The Emerging paradigm

Ravi Fernando

*Strategic Corporate Sustainability

*For sustainable business and enterprise Governance

Sustainable Business is increasingly becoming the aspiration of all business. Is there such a thing as Sustainable business and what steps can it take to minimize the risk of becoming unsustainable?

This paper explores an emerging new paradigm - Strategic Corporate Sustainability as a means to minimizing that risk and creating Sustainable value.

Chris Laszlo in his book The Sustainable Company (2003) presents an approach which reviews the evolution of Business strategy from being ‘Shareholder focused to Stakeholder focused’.

From creating economic value for shareholders to creating Sustainable value for stakeholders.

Migrating from economic profit at any cost to triple bottom line focus.

The evolution of business refers to economic value creating organizations embracing the need for both economic, social and environmental value creation and moving to Sustainable Value creation focused on the triple bottom.

The concept of Enterprise Governance therefore needs to evolve with the changing times and this new emerging paradigm where Board responsibility in the past was focused on ‘shareholder value creation’ and ensuring minimization of risk to achieve that end goal to ‘stakeholder value creation’ through stakeholder engagement, risk mitigation and thereby minimizing risk.

The major shift required at a Board level is a migration from ‘single bottom line shareholder value creating mind set’ to ‘triple bottom line stake holder engagement based sustainable value creation mind set’

As John Elkington of Cannibals with forks fame puts it ‘The shift from exclusive to inclusive forms of corporate governance. The profound business implications of the sustainability agenda mean that the role of the corporate board and of the company directors is rapidly moving to centre stage.

The best way to ensure that a given company fully addresses the triple bottom line is to build the relevant requirements into its corporate DNA from the very outset and into the parameters of the market it seeks to serve...but most company boards are both deaf and blind when it comes to monitoring the emerging agenda.’

The real question is how many boards have experience and exposure to the emerging agenda and paradigm which is changing the business world?

“The transformation of mind-set and organizational culture to include key stakeholders is what enables sustainability to become an essential part of business conduct.” Laszlo (2003)

Enlightened Business seamlessly aligns corporate responsibility with corporate strategy, building differentiation on the sustainability platform.

The leaders creating sustainable value are HP, Sony, Nokia, Inditex, BT, French Telecom, General Electric, Fuji Xerox, P&G, Unilever, Toyota, Adidas, Nike, Wal-Mart, M&S, BP, Novo Nordisk, Dow, TATA, Co-op bank, Arco, HSBC, and Patagonia.

The World’s best are all moving in the direction of sustainable business as they know stakeholders and the emerging ethical consumer have begun to demand that ‘Corporate responsibility is a Business’ commitment to sustainable business - Copyright Ravi Fernando July 2008.

The emerging paradigm for sustainable business which is increasingly being embraced but has yet to be articulated is the concept of Strategic Corporate sustainability as an approach for business to integrate corporate responsibility, corporate strategy and sustainable business strategy.

Strategic corporate sustainability

“A Commitment to implementing strategies for Sustainable Business which differentiates the organization, whilst impacting all stakeholders which are in its sphere of influence.” Ravi Fernando (c) July 2008

That point is reached when an organization recognizes that its corporate responsibility is to make a commitment to sustainable business and develops a Strategic Sustainability approach.

Thereafter a commitment to Sustainable Corporate Strategy (How it differentiates itself in the market place on a sustainability platform).

Increasingly the elements available to doing so is narrowing down to either Environmental or Social sustainability as Economic Sustainability is the equalizer and hygiene.

The point at which Sustainable business, corporate responsibility and corporate strategy interject is the organizations Strategic Corporate Sustainability.

Business is therefore increasingly ‘Differentiating’ on either Environmental Sustainability where its innovation is focused on the emerging green business opportunity or Social Sustainability ,where it could impact the organizations Employee, Community and Society in a manner that sets it apart.

Economic Sustainability or viability of an organization depends on the key hygiene factors ‘Operational excellence and corporate governance’ and at the same time demands a ‘Differentiation mind set supported by focused innovation which enhances its positioning.

The emerging trend is that business is adopting a Sustainability approach to Innovation based on Environmental and Social Sustainability is illustrated by the Arthur.D.Little’s (2004) report.

Sustainability driven innovation is defined as the ‘Creation of new market space, products and services or processes driven by social and environmental sustainability issues’.

A survey amongst 80 companies by both the World Business Council for Sustainable development and Arthur D.Little indicated the following:

* 95 percent of companies believe that sustainability-driven innovation has the potential to bring business value and almost a quarter believe that it will definitely deliver business value.

* 60 percent of companies see potential benefits to their top line and 43 percent see further benefits to the bottom line.

Global leaders who are differentiating themselves in terms of Environmental Sustainability are Toyota with the launch of its hybrid automobile Prius, Wal-mart ‘Sustainability 360’ environmental sustainability program, General Electric with ‘Ecomagination’ HP with a host of initiatives ranging from Halo, Energy star, Instant on, touch smart to name a few.

Social sustainability is also proving its worth in a global market place where Asia led by China and India is increasingly being perceived as the ‘Worlds Factory’ where much human right violations and exploitation of labour including child labour (61 percent of the 230m children in labour are in Asia-ILO report 2008).

This fact coupled with emerging ethical consumerism immediately provides business with the opportunity to differentiate itself from the rest as being committed to social sustainability.

The MAS Holdings “MAS Women Go Beyond” program was recognized and rewarded at the 2009 US Femmy awards as the key reason for being awarded the ‘Vendor of the year’ award and the Hayley’s Home for Every Plantation Worker campaign” which was recognized by the UN Global Compact by being invited to the UN in March 2007.

Both these initiatives are today INSEAD business school case studies and one of which won the European case study of the year for Business and economics in 2009 demonstrate that social sustainability cannot only differentiate but build global credibility and legitimacy.

As the new paradigm envelopes the business world with proven results as demonstrated in a comprehensive analysis of business in terms of the Morgan Stanley index 1999-2005 where the results of the all MCI listed companies performance was compared versus the top 100 Sustainable business as identified at the 2009 Davos economic forum, the results was clear where a 30-70 bases superior performance was recorded by the sustainable companies.

Therefore the need for hygiene factor of corporate/enterprise governance to embrace the sustainability agenda is no longer an option but an inevitable outcome of the need for companies to simultaneously meet the challenge of globalization while also embedding Strategic Corporate Sustainability as its new modus operandi.

The need for each of the four main board level tasks of:

1) Policy formulation - Every board needs to influence and guide the development of a Sustainability policy which guides every aspect of the business and its engagement with all stakeholders

2) Strategic thinking - Boards need to consider its strategic differentiation on the environmental or social sustainability platforms having in place a solid economic sustainability program to compete effectively and efficiently.

3) Supervision of management - Boards need to lead the embedding of the triple bottom line/sustainability DNA in the organization through management and influence all hires at the top level where the leadership will have this key paradigm in the first place.

4) Accountability - Boards need to hold management accountable to delivering sustainable value to every stakeholder within its sphere of influence.

The 21st century will have only two types of business:

* Business where enlightened Boards have understood the new paradigm and therefore embedded stakeholder/triple bottom line mind sets in the Business through Strategic Corporate Sustainability, And

* Business where Boards continue to focus Corporate and enterprise governance on the old paradigm of shareholder value creation.

To differentiate the two one needs only to review its Sustainability report and get to know the exposure, skill set and attitude of its Board members.

For the sake of Global sustainability where Business now occupies 60 of the top 100 slots for the Economic entities of the world in 2009 increasingly usurping nations as the growth engines of the World economy, we hope the emerging paradigm of Strategic Corporate Sustainability wins!