’s director of marketing and communications said:

“From a corporate social responsibility standpoint, it is becoming increasingly difficult to associate our brand with sports events which could lead to serious and irresponsible accidents; action must be taken by the NHL before we are encountered with a fatality.”

Many companies, in an attempt to save face in the public’s eye, have exercised their power as sponsors to proactively influence their partners to change behavior.

Second, and perhaps more skeptically, we should be careful to prematurely label Air Canada as a valiant hero before thinking about some of the absurdities of this move. Notice in the first quotation that Air Canada thinks they are positioned to make judgments on what is best for the “players and integrity of the game”. Has Air Canada recently announced a diversification strategy into the world of professional sports? I’m not sure if there are many capabilities used in operating an airline that could be transferred to informing the rules of a professional sport.

Third, this is another example of a company getting involved in public affairs that have nothing to do with their core business. Like Google’s efforts to eliminate censorship in China or Visa’s attempts to weaken WikiLeaks by cutting off their funding supply, Air Canada is attempting to use its powerful position to influence NHL rules. Whether or not Air Canada is correct in their stance is irrelevant next to the fact that business’ dominating role in society is allowing them to get involved in the public domain at an unprecedented level, without any shred of expertise, and, most importantly, guided by a uni-dimensional motivation of profitability, which we know doesn’t have the best track record for aligning with society’s interests.

Fourth, I question Air Canada’s motives. While it is the responsibility of companies to manage future risk, I find it very hard to believe that Air Canada’s reputation could be damaged in a society where hockey defines its culture. Does the location of Air Canada’s headquarters - Montreal - mean anything here (home team of the victim of yesterday’s incident)? Ironically, while Air Canada is playing the CSR card in explaining their actions, the fact that they seem to be responding rashly over an incident that impacted their home team smells of conflict of interest and irresponsibility.

Finally, I’ll end with a criticism to those who would argue that Air Canada should keep its nose out of these sorts of things. In the early 1980s, the organizing committee for the Olympic Games in Los Angeles made an unprecedented move when they funded part of the 1984 Games with corporate sponsorship. 20 years later, the Sydney organizing committee solicited $1 Billion in sponsorship to fund 50% of the budget. Over these 2 decades, we’ve seen an unprecedented level of corporate funding for a range of individuals, organizations, and events both within and outside the sporting industry. Public educational institutions in the US are turning to corporations to reduce budget deficits through marketing in schools and funding of different programs.

How can we expect to benefit from this lucrative pot of money without sustaining some consequences. If we want the luxury of fat corporate funds to run these events, teams, organizations and venues, then we have to be prepared to accept their active role…experts or not. Perhaps the bigger question is not whether Air Canada has a right or should be able to influence the NHL but instead whether we made decisions that permitted corporate sponsorship in haste without thinking through how this trend would subsequently lead to increased corporate involvement in activities held sacred by public interests.

Photo taken from Disabled Travelers reproduced under Creative Commons

Is Canada Sustainable?

2011-02-27T16:58:00.000-08:00

Some of you may have read recently that Canada is now a Petro state. Barrie McKenna writes, “Canada’s fortunes – and its currency – are now more closely tethered to oil than any other industry, including autos, forest products or agriculture”. Of course, a large part of what explains this statistic is Alberta’s relentless pursuit of bitumen, the so-called oil sands, that is expected to produce 2.36 million barrels a day by 2013-2014.

Should Canadian citizens feel a sense of shame when their wealth is inextricably tied to an unsustainable, dirty, and energy-intensive natural resource (cast your vote to the right)? To incite debate, I put forward 5 provocative questions for why this moment in Canadian history might disturb its citizens:

1. Are Canadians Greedy? Is there something wrong with the fact that we as Canadians grow richer as a country by feeding the growing international demand of a substance that is undeniably linked to climate change, ecological devastation and indigenous community despair? Alberta’s recent budget projections are pegged on the assumption that oil sands production will increase 35-40% over the next three years. Compare this to the meager increase in environmental funding of 1.4% over the same time period. As more money flows into our pockets, we compromise the livelihoods of existing and future generations.

2. Are Canadians Unsustainable? Our success as a country, inappropriately measured by Gross Domestic Product (GDP), is predicated on the extraction of a substance that is inherently unsustainable. Fossil fuels take millions of years to develop as the Earth naturally breaks down dead organisms. Because we are extracting this substance at an astronomically higher rate than it can be reproduced, we’ve pinned our livelihood on adding value to a substance that will eventually run out. Then what? Like a vulture, will we move from one natural resource to another until we’ve exhausted them all?

3. Are Canadians Short-Term Oriented? Other wealthy countries heavily reliant on fossil fuels have massive petroleum funds like Norway’s $400 billion pot put aside for a future without oil exports. Not only that, Norway’s fund is the second largest fund in the world affording them immense power to encourage more sustainable business practices. In comparison, Alberta’s “rainy day” fund is at a meager $17 billion. But recently, Alberta announced that it is using this fund to reduce the deficit, leaving next to nothing for future generations to deal with the onslaught of issues associate with climate change and environmental degradation. The Finance Minister said: “the province’s sustainability fund was created for the purpose of a recession”. The province's energy minister, when asked about Norway's fund, said that Alberta has nothing to learn from Norway. Ironically, a recently released report commissioned by the Alberta government recommended that the province adopt a Norway-type fund. This means stop using resource-revenue for today's revenue fund and to instead increase provincial sales tax and/or increase personal and corporate taxes. As Jeffrey Simpson noted, these recommendations were likely "dead on arrival" as Albertans are quite content with the status quo. Not only is this short-sighted environmentally, but it leaves little capacity for Alberta to diversify economically to other industries when international regulation imposes restrictions on oil sands imports. So social and ecological consequences aside, we are not even considering the economic welfare of future generations when we consider the finite substance we are extracting.

4. Is Canada’s Reputation Tarnished Internationally? Is it not embarrassing that we are becoming known as a petro state in the international community? Because the European Union has instructed its fuel suppliers to reduce the carbon footprint of fuels by 6 percent over the next decade, they are looking to block imports of Canada’s tar sands. In response, the Canadian government is threatening to scrap a trade deal with the EU and is lobbying heavily to be excluded from the EU fuel supply restriction.

There was a time where the international community considered Canadian culture as one that embraced the beauty of the outdoors, treasured the natural landscape, and stood up for human rights between and across generations. The massive plots of dead land in and around Fort McMurray now visible from outer space hardly expresses our respect for nature and future generations. We are becoming known as the source for dirty oil. Combined with our fundamental lack of political leadership in Copenhagen and Mexico, our reputation has undergone a complete reversal from the early 1990s.

5. Are Canadians De-evolving Economically? Economies usually start with agriculture then move to the extraction of natural resources, then manufacturing, then service. Germany, Japan, and the US garner tremendous economic advantage from their intellectual prowess in advanced technologies, not their brute power and force in mining and extraction. Poor countries lacking the educational infrastructure to develop and retain good talent need to rely on their natural resources and then through time evolve to more advanced forms of economic development. I do not mean to insult the mining and oil and gas industries because I recognize the technological innovation they have achieved in extracting seemingly inaccessible natural resources. However, we chose to dedicate our intellectual capabilities to these efforts rather than supporting the development of capabilities in more sustainable sources of energy or other creatively destructive technologies that position Canada as a premier hub for technological advancement and its role in a sustainable society.

I’m sure there are many out there wondering about the benefits associated with oil sands development. The process is labor intensive creating up to 540,000 jobs per year by 2020 and exchanging $170 billion worth of goods and services from other provinces. Isn’t that fantastic for our economy? Isn’t oil sands development, as the conservative and liberal governments would argue, necessary for jobs and the economic welfare of our nation? On top of that, isn’t it our responsibility to make use of the natural resources that we have inherited as the second largest land-based country in the world?

These are indeed important arguments. Yet they suffer from three misguided and often overlooked assumptions. First, the role of oil as an anchor of our economy is by no means an accident or a result of a seemingly uncontrollable set of circumstances. Government policies put in place over lengthy periods of time have fundamental impacts on the subsequent economic behavior of a country. At the time of a chronically weak Canadian dollar we chose to focus on extractive industries to attract foreign markets. Rather than planning for the long-term by instituting policies that would build intellectual capacity in non-energy intensive industries, we took advantage of the 20% discount afforded to the international community through our weak dollar and invested heavily into commodity-based industries. Any politician, business person or economist who claims that we are uncontrollably dependent on our natural resources for the sake of our economy ignores the series of short-term decisions that have and continue to lock us into this scenario.

Second, there are many different ways to achieve economic development, some easier, some harder. There is no doubt that the relatively simple way to develop economically in a country like Canada is to extract natural resources that are so readily available under our feet. Lumber, potash, oil, gold, nickel, copper, you name it. Why take the extra time to endure the physical and intellectual effort to cook a healthy and tasty meal when you can eat ready-to-serve processed food caked with sugar, salt and fat right out of the freezer? Why bother creating new industries, the value of which are based on our intellectual prowess when we can sell commodities and manufacture vehicles that require no need for creative destruction and keep our comparative advantage pinned on readily available resources (e.g. nature and labor)? Why reinvent the wheel when we can simply use sources of economic development already proven around the world?

Finally, and perhaps most importantly, "We don't inherit the earth from our ancestors, we borrow it from our children". What will be the state of the earth when we return it to future generations?

This ultimately comes down to a question of leadership. My fundamental beef with my country is its lack of leadership at the political level, at the business level, and at the individual level. Although there are minor exceptions, the bottom line is that we are no longer known as a country of leadership. We base our growth and development on practices that are based on the status-quo, that don’t question taken-for granted behaviors. Practices that create jobs easily, feed mouths more easily, make money more easily, and grow our GDP more easily all for short-term gain at the expense of future generations. When we think of the most memorable leaders of our past, we think of those who have inspired change in others, those who have led groups of people in new directions that challenge fundamental assumptions in the face of great uncertainty. Canada unfortunately lacks this leadership at a pivotal moment in time when our future requires leaders who inspire such change.

Canadian Flag of oil picture taken from Adrian Wyld of the THE CANADIAN PRESS Reproduced under Creative Commons
Greed photo taken Word Press Reproduced under Creative Commons
Oil Sands photo taken from Google Earth Reproduced under Creative Commons
MLK photo taken from stifu.com reproduced under Creative Commons

SEKEM: A Beacon in an Otherwise Oppressed Egypt

2011-02-16T12:42:00.000-08:00

In my last blog post, I highlighted the destructive role business has played in Egypt and in Egyptian democracy more generally. Less recognized unfortunately are those companies that stand up to oppressive regimes by addressing head-on some of the undemocratic and social injustices that plague a nation.

During my PhD field research in 2005, I was very fortunate to visit such a company in Egypt. It is to this day one of the most remarkable I’ve had the pleasure of visiting. By remarkable I mean its fundamental contribution to human rights, social equity, cultural freedom and the environment in the backdrop of an autocratic regime complicit in social and ecological degradation.

The Beginning

The company is called SEKEM (meaning “Vitality from the Sun” in Ancient Egyptian) and was started by an entrepreneur named Ibrahim Abouleish in 1977 (photo to the right). I use the term “entrepreneur” lightly here because Abouleish’s motivation for starting SEKEM did not fit the mold of a typical entrepreneur where the underlying drive is associated with filling lucrative market gaps and identifying profit opportunities. Abouleish’s primary motivation was to build an organization that would heal the land and the people of Egypt.

Similar to the events that transpired a few weeks ago, the Egyptian people took to the streets in 1970s in anti-government riots to fight market fundamentalist policies that created substantial social inequalities. Unemployment was at a shocking 50% and only 4% of land in Egypt was suitable for agriculture, the output of which was not going to the Egyptian people. Population densities had reached 1,000 people per square kilometer and pollution of the Nile River increased substantially, forcing farmers to resort to significant amounts of agrochemicals, which contaminated soil and poisoned farmers.

Abouleish explained:

“On my last journey through Egypt I had experienced a deep sense of hopelessness caused by the way of life of the Egyptian population. This had deeply moved me, as I knew that people’s surroundings mirror their soul’s disposition. I felt compassion for these people who could not be made responsible for their situation, but were forced to bear it and had learnt to carry it….I wanted to be able to change this situation of hopelessness” (Abouleish, 2008: 67)

What Makes SEKEM Unique?

I recall my first visit to SEKEM, driving 60 km outside of the metropolitan city of Cairo towards the entrance of the SEKEM mother farm – a massive plot of land that looks like a green oasis surrounded by desert. Over 120,000 trees mark the boundaries of the farm, creating a shield against desert storms and a habitat for plants, insects, and large animals. As we slowly drive through the complex, I see a tractor piling compost from animal dung to build soil fertility, a slew of children walking single file from their classroom, and endless fields of agricultural harvest in the background.

Once inside, I learn that the SEKEM Company is made up of three interrelated and remarkable components.

1. SEKEM’s commercial ambition is to prove that desert land can be used to produce natural medicines and foodstuffs that are healthy and environmentally friendly. Through leading agricultural practices in biodynamic cultivation, SEKEM produces fruits and vegetables, pharmaceuticals, and textiles without the use of agrochemicals. But while SEKEM’s mother farm could have alone provided crops, Abouleish chose to solicit Egyptian farmers as partners in the provision of crops to the business. Without their involvement, SEKEM's reach in healing the land would have been restricted to the mother farm. Getting farmers on board, however, was no easy task. Farmers believed that organic farming was a risky venture with low yields and limited returns on top of a very immature market for organic produce at the time. Switching to organic agriculture required that the land undergo a transition phase, usually two years, during which no chemicals could be used.

But Abouleish persisted and to this day has close to 900 Egyptian farmers working with SEKEM. What is more, the total use of pesticides in Egyptian cotton fields has been reduced to less than 10 per cent, saving about 30,000 tons of pesticides per year. By 1999, these methods had been applied to nearly 80 percent of the entire Egyptian cotton-growing areas. The average yield of raw cotton increased by nearly 30 percent to 1,220 kg per acre. SEKEM was the first organization to produce organic cotton at higher yields than conventional agriculture at a similar cost.

2. The second main component of SEKEM is the Egyptian Society for Cultural Development (SCD), the goal of which is to contribute to “the comprehensive development of Egyptian society” and to realize “Egypt’s unique contribution to global development”. It focuses on education and training, establishing kindergarten, primary, and secondary schools for children of all employees and neighboring communities regardless of religion. Conventional courses are supplemented with music, dance, crafts, and culture, a stark contrast to the Egyptian government's suppressive anti-creative education system. These same cultural opportunities are also offered to employees and members of the surrounding community. In light of the poor opportunities in the regular Egyptian labor market, SCD’s goal was to equip young people with the skills necessary for self-employment.

SEKEM opened a medical center in 1996, at which time medical staff found that all members of the community suffered from some form of illness resulting in the treatment and ongoing health care provision of more than 30,000 people. The SCD also established an Academy of Applied Arts and Sciences in 2000 to advance scientific research in areas of medicine, pharmacy, biodynamic agriculture, sustainable economic and arts. The goal of the academy is to serve the needs of Egyptian society by establishing links between development-oriented researchers and development practitioners.

3. The third component is called the Cooperative of SEKEM Employees (CSE), the objective of which is to make sure “that all members of the SEKEM community grow towards taking responsibility for society”. I was fortunate to join all SEKEM employees at the end of the workweek to recite a brief text that reminded everyone of the shared values of SEKEM. Its purpose largely revolved around establishing a common identity among SEKEM employees, one that centered on healing the Egyptian people.

Lessons for Business

Although this description only scratches the surface of what SEKEM has and continues to accomplish, there is a clear distinction between what SEKEM is doing and what many western companies are doing when they claim that they are “embedding” sustainability into their core operations. SEKEM therefore offers a wake up call for what this means along with a number of important lessons to businesses out there working to take on this task seriously.

A company like SEKEM acts like a change agent. They’re not just creating a new business model that is meant to satisfy a market need. They are changing the way the agriculture industry works in Egypt. They are changing the way Egyptians experience freedom. They are challenging the fundamental ideologies of the Egyptian government by promoting creativity and cultural awareness. Any company looking to embed sustainability needs to think beyond the provision of a product or service…they need to help lead change.

SEKEM thinks systemically. A company like SEKEM builds the supporting infrastructure for its business rather than relying on what’s already in place. Notice that SEKEM redefined the agriculture supply chain in Egypt or at the very least created a parallel supply chain. SEKEM had to build the biodynamic cultivation capacity of over 800 farmers who eventually became suppliers. They had to develop an independent inspection and certification body called the Centre for Organic Agriculture in Egypt (COAE) because no such body existed previously. They had to build the educational infrastructure to support research in biodynamic cultivation. And they had to build consumer markets in Europe and in Egypt for organic products that had not existed before. Most firms refer to the limits of the existing infrastructure when explaining their lack of progress in sustainability - "There are no suppliers available"; "The market isn't ready for this product"; "There is no certification body". SEKEM took it upon themselves to build the infrastructure to support their vision.

A company like SEKEM makes decisions for the long-term. The educational and health care facilities for employees and the surrounding community attests to SEKEM’s view that their survival and integrity is inextricably linked to the health and welfare of the Egyptian people. By making these elements central to the SEKEM business, they take full ownership and responsibility for their development. This means that SEKEM is able to incorporate social, ecological, and economic dimensions in an integrative way. Each of the three components described above feeds the other. Without one, the business model fails. Adoption of sustainability means that firms have to emulate the intricate interconnectedness of social, ecological, and economic systems.

SEKEM possesses a common identity, a consensus among employees of why the company exists. The movement of goods from farmers to the consumer is really only part of a broader purpose associated with healing land and people of Egypt.

SEKEM redefines the purpose of business. It demonstrates the feasibility of a for-profit entity to deal with the complexity of sustainable development. When managers, students, and colleagues ask me what a firm that has embedded sustainability looks like, I tell them about SEKEM. In my view, they remain the most impressive expression of how business can be a fundamental agent for social change in a destitute environment. They act as an inspiration for what the private sector can be in an era of public mistrust towards the for-profit entity and unprecedented social and ecological issues.

The SEKEM logo was reproduced under Creative Commons
Photos were taken from the author and were reproduced under Creative Commons
Reference: Abouleish, I. (2004): A sustainable community in the Egyptian desert. Berlin: Verlag Johannes M. Mayer & Co.

Egyptian Democracy in the Hands of Corporations

2011-02-10T02:46:00.000-08:00

The situation in Egypt has made headlines around the world and a lot of the focus has been on the Mubarak Regime and its role in suppressing the Egyptian people and, in effect, democracy. But less obvious is the role of the private sector in propping up the regime in the 30 years of oppression and more strikingly in the last 2-3 weeks.

The controversial role of business in Egypt is largely based on the military industrial complex that has proliferated in the U.S. and globally in the last couple of decades. Egypt has been and continues to be the second-largest recipient of U.S. foreign aid. Roughly $2 billion per year is funneled to the Mubarak regime, the majority of which is used to buy military equipment from U.S. companies like Lockheed Martin, Boeing, and General Dynamics for things like F-16 aircraft, M-1 tanks, aircraft engines, missiles, guns and, as we’ve all seen, tear-gas. These weapons are of course justifiability used under the 30-year Emergency Law where the Egyptian government has power to sharply circumscribe perceived dissidents who may disagree with the regime and its puppet masters from the West.

More recently though is the enabling role that many companies have played in supporting the regime’s recent crackdown on protesters. Narus, a U.S. subsidiary of Boeing Corp., provides the Egyptian government with the technology to conduct “deep packet inspections” to identify and track down dissident voices while Vodafone supported the regime by shutting down phone and Internet services. One can draw parallels to IBM's role during WWII in providing Nazis with punch card technology to manage the millions of prisoners slated for execution.

So what? It’s not the role of business to engage in political activism, is it? In the case of weapons manufacturers, this is simply the free market playing its role. A country needs military equipment, they use money received from foreign aid to buy that equipment and it just so happens that U.S. companies are the top producers of this equipment. This is merely the invisible hand doing its job. In the case of telecommunications companies, they are simply responding to the demands of their customer – the Egyptian government – in the same way that RIM yielded to governments in the Middle East demanding access to confidential blackberry communications. Many market fundamentalists would certainly put forward this very convincing argument.

But there are at least two problems with this logic.

First, it makes no sense to argue that companies have no right to act as political activists when for decades they have been playing a deliberate role in influencing political decisions. Anyone who argues that companies are mere recipients of market trends is not considering the rather pervasive role many companies play in directly or indirectly changing the rules of the game in their favor. Companies of the military industrial complex like Lockheed Martin, Haliburton, and Xe (formerly Blackwater USA) have played a very influential role in pushing for foreign policies that support the war in Iraq and Afghanistan. (President Eisenhower warned of this exact scenario in 1961). To now say that we shouldn’t expect companies listed above to get involved in politics is sheer double-talk.

Second, the above logic is predicated on the assumption that the primary purpose of business is to create financial returns on capital, the negative consequences of which are left to government and other organizations to address. But this view of business was not always paramount. In the early 1900s business students were taught that the role of the firm was to consider economic and noneconomic factors in their decision-making including those expectations imposed upon business by society. This implied that managerial decisions were to be based on values internal and external to the firm.

But after World-War II, influential thinkers argued that business should focus on its economic foundations and leave all other social responsibilities to government and charity. Organizations like the Ford Foundation and popular luminaries like Milton Friedman further pushed the role of business to be all about profits in support of shareholders’ interests. This represented a direct challenge to the original approach to business set out in the early 1900s and it’s pretty obvious who came out on top.

The impacts Vodafone, Narus and Lockheed Martin have had on the very foundations of democracy highlight the need to revisit the boundaries of private sector responsibility and accountability. As the prolific business scholar Kenneth Andrews warned in The Concept of Corporate Strategy, failing to do so locks us into an environment where we spend our energy keeping watch over “corporate behavior, ferreting out problems, designing and revising detailed laws to deal with them, enforcing these laws even as they become obsolete” and suffering the public disservice that persists as companies work to delay appropriate regulation (quoted in Christensen et al. 1978).

Should IBM have provided punch cards that were instrumental in enabling the Nazis to keep track of prisoners? Should Lockheed Martin and other military equipment manufacturers be selling equipment to a regime that is fundamentally destructive to democracy? Can they claim innocence as mere providers to the market when they lobby heavily to make sure that there is indeed a market for military equipment? Does this not mean that they are complicit in the suppression of democracy when such lobbying encourages the Obama Administration to support a Mubarak-type regime?

Many of my business students would argue that business has no role in political activism and should focus exclusively on shareholder wealth-maximization. But the Egyptian uprising has further illuminated the fundamental flaws with this logic and more generally the relationship between business and politics. There are indeed a large number of politicians who have benefited directly from this rather large oversight and would rather afford companies the flexibility to engage in this behavior. But because companies are engaging in political activism for this very purpose, they are not only complicit in their harm to society but active players. Some would argue that this is indeed the greatest market failure of all time.

Protest photo by Dylan Martinez Reproduced under Creative Commons License

Tank photo by Associated Press Reproduced under Creative Commons License

IBM Photo by Edwin Black Reproduced under Creative Commons License

Keyboard lock photo by TechWorld Reproduced under Creative Commons License

Reference: Christensen, Andrews and Bower (1978): Business Policy: Text and Cases: Homewood, IL: Irwin

Tropicana Orange Juice: Not So Orange!

2011-02-06T18:59:00.000-08:00

Alissa Hamilton, author of the book “Squeezed: What You Don’t Know About Orange Juice” describes the undisclosed process by which orange juice is produced. If you look at the ingredient list on an average Tropicana Orange Juice container, you would think that you are getting the equivalent of freshly squeezed oranges. “Pure and Natural” is what the ads tell us. PepsiCo and many other processed food companies are only required by law to list the ingredients in their foods and beverages, not the process by which those ingredients are used to create the final product.

Is this really a big deal? If oranges are all that make up the ingredient list, then what’s the difference? Well, Hamilton concludes that Tropicana Orange Juice doesn't possess the same amount of fibers, vitamin C and other nutritional benefits that oranges provide. To understand why, we need to understand how the juice is made. Did you ever wonder why the juice in the carton lasts a couple of months? Clearly an orange wouldn’t last that long. Hamilton explains that the juice is heavily pasteurized, heated and stripped of oxygen. Once deoxidized, the juice is put into huge storage tanks where it can be kept for upwards of a year. During this time, the juice is stripped of its flavor-providing chemical because they are volatile. When it’s ready for packaging, flavour companies are brought in to engineer flavor to make it taste fresh. But here’s the kicker, to avoid adding another ingredient to the list, the companies use orange-derived substances, essence and oils. Companies break down the essence and oils into individual chemicals and recombine them. As Hamilton put it, “With orange juice, it’s masking the processing procedure rather than the diversity of ingredients”.

So what are the implications of this?

For some companies, an increased pressure to reveal production processes will mean dramatic revelations of some of the health and safety effects associated with how they make food and beverages. The challenge, I think eventually, will be to sustain a market for high-margin processed food in an environment where consumers and regulation are demanding a move back towards raw non-processed food. PepsiCo, through its recent release of its Tropolis product, is ultimately trying to do just that by positioning it as fruit in a package. But then why not just eat the fruit separately without the package? The line between processed and whole food will likely start to become finer and companies will either lose the battle for consumers or they will find some very impressive marketing approaches to convince the consumer that it is worth spending more money on processed food items that are in reality similar to their whole food counterparts.

Whatever the case, companies will grapple with the question of whether humanity is smarter than nature. Are we able to recreate the synergistic effect that nature provides nutritionally in the food it produces by engineering it through science? As I've stressed in other posts, answering yes to this question is highly dangerous and likely informed by our own hubris.

For those companies volunteering information on process, some of them will be found guilty of greenwashing. The Tropicana website proclaims "Grove to Glass" but then quite humorously elaborates on 8 steps required to actually achieve this feat. Unfortunately, the descriptions are largely sugarcoated like the "safety always" tab where they claim the importance of pasteurizing the juice. But this step is only necessary because of the underlying dangers of processing food. This step is not because companies are going out of their way to protect their consumers, they are merely abiding by the law so that they can prolong the shelf-life of the product, the direct consequence of which exponentially increases sales. Michelle Obama is presently working on pushing companies to voluntarily label the ingredients and nutritional information of their products. But this is a far cry from getting companies to volunteer a non-sugarcoated version of how their food is processed.

Finally, the increased pressure to reveal the process by which food is made means that companies cannot rely on the ingredient and nutrition list as the extent of their transparency. Consumers will increasingly demand this information and eventually regulation will require it. But doing so will unleash a wave of resistance by the private sector. In the same way that companies have lobbied against the releasing of their ingredient list, they’ll be especially resistant to any regulation that imposes transparency on the process of making food. Doing so would compromise their intellectual property. This is another interesting circumstance where the firm’s quest for competitive advantage runs up against the goals of sustainability.

The David Suzuki Foundation ranks seafood according to the process by which it is produced and subsequently distinguishes fish based on how it is caught. This is an important step in understanding what we’re eating because it gets to the complexity of the process that is otherwise overlooked when considering the end product. Loblaw has announced that they will source all seafood from sustainable sources by 2013 but they are finding variation in what suppliers are using to claim "sustainability". For something as tricky as seafood, which some argue can never be produced in a sustainable way, companies will likely have to be part of an ongoing dialogue with multiple stakeholders on the definition of sustainable seafood that balances the social, ecological, and economic pillars of the triple bottom line.

Does Business Fear WikiLeaks?

2011-01-29T11:36:00.000-08:00

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.

Stephen Colbert Makes Fun of PepsiCo's Tropolis

2011-01-21T06:13:00.000-08:00

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

Who's to Blame: Society or the Manager?

2011-01-16T19:32:00.000-08:00

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.

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

2011-01-09T18:19:00.000-08:00

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.

Carbon Accounting and Corporate Environmental Transparency

2011-01-05T15:40:00.000-08:00

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.

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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.

One Man's Quest to Change a Gasoline-Based Transportation System

2010-12-13T07:31:00.000-08:00

Shai Agassi, CEO of Better Place, is calling for the end of gasoline cars by 2020. If you’ve ever heard this guy speak, I think you’d find yourself believing it.

I’ve blogged about Better Place before. They have raised $700 million from investors who see the potential in Agassi’s business model. Better Place is a global provider of electric vehicle infrastructure, network and services. The company isn’t in the car business nor is it in the fuel business. They are instead in the systems changing business.

I’m particularly impressed with this company because they demonstrate the capability of business to enact social change. This approach to sustainability is much different from what we hear of in a typical corporate social responsibility report where companies demonstrate their commitment to reducing CO2 emissions, waste or energy use by trivial amounts. Better Place’s version of sustainability is not about making incremental improvements to existing models; it is about trying to change the taken for granted and unsustainable transportation system that locks us into an oil-centric society.

There are many companies like these, companies that relentlessly work to change systems that many would argue are impossible to change due to the highly inertial and institutionalized norms associated with their existence. Grameen Bank, Interface Carpets, Patagonia, Terracycle (photo of founder to left). VanCity, and many others are doing hard work to change a highly established set of practices that lead to social inequity and environmental destruction.

But the challenges are enormous – more enormous than any typical entrepreneur would face. For this is not a matter of filling a small gap in the marketplace such as selling a new brand of detergent or opening a restaurant in a neglected area of the city. This is a matter of building new supply chains, unconventional partnerships, and new markets that did not exist before. Better Place needs to build up new suppliers to provide the vehicles to fill these stations, the batteries to fuel the vehicles, and the technology to provide the service. They also need to inspire the consumer to engage in this new system which is not just about purchasing an electric vehicle but about changing the way they think about refueling and driving more generally. They also need to build strong partnerships with unconventional actors like NGOs, communities, and governments. Without the Israeli, Danish and Australian governments’ buy-in, any system-changing endeavor like this one would be quickly disbanded.

Another challenge is the fact that they are facing a brick wall of embedded actors who would be severely threatened if something like this were to happen. Agassi mentions ‘oil’ as his primary competition. Courageous entrepreneurs like Agassi who meddle with a system that a small wealthy elite group has worked to institutionalize will face enormous resistance, much like the electric car industry faced in the 1990s.

So in effect, a firm like Better Place is thinking at the systems level rather than introducing a new product or accessing a new market within an existing system or supply chain. As John Elkington puts it, engaging in this type of entrepreneurship requires a special kind of person, one that is unreasonable and insanely ambitious.

Our Science-Based Society: Solution or Self-Fulfilling Prophecy

2010-12-07T13:34:00.000-08:00

CBC aired a documentary called “Playing God with Planet Earth” where they explore the latest on geoengineering and engage in a very thoughtful debate about the potential opportunities and dangers of pursuing this highly controversial area of science.

I was particularly struck by the following quotation from scientist David Keith:

“These are technologies that give us enormous leverage over the planet where once you know how to put a kind of aerosol in the stratosphere, then an incredibly small amount of money allows you to manipulate the entire planet. It gives you enormous god-like powers”

During the documentary, there is a debate about whether we should use computer models to test the effects of geoengineering or whether we should conduct small-scale experiments to monitor their effects. Isn't this missing a bigger issue? On the one hand, computer models are limited to capturing the variables it is programmed to include. On the other hand, the use of experiments falls victim to a naïve assumption that the effects are merely small-scale versions of global phenomena – something that complexity theory would disagree with.

In both cases, it’s important to ask whether we have grown over-confident in our ability to use the scientific method to resolve global issues. The documentary nicely chronicles a geoengineering strategy off the coast of Senegal where government officials responded to flooding upstream by cutting a drainage canal in a sandbar that protected small villages from the strong ocean currents. Within a matter of months, the canal exploded in size from a few meters wide to several hundred meters. The resulting waves wreaked havoc on small villages ill-prepared for the onslaught. The point CBC was trying to make is that we are ill-equipped to fully understand our very simplistic responses to nature's complexity.

To explore this further, it may be worthwhile to consider the debate on what is meant by “sustainable development”. The “weak” interpretation of sustainable development is guided by a perspective that views humans as superior to nature and thus in a position to exploit the natural environment as part of an economically rationalized agenda. Here, sustainable development is overpowered by the scientific-industrial paradigm whereby development should be determined by science and economics. The very idea that we have control over nature and that the coveted scientific method will come to the rescue falls within our socially constructed worldview, resulting in, what some would argue, a self-fulfilling prophecy. Are we falling victim to what Einstein warned: “We can’t solve problems by using the same kind of thinking we used when we created them”

The “strong” interpretation of sustainable development views humans merely as one strand of the web of life with no privileged place in nature. Advocates of this perspective argue for changing the ends of social actions away from economic and scientific ideals to morals and values using participatory, transparent and democratic processes. The Dalai Lama, in a book called The Universe in a Single Atom: The Convergence of Science and Spirituality, argues that the separation of science and spiritually is a false distinction that must come to an end if we are to address some of the more complex phenomena in our society. Some physicists, stumped by the unpredictable and completely irrational nature of particles at the subatomic level, are beginning to turn to spirituality and non-science based thinking for answers.

Could a greater incorporation of non-science and non-rational based thinking play a critical role in highly complex decisions? Applying this question to geoengineering at a simplistic level might suggest that any scientific pursuit must be tempered by considering the behavioral element or, as the documentary calls it, our habitual addiction to activities that cause climate change. In other words, resorting to science as a panacea for these sorts of systemic issues is not only dangerously naïve but goes against the very fabric upon which we exist. It arguably omits a whole spectrum of non-science and non-rational responses that make up our society and the ecological environment in which we reside.

What are the implications for business? You could argue that the business version of the above discussion comes out in the overall purpose of why the business exists. The weak approach pushes for an economic-based business model while the strong approach pushes for a moral-based business model. Will the latter companies be better positioned to deal with complex issues such as climate change, poverty, and human rights? Time will tell.

Geo-Engineering: The Ultimate Mask for the Elephant in the Room

2010-11-07T20:14:00.001-08:00

I recall a couple of years ago reading an article in the Globe and Mail that I had originally thought to be a farce because it spoke of three geo-engineered solutions to combat global warming. One was to place giant mirrors in space to reflect the sun intermittently as needed. Another was to catalyze volcanic activity to spew sulphur into the atmosphere (sulphur acts like tiny mirrors, deflecting light and heat back into space) while the third was to launch dust particles in the atmosphere to weaken the sun’s intensity on the Earth’s surface. I never thought the day would come where such ideas would make the front page of The Economist (online version). Geo-engineering is the term used to describe man-made technologies meant to reverse global warming. But unlike any mitigation strategy that reduces emissions at its source, geo-engineering involves recognizing that global warming is inevitable and subsequently designing technological fixes to deal with it.

More and more scientists are taking this idea seriously. In addition to polluting the stratosphere with sulphuric acid, another more recent idea is to deposit lime into the oceans to free up space for carbon dioxide. The article also discusses the idea of locking sections of Greenland’s glaciers to prevent them from falling into the oceans.

The fact that these ideas represent serious conversations among some of the brightest minds out there may be a cause for concern. The very idea that they are using computer models to project the outcome of injecting large amounts of sulphuric acid into the atmosphere is a fine illustration of the pervasive anthropocentric worldview that dominates our civilization. We tend to think that we’ve mastered nature and through this mastery can develop technologies to manipulate the planet’s ecosystems in a way that will reverse any negative impacts we have on it. I don’t think there are many scientists out there that would disagree with the conjecture that nature is incredibly complex and that our understanding of such complexity has only reached tip of the proverbial iceberg.

In response to a limited understanding combined with an egocentric disposition, we engage in reductionism where we examine seemingly simplistic cause and effect relationships limited to a small number of nature’s systems. Launching sulphuric acid in the air or liming our oceans to combat global warming says nothing about the consequential impact on other systems on which we depend. These band aid-like solutions only address symptoms of a more fundamental and underlying issue, which quite naturally, results in the need for more band aid solutions as unpredictable outcomes emerge from the original uneducated and vain response.

What happens if we do find a solution that would combat global warming, then what? What symptoms arise next? Do we jump from band aid solution to band aid solution learning about the complexities of nature the hard way? And if we are successful, however temporarily, does that not send humanity the message: “keep on consuming, technology will always provide the solution”?

There’s an elephant in the room here that we keep avoiding – our behaviour. No one wants to talk about the fact that we simply cannot stop extracting, manufacturing, producing, packaging, consuming, and wasting nor can we develop the courage to make decisions that represent a change in lifestyle today for future generations. As a result we want the best of both worlds – we want to keep our behaviour the same and rely on technology to fix the consequential externalities. Is this any different than consuming to a state of obesity and then relying on a pill to make it all better or driving your SUV to the grocery story and then pulling reusable shopping bags out of the back or indulging in flights around the world only to buy offsets, or making millions of dollars in profits at the expense of indigenous communities only to donate to a charity that advocates for human rights?

One of my students rejects any notion that the issues we’re facing today are any different from the issues we’ve faced in the past and points to technology and human ingenuity as the savior to all our problems. To me, this is a specious argument and ultimately a further reflection of our anthropocentric worldview. While I acknowledge the strong powers of innovation, there comes a point where we can’t have everything; where there are limits to our consumption, limits to the Earth’s carrying capacity, limits to growth. To deny this is to deny our interdependence with nature and the corresponding limits it imposes on us.

What is the Investor's Role in Sustainable Business?

2010-10-24T18:57:00.000-07:00

A couple of days ago, my students and I attended a presentation by Bob Walker, Vice President of Ethical Funds Limited, a company that prides itself on being a leader on what is known as socially responsible investing (SRI). Unlike many other SRI fund houses that influence companies based on their decisions to invest or not invest in their business, Ethical Funds Limited invests in companies with the intention to influence their business through shareholder resolutions and a subsequent engagement process. One of my students felt that this was more of a marketing campaign than a positioning strategy.

So which has greater impact? Investing in a "not-so-good" company and using your role as an investor to change company behaviour OR pulling your investment as a message to the company that despite the potential return you would get, you will not stand for their activities?

Answering this question might depend on how much influence an investor can have. In his blog, Felix Salmon argues that at the end of the day, unless you’re a significant investor, your influence on a firm is minimal. Salmon nicely describes a 'slap in the face' scenario where a conscious investor who owns 1/220,000 of a company naively thinks that he's changing behaviour when all the while the company is using his money for a $4 million lobbying effort to void the firm from California’s 2006 Global Warming Solutions Act.

On the flip side, one can argue that pulling your investment likely doesn’t have that much of an impact either. So perhaps the question is not so much about impact as much as it is about leadership. Leadership to me is going against the mold by taking a courageous stance that conforms to your values in a way that aspires others to follow. Is Ethical Funds a leader?

Some would argue that Ethical Funds is having their cake and eating it too. A substantial investor in the oil sands affords the firm with massive returns on investment. Is their discreet shareholder activism merely a means to greenwash their greedy investment strategy? Does it afford them enormous returns while at the same time making it seem like they are doing good things to mask those 'dirty' returns? Is this any different from indulging in carbon intensive products and than purchasing offsets?

Or is this indeed a genuine effort on the part of an investor trying to make a difference in the behaviour of the companies in which it invests? I have a feeling this debate will grow in popularity as more and more investors get involved in this space.

Canadian Cosmetics Need a Makeover

2010-10-22T09:16:00.001-07:00

You can't help but use the pun when these stories come up. The David Suzuki Foundation issued a report today saying that Canada needs stronger rules to keep toxic chemicals out of personal care products. The study asked 6200 consumers to inspect ingredient lists for 12 sets of potentially harmful chemicals used in cosmetics. Almost 80% of the products reportedly contained at least one of these dozen ingredients and more than half of all products reportedly contained multiple ingredients.

Pretty scary stuff.

Click here for more info on the study

PepsiCo Pulls Sunchips

2010-10-07T15:07:00.001-07:00

PepsiCo (aka Frito-Lay) recently pulled the plug on their compostable chip bags, changing back 5 of the 6 sun chips flavors to traditional packaging, citing noise complaints from consumers as the main reason. Seems like the ecological benefits of the chip bag trump the noise burden that comes with it. If we’re seeing resistance to what, comparatively speaking, is a trivial sacrifice for environmental benefit, imagine the kind of resistance we’d see from more fundamental changes.

The Colbert Report presented a rather amusing spoof on this, extending it to resistance to wind farms. He goes on to suggest that to avoid the noise, we should build quiet coal technologies, and breakthroughs in silent oil. And when the coastal cities are underwater from the arctic ice melt, their wish for being quiet will be fulfilled. Hilarious!

Rebooting How We See Things, says Hollywood Director James Cameron

2010-10-01T14:32:00.000-07:00

"It's a Complete Reboot of How We See Things", says James Cameron, director of Avatar when commenting on the need to change how our industrialized society works. Having now watched Avatar, I can certainly add this film to the growing list of films that tend to vilify the private sector. I think Avatar does a fantastic job at illustrating the disassociation our society has with nature and indigenous people, their culture, way of life and the surrounding environment. Interestingly, the actor most disassociated was the business driving the military to blast their way to the centre of the Niva people. The movie nicely depicts our very human-centered or anthropocentric perspective where we, as humans, are superior to nature. Business is predicated on the notion that natural resources represent an infinite bucket of cost-free inputs, of which we have the ‘right’ to exploit because of our superiority and intellectual prowess. Indeed, scientists are now debating whether the last millennium should be called the anthropogenic era in light of humanity’s profound impact on the natural environment.

But clearly this is an exaggerated portrayal of business’ impact on indigenous communities and the environment, isn’t it?

In many ways, Avatar represents an amplification of much of what has already happened or is presently happening in many regions around the world. Not long ago, Shell applied to the Supreme Court of British Columbia to forcibly remove elders of the Tahltan who were blocking access to exploration sites. Shell claimed that the environmental risks on the community’s sacred headwaters were exaggerated and that government permission gave them rights to these lands. In Sudan, Talisman Oil was accused of playing an enabling role in civil strife that still exists today. In Nigeria, Shell recently settled out of court and paid $15.5 million dollars in damages to the Ogoni people in Nigeria. Although they never admitted guilt, there was public sentiment that Shell was at least complicit if not involved in the execution of 9 human rights activists, not to mention the environmental devastation imposed on the Niger Delta during their tenure there. Oil company Tullow Oil PLC has been keen on drilling for oil beneath Murchicson Falls National Park in Uganda. “We don’t sleep” says Akelo Oliver, a fisherwoman on the shores of Lake Albert on the outskirts of Buliisa. Standing in front of an oil rig she explains frustratingly that "No one has talked to me or told me about what they're doing."

What about Canada’s oil sands? In response to an invitation of First Nations activists in Fort Chipewyan, Hollywood powerhouse James Cameron visited the Alberta oil sands this week. Since filming Avatar, Cameron has been getting involved in a number of conflicts between industry and indigenous people. Visiting the Amazon to support a battle against a dam project, he said, “This is how the civilized world slowly, slowly pushes into the forest and takes away the world that used to be”.

Unfortunately most of the media in Canada covered extensively the first part of Cameron’s trip where he met with oil executives and government but barely touched upon the outcome of meetings with the aboriginals who invited him to the oil sands in the first place – at least not yet. Ironically, what was meant to be an opportunity to communicate the negative externalities of the oil sands to the rest of the world was somewhat hijacked by interests who felt that this was an opportunity to show the world that the oil sands is an excellent place to invest and source energy. Smaller media sources communicated that Cameron was quite adamant about the need to slow "the pace of oilsands development and to do more to protect the environment"

What caught my attention was Cameron’s reflection after meeting separately with the Canadian Association of Petroleum Producers, oil and gas companies like Synrude and Cenovus, and government. He said that “all of these sources have their own specific agenda” implying that they all wanted to show him things that would pull him to their side of the argument. This reflects an “us versus them” mentality that has pervaded the relationship between industry and community activists for decades. We see this all the time when business executives perceive certain stakeholders as a threat to the achievement of their objectives and vice versa. I see this mentality in my business students regularly who, to their defense, are trained to adopt a war-like mentality where any stakeholders that represent a threat to the objective of shareholder value should be approached as an enemy. This is no exaggeration. Business students, as part of their program requirements, take a course on strategic management, a topic that carries with it an underlying metaphor of war where customers, suppliers, government, communities, and the environment should be handled strategically as in warfare.

Clearly, what was portrayed in the Avatar movie was a war between business and indigenous people and by default, the environment. Perhaps this is what Cameron means by a reboot. CEOs, themselves, are becoming dissatisfied with how our industrialized society works. Consider these quotations:

“The way I’ve been running Interface is the way of the plunderer. Something that is not mine. The day must come when this is illegal, when plundering is not allowed. So I said to myself, ‘someday people like me will end up in jail’” (Ray Anderson, CEO, Interface)

“I am convinced that when our kids are fifty, and they look back at us they are going to ask” What were you thinking”…why were you so slow to do the right things?” (Jeff Immelt, CEO General Electric)

"The same stale, business-as-usual thinking that has driven us to our current state of emergency will continue to endanger our safety, our livelihoods, and our planet. We need new thinking, new leadership, and innovation to create a post-carbon economy" (Richard Branson, founder Virgin Group)

What is this telling us? I strongly believe that most actors – business, government, communities, consumers, investors – do not want to negatively impact the environment or the sacred traditions of indigenous peoples. But we keep on doing it. Is it inevitable? Are managers uncontrollably drawn into a zero sum game where tradeoffs are a natural part of development? In an increasingly complex operating environment where tradeoffs created by business start to become a reflection of an outdated simplified worldview rather than a natural consequence of modern capitalism, only those managers rebooting their worldview and their organization will survive.

Let's Brand Oil Sands as the Ethical Oil Source!

2010-09-20T07:09:00.000-07:00

That's the argument put forth by Ezra Levant in his new book entitled "Ethical Oil" where he compares Fort McMurray to Saudi Arabia, Venezuela, Nigeria, and other oil rich parts of the world. His argument expressed in the Globe and Mail last week is that in comparison to a "fascist barrel from Saudi Arabia, a misogynist barrel from Iran and a dictatorial barrel from Venezuela", a barrel from Fort McMurray requires far less blood to be spilled. To Levant, that's how Canadians should sell the oil to countries like the US who have consistently argued for less dependence on oil coming from politically unstable and unethically oriented countries.

"Ethical Oil" does come across as oxymoronic when we consider the fact that systematic extraction of the oil from the earth's crust, regardless of its location, is unethical. The Star noted that recent studies on bird deaths in the oil sands were 30 times more impactful than what was previously estimated (official counts, by the way, were primarily based on oil company employees discovering dead birds). The Pembina Institute highlighted some of the significant environmental impacts, including “emissions of greenhouse gases and other pollutants, surface water withdrawals, contamination and disruption of groundwater, toxic seepage from tailing lakes into groundwater, habitat fragmentation and impacts on wildlife”. According to the Institute, the problem is that while the Alberta government collects a reclamation fee, it is not based on any knowledge of what the potential costs might be throughout the life of the mine. Selling the oil sands as being the ethical source of oil seems illogical when we don’t have any systems in place to mitigate the true and accurate environmental impacts. Therefore, imposing taxes on future generations in the form of pollution and environmental devastation doesn't sound very ethical to me.

But the counter argument here, posited by Levant, is that avoiding the extraction of oil from this location is unethical because it would mean more support for repressive regimes while severely disrupting our economic and social wellbeing in the West. That sounds unethical as well. But using a relative comparison like this invites an equally valid response. If I were representing governments in other countries, I would respond by branding my oil as the ecologically efficient option in light of the fact that oil sands production requires 2 to 3 times more energy to produce oil than its crude oil counterpart. Both arguments are valid only because they are relative in nature (one is better than the other). This is akin to promoting Canadian landmines as being more ethical because they only kill in a 10 meter radius rather than a 20 meter radius and, in response, international governments arguing that the material used in their landmines is much less ecologically harmful than what is used in Canada. Notice that this diverts our attention away from the larger issue of having landmines in society at all. The private sector does this all the time when competing on which product is greener (relative to the original toxic one) even though all of them still cause major ecological harm. I’ll get back to this larger issue but for now, let me discuss how this debate speaks to how society would define sustainability.

This debate nicely shows that the question of whether oil sands are sustainable is left open to interpretation and judgment. If I’m a strong environmentalist, then I completely disagree with Levant’s argument. Yet, if I’m a human rights activist or an NGO working to curb oppressive regimes, I might agree with Levant’s perspective. To me, this variation in interpretation is a reflection of the challenge associated with achieving a “sustainable society” where balance between economic, social, and ecological dimensions is achieved. What is balanced is largely subjective, highly dependent on the perspective of a given stakeholder. One would argue then that the only way that we will achieve a sustainable society is if stakeholders representing different systems have equal power to voice their concerns, the product of which theoretically represents a balance of perspectives and systems. The problem of course is that power across stakeholders is by no means balanced. Recognizing this, powerful stakeholders work to preserve their power to make sure that their perspective carries more weight than others.

In my view, power to influence decisions has resided with too few stakeholders for the last several decades, which helps to explain today’s predicament. While I recognize that there are local and global social and economic consequences of moving away from oil production in Alberta, we have to step back and understand why we are so dependent on oil in the first place. Canada has made and continues to make economic decisions that lock us into an over-reliance on our non-renewable resources. The same can be said for international oil production where a small and very powerful elite has worked very hard to ensure world dependence on oil. So to suggest that moving away from oil has greater social and economic consequences than it does ecological is naïve and perhaps another strategy through which powerful elites aim to continue world dependence on this substance.

WSJ Ignores the Growing Complexity of Corporations in Society

2010-09-01T05:56:00.000-07:00

Recently, the Wall Street Journal published an article outlining the “case against corporate social responsibility”. This was well written and is indeed a provocative piece for students of business, practitioners, academic scholars, and even policy makers. While I think the author brings up some very important points with which I agree, there are some elements of his logic that I find disturbing, or at least misguided.

Where I Agree

First, the author states, “in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant”. This is a very interesting and important point because it suggests that companies may be promoting themselves as responsible or doing something different when they are merely meeting market demands that have increasingly aligned with what is good for society. So DuPont’s claim that producing environmentally sustainable cleaning products is part of their new found responsibility could be perceived as a mirage because they are engaging in business behaviour that is no different than responding to any other market trend. To the author, these businesses merely advertise instances where their behaviour and society’s interest align and then label such behaviour as some kind of revolutionary shift. But there is an underlying assumption here that managers are at the mercy of their regulatory and market environments - something that I'll get to later.

Second, there is good logic behind the author’s and Milton Friedman’s argument that any activity taken on by the firm that is in direct opposition to shareholder value is NOT responsible. The author put it nicely when he said that CSR, when it is in opposition to creating shareholder wealth, is in violation of corporate governance whereby managers are accountable by law to the owners of the firm. One could argue that this usurps the very ideology of corporate social responsibility given that managers are breaking the law. This same argument was put forward by the Economist (see Profit and the Public Good) in 2005. Theoretically, spending money on some charity or social cause that has nothing to do with the company’s value proposition could have been money used for research and development of a more sustainable means of producing an existing product or the creation of a new product line that is more sustainable. I would agree that this could be irresponsible when these social causes are perhaps less urgent and there are other actors available with more skills to address them – again, two important assumptions that I get to later.

Third, the author realizes that solutions to social issues need to come from a mixed bag of actors – government, social activists, civil society organizations, and business – implying that business needs to be pushed in the right direction so that market and regulatory trends make it profitable for them to do so. This is important because the author recognizes the growing complexity of the different actors in society and the collaborative role needed to address these issues.

Where I Disagree

1) Business as Passive Recipient: My greatest concern with this article is the author’s presumption that business merely represents a passive recipient to market and regulatory trends as reflected in his examples of the auto sector and health food sector. We’ve known for quite some time though that companies have played a proactive role in shaping the market and regulation for food, vehicles, and many other products and services. General Motors played a very influential role in curbing government imposition of taxes on gasoline so that larger gas-guzzling vehicles would still be attractive to the market. The private sector’s role in ‘killing’ the electric car was, according to many, not a result of any lack of market demand but the preservation of corporate interests, suggesting that business exercises the power to build and dismantle markets. So while I agree that companies will respond when the market demands change, I disagree that companies sit by idly in response with no influence on this market and on public opinion through political lobbying or strong marketing.

While it is true that companies have adapted to the changing demands of consumers in, for example, healthier food, this was not without strong corporate interest in preventing such trends through strong lobbying for regulation that supports practices that undermine the health of consumers. Examples here include the subsidization of corn and soy to support the processed food industry and the strong lobbying for the allowance of trans fat in food. And as an aside, the author’s argument that social activists have had little impact on changing company ways is unfounded. Many would argue that civil society organizations, non-governmental organizations, and activists play an important role in shaping market demand and consumer behaviour in spite of corporate efforts to preserve the status quo. Consider Greenpeace’s ability to catalyze a massive boycott of Shell in 1995 or the Asian-American Free Labor Association’s ability to boycott Nike products in early 1990s. More recently, the New York Times reported that banks are becoming more wary about lending to mining companies in light of growing criticism by environmental advocates such as the Rainforest Action Network and Sierra Club.

2) Business as a Political Actor: I would argue that there are indeed situations when firms are best positioned to respond to social and ecological issues regardless of the relevance to business operations. This is especially the case in the global south where substantial public service gaps exist and companies have stepped in to fill governmental roles like, for example, the efforts of several multinational corporations in Kenya to address public service gaps after the post-election conflict in 2008. While I agree that in an ideal world, government or other public bodies may be best positioned, in reality these actors are not always available and it is instead business that finds itself better positioned (see Private, but Public WSJ, 2009). Regardless of the reality of the situation, the article implies that companies should stand by and do the responsible thing which is to continue with daily operations that maximizes profitability when its surrounding communities don’t, for example, have access to food and water.

But governmental gaps exist as a consequence of an increasingly complex socio-economic environment rather than because government has lost its capacity. Similar to the economic models that are built upon a ‘theoretical’ assumption of perfect competition, the ideal scenario of which the author speaks may not exist, however logical his argument might be. So while it is true that, in theory, “governments are a far more effective protector of the public good”, the reality is that their ability to do this is waning when we consider the rather pervasive loss of power of government to regulate and provide public services, the ability of corporations to transcend state level regulation, and the growing privatization of public services. We can either keep beating a dead horse and try to revert back to a simplistic design that relies on the separation of the public and private sectors or we can begin to adapt to the reality that these lines are blurred and business might have to be involved in the solution to these problems. This is a frightening thought of course because it suggests that a profit-making entity is influencing public discourse. The truth is that this has been happening for quite some time. Perhaps our efforts should be directed to understanding this growing phenomenon, building theories to guide it, and advising managers and policy makers how to use it to align corporate and public interests.

3) Managerial Choice to be Part of the Solution: Even when activists, NGOs, and civil society groups do exist to address some of these issues, we find that business is typically brought in as part of the solution. Many unique business models of the global south represent innovative responses, suggesting that business is not merely a passive recipient to market trends but an active player in the solution to these issues. The point is that firms represent architects in finding ways to align profit with social goals. This gets to an important presumption that the author makes regarding the view that managers do not have control over the alignment of profit with public goals and that factors beyond its control determine this alignment.

Exemplary scholars like Ed Freeman argue that it is the responsibility of business to migrate to areas that ultimately maximize value for multiple stakeholders, including shareholders, concurrently. Put another way, managerial options may not be limited to being responsible on the one hand and sacrificing profits on the other OR vice versa. A manager’s job is to think outside of the box to understand how profit maximization can take place in conjunction with the maximization of value for different stakeholders; stakeholders who represent social interests. So, for example, let’s say an automotive manufacturer is pondering their next line of vehicles to be designed and manufactured. The author’s view is that the firm can do one of two things – either ‘responsibly’ make a green car at the expense of profits because no market yet exists or maximize profitability and make an SUV where the market currently resides. As already mentioned, companies have a very strong ability to create new markets and influence public policy in a way that shapes society’s behaviours. To Freeman and others, the challenge of business is to find a way to make responsibility (or ethical behaviour) and profitability commensurable. So being responsible here may involve pushing for regulation that supports sustainable vehicles and building marketing campaigns that educate the market about such products and thus make such strategies profitable.

In sum, the views put forward in the WSJ article, while relevant at a time when public and private roles were distinct and clearly defined, are quite outdated. It may be time to let go of the theoretical niceties associated with pigeonholing roles and responsibilities to different actors and recognize that the blurring lines between them may represent a future reality that requires the attention of managers, business scholars, and policy makers.

Africa's Growth Strategy According to McKinsey

2010-08-19T08:32:00.000-07:00

The 2010 World Cup shifted the world’s gaze to Africa. According to many, Africa is considered the final frontier, the last remaining pocket of the world that is ripe for ambitious economic development much like its emerging economic predecessors: China, India and Brazil. Shortly after the World Cup, publications in highly recognized business and economics journals such as The McKinsey Quarterly and The Economist provided informative insight on the continent’s economic climate and the associated business opportunities and challenges. Following a highly prescribed formula, the authors advocated vigorously for neoliberal macroeconomic policies such as the privatization of public services, a focus on systemic exports, and an enabling environment for multinational corporation foreign direct investment. As somewhat of a combined silver bullet for economic development, many economists implicitly believe these policies will ultimately mend social, governance, and ecological issues in these regions. Many of these articles are written for managers of multinational companies to provide them with insights on how to successfully enter these markets, how to identify attractive competitive environments, and how to avoid political interference. They are also meant to advise policy makers in these regions on how to create enabling environments that would attract foreign business investment.

This neoliberal approach to development is tiring and in many ways frustrating. Has the severe backlash from the catastrophic effects of neoliberal policies imposed on emerging economies in the 1990s not rattled the seemingly impenetrable devotion to these macro level policies? Is our goal here to exhaust all remaining populated areas on the planet with this approach before we realize that we have it wrong? Even the highly sought for industrialized economy to which these authors encourage Africa to aspire is showing debilitating cracks in its armor as the West is embarrassingly recovering from the devastating impact of the very ideologies now slated for Africa. Joseph Stiglitz put it best when he said that due to the corruption and lack of transparency in US financial reform, the World Bank would deem the country uncreditworthy.

More generally, the economic woes caused by the worst financial meltdown in history, the ecological woes in the form of human-induced climate change, and the social woes in the form of obesity and disease all represent signals that perhaps the economic growth model slated for Africa may create a similar doom machine while affording other regions of the world with greater economic wealth. More shocking is the fact that these policies we’re encouraging Africa to adopt are the same ones that we’ve been using in the industrialized world that led to the many social and ecological issues in Africa. I’m referring to natural resource exploitation without representation, inequitable agriculture subsidies, and the use of intellectual property rights that preclude access to those most in need. Metaphorically, we’re giving Africa the stick we’ve been hitting them with for decades and advising them to use it on themselves.

Nowhere in these articles is there discussion of sustainable development; development that incorporates social, governance, and ecological issues to preserve the integrity of future generations across both space and time. For instance, the ecological effects of promoting the same old routine is astounding given that we know that if the 1 billion people living in Africa consumed at a rate equivalent to the West, we’d need several planets to sustain ourselves not to mention the fact that we’d severely compromise the need to reduce CO2 emissions by 80% by 2050. We’re already seeing this breach as a result of China and India’s development where I recently heard that 30% or 300,000,000 Chinese are expected to fly overseas in 2010. Cursed by tunnel-vision syndrome, these authors presume that the carrying capacity of the planet is limitless or at least will increase with traditional economic growth. As Thomas Friedman put it, Mother Nature doesn’t do bailouts.
Perhaps now’s the time to think of Africa as a beacon through which the rest of the world can look for a more sustainable form of development. Not only could this help the continent but it may represent part of the solution to the rest of the globe’s woes. Some of the most innovative business models are emerging in the global South, many in African countries such as Kenya, Tanzania, and Ghana. These business models are inclusive in nature, ecologically sustainable, and uniquely tailored to the needs of the local context. In other words, entrepreneurs in Africa are coming up with the solutions not some foreign multi-national corporation heavily guided by an arguably flawed system of economic development. This is not unlike James Howard Kunstler’s “World Made by Hand” which describes the near future in a small town in upstate New York where a chain of global crises has forced the community to fend for itself. Whereas the West needs to turn the 'titanic' to get there, Africa is perhaps less restricted from the institutional barriers to change evident in industrialized economies.

Bala Falls Energy Project: Model for Sustainability?

2010-08-03T06:21:00.000-07:00

As a partial resident of Bala, Ontario and admittedly biased, I’ve become familiar with the highly contested Bala Falls Hydro project by Swift River Company that would generate 4.3 MW of power for the province yet would come at a fairly substantial social and economic cost to the town of Bala. The Star and the Globe and Mail have written stories on it.

On the one hand, this project is perceived by many to be a “Green Project” using renewable sources of energy as it would wean Ontario off the need for fossil fuels and nuclear energy (Quebec and BC are highly dependent on hydro for a majority of their power). On the other hand, the impact on the local community of Bala could be devastating. The project is expected to take 2 years to build which would sever the convenient thoroughfare cottagers use to get to and from their cottage. Moreover, the landmark Bala Falls that attract visitors would be all but destroyed not to mention the fact that environmentalists would argue that hydro should not be labeled green because of its disruptive effect on ecosystems. For instance, see the following:

Hydropower doesn't count as clean energy
Hydroelectric power's dirty secret revealed

With already 2 power stations, has Bala contributed enough? Oddly enough, Ontario has so much spare capacity on its grid that it sells a good chunk of its power to the US.

Any thoughts on this? Is hydro considered a green source of energy in your mind? Do we label projects as “green” based on their relative improvement (from coal for example) or more absolute contribution(i.e. whether they support the integrity of ecosystems)? Is this merely a “not in my backyard” scenario or something more? When those favoring the project call this “sustainable”, are they forgetting the social and economic pillars that would be impacted? Should we be concerned that we might be neglecting the demand side of energy, always obsessed with supply? Or is this simply a symbol of a social and economic inevitability for small communities?

Why has the BP gush not scared Canadians off of the oilsands?

2010-07-23T19:52:00.000-07:00

The Toronto Star recently published a rather scathing article on the complacency of Canadians in light of increased US criticism of the oil industry. While the mainstream US population tends to attribute the massive oil gusher in the Gulf to BP’s poor safety record, many believe that it’s only a matter of time before American citizens begin to see that the social and ecological costs sustained by the gush ultimately represent the true cost of consuming fossil fuels. As the title of the Star article states: “As US awakens, Canada hits snooze on oil addiction”, Canada has certainly not realized this yet.

The article explains that Syncrude Canada, the biggest player in the $200 billion Alberta oil sands, displays images of forests and lakes, “as well as slick videos extolling the mining company’s wetland research and aid to native businesses”. Indeed, the Canadian Association of Petroleum Producers (CAPP) plays a big role in paying millions of dollars in advertisements denouncing environmentalist claims while promoting their environmental and social endeavors.

Shamefully, the Globe and Mail published an article written by Pierre Duhaime, President of SNC-Lavalin Group Inc., a large supplier of the oil and gas sector, encouraging support of the oil sands in light of the inescapable need for energy in the future, the dwindling supply of easy access to such oil, and the contribution it represents to the Canadian economy. I find it utterly distasteful that the top Canadian newspaper granted publication of an article conveying the CEO’s views on what should or should not represent Canada’s socio-political agenda in light of the fact that his remuneration is correlated to the systemic dependence on these natural resources.

What I find particularly distasteful is Duhaime’s claim that we need the oil sands because there are few alternatives available. On the surface, one reads this and thinks: “well, that’s true. I mean perhaps the solution is to extract the oil from this sand in a way that is more sustainable so that we can reduce environmental issues and not engage in too disruptive behaviour”. There are at least two issues with this. First, there is clear evidence that the oil and gas sector, for decades, as influenced public policy to ensure the security of oil as the primary source of demand for energy. Claims that they played a role in killing the electric vehicle, while not conclusive, represent one logical strategy for an industry seeking to survive over the long term. Allowing the president of a company inextricably tied to oil to put forth this rhetoric is repugnant because of the history of political lobbying that has resulted in secured dependence on this source of energy.

Second, change is difficult. Anyone who thinks that to sustain ourselves requires slight alterations to our behaviour is ‘nuts’ and ignorant of the real challenges that lie ahead of us. Anyone with children should be thinking of this because their children (your grandchildren) will be the ones dealing with the implications of the fact that our existing generation was unable to radically change their behaviour.

But let’s get back to the issue at hand. Several articles have discussed the seemingly pervasive parallel between the gulf gush and the oil sands. The difference is that while BP’s true costs are displayed in the form of massive blotches throughout the Gulf, loss of coastal jobs, and visible and permanent ecological damage, the oilsands’ true costs are less explicit yet equally impactful when we consider the 126 million gallons of scarce fresh water a day, the contribution of the intense processes to global warming, and several forms of ecological devastation.

We’re kidding ourselves when we say that these statistics are important because we care about the environment and the Earth. We should be concerned because without the very ecosystem services that these operations degrade, we will not survive as a species. This ecosystem-human survival relationship has been expressed countless times by the Millennium Ecosystem Assessment yet impressively suppressed and under-exposed to the average person. As many scientists have mentioned, the Earth will adapt to whatever we throw at it. Let’s stop pretending that we’re saving the environment. We’re trying to secure an environment that will not eat us up and spit us out as a soon to be extinct species.

While the Alberta Government uses the gush as a way to promote the oil sands, environmentalists use it as a way to illustrate the dangers of further extraction of the oil sands. Susan Casey-Lefkowitz said that "it's ironic that when the oil spill happened in the Gulf, the tar sands people were saying that it is safe". Mario Reynolds of the Pembina Institute argues that Canadians don’t really buy the ads put forth by the oil and gas industry advocating for the social, ecological, and economic benefits of the oil sands. But then why is it that Canadians are “snoozed” and support a government that believes the environmental issues clearly connected with the oil sands represent “side shows”. If anything, the BP oil spill should have woken Canadians up to the dangers of the oil sands. Our government should be finding a way to wean ourselves off our economic dependence on them. Instead, they constantly defend them as if they represent the solution to the planet’s woes…how well this parallel’s the SNC Lavalin President’s article. Embarrasingly for Canadians, American organizations and media are stepping up their campaigns against the oil sands, to which the Albertan government has aggressively responded with massive advertisements.

Should we not be concerned that the Harper government seeks counsel from the National Energy Board which excludes environmentalists, not to mention the fact that scientists rarely get a seat at the table? I’m most concerned with the fact that while everyone I speak with is against what this government is doing, 35-40% of Canadians seem to support them in the polls. Perhaps my colleagues have become what Leah McLaren believes to be “closet conservatives”.

Canada's Top Performers in CSR: Use of Measures

2010-07-22T18:22:00.000-07:00

Following up from my previous two posts on the Corporate Knights rankings, this final blog discusses in finer detail the methodology Corporate Knights uses to measure CSR and sustainability of firms. One could argue that the very methodology and ideology surrounding the measurement system fosters a reductionist approach to sustainability whereby companies receive accolades by focusing on isolated systems or even isolated parts of systems rather than understanding the interconnectivity of social, ecological, and governance systems.

First, let’s consider the measurement criteria they are using. Corporate Knights uses three broad measures for CSR: governance, social, and environmental indicators. Two posts ago, I discussed dangers of limiting a firm’s environmental performance based solely on the energy, carbon, water, and waste of company operations. As expressed in my blog about Loblaw, these measures ignore performance of the broader supply chain that these companies influence. The governance and social indicators Corporate Knights uses are inappropriate proxies for measuring the company’s contribution to the integrity of systems. ‘Sustainability leadership’ is measured based on whether the company has a “sustainability” board committee while ‘sustainability remuneration’ is based on whether one senior executive has a portion of his/her pay linked to sustainability issues. Now, hypothetically speaking, if I wanted to perform well on this exercise, I would arbitrarily create a board committee knowing that there is no due diligence on Corporate Knights’ part to evaluate the integrity of what this committee does and whether it is in the best interests of social, ecological, and governance systems. I would also allocate say 3% of the compensation of one of my senior executives to sustainability issues which would grant me a score of 100% against a company who received a score of 0 for allocating 0% of the compensation of an executive to sustainability issues. Governance is much more than measuring whether a board committee exists or whether there is diversity on the board. Governance is about measuring whether companies have organizational systems and structures that assure social and ecological systems are considered in their decision-making processes.

Social measures used by Corporate Knights are based on employee safety, percentage of tax paid, pension plans and pension funding which unfortunately overlook 99% of the social systems considered relevant to sustainability such as supply chain labour conditions, social equity, poverty, obesity, disease, malnutrition, and health systems. On the transparency measure, half the score is based on how many voluntary metrics are reported (only those Corporate Knights can measure) which on the one hand is the tip of the sustainability iceberg and on the other hand, more importantly, says nothing about the integrity of these measures. The other half of the transparency measure gives points for whether the company uses international standards such as GRI or uses a third party auditor. This doesn’t help much because internationally accepted reporting standards are heavily criticized because they only provide measures companies can use but leave any commitments up to the company.

What this is telling us is that we have a fundamental gap in our ability to measure company contribution to sustainability. On the one hand, I sympathize with Corporate Knights because they are doing what is possible given the tools available. But on the other hand, I criticize Corporate Knights because there is a massive disconnect between what they are claiming to measure (i.e. firm CSR) and what they are in fact measuring. This is misleading to readers who don’t have the time to verify the methods and associated measures and in fact encourages companies to engage in shoddy CSR efforts.

When evaluating the integrity of measurement systems like Corporate Knights, it’s important to consider the ramifications associated with company behaviour when responding to these evaluations. Due to the lack of a comprehensive measurement of systems, their instrument creates tunnel vision because companies are so deeply focused on say the reduction of water use that they fail to consider the fact that reducing water use requires heavy industrial chemicals that negatively impact other systems. This fosters a reductionist approach to sustainability where commitment is meant to be piecemeal rather than part of a company’s culture and way of thinking. This measurement tool also promotes incremental improvements or eco-efficiency which means that companies are encouraged to improve water, waste, carbon and energy within the existing mode of operations rather than reexamining the actual mode of operations itself.

In conclusion, I reiterate that the work that Corporate Knights is doing provides an important service to the business community and to society. But they should refrain from claiming that their work measures a company’s commitment to sustainability or corporate social responsibility. Based on the measures Corporate Knights is using, we should either change the definition of CSR or they should avoid the use of CSR as their dependent variable. To me, this initiative is not measuring CSR, it is measuring waste, carbon, energy, and water intensity, employee pay, safety, and pension, taxes paid, and whether the notion of sustainability is even thought about in an organization. These are either required by law or represent a very trivial voluntary effort. In other words, Corporate Knights needs to revisit what they claim to be measuring. Failure to do so will give an inaccurate depiction of what CSR and sustainability is and more importantly fuel the criticism and skepticism associated with the private sector contributing to a sustainable society.

Canada's Top Performers in CSR: Loblaw's False Impression

2010-07-09T09:04:00.000-07:00

In my previous post, I began a series of three blogs on some of the limitations of the highly coveted Corporate Knights ranking of Canadian public companies. This next blog looks more closely at Loblaw and the fact that Corporate Knights rated them “top honours” (see article) on the corporate social responsibility front. I think it’s important to pick on Loblaw here because they received an impressive 81.81 percent, almost 10 percent higher than the runner up on the CSR measure. My objective in the discussion below is to show that while Loblaw may be performing well RELATIVE to other companies, they are failing when we examine their social and ecological performance more comprehensively from the perspective of multiple systems and our definition of sustainability from the previous blog.

To be blunt, one walk down the aisles of one of Loblaw’s grocery stores will perplex anyone trying to understand how it was possible that they received such a high rating. If CSR is based on a firm’s responsibility towards the negative externalities imposed on stakeholders stemming from their decisions and behaviours, Corporate Knights fails to consider the complexity of the food system and, more importantly, the complexity of what CSR actually represents.

To understand this, let’s make our way around the grocery store, starting with the produce section. A high majority (very difficult to find the exact percentage on Loblaw’s website) of the produce in Loblaw stores are from non-organic sources, caked with fertilizers and pesticides. As a large centralized retailer, the decision to purchase from suppliers that use these chemicals represents a substantial contribution to the degradation of ecological systems. The use of chemical fertilizers “is considered the major human-related cause of dead zones around the world” and causes farmland degradation, reduced soil fertility and biodiversity according to the UN assessment of Earth’s Ecosystems in 2005 and again in 2009. On the social systems side, growing consensus is emerging linking the excessive use of these chemicals to cancer and other diseases. A recent study summarized by CNN found that 12 products (the dirty dozen) carry more pesticide residue than any others resulting in as much as 67 pesticides remaining on non-organic food despite intense spraying with water. In my walk through a few stores these past few weeks, I was unable to find many of these 12 products in an organic form.

Unfortunately, Corporate Knights does not measure decisions related to what types of products Loblaw chooses to sell. This is an issue when we consider large public companies like Loblaw who 1) have a strong influence on public opinion related to food and 2) have strong power over suppliers. Scoring a firm’s CSR without considering these sorts of decisions is missing a fundamental component of what being responsible is all about. When Corporate Knights measures energy, waste, water, and carbon intensity of Loblaw’s stores, they are missing out on the fact that any improvements in operational waste, for example, is easily offset by the indirect effects of the chemicals ending up as waste in water systems or the carbon intensity of nitrogen found in fertilizers, or the energy required to produce these pesticides and fertilizers or the massive amounts of water required to feed non-organic produce. Is this not a contradiction when Corporate Knights lauds Loblaw for improvements in operational waste, energy, carbon, and water?

Next, let’s move on to the bulk and central part of the store – the processed food section – the section of the store several authors and a growing number of health advocates have warned consumers to stay away from (see Food Inc., Omnivore’s Dilemma, Food Matters). It does seem rather ironic that a company like Loblaw receives the highest grade despite the fact that 80% of its product offering is linked to major social and ecological issues. The invention of processed foods afforded food companies the ability to reach distant markets because the food can stay on the shelves much longer than perishable foods. But the only way to do this is to remove the ingredients of the food that attract bacteria. Well, like us, bacteria are attracted to nutrients. So we must remove nutrients to make food last longer and then reinsert them synthetically, with no guarantee that consumers will receive the same nutritional benefits. Moreover, any quick read of the ingredients list reveals massive amounts of sugar and derivatives of corn and soy drawn from a wet milling process which is incredibly energy intensive and unhealthy in its effect. The subsequent impact on the health system is monstrous when we consider the onset of diabetes in adults and now children, obesity, and heart disease. While there are subtle improvements in this area, Corporate Knights does not measure the degree to which Loblaw has made decisions to reflect responsibility for these effects. What about the intense waste created from the excessive packaging of the tens of thousands of processed products that end up in landfills and/or is incinerated? I can’t help but chuckle when I read the very narrow-minded praise for Loblaw’s diversion of 70% of its waste from landfills in 2009 when we consider that 77% of the plastic that packages the thousands of processed food Loblaw sells ends up in landfills. Again, the water, carbon, energy, and waste associated with these processed foods are not captured in the Corporate Knights measure.

Then we move onto the meat, poultry and seafood sections. I do commend Loblaw’s commitment to source 100% of their seafood from the Marine Stewardship Council by 2013. It certainly is a step in the right direction. But it’s not that impressive. Shouldn’t a large company like Loblaw be an active participant in its supply chain rather than a passive purchaser? And what is the company doing as a major purchaser of meat and poultry to stem some of the major human and animal health effects of the industrialized meat system, not to mention the ecological effects?

Critics of what I’m writing here will likely argue that it is not the responsibility of Loblaw to influence their supply chain and that what Loblaw does operationally in house in their little nook of the supply chain is all they should be responsible for. Unfortunately this is a very old logic, one that got the apparel sector in trouble during the 1990s when they said that exploitative labour conditions of their supplier factories were not their problem. When we look at the financial crisis that occurred in 2008, we see that this was a failure of a system, a complicated web of services that can only be blamed on a group of firms acting as suppliers and customers rather than on one section or organization of that supply chain. My point is that any attempt at addressing more systemic issues associated with externalities demands that firms see the bigger picture of that supply chain or the web of activities responsible for products and services. Any company that isolates itself in their supply chain without considering their responsibility across the supply chain is not committed to the true definition of sustainability and thus should receive a poor rating. As an important aside, I find it highly hypocritical that Corporate Knights praises Loblaw for sourcing 100% of their seafood from the Stewardship Marine Council in 2013 (as mentioned), yet does not extend this measure to the rest of its product lines like I’ve discussed above.

But what about the 1.3 billion plastic shopping bags that Loblaw prevented from entering landfills? Is that not something to be proud of? This does help of course but it would be equivalent to praising the consumer who brought his own reusable shopping bags only to pack them into his hummer to drive a few blocks home. Focusing on shopping bags afforded Loblaw good PR with consumers yet shifted consumer attention away from the billions of plastic material Loblaw uses in their operations and in the products that they purchase. They instead placed the onus on the consumer while affording the company extra revenue (reusable bags) and cost savings (reduction in plastic bags). Is this responsible? To me, being responsible means asking the more difficult questions about how to discontinue the selling of products laced with BPA, for example, that Health Canada has now earmarked as a chemical toxin dangerous to humans. This takes courage and represents the sort of decisions and behaviours that should be granting companies the score Loblaw received.

The Globe and Mail also touted the firm’s efforts to release an annual CSR report. The release of a CSR report should not be viewed as a commitment to sustainability because it creates an incentive to produce some kind of report with no guidance on what should be in the report and how its contents should be measured, evaluated, and monitored. I’ve read through hundreds of CSR reports and a majority of them are used for PR purposes and avoid any serious commitment to sustainability.

Thus the Globe and Mail’s claim that Loblaw has pushed to “do the right thing in an array of corporate social responsibility areas” is based on a very limited set of measures of what we mean by corporate social responsibility. While I appreciate the work that Corporate Knights is doing, until the measures used more accurately represent proxies for the true definition of sustainability and CSR, we should be careful of encouraging companies to aspire to the CSR performance of a company like Loblaw.

The inability to measure the more indirect effects I’ve discussed above is as critical as it is difficult. In my next blog, I’ll dive more deeply into the measures Corporate Knights uses. They are not the only one struggling with this. This is and will continue to be one of the most pressing challenges of the field of accounting and business more generally.

Canada's Top Performers in CSR: Lifting the Veil

2010-06-29T11:52:00.000-07:00

Canadian Based Corporate Knights Research Group recently launched their annual report which ranks Canadian companies according to their commitment to corporate social responsibility and sustainability. Corporate Knights has developed a strong reputation as a source to which one can refer when evaluating the sustainability efforts of companies and even business schools in Canada. The Globe and Mail presented the results of their research in the following links. The links themselves are very informative for those of you wondering which companies are deemed leaders in Canada on the social responsibility front according to an independent third party. Thousands of potential and existing employees, shareholders, and other stakeholders refer to this ranking as a guide when developing their own evaluation of a company.

Report on Corporate Responsibility

However, the picture isn't as rosy as it may seem. This is the first of a series of three blog posts that aims to highlight some of the limitations of this reporting process that on the one hand inadvertently misleads readers and on the other paints a rather bleak picture of what we consider to be a leader in corporate social responsibility.

A hint of these limitations emerges when we consider that Corporate Knights’ gave Loblaw “top honours for corporate social responsibility” and ranked Bombardier “No. 1 for environmental practices”. I thought the two comments at the conclusion of the Bombardier article nicely captured the issue:

“…but when you stand back and figure it takes a thousand dead dinosaurs baked in the earth’s crust for a million years for enough fuel to make a flight on a little corporate jet from Toronto to Montreal, the term ‘environmental responsibility’ seems absurd”

or

“what total BS, Bombardier’s entire raison d’etre is building anti-environmental products”.

To understand the concerns, it’s important to start with definitions of sustainability and corporate social responsibility. Sustainability can be defined as the long-term maintenance of social, ecological, and economic systems. Examples of systems include the climate system, biodiversity, ocean systems, air systems, health systems, education systems, community systems, financial systems, social equity, and economic systems. To further define the concept, academic scholars tend to refer to 5 guiding principles that help maintain these systems: inclusiveness, connectivity, equity, prudence, and security. This means that commitment to sustainability is contingent on individuals or organizations considering multiple systems across both space and time, recognizing that these systems are interconnected and interdependent, avoiding and reducing inequity across geographic locations and generations, and keeping these systems resilient by preserving and maintaining them over time. Corporate social responsibility can then be defined as decisions and actions that ensure economic viability while operating within the capacity, or contributing to the integrity, of social, economic, and ecological systems by conforming to these principles.

Now let’s examine Bombardier and Loblaw (the two supposed leaders) against this sustainability backdrop. Three of the reasons Bombardier achieved top marks are because they reduced their water consumption by 35% relative to sales, energy consumption by 17% and GHGs by 10% between 2004 and 2009. There are three dangers associated with this performance measure. First, these are intensity based measures which preclude any consideration of absolute improvements. Energy, carbon, waste and water are measured based on a company’s output rather than against the available ecological carrying capacity afforded to the firm. Why is this an issue? Relying exclusively on intensity measures allows for an absolute increase in waste, carbon, and water and energy use despite the fact that a company may be more efficient. This means that companies merely have to use less energy and water and create less carbon and waste per unit of production rather than decrease these amounts in total. This is a major issue when we consider that scientists warn of the need to reduce, in absolute terms, 80% of carbon emissions by 2050 to avoid the 2 degree tipping point.

Second, Corporate Knights measures ecological performance against sales rather than against operational benchmarks. Bombardier’s overall GHG emissions may have increased by 25% but as a percentage of sales they may have decreased by 10%. This may not be because the company actually reduced its emissions but because sales may have increased dramatically on products and services that aren’t related to intense carbon emissions. Corporate Knights has no way of verifying this. What is more, similar to the creative accounting practices that companies have undertaken on the financial side, Corporate Knights can’t be sure that the company is recording revenue in the same period that it is recording the full emissions from that revenue. This means that we may not be seeing a true picture of the relative ecological costs of a given unit of sales.

Third, Corporate Knights compares company performance over different time periods and against other companies in their sector. For the first, rewarding companies on improvement over time means that those companies picking what we call the ‘low hanging fruit’ – simple changes that make significant improvements largely because the company’s performance was so poor initially – get the accolades while companies that started out with good sustainability performance and have no low hanging fruit are not recognized. For the second, while it’s always worthwhile to know which company is better than its competitors, this overlooks any measure of their absolute impact on systems, meaning that the best performer could still very well have a catastrophic impact on these ecological and social systems.

In my next two posts, I’ll dig deeper on two items. The second of this series will provide a more accurate measure of Loblaw’s CSR performance which would suggest that although they may be a leader among the small number of Canadian public grocery stores, they are far from adhering to principles of sustainability. In the third and final post of this series, I’ll discuss how the measures Corporate Knights uses is in no way representative of a company’s commitment to CSR and sustainability as I defined it above; suggesting that the claims made from the study may be misleading readers.

Stay tuned.

McDonald's Venture into Politics

2010-06-14T19:56:00.001-07:00

McDonald's has been facing a lot of publicity after they launched their commercial in France depicting a young gay consumer talking to his boyfriend on the phone and subsequently hiding his sexuality from his father.

My colleagues, Dirk Matten and Andy Crane, discuss the dangers, or at least challenges, associated with companies inadvertently moving into the realm of politics in their quest for economic gains by, in this case, marketing to a progressive target market.

I find O'Reilly's homophobic response quite amusing.

BP - The Villain or the Victim?

2010-06-14T08:18:00.001-07:00

The Obama Administration is starting to come down pretty hard on BP, demanding most recently that the company put 'substantial' funds into an "account to cover claims by Gulf Coast businesses and residents affected by the spill". The administration is also demanding that BP withhold its dividend payout for the second-quarter, a demand that sparked subtle resistance from the UK government. In the same way that companies are playing political roles (see following posting on Google and MNCs and diplomacy), governments are inkling their way into company level decisions. This dynamic is quite intriguing and reminscent of Obama's unprecedented firing of GM CEO Rick Wagoner in 2009.

But are we being too hard on BP here? Is our blame of BP really a simplistic response to a very complicated set of circumstances that led to this disaster (see my previous post)? Is this merely a political tactic to show the American public that something is being done, something observable?

What about the failure of regulatory bodies, in this case MMS, in doing their job to uphold certain standards companies need to follow so that these disasters don't happen? Can we expect companies to jump through the appropriate safety hoops when they don't feel regulatory pressure to do so in an environment that demands constant increases in returns? Are the Administration's efforts to influence BP's decisions merely addressing a symptom, placing the proverbial bandaid on a bigger issue related to a massive gap in systematic governmental oversight of the private sector?

Is BP the only villain here?

Who Monitors the Monitors?

2010-06-03T16:38:00.000-07:00

A growing flurry of criticisms has emerged of those organizations supposedly responsible for holding business accountable for their actions. The Minerals Management Service (MMS) has recently come under intense scrutiny as a regulatory body for not doing their job in ensuring that BP and other companies jump through the appropriate health, safety and environmental hoops to minimize catastrophes like the oil spill in the Gulf. Before the Obama Administration came on board, the Environmental Protection Agency (EPA) was consistently criticized for neglecting their job to protect the environment while the Securities Exchange Commission (SEC) was found to be completely clueless, not to mention distracted by porn, when they were consistently presented with damning evidence that the mortgage bond market might create one of the worst financial crises in history. Moody’s and Standard and Poor’s, two market-based bodies meant to protect investors by accurately rating bonds, were complicit in the financial crisis for rating garbage mortgage bonds Triple A’s – the highest possible rating. The Food and Drug Administration (FDA) has also been criticized for dropping the ball on the health effects of the food and drug sectors while, at the business level, boards of directors have been repeatedly chastised for failing to hold managers accountable to the owners of the firm. As many have asked, where were the boards of Enron, Goldman Sachs and Lehman Brothers in protecting shareholders from manager decisions?

Why do these monitoring bodies exist in the first place? The need for a firm to have a board of directors, for example, emerged because managers of large companies who typically have no ownership stake in the firm are not always motivated to make decisions in the best interests of the owners. As a result, boards were created to minimize agency problems by making sure that decisions are made with the interests of shareholders in mind. This same logic applies to society where monitoring bodies are required in situations where corporate interests are not aligned with society’s interests. Business' contribution to pollution, climate change, social inequity, disease, drought, the recent economic recession are all examples here. Often called negative externalities, these represent effects of a transaction between two parties on a third party who did not consent to the transaction. The third party is typically the public. Negative externalities are synonymous with market failures or instances where actions of business cause negative impacts on society. So, ultimately these monitoring bodies exist to reduce the occurrence of market failures.

So now why has there been such a dramatic failure in monitoring of the private sector? There are at least five reasons that I’ve come across in the last few months. First, there is growing evidence of a revolving door syndrome between government and the private sector. Nowhere is this more of a concern than in the food sector where a number of governmental officials responsible for the health and well-being of the American public have or have had huge stakes in the financial welfare of food companies like Monsanto, Cargill, and Archers Daniels Midland. Another example is the Bush Administration’s close ties with military contractors like Halliburton and Xe (formerly Blackwater) resulting in skepticism that military decisions are predicated on profit opportunities for these companies. So how can we expect these governing bodies to protect the public when their interests are inextricably tied to the company’s interests; interests that we know can lead to market failures?

Second and closely related to the first are the very cozy relationships between public officials and corporate managers where assessments are made perhaps less independently than they should be. These relationships likely softened the much needed public body push back and threat of penalty meant to balance the strong pressures companies face to reduce costs. These cozy relationships have been earmarked as one of the main reasons MMS overlooked the many shortcuts BP took in their oil wells. An investigation in the interaction between MMS and BP revealed that BP made an unprecedented number of requests that tweaked crucial aspects of the oil well’s design a week prior to the explosion on April 20th, 2010. MMS approved each request within only a few minutes of receiving them from BP. “Of the more than 2,200 wells that have been drilled in the Gulf since 2004, only 5% have had multiple permit revisions submitted to MMS within one calendar day”, according to a Wall Street Journal analysis of MMS records. The content of these revisions was related to the use of a single pipe which was much more cost efficient than the safer two-pipe system. BP wanted to use the single pipe all the way down the well shaft. Subsequent revisions were required because of BP’s miscalculations in what was already within the well and the width of the pipe they thought they could use. Whatever the issue under discussion, MMS is being criticized because their rapid response is suggestive of a lack of oversight that would typically be expected for what appeared to be rash and careless decisions on the part of the company.

Third are the incentive systems in place. One of the reasons why MMS was particularly negligent in the BP case was because their incentive system was based on the number of project approvals rather than any quality of environmental and safety assessment. This same problem was evident in the financial sector where S&P and Moody’s recognized that friendlier ratings of crappy bonds were associated with a greater guarantee of customer loyalty from the big investment firms like Goldman Sachs and Merrill Lynch.

It gets more complicated when we consider the difficulty in identifying appropriate incentive systems to reflect public welfare needs. There are so many confounding variables that it’s difficult to associate a reduction in health of the public, for example, to FDA decisions or the preservation of the environment to EPA decisions. So we resort to reducing down these grand objectives to measurable ones such as the number of foods certified or the number of coal projects evaluated. There are at least two problems with this. First, these reduced measures only represent a small part of the overall objective leading monitoring bodies to lose focus on the ends and over-achieve on the means. Second, companies have been very effective at finding loopholes or cracks in these measures, the result of which greatly hinders the overall objective despite the fact that they perform well on the measure.

Fourth, the same companies that need to be monitored are the ones either doing the monitoring or coming up with the approaches by which they are to be monitored. In some industries, companies have developed their own standards of monitoring to preempt government control while giving the impression that they are looking out for the best interests of the public. Processed food companies like Kellogg and PepsiCo developed the Smart Choices Program which was meant to create a third party that would independently certify processed foods so that consumers would have the luxury of looking for the certified checkmark rather than reading the lengthy ingredients list. The problem was that the companies were the ones determining the criteria for what was considered healthy and that the body they created was remunerated based on the number of products that they certified. So not only were the criteria flawed but the incentives used to apply these criteria were inappropriate. This is a particularly potent problem because food companies have strong incentives to maintain strong margins in an environment where unhealthy sugary ingredients and fortified foods provide low costs and higher revenues – the ‘perfect storm’ for a market failure. So we then have products like Fruit Loops receiving the Smart Choice seal and, hypothetically speaking, calcium fortified sawdust – if we were to brand such a product.

Finally, and most importantly, we might need to think about the broader historical context of the last 30 years to understand why monitoring bodies are failing in their jobs. Since the Reagan era, the West has undergone a dramatic movement towards neoliberalism where free market fundamentalists were given center stage for their advocacy in abolishing government intervention. This movement carried through the George H.W. Bush, Bill Clinton, and George W. Bush administrations. Over the course of these three decades, there was growing consensus that the free market will iron out any social, economic, and ecological issues on its own thus eliminating any need for government interference. Unfortunately we’re seeing the effects of this highly misguided ideology today. Over-reliance on the free market likely meant that key resources and control were removed from those regulatory agencies meant to monitor company decisions. Scales began to tip as the private sector developed strong depth in expertise that the public sector was unable match as monitors. As a result, quite ironically, companies began to be viewed as those best positioned to do the monitoring. Consider the following quotation from MMS in the oil and gas industry:

"The lessee or operator is in the best position to determine the environmental effects of its proposed activity based on whether the operation is routine or non-routine."

What is the point in having MMS if the monitoring body is essentially going to shift the monitoring role to those who are supposed to be monitored? While the Obama Administration is exploring criminal charges against BP, they are certainly weary of ticking them off to the point where they withdraw their efforts at stopping the leak. This is a pretty precarious position to be in because it symobolizes the incapacity of public bodies to heavily penalize companies when they've done something wrong. This is of course dangerous and likely one of the reasons why the auto and financial sectors were bailed out; government was too reliant on their presence in society.

With this lack of expertise, monitoring bodies not only struggle how to do the monitoring but also with when company behaviour should or shouldn’t be examined. There may also be instances where the behaviour of the private sector is so complicated that the public body couldn’t possibly foresee its detrimental effect until it is too late. This is precisely what happened with collateralized debt obligations (CDO) in the financial service industry. No monitoring body could have identified this as a problem in advance and no regulation would have prevented it from occurring until it was too late.

So what is this telling us? There is indeed a growing concern that the monitors are failing in their duties to keep companies in line. We’re also learning that free market fundamentalists likely had it wrong and that markets, left to their own devices, can wreak havoc on society. To what degree and in what way the pendulum swings back towards increased government intervention is likely going to be a hot topic in ensuing months. Is this simply a minor blip in society’s ability to keep corporations in line where we just need to make sure that we monitor the monitors or is this suggestive of a revisit of the relationship between business and government? Time will tell...

Gender Inequality: An Explanation for Unethical Business Behaviour?

2010-05-28T05:57:00.000-07:00

Over the last few weeks, the topic of Gender Equality has been seen in a number of popular media outlets. It was the central theme of The Clinton Global Initiative in New York a couple of weeks ago and Ted.com had a couple of very powerful speakers on the topic. Although I’m not in any way an expert, I’m intrigued by the history and effects of gender inequality when understanding some of the behaviours of business today and the winds of change characterizing business.

A few management scholars and practitioners have lumped gender equality or, more generally, diversity in the workplace under the broader sustainability umbrella, specifically in the social pillar of the triple bottom line. JP Morgan has a whole leadership program to increase the number of positions for women while Goldman Sachs has a “10,000 Women” investment initiative meant to help 10,000 women get business degrees around the world.

“We have to do whatever it takes to attract the best people….you can accomplish a lot of your personal objectives and the world’s objectives through the platform of Goldman Sachs”. (CEO, Goldman Sachs).

Is gender equality good for business then?

Calling herself a social venture capitalist, Kavita Ramdas leads The Global Fund for Women and explains that investing in equity guarantees more efficient outcomes. She explains that women have a very different sense of purpose when compared to their male counterparts, the product or at least balance of which can be very lucrative to the firm. A recent study found that banks with women in at least 30% of the leadership positions had much lower risk rates and lower rates of bad loans than were made in other banks. Clearly, firms that have employees and key decision-makers who share the same gender as 50% of its customer base generate important knowledge and perspective on how to tap into that market more effectively. What is more, ensuring gender equality affords companies access to a broader labour pool through which to achieve organizational objectives. And because gender inequality has attracted a wide range of individuals, groups, and organizations eager to facilitate change, consumer decisions are increasingly made by women. Can a male-dominated organization adequately target these new decision-makers?

Of course, businesses frame gender equality from an instrumental perspective, working to understand how ignoring or tending to this issue positively and negatively impacts their bottom line. But when we dig a bit deeper, we begin to understand some more provocative relationships between business today and gender equality.

The Wall Street Journal published an article recently trying to understand why women haven’t been as successful as men in business (bear in mind that success is rather narrowly defined in the article as growth). I was a bit surprised by the author’s two reasons put forward. One reason was the stereotypes, perceptions, and expectations of business and government leaders. The other was that women have “self-limiting views of themselves, their businesses and the opportunities available to them”. Notice that the limitations flagged in this second reason is that of the subject (women) rather than the object (business). Another way to look at this is to argue that how we define success in business today is not conducive to women. In other words, perhaps women just aren’t interested in achieving society’s definition of success in business in the same way that men are.

I’m reminded of the Hollywood film “The Da Vinci Code” where one of its underlying messages is that events and how decisions are made over the course of a period of time can have dramatic and sustained impacts in the future. If there is any truth that today’s society marginalizes women partly because of the decisions made thousands of years ago then we can perhaps argue two things. First, such marginalization may have led to the unfolding of the industrial revolution without adequate women representation. Second, we live in a society where the ripple effects of these early formations of business fail to build in the female perspective.

The Economist recently published a story highlighting how the competitive gene of men that was needed to "get the girl” may still be lurking in the shadows in explaining the competitive and cutthroat nature of males in society and business today. What does it mean if this competitive gene was not balanced by less-competitive female genes? Perhaps men are perceived to be more successful only because their perspective was more prominent in developing the notion of business and industry rather than or perhaps complementary to women’s self-limiting views or stereotypes against women as the WSJ article concludes.

Another more recent study found that the male sex drive is at the root of most of the world's biggest conflicts from gang violence to world wars. Whereas women tend to befriend when they are exposed to unfamiliar faces, men are more likely to use violence. Study authors associated this finding with the male evolutionary need to boost his chances of reproducing and the fact that men have a stronger sense of group identity. Now imagine what happens when you have a disproportionate amount of men in powerful positions such as the head of countries, empires, corporations, sport-teams, gangs and religious groups. This study implies that competing countries, teams, businesses, etc. are perceived as a substantial threat to his chances of remaining in power for what used to be reproduction but is now domination.

France is in the process of making it law by 2016 that companies have at least 40% women sitting on the board. There are of course plenty of reasons put forward to oppose this law such as the opinion that women don’t have the expertise and knowledge built over time to play these roles. But are we forgetting that perhaps there isn’t a supply of women because they don’t want to take on these roles? If the business world was developed and predicated on a very male dominating decision-making process, why would women be drawn to play such a role? And even if they were, wouldn’t they need to forego some of their values and perspective to succeed in this role? Perhaps the women pioneers will create a social movement in business that will attract more women and slowly change what business is all about.

Even still, gender inequality in business may indeed represent an important explanation when understanding the unethical behaviour of business over the last few decades. I recall reading a few years back that opposing genders of a given species represent balancing mechanisms and that if there is an imbalance in gender strength, serious side effects result. Could we then conclude that if both genders in humanity are not equally prevalent in society, negative effects like corruption, greed, climate change, and social inequity begin to emerge? Does the negative behaviours of businesses like Enron and Goldman Sachs exist because the whole notion of business was predicated on the personality traits of one gender which dominated another? Do they exist because the underlying logic of business excluded women in the early formative years and today excludes them in powerful positions because they are not interested in playing these roles or because the corporate logic is incommensurable to women? Not only are there not enough women in these positions but even in these positions women are molded to fit a system created at a time that excluded their input. This arguably snuffs their important perspective from balancing those of the opposing gender.

So what does this mean? Perhaps it suggests that ensuring more women are put in leadership positions is not the answer unless doing so influences the very purpose of business. Is that even possible? Or is there simply too much inertia that women can only be successful by adopting the behavioural traits of their male counterparts to best fit into the system?

Update: See a recent study

Who's to Blame for the Gulf Oil Spill?

2010-05-12T06:33:00.000-07:00

The oil spill disaster in the Gulf is of course generating much attention. Many would say that British Petroleum (BP) has been quite responsive to this spill but there have been some subtle hints of defensiveness. A couple of weeks ago, CEO Tony Hayward said, “We are responsible, not for the accident, but…for the oil and for dealing with it and cleaning up the situation”. More recently, BP, Transocean, and Halliburton Inc. were blaming each other for the catastrophe. BP owned the well that Halliburton helped build but Transocean owned the rig that caught fire and ultimately sank in a mile of water.

Arguing over who is ultimately at fault may be a fool’s errand when we look back at other major corporations trying to avoid blame by pinning the problem on others. The apparel sector in the 1990s faced huge backlash as firms like Nike and Gap avoided taking responsibility for poor labour conditions of their supplier factories. They stated that because they don’t own the factories, they have no legal basis on which to enforce improved labour conditions. This was unacceptable to fair labour groups and consumers in developed countries who quite swiftly forced Nike and others to take responsibility for its supply chain regardless of their ownership status within that supply chain. Coca-Cola played the defensiveness card when they initially denied responsibility for the Belgium contamination of 1999 and the killing of union members at a Columbian bottler. Coca-Cola has since shown a change of face by taking responsibility for their suppliers’ actions and admitting publicly that their products may be linked to obesity in children. We’re seeing similar scenarios in other industries where the expectation is that firms take responsibility for parts of the supply chain that they would otherwise ignore. The consumer electronics sector is working to reduce the use of toxic materials in their products that end up being inhaled by children in developing country children who are paid to take these components apart for resale.

If payouts represent any admittance of guilt, BP doesn’t look so good. According to the Wall Street Journal, they’ve already spent $350 million in cleanup efforts and paid out $3.5 million in initial claims to businesses along the Gulf Coast X. This is over and above the $1 million per day they are spending on stopping the flow of oil.

Whereas Exxon has been a leader in improving their operations since the Valdez spill, BP has cut costs perhaps too crudely making them ill-equipped to cope with the complexities of extracting from more remote locations like beneath the ocean floor. In early 2009, the EPA identified violations surrounding BP’s role in the catastrophic explosion and fire in March 2005 at the Texas City refinery. This was one of a string of incidents leading congressmen to question the cost cutting maneuvers of BP that led to very “dangerous operations”, yet $70 billion in profit last year. In 2007, CEO of BP America Robert Malone told Congress: "These [negative] experiences have changed BP and all of us who work for the company…We are determined to learn from what happened and to become a better, stronger company." I’m not sure much has changed.

While executives and government officials are arguing over who is to blame, there might be an important and highly neglected elephant in the room. Are there perhaps a deeper set of issues here underlying the many stories tracking this spill? Was this a freak accident that will likely not happen again or is this perhaps a signal that our technological advances in oil extraction are unable to keep up with our need to move to more and more remote locations to feed our demand? According to the CEO of BP, “The industry has been exploring in deep water for over 20 years." He added: The global industry "has drilled over 5,000 wells in greater than 1,000 feet of water and has not hitherto had an issue of this sort to contend with."

In his powerful book “Thousand Barrels a Second”, Peter Tertzakian chronicled how we reached a point where we now produce 1000 barrels (or 42,000 gallons) of oil per second globally. This means that every one of the 7 billion people on this planet consumes an average of 0.5 gallons per day. Of course 0.5 gallons per day is quite low when we consider that two-thirds of the population is living on less than $2,000 annually. Imagine what will happen when the 2 billion people living on $1-3 per day start to increase their income levels. Because of our dependence on oil, the profit incentive to keep supply steady is equally mind boggling. We can probably find petroleum in 90%+ of the products we consume from the food we eat, the chairs we sit on, the cars we drive, and the fuel to move that car.

Spending time investigating whether BP, Transocean or Halliburton is to blame may overlook a more important point that perhaps our consumption levels and overwhelming dependence on the substance has guaranteed a rather relentless effort to find the substance at its most remote locations. History may just warn of a looming set of events that would suggest these sorts of accidents will only increase. Whale oil, once the primary source of energy in industrialized nations in the 1700s and 1800s, became increasingly scarce as whales were no longer found in convenient locations. This pushed companies to hunt whales in dangerous arctic waters without the appropriate technologies and skill levels. Countless workers died and costs became overwhelming as whales were harder to find and catch. This scarcity precipitated a movement towards alternatives, one of which was rock oil. Are we facing a similar circumstance here? Is our technological prowess keeping up with the need to move to remote locations?

I recall a few years back reading part of a statement from a minister in Eastern Asia warning that there is something terribly wrong with systematically extracting billions of gallons of a substance meant to be underground. Perhaps the sheer volume of oil spreading in the gulf is a symbol of how much of the substance we are consuming as a society. Or perhaps this is Mother Nature’s way of balancing itself out. The US consumed 21 billion barrels of oil in 2008, which represents 25% of world consumption despite only having 5% of the world’s population. I can’t help but wonder whether this spill signifies how the negative effects of our behaviour, once conveniently contained, is bursting at the seams.

Greenwashing Sin #8 or an Important First Step?

2010-04-27T22:51:00.000-07:00

Al Gore recently came under fire after his organization took money from Dow Chemical to raise “awareness about the need for clean water”. Dow is regularly criticized for buying Union Carbide, the company that owned the pesticides factory responsible for the death of 20,000 people in Bhobal, India.

For years, environmental organizations have found dangerous levels of highly toxic chemicals in rivers, lakes, and other water supplies close to other factories owned by Dow. Hundreds of thousands are still forced to drink the polluted water. Apparently for those close to Dow’s headquarters in Saginaw, Michigan, eating fish or touching the water in the Saginaw River is a no-no. But apparently, Dow sponsors a walleye fishing tournament near Saginaw on an annual basis. You can't read this without a feeling of irony.

The Al Gore event is meant to campaign for cleaning water of controversial chemicals, chemicals that Dow manufactures and uses which end up in rivers, lakes and water systems.

Is this greenwashing in the form of hypocrisy? Or is this genuine?

Greenwashing is defined as the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service. There are seven popular sins:

1. The sin of the hidden trade-off
2. The sin of no proof
3. The sin of vagueness
4. The sin of worshiping false labels
5. The sin of irrelevance
6. The sin lesser of two evils
7. The sin of fibbing

None of these sins speak directly to this sort of behaviour where companies are engaging in initiatives that contradict the very nature of their core operations. The sin of the hidden trade-off and irrelevance is somewhat related but not really. Does this mean that we need an 8th sin – The sin of hypocrisy whereby companies distract or divert attention away from their unsustainable operations to isolated and philanthropic initiatives that work to clean up the mess they create? They’re technically not lying. Or is this something else?

To explore this question further, let’s think about the options managers consider when trying to be more sustainable. One option is to do nothing. With increased pressure, this is becoming a less viable option. Studies show that more than 80% of companies report something related to sustainability online. Another option is to do something that is meant to offset (perceptually or not) the negative impacts of their core business. Here they can be philanthropic by supporting a random charity or an event that is trying to clean up the mess that they’re making. They may even create a small isolated product line to offset the negative effects of their traditional product line only to disband it after creating the impression of being green – like Nike’s trash talk shoe. The objective of course is to shift the negative image consumers and stakeholders have developed of these companies. To me, this is the easy way out but a natural response because of the growing pressure to do something yet the low costs and minimal disruption to core operations. From an economic point of view, this is completely rational and likely the reason why this is such a popular strategy.

The more difficult option involves rethinking their core business. But why do something like this when you can avoid dramatic change and show that you’re at least being responsible for the mess you’re making? But as these articles indicate, more and more consumers and activists are growing critical of this approach.

A happy medium perhaps is for organizations receiving funding from these companies to put in place conditions that go beyond commitment to the event. For instance, could Al Gore’s team or Live Earth (also partnering with Dow) have required Dow to engage in subsequent partnerships with environmental organizations to reduce their toxic output a certain amount by a given year as a condition of the sponsorship? Or could companies use this event to announce an initiative that demonstrates a change to their core operations? This is beneficial to the company because it’s considered to be less like greenwashing. It also introduces them to potentially lucrative partnerships granting them ideas and resources to make this happen which, in an increasing regulatory environment, implies a potential first mover advantage over competitors. For the public organization receiving funding, they are perceived to be less of a hypocrite by accepting funding from an organization that is responsible for the negative effects that these organizations are trying to address and more of a change agent. Not only are they putting on this event/initiative but they are building long-term commitments by these organizations and instigating change.

My issue with the many articles that criticize these sorts of partnerships is that they follow the typical ‘us versus them’ perspective - the environmentalists versus the toxic company. This is an old and outdated dichotomy and arguably doesn’t get us anywhere. Rather than keeping this black or white (allowing sponsorship or not), let’s talk about some of the grey area where we’re challenging companies to collaborate for long-term change and we’re challenging environmentalists to sit at the table with the company. The companies need to admit that they need the help and ask for it from those organizations out there who want to elicit change. Dow’s denial strategy here doesn’t help. Many companies get defensive when it comes to these sorts of things. But don’t the animosities on both sides need to be overcome; a swallowing of pride, so to speak? This may be the first step. Until this happens, I think Dow may be full of shit and the environmental groups are not helping.

Shareholder Pressure for Social Responsibility

2010-04-20T10:55:00.000-07:00

After a shareholder resolution submitted by Harrington Investments, Intel announced that sustainability performance and reporting is now an official fiduciary duty of its corporate board. Although Intel was initially reluctant and had in fact rejected the resolution the year previous, the shareholder was successful in getting the company to change its corporate charter by requiring the Governance and Nominating Committee to report the following:

“...matters of corporate responsibility and sustainability performance, including potential long and short term trends and impacts to our business of environmental, social and governance issues, including the company’s public reporting on these topics”

The notion that the board of directors is considering more than just shareholder value is not a new phenomenon. In the early 1990s, 30 states in the US enacted stakeholder statutes that permitted directors to consider the interests of non-shareholder constituencies (e.g. communities, employees, consumers, environment, farmers) when making corporate decisions. German law requires employee representation on second-tier boards of directors while the Companies Act of Great Britain mandates that company directors include the interests of employees in decision-making. Moreover, the well-known corporate governance models of Japan presume that corporations exist in a network of stakeholders while the 2004 Principles of Corporate Governance launched by the Organization for Economic Cooperation and Development explicitly noted the importance of cooperation with stakeholders.

But these were times when stakeholders (employees, communities, NGOs) and shareholders were at odds with one another. Increasingly, however, shareholders are showing signs of a change of face as they put pressure on firms to consider these stakeholders through corporate social responsibility. For instance, the number of investor proposals urging director attention to environmental issues nearly doubled between 2004 and 2008. Board directors of Ford Motor Company were behind a detailed climate change plan that pledged to reduce emissions from its new vehicle fleet by at least 30% by 2020 while board directors of American Electric Power docked part of the CEO’s bonus because the firm had received too many notices of possible environmental regulatory violations. Lester Hudson, chairman of American Electric Power’s governance committee explained that the earth’s sustainability “has become a much more important part of every board’s activities”.

But are these merely exceptions? Just a couple of days ago BP shareholders voted ‘no’ on oil sands transparency. The shareholder resolution was meant to require the company to commission and review reports that explain the assumptions “about future carbon prices, oil price volatility, oil demand, anticipated greenhouse gas regulation, and legal and reputational risks associated with the projects” in Alberta. The interesting thing about this is that all these requirements are directly related to the financial welfare of the firm. There is nothing in here about reporting on environmental impacts such as biodiversity loss or tailing ponds or water use. I’m perplexed by this one. Perhaps this shows that different types of shareholder perceptions and interests exist in different types of companies. Are BP shareholders a bit less conscious then Intel or Ford shareholders?

What does increased shareholder interest in the sustainability domain mean for business and for business education? Managers are already facing pressure from employees, communities, customers, government, and others to be more socially responsible. Shareholders represent another on the list hinting at a broader movement towards managerial accountability to multiple stakeholders. While there are plenty of examples where meeting the needs of employees, customers, communities and the environment aligns with shareholder value, these are perceived to be low hanging fruit or what has come to be known as the “business case” for sustainability. For example, changing light bulbs, reducing waste and energy use not only helps to protect the environment but also improves shareholder value through reduced costs.

But things get more complicated when these ends do not align and managers presume that tradeoffs are inevitable. For example, encouraging people to use less of your product because of its impact on the environment might not go well with revenue generation. Or moving away from processed food which affords companies like General Mills and Kellogg with handsome margins and access to far off markets would dramatically dissolve chunks of these firms’ market caps. Or eliminating the use of antibiotics (which are now creeping into human health systems) in factory farms of 6,000 cows or more would mean smaller cows, more disease, and less $ per kg of cow. Aligning these sorts of behaviours with sustainability requires a much more radical and fundamental shift that, up to this point, managers have been happy to avoid.

So does this mean that shareholders are willing to forego financial return because they’ve become more altruistic in their investment decisions? Likely not. It is more likely that increasing shareholder pressure means that the onus is on the CEO to revisit business models and the firm’s ‘bread and butter’ to figure out how to avoid these tradeoffs in the first place. Managers are losing their ability to fall back on their “duty to protect shareholder wealth maximization” as an excuse and will be expected to revisit these more fundamental questions of how firms maximize value for a number of stakeholders, including shareholders, concurrently and without tradeoffs. This may represent the challenge of business graduates in the 21st century. Those business schools that make the appropriate adjustments to educate future managers on how to face this very challenging task may be deemed the Harvard’s of the future.

Is Business School Education Sustainable?

2010-04-14T21:55:00.000-07:00

I’ve had a few emails/comments asking me to further comment on my views related to business school education. Let me start by saying outright that, in my view, the present business school education is unsustainable and in need of a revamp. A majority of business school courses are predicated on the rather narrow worldview of maximizing shareholder value. This is so engrained in these courses that business professors tend not to think twice about it. This extends beyond the classroom to academic journals as well. For instance, a growing number of management scholars are examining how corporations can shape government policy in ways favourable to the firm. Interestingly, these scholars consider this to be a viable strategy of the firm completely ignorant of the ethical implications of a for-profit entity influencing the very institutions meant to preserve the public good. The tools and frameworks in accounting, operations, finance, strategic management, marketing, and human resources are all based on performing well on a very narrow set of measures. While there may be some intermediary measures such as employee and customer satisfaction, these measures tend to exist because they help to improve the ultimate measure of shareholder value.

Shareholder value as the ultimate barometer of success in business became solidified in the 1970s. With this as the dominant presumption guiding research in business, one can safely presume that the many frameworks and tools that make their way into business textbooks and journal articles were developed with shareholder value in mind as the dominant outcome. When you have thousands of business graduates exiting universities and colleges with this mindset, one has to wonder why we are so surprised with our current predicament. As Holland of the New York Times explained, “Instead of being viewed as long-term economic stewards, managers came to be seen as mainly the agents of the owners and responsible for maximizing shareholder wealth”. This led to board and manager accountability to one actor (shareholders), absolving them of any responsibility for anything other than financial results (my next posting will speak of Intel’s recent shift in board accountability that has gained a lot of press).

It’s likely no wonder that the “M.B.A.” initials are being satirically translated into phrases like, “Mediocre but Arrogant”, “Mighty Big Attitude”, “Me before Anyone” and “Management by Accident” and more recently “Masters of the Business Apocalypse”. Harvard Business School is taking a particular beating as journalists are regularly reminding readers that they graduated the likes of Stan O’Neal and John Thain, the last two heads of Merrill Lynch, Andy Hornby, the former CEO of HBOS (who by the way graduated at the top of his class), Jeff Skilling, the CEO of Enron, Hank Paul-son, former US treasury Secretary, and Christopher Cox, former chairman of the SEC. In contrast, some of the positive revolutionaries of our time – Larry Page and Sergey Brin of Google, Bill Gates of Microsoft, Michael Dell, Richard Branson and Lak-Shmi Mittal – do not have an MBA.

The New York Times’ Kelley Holland put forth some convincing statistics suggesting a close relationship between MBA programs and those responsible for the financial crisis. For instance, Harvard Business School is perceived as the top MBA school in the world yet 40% of their graduates end up on Wall Street. Because of stats like this, many people are questioning whether the existing business education is partly to blame for this behaviour and whether a revamp is required. The Dean of Thunderbird School of Global Management was quoted as saying: “It is so obvious that something big has failed…We can look the other way, but come on. The CEO’s of those companies, those are people we used to brag about…We cannot say, ‘well, it wasn’t our fault’ when there is such a systemic, widespread failure of leadership”. A major conclusion drawn from many critics is that managers are ill-prepared to make decisions that consider the complexities associated with the financial crisis, social inequity, environmental devastation, corruption, and climate change.

When I teach my Business and Sustainability course, I tend to find three types of students. The first are those students who want my course to end as soon as possible because they feel that this topic is a waste of time and want to get on to the real crux of business which is to make money (this is not to dismiss other reasons such as my ineffectiveness in teaching). The second group includes those who are generally indifferent. They are shocked by the role of business and intrigued by how business can represent an agent of change but they are not necessarily eager to be change agents wherever they end up working, put could be encouraged. The third are those students who are somewhat aware of these issues and are in the classroom because they are excited about the idea of using business skills to address social, ethical, and ecological problems. These three groups are distributed over the typical bell curve but interestingly, the distribution is shifting to the right meaning that there are less of the first group and more of the third group. This tells me that perhaps our students are demanding a different type of business education.

So where do business school educational curriculums go from here? A growing number of scholars and practitioners are questioning the disciplined based approach of business school and are advocating for a systems thinking approach where students learn how to think critically, creatively and independently, where they are able to see the bigger picture, are exposed to multidisciplinary approaches, understand the global and historical contexts and perspectives, deal effectively with complexity and ambiguity, approach problems from multiple perspectives, and focus on leadership and social responsibility.

Here’s an example. Let’s say an MBA class is doing a case on a food processing company where students are asked to devise a future growth strategy for the company (let’s say Kellogg or General Mills). In most cases, students are going to apply frameworks and tools that will assess the firm’s competitors, market trends, internal competencies with the ultimate objective to understand how to boost market share, revenue and profitability. They’ll likely crunch some numbers, come up with a few ratios to assess past performance, conduct an NPV or two and put together a couple of projected financial statements. Anything else, like how ethical the decision might be, its health effects or impact on the environment would represent a tradeoff to financial value creation unless it is in direct violation of the law or they foresee negative consumer response to their decisions.

An alternative approach would encourage the class to consider the bigger picture of the firm’s decision, considering how the industrialized food system emerged since the second world war, how the western diet emerged, how the actions of the firm impact environmental systems, health systems, etc.. They’ll also consider the decision from the perspective of small farmers, doctors, the obese population, diabetes associations, developing country farmers, environmentalists - – all of whom are directly or indirectly impacted by the decision these students make for the company. They would be challenged with reconciling these conflicts. In fact, they would be discouraged to consider these diverse perspectives as conflicts and instead recognize that this dialogue is what being a business leader is all about. They would move away from an either/or decision and will learn how to think creatively for a solution not pursued before yet maximizes value for multiple stakeholders simultaneously – including those of shareholders. The new role of business graduates is not to manage but to lead business in a new direction where assumptions are constantly questioned, new perspectives are consistently incorporated, complexity is the norm and critical thinking encompassing collaborative solutions is the measure of success.