Saving Your Business and Your Planet
19 October 2009 Adam Werbach
CEO presents an excerpt from Adam Werbach's book Strategy for Sustainability: A Business Manifesto. Author Adam Werbach begins by examining the US car industry's collective failure to put sustainability at the heart of business strategies before explaining that to survive in the future companies will have to do more than just be 'green'.
Members of the US Congress leaned forward as the big three American automobile executives raised their hands to vouch for the truth of their forthcoming testimony. The three - Ford Motor Company's CEO, Alan Mulally; General Motors Corporation's chair and CEO, Richard Wagoner; and Chrysler LLC's chair and CEO, Robert Nardelli - had flown separately on their private jets from Detroit, the birthplace of the automobile, to Washington, DC.
With hats in hand, they came to beg the American taxpayer to bail them out. "It's almost like seeing a guy show up at the soup kitchen in a high hat and tuxedo," quipped Representative Gary Ackerman, a Democrat from New York. "Couldn't you have downgraded to first class, or jet-pooled or something to get here?"
Nardelli ignored the questions. He cut to the chase, explaining, "We are asking for assistance for one reason: to address the devastating automotive-industry recession caused by our nations' financial meltdown, and the current lack of consumer credit, which has resulted in the critical lack of liquidity within our industry."
What about the dramatic changes over the past 25 years in transportation technology, consumer behaviour and human and natural resources that the US automotive industry had not been addressing? House Republican leader John Boehner of Ohio asked as much a week before the fateful hearing: "Spending billions of additional federal tax dollars with no promises to reform the root causes crippling automakers' competitiveness around the world is neither fair to taxpayers nor sound fiscal policy."
Indeed, every strategy and action of these corporate titans and their counterparts at the major labour unions, particularly both parties' denial of the long-brewing causes of their current predicament, suggested a lack of connection to the changing world around them, changes that their foreign competitors seized to build long-term advantage.
Learning from the past
The writing had been on the wall for the societal changes that have driven the current crisis. Had they learned nothing from the energy crisis in the 1970s? Or how about the first Gulf War and the signal that it sent that the developed and developing world would be fighting a perpetual military and economic war for oil and energy?
Other heavily unionised industries in America had failed in the past, despite pleas at the time that they were 'foundations of America'. In industries from steel to textiles, corporate leaders formed a desperate alliance with union leaders and affixed themselves to a sinking ship, instead of committing to radical changes that would secure the industry's future.
The technological advances necessary to move the industry in the right direction had been around for 20 years or so. Lightweight carbon fibre materials can dramatically increase the fuel efficiency of a car. Combine that with advances in 'microelectronics, software, electricity-storage devices, and fuel cells' enabling 'ultralight construction, low-drag design, hybrid-electric drive, and efficient accessories' that outsiders such as the Rocky Mountain Institute (an organisation dedicated to research, publication, consulting, and lecturing in the general field of sustainability) had recommended, and Detroit had a roadmap for technological innovation. All these ideas had been around before the spike in gas prices in the summer of 2008, when GM began trumpeting its Chevy Volt as the future of the company.
For the previous 40 years GM had seen its US market share fall from 53% to 20%. Yet the company still had eight US brands (Cadillac, Saab, Buick, Pontiac, GMC, Saturn, Chevrolet and Hummer). As for its more successful competitors, Toyota (19% market share) had three, and Honda (11%) had two. GM had about 7000 dealers. Toyota had fewer than 1,500 and Honda had about a 1,000. This sort of scatter forced GM to overextend its marketing budget while still not saturating target audiences. Meanwhile, gas prices were going up, while Toyota and Honda's investments in hybrid technology led the way as an example of sustainable innovation. GM was already behind the curve by the time the credit crisis hit.
The International Brotherhood of Teamsters, along with the International Union, United Automobile, and Aerospace and Agricultural Implement Workers of America, better known as the United Auto Workers (UAW) union, are not without blame, either. The unions enabled a business-as-usual attitude in the Big Three. It was on the automakers' behalf that the Teamsters helped defeat environmentalists' attempts to protect the Arctic National Wildlife Refuge. Symbolically, the defeat was a statement that the automakers and the Teamsters would do whatever it took to maintain oil as their fuel of choice instead of changing direction to develop alternative sources of automotive energy.
Together, the 'Big Three' and the UAW loudly protested the US government's push for more fuel-efficient cars through corporate average fuel economy (CAFE) standards and missed the signals of the coming resource shocks. During the great petroleum price spike in 2008, America's Big Three had a production advantage over their competitors only in light trucks and SUVs, precisely the cars consumers did not want. The three automakers failed Detroit, their employees, their dealers, their shareholders and their customers. By the time the three CEOs appeared on Capitol Hill it seemed that everyone - no matter where he or she fell on the political spectrum - agreed that the American auto industry had to change how it did business, and fast.
But that was hindsight. What if the automakers had seen this firestorm coming years ago, and what if they had built and executed a strategy to avoid it altogether?
That's what every business has the opportunity to do, today. There is a choice. Innovate differently, and win. Or continue to innovate narrowly, and lose - businesses can watch some savvy competitor pass them by as they scramble to recoup lost market share or, worse, fight for their very survival, as the American auto industry is doing. After the congressional hearing, Speaker of the House Nancy Pelosi declared: "Until they show us the plan, we cannot show them the money."
My advice - more precisely, my set of frameworks - has grown out of the two lessons I learned: when I completely failed the City of New Orleans (in his book Werbach recounts how in 1997 couldn't persuade the city's then mayor of the need to rebuild the levees and restore the wetlands; hurricane Katrina struck in 2005) and when the automakers failed their stakeholders, employees and customers. First, developing and executing a strategy for sustainability is critical for business's survival in today's rapidly changing world: one in which there are more hurricanes, fewer wetlands, more limits on resources and less credit to go around - and in which there will be more change tomorrow. Second, a successful strategy for sustainability is different from and much bigger than being just 'green': it must take into account every dimension of the environment in which your business operates - social, economic, and cultural, not just the natural environment.
A green strategy is not a strategy for sustainability
The word 'sustainability' became widely used in an environmental context in 1987, after it appeared in a United Nations report by former Norwegian prime minister Gro Harlem Brundtland. Brundtland defined sustainable development as 'meeting the needs of the present without compromising the ability of future generations to meet their own needs'. Before that time business leaders used the word 'sustainability' to connote a company that had steady growth in its earnings.
A cashier in Indiana offered me this definition: "Sustainability is something I can do to take care of me and my family now, so that I don't make bad decisions that I'll have to deal with in the future."
Over time, the meaning of the word has become somewhat diluted. As Michael Pollan, author of The Omnivore's Dilemma, writes: "The word 'sustainability' has gotten such a workout lately that the whole concept is in danger of floating away on a sea of inoffensiveness. Everybody, it seems, is for it whatever 'it' means." Pollan touches on the dark side of the interest in sustainability, a business phenomenon called 'greenwashing': when companies focus more on communicating their green efforts than improving their practices.
Sustainability is also frequently used to describe the philanthropic efforts of an organisation to protect the environment. Indeed, many business leaders file the word away in the part of their brain that deals with philanthropy, public relations and compliance. Sure, these goals are necessary and valuable, but sustainability is not a buzzword or public relations stunt tacked onto your business. An environmental goal is not enough to manage a company's future successfully. Neither is an economic goal. In the book Green to Gold, Daniel Esty and Andrew Winston argued that smart companies should use environmental strategy to fuel business opportunities and innovation. While they are quite right in identifying this new source of revenue, this economic goal itself should be only the first step toward a strategy for sustainability.
The business argument for a comprehensive strategy for sustainability is not only that your company might make more on the top line or eliminate some costs to plump up the bottom line, it is that your company will survive and thrive by following emerging trends in society, technology and natural resources.
Being a sustainable business means thriving in perpetuity. In this business context, sustainability is bigger than a public relations stunt, bigger than a green product line, bigger even than a heartfelt but part-time nod to ongoing efforts to save the planet. Imagined and implemented fully, sustainability drives a bottom-line strategy to save costs, a top-line strategy to reach a new consumer base, and a talent strategy to get, keep, and develop employees, customers and your community. As I realised after Katrina, true sustainability has four coequal components:
- Social (acting as if other people matter): actions and conditions that affect all members of society (e.g. poverty, violence, injustice, education, public health and labour and human rights)
- Economic (operating profitably): actions that affect how people and businesses meet their economic needs (e.g. securing food, water, shelter and comforts for people and for businesses turning a profit so that they'll be able to continue for years to come)
- Environmental (protecting and restoring the ecosystem): actions and conditions that affect the earth's ecology (e.g. climate change, preservation of natural resources and the prevention of toxic wastes)
- Cultural (protecting and valuing cultural diversity): actions through which communities manifest their identity and cultivate traditions from generation to generation.
While there may very well be positive social, economic and cultural benefits to a green strategy, they are not as integral to its success as they are to a strategy for sustainability. Let's look at an example. A green strategy might be to slow global warming by making energy more expensive.
For example, on National Public Radio's On Point, Tom Ashbrook asked me and Auden Schendler, the executive director for community and environmental responsibility at Aspen Skiing Company and the author of Getting Green Done, whether gas should cost $10 a gallon to force people to conserve. Such a tax would discourage consumers from driving and would thereby lower the amount of fuel consumed and the amount of carbon dioxide (CO2) released into the atmosphere.
In this case, the green strategy would succeed for the short term, but not be sustainable for the long term, because it would fail socially, economically and culturally. Socially, because millions of people could not afford transportation to work, visit family, attend school or participate in their community. Economically, because it would lower business output across the board - any industry that relied on transportation would be affected. And the strategy would fail culturally, because it would hit the poorest members of society the hardest - those who already had trouble affording the gas to get from one job to another, for example, further isolating wealthy, homogenous communities such as Aspen, Colorado, from the changes on the rest of the planet.
Even as a green strategy, the idea of raising the price of gas to $10 a gallon would not work for long, since consumers would undoubtedly rebel and reject the tax. The sort of myopic view of green is similar to the myopic view of economic growth that many companies hold and that a broader strategy for sustainability would reject.
Now contrast that with Google's stated goal, the development of renewable energy cheaper than coal. As with the stated goal of the fuel tax, Google's plan would lower CO2 emissions. But additionally, in the social sphere, the plan would bring millions of people who live in abject poverty to a higher quality of life. In the economic sphere, it would encourage low-polluting industries to expand over the long term without disrupting the private sector in the short term. And in the cultural sphere, the plan would make distances shrink as low-cost, low-pollution travel would bring new ideas into circulation across the world. So Google's plan is not just green, but also sustainable.
Reprinted by permission of Harvard Business Press. Excerpt from Strategy for Sustainability: A Business Manifesto. Copyright 2009 Adam Werbach. All rights reserved.