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Posts Tagged ‘profits’

Something has been bugging me for a while now. It’s not a new issue but something that has been slapping me on the head daily for the last few months more than it has done in the past. Maybe it is the continued economic struggles the world is going through. Maybe it is the Occupy movement. Or maybe it is just me in desperate need of a vacation on my dream island of Kauai. Whatever the reason might be… The question I ask myself is whether we working in sustainability/CSR/Shared Value (or whatever you call it) are dealing with the fundamental challenges the world face today or are we just working on some of the symptoms and applying band-aid to a sickness that needs much more than what we have to offer?

I don’t question that we are doing the right thing for the right reason. We are trying to make this world a little bit more sustainable. We are trying to make companies be more responsible as good citizens of this world. We are trying to prove that good business can be done by doing good. That capitalism with a heart is possible. That money can be made by sharing value with society. That business has a social purpose that it should embrace. Yes, we are doing good work and we are making a difference. But is it enough?

The world is consuming at levels that are unsustainable. We cannot consume the way we have in the past and expect everything to be okay. But the economic system that we live and survive on is based on more consumption. Consumption of products. Consumption of credit. Consumption of energy. More and more of each and everything.

We’ve seen where this has got us so far. The rich are getting richer and the poor are getting poorer. It’s been like a frog being boiled. It’s been a slow squeeze on the middle class and the working class over decades. When the system started running into problems we the people adapted and everyone started to work to pay the bills and buy those things we need – and those things we want. But income didn’t keep up. And slowly the world got into more debt to stay afloat. And then the bubble when kaboom.

The same is true of the environment. We consume so much more crap food, in the West especially, that farming had to change from providing us with food to providing us with GM foods, hormone injected meat, fields of corn for sugar and cereal and everything you can think of, and so much more crap. All because we wanted more and more of this crap food to feed our greed and insecurities. And we manufactured in ways and drove our cars without knowing that slowly but surely we are choking the world and messing with the climate.

And so it goes on. We know how we got here. We got here because we believed we needed things when we really just wanted it. And lines got blurred more and more between need and want. Between necessity and luxury. We consumed and we consumed and we consumed. It worked for a long time. It fed us and made us wealthy – or some of us. And we got addicted to it. Growth, growth, growth. The bigger the better – in what we have and how we looked. We consumed ourselves to a standstill.

But the “system” cannot live any other way. How do we get out of the economic slump? We’re told by consuming more. A key moment for me was when then President  Bush said right after 9/11 that people should go and shop and go on with their daily lives as if nothing happened. Well, something did happen. The same is going on right now. The world is suffering on a societal and environmental perspective. The world is a very different place from 3 or 4 years ago. But we’re told we need to consumer more to get us out this slump.

I always tell my kids and my clients that we can’t expect different outcomes by doing the same thing. The same is so true for us right now. We can’t go on the way we have and expect the outcome to be different. We cannot consume the way we have and expect a different outcome. We cannot do business the way we have and expect a different outcome. We as humans know this when we hit our heads against a wall – we stop doing it and go around the corner. We’re not stupid. Or are we?

So what does this have to do with sustainability? Well, we’re still telling people to consume. Yes, we are telling them “buy this product because it is so much more sustainable”. Energy? We’re not asking people to cut down on their use but rather to use renewable energy. Okay, sometimes we ask them to use less energy but not really to buy less energy using products. Do you really need so many televisions? Do you really need 2-4 cars? Do you really need a house that large? Do you really need spend so much money during Black Friday? No one is advertising asking people to please not buy so much of their products this coming festive season. Very nice of Patagonia to say they want people to buy less but we know they aren’t really saying that they need to grow a little bit less. Or not at all. They still want to grow but hoping that people will buy the slightly more expensive and sustainable product or buy the Patagonia product instead of buying from a competitor.

We in sustainability and CSR are making the world a better place. I don’t doubt that for a moment. If every company does what we in sustainability and CSR want them to do then we will be in a much, much better place. But are we dealing with the underlying weakness of the system or are we delaying the hurt to the next slump? Put it this way. Would the world be in a better economic place if every single product is made in the most responsible way possible? I don’t know – but I think we would’ve been heading to the same problem if we didn’t address the underlying addiction to consumption and growth.

That is really the 3 pillars of sustainability – product, profits and purchase.

Product – how the product is made. Make it as sustainable as possible. Make it by using renewable energy, sustainable sourcing, manufacturing without exploitation etc. Make it the best we can. And make the impact on society and the environment as light as possible.

Profits – do your business to make a profit. No business can live without it. It is at the heart of business. But don’t confuse profits with growth. We’ve become addicted to growth because of the shift in investors from long-term to micr0-term. Not even short-term anymore. That would require a day or a week or two. The majority of investors of today don’t give a damn about the company and what it makes – only about the return they can get in the next 5 minutes, or seconds. And they are holding businesses ransom. We saw this during this recession. Profitable companies laid off workers. How is that for commitment? They didn’t say “we’re struggling on the growth front but still profitable – so we’re going to knuckle down and work, work, work to get out if it but won’t let our people go as long as we are profitable.” No, they let people go because the micro-term investor demanded it. Puh-lease don’t talk to me again about your employees being your greatest asset. Your don’t sell the crown jewels with the first sign of a bit of a struggle.

Purchase – people need to buy your stuff for you to be profitable. But the reality is that we also need to get people to buy less stuff. This is at the heart of the challenge to business. How do you make stuff and sell stuff but make sure people buy less stuff. Guess what… I don’t know.

There is another “P’s” we have to address within the system as well to make the world truly sustainable. Parity…

Parity – we can’t live in a world where so few has so much and so many has so little. It is not sustainable. It. Is. Not. Sustainable. Get it? The gap between the highest earners and the lowest earners are just too wide. The gap between the 1% and the 99% is unacceptable. The gap between the pay of the executive and the lowest paid workers is not good for the company or society. No one is asking for 100% equality in pay. But the gap is just too damn wide. It is greed and nothing more. Any reason given is just snake oil. It is not just and not right. And more importantly, it is not good for business and it is not good for capitalism.

But it goes further than that. The West cannot consume the way they have and allow the rest of the world to slowly die. We live in a global world. The West is the 1% and Africa is the 99%. It is not sustainable. It is capitalism gone bad. It is the dark underbelly of greed. It must stop.

So until then we in sustainability are using band-aid to deal with a much more serious disease – unless we start seriously dealing with all 4 of these P’s – Product, Profits, Purchase and Parity. The challenge is we can’t do this on our own. We need to widen our circle because this means we need to forge new partnerships outside of business to get this right. But that discussion is for another day.

Now I need to get to Kauai to consume some sun.

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Nice to see that profits bounced back in 2009 for the Fortune 500. According to Fortune, “for 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that’s the second largest in the list’s 56-year history”. Nice. These last few years have been a tough time for most companies so this financial turnaround is good news for investors and for these businesses. Good news for everyone, right?

Maybe not for everyone…

Fortune also said that “in 2009, the Fortune 500 shed 821,000 jobs, the biggest loss in its history”. Earnings up but jobs down. How’s that? Well, earnings might be up but actual revenue went down by 8.7%. What happened was that companies panicked when they saw the economy stuttering. Fearing the onset of a depression, companies raced to lower expenses even faster. “Producers practically panicked,” says Mark Zandi, chief economist at Moody’s Analytics. “They cut costs incredibly aggressively.” And by cost we mean that little line item accounting for two-thirds of their costs: labor…

So companies protected their profits by cutting labor. They cut costs not to keep the company afloat but to ensure profits remain high. One can understand that companies have to cut costs when the business is threatened. If they don’t then all jobs might be lost and the business pushed over the edge – shutting down or getting sold to the highest bidder. However, it is one thing to cut costs to make the company more competitive or to save a company but another thing to cut costs to ensure higher profits when everyone is struggling.

Is this really the way a responsible company should act?

So often we hear business leaders talk about their greatest asset being the people who work for them. They go on about how these people are the heart and soul of the company and that the company won’t be who it is today if it wasn’t for every single person working so hard. Loyalty by workers and the effort they put in to make the company succesful forms part of the bragging rights for business leaders – they take it to conferences, annual meeting, the media, their competitors etc. And they hunt hard to make the “Best Place To Work” list each year.

In addition, almost every CSR survey I look at shows how you treat your employees as the most important thing a responsible company can do. So, not only is it something that companies brag about but it is also something that the public view as the most important thing a company can do.

Can companies who ran up record profits therefore really be seen as responsible corporate citizens if they did this on the back of laying off workers during a tough time? Should the responsible company not stick with their workers during tough times and rather use the good times to gear themselves to be even more competitive? If business leaders truly believe that their employees are the most important asset of their business, should they not show greater loyalty to those workers during tough times?

What would a responsible company do during tough economic times? Would a responsible company push hard for higher profits no matter what or would a responsible company protect both their employees and the profitability of the company? Make not mistake, this is not an either or question. The Fortune 500 companies had more than solid earning – record increases. For many of these companies the choice was remaining profitable and protecting employees or drive profitability to new heights by laying off employees.

Many companies made the choice to drive earnings on the back of job losses. There is nothing wrong with that. It is a business model followed by many and one that holds the investor as the ultimate stakeholder. But, if this was the route you chose, please do not talk about your employees as your greatest asset again. Greatest assets are never left behind in tough times. Greatest assets are protected and respected at all times. It’s during the tough times that we can judge whether it was words or actions.

Or maybe you just shouldn’t panick the next time we have an economic downturn. Take a deep breath, keep calm and remain level-headed. This will pass and you should focus on how to turn a challenge into an opportunity instead of a panick picnic. Huddle together with your greatest assets and make them part of the solution. Heck, you might actually be able to find a few new assets as your competitors panick and drop their best assets as they run for cover.

It’s not about people or profits. You can have both and respect both. And be committed to both people and profits. Treat both as assets and be true to your word. That’s how you protect your people so they can help protect your profits – now and for the future.

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