Transcript No Slide Title

Business Value and Sustainability
David Wheeler
Erivan K Haub Program in Business
and Sustainability
The SVA - sustainability paradox
The test of a first class mind is the ability to hold
two opposing ideas in the head at the same time
and still retain the ability to function
F Scott Fitzgerald
Shareholder Value Model
Tomorrow
Innovation
Growth Path
Repositioning
Internal
Trajectory
External
SVA
Profit
Reputation
Risk Reduction
Right to Operate
Today
‘Sustainable’ Value Model
Tomorrow
Innovation
Growth Path
Repositioning
Internal
Trajectory
External
SVA
Profit
Legitimacy
Risk Reduction
Right to Operate
Today
Sustainable Value Model
Tomorrow
Clean
technologies
Disruptive
technologies
Meet unmet
needs
Ballard
Honeywell
Innovation
Repositioning
Internal
Profit
Risk Reduction
Footprint
reduction
3M
DuPont
Raise the
bottom
Grameen
HP
Growth Path
Trajectory
External
Reputation
Right to Operate
Suncor
Placer Dome
Transparency
accountability
Stakeholder
dialogue
Resource
productivity
Today
Drivers of change in stakeholder relations
• The shifting sands of taxation and fiscal policy
– internalisation of environmental and social costs
– ecotaxation and fiscal reform
• stakeholders’ need for assurance
– attitude of investors
– the governance issue
• changing societal and workplace values
– the rise of the ‘gold collar’ worker
– the rise of the intelligent consumer
• technology, e-commerce and e-communication
• competition and competitiveness
Sources of wealth creation and
competitive advantage
20th Century
• production inputs
• access to capital
• market domination
• proprietary information
21st Century
• knowledge
• innovation
• competencies
• intellectual property and
social capital
– brands
– reputation
– relationships
Descriptive typology of approaches to
stakeholder management
• defensive (relationships avoided)
• top down (risk and liability reduction)
• interactive and innovative (trust-based,
opportunity driving)
Reconciling sustainability and
corporate social responsibility
Engaged
Responsive
Compliant
Tier
3
Tier
2
Tier
1
TBL +
Meeting reasonable
expectations
Avoiding harm
Historical examples of stakeholder inclusion
in US corporate strategy
• General Electric - 1930s
–
–
–
–
Shareholders
Employees
Customers
General Public
• Sears - 1950s
–
–
–
–
Customers
Employees
Community
Stockholders
William Ford on stakeholders
We want to find ingenious new ways to delight
consumers, provide superior returns to shareholders
and make the world a better place for us all. We can
do well for employees, customers and shareholders,
and we can do good for society.
William C Ford Jr, Chairman, Ford Motor Company
13 May 1999
The business case for investing in
stakeholder relationships
Eighteen mostly US companies with 50-100
year track records all demonstrated a strong
commitment to people development and
knowledge sharing. These companies ‘built to
last’ outperformed comparator companies’ stock
price 15 fold and average share prices 70 fold.
James Collins & Jerry Porras, Built to Last
The business case for balancing
stakeholder relations
Over an eleven year period, established US
companies which balanced the interests of
customers and workers with those of owners
demonstrated sales growth four times and
employment growth eight times that of
companies which followed a ‘shareholder first’
strategy.
James Kotter & John Heskett, 1991
The business case for social capital
US companies lose on average 50 per cent of
their customers every five years, 50 per cent of
their employees every four years and 50 per
cent of their investors every year. But the most
successful US companies have lower turnover
rates.
Frederick Reichheld, The Loyalty Effect
The business case for reputation and
protection of brand value
Coca Cola
Microsoft
IBM
General Electric
Ford
Disney
Intel
McDonalds
Marlboro
Nescafe
$83.8 billion
$56.6 billion
$43.8 billion
$33.5 billion
$33.2 billion
$32.3 billion
$30.0 billion
$26.2 billion
$21.0 billion
$17.6 billion
Interbrand, 1999
Eco-efficiency
The Potential
EcoValue ‘21
Top and Bottom Rated Companies1998
Total Return
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
• aerospace defense
• specialty chemical
• chemicals
• communication
equipment
• electric companies
• electronics
(semiconductors)
• health care
17.0% Out- • iron and steel
Performance
Margin as of
• paper, forest
1/2/99
products, etc.
• petroleum
12
/2
7
1/
10
1/
24
2/
7
2/
21
3/
7
3/
21
4/
4
4/
18
5/
2
5/
16
5/
30
6/
13
6/
27
7/
11
7/
25
8/
8
8/
22
9/
5
9/
19
10
/3
10
/1
7
10
/3
1
11
/1
4
11
/2
8
12
/1
2
12
/2
6
-20%
10 AAA vs.
10 CCC
companies in:
Social capital and the new economy
Volatility and virtuality erode relationships - it’s
that simple - which is why managers must learn
to invest in social capital.
Laurence Pruzak & Don Cohen, HBR June 2001