Sustainability: A better brand of business?

Companies that focus on people, the planet AND profits are outperforming the competition. Here’s why.

By Gary A. Langenwalter

What if you could cause your business to thrive, including having twice the profits of your industry average, by doing good for your community and the planet?

Although that sounds presumptuous, even potentially preposterous, the data show it actually works. This new business model is frequently termed “sustainability.”

Here’s proof:¹

In “The Value of Relational Equity,” Joseph Bragdon writes that over the past decade, a “learning lab” of companies devoted to the concept of sustainability – called the Living Asset Management Program, or LAMP – has more than doubled in value while the overall value of the S&P 500 has fallen. The 60 LAMP companies are publicly traded companies from around the world that honor people (their employees, their communities, their customers and suppliers) and respect the planet.

That is the working definition of sustainability – the 3 Ps: people, planet and profit, the Triple Bottom Line. The LAMP companies include Toyota, Nucor Steel, Southwest Airlines and several smaller companies.

Lee Scott, then the CEO of Wal-Mart, started implementing the “planet” side of sustainability as a defensive strategy to reduce the cost of lawsuits and loss of customers. He then discovered that “what I thought was going to be a defensive strategy is turning out to be precisely the opposite.”²

Beyond the profit motive, sustainability makes sense when a businessperson starts looking at long-term trends. An activity is sustainable if it can be continued indefinitely.

Unfortunately, our basic industrial business model and practices are based on assumptions that are apparently not valid:

Resources will remain cheap and readily available. The supply of minerals in our earth is finite. Unfortunately, we treat these minerals as infinite. Some, such as copper, gold and aluminum, we can reclaim, recycle and reuse (although much of it currently goes to landfills). However, when we burn fossil fuels, whether for electrical energy or in our vehicles, we destroy the complex hydrocarbons, rendering them unavailable for any future use

We have also seriously depleted our fishing stocks in the ocean. Some land no longer supports agriculture due to desertification, industrialization or other causes. Finally, the supply of fresh, clean water is dwindling. The lack of water is constraining China’s growth. The southeastern United States experienced an extremely serious drought a year ago, and California is having one now. Australia went through a five-year drought, during which the water behind dams fell to 16 percent of total capacity.

Second, the rate at which we are using these resources keeps increasing, as a function of increasing population and increasing affluence.
There is an “away” where we can safely put toxics. The increasing incidence of a variety of illnesses and ailments cannot be ascribed solely to longer life spans or better detection. In the United States alone, more than 4.5 billion pounds of listed toxins are released to the environment each year. Roughly 50 percent of all males and 33 percent of all females currently living in the United States will contract cancer in their lifetimes. ³ Those cancers may be caused, in some part, by the toxins in our environment. While the United States is the world leader in many areas, Europe is far ahead of the U.S. in protecting its citizens and its environment.

A corollary to this assumption is the attitude that “what happens in business stays in business,” that the decisions we make in the business world won’t affect our families. Not true. When companies put lead in toys, or when they pour chemicals into the sewer system or release toxins to the air, families are indeed affected.
Stakeholders will remain cooperative. Some cities have refused to let certain businesses build stores inside their city limits. Federal and state EPAs are becoming more aggressive in regulating activities that affect the environment.

Attributes of sustainable companies

Business schools teach us that the purpose of a for-profit company is to make money for its owners. Period. However, Collins and Porras show conclusively that a business that focuses purely on the economic bottom line will substantially underperform a business that has another primary purpose, such as improving the health of its customers or the productivity of it customers. ⁴This supports the premise of the Triple Bottom Line – that most people are primarily inspired by helping others have better lives.

Collins and Porras compared the financial results of 18 pairs of companies over time. Each pair were competitors in an industry – for example, Ford and General Motors. Collins and Porras researched both publicly available data and (with the companies’ permission) internal data. Of each pair, one company was focused solely on financial gain, according to its external and internal communications. The other company had two goals – make money and some other purpose, such as improving its customers’ health, or making better measuring instruments. Of the winners, just one was focused on money only. Seventeen were focused on “money and ...”

Companies that focus on sustainability have employees that act more like co-owners and entrepreneurs and less like typical “tell me what to do and I’ll do it” employees. The transformation of employee attitudes allows companies – and even requires them – to operate in a substantially different manner from traditional companies.

The attributes of the LAMP 60 companies – companies that mimic life – include the following:

“They are highly networked to facilitate feedback and information exchanges internally and externally. Many of these networks are informal, self-organizing consortia of employees, suppliers and customers. When you layer these networks over one another and the firm’s chain of command, you get a structure that looks much like a double helix.”
“They manage by means, understanding that people and relationships are the primary means by which they build network capacity and create value. They strengthen and empower employees by practicing servant leadership. They also give employees decision-making authority in their areas of competence and hold them accountable for results.”
“They optimize their use of physical resources by ‘closing the loop’ so the waste of one process becomes food for another. In so doing, they aim for factor efficiencies by producing more value for customers with less input of energy and materials. With similar intent, they conserve financial resources. Their guiding principle is ‘waste not, want not.’”
“They are exceptionally open in the ways they share information with employees and in their desire for stakeholder feedback. They know such openness builds trust, learning capacity and adaptability.”
“They nurture the larger living systems of which they are a part (nature, society, markets) because they understand the inherent connection of all life.” ⁵

Bragdon’s research clearly shows that companies that try to bolt sustainability onto a traditional hierarchical, command-and-control, organizational model will fail to achieve most of the potential benefits of sustainability. To be successful in sustainability, a company must make two fundamental changes:

It must change its goals from profits and money to the Triple Bottom Line.
It must change its culture from hierarchical command-and-control to management by means.

The most forward-thinking business people are starting to rethink the assumptions that underlie their business practices.

How and why sustainability works

Sustainability works because it lets employees directly express their most powerful interests in the workplace. Companies focus on making money. However, the deepest interest of most people is not making money, but the welfare and happiness of their family.

Think about your own company and other companies you have been inside. Think about the pictures that people have in their work areas, from the executive suite to the janitor’s closet. The common theme of those pictures is family – from a person’s sweetheart or spouse, to their children (and you can follow their children through their school years), to their children’s weddings, and then their grandchildren. Generally speaking, people will do just about anything for their children, to give their children a better life.

The underlying social contract in a traditional company is that the employee works with the objective of making the company money. In return, the company pays the employee and provides a stable and safe place to work. “Progressive” companies also help the employees increase their skills, encouraging them to rise to positions of greater responsibility, status and pay.

In a sustainable company, the underlying social contract is substantially different. The company asks the employees to join it in making the world a better place for their children, as well as in making money. The employees rise to the request, with creativity and entrepreneurial spirit that companies have yearned for. It is this deep change in “why” people work that underlies the success of sustainability.

Goal: A Living Business™

Sustainability Partners International ⁶has created the concept of a Living Business™. A Living Business has several attributes. No company is yet accomplishing all of these, but each of these is practical, and several companies are achieving individual goals below.

Organic. A Living Business is organic by design. It flexes with its environment. It is intentionally non-hierarchical, resembling interwoven loops in a chain mail system. Each loop is defined by the information, authority and responsibility that it shared within it, and then shared with other attached loops. LAMP 60 companies are an excellent example.

Planet / environment. A Living Business is gentle on the planet, with the ultimate goal of restoring it, not just being planet-neutral. This can manifest itself is several ways, including:

Energy. A Living Business produces more energy than it uses. RockCote in Australia, for instance, has a building that generates more power than it uses.
Waste. A Living Business uses more waste than it produces. The ultimate goal would be to have 100 percent of its material input streams be waste products from other companies, while creating no waste itself. One industry whose companies use more waste than they produce is the recycled paper industry. Those companies use recycled paper as their input stream, producing office paper and cardboard.
Toxins. A Living Business produces no toxins. If it brings them in, its processes permanently neutralize the toxins.
EPA poster child. It is held in high regard by the EPA and other regulatory agencies. They frequently give tours of its sites, holding them up as an example of what companies can accomplish.

People. One of the fundamentals goals of a Living Business is to serve its people and the communities in which it operates.

Employees. Traditional businesses deploy employees as resources to be utilized so that the company can maximize its profits. In contrast, a Living Business deliberately develops employees, both professionally and personally, with the overt intention of helping them have full, rich lives, of helping them become the best people and the best citizens they can be. LAMP 60 businesses are one example. When a new acquaintance asks the employee of a Living Business where she works and hears the answer, the acquaintance sighs and says, “I wish I could work there. Are there any openings – anywhere in the company?” Living Businesses do not have to advertise their openings; when a position opens up, they can just ask their employees, directors and others (e.g. local professors, bankers, attorneys, etc.) to recommend people for that position.
Communities. A Living Business intentionally supports the communities in which it operates.
Supply chain. A Living Business treats its customers and suppliers with respect and supports them in their efforts to have rich, full lives as well.

Profit. A Living Business produces superior financial results:

Return to shareholders. Its return to shareholders is at least double the norm for its industry; it tries to deliver three to four times the norm (like the LAMP 60 companies). Its shares should have a 25 percent higher P/E than its industry.
Reduced risk. Because of its financial and operational transparency, it reduces to its shareholders and executives.

How do we start?

The first step can be a quick assessment of the opportunities in your company and industry. A complementary assessment tool is available from the author at glangenwalter@sustainabilitypartnersintl.com.An explanation of the “Seven Steps to Successful Sustainability” is available on the author’s Web site. ⁷

Footnotes

Bragdon, Joseph, Society for Organizational Learning, http://www.scribd.com/doc/19788777/Fundamentals-of-Relational-Equity
Fortune, Aug. 7, 2006 – Cover
Saporito, Bill, Time, Sept. 15, 2008
Collins, James C. and Jerry I. Porras, Build to Last, New York, HarperBusiness, 1994, p. 55
Bragdon, Joseph H., Profit for Life: How Capitalism Excels, (Executive Summary) Society for Organizational Learning, Cambridge MA, 2006. p. 5, execsum@solonline.org.
www.sustainabilitypartnersintl.com
www.sustainabilitypartnersintl.com/html/our_approach.html

The material for this article was excerpted from the AICPA course on Sustainability, SKLG. Reprinted by permission.

Gary Langenwalter is managing partner of Sustainability Partners International.

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