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February 25, 2010
Capitalism 4.0
As noted in my recent blog post from Davos, there was a surprising consensus among CEOs that business must prove its positive contribution to society, not merely its returns for shareholders. Indra Nooyi, CEO of Pepsico (disclosure: a client) describes this as Performance with Purpose, a sustainable business model that recognizes the reality of a stakeholder society. Having attended the Committee Encouraging Corporate Philanthropy’s Annual CEO Conference and the Newsweek Magazine Green Breakfast this week, I can confirm the evolution of corporate strategy, it is no longer an “either/or question” to maintain license to operate while seizing opportunities to operate more efficiently. In fact, at last month’s WEF meeting in Davos, a working group of 14 CEOs of large companies from a variety of industries signed off on a report that was developed over the last 12 months, Re-Designing Business Value: A Roadmap for Sustainable Consumption. Here are important findings from the two events:
1) Role of the CEO on social issues—At the CECP conference, a poll of CEOs indicated that 62% wanted to take a leadership role in addressing these issues and 0% said they were worried if they focused too much on these issues, they would be out of a job. The most activist companies have a board director designated as the “go to” on social issues.
2) Social impact versus Business benefit—CEOs polled at the CECP meeting divided almost evenly (55% versus 45%) on whether social impact (long term positive impact on communities) or business benefits (tangible and intangible contribution to morale, reputation, recruitment) was more valuable to the company.
3) Philanthropy goes global—Alcoa CEO Klaus Kleinfeld said that he is pushing the Alcoa Foundation to do more in Brazil, China and other markets with Alcoa facilities. In Brazil, the donations are aimed at improving the quality of teachers and to instruct on management of public school systems. Contributions go beyond money; General Mills CEO Ken Powell said that his company gives away food processing technology to small enterprises in Africa.
4) Reporting—The Natural Resources Defense Council’s Peter Lehner said that 2/3 of American companies are now reporting their carbon footprint. HP’s Tony Prophet said that HP has made public its list of suppliers, as well its expectations of suppliers on employee health and environment.
5) Relationship with NGOs—There is general acceptance of the desirability of partnership with NGOs on important issues. Prophet of HP said that he uses meetings with NGOs as opportunities to learn and listen. According to the NRDC’s Lehner, the NGO movement has evolved its strategy from litigation as a first step to litigation as a last resort, preferring to shape legislation that incentivizes behavior change or to consult with companies on supply chain modification. Even Greenpeace has changed, working alongside Kimberly Clark to end the clear-cutting of forests.
6) Ambivalence about role of Government—There was a strong sense at the CECP session that the proper role of Government is referee, not investor or director. Melody Barnes, director of domestic policy for President Obama, noted that “the best ideas do not come from Washington DC. We need companies to be risk takers, to tell us what is working in new partnership models that address issues such as shortage of teachers in math and science.” In fact, both Travelers and UBS are investing in local schools, enabling smaller class sizes and reinstituting the music classes.
These developments are an acknowledgement of Capitalism 4.0 (concept posed by Anatole Kaletsky, journalist from Times of London, who has a book coming next fall on the subject - Capitalism 1.0 was Adam Smith 1776-1929; Capitalism 2.0 was government involvement in business in wake of Great Depression 1930-1975; Capitalism 3.0 was Thatcher/Reagan deregulation 1976-2008; Capitalism 4.0 is the present period of business in society 2008-forward) the next phase for private enterprise. The new expectation of business is as a social actor, doing well while doing good. There is a continuum for business executives, from sole reliance on philanthropy to a more complex change of business process to incorporate sustainability into operations. I would appreciate knowing where your companies are placed on it.
Posted by Edelman at February 25, 2010 4:28 PM |
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Comments
Richard,
I can’t wait until Capitalism 4.0 is released. This quote from Public Affairs Books Web site: “The self-destruction of Capitalism 3.0 leaves the field open for the next phase of capitalism's evolution.” This quote begs the question, what were the root causes of Capitalism 3.0 (Thatcher/Reagan deregulation 1976-2008) self-destructiveness, will they be addressed and how?
Over the period, 1976-2006, U. S. House Campaign Expenditures have increased 1,152 % (http://www.cfinst.org/data/pdf/VitalStats_t2.pdf ). If HUGE increase, in any way, contributed to the self-destructiveness of Capitalism 3.0, which stakeholder(s) of our capitalist democracy will step-up to the plate to reverse and remedy this possible root cause?
Posted by: Hugh Campbell at February 26, 2010 6:00 PM
I visited the CECP website but most of the info seems reserved for members. i wonder where you stand as far as transparency and accountability in philanthropy are concerned. There is a trend to push for more transparency and accountability but when looking at a few main philanthrocapitalists one can see they communicate very little about what is achieved (or not) with the money they generously give away. There is this sort of assumption that if you give it away it will be wisely spent. From my own (admittedly) limited experience in one very specific program where I found a lot of waste and incompetence and -understandably- a huge lack of transparency and accountability to avoid having to expose the problems I think there is a very serious need for philanthrocapitalists (and corporations giving away money) to follow trhough about how the funds are used (or misused). part of my experience is on
http://blogsofbainbridge.typepad.com/africa
It concerns the tobacco control grants funded by the Bloomberg and Gates Foundation with the touchy issue of who is ever going to dare say anything even slightly negative about people generously giving away hundreds of millions of dollars.
We are asked to believe all is well but what if all is not well?
How can they get what they call "honest feedback" and do they really want to hear it?
Posted by: Philippe at February 27, 2010 1:56 PM
It's slightly inaccurate to note that 'even Greenpeace has changed' in relation to relationships with NGO's, as this is not a recent change in strategy and approach.
As an independent NGO that does not take donations from corporations, that gives us latitude to either work with a company to solve an issue, or expose the company depending upon the issue at hand and how serious the company is in resolving it.
So for the past few years we have had productive and positive relationships with companies such as McDonalds (who helped secure a moratorium on conversion of the Brazilian Amazon to soya bean plantations) and Coca-Cola (who are eliminating climate destroying F-gas refrigerants from their fridges). And we have also had more trying relationships with companies such as Proctor & Gamble (who use large amounts of Indonesian Palm Oil, which is wiping out areas of rainforest and fueling massive greenhosue gas emissions) and Samsung (who use a variety of toxic chemicals in their products and don't have a timeline for phasing them out).
Dialogue with companies to secure solutions is highly valued. The alternative (everything from ranking guides to exposing scandals to more direct action) helps bring issues of global significance out into the open.
Either approach is valuable in tackling the great environmental problems of our generation, though the approach of dialogue is often a smoother way forward for companies.
Posted by: Gavin Edwards at March 2, 2010 11:07 PM
Hi Richard, interesting commentary from your attendance at CEO Conference. Discussion on role of government as referee rather than director is very much explored in Inger Jensen's very good paper from 2001 on "Public Relations and emerging functions of the public sphere" which addresses issues of organisational legitimacy and identity. I would very much recommend.
http://newmediaimpressions.blogspot.com/
Posted by: Mark Phillimore at March 4, 2010 4:56 AM
A most curious example of CSR I've encountered is Raytheon, a large defense contractor, which has sponsored a multi-million dollar campaign to get middle-school aged kids more interested in math:
Long term goal being to increase the pool of candidates available in the type of positions Raytheon needs to fill. This campaign was created for Raytheon by Arc Worldwide, a marketing agency (and my employer prior to Edelman).
Posted by: Jeremy Van Ek at March 4, 2010 7:09 PM