Tata & The Constructed Limits of Social Enterprise

Tata has been in the news recently with its announced acquisition of Corus steel, making it a major global player in the industry. For anyone interested in social enterprise and social responsibility you should definitely take a look at this company. Also, for those who have the time, here is a reflection piece I wrote for a class a week ago.

The Constructed Limits of Social Enterprise

By David Anders

“If the doors of perception were cleansed everything would appear to man as it is, infinite. For man has closed himself up, till he sees all things thru chinks of his cavern.”

- William Blake

The emergence of the concept of “social enterprise” in the curriculum of management studies and in business literature has been perceived as a relatively recent event by much of the business community. However the social utility of business and trade is an essential element of the earliest arguments for market liberalization. In the present dialogue on the social role of business, two different philosophies prevail. One argument, popularly stated by Milton Freidman in 1970, stresses that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”[1]. This statement is more or less aligned with the prevailing view of traditional western businesses and free-market economists. An alternative view, less celebrated in most business circles, is that all businesses should exist to provide a form of social benefit, and are reliant on an implicit social license to operate. Predominantly associated with NGOs, social activists, and grassroots social enterprises, this argument was criticized by Friedman as “pure and unadulterated socialism”. Groups at different ends of the political spectrum have traditionally been quite divergent on this issue, and as a result, most debates on economic policy and the role of business in society cannot escape political associations. More recently, some convergence between the two camps can be seen to be emerging. Entrepreneurial corporations are recognizing the potential for socially minded enterprises formed at a grassroots level, often in a way that emphasizes cooperation and partnerships, bringing NGOs into the fold as business support structures. NGOs and grassroots organizations are recognizing the potential for profit-based models instead of relying on traditional practices of philanthropy. Nevertheless, few would claim that the interests of today’s powerful corporate entities are fully reconciled with the objective of social enterprise to “maintain or improve social conditions in a way that goes beyond financial benefits”[2]. There exists profound skepticism among business leaders and economists about the potential for the impact of social enterprise carried out by traditional businesses, as well as from the point of view of social activists, who perceive the business models of large companies as remaining fundamentally exploitative.

The Tata Group stands alone as a conglomerate founded on the principle of social enterprise, and as a leader in the development of social responsibility practices. This example appears to offer evidence that a seemingly western business model can create sustainable social value. However, the success of Tata goes beyond developing and institutionalizing social metrics such as the human development index (HDI). Tata’s social conscience exists as an inherent part of its strategy, and is seen not only as a footnote in their annual report (as is the case for many traditional companies), but throughout their operations and their culture. The culture of giving and volunteerism in Tata’s organization has roots that are deeper than visionary leadership and innovative policies. Western companies may argue that Tata’s success is attributable to its business model being uniquely suited to its environment. The surplus of labour, lack of social services, high degrees of corruption and income disparity in India may explain the relative need for social enterprise, but these factors do not adequately explain Tata’s success in both the social and economic arenas. Rather, this has much more to do with the cultural perception, an element perennially overlooked by economists. The culture of Tata as an organization, and its constituencies stems from both the history, and endemic conditions, of India. A unique example is the culture formed around the concept of social enterprise, in the form of the Swadeshi movement, which was a direct response to the economic exploitation of India under colonial rule. The colonial conditions in India were intimately related to the political and economic objectives of not only Britain, but of the British East India Company, which controlled most of Britain’s colonial interests[3]. The establishment and fortification of domestic industry, catalyzed by the Swadeshi movement, allowed India to challenge both the economic influence of the EIC, and the political power of Britain. The Swadeshi movement did more than create an impetus for domestic economic development. It enabled a shift in perception and values that aligned all aspects of economic activity on the basis of nationalistic and humanitarian interests. The emphasis on serving the domestic needs through domestic productivity has a great deal in common with political and philosophical views that predominated in the east. In many western corporations, however, the colonial model of expansion and exploitation of resources is still alive and well.

The business ventures that emerged from Jamsetji Tata’s vision of social enterprise were supplied with legitimacy in their social utility, something that western businesses today have come to lack. They faced the predominant view, still held today that this model would not be economically viable given its environment. 170 years after the creation of Tata, we can see that this perception was flawed. The spirit of the company’s beginnings appears to be very much present in the present day initiatives of Tata, but the company’s position as a growing multinational threatens to blur the positioning of this organization between an inwards-facing eastern philosophy, and an outwards-facing western one. The question of how the company, with values that are distinct from many of the more traditional western counterparts will adapt to growth is the same question facing western multinationals on the road to sustainability. In both cases, there is a required shift in cultural perception not only within business leaders and employees, but in the minds of customers and other stakeholders. Without this, social performance and growth will remain a tradeoff, serving two separate and irreconcilable ideologies. A unified ideology must combine western ideas such as the creation of economic efficiency through competition and open markets as an essential condition for social wellbeing, and eastern imperatives such as social wellbeing as a basis for business strategy, not simply a result of it. It can be argued that Tata’s success this far is in realizing this balance.

The question, as it relates to the western business world is whether today’s multinational companies can be supported by a business model that creates sustainable social value, or is consolidation of global economic power in such companies irreconcilable with the need to address fundamental social issues such as income and resource disparity on a global level? The need to resolve this question can be seen if we consider the ramifications of social objectives in business, and the global economic trends that will shape the next century if international enterprise. The momentum of economic growth in regions such as India and China imply a future position of increased economic leverage in international trade. This realization has already caused significant consternation among western industries and has in some cases, produced a resurgence in economic nationalism. Those who are more sympathetic to the plight of developing nations see the role of international development as one of elevating the standards of living in poorer nations. However, the reality that a global civilization enjoying a western standard of consumption is beyond the carrying capacity of our environment is naively forgotten, or conveniently dismissed. Most people see no conflict in wanting to eradicate poverty, and wanting to better themselves in the process. This echoes the often expressed objective of sustainable business as it is conventionally considered in the west, even by the more progressive standards. Therefore, there is also no connection between the patterns of consumption that feed most established western businesses, and the underlying social problems that social enterprise initiatives attempt to address. So long as companies are measured on a financial bottom line, there is no incentive for them to change this. The shift of western priorities away from individualism and financial agglomeration towards a system of values that promotes the importance of community and the intrinsic rewards of giving back requires a revolution in culture. The implication is inevitable dramatic change in the western way of life, whether it is accepted voluntarily, or involuntarily.

Tata provides a hopeful model of how other companies might reinvent themselves, but the viability of this model is dependent on the acceptance of social betterment as a legitimate purpose for business. A particular system of values allows Tata to succeed economically as a social enterprise, and this system is not so easy to replicate. The stakeholders of business must also reinvent their system of values if sustainable models are to proliferate. However, these values are firmly entrenched in western assumptions and cultural traditions. Despite the ‘export’ of western economics to the developing world, there has been little importing of the supportive values that make social enterprise successful in these areas. In seeking a healthy and sustainable society, western nations share with the developing nations of the world the fact that we still have a long way to go.

 

 

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[1] Friedman, Milton, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970.

[2] Dees, Gregory J. and Backman, Elaine, Social Enterprise: Private Initiatives for the Common Good, Harvard Business School, November 30, 1994.

[3] Sachs, Jeffrey D., The End of Poverty: Economic Possibilities for our Time, Penguin Press, 2005.

Article of the Week

This is a little old, but I just came across it today. If you’re like me and love a good CSR dust-up, you should check this article out on Reason Online – CEO’s of Whole Foods and Cypress Semiconducter square off with each other and Milton Friedman.

My Scoring of the bout:

Mackey: 2

Friedman: 1

Rodgers: 0

Anderson & Ehrenfeld, and the Communication of Vision

The term ‘Sustainability’ is often a nebulous one. Attempts have been made to define it, and many advocates of sustainable practices have recognized that one of their greatest challenges lies not in defining those practices, but in communicating a sustainable ‘vision’. Ray Anderson and John Ehrenfeld are two such advocates who have made inroads into communicating this vision in business circles. While both can be considered to have highly reconcilable definitions of sustainability, each takes a different approach in understanding the communications paradigm that is central to the present-day ‘Sustainability’ movement of which they are a part.

Ehrenfeld, in his article, The Roots of Sustainability, takes a critical view towards business practices, and a slow start consisting of measures which amount merely to “band-aids”. He also points out problems in the language of sustainability; that the term ‘sustainability’ has been considered largely to exclude economic measures, and that ‘sustainable development’ seems oxymoronic as the result of our development to date has only made our civilization more unsustainable. As Anderson does, he recognizes that to align oneself with a belief in a sustainable model, requires a vision, and a desire for what he calls “dignity and authenticity”. To Ehrenfeld, the power of this vision lies in appealing to the human desire for a purpose above one’s self. [1]

Both illustrate business benefits of sustainable practice, but also make use of passionate language to convey their vision. Ehrenfeld’s “possibility that all forms of life will flourish forever”, is the converse of Anderson’s illustration of the possibility of the “death of birth”[2] that an unsustainable future entails. In this sense, their approach to an empathic communication of sustainability is aligned. This language also communicates a definition that is more personal than the often used WCED definition of ‘sustainable development’.

Reading Ehrenfeld and Anderson, an apparent and significant difference lies in their perceptions of their audience. Ehrenfeld’s language and tone is closer to that of academic exposition, while Anderson’s is that of a storyteller. The difference in how the two approaches effect perceptual change is significant. In this respect, it is Anderson’s great ability of storytelling that makes his vision so personally compelling for me. Anderson, through his experience with Hawken and his resulting epiphany, recognized the inevitable result of the industrial process which had been put in place. As an engineer and a businessman, he adopted the pragmatic view that by redesigning the process, you could produce a new product- a healthier environment, and a better product. But as a human being, Anderson was emotionally affected by the concept of Sustainability.

For me, the need for personal vision is underscored almost every time I read a newspaper article relating to sustainability issues. The language of our media and of our politicians reaches to the public through fear of issues such as climate change, and reaches to business leaders by advocating the business benefits of sustainability, not the other way around. The ongoing discourse on Canada’s emissions regulation policy has taken place in the realm of such language, and while the underlying assumption on both sides is that citizens are concerned about the environment, presenting too forceful an opinion is seen as a liability. Even more assertive calls for action, such as that recently from the Auditor General’s Office, focus on this approach. While it is more than likely that Canada will introduce a trading system to deal with CO2 emissions, it has been a slow start for the instruments of such a system, such as the Montreal Climate Exchange, mention of which was made in a recent article in the Globe and Mail[3]. To date North America has been limited by appealing to voluntary trading- and to their credit, many companies have taken part, through the Chicago Climate Exchange. Many feel that without government regulation, such initiatives are doomed, if not to failure, then to ineffectualness. In my view, they are half right. The other half represents the potential to alter behaviors by reaching people through the communication of sustainable vision. The government and the business media have focused on debating the measures with language of pragmatism. Without including the language of vision, the people who are responsible for consumer and electoral decision making will remain uninspired by the possibilities such plans bring.

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[1] Ehrenfeld, John R., “The Roots of Sustainability”, MITSloan Management Review, Vol. 46, No. 2, Winter 2005, pp. 22-26.

[2] Anderson, Ray, “Climbing Mount Sustainability”, Reflections, Vol. 1, No. 4, 2000.

[3] Grant, Tavia, “Climate right for emissions exchange, Federal government must provide framework, ME says”, The Globe and Mail, September 29, 2006.

Between the Lines: Recognizing the middle ground in the SRI debate

Socially Responsible Investing (SRI), championed by specialized research firms such as Innovest, has been promoted as not only fulfillng an ethical and moral role of contributing to sustainable business practices, but also as a way to realize financial returns above those of more traditional market indices. However, there are many on both sides of the socio-policical spectrum who criticize SRI efforts to date, using a variety of arguments, ranging from the fiduciary irresponsibility of decision making based on SRI concerns to the criticism of screening techniques that may be too ‘porous’ (for example letting extractive industries, tobacco companies through). Bleeding Greens will point to companies in an SRI portfolio and point out that few if any represent truly progressive sustainable business models- more often than not they consist of large, successful firms pursuing what are viewed as ‘incremental’ sustainability measures (A look at the JSF and DJSI brings up players such as RBC, BCE, Alcan, Rogers, CNR, RIM, for example). Few financial analysts would consider these selections poor choices in the view of traditional financial analysis, but few environmentalists would jump to defend their contribution to our global sustainability. So is there any real value here, or does SRI amount to greenwashing in the investment market?

The debate can easily rage on, but progress is often not achieved without compromise. Maybe a better way of putting it besides “who is right, and who is wrong”, is “Is there a middle ground that can be found? An agreed on role for SRI that satisfies financial and environmental interests?” For one thing, while most performance indicators of SRI indexes and funds have pointed to increased returns over more mainstream indices, these either rely on backwards analyses (using the flawed reasoning that past performance is an indication of the future), or the tracking of performance since inception, which is often only a few years at most- not necessarily long enough to adequately gauge risk. These claims need to be taken with the same grain of salt as other investment screening tools. SRI theorists argue that at any rate, sustainable practices are in indication of good management practices, such as efficient management of operations, stakeholder engagement etc. Most people on either end of the spectrum are able to give this assertion the benefit of the doubt, but what about the environmental/social performance of these firms? Analyses of these criteria is mostly based on companies’ claims and initiatives. There is not an extensive auditing establishment for these factors as there is for financial criteria. Until we can establish such measures, it will be difficult for SRI to acheive wide recognition for its contribution to sustainability.

While it is quite easy to point to individual firms in an SRI portfolio and remind us that being less unsustainable is not the same thing as being sustainable, SRI proponents will point to the fact that these companies are merely the best on a comparative basis. This point is important, because one of the barriers to adopting sustainable practices seems to be the tendency to view its goals as idealistic, unattainable, and naive. But while sustainability invokes the idea that we can live in a state of harmony with each other and our environment, sustainability goals must be viewed in terms of what we need to do now in order improve our chances of getting there. While we need leaders both in private and public sector to look beyond incremental measures, we must also recognize that the state of the world as it is now was not built up instantly- it was an incremental process. Evolution is a process of incremental changes, sometimes accelerated by singular dramatic events. What we need are some singular dramatic events (for example, legislating a market-based approach to reducing emissions), and be willing to let the process of rewarding those with an advantage in sustainability while punishing those without. SRI is one way to do this, and should be seen as such, nothing more, and nothing less. In the context of the sustainability endgame, where all measures of the triple-bottom line are truly reconciled, SRI will be a meaningless concept- rather, this scenario envisions a world in which, for businesses, positive social and environmental feedback is a condition of financial viability, and only creation of value in all these areas results in the preservation and growth of firm and equity value.

For those seeking a more informative and meatier discussion of SRI, check out this blog.

Photo Feature: Wind Farms

I’ve been a bit slow in writing new posts the last couple of weeks, so I thought I’d cheat a bit and share some photos I took recently of two wind power projects in southern Ontario. The first is the Windshare / Toronto Hydro single turbine installation at Exhibition Place near downtown Toronto. It stands in contrast both in location, intent and in scale to Canadian Hydro Developers’ 45 turbine Melancthon I project, located an hour and a half or so north of the city.The main arguments against wind farms stems from an aesthetic point of view, and as such it is difficult to judge without actually seeing an installation in its particular environment. Melancthon I is a LARGE project, and its aesthetic impact is quite different from the Windshare project at Exhibition Place. Despite the fact that the land used for it was previously developed as farmland, it clearly brings about a transformation of the landscape. My impressions are that there is a real need to understand the nature of individual sites, and their suitability not just technically, but in terms of preserving the experiential value of natural landscapes. How these factors weigh against the benefits of wind power vs. alternatives is an issue for debate, which I encourage as much involvement in as possible. As it stands I feel there is still too much debate steered by corporate interests, whether for or against wind power, and very little that stems from real stakeholder positions.

One noteworthy difference between the two projects is in their financing models- Windshare uses a cooperative model in which individuals purchase shares in the co-op portion of the project- the intent is that this will give them rights to the green power attributes of the project (once the obligations to the co-developer, Toronto Hydro have been satisfied). This model provides the advantage of the capacity to directly involve community stakeholders in the payoffs of the project. In contrast, commercial projects provide little direct payoff to community stakeholders (with the exception of landowners who are paid rent), which is another source of criticism of such projects. This is yet another advantage of distributed generation over centralized generation- if the green power created is used by the community, NIMBYism can be minimized.

Windshare, CNE, Toronto

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Melancthon Wind Project

Carbon Trading & the Entrepreneurial Spirit

A group of US States have agreed to implement a carbon trading systems despite opposition of such from the federal government. Now Australian states are heading in the same direction by contemplating opening a carbon market, despite outright opposition from prime minister John Howard, who argues that such a system would impact Australia’s coal industry. It would seem that many do not agree with this analysis; that such systems would represent an undue burden to industry. On the contrary, many companies perceive the opportunity to develop a competitive advantage.

Those who argue against carbon trading don’t appear to be able to offer up an alternative that would be as effective in reducing emissions. They make the arguments that such a scheme would impact industries and consumers, mostly through the added cost of energy. The problem with this is that no course of action besides “doing bugger all” will result in zero added cost in the short run (and even that strategy will incur high hidden future costs).Everyone acknowledges that something should be done to reduce pollution- no politician would succeed today on a platform calling for “more fossil fuel combustion! continued liberation of toxins into the air!” (though we have seen at the federal level in Canada and the US a policy of inaction that is basically supporting just that). The alternatives generally touted are technology, and, well, er.. technology. The public seems to be painfully aware of the oil & gas dependence that exists, therefore other energy technologies such as nuclear and “clean” coal are usually discussed. But the added cost argument falls flat given the costs of all the alternatives- clean coal technology reprepsents a costlier technology to implement- adding cost to energy producers and therefore consumers. I have yet to see a profitable private nuclear power producer. In fact, any new “technology” is likely to increase costs to industry in the short term as it is adopted.

Why no talk about technologies such as solar, wind, geothermal, tidal and other energy sources which are not only clean, but renewable? Simply, because these technologies do not yet have an established industrial base with which to influence policy. Conservative politicians who decry carbon-trading as unfair should take a dose of their own erstwhile free-market rhetoric, and the public should be asking itself whose interests these policy makers are really serving.

Long ago, economists realized that a free market is most efficient in terms of allowing the greatest value to be exchanged through trade. This shouldn’t be confused with equitable distribution, and doesn’t necessarily mean that all things should be distributed by way of a free market (basic services and public goods come to mind). But carbon IS a commodity- regardless of the price, the basic utility is the same, and the more you burn the more you can produce, ergo the more you can sell, and the better off you are.To enable a free market, you must have a sufficient quantity of players on both sides. This produces competition, which is essential to technical innovation. If “technology” is going to help us reduce our emissions, how do the carbon trading opponents suppose it is going to be developed? Dr. Hugh Saddler of the Australian company Energy Strategies, recently expressed his views with respect to the Australian government’s opposition:

“It’s really a cynical planning, picking-winners approach. It’s more akin to what used to happen in the old Soviet Union. Instead of letting the market decide which technologies are the best ones, letting consumers decide because they have a price signal, or letting different generators decide they might build a different type of power station, he actually seems to be saying, we’re going to choose the technologies and we’re going to put public money into them, not let the market decide, we’re going to decide as politicians. And then they are going to be the technologies which reduce emissions.

“We need to change the ways we use energy and the sources of energy towards lower emission energy sources and that’s not going to happen in a market economy unless you give all the economic agents a price signal, and a trading scheme is the first step towards giving just that price signal.

Perusing the members of the currently operating Chicago Climate Exchange yields a number of industry leaders such as Dupont, IBM, Ford, etc. who are participating in the trading system through voluntary emissions reductions. Is it all image? or are these companies deriving an advantage from such initiatives? The voluntary state of the carbon market means prices are much lower than with legislated limits. The environmental pages of the companies’ websites make no mention of carbon trading, so PR doesn’t seem to be an objective. Simply put, these are the companies who have the expertise and the means to find innovative ways to reduce emissions and become more efficient. Getting paid for the credits generated is icing on the cake.

But these companies can also gamble- small companies with innovative solutions but high risk exposure are being hurt as they wait in the wings for certainty about the future of emissions regulations. In Canada’s own burgeoning carbon market, the Montreal Climate Exchange (MCeX) has put off launch until after the Federal government unveils its plan (another potential player, the Canadian Climate Exchange (CCE) based in Winnipeg, has been MIA for over a year, and presumed dead).

This stands as just another sign that the world’s “business friendly” conservative governments are doing a disservice to the pursuit of efficient economics- they are seemingly more swayed by the self-interest of the status quo than by the need to encourage innovation and entrepreneurship in a dynamic marketplace.

The corporate and government leaders who recognize that strategy must look ahead and not backwards have begun to take the initiative. With the help of a little entrepreneurial spirit, hopefully in the future the label “green” will stand for both environmental and economic performance.

Lifecycle Analysis Site

The Institute for Lifecycle Environmental Assessment has reviewed and summarized some research papers on lifecycle environmental assessment, and although many of the analyses are dated, and limited by criteria used, there is some interesting reading. For example, foam vs. paper cups vs. reusable cups? Ever wondered about the environmental impact of various packaging materials? How about the energy usage and toxic materials produced during manufacturing and use cycles of automobiles?

The site does not go into a great deal of detail, but does provide a basic summary of the research. This would be a good starting point for anyone doing research on LCA topics.

Energy Blog

The Energy Blog provides plenty of great information about energy technologies in the context of sustainable energy strategies.

Sustainable Condo at IIDEX

Just thought people would like to hear some good news for a change…:)

IIDEX/NeoCon 2006 will feature a “sustainable condo” exhibit, designed by Busby Perkins Will Architects, for EcoSmart Foundation, in partnership with the Government of Canada and others. More details on the features and design elements of the condo model can be found at www.sustainablecondo.com. Very cool.

And there’s more good news: Until September 15, attendees can get free admission to the exhibit hall ($25 otherwise) by registering at the IIDEX/NeoCon website.

And in case you’re not going to IIDEX/NeoCon, you also get a chance to see it at the International Home Show and the Toronto Regional Green Building Festival later this year.

A Step Backward on Climate Change?

A great article appeared in the Globe and Mail last weekend about a prominent climate change opponent. The text of the article can be found on the author’s website. It is fairly clear to anyone who has read on the topic that the arguments for climate change are made on the basis of science, and have not been refuted by the scientific community. The arguments against climate change have been unable to discredit the science, but have been promoted to the extent that popular perception tends towards uncertainty and confusion on the issue.

As mentioned in the article, it would appear that thanks to our new Conservative leaders, Climate Change has become a bit of a dirty word for the Canadian Government. The federal government’s climate change website (www.climatechange.gc.ca) has apparently been removed. In its place is a notice directing you to two other government web-pages, neither of which appear to have anything to say on the subject.

So why the change? The Conservative government has promised to outline a new plan for managing emissions this fall. Can they really be taken in by the case against climate change (despite overwhelming scientific consensus supporting it)? Are they curbing to oil interests? Or is this an attempt to move the party line closer to that of their conservative counterparts to the south?

Personally, I would be willing to forgive this if it still meant that our federal government was planning on taking swift action towards implementing an effective plan for reducing emissions, creating incentives for not only new technologies, but energy conservation and efficiency. I personally a believe the best way to do this is the establishment of a carbon cap and trade system.

The problem is that this is not going to happen unless the idea can gain support both at the level of the general public and in the circles of industry. The concepts of climate change and the economic and environmental consequences of emissions trading systems are complicated enough for people to understand without casting more confusion into the issues. Industry has alternatives ready for action, but uncertainty about the government’s plans has delayed initiatives. Quietly submerging the visibility of climate change out of the view of the public only serves to perpetuate the confusion and uncertainty that are delaying action on what climate change is only one symptom of: The fact that we are continuing to deplete the natural capital of our planet by turning oil into carbon gas, and perpetuating our reliance on this unsustainable model for our survival.