Markets, Governments and People

The notion that “what’s good for General Motors is good for the country” is actually a misquote of more complex 1953 testimony from Charles Erwin Wilson; “ …for years I thought what was good for the country was good for General Motors and vice versa…" At the time, Wilson was president of General Motors and President Eisenhower’s nominee for Secretary of Defense. Fifty-nine years later, 25% of General Motors’ stock is held by the US Government as a result of the financial crisis. But even absent crises, the neat dividing lines between governments and free markets is more dotted than it is bold. And it is likely to become even more squiggly in coming years. That shift, though needed, is fraught with risk and there are very diverse ways of re-blending responsibilities, markets and government.

At the just concluded Global Philanthropy Forum in Washington, DC, there was much talk of the need to harness the power of markets to improve the world (see the full agenda and video of the proceedings).

A terrific panel on impact investing (see "A Different Kind of ROI: The Role for Private Capital" to the right) championed this as a mechanism for blending and integrating charitable missions and investment strategies. The question being posed, rightly, is why focus so much on grants (generally 5% of foundation assets in the US) but not on the assets themselves as a means of driving change?

The lure of the market, with all its attendant risks, is strong. And as articulated by Jed Emerson, Executive Vice President of ImpactAssets, to have impact foundations need to stop “acting like trout,” mostly hovering motionless in swirling water and only occasionally jumping to catch a bug as one passes overhead. Impact investing is needed, is a good idea, and is sure to expand in coming years.

From another vantage point, markets can undermine governments and cripple their ability to serve citizens. Privatization of government assets in the former Soviet Union was largely a massive transfer of wealth from the public trust into private hands. As a businessman in The Soviet Union throughout the 1980s and 1990’s it is clear to me that (despite some very serious efforts at fairness) the give-away of state assets was wholly corrupt, took place in a modern economy and resource rich country on a scale never before imagined, and will continue for generations to undermine public trust in state institutions while enriching a small elite. So while communism was vanquished, the structure of political and economic power in Russia today is perhaps more akin to what it was in Tsarist times than to that of a European or North American modern state.

Beyond the Russian experience, devolving public goods such as water into the hands of private firms, with the positive intention of attaching prices to increasingly scarce resources as a means of protecting them, have also run into major problems in countries around the world.

Markets may well be the most finely tuned mechanism we have for allocating resources efficiently around short-term costs and prices. But absent a robust framework of social and cultural values and priorities to channel market operations these efficient markets will lead to vast inequity and depletion of critical resources. That markets alone will protect and allocate scare resources such as water in a manner that is equitable and socially acceptable is a pernicious fantasy. When we dislike the role of government we refer to it disparagingly as the regulatory morass, command and control, and bureaucracy. When we favor it, we champion the level playing field.

But as we reorganize the social contract – changing the dynamic relationships between governments, markets and societies – the need for sound policy and effective government intervention is central to effective strategies for change. We live in a time where it is fashionable to trash government (bureaucrats, all), mock politicians (idiots, all), and demand that leaders be entertainers.

Through their terrific work with social entrepreneurs, organizations like Ashoka, The Skoll Foundation, Acumen and many others are empowering individuals to harness markets to meet pressing social needs. The winners of the Vodafone Wireless Innovation awards  presented at the Global Philanthropy Forum were inspiring to all of us. Who would imagine mobile phones as a key imaging tool in diagnosing cancer? But to empower entrepreneurs and harness market forces is not to delegitimize government from its still central role in ensuring opportunity, freedom, and dignity for everyone -- regardless of the extent to which anyone can or cannot participate in the marketplace.

The Photosynthesis Economy

Jeremy Rifkin stole the show at this week’s CERES 2012 Conference,” Igniting Innovation, Scaling Sustainability” Amidst a line-up that included EPA Administrator, Lisa Jackson, Jack Ehnes, CEO of the California State Teachers Retirement System (managing $145 billion) and Carl Pope, sage of the environmental community and long-time head of the Sierra Club, Rifkin’s closing presentation was superior not for lack of competitors but rather for its range and scope. One could feel a ripple spread out across the 600-plus gathering of business and environmental leaders in Boston as we absorbed his opening assertion; the largest economy on earth is photosynthesis. In a TED-worthy presentation (and no slides) he then ran through a catalogue of facts and examples – from peak oil and species extinction rates, to economic cycles and renewable energy opportunities. (For more on Jeremy Rifkin's presentations, see his TED talk on "empathic civilization" and his collections on Vimeo and YouTube)

Asserting that the Fall 2008 financial collapse was in fact an after-shock to the real economic earthquake that occurred July 2008 when oil reached $147 per barrel and the global economy began its downward spiral. Given the near ubiquitous presence of petroleum derived products in everything from fertilizer to pharmaceutical products, he makes a strong case that we have now entered a period where 5-6 year cycles of growth and retreat will repeatedly be triggered by oil prices surging into the range of $130-$140 per barrel. Despite the severe and systemic crisis he sees and a palpable sense of urgency – 40 years by his estimate before the window of opportunity closes – Rifkin also outlined six pillars (and more on each of these in future blogs) for an economic and environmental renaissance that are startlingly ambitious and quite logical.

1. Acceleration in the production and use of distributed energy;

2. Retrofitting of existing building stock to turn buildings into mini power plants;

3. Utilization of hydrogen for batteries to store energy;

4. Expansion of the smart grid as a transmission mechanism for energy; and

5. Introduction of electric vehicle fleets replacing the internal combustion engine.

And Rifkin’s sixth pillar, a change in consciousness, is based on a provocative and compelling link he draws between how societies are organized and how the human brain evolves. In brief, he postulates that with each fundamental shift – from foragers to hunters and gathers, from rural agricultural societies to urban cultures – so too does the human brain evolve to account for closer, tighter, and more complex social interactions. And empathy, he asserts, not aggression or greed or competition, is at the core of evolving human consciousness. (For more on this see Rifkin’s fascinating tome, The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the Economy, and the World)

The need for a change in consciousness ran like an invisible thread through much of the conference in calls for more robust theories of change, the use of new tools such as the CERES AquaGauge and WRI’s Aquaduct, and Carl Pope’s quip to a smaller group that “natural gas is a potentially useful fuel afflicted with an abysmal industry.” And in many side discussions I exhorted people to marry facts with compelling narratives, to reframe the climate debate as a positive need for “climate stability,” and to refocus our thinking, planning and processes to embrace timetables that run well past the typical quarterly myopia that afflicts American industry.

As Pope, Jackson, Rifkin and many others observed there is increasingly no difference between environmental protection and economic prosperity. Future economic success, in Rifkin’s terms the “third industrial revolution,” (which interestingly is also the title of this week’s Special Report in The Economist), will be an environmental and energy revolution as well. Climate change is thus rightly seen not as an environmental challenge but rather as an economic issue – rife with risk and opportunity.

Saving Souls or Changing Systems?

Change is such a complex issue: constant and inevitable, deep and rich but yet sometimes seeming like a black hole – guided by the interplay of forces we barely understand or see. Theories of social change struggle to identify patterns, to single out critically important factors, to draw discrete lessons learned. Systems thinking, mind-mapping, root-cause analysis are approaches that help us grapple with not only understanding change, but also with how to effect change – to guide it, channel it, manage it rather than merely adjust to it.

Change is such a complex issue: constant and inevitable, deep and rich but yet sometimes seeming like a black hole – guided by the interplay of forces we barely understand or see. Theories of social change struggle to identify patterns, to single out critically important factors, to draw discrete lessons learned. Systems thinking, mind-mapping, root-cause analysis are approaches that help us grapple with not only understanding change, but also with how to effect change – to guide it, channel it, manage it rather than merely adjust to it. From Peter Senge’s work on theories of change and organizational behavior (which he presented at Sustainable Food Lab last summer), to discussions this week among foundation executives at the opening of the Council on Foundations CEO retreat meeting, theories of change are front and center for many civil society and corporate leaders. While the search continues for the holy grail, the magic wand, to drive change, the complexity of our world cuts against finding a singular method or approach.

But the interconnectedness of our world also creates leverage- and choke-points, in both the concrete and digital spaces we inhabit. While the Occupy Wall Street demonstrators plot next steps after their recent physical eviction from Zuccotti Park, the leaders of the Susan G. Komen Fund are still licking their wounds from an amazing stumble. That the Komen leadership thought a fine-print change in grant-making policy, a politically engineered sleight of hand designed to prohibit continued funding of Planned Parenthood, would go unnoticed is a stunning lesson in misunderstanding the dynamics of engaged stakeholders. This is all the more remarkable because the Komen fund is all about engagement of stakeholders who literally walk the talk!

The Komen debacle also brings to mind other efforts to engineer change via ‘invisible’ or back-door channels. Robert Moses, who changed the face of New York City over decades as the city’s controversial “master designer” engineered the bridges over the Long Island Expressway to Jones Beach to be too low for buses. If you wanted to get to the ‘public’ beach, you needed private wheels.

While change can be engineered this way, as I discussed recently with Carol Larson from the Packard Foundation, there is today a crying need for civil discourse.  Amidst presentations on strategic philanthropy across generations, call for urgent action, and counsel to plan grantmaking carefully for maximum effectiveness, there was recognition that we need space where champions of the public good can design compromises that are high on delivery of needed services and low on ideological bombast.

Even among like-minded people, however, what type of change should be the priority? How can we meet today’s urgent needs while also driving systemic change? People need clean drinking water today. A hungry person needs food now, not ten years after some policy change takes hold. Domestic violence needs to stop before one more woman or child is beaten. But if one imagines the story of the Good Samaritan being played out day after day after day--the beaten soul, ignored by pious leaders, is comforted by a common person—at one point do we move beyond praising the humanity of the common person and ask who is doing the beating and what do we do to put a stop to it?

As we race for the cure – a vital effort – should we not also be charging ahead with determining how we stop the scourge of cancer? While greater detection obviously accounts for some of the rise in cancer rates, it is equally obvious that these specific changes (at global and cellular levels) are neither inevitable nor natural. What does root-cause analysis tell us about cancer? How is it related to the world we have made for ourselves – related to actions taken and resultant consequences, even if unintended?

Bill Drayton, the visionary founder of Ashoka, sees social entrepreneurs as the key to devising solutions to embedded, systemic problems. Spinning the traditional development metaphor about giving either a fish, a fishing rod, or teaching someone to fish, he describes a social entrepreneur as someone who won’t stop until the fishing industry is revolutionized. And while he is, of course, right, while that revolution is happening over some years, what do we do about that family on the edge of starvation that was really hoping for a fish to make it through the day?

There is so much to do to “repair the world.” But we had best be sure we are asking the right questions before we put too much faith and resources in the answers.

The Sustainability Principle

In my closing remarks at the Sustainable Food Laboratory Summit I explained that I did not think sustainability was a goal, a metric, or even an approach to doing business. Rather, it is a principle. And it has at its core a fundamental rethinking of space and time.

Intergenerational equity – using resources today such that we don’t impair the rights of future generations to also meet their needs – is deeply in conflict with what we have come to see as the normal behavior of short-term profit maximizing corporations. That conflict is real and should not be smoothed-over or avoided.

However, for companies seeking to generate long-term value for investors, employees and the communities in which they operate sustainability is absolutely essential to success. It is in recognition of this, as I have noted elsewhere, that Unilever recently announced it was no longer issuing the seemingly sacrosanct quarterly financial report.

Over the longer term, it also becomes essential for business to manage, protect, and restore critical assets without which business will most assuredly collapse. Ecosystem assets are vital to long-term profitability.

And we now possess the tools needed to exercise this responsibility in ways that were unimaginable a few short years ago. First, the fields of resource and environmental economics have come into mainstream thinking. We understand that there is a price associated with using the carbon sequestration capabilities of the natural world. We recognize that it makes sense to pay more for the room with the ocean view than for the one overlooking the dumpster.

Second, knowledge management tools enable us to collect, analyze, understand, and share vast amounts of information about what is happening in our world – from the depths of the ocean, to ice caps, to soil moisture.

And third, we can now place this knowledge in concrete physical space, using geographic information systems.

With vast knowledge comes commensurate responsibility. As Prince Charles states at the opening of Harmony, "I don’t want my grandchildren, or yours, to come along and say to me ‘Why the Hell didn’t you do something about this?  You knew what the problem was.”

(Visit TheHarmonyMovie.comfor more information on the film -- and view the Harmony Movie Trailer from Balcony Films -- courtesy of Vimeo)

Local, Sustainable and Organic

It became clear in talking with farmers, ranchers, businesspeople, chefs and public advocates during the Sustainable Food Laboratory Summit that there is a ‘goodness’ premium associated with these three linked terms. It was equally clear that few people have a clear sense of what these terms mean, beyond an evocation of being different and somehow better than conventional produce.

While there are standards that must be met before labeling food as “organic” in the United States, the range of practices that exist between conventional and organic farming is enormous and growing. No-till farming, for example, preserves soil nutrients but is widely practiced with the use of pesticides and fertilizer. Organic produce, on the other hand, can be flash-frozen and shipped around the world at enormous environmental cost. So called, “food miles” may not be the right measure of what to consume or avoid, but it surely evokes visceral concerns about what is really ‘better’ in a holistic sense.

And this search for the truly better product – something that in the United States evokes that “Mom and apple pie” feeling – has spawned an alternate universe of certification schemes. From the Rainforest Alliance, Forest Stewardship Council and UTZ Certified Good Inside; to the Roundtable on Sustainable Palm Oilcertification and hundreds of other certification mechanisms the race is well underway to meet a wary public’s desire for greater assurance that products are not only safe to consume, but also produced with minimal impact.

Some of this growth in certification is driven by distance. Few people today can practice what has for most of human existence been the most common method of certification.

Ben Stenn, however, an impassioned and talented chef at Celilo, in Hood River, Oregon, uses the tried and true method of assessing the quality of his ingredients; he visits the farmers who grow it. (Video courtesy of WinePressNW.

Since most of us cannot personally assess how farmers grow what we eat, intermediaries do it on our behalf and then crystallize what they have learned by affixing labels to what we then purchase. Witness Organic Valley’s marketing built around the core question: “Who’s Your Farmer?”

I suspect that at root (sorry!), whether searching for local, sustainable, or organic, what people are seeking is trust. As distant as we have become from the sources of our sustenance, we all still crave reassurance that we can trust the people who are selling us what we eat.

Data, Data, Everywhere

At meeting after meeting, the conversation almost always turns to metrics and data. And while we need better data and better metrics - knowing of course that we do what we measure - we also need to remember for what reasons we are collecting data. Measurement alone is not the goal.

And too often it seems to be data collection is for reporting rather than decision-making. Through sophisticated accounting systems we track cash flow, ROI, P/E ratios and a host of core financial information. And business leaders use this data to inform both operational and strategic decisions.

But if the data we have on, for example, water usage, carbon emissions, and packaging waste are only rolled-up quarterly or annually for the purpose of sustainability reporting, then how useful can they be to decision-makers? To truly imbed sustainability into corporate culture, not only do we need the metrics and data, but we need to render this information in ways that are accessible and timely for making business decisions – not just reporting them.

Geology and The Bottom-Line

Hannah Jones, VP of Sustainable Business and Innovation at Nike, had the most memorable lines among dozens of speakers at two recent conferences, the “Ceres Conference 2011: Igniting Innovation, Scaling Sustainability” and The Conference Board’s “Corporate Citizenship and Sustainability” gathering in Washington, DC. Hundreds of senior executives from America’s leading corporations exploring urgent questions of climate stability, water resources, sustainable agriculture, and innovation and entrepreneurship. But Jones stole the show with two powerful remarks. Knitting together transparency, a key metric for responsible corporate reporting, with core business performance, she quipped that “if you’re going to be naked you better be buff!”

At a more granular level, we learned why SAP, in a small but significant shift, now releases financial results with its sustainability report, forcing a common language across the NGO and financial communities. If you want to see SAP’s carbon footprint you cannot escape their profit and loss statement; and if you are looking for their operating margin you also come face to face with “total energy consumed.”

We also reengaged what I see as an increasingly tired question -- is there “a business case for sustainability?” Do companies ‘do sustainability’ to make money, to reduce costs, or to enhance license to operate, brand equity, and to retain new and younger employees who want to feel good about their work every day? We heard powerful examples of business growth, market opportunities created, and profits generated from embedding sustainability in corporate DNA and also using it as a lens to drive innovation.

But – and it is a big but – it seems to me that the way we have framed this debate diverts us from the core sustainability challenge. And that is how we think about time. There is a disconnect between the incentivized behaviors of short-term profit-maximizing corporations and the increasingly bold proclamations by corporate leaders that their organizations will increasingly act with the interests of intergenerational equity at the forefront of strategy, planning and business operations.

Whether the fossil fuels we use to generate electricity, water to make myriad food products, or trees for desks and paper; all of the natural resources (including atmospheric gases) that we use to make products (or hold industrial “wastes,” like carbon) exist across a geologic time-scale measured in hundreds of millions of years. Three-year ROIs and quarterly earnings reports are but microscopic specks of dust across, for example, the 350,000,000 million years during which coal was formed from giant plants that died long before the dinosaurs.

When we ask (and ask and ask!) that sustainability justify itself on the altar of modern-day market capitalism, is this not a bit like arguing with a lump of coal over its own formation? We, rather than the coal, are the newcomers; who says it needs to explain itself to us? Coal is surely not going to adjust to our short-term needs. The core question is thus not about the business case for sustainability but rather the lack of a sustainability case for short-term profit maximizing behavior.

Done right, over a time-scale that accommodates both geology and the bottom-line, human ingenuity and nature’s incredible diversity and robustness can likely find a harmonious synergy. But this will take real leadership.

Who among the leaders of the Fortune 500 wants to tackle this issue of time and link his or her compensation equally to sustainability performance and profits by insisting that compensation be reviewed on a three-year basis across an integrated bottom line? Who at the SEC wants to lead the charge to bring corporate oversight out of the 19th century and into the 21st century by moving beyond limited reporting of climate risk to helping figure out how to bring trillions of dollars of environmental externalities onto the books of our nation’s corporations?

Hannah Jones also noted that at Nike, “we are measured against our potential.” Who among our corporate leaders today has the courage to just ….?

Leaders Today

Leaders today can little afford to be mere experts. Effective decision-making demands of leaders that we move fluidly and confidently across issues rather than be constrained by what we know. Making decisions with access to all the information required is easy. But leadership is about making the right decision in the face of limited or conflicting information.

• How can we see over the horizon to plan for emerging issues before they impact the bottom line?

• When traditional research approaches aren’t helping clarify a decision, what outside-the-box approaches will help?

• If we do what we measure, but we are not fundamentally in the business of sustainability, how de we embed metrics that make sense?

• How do we drive change, and preserve our organizational identify?

• What’s the effective way to asses an NGO/Corporate partnership to see if it really makes sense?

Whether we term it marketing or outreach, how do we effectively engage citizens (or consumers) beyond those that already know us and support us?

Call it sales, call it advocacy; we are all in the business of communications. And reaching across traditional divides is critical to addressing the great challenges of our age.

There is no such thing as climate policy without energy policy. Without addressing poverty, sustainable agriculture will never reach its promise of feeding not only this but also the next generation. Water issues are central to political, financial, health, and geographic realities and possibilities.

A Hospital without Patient Safety?

Corporate responsibility is to the management of a company what patient safety is to the administration of a hospital. If you are not doing it, what are you doing?

But as the concept of corporate responsibility has expanded beyond it initial construct of corporate social responsibility, so too the early focus on transparency, reporting, metrics and monitoring leaves much of this work outside the core business of business. Who would go into a hospital for surgery if we knew in advance that there were only, say, seven people working on patient safety while the rest worked on… what?

So for all the good that CR has done and is doing, in too many organizations the issues remain peripheral – small teams of dedicated people, sometimes with the ear of the CEO, pushing nudging the core business into incremental changes. Like tugboats working with a tanker, we often remain far from the engine room of power, profit, decision-making, and prestige.

Whether an executive, a stakeholder, a shareholder, or a CR professional we must confront the reality of popular fiction. Corporate structure is a figment of our legal and cultural imagination. Phenomenally effective at generating economic growth and the stuff that we all use and discard, and this engine has been one of prosperity for many millions of people, so too has this imaginative structure enshrined a set of incentives that all too often set people against one another. Short-term profit maximizing behavior clearly has denuded forests and stripped mountaintops bare. Long-term social development and cultural unity has often frayed as corporate institutions excel. Incumbents use market power to stifle innovation, even though they were yesterday’s innovators.

We know what CR looks like today, but tomorrow?