The New Pioneers

Sustainable business success through social innovation and social entrepreneurship

Tania Ellis, Tania Ellis

• Publisher: Wiley
• Year: 2010
• Print ISBN: 9780470748428
• eBook ISBN: 9780470971314
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

New times create new needs – and new needs require new solutions. The New Pioneers is a practical guide for capitalists and idealists on how to navigate in the new economic world order.

It is about the social megatrends that are shaping our lives in new ways and creating a new face of capitalism. And it is about the pioneers that are paving the way for the new business revolution: this century's generation of visionary leaders, social entrepreneurs and social intrapreneurs.

'Hardcore business people are realising that they can increase their profits by incorporating social responsibility into their business, and heartcore idealists are realising that the use of market methods helps them meet their social goals successfully,' argues Tania Ellis.

With a wide array of cases from all over the world Tania Ellis explains the key principles of sustainable business success. Read The New Pioneers to gain insight into the new rules that are paving the way for business unusual – for the benefit of humanity and the bottom line.

Learn more about The New Pioneers and join the movement of sustainable businesses and social entrepreneurs at www.thenewpioneers.biz

Part I

New Times – New Needs

Chapter 1

OUTER GLOBALIZATION

Globalization has made the world smaller and business opportunities bigger. But nations and corporations alike must adapt their growth strategies to the current megacrises and disruptions that are creating a new world of disorder. Pioneering entrepreneurs and companies are developing innovative solutions and applying sustainable growth principles to address issues like climate change, resource scarcity, poverty, labour rights and health threats. New rules for future economic growth are paving the way for business unusual.

A business world of disorder

– the new business paradigm

‘Future generations are likely to view the current times as a pivot point, when old frameworks were discarded and new ones began to emerge. They might describe that pivot point as a “reset”, when business as usual was no longer possible, and new ways of thinking and acting were needed.’¹

Business for Social Responsibility (BSR)

‘Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; … the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; … the savings of many years in thousands of families are gone … Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men … Faced by failure of credit they have proposed only the lending of more money … They know only the rules of a generation of self-seekers … The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit … Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now.’²

This quote could well have been a present-day description of the current state of the world in the wake of the recent financial crisis. But these are the words of Franklin D. Roosevelt, when he assumed the office of President of the United States in the midst of a deep financial and economic crisis in 1933.

Unlike previous financial crises, this one has, however, not only showed us that the market is a good servant but a terrible master when it comes to sustainable outcomes. It has also showed us how vulnerable and interconnected the world is today.

What started as an American financial crisis – triggered by easy credit conditions, sub-prime lending and a short-term focus on profiting from a booming property market which led to a massive housing bubble that burst in the US, bringing down major financial institutions like Lehman Brothers, Merrill Lynch and Fannie Mae – within a year turned into an economic tsunami that flooded the rest of the world.

The rippling effect on global stock markets led to a global credit crisis that has resulted in the failure of key businesses, declines in consumer wealth, an increase in unemployment rates and a significant decline in economic activities.

For the small island republic of Iceland, which only a few years earlier was ranked as one of the wealthiest and most developed nations in the world, the economic crisis has resulted in the collapse of all three of the country’s major banks, and led to – relative to the size of its economy – the largest suffering by any country in economic history with a national currency in free fall and the bankruptcy of its people, for many of whom the previous eight years had been one long party on the crest of the worldwide credit boom.³

For those where the party was only getting started – the developing countries – it has put foreign direct investments (FDI), commercial lending and aid budgets under pressure, with the risk of weaker export revenues, lower investment and growth rates, lost employment and negative social effects like higher poverty, more crime and weaker health systems.⁴

Roosevelt’s call for ethics and application of social values as a part of successful market systems is the same call that politicians, economists, the general public and even CEOs are voicing today. It is also the basis of the key messages which will be discussed in this chapter:

1. The economic crisis has shown us that the current version of capitalism is based on a fundamentally flawed design and that it must be revised and renewed – that there is a need for responsible and sustainable financial systems and business models.

2. But it is not a mere economic but rather a systemic crisis that is forming a new social contract between business and society – because when the context of business is changing, business must also change.

3. This is why 21st century business builds on an alliance between economic and humanistic values – not necessarily driven by morals or ethics but just as much by necessity. Enter: the new business paradigm.

Goodbye to an era of greed?

‘Shame’ and ‘Cap Greed’ were some of the slogans on home-made signs of an angry crowd that met Richard S. Fuld Jr., the former chief executive of the bankrupted Lehman Brothers, when he appeared before the American Congress to account for the remunerations of $350 million that he had received during his time as CEO, even while he was pleading for a federal rescue of his company.

The immoral aspects of greed, selfishness and short-term profit thinking are just some of the causes that have been proposed as the root core of the crisis. A systems failure of governments to regulate is another.

As a result, tougher rules that force the financial services industry to take a responsible and long-term approach to remuneration were agreed in 2009 at the G20 summit in Pittsburgh where the world’s 20 most powerful national leaders met to coordinate their positions to ensure a Framework for Strong, Sustainable and Balanced Growth.

But, as German Chancellor Angela Merkel pointed out at the World Economic Forum in Davos that same year, if governments ‘are not in a position to show that we can create a social order for the world in which such crises do not take place, then we’ll face stronger questions as to whether this is really the right economic system.’⁵

Merkel’s concern is shared by many others, who propose the root cause of the economic crisis to be the insufficiency of the fundamental financial and economic systems because of their in-built goals for continuous growth to which there are natural limits.

For even though it would be tempting to put the blame on our dark sides of desire, greed and selfishness, the economic system itself also engenders problems. Businesses operating on the classic formula are simply doing what they have been designed to do: maximize short-term profits and create economic growth.

As Frank Dixon, managing director of financial services firm Innovest Strategic Value Investors, which helps financial sector clients develop socially responsible investment products, argues: ‘There is no shortage of good intentions among business leaders. No CEO wants to hurt children or leave a legacy of environmental destruction. The problem is not bad intentions. In nearly all cases, the situation is good business leaders wanting to do the right thing in a system that often forces them to do the wrong thing. We have a system problem, not a people problem.’⁶

This is the reason why economists like Belgian professor of international finance and former banker at the Belgian Central Bank, Bernard Lietaer, who was involved in the establishment of the ‘ECU’ or European Currency Unit, argue that the current design of our monetary system as well as our understanding of and agreements around money are at the root of most problems in our society. According to Lietaer it has a limited functionality and architecture, because it is programmed to meet industrial values and goals of economic growth at the expense of environmental and social sustainability by undervaluing care, education and other tasks crucial to maintaining a society.

Another economist who is rethinking economics along similar lines is microcredit pioneer and social innovator Muhammad Yunus. Like Lietaer, Yunus believes that capitalism as a system is only half developed, and that it is based on the assumption that people are one-dimensional beings concerned only with the pursuit of maximizing profit.

The limitations of relying entirely on the market economy and the profit motive, if the race for wealth is at the expense of justice and compassion, was something that the father of capitalism, Adam Smith, already warned about in the 18th century. He was, in fact, both a defender and critic of capitalism, who on the one hand advocated a self-interest-based economic exchange, but on the other hand also talked about the importance of broader values that go beyond profits like humanity, generosity and public spirit.⁷

This is also what French President Nicolas Sarkozy called for in a speech in 2007, in the light of outsized corporate pay packages and golden hand-shakes for fired executives: ‘I believe in the creative force of capitalism, but I am convinced that capitalism cannot survive without an ethic, without respect for a number of spiritual values, without humanism, without respect for people,’ he said and emphasized a greater sense of social and personal responsibility on the part of businesses as well as a renewed emphasis on entrepreneurship and work as the keys to the ‘moralization of capitalism’.⁵

From a spiritual point of view, the crisis has not only shed new light on the greed culture made broadly acceptable by the housing boom. It is also an expression of a stage in the evolution of humanity where the present financial and economic systems are outdated because humanity is moving to the next level of evolution with new needs and demands as a result.⁸ Capitalism in its classic form is now even threatened because people are losing interest in working hard and making money.⁹

Supporters of this perspective therefore believe that the goal of economic growth must be replaced by an even higher goal, which serves human needs in a broader way by including the immaterial values that are starting to predominate, particularly in the Western part of the world, now that all reasonable material needs have been covered.

Whichever view you take, however, the bottom line remains the same: the global effect of the economic tsunami is a tough after-party wakeup call. Markets have failed and have destroyed conventional wisdom about how to run an efficient economy in a sustainable way. It is time for a new version of capitalism which matches 21st century needs and demands.

The 21st century social contract

The Social Contract was the title of a book by 18th century French philosopher Jean-Jacques Rousseau, who theorized about the best way to set up a political community in the face of the problems of commercial society.

Three centuries later these problems have intensified to a degree that is challenging fundamental, classic business logics about how and why to run a business. Today, companies operate in a business world of disorder with an increasingly complex web of systems that are all under stress. And it is difficult to have a balanced business in an unbalanced world – or, as the World Business Council for Sustainable Development puts it: business cannot succeed in societies that fail.

Global megacrises ranging from security threats, global warming and the depletion of natural resources to food shortage and the growing gap between the rich and the poor as well as higher personal levels of stress and other serious health threats are already making their mark in all sections of society, including business. And the crises are all closely interlinked, which is why they cannot be understood in isolation.

Hundreds of reports, analyses and books from the past decade all point in the direction of a new global risk pattern that constitutes a complex systemic crisis where the lack of solutions to one imbalance leads to the acceleration of another. A collapse in any one of the systems triggers critical issues in another.

Economic imbalances, natural disasters or energy and food crises, for example, are triggers of social inequality, extreme poverty or regional disputes over resources, which again may accelerate security threats like political or religious radicalism, terrorism and war.

Or take the economic crisis, which can lead to postponing the development of solutions to the global climate crisis, which in turn will worsen, for example, health issues, food and resource availability and the number of climate refugees that are forced to relocate because of global warming-related environmental disasters.

Many businesses are affected directly or indirectly by these societal trends. For they are not only making it more difficult for companies to sustai...

Table of contents

• Praise
• Title Page
• Copyright Page
• Foreword
• Introduction
• Part I - New Times – New Needs
• Part II - New Needs – New Solutions
• REFERENCES
• FURTHER READING
• Acknowledgements
• ABOUT THE AUTHOR
• INDEX