Category Archives: Strategy & Leadership

Discovering new-found respect for philanthropy

I’ve always had a bit of a downer on corporate philanthropy, having tended to equate it with first generation sustainability strategy and practice – a model based on ‘giving something back’ that often pays little or no heed to what the corporation takes in the first place. In so doing, I’ve always felt, it tends to perpetuate the framing of sustainability as a discrete agenda, separate from core business.

Reflecting further on the latest Acumen Debate hosted by EY earlier this month, however, I’m thinking it’s maybe time to revise that view.

The spur for this reflection is a thought-provoking comment made by Sam Parker, director of the Shell Foundation, in speaking against the motion that, “This house believes that impact investors don’t need to compromise between financial and social returns.”

He was following on from – and directly responding to – the argument made in favour of the motion by Diana Noble of CDC, the British government’s development finance institution. Her experience, she said, proved there was no compromise. CDC has achieved an average 6% return on investments in its portfolio of ‘base of the pyramid’ (BoP) enterprises over the last 20 years; and on her regular visits to Africa and South East Asia, she could not go anywhere without seeing the benefit of businesses, “that simply wouldn’t exist without CDC.”

The essential thrust of Parker’s retort was that’s grand, but how did those businesses get to a place where they became an investible proposition for the likes of CDC? “Somebody somewhere had to do the heavy lifting,” he said. “Somebody somewhere paid for that.”

And you know what? I think he’s right.

If you think about it in terms of something like Ichak Adizes’ famous corporate life-cycle model, impact investors like CDC might only really enter the fray once an enterprise has reached ‘adolescence’ and the risk of ‘infant mortality’ has passed.

Work backwards through the ‘go-go’, ‘infancy’ and ‘courtship’ stages – where ultimately the business idea is but the proverbial twinkle in the parent’s eye – and, chances are, you’re going to be looking at investors with a very different profile.

Go back one step, and you might be looking at investors prepared to work at breakeven; go back two and they’re maybe willing to put up with a 50% loss; go right back to the outset, and you’re probably looking at pure philanthropy – the, “early-stage patient grant,” as Parker put it, without which, “there would be nothing to invest in.”

For me, that logic felt hard to refute and, whereas the show of hands at the end of the event appeared to show several of the audience metaphorically crossing the floor from the ‘opposed’ to ‘in favour’ camps, much to my surprise, I found myself moving in the opposite direction.

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A more beautiful question

For a while now, I’ve been searching for what author and journalist Warren Berger calls ‘a more beautiful question’ – the kind of question that, with elegant simplicity, can encapsulate a wealth of ideas, concepts and possibilities; that can help to shift the way we perceive or think about something; and that has the capacity to spark breakthrough ideas.

While that kind of preamble almost inevitably sets me up to fail, I think I may finally have fashioned one worth sharing, and it goes like this:

What if business reoriented itself as society’s greatest problem solver?

I use the word “fashioned” advisedly, of course. I don’t claim any originality, save perhaps for the particular combination of words. The ideas and concepts that underpin it are many, varied and long-established – the self-same ones that have preoccupied me (and many others) for years now.

While people may choose different labels to describe the conceptual space here – be it sustainability, creating shared value, purpose-led business, inclusive capitalism or whatever – they are fundamentally united by a common set of assumptions:

  1. That, whatever your views on the role of business, and the capitalist system more generally, in creating many of the problems and inequities we see today, it’s also essential to solving them (as evidenced, for example, by the inclusion of business as a key partner in achieving the UN’s 2030 Sustainable Development Goals);
  2. That business, and again capitalism more generally, is perfectly capable of this kind of ‘reboot’ (indeed, as powerfully argued by some smart folks at McKinsey, creating and scaling solutions to human problems may always have been at the heart of how and why capitalism works);
  3. That the fates of business and society are interdependent and it’s in the best interests of both that business steps up to assume this role as a partner of choice in solving social problems (whisper it quietly, but business-based approaches are frequently more effective than government or charitable aid in reducing inequality).

What this all boils down to – what we arguably lost during the cult of maximizing shareholder value, and what we are now slowly rediscovering – is the understanding that the long-term prosperity of business and society go hand-in-hand. Business cannot, and should not, divorce its success from the health and resilience of the social and ecological systems that give it life.

Moreover – in line with Peter Drucker’s famous dictum that the only purpose of business is to create a customer – the idea of seeing business first and foremost as a problem-solving engine, rather than solely a vehicle for maximizing short-term shareholder gain, would seem a much better and broader reflection of what successful companies actually do.

With specific regard to the third point above – and offering an inkling of what reorienting business as society’s greatest problem solver might look like – probably the greatest joy of my current role is the exposure I get to the work of some outstanding social entrepreneurs.

As a firm believer that the sustainability imperative represents the innovation opportunity of a lifetime, understanding and telling their stories (and EY’s role in helping them build the internal capabilities to extend their reach and impact) is something I find endlessly fascinating. After all, in many ways, social entrepreneurs are the purest incarnation of purpose-led business – a mash-up of the social mission of a non-profit with the market-driven approach of business to innovate new products, services or approaches to tackling society’s most pernicious problems.

Take Jibu, for example, a clean water franchise business in East Africa, conceived by brothers Galen and Randy Welsch as a better way to tackle the problem of affordable access to safe, clean drinking water. Its ingenious business model equips local franchisees with advanced, solar-powered filtration equipment that can clean locally sourced water and make it available at a fraction of the price of other bottled water – each franchise effectively becoming a water purification plant for the surrounding community.

More than the question of affordability, the structuring of the business as a franchise also neatly addresses the problem of sustainability (in terms of long-term viability). Whereas donor-funded water schemes often suffer from a lack of local ownership – as a consequence of which, around half of them fail within a couple of years – every Jibu franchise is run by a member of the community it serves.

This puts the very people who benefit from the service in charge of running it, combining their need for clean water with their desire to control their own destinies and build a more prosperous future for their families. It’s a virtuous circle that should see the growth of the business not only provide permanent access to safe water for more than a million people by 2020, but also create 8,000 jobs, in turn providing 8,000 families with a decent and reliable income.

What makes stories like Jibu’s more compelling still is the fact that, more often than not, social entrepreneurs are achieving this kind of success against a backdrop of massive resource constraints. These are master hackers, and you have to wonder what might be achievable if big business took the time to observe, draw inspiration and reverse innovate from their approaches.

Of course, encouraging business-at-large to do so is precisely the purpose behind searching for (and hopefully finding) that more beautiful question in the first place.

Does culture really eat strategy for breakfast?

As a self-styled purpose-led strategist, you’d probably expect me to agree with the maxim that culture eats strategy for breakfast and, by and large, you’d be right.

Any organisation is, at heart, a social construct – a coming together of people to achieve in concert something that they couldn’t achieve on their own. It follows that, while business models and strategies may come and go, what can and should unite them all is a clear sense of why the organisation exists in the first place (purpose) and a shared understanding of the values and norms of behaviour (culture) that actively guide how its people should pursue it. (Well that’s my story anyway, and I’m sticking to it.)

Whichever you believe ought to have primacy – whether culture shapes strategy or the other way around – what is emphatically true is that one is useless without the other. Just as strategy without culture is fundamentally rudderless, culture without strategy is toothless.

For compelling evidence of the latter, look no further than the abject failure of England’s rugby team at the Rugby World Cup, the underlying reasons for which were summarised with characteristic brio by Dan Jones in the Evening Standard the other day:

Under [Stuart] Lancaster England have developed pride, ‘culture’ (whatever that really means) and manners. Good for them. They have not, however, developed a breakdown specialist, a functional centre partnership, on-field leadership, a consistent playing style or any big-game chops. For this, heads must roll.

A more succinct dissection of England’s failure I’ve yet to see and it’s hard to argue with Jones’ assessment, given that every area in which England struggled against Australia – most notably the back row’s ability to deal with the breakdown prowess of the brilliant David Pocock – was entirely obvious and predictable to every rugby aficionado on the planet (save, it seems, for Bomber and the rest of his coaching staff).

The thing is, though – and this is the critical point – this England team’s fate wasn’t sealed by defeat to Australia last Saturday. It wasn’t even sealed the week before when they snatched defeat from the jaws of victory against Wales. The ignominy of being the first host nation to fail to advance from the pool stages has been in the post for at least a couple of years – the result of muddled strategy and selections that no amount of esprit de corps could hope to compensate for.

Yet more evidence that sustainability pays

For anyone who’s ever questioned the business value of sustainability, a new study published by Oxford University and Arabesque Partners (as reported in Forbes on Monday) should make for thought-provoking reading…

How sustainability drives financial outperformance

‘From the Stockholder to the Stakeholder’ (a full copy of which can be downloaded from Arabesque’s website) is a meta-study of more than 190 academic papers, industry reports, newspaper articles and books, and it provides some of the strongest evidence yet of the positive correlation between good sustainability practices and corporate performance. For example:

  • 90% of studies show that sound ESG (Environmental, Social and Governance) standards lower the cost of capital
  • 88% show that they also result in better operational performance
  • 80% indicate that stock price performance is positively influenced by good sustainability practices

Short-termism is the enemy

The numbers above offer empirical proof of what most of us already know in our gut – that doing good is great for business – and their importance can’t be understated, especially in the context of four more very telling statistics quoted in the report:

  • 80% of CEOs view sustainability as a means to gain competitive advantages relative to competitors, and yet…
  • Only 33% of them think that business is making sufficient efforts to address global sustainability challenges; this is at least in part because…
  • 79% of them feel under pressure to deliver financial results in two years or less, and…
  • 86% say this is in contrast to their innate convictions

In other words, the vast majority of CEOs want to make business decisions over a longer time horizon and integrate sustainability more fully into their businesses, but feel hamstrung by markets’ narrow focus on maximizing short-term shareholder returns (an insight, by the way, that casts a very interesting light on Unilever’s abandonment of earnings guidance and quarterly reporting).

Sustainable growth: changing the frame

Therein (as the Bard once wrote) lies the rub and, as a growing number of influential business leaders are arguing with considerable passion and conviction (notably the likes of Richard Branson, Paul Polman and Arianna Huffington, under the auspices of The B Team), it’s precisely this narrow definition of value that needs to change if business is to succeed in building a better working world.

  • From share value to shared value – leaders make it their business to be a force for good in the world, not just through philanthropy, but by delivering core products and services that tangibly contribute to the wellbeing of people and communities. They do so on the understanding that businesses with ideals of improving lives at their core are substantially outperforming the general market (by 120% according to Havas Media’s Meaningful Brand Index).
  • From next quarter to next generation – what it means to be a successful business is judged by the capacity to create and sustain value over the long-term, including innovating new business models that decouple growth from environmental degradation. This is on the understanding that, among other things, there’s an estimated US$1tn in economic value to be unlocked by transition to a circular economy.
  • From financial accounting to true accounting – businesses illustrate their capacity to create value in a way that reflects the commercial, social and environmental context within which they operate, i.e. fully accounting for their impact on (and stewardship of) not only financial but also human, social and natural capital. They do so on the understanding that a business gets the investors it deserves and that, if they want to attract long-term investors, then they need to offer a more systemic view in order to build trust and confidence in their ability to create and sustain value over the long-term.

Purposeful. Enduring. Real. These are the watchwords that, for me, define sustainable growth.

Building a better working world: Unilever style

As regular readers will know by now, I have a massive man-crush on Unilever CEO, Paul Polman (and not just because he was kind enough to say something nice about my book!).

Here’s a leader who really gets new-world sustainability – a world in which Corporate Responsibility/Corporate Sustainability (whatever you choose to call it) is indistinguishable from business strategy, based on the knowledge that best prescription for long-term success these days is making a positive social impact on the world.

Among many memorable quotes from a speech of his I attended a few months ago, as part of Hult Business School’s Visionary Speaker series, was his assertion that “I don’t believe that any brand should be there, if it doesn’t serve a purpose that actually makes this a better world.”

For a window into how this translates into action – how Unilever is connecting every one of its brands to a higher social purpose – there’s no better example than this video for Lifebuoy soap (if you haven’t come across this before, I strongly advise you to have hankies at the ready – it’s a tearjerker!):

And here’s a sample of people’s reactions to it — reactions that, I must say, are of precisely the kind that I have every time I watch Gondappa’s story:

What can we learn from this (aside from it being a masterclass in emotive storytelling)?

Three things, I think…

Firstly, terminology. When Unilever uses the word ‘sustainable’, they’re not using it as a synonym for ‘green’ – exclusively about environmental stewardship (although ‘Reducing environmental impact’ is a key area of focus for its Sustainable Living Plan). It’s much bigger than that. It’s about increasing their social impact and, in so doing, creating consumer preference for their brand(s) and increasing the long-term viability and prosperity of their business.

Second, positioning. Note how the Lifebouy brand is explicitly connected to the higher purpose of preventing disease and unnecessary deaths through the simple act of washing hands with soap. Note how it fits neatly under ‘Improving health and wellbeing’ (another – and the first – of their three topline areas of focus). Note, too, how its campaigns to encourage healthy hand-washing habits across schools and villages, in urban and rural communities across Asia, Africa and Latin America, are a logical extension of the Lifebuoy product and its purpose.

Third, the art of creating value through sustainability. Two numbers tell you everything you need to know about how making a relevant and positive social impact on the world creates brand value. As a result of Hindustan Unilever’s campaign in Thesgora, India, the incident rate of diarrhoea has fallen by 86%. And what effect has that, and other similar campaigns, had on the Lifebuoy brand? Underlying sales growth is 18% per annum over the last three years.

‘Nuff said!

Sustainable growth: an oxymoron?

If you haven’t come across Mike Townsend (CEO of Earthshine), before, then look him up (@mike_earthshine on Twitter). Recently, I’ve read a couple of great pieces by him, which have inspired me to write this post – an attempt to get to the nub of whether there is such a thing as ‘sustainable growth’?

We all know the problem, right? In our bones, we know that continuous, conspicuous consumption and the economists’ nirvana of infinite growth just isn’t possible in a world of real physical limits. On our current trajectory, reports estimate that not even two planets’ worth of natural resources would be sufficient to meet our material needs by 2030.

As Mike suggests, there can only really be two answers to this dilemma: either to make growth sustainable, or to make de-growth stable. For business, the preferred answer is naturally the former. But what exactly does that entail?

For starters, it has to mean distinguishing between good and harmful growth and, in my book, growth that pays no heed to the people and resources impacted by its generation is harmful growth. In this scenario, business is the enemy, continuing to exploit and deplete those resources in the narrow pursuit of maximising short-term shareholder returns.

By contrast, growth that focuses on real, life-enhancing and truly value-adding goods and services – conceived and delivered in recognition of finite ecological limits – is good growth. In this scenario, business views acceptable, long-term returns as the by-product of serving a higher purpose and, rather than being the enemy, is potentially the saviour – the only institution pervasive enough to be capable of concerted, cross-border action to deliver social progress and preserve the environment.

Only good growth, IMHO, can create long-term value for all stakeholders. Only good growth is socially meaningful. And only good growth is capable of being supported by natural systems.

So how do we get more businesses to cotton on to this and change the way they operate?

Show them the size of the pot of gold at the end of the good growth rainbow!

Show them the mounting evidence from multiple studies, like Havas Media’s Meaningful Brand Index and the Stengel 50, for example, which correlate the pursuit of shared value with superior financial performance (superior to the tune of 120-400% versus the general market, depending on which study you look at). Regale them with real-life case studies that demonstrate, as Jim Stengel brilliantly puts it, that “maximum growth and high ideals are not incompatible, they’re inseparable.”

Show them, too, the research conducted by McKinsey and the Ellen MacArthur Foundation, which calculates that there’s more than US$1tn of value (and 100,000 new jobs) to be created by 2025 by adopting the principles of the circular economy. Regale them with real-life examples of these principles in practice – for example how the combination of biomimicry-inspired innovation and reverse logistics developed over the first decade of Interface’s Mission Zero strategy not only cut greenhouse gas emissions by 94% but, over the same time period, helped to increase sales by two-thirds and double profits.

Companies like Interface – well on the way to eliminating any negative impact on the environment by 2020, while substantially growing their business and increasing its resilience (through decoupling that growth from the wellhead) – clearly show that sustainable growth needn’t be a contradiction in terms. But they also show that the activities of the vast majority of companies still falls woefully short of what is required to achieve it.

As ever, it’s worthwhile remembering the sage words of Paul Polman with which he launched Unilever’s Sustainable Living Plan, explicitly framing it, “not as a project to celebrate, but a new business model to implement.”

Sustainable growth is possible. It just won’t be achieved by tinkering with existing business models to make them a little bit less bad. It requires businesses to do more and, if research into the potential of the circular economy is accurate, there are more than a trillion reasons for them to want to.

 

On leadership: the importance of conviction, authenticity and luck

It was a massive privilege to hear former South African president, F.W. de Klerk, speak at an Ashridge event yesterday.

While I can’t faithfully recreate the entire conversation that took place with him and Dr Nkosana Moyo (founder and executive chair of the Mandela Institute for Development Studies), I can at least attempt to capture a few of the insights from my hastily scribbled notes…

#1 – The task of a leader is to lead

Axiomatic? Maybe, but you could easily argue that many of today’s ‘leaders’ (in the political sphere especially) aren’t leaders at all. The conviction politician has been largely replaced by the career politician, slavishly pursuing what’s popular, as opposed to a clear and immutable higher purpose.

That’s certainly not an accusation you could level at Mr de Klerk, whose conviction that South Africa “must totally abandon separateness and embrace togetherness” was unwavering, even in the face of multiple bi-election losses in ’92 that could easily have encouraged him to change tack.

That same conviction saw bold action – the package of measures in Feb 1990, for example, that saw the unbanning of the ANC military wing, lifting the state of emergency, and releasing all high-profile political prisoners – in a concerted effort to remove all conceivable hurdles to negotiation on South Africa’s political future in one fell swoop.

#2 – Modernisation ≠ Westernisation

Countries like the US and the UK make a huge mistake in attempting to export Western DemocracyTM to other parts of the world. Likewise, people in the developing world make a mistake in equating modernisation with westernisation.

What is still needed in Africa, agreed both Dr Moyo and Mr de Klerk, is a much clearer sense of what leadership and democracy mean within the specific context of African culture.

There is a rich and proud tradition of democracy in Africa – as illustrated by Nelson Mandela’s description of tribal meetings in Long Walk to Freedom – and the authenticity of leadership, and systems of government, depend on being true to these roots.

#3 – Don’t discount the importance of luck

Last but not least, Mr de Klerk was quick to acknowledge the incredibly important role of good fortune in his time as president.

Whether in the shape of external forces, such as the fall of the Berlin Wall, or internal ones, like the split within the National Party* (one that effectively liberated moderates to embark on the process of dismantling apartheid), there was a convergence of circumstances that helped to create the momentum for change in South Africa.

—————-

* In an interesting parallel to this, Mr de Klerk predicted that we might see a similar split in the ANC, perhaps as soon as within the next five years.

Just as ultra-conservatives split from the National Party, he believes that socialist/communist factions within the ANC will split to form their own workers’ party, in the process probably merging with Julius Malema’s Economic Freedom Fighters, who polled 6% of the vote in the recent general election.

Similarly liberating moderates within the ANC – those who believe in “capitalism with a friendly face” – he suspects that this will usher in a new era of coalition politics in South Africa.