The Responsibility Revolution E-Book

Jeffrey Hollender

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 352

Veröffentlichungsjahr: 2010

Beschreibung

How to create a company that not only sustains, but surpasses-that moves beyond the imperative to be "less bad" and embrace an ethos to be "all good"

From the Inspired Protagonist and Chairman of Seventh Generation, the country's leading brand of household products and a pioneering "good company," comes a one-of-a-kind book for leaders, entrepreneurs, and change agents everywhere. The Responsibility Revolution reveals the smartest ways for companies to build a better future-and hold themselves accountable for the results. Thousands of companies have pledged to act responsibly; very few have proven that they know how. This book will guide them. The Responsibility Revolution presents fresh ideas and actionable strategies to commit your company to a genuine socially and environmentally responsible business and culture, one that not only competes but wins on values.

• Points the way for innovators and influencers to generate trust by becoming transparent, elicit people's passion and creativity, turn customers into collaborators, transform critics into allies, rewrite the rules and reinvent business
• Shows how to build a socially and environmentally responsible yet genuinely good company and an authentic brand
• Drawing on groundbreaking interviews with real-world change leaders, Hollender and Breen present lessons and insights from the "good company"' parts of big companies like IBM and eBay, trailblazers like Patagonia and Timberland, and emerging dynamos like Linden Lab and Etsy

The Responsibility Revolution equips people with the tactics, models, and mind-sets they need to compete in a world where consumers now demand that companies contribute to the greater good.

Leseprobe

Table of Contents

Praise

Title Page

Copyright Page

Dedication

Foreword

PREFACE

Chapter 1 - THE RESPONSIBILITY REVOLUTION TAKES OFF

RESPONSIBLE REVOLUTIONARIES EMERGE

TO BUILD A BETTER CAPITALISM

RESPONSIBLE COMPANIES, REVOLUTIONARY PERFORMERS

GOOD INTENTIONS AREN’T GOOD ENOUGH

CORPORATE RESPONSIBILITY 2.0

A BLUEPRINT FOR REVOLUTIONIZING RESPONSIBLE BUSINESSES

Chapter 2 - THE COMPANY TAKES ON A MISSION

THE VALUE OF VALUES

AN OUTFIT WITH A CAUSE: ORGANIC VALLEY FAMILY OF FARMS

A DIFFERENT KIND OF COMPANY

THE USER’S GUIDE TO BUILDING VALUES: MARKS & SPENCER

AN AGENDA FOR BUILDING MISSION-DRIVEN COMPANIES

Chapter 3 - NOT A COMPANY, BUT A COMMUNITY

TO BREAK THE BUREAUCRATIC HIERARCHY: LINDEN LAB

THE USER’S GUIDE TO BUILDING A PURPOSE-DRIVEN COMMUNITY: SEVENTH GENERATION

Chapter 4 - MAKE IT TRANSPARENT

TRANSPARENCY’S ASCENDANCY

TO ENSURE TRUST, BUILD TRANSPARENCY

TURNING CRITICS INTO COLLABORATORS

THE COST OF IGNORING THE TRANSPARENCY IMPERATIVE

GREEN IS THE COLOR OF TRANSPARENCY: PATAGONIA

THE USER’S GUIDE TO TRANSPARENCY: TIMBERLAND AND NOVO NORDISK

Chapter 5 - AUTHENTICALLY GOOD

ANOTHER INCONVENIENT TRUTH

PUTTING SUSTAINABILITY AT THE CORE

A BLUEPRINT FOR AN AUTHENTICALLY SUSTAINABLE BUSINESS: PATAGONIA

IS AUTHENTICITY INCOMPATIBLE WITH GROWTH?

THE USER’S GUIDE TO SCALING AUTHENTICITY: NIKE

Chapter 6 - THE COOPERATIVE COMPANY

SOCIAL TECHNOLOGIES FOR THE SOCIAL GOOD

THE COMPANY EMBRACES A COMMUNITY: ETSY.COM

THE USER’S GUIDE TO COLLABORATION: IBM

Chapter 7 - BEYOND RESPONSIBILITY

TO BUILD CORPORATE CONSCIOUSNESS: SEVENTH GENERATION

CORPORATE CONSCIOUSNESS FRAMES CORPORATE STRATEGY

ACTION ITEM: FIRST STEPS FOR DEVELOPING CORPORATE CONSCIOUSNESS AT YOUR COMPANY

EPILOGUE

NOTES

Acknowledgements

ABOUT THE AUTHORS

INDEX

“Jeffrey Hollender and Bill Breen give us the inside scoop on how truly responsible companies out-think and out-perform their conventional minded competitors. Part manual and part manifesto, The ResponsibilityRevolution delivers a truckload of examples for growing a company that benefits society as well as shareholders. I only wish we had TheResponsibility Revolution’s real-world lessons when we launched Ben & Jerry’s.”

—Ben Cohen, co-founder, Ben & Jerry’s

“Jeffrey Hollender is a true master of the arts in unifying business with ecology. A rarity indeed, he is one who practices what he teaches.”

—Horst M. Rechelbacher, founder, Intelligent Nutrients

“My hat is off to Jeffrey Hollender and Bill Breen for their daring new book, The Responsibility Revolution. Drawing on their personal experiences in building the highly successful company, Seventh Generation, and on a wealth of other material, they show with force and eloquence what’s required for corporations to transcend the failed promise of ‘corporate social responsibility’ and give real leadership in building a new economy where people and planet flourish. No more hype and platitudes, The Responsibility Revolution is the real item—a Baedeker for businesses that want to be part of a future that works.”

—James Gustave Speth, author of The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability

“The Responsibility Revolution is a welcome, hopeful, and timely road map for truly sustainable 21st-century commerce in which people and the planet actually count, and profits are the means but not the ends. Cynics beware—their optimistic analysis derives from real evidence that we may in fact be getting commerce right. Their guidance is visionary and their vision gives great guidance. This is a must-read 21st-century primer for investors, entrepreneurs, consumers, and policy-makers alike.”

—Gary Hirshberg, president and CE-Yo, Stonyfield Farm, Inc.

“Jeffrey Hollender and Bill Breen have collaborated to produce a remarkably detailed road map for businesses that are searching sincerely for the path to good reputation, high purpose, and deep respect. Read this book for new clarity about the power of all three qualities, and the path to authentic realization thereof.”

—Ray C. Anderson, founder and chairman, Interface, Inc.

Copyright © 2010 by Jeffrey Hollender and Bill Breen. All rights reserved.

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Library of Congress Cataloging-in-Publication Data

Hollender, Jeffrey.

p. cm.

Includes bibliographical references and index.

eISBN : 978-0-470-59039-3

1. Social responsibility of business. 2. Management—Social aspects. 3. Business enterprises—Social aspects. 4. Business enterprises—Moral and ethical aspects. 5. Social values. I. Breen, Bill. II. Title.

HD60.H648 2010

658.4’08—dc22

2009043626

HB Printing

This book is dedicated to my wife, Sheila, who supported me through the endless trials and tribulations of building Seventh Generation and the endless travel, mistakes, and sleepless nights that came with the territory.

—JH

To Helen Hanau Breen, who put so many of this book’s principles—purpose, community, service, and, in her case, family—ahead of her own self-interest.

—BB

FOREWORD

NOW IS THE TIME

In many ways, the year 2009 marked a historic transition. A free-falling economy put more Americans out of work than at any other time since the Great Depression. The United States’ first African-American president took office and cobbled together the biggest economic stimulus package in the country’s history. The nations of the world gathered in December for a historic climate negotiation, the first time all major contributors had to acknowledge the growing climate crisis, the need for radical and rapid changes to avert catastrophic possibilities, and the likely costs that future generations will bear.

As dramatic as the year was, it probably offers a representative tableau of the economic, social, political, and environmental turbulence yet to come. According to the World Wildlife Fund, we currently use the equivalent of one and one-third Earths’ worth of resources to maintain our lifestyles. If China alone were to reach the rate of U.S. consumption, in terms of natural resources extracted and ecosystems impacted, we would need the equivalent of two Earths. The consequences of such environmental excess and the resultant degradation fall disproportionately on the poor: approximately one billion people do not have reliable access to clean drinking water today; the World Health Organization estimates that number will swell to three billion by 2020. Despite political speeches and growing public concern, global CO2 emissions in 2006 and 2007 exceeded the Intergovernmental Panel on Climate Change’s worst-case scenario; carbon emissions fell slightly in 2008, but only because of the global recession. Clearly, we have not yet begun to slow the drivers of climate change, nor have we seriously started to realign our many social and environmental imbalances.

And yet most talk in the business and public sectors is about getting the economy back to “normal.” Although growing numbers of leaders in all sectors are starting to sense the depth and breadth of the challenges that lie ahead, we still assume a return to business-as-usual, albeit with some minor adjustments.

All of this leaves us profoundly ambivalent about the future. On the one hand, we long for real change. Few among us want to live in a way that generates enormous amounts of waste and pollutants, drives farmers around the world into poverty, depletes precious resources like fish and forests more rapidly than nature can replenish them, destroys species and ecosystems, or heats up the planet. On the other hand, we fear that a future fundamentally different from the past is not truly possible. Consequently, we have little collective will to follow a better path.

Insofar as business is one sector that must help take a lead in building a better future, the burgeoning corporate social responsibility (CSR) movement gives us reason to hope. But it, too, has been mired in this same ambivalence. Many executives now concede that companies that focus narrowly on their own bottom line and ignore their larger social and environmental impacts invite activists’ ire and put their profits at risk. Consequently, more and more multinational corporations are turning out glossy CSR reports and are creating senior staff positions dedicated to corporate responsibility. Not surprisingly, CSR consulting is now a booming business.

Then again, I doubt most people would hold out present CSR programs as a grand success story of transformation accomplished. Despite CSR’s best efforts, for the most part, we still make the wrong products, powered by the wrong energy, driven by the wrong business models. A small number of corporations are starting to internalize the truly strategic implications of the changes that are looming, but even these few leading enterprises are far from truly integrating an expansive business mission into their daily operations.

I can see only two things that will shift this state of affairs: a different vision of the future that is more inspiring than the status quo, and a new consensus on what it will take to move toward it. It is because of this that I think Jeffrey Hollender and Bill Breen’s new book could not be timelier.

No one has drafted the definitive map of the new territory where truly sustainable enterprises are built, but Jeffrey Hollender can certainly lay claim to having spent as much time as almost anyone exploring the terrain. He cofounded Seventh Generation twenty-one years ago on the premise that merging social and environmental justice with product, market, and management innovation is good business.

Today, Seventh Generation is a nationally recognized consumer-goods company that markets a complete line of household products, from recycled paper towels and tissues to biodegradable detergents. The company’s innovative way of using products to educate consumers on how to create a healthier home and biosphere is pioneering a new field of responsible marketing, which has helped make Seventh Generation the nation’s fastest-growing brand of natural home and personal-care products. Its commitment to building networks of trusted business partners, or “SEDRs” (self-extending developmental relationships), has helped it grow large while staying small. In 2008, Seventh Generation reported nearly $150 million in annual sales, which it achieved with a workforce of fewer than one hundred and fifty—a sales-productivity ratio that any business would envy.

In The Responsibility Revolution, Hollender and business writer Bill Breen lay out what they believe are the basics of a vision of a better business, one that operates in greater harmony with its environment and offers a more exciting and meaningful place to work. The vision blends principles and practices—like understanding the challenges that come with creating a sense of purpose and what it takes to integrate that mission into an enterprise’s day-to-day work. The key is to keep building capability along both dimensions, increasing genuine commitment and the skills to deliver on that commitment.

For example, Hollender is a deep believer in transparency, an idea that most businesses embrace in principle but find terrifying in practice—for good reason. A company that reveals its demerits as well as its merits opens itself up to a never-ending and invariably humbling journey of examining facts, listening to others’ views, reflecting, and learning. Those organizations that do it well build a culture that embraces high levels of self-criticism and a willingness to challenge management’s most cherished beliefs—including its privilege to make decisions behind closed doors. Such a culture inevitably extends to all members of the organization and beyond, including those who are neither employees nor experts in the business.

Like the other dimensions of change that Hollender and Breen explore, none of this is quick or easy. An organization that benefits society as well as shareholders requires leaders at all levels who never stop reflecting on who they are and who they want to be, who can blend their own personal vision with those who see the world differently, who tell the truth about obstacles and recognize their own personal responsibility in creating them, and who know there are no final answers or formulas. Building a responsible company takes, literally, forever.

Richard Beckhard, one of the pioneers in the field of organizational development, used to say, “People do not resist change, they resist being changed.” We will know we have really begun this journey when leaders at every level summon the clarity and passion to follow their own minds and hearts in creating business anew. This small book will likely make a big contribution on both fronts.

Peter M. SengeSeptember 2009

PREFACE

THE RESPONSIBILITY REVOLUTION: OUR MANIFESTO

Twenty years ago, when Seventh Generation told executives at the old Fort Howard Paper Company that we wanted to market bathroom tissue made from unbleached recycled fiber, they laughed. Even then, the paper industry made tissue with recovered wastepaper—but that was a well-kept secret. That we wanted to announce this to our customers, at a time when “recycled” was equated with “rejected,” was judged nothing short of madness.

We went on to do many more things that broke with business convention. We criticized our own products. We gave stock to all our employees. We limited senior management’s salaries to no more than fourteen times the earnings of our most junior staffer. Dogs roamed through our Burlington, Vermont headquarters. One office was turned into a nap room. Instead of promoting our products, we endorsed Bill Clinton and Al Gore on the cover of our mail-order catalog.

Always more activists than hawkers of products, we were part of a small band of companies that set out to change business. Together with Ben & Jerry’s, just up the road from us, and along with mavericks like the Body Shop, Patagonia, and Working Assets, we spent endless hours talking about business’s untapped potential for doing good.

To this day, Seventh Generation has continued to act as a laboratory for designing, through many trials and more than a few errors, an authentic and transparent model of corporate responsibility. It’s a place where we try almost anything and stop at nothing. We hired a “director of corporate consciousness.” We built the Seventh Generation Nation of conscious consumers, now almost two hundred and fifty thousand strong. We don’t have a PR director; we have a “conversationista.” We don’t have a brand manager; we have a “brand mother.” Our corporate manifesto is not about quarterly earnings, return on equity, or market share; it’s about creating a just and equitable world, inspiring conscious consumption, and building coalitions that create new possibilities. Our name comes from the Iroquois, not an ad agency.

Today, green products are as plentiful as businesses that define themselves as “socially responsible.” You can find Kimberly-Clark’s Scott Naturals in any Walmart, Clorox’s GreenWorks in Target, organic Cheerios in Safeway, “clean coal” and “greenhouse-gas-friendly” nuclear power promoted in Washington, and hybrid SUVs at an auto dealer near you. Has our movement been co-opted? Has it lost its heart and soul?

Certainly, corporate responsibility is more visible than ever before. It delivers good press, and even skeptics can see that environmental improvements and energy efficiencies reduce costs. But despite the thousands of corporations that have signed codes of conduct promising good behavior, the events that triggered the brutal recession of 2008-2009 demonstrate that far too few companies are moving in a truly “responsible” direction. And so we need a revolution. We can no longer afford incremental improvements, fine-tuning, or easy upgrades in the way we execute on corporate responsibility. We’ve run out of time for the go-slow approach. As Peter Senge and his coauthors proclaim in their recent book, this revolution is a “necessary revolution.”1 Without it, the brand called business will continue to suffer.

Most revolutions, of course, end badly, with the protagonists bloodied by their own intemperance. Many a revolutionary has championed a radical business agenda that attempts to overthrow the status quo, but ultimately has been smacked by a backlash (reengineering, for example), undercut by inflated claims (the dot-com revolution), or brought down by hubris and unbridled risk-taking (the financial-derivatives mania). We believe this transformation is different, because it’s as much an evolution as a revolution. It is built on a resilient business case. It involves sweeping change, but change that starts in our minds—in wiping away the deeply ingrained, almost unconscious way that we’ve come to narrowly define the purpose of business.

For too long, despite business’s supposed embrace of corporate responsibility, the vast majority of companies have deemed it entirely acceptable for their activities to diminish society and impair the environment. What matters most is that stock prices rise and executives “win.” Again and again, the interests of a few are deemed more vital than the welfare of the many. Although we concede that putting the good of society ahead of the profit motive still doesn’t even enter into most executives’ frame of reference, we believe those old mental models will change. Indeed, among a small but growing vanguard of business revolutionaries, they already have changed. And when ideas change, our future changes with them.

When we set out to write this book, we knew it was far bigger than any one company’s story, including Seventh Generation’s. Other insurgent companies are innovating powerful ways to build market share and grow revenue by confronting confounding social and environmental challenges. When we reached out to their founders and CEOs, the response was overwhelmingly positive. We were granted access to all kinds of responsible revolutionaries, including a number who don’t often give interviews. They reasoned that if this book’s readers can improve on their successes and learn from their mistakes, more businesses might finally get serious about corporate responsibility.

So as you move through the book, you will encounter a potent mix of veteran revolutionaries, as well as some that aren’t often associated with the corporate responsibility tribe. Each offers new models for building the kind of companies that will thrive in the emerging sustainable economy.

There are pioneers like Patagonia, Organic Valley, and Seventh Generation, who have pushed past the incremental approach to advancing sustainability. They have continued to innovate and build on past successes, often redefining the revolution’s leading edge.

There are big brands like Nike and Timberland, who long ago had change forced upon them and now are leveraging sustainability as a powerful force for innovation in new and surprising ways.

We’ve included European bellwethers like Marks & Spencer and Novo Nordisk, who are raising the bar on what’s possible and forcing competitors to respond.

Then there are the revolutionary parts of more conventional corporate giants like eBay and IBM, who are applying their powerful resources to solving some of society’s most vexing problems.

Finally, there are the outliers, like Etsy and Linden Lab, who represent the first iterations of imminent change.

These business insurgents would be the first to concede that no company, including their own, has fully embedded the responsibility revolution into all that it does. To varying degrees, each of the companies featured in this book is a work in progress. Yet each offers promising ideas for building financially, socially, and environmentally sustainable organizations. Although there is no single road map for forging a business driven by such a mission, these innovators have laid out a series of navigation points that show the way. It’s up to each of us to pick the path that best fits our circumstances, using their experiences as our inspiration.

For too long, our definition of what constitutes “responsible” corporate behavior has been dangerously narrow and timid. We’ve often glorified our efforts to be a little less bad, hailing them as examples of important change. We’ve cloaked our irresponsible behavior with “cause-related” marketing campaigns, and celebrated “progress” that often was little more than compliance with existing regulations. We’ve printed millions of corporate responsibility reports that are rife with pretty pictures but way too thin on setbacks and failures.

The responsibility revolution is about more than cutting carbon, reducing energy use, monitoring factories, or donating to charities. It’s about reimagining companies from within: innovating new ways of working, instilling a new logic of competing, identifying new possibilities for leading, and redefining the very purpose of business.

Consequently, we’ve drawn on the best thinking not only from the corporate responsibility arena, but also from the realms of strategy, leadership, and management. Others, to whom we are indebted, have developed some of this book’s core principles. (We will acknowledge them as we present their ideas.) Our intent is to show how an emerging breed of business revolutionaries is turning theory into practice and building organizations that grow revenue by contributing to the greater good. This is a book about change, but it seeks to help companies change on the inside—change their priorities, the way they organize, how they compete, and the way they interact with the world.

We fully concede that many companies, perhaps even most companies, won’t willingly alter their behavior. But they will change nonetheless, and it won’t be because they’ve suddenly seen the light. It will be because massive numbers of consumers, a spreading swarm of competitors, values-driven employees, and even that laggard indicator, the federal government, makes them change. Change is under way. The responsibility revolution spreads. Perhaps you’ve seen the insurrection begin to roil your industry, and you’re determined to get out in front of it. If so, welcome to the cause.

1

THE RESPONSIBILITY REVOLUTION TAKES OFF

It was the summer of 2009, and the world’s economy was still struggling to break free from the Great Recession’s chokehold. Certainly, the financial industry was the last place that anyone would look to find a business success story. If anything, big banks epitomized much of what had gone wrong in the economy and in society over the past few years. With all of their ethical breaches and criminal wrongdoing, and the billions wiped from their balance sheets, banks revealed business’s dark underside. It was not a welcome sight.

So it was surprising that in the midst of the Great Recession’s gloom, a bank showed us a bit of business’s bright side. Yet that’s exactly what Triodos Bank N.V. did in June 2009, when it released its 2008 earnings review.

Based in the Netherlands, with a network of offices throughout much of Western Europe and slightly more than EUR 3.7 billion under management, Triodos1 is largely ignored by Wall Street’s behemoths. But in a year when the Street’s failures nearly brought down the global economy and credit markets hit the deep freeze, Triodos Bank’s income rose by 25 percent, and its loan portfolio jumped by the same margin.

Triodos delivered those stellar results by financing only sustainable projects and businesses—in all, more than nine thousand social and environmentally beneficial initiatives in 2008. No matter how impeccable your pedigree or rock-solid your business plan, if your venture doesn’t positively contribute to the environment or society, you don’t stand a chance of obtaining a loan from Triodos. By investing solely in enterprises that engage in renewable energy and organic farming, microfinance and fair trade, Triodos aims to steer economies in a more sustainable direction. Profits follow. Despite the busts that regularly buffet the banking industry, Triodos has never recorded a quarterly loss in the three decades since its founding. “As a bank, our first priority is to maximize sustainability,” Triodos’ chairman and chief executive, Peter Blom, told us. “Within that model, we want to maximize returns for shareholders. But sustainability comes first.”2

To the conventional-minded, putting values before profit is an upside-down way to build strategy—and an all-downside way to spur sales. It sounds extreme, even anarchic. Perhaps Triodos Bank’s resilience and results might give skeptics cause to reset their thinking. For this Dutch bank signals that “corporate responsibility”3 (CR) may well be undergoing a period of unprecedented “punctuated equilibrium”—the controversial theory promulgated by the renowned paleontologist Stephen Jay Gould.4 He posited that evolution proceeds mostly slowly, but not always steadily—that it is sometimes interrupted by sudden, rapid transitions, in which species decline and are supplanted by entirely new forms. Triodos Bank’s consistently positive performance, which grows out of its mission-first approach to investing, is but one more prominent piece of evidence that corporate responsibility is entering a period of dramatic, accelerated change in its own evolution. What new shapes CR is about to take on, we are just now beginning to understand. But we know this much—corporate responsibility is undergoing a change that’s as revolutionary as it is evolutionary. Consider the evidence:

An emerging breed of values-driven companies—some new, some well established—is building a better form of capitalism.

A new generation of values-driven leaders has kicked over the alpha capitalists’ argument that “the only business of business is business.”

Old-guard notions about “culpability” and “accountability” are being subsumed by the vanguard’s requirement to act authentically and transparently.

Bloodless buzzwords like “corporate responsibility” and “ecoefficiency” are being supplanted by a new vocabulary—“corporate consciousness,” “resource intelligence,” “social innovation”—that aspires to capture our real-world experiences.

Above all, tomorrow’s bellwether organizations are moving beyond the moralist’s dictum to be less polluting, less wasteful, “less bad.” They are striving to meet the innovator’s imposing imperative to be all nourishing, all replenishing, “all good.”

This moment of punctuated, accelerated change affects all of us in business. It will determine how tomorrow’s companies organize, strategize, and compete. It will reveal new leaders and expose the phonies and purveyors of greenwash. It will redefine business’s obligations to society and reconfigure the sources of growth and competitive advantage. And it will require us not only to anticipate the end of corporate responsibility as we’ve known it, but also to imagine the whole new models that will replace it.

RESPONSIBLE REVOLUTIONARIES EMERGE

This first decade of the twenty-first century has brought with it the necessary catalysts for sparking an enduring period of accelerated change in corporate responsibility’s evolution: our unmitigated ambiguity about the future, combined with unwavering certainty that business can do better. We’ve endured a global recession and the angry backlash that followed: fear over the millions of lost jobs, outrage over CEOs’ enormous pay packages, the gnawing belief that executives cooked the books and scorched the environment, the rough evidence that we were let down by so many of our so-called leaders. Corporations and the people who ran them were widely regarded as covetous and uncaring; the brand called capitalism suffered accordingly.

It’s no wonder, then, that although it’s fashionable for folks in the C-suite to proclaim their commitment to “corporate responsibility,” such talk often rings hollow. Yet a growing number of business leaders are pushing toward a more generous form of capitalism, one that consciously works for the common good. Adam Smith, best known for The Wealth of Nations, asserted in his other remarkable book, The Theory of Moral Sentiments, that although man is indeed selfish, “ . . . there are evidently some principles in his nature which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”5 Building on Smith’s notion that the desire for social approval is at least as powerful a motivator of human behavior as the self-serving desire to win at all costs, if not more so, more and more business innovators are envisioning a different kind of company: a company for which making profits is a way toward the greater goal of responding to social and environmental challenges.

By seeking to contribute to the well-being of society and the environment as well as its bottom line, the enlightened corporation summons instincts—empathy and generosity, passion and ambition—that are more than merely mercenary. It thereby seizes on a more resilient business model than the profit-first strategies that it vies with. Over the long run, companies that really are responsible will surpass their profit-fixated peers.

This fundamental shift from the “for-profit” model to one that’s “for-purpose (and profits)” was heralded long ago by such seers as Peter Drucker, who opined that “every social and global issue is a business opportunity just waiting for the right kind of inventive entrepreneurship, the right kind of investment, the right kind of collective action.”6 The right moment for Drucker’s vision has been a long time coming, but it has most certainly arrived. Although the notion that there’s good business in confronting society’s most vexing challenges was once dismissed by many as a misguided mantra, it has now entered the mainstream of business thinking.

Two critical pieces of evidence for this claim came from two of the foremost champions of conventional capitalism: Bill Gates, the cofounder of Microsoft, and Lee Scott, the ex-chief of Wal-Mart.7 In January 2008, at an annual meeting of Wal-Mart employees and suppliers, Scott made sweeping commitments in his social manifesto to reduce the company’s energy use and improve labor conditions in its supply chain. The very next day, in a speech to the World Economic Forum in Davos, Switzerland, Gates heralded the rise of a “creative capitalism” wherein “more people can make a profit, or gain recognition, doing work that eases the world’s inequities.”

The most remarkable thing about Gates’s and Scott’s speeches was that they simply underlined what many business leaders had already concluded: that a whole host of economic and societal pressures—and opportunities—are pushing corporations to embrace a model of a more expansive business purpose. In a 2007 report by McKinsey, the global consultancy, more than 90 percent of the CEOs surveyed said they are doing more to push environmental and social strategies into their operations than five years ago.8The Economist, which once derided corporate responsibility as a “do-gooding sideshow,” conceded in a January 2008 article that “CR is booming” and “few big companies can now afford to ignore it.”9 Even Forbes, the self-described “Capitalist Tool,” has boasted of a surprising turnaround in its profits-centered ethos. “Do corporations exist solely to maximize their bottom lines?” the magazine asked, in a subhead to a March 2008 article. Its emphatic reply: “We don’t think so.”10

Why is this different from the drumbeat for corporate accountability that started at the beginning of the decade, after the Enron, WorldCom, and Tyco debacles?

• Companies, in the wake of such scandals, must now work harder to protect their reputations.

• Global brands, which are battling to crack markets all over the world, are now expected to perform a social role.

• Customers, thanks to the Internet, now have more power than ever before—the power to scrutinize companies’ activities and to organize boycotts at the slightest sign of misbehavior.

• The body politic, seared by Ponzi schemes and the meltdown in financial markets, is punishing “bad companies” and demanding that all companies “do good.”

• Employees now expect companies to adopt a purpose that’s bigger than profit—a key factor in the competition for A+ talent.

• Nongovernmental organizations (NGOs) are growing exponentially and are relentlessly pushing companies to contribute to society.

• Stakeholders are pressuring institutional investors to adopt strong principles of governance and a responsible investing strategy.

People across the political spectrum are concluding that despite the U.S.’s government bailouts of Wall Street and the U.S. car industry, business is still fast enough and nimble enough to innovate solutions to some of the world’s thorniest problems. Two proof points among thousands: Unilever’s pledge to certify as sustainable all of its Lipton tea bags sold globally, which promises to lift one million African tea growers out of poverty.11 Or recall the U.S. federal government’s feeble response to the devastation caused by Hurricane Katrina. Wal-Mart, with its world-class logistical operation—along with the help of countless individual volunteers and non-profits—proved to be the real first responder.

More than anything, climate change is forcing business and society itself to rethink everything, from transportation to energy sources to geo-politics to cities. When the oil baron T. Boone Pickens attacked the United States’ petroleum-based economy as a risk to national security, it was clear that minds have changed. Formerly fringe notions that business should be environmentally and socially sustainable have moved to the mainstream—and the business landscape has been fundamentally transformed.

TO BUILD A BETTER CAPITALISM

The voices of the business establishment have come to recognize eight key drivers (described in this section) that make responsible corporate behavior an imperative. Not only are they persistent, they are predominant, and they will endure for decades to come. But although these über-capitalists are putting real heft behind the movement to build a better form of capitalism. The next generation of entrepreneurs is pouring on the accelerant and lighting the match. They have heard the voices of visionaries such as the pioneering ecologist and biologist David Suzuki, who has perturbed many an industrialist with his observation that “the industrialized world has only 20 percent of Earth’s population but uses more than 80 percent of the resources and produces more than 80 percent of the toxic waste.”12 They accept Suzuki’s argument that our conspicuous consumption is “using up what our children and our children’s children should expect to inherit.” They reject the notion that business, in its present form, can sustain us, so they too are committed to remaking business. Forged by the old guard and the vanguard, good companies are coming to the fore because...

1. They are preparing for global climate change’s threats and opportunities. The political push to stamp a higher price on fossil fuels through emissions caps or a carbon tax will make clean technologies and renewable energy a necessity for any manufacturer that hopes to stay competitive. American venture capital firms invested more than $2.6 billion in green businesses during the first three quarters of 2007, the highest level ever recorded. That capital quickly paid off: revenues from companies in solar energy, wind, biofuels, and fuel cells jumped from $40 billion in 2005 to $70 billion in 2007. Although the global recession temporarily dampened the surge, VC investments in clean technologies and renewables began rebounding sharply in the second quarter of 2009. Speaking before a meeting of green-tech execs in Boston, Kleiner Perkins’s Bill Joy described the future this way: “ . . . energy and green technology is the largest economic opportunity we’ve seen so far this century.”13

2. They possess built-in “insurance” that protects a company’s most valuable asset: its reputation. Fortune has calculated that “intangible assets”—patents and trademarks, as well as all the knowledge, creativity, and consumer relationships that ultimately enhance an organization’s reputation—represent 75 percent of the total value of the average U.S. business. A company can buy insurance to safeguard its physical assets. But when more than half of the worldwide respondents to the 2009 Transparency International’s Corruption Perceptions survey believe the private sector is dishonest, only the badge of good corporate citizenship can burnish a company’s far more valuable reputation.

3. They are powerful magnets for high-end talent. In their “Owner’s Manual” for shareholders, Google founders Larry Page and Sergey Brin proclaimed that, “Talented people are attracted to Google because we empower them to change the world.” As the author and business strategist Gary Hamel has argued, in too many companies, employees aspire to no bigger ambition than hitting their numbers—not much of a stimulant for overachievers. Whether it’s Google’s effort “to organize the world’s information,”14 Whole Foods’ drive to “improve the health and well-being of everyone on the planet,”15 or Genzyme’s aspiration to “innovate on behalf of people with serious diseases,”16 an audacious desire to create something of consequence is a powerful lure for smart people who thrive on cracking the code on problems that matter.17

4. They summon extraordinary contributions from their employees. Companies that are organized around a sense of mission not only attract the best human capital, they often yield the best results, because they inspire people to bring all of their imagination and inventiveness to work each day. Most of the organizations that make Fortune’s annual “100 Best Places to Work” list have a core purpose that goes above and beyond the bottom line. As Hamel notes, purpose elicits passion, which often transforms individual desire into exceptional corporate performance. In his book Pour Your Heart Into It, Starbucks chairman Howard Schultz recognized the power of passion when he opined, “Ultimately, Starbucks can’t flourish and win customers’ hearts without the passionate devotion of our employees.”18 One piece of evidence to support Schultz’s claim: between 1997 and 2007, those “best places to work” companies delivered more than twice the annualized return of the S&P 500 Index. 19

5. They have earned a generous “license to operate” from critical external stakeholders. A license to operate, with its obligation to meet or exceed a set of legal and regulatory requirements, has long been calculated as a necessary but nettlesome part of the overall cost of doing business. Today, society increasingly acts as virtual licensors for the operating company. Winning its approval is not just a prerequisite for survival; it’s a prescription for success, because it opens the way for companies to start producing real economic and social benefits. Wal-Mart understood this a little too late and struggled to win community approval to site new stores. Google, on the other hand, gets it: the search-engine giant is investing hundreds of millions of dollars in developing renewable-energy technologies. The global community’s stamp of approval amounts to a touchstone for Google’s brand image and a mark of achievement. As Whole Foods CEO John Mackey once asserted, “If you want to increase shareholder value, you’d better be a positive force in the community.”20 He understands that customers reward companies that contribute to society.

6. They are recreating their relationships with suppliers. When activists pulled back the curtain on persistent health, safety, and child-labor violations in the overseas factories of some of America’s foremost apparel brands, the targeted companies first reacted with utter predictability: they issued “codes of conduct” for their vendors and dispatched teams of inspectors to expose serial offenders. In its first social-responsibility report, for example, Gap Inc. proudly proclaimed that it had pulled its business from 136 factories that failed to meet its new labor standards. More recently, however, the clothing retailer has come to realize that internal monitoring alone cannot unravel its supply chain’s tangled problems, and simply listing the number of offending factories does not inspire the public’s trust. In 2006, Gap surprised the business world by identifying, on its Web site, its contract factories, so we could see for ourselves what conditions were like. Rather than simply policing their subcontractors, Gap and Nike—working with union and NGO representatives—are partnering with them, to help them become sustainable and desirable places to work. Contract factories that invest in people and treat their workers well tend to improve efficiency (read: lower prices) and product quality, which grows their business—and helps to grow their customers’ business results.

7. They are well positioned to work with a powerful new “regulatory” force: the NGO. Over the past fifteen years, NGOs have grown dramatically to become the eighth largest economy in the world, numbering in the millions and with annual operating budgets of more than $1 trillion. Their accelerating proliferation is rivaled only by their spreading influence. Not so long ago, Wal-Mart viewed NGOs with outright hostility, but learned painfully that it couldn’t build a big enough bunker to hide from them. When the retailing giant finally conceded that it needed an environmental strategy, it turned to some of its most zealous critics for help. Wal-Mart’s former chief, Lee Scott, contended that NGOs were essential in pushing the company to innovate in such areas as building sustainable fisheries and reducing carbon dioxide emissions. Whereas NGOs once were outsiders who challenged the system, increasingly they act as insiders—a potent part of the system that they are trying to change. No organization is better equipped to partner with this robust new conscience of the marketplace than the conscientious business.

8. They are harnessing the widespread desire for a new, responsible era in business. In the November 2008 U.S. presidential election, the majority of Americans voted for change. In the ensuing months, as struggling taxpayers learned to live with less while bailing out Wall Street, they demanded change by rewarding companies that meld economic growth with social justice. Advertising Age columnist Jonah Bloom summed up consumers’ new expectations thusly: “[C]onsumers, particularly the younger generations of consumers, are moving toward a different way of judging business. They celebrate companies and brands that share their values, rather than have the most muscle . . . [they] have replaced stone throwing and banner waving with the eminently more effective tactic of Web-fueled campaigning and the wielding of their wallets . . . It is difficult for bigger or older brands to emulate this new generation, but they can and must if they want to succeed in selling to today’s informed and empowered consumers.”21

The great green awakening over climate change. The tangible worth of intangible assets. The war for top-grade talent. The impressive power of inspired employees. Communities as corporate licensors. Transparent supply chains. The global swarm of NGOs. Now arriving, the activist global consumer. As these transformational forces reshape the business landscape, insurgent companies that seize on these drives will land on the upside of the change curve and create real value.

RESPONSIBLE COMPANIES, REVOLUTIONARY PERFORMERS

Even skeptics now concede, as mounting evidence reveals, that sustainable companies often enjoy a distinct competitive advantage over their profit-fixated peers and continue to deliver outsized financial results. Here’s some real-world evidence.