The Great Disruption (21 page)

We always advocated to our clients that business strategy should be centered around a clear social purpose, for the reasons previously discussed. However, we recognized that our clients' bills had to be paid, along with a reasonable return on capital. This wasn't a casual afterthought, an “oh yes, you need to make money”; it was central to our work. Around this time, the focus in corporate responsibility was on the “triple bottom line,” a phrase coined by my good friend and one of the world's outstanding corporate sustainability pioneers John Elkington, founder of the U.K. firm SustainAbility. It meant that companies should deliver and report on social and environmental performance as well as profits.

In contrast, we centered our strategic advice on what we called “single bottom line sustainability,” meaning that the pursuit of profit, without which no company can succeed, and the pursuit of sustainability should be a single mission, not separate, parallel efforts.

In 2002, Don Reed and Murray Hogarth, two of our most experienced advisers, and I released a major report with the title
Single Bottom Line Sustainability
. It caused quite a stir in the corporate sustainability community around the world because we argued that companies should take
only
those actions in sustainability that delivered definable financial benefit to the company.

It wasn't that we believed in shareholder value as an end in its own right. Ecos followed its own advice and was clearly purpose focused. We were transparent about being in business to drive change toward sustainability, not to do whatever our clients wanted to pay us for. However, we recognized that unless we gave advice to clients that delivered value, they wouldn't keep following it. If we wanted to drive sustained action on sustainability, that action had to deliver measurable financial reward for the companies involved.

Perhaps the most significant thing I learned over more than a decade doing this work was that companies' capacity on issues like sustainability is limited in material impact until the market and regulatory context are in place to reward or punish them for their performance. While we had success in getting our clients focused on the right activities, even the best of them soon came across limits to what they could achieve as leadership companies in front of market trends.

One of our major relationships was with Ford Motor Company, where we worked with many executives, but particularly Jacques Nasser as CEO and to some extent with Bill Ford as chairman. We were joined in this work by Geoff Lye and his team from SustainAbility in the United Kingdom.

Ford faced a classic sustainable business dilemma. At this time they were making most of their profit from selling SUVs and pickup trucks. This had been a very successful strategy, but after a few years it became clear that while sales and profits were holding up, increasing public and regulatory concern about safety and fuel economy meant there was a conflict between the short-term financial strategy and the longer-term business strategy. There was a significant risk that either through regulatory action or customer sentiment change, the market could shift suddenly, leaving Ford vulnerable. Bill Ford even had the courage to raise this dilemma and challenge in public forums.

We worked with a group of up-and-coming executives and Ford's scientists to review the climate science and what it meant for Ford's product strategy. What became clear to them was that the market was inevitably going to shift at some point, and because of the long lead times in new products, Ford needed to shift focus onto fuel economy and climate change as a central part of their business strategy, so they would be prepared. Nasser understood the strategic imperative in these issues and brought us into the full executive on a number of occasions to explain the strategy as it was developing and to develop the executive team's understanding of climate change and other sustainability business drivers. He understood that having a strategy dependent on cheap oil, a price-sensitive, nonrenewable resource with global climate impact, was a risky strategy, and shifting the fundamental direction of a company of Ford's size was not going to happen quickly.

Many Ford people were passionate about these issues, particularly the up-and-coming executives who saw this as the company's future, and they worked hard to make change happen. Unfortunately, during this period Ford had a major safety crisis erupt with the Firestone tire recall and the recession of 2001, which distracted the leadership from the longer-term sustainability issue.

Nasser got the issues and was a powerful and entrepreneurial force for change in this very old company—the media even referred to him as the “hard-charging Aussie.” Bill Ford had great personal belief in environmental issues, even advocating a gasoline tax, as well as having the cultural magic of being from the Ford family. But because they couldn't forge an effective working partnership, Nasser left.

The company floundered for some years following. Ford did some great work after that point, including releasing the world's first hybrid SUV and developing some excellent small-car models like the Focus that were great successes.

However, Ford faced serious challenges when some years later customer sentiment suddenly turned with rising oil prices and Ford's key sales strength, SUV and truck sales, plummeted—just in time to be magnified by the global recession. Having launched some more efficient models earlier, they were in much better shape than GM when the crisis hit and didn't take government funds to keep them afloat. But they never reached their full potential to be an American powerhouse in environmentally advanced cars and were still too reliant on larger, heavier vehicles. They got no encouragement to change from the U.S. government, which kept gasoline prices low and fuel-efficiency standards that were not competitive with the rest of the world's markets.

This whole experience was an important lesson in the leverage of culture and leadership in driving change. These factors are enormous influences on what companies will and won't do in this great transition. Ford of course has survived and prospered to date, but whether the company will continue to do so when the Great Disruption takes full hold, only time will tell. And who knows what more could have happened if Nasser the driven change agent and Bill Ford the environmentalist could have forged an effective team.

At least Nasser will be able to put his experience on climate change to good use now that he's chairman of BHP Billiton. This is the world's biggest natural resources company with investments across a broad range of commodities, including coal and uranium, thus being on both sides of the climate debate.

Another of our key relationships at Ecos was with the DuPont Company. We worked there with Dr. Paul Tebo, who drove their activities around sustainability and was the most effective corporate change agent I've ever known. The CEO during most of my time with DuPont was Chad Holliday, who still stands out as one of the most committed and thoughtful CEOs I have worked with anywhere in the world. Chad was responsible for leading DuPont's transformation toward sustainability from 1998 to 2008.

My favorite story involving Chad is a fine example of my earlier point about the importance of organizing a company around social purpose, with shareholder value being a measure of success rather than an organizing principle.

I was giving a talk with Chad to DuPont's global safety and sustainability leaders. I raised the issue of DuPont as an institution and who really cared about it. DuPont is a proud company with a two-hundred-year history that lives and breathes its culture; you can't spend time there without getting a sense of it. I provocatively said to Chad and the other leaders: “So why does it matter if DuPont exists? You just produce products and create jobs, so if you cease to exist, we can just replace you with another company that produces similar products and creates jobs.”

The discussion was dynamic, and I could see the lights switching on in people's eyes around the room. If the company didn't stand for anything, if it didn't exist as something more than a machine that produces things and jobs, then it actually had no inherent value to society as an institution. Of course creating shareholder value matters, but it's not a reason for existence. No one lies on his or her deathbed with the regret “Gee, if only I'd generated more value for shareholders, my life would have been more worthwhile”!

Chad pulled me aside afterward and said, “I now understand what you're trying to achieve here; keep it up.” He understood that purpose was central to culture and therefore to financial performance. For years after that, we worked with the company on many issues, connecting them to diverse external stakeholders, aligning their portfolio of businesses to sustainability, identifying new business areas to invest in, and helping them focus on changing the regulatory environment in ways that would reward them for being cleaner than their competitors.

One of these projects was a manifestation of this purpose focus. DuPont is world famous for their workplace safety performance, which is truly outstanding. Dr. Paul Tebo, nicknamed “the Hero of Zero” for his relentless pursuit of the idea of zero workplace injuries, had led the programs in this area, building on a two-hundred-year-old company focus on it.

At this time Paul was expanding the company's focus into sustainability and had been working with Chad and his executives to shift the company's strategic focus to one of delivering societal value, helping society meet its needs through the use of science. The objective was to deliver social needs with minimal environmental impact and align this strongly with the creation of shareholder value for DuPont—what they called “sustainable growth.” This was a major shift for a chemical company Greenpeace had targeted as the “world's biggest polluter” when the company topped the United States' toxic release inventory!

Chad and his team decided that with safety being core to DuPont's culture it would be the ideal test platform for their new strategy. Under the leadership of Ellen Kullman, they brought their various safety-related businesses, products like Nomex (fire-protective clothing for firefighters) and Kevlar (for cuts and bullet protection), with their safety consulting business, DuPont Safety Resources, led by Jim Forsman, to form a division focused on saving lives. Of course they sought to generate value for shareholders in doing so, but the language of Ellen and Jim's team clearly showed they took saving lives very seriously, with targets for lives saved by country and region. It was in their language every day. The division grew successfully, and its leader, Ellen Kullman, became the global chair and CEO of DuPont when Chad retired from the role.

In all our work at Ecos with dozens of companies, DuPont was perhaps our most successful because the company fundamentally changed its business model from a shareholder-value-focused chemical and fossil fuel company to a purpose-driven science company that had worked out how to make money by doing good. It was still sharply focused on generating financial value, but it did so under the umbrella of a clear social purpose.

When I recently checked in with DuPont to see how they had progressed since our work there, I was pleased with what I heard. When Paul Tebo retired in 2003 he was replaced by Linda Fisher. Linda's title was expanded to include chief sustainability officer, reflecting Tebo's success in helping DuPont see sustainability as a mission, vision, and growth agenda rather than a compliance role. CEO Ellen Kullman has now targeted DuPont's growth around four megatrends that align well with a response to the Great Disruption—working toward the development of abundant food, reducing dependence on fossil fuels, protecting people and the environment, and growing businesses in emerging markets. DuPont now allocates 75 percent of their research and development dollars in these four areas. Linda's role is to help business units see such sustainability trends as shaping forces for their business strategies. She tells me they are also now seeing, just in the past few years, more pull from customers about the sustainability of their offerings.

But even DuPont bumps up against the limits of leadership. They have more products and solutions to customers' environmental and social needs than the market is yet ready for. With no cost to pollution, their solutions of lighter cars, smarter building materials, and a range of other clever uses of science and technology find a good market but not one that has yet rewarded them strongly for their leadership. Recognizing this, they focus on shifting government policy to tighten standards, with Chad having played a strong and vocal role on issues where many in the business community were not yet with him, such as advocating caps on CO
2
pollution. Ellen continues this approach but still finds other companies opposing such measures.

This is not to understate DuPont's substantial achievements and excellence as an example of what can be achieved by corporate leadership.
2
Far from perfect and with many legacy pollution issues, they are nevertheless at the top of their class, and their contribution to society and to the public debates on these issues has been substantial and deservedly recognized. I point to it as an example that even DuPont, one of the most progressive old companies in the world, with sixty thousand employees and a $30 billion turnover, with passionate and committed leadership, can have little impact on the overall market when the framing conditions of the market aren't in place to reward them for leadership.

That brings us back to the role of government.

With fifteen years working as a business adviser and business owner, I have learned how markets can and can't contribute to the task at hand. Markets are a powerful delivery mechanism, but companies cannot and will not pursue activities that are not profitable. When companies can pollute for free, they will do so. The best companies in the world can resist this tide, but in the end the tide will wash over them.

The solution is stronger government action, and despite public debate arguing this is bad for business, the opposite is in fact the case. As Harvard professor Michael Porter famously proved, government regulation for tougher standards can make countries and companies
more
competitive, not less.
3
So if the U.S. government had enforced fuel economy standards similar to those in Europe and Japan, Ford and GM might never have faced the crisis they did when oil prices spiked, and DuPont would have sold more lightweight materials to them, creating more American jobs in the process.