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Our Insights 22 May 2013

Leadership Requires Systems Change

By Michael Sadowski

Companies like Whole Foods have developed successful business models to meet particular environmental and social needs but it is not necessarily as straight forward for mainstream brands.

“Innovation is most powerful when it’s activated by collaboration between unlikely partners, coupled with investment dollars, marketing know-how and determination. Now is the time for big, bold solutions. Incremental change won’t get us where we need to go fast enough or at a scale that makes a difference.” — Mark Parker, CEO, NIKE, Inc. at the LAUNCH 2020 Summit

I recently finished Conscious Capitalism by John Mackey and Raj Sisodia, and came away with new perspectives on, and examples of, strong private sector leadership on environmental and social issues. The authors’ examples from Whole Foods – generous employee benefits, transparency and equity of salaries, etc. – are impressive and might be enough to soothe customers displeased by Whole Foods’ CEO Mackey’s candid views on topics such as health care, climate change and unions.

Like others before them (see my blog on Creating Shared Value), the authors attempt to differentiate their concept with others such as sustainability, citizenship and CSR. Yet Mackey and Sisodia essentially offer the same thesis: companies that consider and manage a broad array of stakeholder interests (beyond meeting the needs of shareholders alone) will perform better financially over the long run. This viewpoint is now more or less commonplace amongst large, global companies, a development we should celebrate.

The most pressing problem then is no longer that leading companies don’t understand or accept the issues before us. The problem is that even the most ambitious among them face major hurdles in realizing their commitments and driving the change society and the planet require, hurdles that point over and over again to the need for a fundamental rethink of the rules of the game (or system).

We welcome and need more companies like Whole Foods that have developed successful business models designed from the start to meet particular environmental and social needs. But it’s incredibly difficult for “mainstream” companies – Costco, Amazon, Nordstrom and others included as examples by the authors – to find the same equilibrium amongst competing stakeholder interests without addressing the fundamental flaws in the current system. For example, natural resources are not fully priced, labor is not fairly valued in many supply chains, unhealthy food is cheaper than its alternative, etc. Mackey and Sisodia are right that free markets are incredible forces for good. They would be even more so if government policy, investment norms and industry codes of conduct fully addressed the externalities that exist.

This particularly struck me during an interview with an investor for our Rate the Raters research, who acknowledged that obesity was imposing enormous costs on society, and yet he would not see it as a material issue for a food company until some sort of public policy instrument made it more profitable to sell more oatmeal and orange juice than chips and soda. We heard similar sentiments around other issues and sectors, for example electric utilities and climate change.

Of course, incumbents have it in their best interest to maintain the current rules of the game, and we see this in effect each time the EPA considers new regulation or Congress considers the farm bill. Yet, as we seek to identify and foster sustainability leadership amongst corporations, we must press aspiring companies to go beyond their own organizational boundaries and commitments and engage in challenging conversations about changing the system.

Encouragingly, companies are joining together with other organizations in an attempt to change the rules of the game and find the levers for change in the system. We see this in the good work of Ceres, which is leveraging its BICEP network of companies to push the US government to tackle climate change, as well is in efforts such as the Roadmap to Zero Toxics group and the Aspen Institute’s Corporate Values Strategy Group, which is working to reverse the increasing short-term focus of our financial markets. We need much more of this type of collaboration to drive the change we seek. After all, Ceres’ climate coalition currently has around 30 companies involved – one can imagine the change that would occur if 3,000 companies were behind this.

Our just-released 2013 Sustainability Leaders survey suggests that sustainability experts recognize that leadership requires engaging at the systems level, as most companies cited as leaders (slide 13) are doing just that in certain areas. For example Google in pushing for renewable energy tariffs, Nike is partnering to deliver game-changing sustainable materials and Novo Nordisk is working with a variety of partners to prevent and manage diabetes.

As I watch efforts like these from the vantage points of an outsider and advisor to some of these companies, I recognize how incredibly messy and difficult it can be to engage with the “system.” Collaborating with competitors, suppliers, regulators, other consultancies, etc. requires new modes of thinking and working, and it takes time. Yet, we must recognize and encourage such collaboration, as per Mark Parker incremental solutions won’t get us where we need to go fast enough or at the scale required.

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