The Responsibility Revolution

How the Next Generation of Businesses Will Win

Jeffrey Hollender, Bill Breen

• Publisher: Jossey-Bass
• Year: 2010
• ISBN:
  9780470590393
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Liderazgo

How to create a company that not only sustains, but surpasses-that moves beyond the imperative to be "less bad" and embrace an ethos to be "all good"

From the Inspired Protagonist and Chairman of Seventh Generation, the country's leading brand of household products and a pioneering "good company, " comes a one-of-a-kind book for leaders, entrepreneurs, and change agents everywhere. The Responsibility Revolution reveals the smartest ways for companies to build a better future-and hold themselves accountable for the results. Thousands of companies have pledged to act responsibly; very few have proven that they know how. This book will guide them. The Responsibility Revolution presents fresh ideas and actionable strategies to commit your company to a genuine socially and environmentally responsible business and culture, one that not only competes but wins on values.

• Points the way for innovators and influencers to generate trust by becoming transparent, elicit people's passion and creativity, turn customers into collaborators, transform critics into allies, rewrite the rules and reinvent business
• Shows how to build a socially and environmentally responsible yet genuinely good company and an authentic brand
• Drawing on groundbreaking interviews with real-world change leaders, Hollender and Breen present lessons and insights from the "good company"' parts of big companies like IBM and eBay, trailblazers like Patagonia and Timberland, and emerging dynamos like Linden Lab and Etsy

The Responsibility Revolution equips people with the tactics, models, and mind-sets they need to compete in a world where consumers now demand that companies contribute to the greater good.

1

THE RESPONSIBILITY REVOLUTION TAKES OFF

It was the summer of 2009, and the world’s economy was still struggling to break free from the Great Recession’s chokehold. Certainly, the financial industry was the last place that anyone would look to find a business success story. If anything, big banks epitomized much of what had gone wrong in the economy and in society over the past few years. With all of their ethical breaches and criminal wrongdoing, and the billions wiped from their balance sheets, banks revealed business’s dark underside. It was not a welcome sight.

So it was surprising that in the midst of the Great Recession’s gloom, a bank showed us a bit of business’s bright side. Yet that’s exactly what Triodos Bank N.V. did in June 2009, when it released its 2008 earnings review.

Based in the Netherlands, with a network of offices throughout much of Western Europe and slightly more than EUR 3.7 billion under management, Triodos¹ is largely ignored by Wall Street’s behemoths. But in a year when the Street’s failures nearly brought down the global economy and credit markets hit the deep freeze, Triodos Bank’s income rose by 25 percent, and its loan portfolio jumped by the same margin.

Triodos delivered those stellar results by financing only sustainable projects and businesses—in all, more than nine thousand social and environmentally beneficial initiatives in 2008. No matter how impeccable your pedigree or rock-solid your business plan, if your venture doesn’t positively contribute to the environment or society, you don’t stand a chance of obtaining a loan from Triodos. By investing solely in enterprises that engage in renewable energy and organic farming, microfinance and fair trade, Triodos aims to steer economies in a more sustainable direction. Profits follow. Despite the busts that regularly buffet the banking industry, Triodos has never recorded a quarterly loss in the three decades since its founding. “As a bank, our first priority is to maximize sustainability,” Triodos’ chairman and chief executive, Peter Blom, told us. “Within that model, we want to maximize returns for shareholders. But sustainability comes first.”²

To the conventional-minded, putting values before profit is an upside-down way to build strategy—and an all-downside way to spur sales. It sounds extreme, even anarchic. Perhaps Triodos Bank’s resilience and results might give skeptics cause to reset their thinking. For this Dutch bank signals that “corporate responsibility”³ (CR) may well be undergoing a period of unprecedented “punctuated equilibrium”—the controversial theory promulgated by the renowned paleontologist Stephen Jay Gould.⁴ He posited that evolution proceeds mostly slowly, but not always steadily—that it is sometimes interrupted by sudden, rapid transitions, in which species decline and are supplanted by entirely new forms. Triodos Bank’s consistently positive performance, which grows out of its mission-first approach to investing, is but one more prominent piece of evidence that corporate responsibility is entering a period of dramatic, accelerated change in its own evolution. What new shapes CR is about to take on, we are just now beginning to understand. But we know this much—corporate responsibility is undergoing a change that’s as revolutionary as it is evolutionary. Consider the evidence:

An emerging breed of values-driven companies—some new, some well established—is building a better form of capitalism.

A new generation of values-driven leaders has kicked over the alpha capitalists’ argument that “the only business of business is business.”

Old-guard notions about “culpability” and “accountability” are being subsumed by the vanguard’s requirement to act authentically and transparently.

Bloodless buzzwords like “corporate responsibility” and “ecoefficiency” are being supplanted by a new vocabulary—“corporate consciousness,” “resource intelligence,” “social innovation”—that aspires to capture our real-world experiences.

Above all, tomorrow’s bellwether organizations are moving beyond the moralist’s dictum to be less polluting, less wasteful, “less bad.” They are striving to meet the innovator’s imposing imperative to be all nourishing, all replenishing, “all good.”

This moment of punctuated, accelerated change affects all of us in business. It will determine how tomorrow’s companies organize, strategize, and compete. It will reveal new leaders and expose the phonies and purveyors of greenwash. It will redefine business’s obligations to society and reconfigure the sources of growth and competitive advantage. And it will require us not only to anticipate the end of corporate responsibility as we’ve known it, but also to imagine the whole new models that will replace it.

RESPONSIBLE REVOLUTIONARIES EMERGE

This first decade of the twenty-first century has brought with it the necessary catalysts for sparking an enduring period of accelerated change in corporate responsibility’s evolution: our unmitigated ambiguity about the future, combined with unwavering certainty that business can do better. We’ve endured a global recession and the angry backlash that followed: fear over the millions of lost jobs, outrage over CEOs’ enormous pay packages, the gnawing belief that executives cooked the books and scorched the environment, the rough evidence that we were let down by so many of our so-called leaders. Corporations and the people who ran them were widely regarded as covetous and uncaring; the brand called capitalism suffered accordingly.

It’s no wonder, then, that although it’s fashionable for folks in the C-suite to proclaim their commitment to “corporate responsibility,” such talk often rings hollow. Yet a growing number of business leaders are pushing toward a more generous form of capitalism, one that consciously works for the common good. Adam Smith, best known for The Wealth of Nations, asserted in his other remarkable book, The Theory of Moral Sentiments, that although man is indeed selfish, “ . . . there are evidently some principles in his nature which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”⁵ Building on Smith’s notion that the desire for social approval is at least as powerful a motivator of human behavior as the self-serving desire to win at all costs, if not more so, more and more business innovators are envisioning a different kind of company: a company for which making profits is a way toward the greater goal of responding to social and environmental challenges.

By seeking to contribute to the well-being of society and the environment as well as its bottom line, the enlightened corporation summons instincts—empathy and generosity, passion and ambition—that are more than merely mercenary. It thereby seizes on a more resilient business model than the profit-first strategies that it vies with. Over the long run, companies that really are responsible will surpass their profit-fixated peers.

This fundamental shift from the “for-profit” model to one that’s “for-purpose (and profits)” was heralded long ago by such seers as Peter Drucker, who opined that “every social and global issue is a business opportunity just waiting for the right kind of inventive entrepreneurship, the right kind of investment, the right kind of collective action.”⁶ The right moment for Drucker’s vision has been a long time coming, but it has most certainly arrived. Although the notion that there’s good business in confronting society’s most vexing challenges was once dismissed by many as a misguided mantra, it has now entered the mainstream of business thinking.

Two critical pieces of evidence for this claim came from two of the foremost champions of conventional capitalism: Bill Gates, the cofounder of Microsoft, and Lee Scott, the ex-chief of Wal-Mart.⁷ In January 2008, at an annual meeting of Wal-Mart employees and suppliers, Scott made sweeping commitments in his social manifesto to reduce the company’s energy use and improve labor conditions in its supply chain. The very next day, in a speech to the World Economic Forum in Davos, Switzerland, Gates heralded the rise of a “creative capitalism” wherein “more people can make a profit, or gain recognition, doing work that eases the world’s inequities.”

The most remarkable thing about Gates’s and Scott’s speeches was that they simply underlined what many business leaders had already concluded: that a whole host of economic and societal pressures—and opportunities—are pushing corporations to embrace a model of a more expansive business purpose. In a 2007 report by McKinsey, the global consultancy, more than 90 percent of the CEOs surveyed said they are doing more to push environmental and social strategies into their operations than five years ago.⁸ The Economist, which once derided corporate responsibility as a “do-gooding sideshow,” conceded in a January 2008 article that “CR is booming” and “few big companies can now afford to ignore it.”⁹ Even Forbes, the self-described “Capitalist Tool,” has boasted of a surprising turnaround in its profits-centered ethos. “Do corporations exist solely to maximize their bottom lines?” the magazine asked, in a subhead to a March 2008 article. Its emphatic reply: “We don’t think so.”¹⁰

Why is this different from the drumbeat for corporate accountability that started at the beginning of the decade, after the Enron, WorldCom, and Tyco debacles?

• Companies, in the wake of such scandals, must now work harder to protect their reputations.

• Global brands, which are battling to crack markets all over the world, are now expected to perform a social role.

• Customers, thanks to the Internet, now have more power than ever before—the power to scrutinize companies’ activities and to organize boycotts at the slightest sign of misbehavior.

• The body politic, seared by Ponzi schemes and the meltdown in financial markets, is punishing “bad companies” and demanding that all companies “do good.”

• Employees now expect companies to adopt a purpose that’s bigger than profit—a key factor in the competition for A+ talent.

• Nongovernmental organizations (NGOs) are growing exponentially and are relentlessly pushing companies to contribute to society.

• Stakeholders are pressuring institutional investors to adopt strong principles of governance and a responsible investing strategy.

People across the political spectrum are concluding that despite the U.S.’s government bailouts of Wall Street and the U.S. car industry, business is still fast enough and nimble enough to innovate solutions to some of the world’s thorniest problems. Two proof points among thousands: Unilever’s pledge to certify as sustainable all of its Lipton tea bags sold globally, which promises to lift one million African tea growers out of poverty.¹¹ Or recall the U.S. federal government’s feeble response to the devastation caused by Hurricane Katrina. Wal-Mart, with its world-class logistical operation—along with the help of countless individual volunteers and non-profits—proved to be the real first responder.

More than anything, climate change is forcing business and society itself to rethink everything, from transportation to energy sources to geo-politics to cities. When the oil baron T. Boone Pickens attacked the United States’ petroleum-based economy as a risk to national security, it was clear that minds have changed. Formerly fringe notions that business should be environmentally and socially sustainable have moved to the mainstream—and the business landscape has been fundamentally transformed.

TO BUILD A BETTER CAPITALISM

The voices of the business establishment have come to recognize eight key drivers (described in this section) that make responsible corporate behavior an imperative. Not only are they persistent, they are predominant, and they will endure for decades to come. But although these über-capitalists are putting real heft behind the movement to build a better form of capitalism. The next generation of entrepreneurs is pouring on the accelerant and lighting the match. They have heard the voices of visionaries such as the pioneering ecologist and biologist David Suzuki, who has perturbed many an industrialist with his observation that “the industrialized world has only 20 percent of Earth’s population but uses more than 80 percent of the resources and produces more than 80 percent of the toxic waste.”¹² They accept Suzuki’s argument that our conspicuous consumption is “using up what our children and our children’s children should expect to inherit.” They reject the notion that business, in its present form, can sustain us, so they too are committed to remaking business. Forged by the old guard and the vanguard, good companies are coming to the fore because...

1. They are preparing for global climate change’s threats and opportunities. The political push to stamp a higher price on fossil fuels through emissions caps or a carbon tax will make clean technologies and renewable energy a necessity for any manufacturer that hopes to stay competitive. American venture capital firms invested more than $2.6 billion in green businesses during the first three quarters of 2007, the highest level ever recorded. That capital quickly paid off: revenues from companies in solar energy, wind, biofuels, and fuel cells jumped from $40 billion in 2005 to $70 billion in 2007. Although the global recession temporarily dampened the surge, VC investments in clean technologies and renewables began rebounding sharply in the second quarter of 2009. Speaking before a meeting of green-tech execs in Boston, Kleiner Perkins’s Bill Joy described the future this way: “ . . . energy and green technology is the largest economic opportunity we’ve seen so far this century.”¹³

2. They possess built-in “insurance” that protects a company’s most valuable asset: its reputation. Fortune has calculated that “intangible assets”—patents and trademarks, as well as all the knowledge, creativity, and consumer relationships that ultimately enhance an organization’s reputation—represent 75 percent of the total value of the average U.S. business. A company can buy insurance to safeguard its physical assets. But when more than half of the worldwide respondents to the 2009 Transparency International’s Corruption Perceptions survey believe the private sector is dishonest, only the badge of good corporate citizenship can burnish a company’s far more valuable reputation.

3. They are powerful magnets for high-end talent. In their “Owner’s Manual” for shareholders, Google founders Larry Page and Sergey Brin proclaimed that, “Talented people are attracted to Google because we empower them to change the world.” As the author and business strategist Gary Hamel has argued, in too many companies, employees aspire to no bigger ambition than hitting their numbers—not much of a stimulant for overachievers. Whether it’s Google’s effort “to organize the world’s information,”¹⁴ Whole Foods’ drive to “improve the health and well-being of everyone on the planet,”¹⁵ or Genzyme’s aspiration to “innovate on behalf of people with serious diseases,”¹⁶ an audacious desire to create something of consequence is a powerful lure for smart people who thrive on cracking the code on problems that matter.¹⁷

4. They summon extraordinary contributions from their employees. Companies that are organized around a sense of mission not only attract the best human capital, they often yield the best results, because they inspire people to bring all of their imagination and inventiveness to work each day. Most of the organizations that make Fortune’s annual “100 Best Places to Work” list have a core purpose that goes above and beyond the bottom line. As Hamel notes, purpose elicits passion, which often transforms individual desire into exceptional corporate performance. In his book Pour Your Heart Into It, Starbucks chairman Howard Schultz recognized the power of passion when he opined, “Ultimately, Starbucks can’t flourish and win customers’ hearts without the passionate devotion of our employees.”¹⁸ One piece of evidence to support Schultz’s claim: between 1997 and 2007, those “best places...