Economic Incentive

He is absolutely right. C.K. Pralahad came close to giving business the economic model. Based on the idea that instead of a high margin you should squeeze out more of a quantity, no theoretically possible because of technology and economies of scale. Until corporations figure out how to provide basic life needs on a mass scale - no one will touch it.

The quote is simply wrong - whilst true of most enterprise, it's not for all. There's numerous examples of doing things that are 'right' rather than merely expedient.

Economic motivation is just as complex as anything these days. General statements like Bill Joy's remark, offer a narrow view and don't spark people to think. Making money is not as simple anymore as designing a product and selling it. The best book outlining sustainability as it relates to money and economics, is by consultant and economist, Christopher Laszlo. Chris has led change responsive programs as a leader with budget and shareholder accountability. With a systemic viewpoint, Chris provides expertise and methods of practical application to core groups that have chosen to align their mission with principles and standards for social, environmental and economic values for sustainability as a competitive advantage. There is more information on Chris's book and article on the Thought Leadership and Resource at the WorkEcology Community of Practice website, linked to this entry.

I always enjoy these discussions about business and social responsibility, something that usually generates out of the environmental scrublands of backwoods Oregon. Of course Biz won't budge off any line item that draws down profit, save the snail darter? Are you crazy? Unless the Marketing/PR depts can show a direct line benefit a.k.a. dollars in the cash draw, they dump it. Roger Fulton Yuma, Az

Simply untrue. Many CEO's (and I'm one of them) feel that social responsibility is the very reason to form a company. There are plenty of people who own or run huge corporations who are promoting a social ideal and a healthy lifestyle. Companies like Apple, and United Health, and Texas Instruments have often put social idealism over bottom line profits. And no matter how cynical you are, if you think that Bill and Melinda Gates are earning Microsoft billions of dollars because of P.R. via their charity, you're crazy. People will continue buying Microsoft products whether or not the Gates' change the world. But you know what? They want to change the world whether or not it's profitable. $1 billion over 20 years for minority scholarships. $750 million over five years to the Global Alliance for Vaccines and Immunization. $550 million over 3 years for U.S. schools and libraries. They have decades of earning to do, but they're already giving away billions, more than any tax shelter or P.R. could earn them, ever. I'm passionate about this subject, because I'm a CEO who puts the good of the community and the environment above the gains of my company. I could have easily created a company that was geared toward rich people buying investment property, and retired in a couple of years. Instead I created HomeSplit.com because I thought that the prohibitive housing prices in the Silicon Valley were driving children away from the communities they grew up in. Frankly, I don't think that I would have had the energy or drive to create a company for purely selfish reasons. No amount of money is worth the lost hours of sleep, the stress of massive personal debt, the 80 hour weeks, and the toll on one's health and happiness that starting up a new company with a brand new concept entails. For me, and for many other CEO's, a company is about making the world a better place. You hope and pray that personal success comes with that vision, but social responsibility comes first.

I recently read an article on Yvon Chouinard, the founder of Patagonia, one of the most progressive, socially responsible companies out there. He said that although they like to say they are social responsible, they aren't just in business to be socially responisble. If all they cared about was social responsibility, he'd sell the company and create a trust fund from the proceeds that could in perpetuity donate more money each year than their 10% of profits. You're in business to make money first and second to promote whatever ideals you feel are appropriate.

Guess that's the reason that urber-businesses like WalMart are putting wind turbines, solar panels, and sophisticated lighting that varies based on ambient light in their stores. Or that WalMart is working with producers both to reduce packaging as well as change packaging to sustainable products. Or that WalMart is now the nation's leading supplier of organic foods and a leader in the humaine rasing and slaughter movement. Are their motives pure? Does it matter? Like all companies, WalMart is remembered for their actions, not their motives. We've reached a tipping point where it is no Good Business to do the correct thing with regards to stewardship of the environment.

The more we realise that ecological and societal well being are in the best long term economic intrests of the entities that have say in such matters, the better things will be on such fronts. Sustainability is the key. In the same way more nad more product companies hope to offer subscription services to sustain revenue, more and more of them should seek out positive and socilogical and ecological initiatives. Why? Because with an Earth submerged under it's melting ice caps, a torrent of unbreathable air above, and a population in social ruin through lack of education and progressive drive, viable business models will inevitably fall apart over time, the economy will halt, and no one will be able to consume. And that would stink.

Sustainability is not in conflict with maximization of shareholders' value. It is essential for any business in long-term. To explain, we need to look at Economics 101, I will take that perspective to chip in to the discussion. Current economic theory seems to consider the environment only as a plug factor, because it doesn't even attempt to value any of these costs. However, social and environmental costs need to be reflected (internalized) in the long-term. Accounting for natural capital should be done in a similar way as for human capital and other investments that businesses make. There is simply a blind faith on the part of too many people who have no training in science, that technology will fix everything. It hasn't always done so. While I believe that technology will in fact help us in many ways, there are physical limits that we cannot do anything about. For example, fuels and minerals are subject to “entropic limit”. First of all, as the prime stock of these resources are depleted, humans progressively extract fossils fuels and minerals of lower entropic quality (e.g. less iron in iron ore). Second, the costs of extraction often rise as these mineral are in less accessible locations. It takes energy to extract this energy. While technology can ameliorate some of these challenges, “it takes 9.8 joules of energy to lift 1 kilogram 1 meter, and no amount of energy can change that basic fact (Daly, Farley, p.78).” When the extraction process consumes the same amount of energy than it produces, the entropic limit is reached. I am not saying that all the wonderful technology is not going to help us, but these facts need to be understood and presented. You see in the above example that there are physical constraints too! The issue of scale and distribution, neglected by current macroeconomics needs to be considered too. Daly & Farley (2004) provide an excellent example of a cargo ship to explain how scale, distribution, and allocation fit into economic theory. Neoclassical economics is concerned solely with allocating the cargo efficiently (allocation), for instance, making sure that the weight is spread evenly across the ship. Yet, it is equally important not to load too much cargo on the ship (scale). Who loads the cargo is also critical (distribution). Scale (how much cargo can a ship bear; or how much physical throughput in the economy is sustainable) comes before distribution. Fairness in distribution takes priority over the efficiency in allocation. Allocation comes last; the market will allocate the prices efficiently once the social decisions of scale and distributions were made. Anyway, this contribution may be a bit off the subject here. I just wanted to say that businesses need to consider social and environmental factors - it is in their self-interest. Otherwise, it leads to self-destruction in long-term as the economic theory tells us. Ecological economics may seem to be a new branch of economic theory, when in fact, the early economists of 18th and 19th century attempted to take nature into account. A lot of these theories are currently misunderstood. I enjoy reading this discussion, Juraj Ujhazy Citation source: Daly, H., and Farley, J. (2004) Ecological Economics: Principles and Applications. Washington: Island Press.

Starting and owning a business while remaining honest with and respectful of stakeholders is the basis for all good PR. What's more, it is the foundation for social responsibility. Good business is good virtue, and likewise, good virtue is good business. There need not be a direct profit from PR initiatives, because PR ROI is difficult to track. However, if a business is going to make a donation to a charitible cause, for the sake of the stakeholders to whom the company is responsible, it had better at the very least build the brand and increase the goodwill value of the company. Individuals may of course donate time and money for the sake of charity, and they may (and I might argue, should) do so anonymously as much as possible. However, charitible activities made by a company that require usage of company resources must first take into account the efforts and money put in by the stakeholders to ensure those things are not wasted. That is the socially responsible thing to do. Society does from a failed or wasteful honest business.

I enjoyed reading these comments about what should be the most important debate in the business world over the next several decades. I appreciate that some such as kennerly (above) have pointed out that sustainable practices can be profitable because more and more people are looking to buy from companies with a responsible image. What I think is missing from this discussion is that there are growing numbers of consumers looking to buy not just from companies that have eco-friendly PR, but that also "walk the talk" by selling sustainable goods. I could give hundreds of examples of companies we work with at my non-profit that are generating big returns for their shareholders by marketing environmentally and socially conscious products. I know a lot of people think that there is no real traction for many of these goods since it is largely higher income consumers that shop at places like Whole Foods. I would challenge this assumption with the example of businesses I've worked with like Aires de Campo, (http://www.new-ventures.org/index.cfm?fuseaction=enterpriseDetails&IDent...) which has found that even lower income families in Mexico are willing to pay a small premium to ensure the food they buy is organically grown by local farmers. I don't think it's too optimistic to say that the number of consumers buying green is on a sharp rise, particularly in a lot of developing countries. Too many people still mistakenly believe that profits and social responsibility are in a zero sum game, but if you look closely enough you'll see plenty of smaller, more innovative up and coming businesses that are showing how the these two goals can go hand in hand.