On April 22, 1970 the first Earth Day initiated significant awareness about environmental sustainability which encompasses a product’s full life cycle impact on the environment. Although Earth Day’s intial effect on business was minimal, this post describe how public and private companies are using sustainability and public benefit as a competitive advantage and requiring their boards to integrate these considerations into their board governance.
How Earth Day’s long term impact has changed! Walmart’s current Director of Sustainability recently discussed their company’s integration of sustainability for their global suppliers and supply chain and Sustainability Index. The grocer Whole Foods announced it will stop selling fish caught in ways that were not sustainable or by “ecologically damaging methods”on Earth Day 2012. Privately owned Patagonia converted to a public benefit corporation.
Historically financial cost/benefit analysis didn’t integrate the full cost of a product’s life cycle. Information about externalities may not be captured in accounting systems or integrated into a board’s understanding of their company’s impact which now often encompasses economic’s “tragedy of the commons”.
In Ecological Intelligence Daniel Goleman states “we are collectively enmeshed in activities that inexorably endanger the ecological niche that houses human life.” He describes “radical transparency” as the means that “converts the chains that link every product and its multiple impacts…into systematic forces that count in sales.” Though currently beyond business’ comfort zone or legal requirements, he argues it “offers a way to unleash the latent potential of the free market to drive the changes we must make, by mobilizing consumers and executives’ use of data to make more virtuous decisions.”
Both companies engage in his radical transparency. Using simple color coded ratings (e.g., red, yellow, and green) they help customers make an informed decision at the point of purchase. Based on continuous substantive data measurement and analysis for a product’s life cycle impact, the coding also integrates a product’s cost structure to use markets to address sustainability and global problems.
These initiatives reflect their potential and power as competitive business strategies. They incorporate data with an understanding among their ecosystem and network relationships and link an individual’s choices to business’ social responsibilities extending beyond just shareholders. Businesses function as a knowledge based intermediary with responsibility for their impact more clearly defined and accessible to the community.
Both companies enhance their own competitive advantage by altering the competitive landscape for others to be successful. Walmart’s experience suggests this model creates a virtuous cycle providing social benefit to the community and financial returns to stakeholders As Walmart’s director succinctly stated “their mission is to save people money so they can live better.” Doing well now means doing good.
This paradigm presents a significant competitive challenge and opportunity for leadership and management. Their decisions shouuld be based on integrity and ethical behavior throughout their systems. Transparency serves as a self reinforcing loop for continuous learning among boards, management, and consumers. It also serves as an enforcement mechanism. Unethical decisions and shortcuts increasingly should not be rewarded in a global marketplace.
Benefit corporations and L3Cs require their board of directors and management explicitly to define their public benefits as integral component of board governance. They require public benefit officers and annual public benefit reports as a legal requirement. Currently, these are voluntary practices for a board of directors.
But what if publicly traded corporations with Walmart’s or Whole Foods’ scale also converted to become a benefit corporation like Patagonia recently did? Public benefit with measurable outcomes reported in their annual benefit reports becomes a core competency required for a board of directors. This may result in positive outcomes for communities and companies, as well as influence how boards of directors govern and manage their organizations.