The shifting business model
Not Business as Usual
NOT BUSINESS AS USUAL
How does your business benefit the world?
Today, there is no better way to improve your business than to put your company through the tough questions of the B-Corp certification.
It is an interconnected, global, and trusted set of guidelines and framework for sustainable formation or transformation of a for-profit company committed to using their business for good. It helps to look at yourself in terms of governance, workers, community, environment, and customer impact.
It’s a great guide that will:
- Help preserve your mission
- Give your business credibility
- Aid in attracting and retaining employees
- Connect you with like-minded businesses and investors
Note for the reader: Consider getting B-corp certified!
"Being certified is not an ending, it’s the beginning of being. Part of a global movement. Now we have 2,200 certified people all around the world and a lot of what we call players in our B economy, which are not to be yet, but they are in the process and then are part of this global ecosystem."
— Jonathan Normand
"We do not consider the purpose of this company to be returning money to shareholders. There is a broader purpose."
— Emmanuel Faber, CEO, Danone North America, the world's largest B-Corp
NOT BUSINESS AS USUAL
The need for business to go sustainable
Thinking of your business through a new model is not just about impacting your company's future but ensuring its viability in the long-term.
As discussed earlier, humanity is increasingly concerned with saving our earth’s natural resources to make them last as long as possible. And businesses are the main users of our natural resources. Companies need to operate sustainably to ensure they still exist 60 years from now, and make sure all stakeholders are engaged and taken care of.
In the previous chapter, we introduced the concept of brand empathy. A new way to think of how a company can view the world to shape all it does. That same concept can be carried over to what we call Management by Empathy (MBE). In other words, all decisions in the company are based on how they impact all stakeholders involved.
Let’s dive into some business practices to create or transform a business into a sustainable one. We’ll divide this chapter following the pillars of the 3Ps:
Companies are built by the people who work there. Companies cannot exist without the people who buy their products.
And don't forget; companies live within a community that is called the world.
SUSTAINABLE CORPORATE GOVERNANCE
Corporate governance includes processes, practices, and structures through which a company manages its business and affairs while working to meet its financial, operational, and strategic objectives and achieve long-term sustainability.
The principles of corporate governance are based on transparency, accountability, responsibility, and fairness.
There are five main steps:
- Build a qualified board of directors and evaluate performance
- Have clearly defined roles and responsibilities
- Focus on integrity and ethical business relations
- Evaluate performance and make compensation decisions based on your company’s sustainable principles
- Engage in effective risk management, strengthen preparedness, and resilience to crises and systemic shocks
- Integrate social and environmental performance into decision-making
- Engage and communicate with stakeholders about your social and environmental performance
- Identify, measure, and manage the most material social and environmental issues relevant to your business operations and model
- Set up practices to promote ethical decision-making and prevent corruption
- Allow remote work as an incentive (and it gets you talent from all over the world)
- Human resources department integrates sustainability into company culture, from hiring practices and training to employee well-being programs
"Good governance ultimately fosters sustainability, creates sustainable values, and helps companies achieve their values. Companies also realize long-term benefits, including reducing risks, attracting new investors and shareholders, and increasing the company’s equity."
— Nicholas J. Price
EMPLOYEE OWNERSHIP OPPORTUNITIES
Owners who share equity ownership with their employees, and people who join together to create a business are demonstrating a tangible concern for their workers and community.
Employee owned companies generally provide better benefits and have better sales growth and sales per employee. They also increase employment more than comparable companies and are more likely to stay in business longer.
Employee owned companies average twice the rate of capital investment over comparable companies. Not only are they far more likely to survive during hard economic times, but they are also slow to outsource work. Employee owned companies are 3-4 times less likely to lay off workers.
And, it forces innovation: Employee owners don’t lay themselves off, they innovate the company to bring it to the future.
QUALITY OF LIFE
It goes without saying that offering employees good benefits is a sure way to improve their quality of life.
But, it goes beyond that. It’s about making sure that people working for your company have everything that it takes to be happy. Productivity increases and the company can grow. It’s a no-brainer.
Here are a few basic things to keep in mind:
- Vacation policies that allow for real rebooting
- In countries with no National Health System (like the US) healthcare plans are available to all full-time workers
- Health and wellness initiatives and policies go beyond insurer-provided programs
- Employee retirement plans for all tenured workers at your company (including pensions and profit sharing)
- Additional financial benefits for non-executive employees. Think bonuses and profit-sharing.
- Employee training opportunities for professional development
- Self-improvement and continuing education
- Parental leave policies that really lets people enjoy their families
- Remote work policies that increase productivity
- Monitoring and evaluating worker satisfaction and engagement
Not all countries are created equal
It is important to note that countries vary greatly in their adoption of sustainable practices, depending also on culture, and/or if it’s mandated by law.
In this, Europe and Japan are ahead of the rest of the world. Strong unions and well established social democracies have for the past 75 years after WWII, established much of what is completely absent in countries like the United States and China, where all is left to individual companies to decide.
That has created a world of haves and have-nots when it comes to labor conditions, maternal/paternal leave, vacations, remote working, medical coverage, etc.
Interestingly, the two largest economies in the world (other than for a handful of great companies that are doing incredible things for their employees) are far behind the rest of the industrialized nations and have created large social disparities within their countries.
Diversity is an unstoppable train
Research shows that having a diverse workforce encourages innovation, stimulates creativity, and allows for better understanding of customer groups. Technological progress and globalization are making the world an always more interconnected and complex place; diversity is at the core of modern society. And when you have it in the workplace it’s a gift that keeps on giving.
"Companies who embrace a range of diverse opinions are in a better position to create more meaningful relationships with customers, identify opportunities, as well as read and react to changes in the market than those with monocultures."
— Kevin O’Brien, CEO and Co-Founder of GreatHorn
Act globally and engage locally
Focus on your local environment and your small acts will add up, slowly leading to change in an office, then a neighborhood, then a community, a city, a state, and so on. When you think of corporate social responsibility in its broadest form, it's about taking care of your employees, the communities in which they live and your company operates, as well as the environment your company engages with.
It’s important to take a step back and realize whether your local actions play into the strategic vision your company has for global impact.
But community is not just based on geography and closeness...
Community also means being at the core of helping and supporting the groups that give your company success. For example, if you sell tractors, then your core community includes farmers around the world, not just the people in your town. Be there for them.
Here are some things you can do:
- Partner with local communities: give back by contributing to the strength and growth of your community with such things as health care and education
- Civic engagement
- Evaluate significant suppliers for social and environmental impact
- Define practices regarding donations or community investments
The foundation of sustainable business
Seventy years after the Universal Declaration of Human Rights there is still great progress to be made in order to achieve true universality. The UN Global Compact is calling on businesses to adopt a principles-based approach that places human rights at the center of their strategy. Human rights and their enforcement comes from transparency along the supply chain. Making sure that everyone along the way pays fair wages and takes steps to ensure humane working conditions at supplier factories. But more on this later when we talk about transparency.
"There is no more crucial way for businesses to contribute than to ensure respect for human rights throughout their supply chains at every step of their business operations."
— Michelle Bachelet, UN High Commissioner for Human Rights
Humanity is currently using nature's resources 1.7 times faster than our planet's ecosystems can regenerate, according to the Global Footprint Network. That should be a good enough reason to think twice about how we are consuming. We are truly at the point of no return. Common sense is pushing businesses to rethink how they operate. The bottom line is we have to manage the limited world's stock of natural resources and do more with it.
The reason is not only an environmental one, but more importantly for companies, a financial one. Higher costs of resources and a lack of materials and shortages may become a day-to-day occurence in the future if we don’t change.
The problem comes from a fundamental failure of economics to accurately price and model environmental resources, a lack of willingness to pay, a lack of knowledge about minimum levels or time-spans required for resources to replenish or renew, and inequalities between developed and developing nations.
In addition, politics at a national and international level are inconsistent and, at times, focused on electoral short-term worries rather than fixing the problem. It took a teenager from Sweden to get the world to really take notice. Waiting for politics to fix this is like waiting for the adorable Godot who will never show up.
Businesses have an opportunity to take the lead before legislation will force their hand and/or people will rebel by not buying products and services from companies who don’t care.
What you can do
We can all do quite a bit to help the situation. And, many companies are already moving in the right direction when it comes to environmental impact.
Let’s start from the obvious:
- Facilities that minimize impact – which in turn will save you money
- Offsets of company carbon footprint – think of it as a tax on oneself to keep us all in check
- Supply-chain that minimizes transportation – do we really need to buy a screw from the other side of the planet?
- Recycle, recycle, recycle – no explanation needed
- Choice and quantity of materials – innovate to save resource and costs
- Remote working where possible – does every employee need to commute every day?
Taking a conservationist’s perspective allows companies new opportunities to promote innovative and creative ways of doing things that save energy for their stakeholders.
Corporations may also find that the cost savings they realize from their conservation efforts may afford them opportunities to expand into new markets, boost them above the competition, and perhaps, even get ahead of future regulatory issues.
"Fortunately one resource that is unlimited is innovation, and many companies are developing ingenious ways to reduce, reuse and recycle."
— Alex Thornton, Senior Writer, Formative Content
"Sustainability is about reduction. It is about doing more with less by using fewer resources. And guess what? Resources cost money. So ultimately, a sustainability program is going to cost the business less. You're going to save money in the process of producing whatever it is you produce."
— Joe Doucet
Innovation and circular economy
The private sector and consumers are driving innovation and technological growth. In fact, they’re the main driver of innovation and technology transformation is, often meeting, and exceeding, customers’ demands.
Customer centricity > Disruptive technology > Innovation
"The circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. In contrast to the ‘take-make-waste’ linear model, a circular economy is regenerative by design and aims to gradually decouple growth from the consumption of finite resources."
— Ellen McArthur Foundation
More innovation and circular economy
From food waste converted into fabrics, to soy bio-based plastic, to reusable packaging; companies are innovating to minimize their impact and be relevant to a new type of customer who is demanding action. The Ellen MacArthur Foundation has 15 of the largest corporations anywhere partnering together to create the world's leading circular economy network.
Apple has invested heavily in environmental sustainability at its massive U.S. data centers which are LEED certified. In 2016, the company announced that 93 percent of its energy comes from renewables.
These actions have nudged other tech giants like Facebook and Google toward using more renewable energy sources to power facilities. In other words, we’re starting to see the beginning of a domino effect taking place.
Allbirds: Shoes from sugarcane leftovers.
DeliverZero: Food delivery with returnable containers.
Google Projects: Project Sunroof, an assistant for recycling, Nest, and more, are tools that help customers make more sustainable choices.
Everlane/DyeCoo: Innovation in using less water, less chemicals, less chemicals dyes, and more recycling.
The power of collective force
Today companies need to start collaborating with each other to create common practices and help each other to improve as a whole. Going alone may be too expensive and time consuming.
From production to marketing across organizational boundaries, from supply chain partners to other organizations in the industry, and even competitors; companies are starting to get together to coordinate efforts of policy makers, scientists, executives, and work together to achieve something bigger.
Allbirds x Adidas: combining their respective areas of expertise to create a shoe that has a carbon footprint of just 2 kg compared to the average 12.5 kg of other sneakers on the market. “Allbirds’ goal is redesigning the sneaker from the ground up,” says James Carnes, VP of brand strategy at Adidas. “Adidas’s goal is to sustainably manufacture at scale.”
Transportation example: Companies across all transport sectors have come together in the Global Partnership for Sustainable Transport: Healthcare example: BMC and Boston Organizations Partner have partnered in the purchase of Solar Power. “At BMC, we are dedicated to reducing our carbon footprint because we know that healthier hospitals mean healthier communities.”
Building collaboration and partnership > Disrupt industry standard for the better > Bigger and more global impact > More resilient
"Whether we realize it or not this is a race that we are all running together as a planet, and it is one that trumps the day-to-day competition of individual companies."
— Tim Brown, Co-CEO, Allbirds
Sustainable business is good business
In Chapter One, we discussed how sustainable companies are having a higher rate of returns and bigger margins than traditional businesses. These companies are financially strong because they have an outward looking approach to business.
They care about all their stakeholders, and they put effort into understanding their needs. They innovate more quickly than average and their employees are more productive.
This makes them:
- more relevant
- more resilient to changes
"A circular economy will make us less dependent and boost our resilience."
— Ursula von der Leyen, President of the European Comission
The key to profitability in the new sustainable economy is based on more than just talking to shareholders. In order to create a sustainable environment/eco-system, companies need to create an economic community of stakeholder and shareholders with aligned interests: in other words, manage for the long-term.
Long term management means long term value creation. As per Harvard Business Review; "New research, led by a team from the McKinsey Global Institute in cooperation with FCLT Global, found that companies who operate with a true long-term mindset have consistently outperformed their industry peers since 2001 across almost every financial measure that matters.”
It’s time analysts stop thinking long term, it’s the companies themselves that need to drive. Prosperity is not an overnight goal. It must be a long-term vision that drives every decision.
"Spend your time actually figuring out where you should invest your money and how you should run your company. Anybody who runs their company for a quarter is a bird-brain."
— Barry Diller, Chairman IAC
Think of shifting: From transactional > Longer term view
Today’s biggest challenges for a global sustainable transition is accessibility. The more companies enter this new economy, the more we can democratize sustainability so everyone can make the right choice.
Affordability: In order to make things more affordable, they need to be made circular. Investigate a company's supply chains and models as well as how resources can be used more efficiently to transform society into a renewable one.
Seamless transition: In order to make people switch, we need to redesign old systems. Brands and businesses need to push for these changes to happen in order to accommodate new ways of living.
Together they create: Widespread adoption.
The sustainability conversation is shifting towards transparency
Prosperity for a company cannot be achieved by greenwashing your way into people’s minds. The real opportunity lies in full transparency. It isn’t just the solution to greenwashing but also to higher margins and a good business model in the sustainable economy. Now more than ever, people and brands are being held accountable for their actions. Businesses need to be sustainable, transparent and communicate.
"Consumers are asking for transparency, and are willing to pay 2% - 10% more to consume from a company that provides greater supply chain transparency."
— MIT Sloan School of Management
"People wouldn't choose to harm the planet, but a lack of accurate information about a product's journey through the supply chain makes it almost impossible to make a green choice."
— Markus Mutz
The need for transparency
So how do you achieve this? It requires companies to know what is happening upstream in the supply chain and disclose/communicate externally and internally. Supply chains were not designed to be transparent. Companies need to assess and verify that each supplier comply to their code of conduct, then they need to assist, verify, monitor, communicate and repeat.
Some companies take advantage of this, especially in the food and fashion industries. For example, some luxourious Made in Italy products aren’t actually made in Italy but by illegal workers from Asia in horrible working conditions. Visibility helps companies react faster and more efficiently when problems occur, improve cooperation and increase trust, making the supply chain more resilient. Everybody wins.
One solution? Use blockchain technology to help visibility along the supply chain; increasing efficiency and speed, while reducing disruptions.
Transparency has already begun
Walmart Canada has already begun using blockchain with the trucking companies that transport their inventory. A shared blockchain makes it possible to synchronize logistics data, track shipments, and automate payments without requiring significant changes to the trucking firms’ internal processes or information technology systems.
A joint venture between the World Wildlife Fund Australia and BCG Digital Ventures is using blockchain to prove food was made sustainably and slave-free. It raised $US4 million, as the pair look to promote sustainable and ethical practices in the food supply chain.
There is considerable room to improve supply chains in terms of end-to-end traceability, speed of product delivery, coordination, and financing. Blockchain can be a powerful tool for addressing these deficiencies.
Beyond dollars and cents
Today’s "balance sheet" needs to go beyond the financials of a company and must include the rate of sustainability and depletion of resources.
The so-called invisible debt that companies have with the rest of the world needs to be recorded, as well as the positive impact credits that a business can create through sustainable practices. This is known as Full-Cost Accounting which brings together non-market goods, such as environmental and social assets, into the development equation in order to allow analyzing of the costs and benefits. A great tool in this is the Natural Capital Asset Checks (NCAC), which help decision-makers understand how changes in the current and future performance of natural capital assets will impact human well-being and the economy.
The idea of NCAC is to aid decisions by helping understand how natural capital assets are being used unsustainably. That way a company can act to correct and improve. An example applied to countries: Italy generates 4€ in GDP per kilogram of used resource vs. an average for the EU of 2.24€ per kilogram (Germany is at 2.3€ per kilogram). That means that Italy is way more efficient than the others in overall production, but none of it is recognized in its country "balance sheet”.
In the future this will have to change as resources become less available and more expensive.
Prosperity happens over time
Invest in the future. Arguments that it costs more to be environmentally sound are unfounded when the course of a business is analyzed over the long-term. Short-term profits are important but cannot be at the expense of the planet and the other stakeholders. Some of the greatest companies in the world have already made the switch: Patagonia built their brand to last at least a century.
Unilever: Alan Jope, CEO of Unilever, says; "We shouldn’t talk about purpose over profits. We truly believe that by positioning our brands to do real good, by running our supply chain in a sustainable way, by being a responsible employer and creating great opportunities for people, a byproduct will be better financial performance."
IKEA: According to Joanna Yarrow, IKEA’s Head of Sustainability for the UK; “We don’t do this because we’re tree huggers, we do this because it’s very cost effective.”
Unilever Business Model by Stanford School of Earth, Energy & Environmental Sciences
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