Beyond Greening

Yet this personal reconciliation was by no means the end of the road. The corporate “greening” initiatives of the late 1980s and early 1990s—pollution prevention and product stewardship—were important first steps. They shattered the myth that business should treat societal issues as expensive obligations. Instead, seen through the prism of quality and stakeholder management, these issues could become important opportunities for the company to improve its societal and operating performance simultaneously. A growing body of research pointed to the potential for enhanced financial performance through well-executed pollution prevention and product stewardship strategies. Pioneers such as 3M, Dow, and Dupont realized significant cost reductions and enhanced reputations as a result of their activities. The World Business Council for Sustainable Development, with its mantra of “eco-efficiency,” helped to erase the false dichotomy between business and environmental performance.

[wcm_restrict]However, greening alone fell well short of what was possible—and needed: Incremental improvements to current product systems and production processes only slowed the rate of environmental damage. Sustainability means inventing a new form of “natural capitalism.”²⁰ As University of Virginia architect Bill McDonough points out, greening is akin to heading in the wrong direction, but at a slower rate of speed—being less bad. Sustainability, however, means actually turning around and heading in the right direction—being more good. It is, as McDonough and his colleague Michael Braungart point out, the difference between being eco-efficient and being eco-effective.²¹

Furthermore, most corporations continued to serve the needs of the wealthy exclusively while exploiting the developing world primarily for its abundant resources and cheap labor pool. A sustainable form of global enterprise would instead seek to create corporate and competitive strategies that simultaneously deliver economic, social, and environmental benefits for the entire world.²² By the mid-1990s, it was clear that the corporate agenda was much bigger than just greening—and that the business opportunity was much more substantial as well. This was the key message of my 1997 McKinsey award-winning article in the Harvard Business Review, “Beyond Greening: Strategies for a Sustainable World.” It was also my primary motivation for moving to the University of North Carolina at Chapel Hill in 1998 to become the founding director of the Center for Sustainable Enterprise at the Kenan-Flagler Business School.

Corporations were being challenged to move beyond greening, first by pursuing new technologies that had the potential to be inherently clean (renewable energy, biomaterials, wireless IT), and second by reaching out to bring the benefits of capitalism to the entire human community of 6.7 billion people (rather than just the one billion at the top of the economic pyramid). In recognition of this challenge, my colleagues at UNC and I launched in 2000 The Base of the Pyramid Learning Laboratory, a consortium of large corporations, new ventures, and nongovernmental organizations (NGOs) all focused on how best to serve the needs of the four billion people at the base of the economic pyramid (BoP) in a way that is culturally appropriate, environmentally sustainable, and economically profitable.

By moving beyond greening, companies hope not only to address mounting social and environmental concerns, but also to build the foundation for innovation and growth in the coming decades. In so doing, they would outperform their competitors in today’s businesses and, even more importantly, outrun them to tomorrow’s technologies and markets. In short, sustainable global enterprises would create competitively superior strategies that simultaneously move us more rapidly toward a sustainable world.

In fact, over the past decade, there has been an explosion of clean technology investment—a veritable “revolution.”²³ Venture capitalists have pumped in excess of $20 billion into clean tech companies since 2005. The Obama administration has pledged more than $100 billion for clean technologies, and China plans to invest $200 billion.²⁴ There are now literally thousands of new “clean tech” startups flush with investment capital, particularly in the strategically significant arenas of biofuels, renewable energy, and biomaterials.

Alongside the “clean tech” revolution, commercial strategies for serving the bottom (or base) of the income pyramid have also emerged over the past decade. Dozens of global corporations and hundreds of smaller social enterprises around the world have now initiated or deepened commercial experiments to serve the four billion poor who have been largely bypassed by economic globalization to date. These early initiatives may hold the keys to a new, more inclusive form of capitalism.²⁵

Exhibit 1.1 summarizes the evolutionary path that corporations have followed over the past 50 years. Crossing the chasm from seeing societal performance as a trade-off or obligation (the left side of the figure) to a possible win-win opportunity (the lower-right side) was the major breakthrough of the 1980s. By 2000, many large corporations had internalized the capabilities and disciplines associated with greening, although some still had a long way to go. As a result, the competitive front migrated to the “beyond greening” domain (the upper-right portion).

Rather than seeking incremental improvements to what already exists, moving beyond greening often means pursuing innovations that may make obsolete what currently constitutes the company’s core business—it is an inherently disruptive act. Thus, given its focus on new technologies and markets, the “beyond greening” space is blessed with much greater opportunities, but also fraught with bigger risks. One case in particular—Monsanto’s controversial entry into genetically modified seeds—illustrates the potential opportunities and pitfalls of pursuing such strategies.²⁶

Raging Against the Machine

In the mid-1990s, new CEO Robert Shapiro sought to revolutionize Monsanto. Through the power of his vision, he hoped to convert the firm from a chemicals manufacturer to a life-sciences company focused on “Food, Health, and Hope.” Consistent with this vision, Shapiro spun off several strategic business units (SBUs) associated with the organization’s chemicals business heritage, retaining only those closely tied to its life sciences focus. Simultaneously, he took the company on an acquisition binge, aggressively buying up biotech and seed companies, and accumulating huge debt in the process. The more focused—and leveraged—company then set out on a rapid growth strategy to make agricultural biotechnology a practical reality.

Shapiro also articulated how Monsanto’s genetically engineered seeds gave the firm an advantage in the drive toward sustainability because they could increase farmers’ yields, reduce pesticide use, and help to deliver nutrients to the world’s chronically undernourished poor. In the space of a few years, Monsanto convinced farmers to plant nearly 60 million acres in the U.S. in genetically modified crops. In 1997, Shapiro also launched a new Sustainable Development Sector, empowering dozens of internal champions to identify and grow the new businesses of the future that would address global social and environmental concerns in an economically profitable manner. Between 1995 and 1997, Monsanto’s stock price soared amid rosy projections of blockbuster products and rapidly expanding markets for agricultural biotechnology.

As a result of these developments, Monsanto was thrust into the public eye in a way that few companies had ever been in the past. Shapiro’s portrayal of biotechnology’s role in the future of agriculture generated unprecedented levels of public attention and scrutiny. This scrutiny resulted in problems for Monsanto as critics cast bright lights on incidents in which company actions did not match the spirit of Shapiro’s vision.

For example, when Monsanto attempted to launch its genetically modified seeds in Europe, it met intense resistance from organic farmers and environmentalists, despite the fact that all the necessary regulatory approvals had been secured. Some Monsanto managers hired private investigators to ensure that customers (farmers) were not illegally saving Monsanto’s genetically modified seed for replanting the following year. These actions and others alienated many who called into question Monsanto’s true dedication to sustainable development and environmental stewardship. Shapiro’s vision, in other words, did not always align with the actions taken by people in the company.

Other stakeholder groups included the millions of small farmers in developing countries such as India. These farmers protested against Monsanto in the streets, fearing that the company would enforce patents on essential grains and make them pay international prices for the seed they planted. Moreover, the farmers were concerned that Monsanto’s patent ownership (via acquisition) of the “terminator” gene (seed-sterilization technology) would not allow them to practice the age-old tradition of propagating seeds from their own crops.

Regrettably, Monsanto did not enable these voices to reach business decision makers. The firm consulted with its immediate customers (large-scale farmers), regulators, and consumer groups in the United States. Despite efforts by the company’s Sustainable Development Sector to access other voices, the business decision makers did not consider consumer groups in Europe or small farmers in developing countries to be legitimate or persuasive, even if their claims seemed urgent.

Instead of becoming a more open, innovative culture, the firm became more defensive and had to back away publicly from several of its biotechnology initiatives under pressure from growing protest. Indeed, in October 1999, Monsanto publicly apologized for its behavior: “Our confidence in this technology (genetic engineering) and our enthusiasm for it has, I think, been widely seen, and understandably so, as condescension and indeed arrogance.”²⁷ External support for the firm’s strategy had eroded, and in late 1999, the company followed through on merger talks with pharmaceutical maker Pharmacia & Upjohn. This move effectively ended the Shapiro era of sustainability-driven corporate strategy at Monsanto.

Smart Mobs Versus Smart Globalization

How do we account for the rapid rise – and even more precipitous fall – of a major corporation such as Monsanto, which had done nothing wrong according to society’s legal and regulatory institutions and had, in fact, transformed its business model to add value to its customers while reducing environmental impact?²⁸ Certainly, the emergent nature of biotechnology had something to do with the problems that Monsanto experienced. Indeed, an accelerating pace of technological change appears to be generating ever-faster cycles of creative destruction.²⁹

Yet there is even something more fundamental at work here. The power of governments has eroded in the wake of globalization and the growth of transnational corporations with global supply chains that span several continents. NGOs and civil society groups have stepped into the breach, assuming the role of monitor and, in some cases, enforcer of social and environmental standards.³⁰ Today, for example, there are more than 50,000 international NGOs, compared to fewer than 20,000 only a decade ago.³¹

At the same time, the spread of the Internet and other information technologies has enabled not only these groups, but also millions of individuals, to communicate with each other in ways that were unimaginable even a decade ago.³² Indeed, Internet-connected coalitions of NGOs and individuals—smart mobs—are now making it impossible for governments, corporations, or any large institution to operate in secrecy.³³ The varied claims of these smart mobs have created a dynamically complex business environment in which organizations find it difficult to determine what knowledge is relevant for managing strategic change; just ask senior managers at Shell, Nike, the World Trade Organization, or the World Economic Forum.

As might be expected, the past decade has been a combination of good news and bad news for Monsanto. In 2000, it merged with Pharmacia and Upjohn and was incorporated as a subsidiary called “Monsanto Ag Company.” Later that year, its name was changed to “Monsanto Company” when a Separation Agreement transferred the operations, assets, and liabilities from Pharmacia to the subsidiary. But name and legal changes haven’t deterred the company’s critics. Abroad, the company has been under fire in India (where a number of farmer suicides have been linked to Monsanto’s high Bt cotton seed price), in South Africa (where farmers have experienced reduced maize yields due to variations in pollination), and in Europe (where labeling laws were passed in 2004 to appease anxiety over the possible risks of GM foods).

At home, legal battles haven’t helped the company’s image: Since the late 1990’s, Monsanto has filed some 140 lawsuits against U.S. farmers for claims of seed patent infringement.³⁴ However, despite this continued public scrutiny, the company has created economic value with its GMOs. In 2009, it sold $7.3 billion in GMO products (versus competitor DuPont’s $4 billion) and has seen sales increase at an annualized 18% rate over the past five years. And as a testament to its economic success, Monsanto was named Forbes’ Company of the Year for 2009.³⁵ The question is: Has Monsanto really found its groove, or is it just a matter of time until the next stakeholder swarm takes the company down again?

As the Monsanto case illustrates, most companies still tend to focus management attention only on known, powerful, or “salient” stakeholders—those who can directly impact the firm.³⁶ Even recent efforts at “radical transparency,” the complete and truthful disclosure of an organization’s plans and activities, appear inadequate because they entail reporting only what has already been decided or, in fact, accomplished. Yet in a world of smart mobs, firms cannot manage stakeholders. Instead, swarms of stakeholders self-organize on the Internet in chaotic and unpredictable ways.

Groups at the “fringe” of a firm’s stakeholder network can acquire an important voice in such swarms. To avoid the wrath of the smart mob, it has now become essential to proactively seek out the voices from the fringe that had previously been ignored. To survive and compete for the future, firms must harness these voices to identify creative new business models and opportunities. The tyranny of the smart mob can yield to a new form of what might be called “smart globalization:” growth via disruptive business models that address the social and environmental concerns of fringe stakeholders.³⁷

-This is part 2 of a 3 part series excerpted from Stuart L. Hart’s, Capitalism at the Crossroads (3rd Edition), published by Wharton School Publishing, an Imprint of Pearson.

Sources

20. Paul Hawken, Amory Lovins, and Hunter Lovins, Natural Capitalism (New York: Little, Brown, and Company, 1999).
21. William McDonough and Michael Braungart, Cradle to Cradle.
22. This is referred to as the “triple bottom line.” See John Elkington, Cannibals with Forks (Gabriola Island, B.C.: New Society Publishing, 1998).
23. Ron Pernick and Clint Wilder, The Clean Tech Revolution (New York: Collins, 2007).
24. Mark Johnson and Josh Suskewicz, “How to Jump-Start the Clean Tech Economy,” Harvard Business Review, November 2009: 53–60.
25. C.K. Prahalad and Stuart Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business, 26 (2002): 54–67.
26. Erik Simanis and Stuart Hart, Monsanto Company (A) and (B): Quest for Sustainability (Washington, D.C.: World Resources Institute, 2000).
27. Robert Shapiro, Address to Greenpeace’s Annual Conference, 1999.
28. This section is excerpted from Stuart Hart and Sanjay Sharma, “Engaging Fringe Stakeholders for Competitive Imagination,” Academy of Management Executive, 18(1) (2004): 7–18.
29. Robert Foster and Sarah Kaplan, Creative Destruction (New York: Currency Books, 2001).
30. David Korten, When Corporations Rule the World (West Hartford, CT: Kumarian Press, 1995).
31. Christopher Gunn, Third-Sector Development (Ithaca, NY: Cornell University Press, 2004).
32. Ann Florini, ed., The Third Force: The Rise of Transnational Civil Society (Washington, D.C.: Carnegie Endowment for International Peace, 2000).
33. Howard Reingold, Smart Mobs: The Next Social Revolution (Cambridge, MA: Perseus Publishing, 2002).
34. www. Monsanto. com.
35. Robert Langreth and Matthew Herper, “The Planet versus Monsanto.” Forbes Magazine, January 18, 2010.
36. R. K. Mitchell, B. R. Agle, and D. J. Wood, “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts,” Academy of Management Review, 22 (1997): 853–886.
37. See, for example, Anil Gupta and Eleanor Westney, eds., Smart Globalization (San Francisco: Jossey-Bass, 2003).

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About the Author

Stuart L. Hart, author of Capitalism at the Crossroads, is the Samuel C. Johnson Chair of Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. Professor Hart is one of the world’s top authorities on the implications of sustainable development and environmentalism for business strategy. He has published over 50 papers and authored or edited five books. His article “Beyond Greening: Strategies for a Sustainable World” won the McKinsey Award for Best Article in the Harvard Business Review for 1997 and helped launch the movement for corporate sustainability. To read Stuart’s complete biography, click here.