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"Had we takenadequate securityprovisions?Regardinghorsemeat, yes"

In the two years since Sainsbury’s launched its20x20 sustainability plan, the UK retail sector hashad to deal with the horsemeat scandal and come toterms with ever-more engaged and informedconsumers, armed with Twitter accounts. Howmuch progress has the UK’s second largest retailermade in those two years, and what are the high-lights of the 20x20 plan’s latest update? We ask theman at the top.

Ethical Corporation: Recently there seems to have beena continuous catalogue of scandals affecting the food retailsector. Do you feel you always have to be on your guard?

Justin King: It’s never been any different. Socialmedia means things happen more quickly now. Butwe can react more quickly too – and we are kept intouch with customers better. A few years ago we’dhear about a developing problem once we’d had afew letters about it. But now people can react to aTwitter feed, and we can respond and solve theproblem.

EC: Having customers with Twitter accounts must haveradically changed your communications strategy. How doyou keep up?

JK: We had a coffee machine blow up in a store – from a manufacturing error. I happened tobe in a board meeting at the time and I received amessage from my son saying he’d heard about anexplosion at one of our stores. Then as I put my

phone down, the news came to us from a colleague,and I was able to say that I already knew! Someonein the store had seen what had happened, tweetedit, and then it had been re-tweeted until my son hadspotted it. Luckily no one was seriously hurt but thisshows how quickly we need to react to these things.

EC: Talking of quick reactions, when the horsemeatscandal broke did you know that there was none in yoursupply chain?

JK: Well, you can’t test every beef burger. I look at it this way: you live in a street, and one of your neighbours gets burgled. You then say toyourself, have I taken adequate security provisions?And our answer in the horsemeat problem was yes.Then, as you find out how that house was brokeninto, you begin to ask questions to make sure thatyour arrangements are as good as they can be. Butas we’ve been testing for DNA and for country oforigin for several years, we could be confident thatwe were in as strong a position as we could be. A second point is that the problem was in a raw

material – recovered meat – that we don’t use as wedon’t think our customers would think it wasacceptable in a beef burger. Thirdly – and this was the area where no one

could be 100% confident – is the problem of potential cross-contamination. If your products arecoming from a factory where someone else’scontaminated products have been processed thencleaning regimes may not necessarily save you.

CEO interview: Justin King, Sainsbury’s

Values that add value

By Ian Welsh

Shortly before personally launching the recent update to Sainsbury’s ambitious 20x20 sustainability targets chief executive Justin King spoke to Ethical Corporation

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2 Strategy and management Ethical Corporation • December 2013-January 2014

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Strategy and management 3Ethical Corporation • December 2013-January 2014


There is always the possibility of microscopic levelsof cross-contamination. But consumers are moreconcerned about the actual ingredients in products[than microscopic levels of DNA]. In the end none of our products were affected.

EC: What do your customers want you to do now?

JK: For us, it’s pleasing that our systems haveproved robust and that our supply choices havebeen validated. Our suppliers should be congratu-lated that there was no cross-contamination into ourproducts. We need to be able to show our customers that we

have been asking the right questions before an issuebecomes a problem for them. It’s the actions you takewhen they are not forced upon you that most givecustomers confidence. So our customers asked us“you were checking, weren’t you?” and we wereable to say “yes, we’ve been doing so for 10 years”.

EC: Your sustainability targets are ambitious. What wasthe reasoning behind them?

JK: The reason we created the 20x20 targets is thatwe felt as a business that we were doing quite a lotin terms of sustainability but that we needed aclearer destination in mind.If targets are too far off then they don’t galvanise

you into action now. Or they are so big that theyseem impossible to achieve. On the other hand, ifyou can plan out how you are going to get therethen they can’t be that stretching. We have givenourselves time to develop new ways of working –simply doing more of the same wasn’t going to beenough.

EC: You are now developing your own certified sustain-ability standards. Why do you feel you have to do this?

JK: One of our commitments – sourcing withintegrity – is that all of our major raw materials willbe sourced to an independently verifiable standardon sustainability. There are a number of standards that are well

recognised by consumers that work well in certainproduct areas – good examples are Fairtrade forcoffee, tea and bananas, or Marine StewardshipCouncil for fish. And we’ve taken leadership posi-tions – we are already the biggest Fairtrade retailerin the world, and the biggest MSC retailer in the UK.But the existing standards don’t cover all the

bases. If we wait until 2020, many of the materialswe source still won’t have an independent verifiedstandard.

EC: So what you are doing is filling in the gaps?

JK: Yes, but we also want to challenge the existingstandards. As a participant in so many, we think thatthey can go further. Fairtrade, for example, has anopportunity to be about more than just a fair price.In fact, it is already. But consumers don’t yet fullyunderstand that it’s about more than just a fair price– there are wider issues about ethical treatment ofemployees around safety, for example. The principle means that we need to work with

other parties to develop the standards – somethingwe will announce over the coming months.

EC: Is this about bringing certification to scale? A bigproblem for some other standards is that there isn’tenough certified produce to meet demand.

Sainsbury’s 20x20 plan

Launched in 2011, the 20x20 plan details 20 stretchingsustainability commitments Sainsbury’s will work toachieve by 2020. The commitments are spread across five “values”:

• Best for food and health

• Sourcing with integrity

• Respect for our environment

• Making a positive difference to our community

• A great place to work

The commitments cover issues including lower saltlevelsin food, zero waste to landfill, an absolute 30% reduc-tion in carbon emissions and sourcing “key rawmaterials” sustainably. Sainsbury’s has announced thedevelopment of a new independent sustainabilitystandard that will certify raw materials that are notcovered by existing schemes.

"We need to show we havebeen asking theright questionsbefore an issuebecomes aproblem"

Be a step ahead, but no more

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JK: Our starting point is scale. When we decided togo to 100% Fairtrade bananas in 2007, we realisedthat it would require 70% of all bananas certified asFairtrade at that time. So we worked with partners toconvert the entire crop from the Windward Islandsto Fairtrade. It changed the system – meaning thatthe incremental cost of being Fairtrade came down.

EC: What about 2050? Given the climate predictions –not least from the Intergovernmental Panel on ClimateChange – for later in the century, how are you securingyour supply chain beyond 2020?

JK: There isn’t anything that we will do differently inthe next five to 10 years that would change on the basisof thinking about 40 years ahead. We believe that, inthe foreseeable future, supply chains will not continueautomatically to present to us products of the quality,sustainability and affordability that the consumerdemands today. And we need to make the right invest-ments now. It’s no good arriving at 2025 and saying, ifonly we’d thought to start the journey back in 2013.None of the big issues are necessarily imminent, butthere are reminders of how close they are. For example, in 2008 Thailand and India

temporarily banned the export of basmati rice, fordomestic reasons, so there was none coming fromthese countries to the UK. Because we had a tightsupply chain into Italy, which is the other place yousource basmati rice, we were able to sell it throughoutthe period of the export ban. Now if you had said in2006 that you wouldn’t be able to source basmati ricein two years’ time from Thailand and India, everyonewould have said “I can’t imagine the circumstancesin which that would happen”, yet it did.

EC: So you are thinking further ahead, but 2020 is theconvenient target?

JK: Yes it’s close enough that we have had to startdoing things now, and far enough away so that wecan set stretching targets but not ones that are soimpossible to achieve that we can’t even begin tothink about how to achieve them.

EC: What do your customers think?

JK: In terms of communicating with customers, ifyou say that we’re setting targets for 2030 they’llthink that we’re not being serious – kicking into thelong grass – or they think there isn’t need for actionnow. The first product we stopped selling was raybecause we only source from fisheries that are on ajourney towards sustainability and there are notany for rays. I got a letter from a customer who wasseriously saying “as we all know ray is going to beextinct soon anyway, I’d like to eat it until it is”. Butif we do something now we can bring about adifferent outcome. When people believe that anoutcome is inevitable they take less action now, notmore.

EC: So is the answer to carefully lead your customers?Can you go too fast?

JK: We mustn’t get too far ahead of our customers.Salt reduction is an example of this. All the evidenceis that if you take too much salt out, customers willsimply add back in more than you removed. Fiveyears ago we took our bread to an industry-leadingposition on salt and our customers stopped buyingour bread with low-salt and started buying otherbread that had more salt than ours had in the firstplace. The net effect, initially, was that ourcustomers consumed more salt. So you can be a step ahead but you can’t be in a different placealtogether. n

"We mustn't gettoo far ahead ofour customers"

4 Strategy and management Ethical Corporation • December 2013-January 2014

More sustainable fish on the slab

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Novo Nordisk Annual Report 2013

Integrated reporting in good health

By Hayley Morgan

Pharmaceutical giant leads the way not only with its sustainability but also with its reporting

tested approach that is engaging to a varied audience.Novo Nordisk has a wealth of engaging stories to tell,particularly around its symbiotic operations inKalundborg, Denmark. But the report’s concise edito-rial content is focused on performance, not filler. It was a challenging year for Novo Nordisk, which

received a warning from the US Food and DrugAdministration, experienced a safety scare aroundmultiple products, and underwent a major productrecall. Despite these problems, its sales increased by12% and operating profit by 15%. These conflicting performance markers are

addressed in letters from the chairman and CEO anda four-page section titled “A question of trust”, whichdelves into the pharmaceutical industry’s ongoingstruggle to balance financial performance with socialresponsibilities. The article is a clever way to addresscontroversy specific to their performance, whileconnecting it to wider governance issues, and runsalongside an image of a stack of books with titles thatare the stuff of PR nightmares, such as “Bad Pharma”and “Deadly Medicines and Organised Crime”.Perhaps a risky way to discuss risk, but daring andeffective. While the editorial style of the “Our business”

section is engaging, the creativity of the subsectiontitles confuses the contents page and makes navi-gating an otherwise well-organised report morechallenging than it should be. In previous years,performance highlights spanning five years wereimmediately detailed; this year the reader mustnavigate through performance summaries and the2014 outlook first. More confusingly, while the financial, social and

environmental statements are provided in the secondhalf of the report, the narrative around how thesemarkers were achieved are hidden in the “2013performance and 2014 outlook” section at the front.This forces the reader to use the search function tofind comprehensive detail of specific activity. Havingforegone a separate GRI index, a clear navigation atthe front end of the report is particularly missed. Heralded as the most sustainable company in the

world by Corporate Knights, Novo Nordisk’s corpo-rate publications are released with a degree ofexpectation. While the packaging of the 2013 annualreport is not the most ground-breaking or creative,the quality of disclosure goes a long way toconfirming that the company continues to impresslong after Sampras laid down his tennis racket. n

Danish pharmaceutical giant Novo Nordiskpublished its first environmental report in 1994.

Twenty years on – and 10 years into integratedreporting – its 2013 annual report reflects decades ofsustainability leadership. Readers are invited to complete a survey on the

quality of the reporting. While it’s unlikely that NovoNordisk has been inundated with comments, it’s anunusual feature that shows openness to critique. Novo Nordisk is the world’s largest insulin

producer, providing products to more than 24 millionpeople globally. This narrative is illustrated withbright, candid photographs of diabetes patients andNovo Nordisk employees, which (refreshingly for apharmaceutical company) avoid obvious pathos. As in 2012, the 2013 report cover echoes a magazine

layout, featuring snappy headlines such as “Is obesitya disease?” and “One size doesn’t fit all”. But thisreport is decidedly not a magazine. Its data-driven,content-heavy 116 pages span financial, social andenvironmental performance and strategy, followingAA1000APS (2008) principles, International IntegratedReporting Council (IIRC) guiding principles, andGlobal Reporting Initiative (GRI) G3 guidelines. This isthe first year since 2007 that Novo Nordisk has inte-grated its GRI report into its annual report.Integration can mean more cohesive and clear

reporting. It can also mean the opposite. With somuch information to cover, providing a snappy narra-tive throughout the report would make itoverwhelmingly long, and difficult to navigate. NovoNordisk’s report is undeniably dense, and fewer than30 of its more than 100 pages are used to feature casestudies and illuminate strategy and risks beyond piecharts and technical summaries.

Well pitchedDivided into four key sections, the second, “Ourbusiness”, is the most engaging. This section reflectsthe magazine theme hinted at in the cover, in looksand structure. Key details, like the company’s triplebottom line business strategy, regional presence,research, risks and targets are interwoven intothought-provoking articles. These articles cleverlybalance scientific detail appropriate for an industryreader while avoiding technical jargon that wouldalienate a curious stakeholder. Providing a human interest angle to otherwise dry

information – for example, a two-page piece on thecomplexity of insulin production – is a tried and

Snapshot

Follows GRI? Yes, G3.1

Assured? Yes, by PWC.

Materiality analysis? Yes.Assessment process describedbut no matrix provided.

Goals? Yes

Targets? Yes. Long-termfinancial, social, and environmental.

Stakeholder input? Yes.Detail of company reputationwith external key stake-holders.

Seeks feedback? Yes

Key strengths? Magazineformat brings strategy, KPIs,and targets to life.

Chief weakness? Contentspage lacks detail. Graphicsand presentation do notreflect sophistication of thereport.

Pleasant surprise?Technical articles engagingand easy to understand.

Hayley Morgan is a consultant atContext Europe. [email protected]

Novo Nordisk has a wealth ofengaging stories to tell

Review 5Ethical Corporation • April 2014



Briefing: North America 6

Water is anotherarea wherecompanies get an "F" for effort

Looking back, pundits might frame sustainablebusiness in North America in 2014 as “the best of

times, the worst of times”.On the side of doom and gloom we have plane-

tary conditions; if the globe were an automobile,nearly every warning light would be flashing. Andthus far, neither scientific forecasts of our predica-ment nor actual extreme events – from droughts tostorms – have prompted powerful action by eitherthe US or Canadian governments or companies.Instead, according to the just-released State of

Green Biz 2014 report by Green Biz executive editorJoel Makower, North American business hascontinued to “tinker” with “incremental changes totheir products and operations”. Makower doesn’tpin all the blame on corporations – political leadershaven’t measured up, and neither have consumers,who collectively seem to demonstrate little concernover the fate of the planet’s environment, or itsongoing social ills. Two recent petitions are telling. When Canadian

pop star Justin Bieber was arrested for recklessdriving, 200,000 Americans signed a petitiondemanding the US president, Barack Obama,deport Bieber. At the exact same time a petition toinvestigate how a company released toxic chemicalsinto the state of West Virginia’s water supplycouldn’t get far past 500 signatures.Environmental and social progress by companies

could be classified as “stalled” right now, Makowersays. It’s the twin demons of short-termism – thataddiction to short-term profit and return for share-holders that infuses public companies from top tobottom – and lack of a widely accepted alternative

vision for how business can be as good for peopleand the planet as it is economically successful.

Bad news firstShort-termism has led top North American compa-nies to maximise profits before anything else, andvery successfully. US companies, for example, areright now sitting on a record $1.7tn in cash. The 2013Climate Counts study of 100 top companies’ climatecommitments found that less than half were settinggoals deemed adequate to limit climate changeeffects to even “tolerable” levels. Nowhere is this tension between short-term

profit and long-term outcomes more deeply feltthan in the traditional Canadian industries ofenergy and mining, with tar sand exploitation thecurrent hot issue for how to damage the environ-ment, increase carbon emissions, and not win publictrust, while simultaneously generating new andneeded economic windfall.Water is another area where companies get an

“F” for failure. Multinational leader Coca-Cola hasseen the wisdom of water-conservation andresilience around water, and behemoth retailer Wal-Mart views water management as a coming issue offocus. But overall, US companies’ water efforts are atrickle rather than a flood. Water use is coming to the public’s attention,

albeit slowly. In the US, there has been a recentmedia spotlight on water use in the fast-growingbusiness of fracking – hydraulic fracturing to extractoil and natural gas. Increased transparency aroundwater is necessary, experts say. The need is not justfor disclosure of North American companies’ water

Canada and the US

Best of times, worst of timesBy April Streeter

Global problems that squeeze businesses’ ability to operate are accelerating, but so too are somecompanies’ readiness to make transformational change

CHRISTOP

HE BOISSON

Ethical Corporation • March 2014



use but also transparency about the ways compa-nies make deals with water suppliers, in order toavoid the label of “policy capture”, or muscling inon water policy. Energy is a slightly brighter spot. There is a

growing list of US and Canadian companies, bigand small, using 100% green energy for their opera-tions. Oregon-based Intel uses 3bn kilowatt-hoursof green power annually. Likewise, tiny CopperDoor Coffee Roasters in Colorado gets all of itsyearly 1,000kWh from wind power.In addition, energy efficiency and management

– making existing resources go further – is the most-productive method of satisfying future energy needs, says the Natural Resource DefenceCouncil. It’s also an extremely popular area ofsustainability initiatives – in 2014, for example, the USfinancial services sector will allot 71% of its sustain-ability spending – $1.3bn – to energy managementinitiatives. Another good sign is investment banking firm

Goldman Sachs describing renewable energy ashaving a “transformational moment” and contin-uing its $40bn of planned investments in the sector. That’s not enough, however. If US department of

energy calculations showing fossil fuel use projec-tions are true, the US and Canada are losing the raceto convert to low carbon economies in time to keepglobal warming below the Intergovernmental Panelon Climate Change’s 2C limit. The headlong devel-opment of natural gas and oil in North Americamust take a big helping of blame. As Michael Klare,a professor of peace and world security studies atHampshire College, argues: “The gravitational pullof carbon is immensely powerful.”

Large investors are growing wary of thecontinued rush to develop fossil reserves, which isbringing the issue of stranded assets to the fore. Inpreparation for 2014’s round of shareholder resolu-tions, Exxon-Mobil and Chevron are among the oilcompanies that have investors asking for a lot moredetail on their thinking around fossil developmentand climate change. If the world moves steadily to tax or put a price

on carbon, how many of these companies’ fossilassets will lose value and be stranded? Conversely,if the world doesn’t move and we face the worstwarming scenarios, investors want details on howcompanies plan to adapt and at what price.Ryan Salmon, senior manager of the oil and gas

programme at Boston-based Ceres, sums up thedebate: “Is it more resilient and economically feasibleto develop the assets and adapt to climate disrup-tions over the longer term? Fossil fuel companieshave their own views of the future based on theirforecasts for supply and demand. But I don’t thinkanybody is saying these issues are not legitimate.”Salmon adds that Exxon has already responded toinvestors with “constructive” discussions.

Chasing ‘big pivot’Pessimists in the sustainability world have thesinking sensation that corporate efforts are too littleand possibly too late to deal with the globe’spressing and acute climate and resource problems.The optimists, however, point to the many large andsmall companies in the US and Canada that areaware of and working on the big problems. “The best businesses understand that the world

is changing rapidly and they need to get ahead of

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Large investors are growing waryof the continuedrush to developfossil fuels

Briefing: North America Ethical Corporation • March 2014

Canada – fast facts

Area: 9.98m sq km

Population: 34.6m (2013)

GDP:$1.47tn (2012) $42,300 per capita

GDP composition:agriculture 1.7%;industry 28.5%; services 68.9%

Export partners:US 74.5%; China 4.3%; UK 4.1%

(2012)

Import partners: US 50.6%; China 11%; Mexico 5.5%

(2012)

Electricity generationby source:fossil fuels: 31.8%;nuclear 9.2%; hydro 54.8%; other renewables 4.2%

9.98m km2

34.6m (2013)

GDP $1.47tn (2012) $42,300 per capita

n services 68.9%

n industry 28.5%

n agriculture 1.7%

n hydro 54.8%

n fossil fuels: 31.8%

n nuclear 9.2%

n other renewables 4.2%

US

CHINA

UK

11%

MEXICO

CHINA

US

GDPcomposition

4.1%

4.3%

74.5%

50.6%

5.5%

Electricitygenerationby source

Source: CIA World Factbook



that change,” says Aron Cramer, chief executive ofthe non-profit Business for Social Responsibility. “Atthe same time the scale is so big and so broad, theyneed to collaborate with other companies, workwith stakeholders, engage with experts, find solu-tions, and achieve systemic change – and thechallenges are so huge.”Huge challenges need not be overwhelming.

Many would say it’s about setting good goals andmoving relentlessly toward them. But sustainability expert and author Andrew

Winston has a different take. Incrementalism, hesays, has not taken us far enough fast enough, andthe whole idea of sustainability has become siloedinside companies. This necessitates what Winstoncalls the “big pivot” (which is also the title of hisforthcoming book). The recent example of US giant drugstore chain

CVS suddenly announcing that it would stop selling

8

The effort to pivotto transformativechange has tocome from the top


tobacco products was a pivot, Winston says. Thedecision may prove to be detrimental in the shortterm to the company’s bottom line but allows theCVS brand to be in line with its ultimate mission ofsupporting consumers’ health. CVS’s stock rose onthe news.“It’s hard to make the case any longer that there

are limitless materials for companies to draw on.Thus, the scarcity challenge is what companies aregoing to face most along their value chains,”Winston says. “There’s no single action that createsa big pivot. It’s the sum of the actions that will makeyour company resilient and able to cope with risingprices and weather extremes.”

Sustainable supply chains Making supply chains more sustainable continuesto be a big task at many North American companies.This work can be satisfying and fruitful, but is notwithout pitfalls. In January, Intel announced a mile-stone in releasing its first microprocessors free ofconflict minerals. This move took millions of dollarsand untold man-hours of investment, and helps thecompany in upcoming compliance in May 2014 witha section of the Dodd-Frank legislation on financialreform and consumer protection. Intel got much positive press, because the

mining of these minerals (especially tin) in Africancountries is a topic currently on the radar. Butresource certification expert Bill Quam says the “bagand tag” certification process in Intel’s supply chainwork on conflict minerals may have inherent weak-nesses because it starts from the smelter and notfrom the mine. He argues that companies need to becareful when making statements about conflict

North American company representation 2010 2013

GRI reporters 256 537*

DJSI world industry group leaders 0/19 2/24

CDP responses 441 457

CDP disclosure leaders 2/12 29/60

Global Compact participants 171 353

PRI signatories N/A 139

United States – fast facts

Area: 9.93m sq km

Population: 316m (2013)

GDP:$16.2tn (2012)$51,700 per capita

GDP composition:agriculture 1.1%;industry 19.2%; services 79.7%

Export partners:Canada 18.9%; Mexico 14.0%; China 7.2%

(2012)

Import partners: China 19.0%; Canada 14.1%; Mexico 12.0%

(2012)

Electricity generationby source:fossil fuels 75.3%;nuclear 9.7%; hydroelectric 7.6%;other renewables 5.3%

9.93m km2

316m (2013) GDP $16.2tn (2012) $51,700 per capita

n services 79.7%

n industry 19.2%

n agriculture 1.1%

n fossil fuels 75.3%

n nuclear 9.7%

n hydroelectric 7.6%

n other renewables 5.3%

CANADA

MEXICO

CHINA

14.1%

CHINA

CANADA

MEXICO

GDPcomposition

7.2%

14%

18.9%

19%

12%

Electricitygenerationby source

Source: CIA World Factbook

*2012 data as many 2013 reports are not yet published or included in GRI statistics.



minerals. Quam says the impor-tant thing for Intel and itscompetitors is to “keep puttingpressure on the upstream to bemore transparent”.One thing that hasn’t changed

in chasing sustainability, AndrewWinston says, is that the effort topivot to transformative changehas to start at the top. Beyond that, Winston and Aron

Cramer agree that, in addition totop leadership, it is partnershipsthat are driving big changes. If as asociety we do switch towards aclean-energy-driven and sustain-ably-designed-products economy,Winston hopes we won’t evenneed the terms “corporate socialresponsibility” or “sustainability”any longer. “Over time, I hope we get rid of

all the buzzwords and merely callit good business. Managing ourmega changes, whether you call itsustainability or not, will be core to the business – and[integrated] into how we design, make and sellproducts and services – not managed off in an organ-isational silo,” he says.Of course, partnering for progress in the social

and environmental aspects of sustainability isn’tnew. Ceres, for example, now has 25 years of tryingto integrate sustainability into capital markets andchampioning the Global Reporting Initiative tocompanies. Meanwhile, a partnership of a differentkind, a memorandum of understanding signed inJanuary 2014 between the Sustainability AccountingStandards Board and the International IntegratedReporting Council looks like it will cause somecreative disruption to GRI’s stature with US compa-nies this year.One difference in recent partnerships is the

unique solutions corporations are producing, and theall-inclusiveness they are aiming for. McDonald’s hasmade the bold goal of starting a switch to sustainablebeef in 2016. Just defining sustainable beef is a chal-lenge, let alone creating supplies of thousands oftonnes of hamburger meat. McDonald’s and itspartners all along the beef value chain are nowtasked first to craft a real definition of sustainability,working with the Global Roundtable on SustainableBeef, and then to figure out how to take action.Another important partnership is Canada’s Oil

Sands Innovation Alliance, working to accelerateenvironmental improvement in Canada’s oil sandsindustry. Cosia’s chief executive Dan Wicklum saysthe alliance is a “fundamental redefinition” ofcollaboration because of the strong governancestructure created and the scope of participatingcompanies’ contributions. Cosia may not polish the

oil sands industry’s image to all stakeholders, butalready it is showing tangible environmental technology innovations.

Gathering inequalityDuring a recent Twitter chat between sustainabilityprofessionals and companies, some top new predic-tions included continuation of the expanding role ofpartnerships; growth in the number of companiesintegrating environmental and social goals intotheir strategic planning and budgeting; increasingpressure from social media on companies’ trans-parency; and competition between reportingstandards and guidelines such as GRI, SASB andIIRC.Only hinted at was how growing inequality in

North American, and particularly US society, is aproblem companies are seeing rise in importance.Inequality might be one of the “sneaker” issues goingforward. The west coast city of San Francisco is anepicentre, as inequality widens between tech-sectormillionaires and the rest of the local population leftout of that boom. Big buses that freely shuttle Googleemployees from Silicon Valley up to the city everyday have become a flashpoint for the tension. In A Tale of Two Cities, as with all great literature,

there’s a struggle between opposing forces. In theworld of North American business sustainability,the struggle is between the capitalism of yesterdayand that of tomorrow, with innovation as theultimate plot-twisting device. In spite of the challenges and setbacks, there’s a

pervasive idea here that technology and innovationwill save us, reforming capitalism sufficiently tousher in a kindler, gentler era. n

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Growing inequality insociety is aproblemcompanies areseeing rise inimportance


Big brands becoming protester focus

GETTY IM

AGES

April Streeter is an associate with One Stone. A Certified BCorporation, One Stone has aglobal team offering sustainabilityconsultancy and communicationsexpertise, based in Stockholm,Edinburgh, Sydney, Portland andWashington DC.



Corporate responsibility cheat sheetBy Oliver Balch

Ethical Corporation’s analysis of the latest reports and data

Business case underscrutinyFewer than a third of large companiesclaim to be making a profit from theirsustainability programmes, down from

around two-fifths in 2010. A survey byMIT Sloan Management Review andthe Boston Consulting Group findsthe same proportion (32%) arebreaking even, while 11% are losingmoney. A surprisingly high 25%appear not to know either way.

Now in its fifth year, the annualSustainability and Innovation GlobalExecutive Study identifies employeehealth as the most important socialissue facing companies. As for the environmental and economicfields, the 5,300 executives andmanagers that responded to the surveypicked out energy efficiency andcompetitiveness as priority themes.

The findings reveal some worryingmismatches. While 88% of respon-dents agree that climate change is real,only 9% fully believe their companiesare prepared for the consequent risks(with an additional 25% “somewhatagreeing”). Likewise, 70% of respon-dents believe sustainability isimportant or very important for theirbusinesses, yet only around half thinktheir companies are adequatelyaddressing the issue. http://sloanreview.mit.edu

Wind tops Spain’senergy mixWind has emerged as the most impor-tant source of power generation inSpain’s energy mix. At 23% of allenergy produced, the output ofSpain’s wind farms outstrip that of itscoal-fired (14%) and combined cycle(9%) power stations. Nuclear (21%) isthe second most important source ofelectricity in the country, while hydro-electricity now represents a credible14% (compared with 8% in 2012).

Spain’s grid operator Red ElectricaDe Espana estimates that the introduc-tion of renewable energy during 2013has reduced carbon dioxide emissionsin the electricity sector by 23% to 61.4mtonnes per year. Renewables nowaccount for 42.4% of Spain’s electricitygeneration. The wind sector achieved a

new maximum of instantaneous powerof 17.056 MW on 6 February 2013. www.ree.es

Boardroom balancingactWomen now make up one-fiftvh ofFTSE 100 boards, according to figuresfrom Professional Boards ForumBoardWatch. Although it’s thehighest figure recorded, the UK’slargest companies will need toincrease the proportion by five

percentage points (equivalent to 50 seats) to hit the government’s 2015 target. Women now make upone-quarter of non-executivesdirectors, although the figureplummets to 7.2% for female executive directors.

A major concern remains the lackof women at the very top, with onlyfour female CEOs in the UK’s largest100 companies (Royal Mail, Easyjet,Burberry and Imperial Tobacco).Currently 36 companies have 25% ormore female board members, with 13having 30% or more. The highestperformer is brewer Diageo (with44%), followed by Capita (40%) andRoyal Mail and Unilever (36% each).The ratio drops for the FTSE 250,which boasts only 15% women direc-tors (comprising 19% non-executivedirectors and 5% executive directors).One-fifth of the UK’s largest 250companies still have all-male boards.www.boardsforum.co.uk

Cheat sheet10 Ethical Corporation • February 2014

Corporate insights

Emissions heading upward, BP saysEnergy company BP predicts that carbon emissions will jump by 29% over thenext two decades. Its recent Energy Outlook report anticipates a 41% increasein energy consumption by 2035. The vast majority (95%) of the projected rise inenergy consumption is expected to occur in non-OECD countries.

Energy use in these countries will grow at 2.3% per year during 2012-2035, compared to 0.2% per year in the case of OECD countries, the oilmajor states. While reliance on coal is expected to fall, fossil fuels over allare still projected to comprise 81% of the energy mix by 2035, a 5% drop on2012 figures. In terms of power generation, renewables such as hydro andsolar will increase from their current share of 5% to 13% come 2035. www.bp.com

UK rail passengers happy The passenger satisfaction rate on the UK rail network hit 85% in 2012-13,Network Rail reports. Train punctuality, meanwhile, registered at 90.9% forthe same period, marginally down on the 91.6% rate achieved the previousyear. The company’s carbon emissions – its own, not those of railcompanies – dropped by 4,185 tonnes of carbon dioxide equivalent to atotal of 303,078 tonnes CO2e.

Clifford Chance’s patchy pro bono record Law firm Clifford Chance gave on average 18.4 hours of pro bono work perlawyer during 2013, the company’s corporate responsibility report reveals.Lawyers in the firm’s American offices gave substantially more of their time(47.4h), followed by the UK (29.4h). Figures for Asia Pacific (7.7h), central andeastern Europe (7h) and western Europe (7.3h) are markedly lower. www.cliffordchance.com

Fewer than

a thirdof large companies claimto be making a profit fromtheir sustainabilityprogrammes

Women now make up

one-fifthof FTSE 100 boards

Renewables account for

42.4%of Spain’s electricity generation



Wetlands withering in ChinaChina’s wetlands have shrunk nearly9% since 2003, new figures show.Asia’s largest economy is home to

more than one-fifth of the world’spopulation, but only 6% of its freshwater resources. According toChina’s State Forestry Administration,the world’s most populous countryhas lost 340,000 sq km of wetlandsover the past decade – an area largerthan the Netherlands. China hasearmarked $660bn to invest in water security projects over the next decade. english.forestry.gov.cn

US companies ‘must do more’Over nine in ten US citizens saycompanies should implement moresustainability practices, while 63%think that they should “activelypursue” such practices. The findings,in a survey by Hill & KnowltonStrategies, also reveal that onlyabout one-third of the US publicbelieves companies are doing more to combat climate change than theywere a decade ago. The findingssuggest an appetite for informationamong US citizens, however, with 62% interested in learning what companies are doing to improve energy efficiency. The most trustworthy means of companies doing this is via third party organisations, say half of those interviewed.

Workforce overlookedin climate cutsThe rising cost of energy means 92% of workers in the UK areconcerned about their domesticenergy bills, but only 47% have given

any thought to the cost burden facedby their employer.

Employers are missing a trick.Engaging their workforce aroundenergy efficiency could save UK businesses £300m per year, the CarbonTrust estimates. The biggest single gaincould be in reducing air travel: a 5%reduction in work-related flights wouldtranslate into £128m in savings (plus a1.5m-tonne reduction in carbon emis-sions). At present, however, fewer thanone in four employees have ever beenasked to help save energy at work, andonly 13% say their employer offersincentives to workers that take steps toreduce energy consumption. Three-fifths of employees say they would be more likely to save energy at work ifthey were praised, with a similarnumber admitting that they would be equally motivated by financialrewards. www.carbontrust.com

Foot-dragging in Hong KongCompanies listed on Hong Kong’sHang Seng Composite Index aredragging their heels to a worryingdegree on climate change. Only 26of the 216 listed companies analysedby Carbon Care Asia currently measuretheir carbon footprint. Only five hadclear targets, meanwhile. The poorestperformers were small-capitalisationfirms, with a mere 3% measuringtheir emissions. www.carboncareasia.com

Asia shining in solarpowerThe Asia-Pacific region is predictedto account for around half of all new solar photovoltaic generatingcapacity in 2014, according to theindustry research group Solarbuzz.The vast majority (95%) of the 23GWin anticipated new generating

capacity is expected to come from five countries: China, Japan,India, Australia and Thailand. The projected capacity gains mark a 35% increase on the 18GW added in 2013. According to the ChineseBureau of Energy, China alone aims to install 12GW in 2014, with 8GW to be installed on rooftops, and theremaining 4GW on the ground. www.solarbuzz.com n

Cheat sheet 11Ethical Corporation • February 2014

Organisation snapshots

Big risks in year aheadSevere income disparity is the most likely risk currently facing the planet,according to the World Economic Forum. On a scale of 1 (least likely) to 5(most likely), respondents to the WEF’s Global Risk 2013 report gave theissue as 4.22 rating. Next on the list are chronic fiscal imbalances (3.97),rising greenhouse gas emissions (3.94), water supply crises (3.85) andmismanagement of population ageing (3.83). Income disparity also toppedthe ranking as the risk with the highest potential impact (4.04).

Interestingly, water supply crises climb into second place in impactterms (3.98), while chronic fiscal imbalances drop to third (3.97). Also in thetop five risks by impact is the diffusion of weapons of mass destruction(3.92) and the failure of climate change adaptation (3.90).www.weforum.org

Clean tech requires $1tn a yearWhat’s the bill for fixing climate change through clean tech? ChristinaFigueres, the United Nations’ climate chief, reckons a cool $1tn a yearshould do it. Global investment in clean technologies is currently around$300bn. According to Figueres, the world’s biggest pension funds and otherasset owners invest less than 2% of the funds under their control in cleanenergy infrastructure. This compares with about 10-15% directed towardscoal and oil.

Global Compact axes 107 firmsThe Global Compact expelled 107 companies in the last six months of 2013for failing to submit a communication of progress report, the UnitedNations-backed initiative announced. The expelled companies compriseabout 2% of the 4,416 required to submit such a report over this period.During the same six months, 707 new companies joined the GlobalCompact.www.unglobalcompact.org

China’s wetlands have shrunk nearly

9%since 2003

The Asia-Pacificregion is predicted toaccount for around half of all new solarphotovoltaic generatingcapacity in 2014

A 5% reduction in work-related flightwould translate into

£128min savings


12


Fair sharesWomen could take 40% of board-rooms seats in European Union listedcompanies by 2020 if a vote of theEuropean parliament is anything togo by. The parliament in Novemberbacked the plan by 459-148 with 81abstentions. Under the law, compa-nies would have to ensure that atleast four in 10 of their non-executivedirectors are women, or put in placetransparent selection procedures toshow that they are not denyingwomen positions because of theirgender. Companies that do neithercould be sanctioned. However, thelaw is not final. EU member stategovernments must agree to it, andthey have not yet made up theirminds.

Ripple effectGreenhouse gas emissions are not theonly factor that might make theworld’s fossil-fuel reserves unex-ploitable, according to a report fromconsultants Wood Mackenzie andthe World Resources Institute. Keyreserves might also be at risk becauseof water shortages. The report foundthat half of US shale gas reserves arein areas of “medium to extremelyhigh baseline water stress”, with coalmining in China and oil production in

the Middle East facing similar short-ages. Energy industries consumeabout 15% of global freshwaterreserves. Wood Mackenzie’s SondraScott says: “With the United Nationspredicting a 40% shortfall in globalfreshwater by 2030, the energyindustry is under increasing scrutinyfrom the government and public onhow it uses freshwater supplies.”

Analysis: Sochi Olympics

Fair games? By Oliver Balch

Sponsors of the Winter Olympics havemostly offered a dangerously weakresponse to damaging stories in the run-up to the Sochi games

Excitement is brewing in Sochi. A buildingsite for much of the past year, the Russian

city is now nearing readiness for February’sWinter Olympics. Like all global sporting events, the run-up

to the games has had its hitches. Fears of a mildwinter prompted a stockpiling of artificialsnow. A suicide bomber along the coastsparked security concerns. But beyond the usual teething problems,

these Olympics seem to have attracted a pecu-liarly large volume of bad news. Russia’sstance on gay rights is perhaps the mostobvious. A law passed in June 2013 banninghomosexual “propaganda” earned the countryworldwide condemnation. This was followedby the arrest of 30 Greenpeace activists twomonths later on piracy charges, which black-ened the country’s dubious human rightsrecord even further. Despite the XXII Winter Olympics being

billed as the most expensive games on record,with a reported budget of $50bn, migrantworkers are said to have gone unpaid in someinstances. In other cases, there are reports ofthem having their passports confiscated andhaving to endure 12-hour working days.

Environmental concerns Claims that the games are destroying the envi-ronment have also plagued preparations.Contractors are accused of dumping construc-tion waste illegally, for example, leading tolandslides as well as polluted water sources.Green groups maintain that a new road andhigh-speed railway into Sochi have perma-nently damaged the nearby Mzymta river.Environmental campaigners working to raiseawareness of these issues, meanwhile, havefaced police detention. This litany of bad news raises serious issues

for the event’s corporate sponsors. “Corporatesponsors have a huge stake in making the Sochigames the celebration of fair play and humandignity that all Olympics should be,” says MinkyWorden, director of global initiatives at HumanRights Watch (HRW). The US-based campaigngroup has written to all the major sponsors ofthe games calling them to “speak up”. Few,

predictably, have so far chosen to do so.To their credit, three of the event’s biggest

sponsors – Coca-Cola, Dow Chemical andGeneral Electric – have at least agreed to meetwith HRW. A further five have offered writtenresponses, including McDonald’s, Procter &Gamble and Panasonic. According to HRW, alleight companies have expressed concerns overthe gay propaganda law to the InternationalOlympic Committee. That’s certainly welcome, but it falls short of

an open call for the Russian government torepeal the law. As for the other alleged abusessurrounding the games, not a word. Naturally, global companies are wary of

becoming embroiled in controversy. Theyguard their reputations carefully. In the furorecurrently surrounding the Winter Olympics,therefore, most revert to type and seek to castthemselves and their brands as apolitical. Coca-Cola perhaps goes furthest in publicly

declaring that it does “not condone humanrights abuses, intolerance or discrimination ofany kind anywhere in the world”. Others, such as Panasonic, prefer to focus

on the “feel good” factor of the games. Thestatement “sport is a human right” is as polit-ical as the Japanese electronics brand isprepared to get. Hardly words that will worrythe Russian president, Vladimir Putin. The Olympics’ band of corporate sponsors,

who cough up a reported $100m each for a four-year cycle of marketing rights, clearly want toremain tight-lipped. Fair enough. Sport, forthem, is all about projecting an upbeat image.Even so, they would do well to lobby therelevant authorities behind the scenes. As long as there’s downbeat stories

attached to Olympic events, their reputationswill be in the firing line.

All roads lead to Sochi in February

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EthicsWatch Ethical Corporation • December 2013-January 2014



Analysis: management structures

Is the future holacratic?By Stephen Gardner

No job titles and blurred lines of responsibility. Might holacracy catch on?

It has been around since at least 2007, and theprinciples underpinning it date back to the1960s, but it has only now hit the big time.Holacracy is a theory of organisations thatdoes away with job titles and instead distrib-utes responsibility among self-governingcircles. The Amazon-owned online retailerZappos recently becamethe largest company toswitch to the system. Its1,500 people willcomplete the transitionby December 2014.Behind holacracy is

the idea that work shouldbe organised aroundtasks, rather than aroundthe functions within acompany. The best wayto get tasks done is totrust teams to organise inthe way that suits thembest. Tasks are delegatedto “circles” of people,which are free to self-govern – as long as theyget the work done andfulfil the requirements of the upper circle thatdelegated it to them.

New rules Holacracy has been codified by US softwareentrepreneur Brian Robertson. The rules are setout in a Holacracy constitution that purports tobe written in plain English but reads otherwise,advising, for example: “A Linked Entity mayadd to or amend its Cross Link Role through itsown due governance process, and such Roleshall further inherit any Accountabilitiesrequired on such a Role by a Policy dulyoperating upon the Linked Entity.”Nick Osborne, a certified holacracy

practitioner at Agile Organisation in the UK,says that in a holacratic organisation “the poweris in the rules of the constitution” rather than inthe hands of individuals. Holacracy is a “thirdway” between a hierarchical structure and a flatstructure. It can in principle be scaled to anysize of organisation and makes life more

interesting for employees because they can“switch in and out of roles more flexibly”. According to Zappos, productivity should

rise because holacracy “enables employees toact more like entrepreneurs and self-direct theirwork, instead of reporting to a manager whotells them what to do”. Osborne cautions,however, that transition to holacracy is not easy.Companies should expect to lose some workerswho find “it doesn’t work for them” – giving upon a hard-earned job title can be tough.The system has also been criticised as

too inward-looking. Removing job titles andgiving more flexibility might be great forinternal morale, but it could also make it harderfor customers to know whom they should

speak to. Osborne says that to counter this,holacratic companies can publish a roll-call ofresponsibilities, with details of to whom taskshave been assigned at any one time.Steve Denning, a consultant and author on

organisations, says the risk for a holacracy isthat it becomes “an inwardly focused, buttransparent, organisation” that leaves it to thecustomer to find out who has a particularresponsibility. If the self-governance systemturns into death by committee, “thecombination of inward-focus plus completetransparency may thus be fairly lethal, ascustomers will be able to see very clearly thattheir needs, wants and whims are not being systematically attended to, and will move their business to a firm that is moreresponsive”.Fortunately for companies everywhere,

Zappos has volunteered to be the holacracyguinea pig. Its experience will enable thesystem’s effectiveness to be judged.

EthicsWatch 13Ethical Corporation • February 2014

Millennial thinkingMillennials – people born between1980 and 2000 – have a different setof workplace values from their moreprofit-driven elders, according to asurvey by Deloitte. Millennials believeoverwhelmingly that innovation is thekey to business growth, and thatcorporate success cannot be judged onthe basis of profits alone, with only35% considering the purpose ofbusiness to be to generate profit.

The main challenges millennialsin business expect to face are resource

scarcity, inflation and ageing popula-tions. Although most millennials(60%) say they work for innovativecompanies, in some countries thereare gaps between aspirations and theextent to which innovation is fosteredin reality, leaving millennials poten-tially frustrated. The biggest gaps existin Australia, France, South Africaand South Korea, Deloitte says.

Trust me, I’m a corporationThe proportion of people saying thatthey trust corporations appears to havestabilised at about 58%, according tothe 14th annual Trust Barometer fromPR consultants Edelman. High trustlevels of 70% or more are seen inemerging markets including China,India, Indonesia and Mexico, thoughconsumers there tend to trust foreigncorporations from countries such asGermany and Sweden rather thanhome-grown brands. Developedeconomies are much more cynicalabout business, with trust scores ofonly 43% in France, 41% in Irelandand 38% in Spain. The most trustedsectors are technology and automo-tive, while the least trusted are mediaand banks. In line with previousEdelman results, NGOs are moretrusted than businesses, scoring 64%.But trust in government has plunged– only 44% of those surveyed thinkthey can rely on their political leaders.

Traditional office roles can be counterproductive

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Strategy and management 14

ALPH

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Ethical Corporation • February 2014

Leadership risk includes the misuse,mismanagementor abuse of theorganisation'scoffers

The World Economic Forum has just published itsGlobal Risks 2014, a very useful snapshot of risks

confronting governments, companies and otherstakeholders. Though it targets large systemic risks,in this and other risk assessments there is, however,a gaping hole: the risk of leadership and culturefailure. In the 1980s there was Drexel Burnham Lambert

and the savings and loan scandals. At the turn of thecentury we saw Enron, WorldCom, Adelphi andTyco, to mention just a few. Most recently wewitnessed the probably most systemic andwidespread series of scandals of them all – the globalfinancial meltdown of the past half-decade.What is a common denominator that runs through

all of these scandals? Is it a breakdown in internalcontrols? A lack of proper laws and regulations?Ineffective board oversight? A poor executive teamwithout a vision? A general counsel, internal audit orchief financial officer asleep at the wheel? They may all have played a role. However, a

closer look may take us to another level of risk wedon’t talk about much: the failure of leaders, the riskthat leaders have the wrong motivations andincentives, the risk that motivations other than thecommon good of the enterprise are driving CEOs,their hand-picked executive teams and their rubber-stamping boards, to allow excess, short-termism and,in the worst cases, illegal behaviours.But it also goes beyond leadership. It goes to the

culture of the organisation. And it may even go to asystemic culture in an entire sector. It is a culture thatinstead of encouraging a race to the top encouragesa race to the bottom. This can best be seen in the

financial sector over the past two decades. But it also happens in other sectors. Look at the

construction industry, especially in developingcountries where the use of the cheapest labourpossible without consideration for health, safety andbasic labour rights has given rise to a new form ofmodern day slavery. Look at the retail industry andthe supply chain nightmares that have come to lightthrough tragedies such as Rana Plaza.So the answer to the question of what is the least

discussed and potentially most devastating risk is therisk of leadership and culture failure. Let’s break that down. Leadership risk is the risk

that the top leaders of an organisation misuse,mismanage, abuse or outright loot the coffers of theorganisation they owe fiduciary allegiance to.Extreme examples of this risk are unfortunately notuncommon: Milliken, Skilling, Fastow, Ebbers – theseare merely those who have been found to haveplundered or otherwise abused their positions ofpower for personal gain.

Quiet but guilty? What about the CEOs, CFOs and other executiveswho have not been investigated, prosecuted andfound guilty of any crimes or civil violations? Maybethey’ve been forced out of their positions quietly orin disgrace (and then frequently found anotherwilling corporate home). The names here are manyas well: look at the turnover on Wall Street andglobal financial sector – especially global bankleaders who have been in the cross-hairs of prose-cutors though often not directly investigated,prosecuted or convicted.

The GlobalEthicist

The biggest risks nobody talks about

By Andrea Bonime-Blanc

The failure of leaders and the business cultures they encourage can have devastating consequences

COLUMNIST:ANDREABONIME-BLANC



15

Ultimately, it is theboard of directorsthat is accountablefor recognising orpreventing risk

Strategy and management Ethical Corporation • February 2014

Leadership risk is therefore the risk of a topexecutive either engaging in direct criminal or civillegal violations or engaging in unethical orborderline practices that may come back to haunt notjust him or her but the entire organisation. This is aform of reputation risk.So, what then is “culture risk”? We have all heard

and read about the importance of tone at the top, thefact that the culture of an organisation is largelydetermined by its leader setting the parameters forbusiness strategy, business plans and performanceincentives. Leaders set the tone not necessarily bywhat they say but by what they do. Culture trumpscompliance every day of the week. Culture and howwe do things is way more important than writtenpolicy and codes of conduct and what we say abouthow we do things. Culture risk is the risk that the culture that

suffuses an organisation is the culture of a leaderwho is more narcissist than true leader, more self-enriching than steward of his/her company;someone who may a) not be true to the principle oflegal compliance, (b) not be living up to commonethical behavioural standards, or c) be driven by aperformance incentive stricture that encouragesoverly risky or even illegal behaviours.

Close links Why are leadership and culture risk so closely inter-related? Every leader, especially when it comes tocorporations, brings their own personal style, expe-rience, expertise, history, values (or lack thereof),and approach to strategy, business planning andperformance management. This personal packagecarries a lot of weight and allows the CEO to stampthe organisation with his/her way of doing things.This way of doing things then becomes part of thepervasive culture. So, what can we do about leadership and culture

risk?First, recognise it. Executive teams and boards

need to recognise that these are critical and materialrisks to any organisation.Second, prepare for it. Preparation entails dealing

with this danger practically and on several levels:• Developing balanced and traceable performanceand incentive structures.

• Deploying a code of conduct programme that isnot a toothless tiger, that is properly resourced,positioned and measured.

• Having a robust speak-up culture within theorganisation that allows for problems to rise to thetop (rather than be suppressed at all levels).

Third, take ownership. Ultimately, it is the boardof directors that is accountable for recognising,preparing for and preventing this type of risk. As thebody that ultimately oversees the CEO’s hiring,performance and firing, pay package, incentives,performance, strategy and risk management, the

Dr Andrea Bonime-Blanc is chiefexecutive of GEC Risk Advisory, a global governance, risk andreputation consultancy to boardsand the C-suite. She is chairemeritus of the Ethics andCompliance Officer Association, a member of Ethical Corporation’seditorial advisory board, a programme director at theConference Board and a lifemember of the Council on ForeignRelations. @GlobalEthicist

board needs to lookout for and developchecks andbalances on therisk of leadershipand culture failure. No one else but

the board has thispower or ability(unless you countgovernment regu-lators or investi-gators or hostile/activist investors/shareholders). Other executives are usually beholden to the CEO. The general employee population will actin accordance with the incentives they are given andthe culture they perceive (rather than are told about).No set of beautifully printed or digitally deployedvalues will ever trump the way things actually getdone in an organisation.It is the responsibility of the board to deal with

leadership risk by:• Properly vetting and selecting the CEO in the firstplace.

• Setting clear parameters on the performance andincentives of the CEO.

• Properly gauging the performance managementsystem the CEO has put in place for the executiveteam and the rest of the organisation.

• Understanding the connection between perfor-mance management and financial and otherresults.

• Not being afraid to discipline or dismiss the CEOwhen circumstances dictate.

The board should deal with culture risk by:• Seeing the results of periodic culture surveys (ordemanding culture surveys if the organisationdoesn’t do them).

• Having certain key executives report to the board periodically (in addition to the chiefauditor): the head of ethics and compliance; thehead of human resources; the head of corporateresponsibility; the head of risk management.

• Delving into the employee population and theorganisation itself from time to time by visitingfacilities, talking to mid- and lower-level staff, andgenerally kicking the tyres.

• Engaging in meaningful executive sessions withkey members of management.

Human nature is such that we will nevereliminate egregious behaviour or actions that seeksto cut or even slice through corners. However, whenboards do their jobs and hold their CEOsaccountable, the rarely considered but material risksof leadership or culture failure will be addressed,understood, ameliorated and perhaps evenprevented. n

Robust communication channels vital throughout your organisation

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Strategy and management 16

Joe Jimenez, Novartis

Link sustainabilityto success Joe Jimenez, CEO of pharmaceuticalmultinational Novartis, speaks to EthicalCorporation about corporate innovationand the importance of a sustainablebusiness approach

How do you link sustainability andcorporate responsibility to your business

strategy? You do a lot of good work, but howdo you mainstream it in the business?

Corporate responsibility has always been andwill continue to be a core part of our businessstrategy. We focus our corporate responsi-bility efforts in two areas: expanding access tohealthcare and doing business responsibly.We’re applying our expertise in science andinnovation – for example our new malariacompound KAE609. We are also pioneeringnew, sustainable business models, such as oursocial ventures initiatives, to help improvequality of life for those with limited resources.We are committed to carrying out ourcommercial activities with integrity and do soby upholding the highest ethical standards.We also aim to conserve natural resourcesand limit our impact on the environment.We’re reinforcing our efforts by integratingand aligning our corporate responsibilityactivities across the company with targetsand metrics we report in our annual report.

Investors care; investors don’t care. We hearconflicting views. Which stakeholders tellyou they do care about sustainability andcorporate responsibility, and how do theydemonstrate this?

We live in a global economy where corporateresponsibility is not just a “nice to have” – it’san expectation. Our customers expect it, ourpatients expect it, our associates expect it,and increasingly, our investors are expectingit. There’s growing evidence that links corpo-rate responsibility and sustainabilityactivities to positive business performance.Despite the current challenging economicenvironment where long-term projects canbe the first to get cut, nearly a third of multi-national companies are saying thatsustainability is critical to their ability to dobusiness. Corporate responsibility is morethan just the right thing to do – it also makesgood business sense.

How has John Ruggie’s business and humanrights framework changed how you dobusiness?

The Guiding Principles and other frameworkschampioned by the UN such as the GlobalCompact have helped shape corporatethinking and behaviour. They give us a foun-dation that is aligned with our values and theyhelp us sustain a culture that both furthersbusiness growth and protects and promoteshuman rights. We make a point to continu-ously review our policies and our conduct tomake sure we’re doing our part – and we’remaking good progress. For example, we wereable to secure a living wage for all Novartisassociates [employees] around the world,making us one of the first companies to do so.

How do you make sure intrapreneurial sustain-ability and corporate responsibility projectsbecome real business lines? Can you give usexamples of how you seek out internal innovation?

We try to foster a culture of innovation andcreativity, and this includes how wecontinue to improve as a more responsibleand sustainable company. To encourageidea-sharing, we recently held our firstcompany-wide digital global brainstormwhere associates discussed topics that areimportant to our business, including corpo-rate responsibility. One of the questions

raised was, “We’re reaching 1.2 billionpatients each year with Novartis products,but many people still don’t have access toquality healthcare. How can we help?” Weheard from associates around the globe whooffered ideas on everything from leveragingmobile to improve access to creative ways toimprove distribution in remote areas.Are companies going to have to become muchmore vocal – and take action – on public policyissues in the coming years than in the past?

Healthcare costs have grown faster thanGDP for 50 years, and at the same timedemand for healthcare globally is rising. Asa result, governments and other payors areaiming to cut spending by shifting theirresources to solutions that deliver the mostcost-effective real world outcomes. Part ofthe solution is policy reform, but anotherimportant piece is for the private sector todevelop new commercial models that focuson delivering positive patient outcomes,instead of just focusing on the transaction ofselling a medicine. We’re applying newapproaches such as risk-sharing pricingmodels which link payment to patientoutcomes as a result of treatment. We alsohave integrated care programmes whichuse a broader and more holistic model thatconsider solutions “beyond the pill” toimprove overall health, such as physicalrehabilitation and medical counselling. AndNovartis’ social ventures are uniquebusiness models that help expand health-care access in the developing world. Wework with local governments, non-profitorganisations and others to help improvelocal infrastructure, strengthen distributionchannels and build local capabilities whilestill making a profit. This ensures thesustainability of this approach. n

Jimenez: customers and investors expect corporate sustainability

Ethical Corporation • February 2014

Novartis: fast facts (2013)Net sales: $57.9bnNet income: $9.3bnR&D spend: $9.9bnEmployees: 135,000Medicines reach 1.2 billion people annually



Socialintrapreneurschallenge theirorganisations,challenge thestatus quo todevelopcommerciallyattractivesustainablesolutions

In a recent Ethical Corporation essay – A view fromthe crossroads, published in October 2013 – DavidGrayson highlighted the need for “much moretransnational, cross-sector collaboration if we are totackle the urgent sustainability challenges whichnow loom, Everest-like, before us”. To achieve this goal will require engaging the

creative powers of people in business, as well as thepublic and not-for-profit sectors, on a large scale inorder to create a “tipping point” – described byMalcolm Gladwell in his best-selling book of thesame name1 – for widespread action to address socialand environmental goals. Gladwell argues that ideasspread through the existence of specific “types” who“tip” human behaviour in particular ways – salespeople, connectors (brokers) and mavens (individ-uals able to see meaning, patterns and the bigpicture from seemingly random information). Business leaders interested in helping sustain-

ability practices reach a “tipping point” would dowell to tap the talents of such individual types intheir organisations and the extended cross-sectornetworks through which they operate.

Intrapreneur opportunityBeyond simply increasing the number of people intheir companies engaged with sustainability issues,business leaders may wish to improve the quality ofthat engagement as well. Those who want to movebeyond compliance or risk-mitigation in managingtheir social, environmental and economic impacts(corporate responsibility) and also systemically findbusiness opportunities (corporate sustainability)

need to engage the full range of their employees’talents. Almost certainly, among these employees will be

a small number who will have entrepreneurial ideasthat will simultaneously add value to the companyand contribute to sustainable development; andwho will be prepared to take the initiative – often intheir own time. We call these people social intrapre-neurs: people within a large corporation who takethe initiative for innovations that address social orenvironmental challenges while creating commer-cial value for the company.They are looking to create what Harvard strategy

guru Michael Porter describes as “shared value”.Typically, social intrapreneurs are going against thegrain. They are challenging their organisation, ques-tioning the status quo to develop and implementcommercially attractive sustainability solutions.Hence another description: corporate provocateurs.Often, at least initially, their intrapreneurial activityis not part of their job. This is why some socialintrapreneurs talk of their day job and the job thatthey do in their spare time: “moonlighting” for theirown employer.Social intrapreneurs are responsible for, among

other things, the creation of microinsuranceproducts (Allianz); the start-up of a business unitwithin a global parcel delivery corporation toimprove operational efficiency while amelioratingclimate change impacts (DHL); the reduction of aninternational brewing company’s production coststo improve competitiveness in developing countriesthrough partnerships with local growers (SAB

Essay

Creating a tipping point for socialintrapreneurism By David Grayson, Melody McLaren, Heiko Spitzeck

There is an opportunity for a multistakeholder approach that can promote better sustainablebusiness practices through social intrapreneurism

Strategy and management 17Ethical Corporation • February 2014

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Miller); micro-energy projects within a majorenergy generation corporation to boost productivityand address poverty in developing countries(EON); ethically produced sustainable product lines at a landscape paving company (Marshalls);and the development of a commercially viablebusiness unit within an engineering consultancy toaddress sustainable development (Arup). All theseprojects exemplify “corporate social opportunities”– corporate initiatives that create both commercialand societal benefit (Grayson and Hodges, 2004)2.Over the past two decades, social entrepreneurs

such as Muhammad Yunus and his Grameen bankhave been heralded for creating social benefitsbased on business thinking. During this time aninternational architecture to raise awareness of, andsupport for, social entrepreneurs and social enter-prise has emerged, thanks to the pioneering work ofa number of individuals and organisations. Prominent among these have been Bill Drayton

and the Ashoka Foundation he created; the AvinaFoundation; Klaus Schwab, founder of the DavosWorld Economic Forum, through whose SchwabFoundation social enterprise has featured at theWEF; Jeff Skoll and the Skoll Foundation, which in

turn has created the Skoll Centre for Social Enter-prise at Oxford’s Said Business School, and theannual Skoll World Forum on Social Enterprise; andJohn Elkington and Pamela Hartigan, with theirbook The Power of Unreasonable People (2008).It has taken more than two decades for social

entrepreneurism to be widely recognised. It tookYunus’s Grameen Bank more than 20 years to reachseven million customers. Compare that to M-Pesa, amobile payment system launched by two socialintrapreneurs at Vodafone in Kenya, which reached17 million people within the first four years. If wewant to scale good ideas quickly, promoting socialintrapreneurism makes sense. Is it possible for thesocialisation of the idea of, and development ofgood practice in, social intrapreneurism to be accelerated?

Sales force One of the factors driving increased awareness ofsocial entrepreneurism was the interest of theSchwab Foundation and discussion of the topic atthe World Economic Forum. Already, socialintrapreneurism has been discussed in Davos in2013 and in the WEF China 2013 meeting. Undoubt-

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If we want to scalegood ideas quickly,promoting socialintrapreneurismmakes sense


Could social intrapreneurs build on the work of entrepreneurs such as Muhammad Yunus?



edly, regular further discussion in such forums,where many of the global elite and global opinion-formers – an ideal “sales force” for promoting a“shared value” ethos – meet to share and developideas, would help to speed up awareness-raising asparticipants and journalists covering the eventspread the messages they have heard. This isstarting to happen with regular coverage in blogsand media such as Guardian Sustainable Business,Fast Company, Forbes and the Huffington Post. A few individual consultancies and corporate

responsibility coalitions are starting to help compa-nies to explore how to create an enablingenvironment. This process could be accelerated if agroup of leading multinational companies could bepersuaded to commit publicly to social intrapre-neurism, and to a joint action-learning programmewhere they would share their experiences and chal-lenges and explore potential solutions for creatingan enabling environment for social intrapreneurismin their own organisations. Such an action-learning research club would

carry greater credibility and profile if it were co-ordinated by a high-profile organisation such as theWEF; one of the leading corporate responsibility

coalitions such as Business for Social Responsibilityor the World Business Council for SustainableDevelopment; leading business schools; or a globalconsultancy. Ideally, such collaboration would optimise the

latest online information and communications tech-nology to facilitate the capture, storage and retrievalof good practice; and the emerging learning wouldbe made publicly available via the internet andsubsequently through capacity-building trainingprogrammes for corporate heads of learning, talentdevelopment, innovation, HR, strategy, newbusiness development and others. Already CSREurope has teamed up with Ashoka and the BMWFoundation to raise awareness of, and capacity forsupporting, social intrapreneurism among theircorporate members and national CR coalitionpartners.

‘Connector’ events and networks Connecting innovative companies and individualscommitted to cultivating, supporting and promotingsocial intrapreneurism through networks and coali-tions can play a powerful role in creating a “tippingpoint” for social intrapreneurism. Ideally, in parallel with this awareness-raising

and capacity-building for companies, there wouldbe increased promotion to potential social intrapre-neurs themselves. This could be through furthercompetitions and award schemes like the League ofIntrapreneurs. There are now about 50 Impact Hubs with a

further 50 expected to be operational by 2015. MoreImpact Hubs around the world could be runningcourses and clubs for social intrapreneurs. Studentorganisations such as Aiesec, Oikos Internationaland Net Impact, and student-run conferences suchas Emerge (hosted at Said Business School, Oxford)and the annual Doing Good and Doing Well Confer-ence on responsible business at IESE (Barcelona)could be profiling social intrapreneurs regularly. Net Impact and Oikos International are global

student networks aiming to bring sustainability intomanagement education. Aiesec also has someinterest groups on sustainability. Their alumni are anatural source of social intrapreneurs as theirmembers are convinced that business can be used asa positive force for good, and many of them arelooking for careers with positive impact. At theiruniversities they have already learned change-making skills in trying to convince universityadministration to integrate sustainability into thecourses they offer. Net Impact has several professional chapters for

alumni. It is possible some of these individuals maybe aspiring or emergent social intrapreneurs. Apartfrom encouraging them, Net Impact might profilesuch members to inspire others.By making social intrapreneurism a regular

theme of their conferences, publications and activi-

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A fewconsultancies and coalitions arehelping companiescreate an enablingenvironment


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20 Strategy and management Ethical Corporation • February 2014

ties, student organisations such as Oikos Interna-tional and Net Impact could further raise awarenessof the idea of social intrapreneurism, build networksand potentially create learning collateral that localchapters could use. Members could also besuggesting social intrapreneurism as a topic forclasses, to their faculty. The world’s business schoolscould be including courses on social intrapre-neurism in their MBA and specialist mastersprogrammes, as well as in specialist executive lead-ership programmes.

Supporting individuals Being a social intrapreneur, especially in the earlystages, can be very lonely. Capturing and dissemi-nating more practical advice and tips like theLeague of Intrapreneurs Cubicle Warrior Toolkit,and creating more peer-to-peer learning andsupport networks like the League of IntrapreneursLab and Aspen Institute’s First Movers programme,and sharing curriculum and case-studies online,could also accelerate adoption of social intrapre-neurism.Many of the social intrapreneurs and their

projects we have met have teamed up with externalpartners such as NGOs that have been crucial totheir success. For these external partners, socialintrapreneurs can be another route to increase theirown impact substantially and to extend their reach.Gib Bulloch – a leading social intrapreneur who

founded Accenture Development Partnerships writes:Most large charities or NGOs will have tens if nothundreds of thousands of supporters each giving $10,$20, $50 or more each month as part of their commit-ment to a cause they are passionate about. Some willwork in the public sector, some in the non-profit sector.But many will work in the corporate sector. And ofthem, a handful may even be latent social intrapre-neurs – people who are well networked internally.Who know the rules of the corporate and when to bendor even break them. They know that influence doesn’talways mean you’ve memorised the hierarchy of anorganisation chart. They know how to cut corners toget things done and are willing to take career risks fora cause they are passionate about. The smart NGOCEO will consider less about chasing philanthropicdollars – more about how to mine their donor databasefor the latent social intrapreneurs – the herds of latent“Trojan horses” residing deep undercover in the corpo-rate world, awaiting a cause and a call to action.3

Imagine a group of innovative social enterprisesand charities either individually or as a consortiumoffering some tailored, experiential managementdevelopment placements with them for selectedhigh-flyers from their corporate partners and othermultinationals. Or those same social enterprises andcharities with entrepreneurial ideas related to theircore mission, using social media to help them talkdirectly to supporters working in relevant multina-

tionals and encouraging them either to take up theideas themselves or find co-workers who mightrelish such an intrapreneurial challenge.Imagine too a “dating service” for social intrapre-

neurs and external partners (NGOs, internationaldevelopment agencies etc) working in the socialintrapreneurs’ areas of interest: a model suggestedby Meg Jones who works for the International TradeCentre, a joint agency of the UN and the WorldTrade Organization, mandated to help SMEs indeveloping countries achieve export success.NGOs might consider identifying and targeting

their members/supporters working for multina-tional companies and encouraging them to exploresocial intrapreneurial ideas relevant to the work ofthe NGO.NGOs might also work with existing corporate

partners to run experiential learning programmes likethe GSK Pulse or IBM Citizenship Corps that mightstimulate social intrapreneurs within the corporatepartners. Indeed, NGOs may already be workingwith key individuals in their corporate partners whomight have, or be encouraged to develop, socialintrapreneurial ideas, with the help of the NGO.International development agencies have long

recognised that it is better to teach a community tofish than to give them fish, and that, therefore,business and broader economic development isfundamental to sustainable development. Indeed,engaging business more systemically has been oneof the major themes of discussions on the Sustain-able Development Goals which will follow on fromthe Millennium Development Goals in 2015. Providing early-stage funding to support proof

of concept, as the DfID Challenge Fund did forVodafone’s hugely successful mobile money M-Pesaservice in Kenya, could be an effective way of fast-tracking economic development. Do agencies likeUS AID already have a funding mechanism thatcould potentially be used to support social intrapre-neurs? Are there any existing, effective promotionmechanisms to bring such a fund to the attention ofpotential applicants?

Developing ‘mavens’ We recognise this is a fast-developing field and onethat would benefit from further research. Asresearchers ourselves it might be seen as specialpleading to recommend further research. However,we do believe that the proposed efforts to raiseawareness, promote, capacity-build and shareemerging good practice about and for socialintrapreneurs will be greatly enhanced if accompa-nied by action research. There are a number ofresearchers internationally who might be invited tohelp refine and develop a relevant research agenda,perhaps under the auspices of the Academy forBusiness in Society.How might a supporting architecture for social

intrapreneurism develop? Imagine a world in which:

The world'sbusiness schoolscould be includingcourses on socialintrapreneurism

Gib Bulloch



light-touch coordination and strategic direction ofefforts to go further and faster. Could an existinginternational foundation extend its remit topromote social intrapreneurism? Alternatively, isthis a ready-made opportunity for a high-net-worthindividual looking to achieve positive societalimpact at scale, to create a new venture to promotesocial intrapreneurism as, for example, the Skoll andthe Schwab Foundations have promoted socialenterprise?To create the “tipping point” we seek, our

imperative is clear: we need to bring together sales people, connectors and mavens for socialintrapreneurism. n

1 Gladwell, Malcolm, (2000) The Tipping Point: How Little ThingsCan Make a Big Difference. London: Little Brown.

2 Grayson, D, and Hodges, A, (2004) Corporate Social Opportunity: 7 Steps to Make Corporate Social Responsibility Work for yourBusiness. Sheffield, UK: Greenleaf.

3 Bulloch, Gib (2013) Harnessing the Herd – Could Social Intrapreneurs represent a “Trojan Horse” strategy for charities.Business Fights Poverty (March 24, 2013). http://community.businessfightspoverty.org/profiles/blogs/gib-bulloch-harnessing-the-herd

• Corporate responsibility coalitions run awareness-raising and good practice sharing for membercompanies; and potentially include a socialintrapreneur category in any CR awardsprogrammes they might run.

• Business schools teach social intrapreneurism aspart of any change-maker courses they might runfor MBA students; and offer master-classes andexecutive education programmes in creating anenabling environment for social intrapreneurism.

• Social innovation Impact Hubs and equivalentcentres around the world offer developmentprogrammes and peer support to aspiring andnew social intrapreneurs.

• The League of Intrapreneurs or a similar groupingdevelops as an open-source, online centre ofexcellence, offering case studies, how-to advice,signposting to further help, match-making topotential social intrapreneurial “buddies” and accessto online and face-to-face training programmes.

• International development agencies are willing toconsider co-funding viable social intrapreneurialproposals and pump-prime capacity-buildinginitiatives.

Each of these things could happen organically.There are, however, opportunities to provide some

21

Internationaldevelopmentagencies have long recognisedthat it is better toteach a communityto fish rather thanto give them fish


This call to action is adapted from “Social Intrapreneurism and all that Jazz” by DavidGrayson, Melody McLaren andHeiko Spitzeck, to be publishedby Greenleaf Publishing in March 2014.

Innovation and cooperation breed business success and development opportunities


22


The 2013 UN Global Compact/Accenture CEOs survey finds

that while 93% of business leaders seesustainability as a real challenge tothe future of business and 78% see itas a route to business growth andinnovation, more than two-thirdsthink that business is not doingenough to address global sustain-ability challenges. The explanation for this contradic-

tion is the lack of a business case. Onlya third of the 1,000 respondentsbelieve that they have found abusiness case for sustainability. A largemajority of CEOs (83%) are of theview that more effort is required byregulators to provide the necessaryenabling environment. Clearer policyand market signals to support greengrowth were demanded by 85%.According to the Sloan MIT 2013

Management Review, published inDecember 2013, business facesproblems at several levels. Theseinclude a worrying gap betweenperception of the sustainabilitychallenges and business’s responseor preparedness.Take climate change, for example.

At a personal level, 88% of respon-dents believe climate change is realand 79% judge it to be a risk to polit-ical and social stability. Turning to thebusiness implications, well over halfbelieve that climate change is a risk totheir business. Only a third, however,believe that their company isprepared for climate change risk. Looking at the social, environ-

mental and economic pillars ofsustainable development as a whole,a similar pattern emerges: 70% ofexecutives think that sustainabilityissues were either “significant” or“very significant” but only half ofrespondents assessed that theirfirms were “largely” or “fully”addressing these issues.

On the question of whether theircompany has developed a “clearbusiness case” or “proven valueproposition” for its approach tosustainability, nearly two-thirds ofrespondents in the Sloan/MIT studyreplied in the negative. Based on annual findings since

2009, the Sloan/MIT data suggeststhat only a third of companies (37%in 2013) believe they have identifieda business case – a figure similar tothat found by Accenture.

Tipping point Both studies support the conclusionthat while some companies havebeen able to harvest the low-hanging fruit, it appears that (as theSloan/MIT report puts it) a “crucialinflection point” has been reached,where companies are unable tomove to the next level without help. The Sloan/MIT report recom-

mends more industry-led measures.All the evidence, however, suggeststhat we have long since reached thelimits of what voluntary actionalone can achieve. The limitedbusiness-wide uptake and impact ofmost voluntary standards speaksfor itself. We will not have a business case

for sustainability unless it is hard-wired into the regulatory landscape.At the macro-level, two main changesare required across the board.Firstly, there now needs to be a

more open, sustained and positivedebate in support of regulation.Here, the need to align short-termhuman behaviour with long-termhuman interests must be paramount. Business and media share a

responsibility for helping design amix of carrot and stick regulationsbased on measurable positive sustain-ability impacts, and for taking the caseto the public of the need for some-

times tough and expensive measuresto safeguard our common future. The narrative that “we can’t

afford it” is a nonsense that must bechallenged, including by the finan-cial sector. With all the evidencesuggesting that it will cost us moreto adapt to collapsing and changingnatural systems than to avert thosedisasters, it is time for business (andnot just the insurance industry) togive a value to the assets at risk andto define how the business case fora green and sustainable economycan be made. Secondly, reporting of environ-

mental, social and governanceperformance needs to be made thenorm and expectation, not theexception. Sustainability won’t bemainstreamed until it is made aconscious part of the business,whether as an incentive or an obli-gation. Recent progress on this bythe EU is encouraging. This means that all large organi-

sations must be required to measure,assess and disclose their sustain-ability policies and impacts, andhow they plan to respond toemerging sustainability challenges.Equally, institutional investors andratings agencies should be requiredto take this information into account. And in all these matters, it is in

business’s interests to lead ratherthan be forced to follow. n

Paul Hohnen is an Amsterdam-based consultantwho advises, speaks and writes on globalsustainable development issues. He is an asso-ciate fellow of Chatham House and a member ofthe Ethical Corporation advisory board.

By invitation: Paul Hohnen

Smart rules will spurbusiness action

A better regulatory environment is required to help companies to hitsustainability targets, says Paul Hohnen

Clear regulatory signals please

We have longsince reachedthe limits ofwhat voluntaryaction alonecan achieve

IVCA

NDY

BY INVITATION:PAUL HOHNEN

Strategy and management Ethical Corporation • March 2014


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