Force of Nature

Edward Humes

• Publisher: Harper Business
• Year: 2011
• ISBN:
  9780062079374
• Topic: Negocios y empresa
• Subtopic: Sostenibilidad en los negocios

What happens when a renowned river guide teams up with the CEO of one of the largest and least Earth-friendly corporations in the world? When it's former Wal-Mart CEO H. Lee Scott and white-water expert turned sustainability consultant Jib Ellison, the result is nothing less than a green business revolution.

Wal-Mart—long the target of local businesses, labor advocates, and environmentalists who deplore its outsourced, big-box methods—has embraced an unprecedented green makeover, which is now spreading worldwide. The retail giant that rose from Sam Walton's Ozarks dime store is leveraging the power of 200 million weekly customers to drive waste, toxics, and carbon emissions out of its stores and products. Neither an act of charity nor an empty greenwash, Wal-Mart's green move reflects its river guide's simple, compelling philosophy: that the most sustainable, clean, energy-efficient, and waste-free company will beat its competitors every time. Not just in some distant, utopian future but today.

From energy conservation, recycling, and hybrid trucks to reduced packaging and partnerships with environmentalists it once met only in court, Wal-Mart has used sustainability to boost its bottom line even in a tough economy—belying the age-old claim that going green kills jobs and profits. Now the global apparel business, the American dairy industry, big agriculture, and even Wall Street are following Wal-Mart's lead, along with the 100, 000 manufacturers whose products must become more sustainable to remain on Wal-Mart's shelves. Here Pulitzer Prize winner and bestselling author Edward Humes charts the course of this unlikely second industrial revolution, in which corporate titans who once believed profit and planet must be at odds are learning that the best business just may be a force of nature.

PART I

The Nudge

History teaches us that men and nations behave wisely once they have exhausted all other alternatives.

—ABBA EBAN1

Chapter One

Exposure

Bentonville, Arkansas

Spring 2004

The biggest company in the world had a problem.

The problem wasn’t lack of business: the company had at that time 176 million customers—a week. It wasn’t an inability to find talent: only the People’s Liberation Army of China, the United Kingdom’s National Health Service, and the massive Indian Railways employed more people. And it certainly wasn’t money: with annual revenue that year of $285 billion, it was not only the biggest company in the world; if it were a country, it would rank ninth among nations, just behind China and ahead of Russia, Korea, Australia, and Saudi Arabia.

The problem was the company had become a big, fat, and not particularly well-liked target, attracting more lawsuits than any other corporation in the world. The year was 2004, and there were endless bad press, protests, political opposition, investigations, labor problems, health insurance problems, zoning problems, and, more than ever, environmental problems.

That year Wal-Mart—with its 12,000-mile, computer-controlled supply chain feeding 7,022 stores, its immense fleet of 7,200 trucks in constant, diesel-belching motion, its continual bulldozing and construction, and its voracious demand that suppliers cut costs at any cost—had become a poster child for global warming, mass extinction, smog, and urban sprawl. Many observers believed the bad rep to be deserved. The CEO, H. Lee Scott, was sick of it—and the threat it posed to the company’s bottom line. And he knew that, despite Wal-Mart’s unmatched wealth and power, the threat was real, one that could not be dismissed by the usual tactic of attacking the critics as snobbish elites who had no sympathy for customers trying to save a few hard-earned bucks. An internally commissioned study, eventually leaked to the press (much to Scott’s irritation), showed that as much as 8 percent of Wal-Mart’s customer base had stopped shopping there because of the company’s increasingly bad reputation. On Wal-Mart’s scale, 8 percent represented millions of customers and hundreds of millions in revenue—the margin between a successful fiscal year and a disaster.

Scott cast about for a solution to a straightforward question, the gist of which summarizes how just about every U.S. CEO thought about environmentalists’ complaints at the time: What do I have to do to get these guys off my back?

Scott adopted what he would later describe as a defensive mind-set. Attacked—unfairly, he felt—he wanted to hit back at the critics wherever they could be depicted as unreasonable or incorrect. He also thought it prudent to shield the company from further criticism by identifying some positive green gestures Wal-Mart might undertake to placate environmentalists and heal the PR wounds—or, at the very least, to limit the company’s “exposure.” That was the term Scott used, exposure, and it was a telling word choice, a common corporate term used to describe business behavior that, if publicized, might threaten the company’s bottom line or a CEO’s job security. The term had been appropriated years before from the legal community, where it was used to quantify the risk of being sued or prosecuted, and the lawyers had in turn lifted the concept from the military, where its true meaning remained refreshingly clear: the opposite of “cover.” Limiting exposure, whether in the military, legal, or corporate sense, has nothing to do with reform or change or “going green” and everything to do with staying out of the line of fire. Scott’s goal, then, was to take cover and get past this distracting image problem so the company could continue with business as usual: selling more stuff at lower prices to more customers than anyone else in the world.

Toward that end, Scott was willing to embrace some reasonable environmental philanthropy, even if he felt coerced. That would enable Wal-Mart to point proudly at the ecological aspects of its program of “corporate social responsibility”—a purposely vague term for “good works” on which a company spends time and money even though the activities do little or nothing to increase shareholder value. Although this can sometimes accomplish great things—the considerable relief efforts Wal-Mart would soon undertake in the wake of Hurricane Katrina in 2005 would be rightly celebrated as the epitome of meaningful corporate social responsibility in action—“CSR” is sometimes a derogatory term in the corporate world, a source of as much resentment as pride. Wal-Mart’s leadership had always asserted that the greatest social good the company could do was to offer products that people use every day at the lowest price possible, saving real and needed cash for its customers. Many of its customers, after all, live paycheck to paycheck; one out of five gets by without a checking account. That was Wal-Mart’s founding mission and its competitive edge. By that definition, Wal-Mart asserted, it already did enormous good in the world by helping the working family stretch its dollars. The added burden of spending on corporate social responsibility ran counter to Wal-Mart’s goal of reducing prices as much as possible. It was a moral and social good, sure. But it didn’t help Wal-Mart serve its customers. And it didn’t help Wal-Mart compete.

It never occurred to Scott, or to anyone else in the company’s leadership, that the answer to Wal-Mart’s environmental woes might lie not in defending the core business of Wal-Mart but in changing that core—and that doing so could make Wal-Mart more competitive rather than less.

And, really, why would he think such a thing? Wal-Mart ranked among the most successful enterprises on the planet, having grown from the randomly stocked, pile-it-high-and-sell-it-cheap department store Sam Walton opened in 1962 in Rogers, Arkansas, to a company that could decide one day to enter the grocery business, as it did in 1990, and within the decade become the leading seller of groceries in the country. Wal-Mart soon had more grocery sales than its two nearest competitors combined, Safeway and the former market leader, Kroger, which had been in the grocery store business for more than a century. Wal-Mart’s core business model had taken it from zero to grocery market leader in less than ten years, so awash with cash that it could open seventeen supercenter stores (average size: 200,000 square feet) every month, sell the same salmon and celery and canned soup as its competitors for 15 percent less, and drive twenty-nine supermarket chains into bankruptcy in the process. In a good year, the floor space of its newly constructed supercenters would be enough to pave over the world’s most visited urban oasis, Central Park in New York City.

The idea that there might be something wrong with this core business model and that it had to be fixed—not just for the good of the planet but for the good of the company—would have seemed absurd to Lee Scott if anyone had articulated such a seemingly far-fetched idea. But that was about to change.

The roots of the change are varied, but its earliest moments can be traced to a conversation in early 2004 between Jib Ellison and his friend and mentor Peter Seligmann, founder, chairman, and CEO of the environmental organization Conservation International. Seligmann’s nonprofit had become a major force in the battle against habitat destruction and deforestation, and Seligmann had garnered the support of an impressive list of tycoons and celebrities, from the actor Harrison Ford to the founder of Intel, Gordon Moore, to S. Robson “Rob” Walton, the chairman of the board of Wal-Mart, eldest son of the company’s founder, and tenth richest man in the world at the time.

Seligmann, a legendary environmental rainmaker, routinely brings in a hundred million dollars or more a year for Conservation International from people like Moore and Walton. Ellison had almost gone to work for Conservation International years earlier, but his wife had not wanted to move from California to the East Coast, where Seligmann is based. Ellison had instead partnered with three other young corporate consultants to start up a boutique business strategy firm in the San Francisco Bay Area, a successful venture named The Trium Group, that had taken him in a different direction from the concerns of Conservation International. Now the former river guide was on sabbatical from Trium, giving himself twelve months to test whether he could make a living advancing his long-simmering ideas about a new sort of corporate environmentalism. He had flown to Washington to the Conservation International headquarters to ask for Seligmann’s help.

“Your board of directors is filled with the captains of industry. I know they’re giving you millions of dollars a year to do what you do so well,” Ellison said. “But back home it’s another story. Their organizations are doing nothing.”

Ellison’s argument: These same corporate scions should—and could—be convinced to go beyond the sort of philanthropy that supported Conservation International. Their next step, a potentially world-changing one, should be to remake their businesses into environmentally sound powerhouses. What if doing good for the environment didn’t cost the company but made more money for it? In Ellison’s view, businesses could seek out competitive advantage over other brands by pursuing energy efficiency, leaner packaging, cleaner plants, conservation, and systemwide transparency and sustainability. They could, in short, boost their profits, their image, and their market position through the elimination of waste—because waste is not only bad for the planet, it costs money. Yet every day, U.S. companies that prided themselves on penny-pinching and efficient operations were squandering billions of dollars because they were riddled with waste without realizing it. Ellison was convinced that if waste elimination and sustainability were made a core strategy, not viewed as a pilot project or as a bit of good citizenship but baked into the culture and mission of a company, it would provide a winning business model. He had made a study of it, he told Seligmann, and had documented a small number of businesses that were succeeding with this approach of serving both profit and planet—Patagonia, for one, had made it a core purpose of its business and developed a loyal customer base; Nike had reversed its reputation for sweatshops and environmental disregard and gained market share in the process. The solutions were all there, he said, just waiting, hidden in plain sight.

“Give me five minutes with any of them,” Ellison begged Seligmann. “That’s all I ask. A CEO-level conversation.”

Asking Seligmann to take advantage of his coveted access to busy and wealthy chief executive officers, whose time and meetings are scripted months in advance, was no small favor. Ellison’s notions about sustainable private enterprise weren’t just outside the mainstream in 2004—they ran counter to the knowledge and experience of most American CEOs. By and large, they heard the word “environment” and thought: regulations, bureaucracy, lawsuits, obstacles, delays, added costs, bad press. They did not think: business opportunity. Ellison’s consultancy partners back in San Francisco thought he was, at best, too ambitious. Ellison was blunter: “They think I’m crazy,” he admitted. But Seligmann did not think Ellison was crazy. Intrigued, he promised to think about how he might help. It turned out that Seligmann had already engaged some corporate leaders in just the kind of conversation Ellison had in mind. The timing couldn’t have been better.

Three months later, without prelude, a bland e-mail materialized on Ellison’s home computer in Healdsburg in northern California wine country. Seligman had shot him one short line: “Rob Walton will call you.”

The name seemed familiar, but Ellison couldn’t quite place it and he had to look up Walton on the Internet. The first words that popped up in the Google search were “ . . . officially took over as Wal-Mart’s Chairman two days after his father’s death,” and Ellison realized the opportunity he had sought from his friend at Conservation International had arrived, bigger, better, and more fraught with possibilities than he had imagined.

Seligmann, he would learn, had just begun a series of eco-expeditions with Walton and his sons—to Costa Rica, Madagascar, Brazil, the Galápagos Islands. This relationship, and the knowledge of endangered species and landscapes it was giving Walton, led the magnate to donate $21 million to Conservation International through the Walton Family Foundation to support ocean habitat protection. On one of their trips, Seligmann had pitched the idea Ellison had championed: that the Wal-Mart juggernaut itself could be a far more powerful force for environmental reform than any donation, no matter how generous. Walton seemed interested in hearing more but pointed out that as chairman of the board he was removed from day-to-day operations at the company. Such ideas would be more appropriately discussed with the chief executive officer. What Walton could do, however, was make such a discussion possible—he would arrange for Ellison to get his wish, a CEO-level meeting. And so, a few weeks later, with Seligmann and Walton in attendance, Ellison sat down at Wal-Mart’s famously modest redbrick, tin-roofed headquarters in Bentonville, Arkansas, with Lee Scott, the leader of the biggest company in the world.

The meeting felt like an audition to Ellison, and with good reason. Scott already had met with several prominent environmentalists and green consultants, among them Amory Lovins, the head of the famed Rocky Mountain Institute and the recipient of a MacArthur Foundation “genius grant.” Now the CEO looked over the thin, casually dressed Ellison with a wary smile. Lovins was a rock star, but Scott had never heard of this guy “Jib” or his fledgling Blu Skye Sustainability Consulting. He would never have taken the meeting but for the intervention of Rob Walton.

Just the third chief executive since Wal-Mart’s founding almost a half century earlier, Scott was the only top executive at the company to have gotten his start managing the trucking division rather than a retail line, and he would be the last CEO to be groomed by company founder Sam Walton. He was a practical man, a workaholic CEO, and he was not sure how he felt about this river guy in blue jeans. Ellison had spent a third of his adult life sleeping in a tent next to rivers around the world and rarely set foot inside a Wal-Mart, unless it ...