PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Chapter 8 Going Green In recent years, there has been a virtual stampede of executives proclaiming their desire to \"go green\" that is, to reduce or eliminate the negative impact of their business activities on society and the planet. For some, this proclamation amounts to little more than a public relations gimmick. Others, though, are genuinely committed to meeting the needs of their shareholders, customers, employees, host communities, and even the larger global community. These executives are looking at the processes their companies use to develop, manufacture, distribute, and perhaps even recycle their own products. They are seeking to develop products and services in ways that are compatible with what is being called \"sustainability.\" For these businesses, there are many technical questions: how to reduce waste, produce more efficiently, and so forth. They also face another, perhaps less obvious challenge. Going green is about more than new tools and techniques it also involves organizational transformation. We are not focusing here on companies founded on positive values concerning the social responsibility of business and the need to be a steward of a just and healthy planet. Patagonia, Ben & Jerry's, Newman's Own, and the Body Shop are examples of companies in which the founders embedded values of social responsibility into the company's culture. These types of companies, however, are not the focus of this chapter. Instead, the chapter looks at companies that were founded on a different set of assumptions and values. These companies viewed regulations concerning the environment and the treatment of employees from a compliance perspective. Rules were to be either followed, or occasionally even circumvented. When a company with one strategy and set of values decides to \"go green,\" it will need to engage in a change effort.* And it is a change that is transformational in nature. The chapter will focus on the organizational transformation involved in going green. In particular, the chapter will: In this chapter, \"going green\" and \"sustainability\" will be used interchangeably. * Present the key concepts of sustainability and the triple bottom line Examine going green as an organizational transformation Articulate the steps that are part of that particular transformation process Delineate the role of leadership in creating and maintaining a green culture within an organization Before doing so, we will examine an attempt by a large athletic shoe company to go green. As you read this introductory case, ask yourself: What was the trigger event for Nike? What steps did Nike take to transform itself? How successful has Nike been in its effort to go green? Nike Just Does It In Newsweek's 2010 ranking of the most \"green\" companies in the United States, Nike sat at number 10 overall, topping the list of all consumer products companies. As impressive as that achievement may seem, what made it all the more remarkable was that almost 20 years earlier, Nike was being held up as the \"poster child\" for corporate irresponsibility in a global economy.1 A 1992 expos in Harper's Magazine cited Nike as an example of the dark side of globalization. Nike prospered by shutting U.S. factories and exporting work to Indonesia, China, Malaysia, and other \"Third World\" countries. Nike had even abandoned the factories in South Korea when the government recognized the right of workers to form unions and strike. Newsweek looks at environmental impact, green corporate policies, and the company's reputation among corporate social responsibility experts. At first, company executives reacted defensively. \"We believe that we look after the interests of our workers,\" said a Nike spokesman. \"There's a growing body of documentation that indicates that Nike workers earn superior wages and manufacture product under superior conditions.\" When that response failed to quell the storm, executives sought to be reassuring. \"We have uncovered these issues clearly before anyone else, and we have moved fairly expeditiously to correct them.\" Denial, however, took the company only so far. Over time, a new, more proactive approach emerged. Nike would reconsider its corporate practices. The company now committed itself to fair labor practices, zero waste and toxins, a closedloop system that reused all products, and \"sustainable growth and productivity.\" An internal audit demonstrated that annual footwear production generated $700 million in waste. By 2020, the company pledged, all that would be eliminated. It was \"very difficult to really grasp and understand what we were attempting,\" noted Darcy Winslow, general manager of Nike's Women's Fitness division, \"much less get buyin on it.\" Early efforts to promote the socalled triple bottom line (\"people/planet/profits\") failed to garner much enthusiasm on the part of either employees or top management. Nike's founder and board chairman Phil Knight seemed genuinely interested in improving the brand's image, but the language of sustainability was alien within Nike's highly competitive, performancedriven culture. Discussions with supply chain partners (both PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. suppliers on one end of the supply chain and manufacturers on the other) were earnest but perfunctory. The company's small Corporate Social Responsibility (CSR) function had little clout with line managers. The whole effort was seen as somewhat peripheral to the business of designing and selling athletic shoes around the world. Nike outsourced all manufacturing and assembly the company mainly performed design and marketing. That approach began to change in 2002. Said Winslow, \"We started to create an overarching strategy of what it meant to be a more sustainable company.\" All goals were now translated into dollars and cents impact. In 2009, the CSR department became the Sustainable Business and Innovation (SBI) department. That name change embedded the sustainability effort more explicitly in the company's drive for innovative products. In a company statement, Nike said, \"Sustainable Business and Innovation is an integral part of how we can use the power of our brand, the energy and passion of our people, and the scale of our business to create meaningful change.\" The company announced its Considered Design process for new product development, requiring that issues such as recycling and waste not be after thoughts to product design. Rather, they were to be taken into consideration at the very earliest stages of new product development. The move from CSR to Sustainable Business and Innovation was more than just a name change. The vice president of SBI was placed on Nike's strategic leadership team in order to participate in decision making concerning mid and longterm plans. The department's staff was housed within product andgeographic groups, reporting matrixstyle to both line managers and the vice president. Other organizational changes intended to fuel Nike's sustainability effort included: The creation of internal audit teams to track labor practices and waste in facilities around the world. Active lobbying by company representatives to influence labor standards and regulations in the countries where manufacturing activities were occurring. Changing the incentive offered to supply chain partners away from cost savings, placing heavier emphasis on local labor conditions. Reengineering inventory control systems in order to avoid last minute rushes which encouraged supply chain partners to circumvent Nike's sustainability standards. Products began to emerge that were designed at the outsetthe Trash Talker, for instance, made entirely with recycled materials (trash)to be ecofriendly. The company opened shoe recycling centers, using the material not only for its own shoes but also to be donated to schools and communities for use in building tracks. To be sure, Nike possessed some advantages in its change to green. For one, the founder and chairman remained committed and actively involved. Then too, Nike's customer base tended to be young, active, and affluent: aware of social issues and willing to pay for green products. Celebrity product sponsors, most notably Michael Jordan, were excited to have their names associated with sustainability efforts. And Nike's \"Just Do It\" corporate slogan captured a company commitment to remaining a market leader. Moving Toward the Sustainable Corporation Although many definitions of sustainability or going green exist, one of the most widely accepted involves organizations taking voluntary steps to meet the needs of the present generation without compromising the needs of future generations.2 The inclusion of the term \"voluntary\" is important. Going green is not the same as compliance: actions of an organization designed to meet requirements imposed by law. Building a Vocabulary of Change Sustainability voluntary actions taken by organizations designed to meet the needs of the present generation without compromising the needs of future generations. Building a Vocabulary of Change Compliance actions of an organization designed to meet requirements imposed by law. Theory into Practice Corporate sustainability involves voluntary efforts on the part of organizations. The issue of business organizations going green is one that is mired in significant controversy. To start with, what is the proper role of business in our society? Do businesses have a stewardship role over the planet or should the focus of corporate activity be solely on enhancing profitability? Some of the key points of that debate, which has been going on for decades, are summarized in Exhibit 81 . Even when businesses accept a degree of responsibility, questions can be raised such as: what is the nature of that responsibility, and how should it best be enacted? It may surprise you to know that debates about the social obligations of businesses go back decades. The first dean of the Harvard Business School, Wallace Donham, insisted that business executives had a responsibility not just to their enterprise but to the society in which their businesses operated. In a 1927 speech, he argued that the \"development, strengthening, and multiplication of sociallyminded\" executives was \"the central problem of business.\" In the aftermath of World War II, Harvard readjusted its curriculum in order to help business students develop \"an integrated social and economic philosophy.\"3 There have been equally spirited augments against the notion that businesshas a larger social and environmental responsibility. Harvard Business School professor Theodore Levitt suggested that the dubious notion of a larger responsibility for business detracted attention from the main job of corporations. \"The business of business is profits\" anything else was a dilution of effort. American business leaders would stand \"a much better chance of surviving if there is no nonsense about its goalsthat is, if longrun profit maximization is the one dominant objective in practice as well as theory.\" Nobel Prize winning economist Milton Freedman added his voice in a famous 1970 article titled, \"The Social Responsibility of Business Is to Increase Profits.\"4 Exhibit 81 Is This a Proper Role for Businessv? PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Theory into Practice There is still much that is controversial about going green. Although the debate has been ongoing for years, the most recent pressure for businesses to look at their impact on the environment can be traced to 1984, when an Indiabased subsidiary of Union Carbide experienced an environmental, social, and economic disaster. A chemical leak from its plant in Bhopal resulted in thousands of deaths and the devastation of the community. What was widely considered to be the worst industrial catastrophe in history sparked a succession of international organizationsled by the United Nationsto look at an appropriate balance between the economic requirement for development and growth, societal needs for human dignity and rights, and environmental needs for sustainability.5 Very quickly, the role of business institutions attracted attention both as contributors to the \"problem\" (placing financial returns above concerns for people and the planet) and for their potential to lead the way to a solution. Theory into Practice The Bhopal chemical leak of 1984 proved to be a major trigger event in looking at the social and ecological responsibilities of companies. Another turning point occurred in 1993 when Paul Hawken, cofounder of Smith & Hawken's, a garden supply company, published The Ecology of Commerce. \"Quite simply,\" Hawken wrote, \"our business practices are destroying life on earth.\"6 Business had been handed a \"blank check\" to ignore its social responsibilities, he insisted. But business was also uniquely positioned to implement solutions. To forge a path forward, business could find a \"third way\" between promoting growth and enhancing the planet. That attention led to the identification of the triple bottom line in which social, ecological, and economic dimensions are all taken into equal account. The idea of the triple bottom line is that corporations do not have to choose among these outcomes. It is a winwinwin in which each of the threepeople, planet, profitscan gain by working together. Building a Vocabulary of Change Triple bottom line an approach to defining performance that takes into account social, economic, and ecological dimensions and assumes that the three are mutually reinforcing. Like much else in the field of sustainability, the notion of a triple bottom line attracts controversy. Some critics suggest that, although the approach is sound in principle,that is, the ability of corporations to balance people, planet, and profitsit is unlikely to occur in practice. At the end of the day, profits will always trump people and the planet.7 Theory into Practice Although there is a great deal of controversy about the triple bottom line, it is an important step toward aligning business with sustainability concerns. Others suggest that the basic approach is fundamentally, even fatally flawed. Profitability is far easier to measure than the other two components, and the concept of good \"people\" outcomes is vague and open to a wide variety of ideological rather than scientific interpretations.8 For those reasons, it is difficult to assess if a company is complying with its people bottom line.9 Many companies begin their path to sustainability by focusing on \"lowhanging fruit\": relatively easy ways of reducing energy consumption and waste as ways of saving money. Other companies aim at complying with ever more stringent environmental laws or reducing their liability for environmental damage.10 There is also a phenomenon of companies simply relabeling products and services as \"green.\" For instance, a bank that was moving toward online services tagged the effort \"Ecobanking.\" A railway freight company promoted its service as energy saving compared to trucking. This socalled greenwashing refers to a public relations effort to claim environmental virtue for actions the company was already taking. Building a Vocabulary of Change Greenwashing public relations efforts aimed to claim environmental virtue without making any substantive organizational change. Theory into Practice \"Greenwashing\" is a public relations effort that does not involve organizational transformation. A 2009 report on business and sustainability issued by the Boston Consulting Group, together with the MIT Sloan Management Review, found that most executives believe sustainability is now and will continue to be important to their business.11 However, a significantly smaller number are actively pursuing sustainability initiatives. The companies were driven by three factors: 1. Government regulations 2. Consumer preferences 3. Employee interest Government legislation was more significant for U.S.based companies, while consumer preferences were more of a driving factor in Europe. Theory into Practice Government regulations are the main motivation for going green in the United States in Europe, the major factor is customer preferences. Simon Zadek has suggested that organizations travel through five stages of responsiveness to issues of sustainability: 12 Defensive stage: company denies claims that they are responsibility for negative outcomes. Compliance stage: company accepts responsibility and costs of following rules and legislation as \"the cost of doing business.\" Managerial stage: company integrates sustainability objectives into the management goals at multiple levels of the organization. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Theory into Practice There is still much that is controversial about going green. Although the debate has been ongoing for years, the most recent pressure for businesses to look at their impact on the environment can be traced to 1984, when an Indiabased subsidiary of Union Carbide experienced an environmental, social, and economic disaster. A chemical leak from its plant in Bhopal resulted in thousands of deaths and the devastation of the community. What was widely considered to be the worst industrial catastrophe in history sparked a succession of international organizationsled by the United Nationsto look at an appropriate balance between the economic requirement for development and growth, societal needs for human dignity and rights, and environmental needs for sustainability.5 Very quickly, the role of business institutions attracted attention both as contributors to the \"problem\" (placing financial returns above concerns for people and the planet) and for their potential to lead the way to a solution. Theory into Practice The Bhopal chemical leak of 1984 proved to be a major trigger event in looking at the social and ecological responsibilities of companies. Another turning point occurred in 1993 when Paul Hawken, cofounder of Smith & Hawken's, a garden supply company, published The Ecology of Commerce. \"Quite simply,\" Hawken wrote, \"our business practices are destroying life on earth.\"6 Business had been handed a \"blank check\" to ignore its social responsibilities, he insisted. But business was also uniquely positioned to implement solutions. To forge a path forward, business could find a \"third way\" between promoting growth and enhancing the planet. That attention led to the identification of the triple bottom line in which social, ecological, and economic dimensions are all taken into equal account. The idea of the triple bottom line is that corporations do not have to choose among these outcomes. It is a winwinwin in which each of the threepeople, planet, profitscan gain by working together. Building a Vocabulary of Change Triple bottom line an approach to defining performance that takes into account social, economic, and ecological dimensions and assumes that the three are mutually reinforcing. Like much else in the field of sustainability, the notion of a triple bottom line attracts controversy. Some critics suggest that, although the approach is sound in principle,that is, the ability of corporations to balance people, planet, and profitsit is unlikely to occur in practice. At the end of the day, profits will always trump people and the planet.7 Theory into Practice Although there is a great deal of controversy about the triple bottom line, it is an important step toward aligning business with sustainability concerns. Others suggest that the basic approach is fundamentally, even fatally flawed. Profitability is far easier to measure than the other two components, and the concept of good \"people\" outcomes is vague and open to a wide variety of ideological rather than scientific interpretations.8 For those reasons, it is difficult to assess if a company is complying with its people bottom line.9 Many companies begin their path to sustainability by focusing on \"lowhanging fruit\": relatively easy ways of reducing energy consumption and waste as ways of saving money. Other companies aim at complying with ever more stringent environmental laws or reducing their liability for environmental damage.10 There is also a phenomenon of companies simply relabeling products and services as \"green.\" For instance, a bank that was moving toward online services tagged the effort \"Ecobanking.\" A railway freight company promoted its service as energy saving compared to trucking. This socalled greenwashing refers to a public relations effort to claim environmental virtue for actions the company was already taking. Building a Vocabulary of Change Greenwashing public relations efforts aimed to claim environmental virtue without making any substantive organizational change. Theory into Practice \"Greenwashing\" is a public relations effort that does not involve organizational transformation. A 2009 report on business and sustainability issued by the Boston Consulting Group, together with the MIT Sloan Management Review, found that most executives believe sustainability is now and will continue to be important to their business.11 However, a significantly smaller number are actively pursuing sustainability initiatives. The companies were driven by three factors: 1. Government regulations 2. Consumer preferences 3. Employee interest Government legislation was more significant for U.S.based companies, while consumer preferences were more of a driving factor in Europe. Theory into Practice Government regulations are the main motivation for going green in the United States in Europe, the major factor is customer preferences. Simon Zadek has suggested that organizations travel through five stages of responsiveness to issues of sustainability: 12 Defensive stage: company denies claims that they are responsibility for negative outcomes. Compliance stage: company accepts responsibility and costs of following rules and legislation as \"the cost of doing business.\" Managerial stage: company integrates sustainability objectives into the management goals at multiple levels of the organization. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Others suggest that the basic approach is fundamentally, even fatally flawed. Profitability is far easier to measure than the other two components, and the concept of good \"people\" outcomes is vague and open to a wide variety of ideological rather than scientific interpretations.8 For those reasons, it is difficult to assess if a company is complying with its people bottom line.9 Many companies begin their path to sustainability by focusing on \"lowhanging fruit\": relatively easy ways of reducing energy consumption and waste as ways of saving money. Other companies aim at complying with ever more stringent environmental laws or reducing their liability for environmental damage.10 There is also a phenomenon of companies simply relabeling products and services as \"green.\" For instance, a bank that was moving toward online services tagged the effort \"Ecobanking.\" A railway freight company promoted its service as energy saving compared to trucking. This socalled greenwashing refers to a public relations effort to claim environmental virtue for actions the company was already taking. Building a Vocabulary of Change Greenwashing public relations efforts aimed to claim environmental virtue without making any substantive organizational change. Theory into Practice \"Greenwashing\" is a public relations effort that does not involve organizational transformation. A 2009 report on business and sustainability issued by the Boston Consulting Group, together with the MIT Sloan Management Review, found that most executives believe sustainability is now and will continue to be important to their business.11 However, a significantly smaller number are actively pursuing sustainability initiatives. The companies were driven by three factors: 1. Government regulations 2. Consumer preferences 3. Employee interest Government legislation was more significant for U.S.based companies, while consumer preferences were more of a driving factor in Europe. Theory into Practice Government regulations are the main motivation for going green in the United States in Europe, the major factor is customer preferences. Simon Zadek has suggested that organizations travel through five stages of responsiveness to issues of sustainability: 12 Defensive stage: company denies claims that they are responsibility for negative outcomes. Compliance stage: company accepts responsibility and costs of following rules and legislation as \"the cost of doing business.\" Managerial stage: company integrates sustainability objectives into the management goals at multiple levels of the organization. Strategic stage: sustainability issues become fully integrated into a company's business strategy. Civil stage: company representatives promote wider efforts on behalf of sustainability. Of course, most companies have not yet evolved to the managerial stage, let alone the civil stage. Theory into Practice When it comes to going green, most organizations follow a predictable path, starting with denial and compliance before becoming managerial, strategic, and civil. The Performance Advantage of Sustainability The 2007 Boston Consulting Group/Sloan Management Review report surveyed executives concerning the expected benefits from sustainability efforts.13 Leading the list, by a huge margin, was improved company/brand image, with cost savings, competitive advantage, employee satisfaction, and innovation as other perceived benefits. One of the most frequently mentioned performance advantages of going green is the impetus it provides for innovation. Interface founder Ray Anderson said his company's commitment to sustainablility offered \"an incredible fountainhead of inspiration.\"14 An excellent example of such innovation can be seen at Bloomberg, a company that provides investors with financial data. Bloomberg leveraged its internal ecological commitment, BGreen, into a new product: providing environmental, social, and governance (ESG) performance investment analysis tools to socially responsible investors.15 Exhibit 82 summarizes the performance advantages of going green. Advantage Gained: By: Lowered cost of operating Elimination of waste Reduced exposure to risk Inoculating against future law suits Increased innovation Impetus for new products/services Improved recruitment Enhanced image of green company makes it more attractive to potential employees Enhanced employee Creates sense of excitement and purpose for employees motivation Market differentiation Appealing to sustainabilityconscious consumers Exhibit 82 Performance Advantages of Going Green. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. The goal, of course, is to integrate sustainability into the overall management of the firm. Waste discharged per vehicle Electricity needed to make each vehicle Packaging material reused External Measurement Given the increasing public interest in sustainability, it is not surprising that a number of external organizations have devised rankings of companies' social and environmental impact. The Dow Jones Sustainability Index, the FTSE4Good Index, and Newsweek magazine all offer ratings that are available to the companies and the public. External ratings are useful to organizations for three reasons: 1. They provide board members, executives, and employees with a perspective on the company's performance relative to others in the same industry. 2. They can be used as outcomes for the firm's sustainability BSC. 3. They provide information to concerned consumers and investors. The ratings are not without problems, however. There can be significant differences across rating systems as to the criteria used and the relative weight assigned to each criterion. Additionally, they often rely on data supplied by the companies themselves.40 Shaping a Green Culture Sustainability efforts grow out of a value system or culture in an organization. Organizational culture refers to the common and shared values that help shape employee behavior and are typically passed down from current to future employees. Culture serves as the glue that binds an organization or, in the words of Terrence Deal and Allan Kennedy, \"the way we do things around here.\"41 Marcel van Marrewijk and Marco Wewe have suggested that a sustainability culture is built over multiple levels. At its most committed, a sustainability culture accepts that sustainability on a worldwide scale is required and that sustainability should be fully integrated and embedded in every aspect of the organization.42 See Exhibit 85 for a summary of that cultural evolution. Building a Vocabulary of Change Organizational culture the common and shared values and assumptions that help shape employee behavior and are typically passed down from current to future employees. Theory into Practice Organizational culture can help embed a green mindset and shape employee behaviors. Foundersthink of Yvon Chounard of Patagonia, Ben Cohen and Jerry Greenfield of Ben & Jerry's, Paul Newman and A.E. Hotchner of Newman's Own, and Anita Roddick of the Body Shopare the ones responsible for the original establishment of a culture. Once founders exit the company, it is the organizational leaders who have responsibility for shaping the culture. It is their decisions and actions that resonate throughout the company. Leaders can Culture of Compliance Culture of Commitment Ambition No ambition for Sustainability fully integrated and embedded into every level sustainability but aspect of organization aimed at contributing to quality and awareness of need to continuation of all societies comply Motivation Take on sustainability Belief that everyone in the organization has a universal merely in order to responsibility to both current and future generations improve reputation firm Criteria How will it affect my for personal reputation and decision that of the firm? How will it affect the overall wellbeing of the planet? making Exhibit 85 An Evolving Sustainability Culture.43 examine four sets of behaviors that Edgar Schein says help create and embed culture in an organization.44 1. Leaders make choices about what to pay attention to, what to measure, control, and reward. What sustainability outcomes will the company measure and reward? If all the significant rewards flow to economic outcomes, it will be impossible to maintain a green culture. 2. Leaders react to critical incidents and crises. Whether it is Phil Knight responding to the drubbing Nike took in the press in the early 1990s or Ray Anderson responding to a speaking engagement just after reading Paul Hawken's book, the reaction of the leaders set the pace and direction for the company. 3. Leaders call upon the \"observed criteria\" to allocate scarce resources.45 A CEO who extols the virtue of going green but slices budgets in order to meet shortterm financial goals sends a signal about what the company values. The same can be said of a managing director who refuses to cut training budgets during a downturn emphasizes the extent to which the company values human resources. Making tough choices about resource allocation helps shape the values and resulting culture of an organization. 4. Leaders choose to emphasize certain criteria in their recruitment, selection, and promotion of employees and future leaders. Going green requires new skill sets, both technical and interpersonal, that can be considered in hiring and promoting employees. Top executives are the most visible embodiment of their organization's culture. Their behaviors are apparent to both external stakeholderscustomers, suppliers, labor markets, and the host communityand to employees. What leaders say matters what leaders do matters even more. Key choices and decisions, more than speeches and documents posted on walls, embed values and spread culture. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Theory into Practice In addition to cost savings and image building, going green offers \"an incredible fountainhead for innovation.\" Although sustainability can and does result in improved performance, the relationship between investment in green innovation and payoffs is not a simple straight line up. As Dean Schroeder and Alan Robinson have demonstrated with their \"Green Payback Curve,\" the bottomline impact of green investment goes through predictable stages:16 Phase 1: Early efforts target \"lowhanging fruit\" and result in \"quick and certain\" financial payback. Phase 2: At this point, projects target areas of investment in which financial returns are in the future. Phase 3: Investments made in Phase 2 now sharply improve financial performance. Interface's Ray Anderson was confident in the business case for sustainability: Costs are down, so it's saving money. Products are better, which means the top line is better. People are motivated and galvanized, which means employees' morale and engagement is up. And the goodwill of the marketplace is astonishing. I don't know what else provides this kind of business case: costs are down, products are better, people are motivated, and customers are receptiveand we're winning market share.17 \"Any notion that companies need to make a tradeoff between financial and environmental performance was simply a false choice,\" insisted Anderson. There is no tradeoff. The Process of Changing to Green In Chapter 1 , we saw how organizational change is typically initiated in response to a trigger event a shift in the environment that creates a need for altered strategies and new patterns of employee behavior. For Nike, it was the adverse publicity associated with Nike's labor practices that prompted CEO Phil Knight to put the company on a different path. Such trigger events can be dramatic in natureBrazilian oil giant Petrobras suffered through three major disasters within a year of each other, including an oil rig explosion that killed 11 employees, before seeking to enhance its safety and maintenance performanceor subtle. Let's take the case of Ray Anderson, CEO of Interface. Ray Anderson started Interface Flooring Systems, headquartered in Georgia, in 1973.18 Interface's main product was carpet tiles, a highend offering aimed at commercial customers that generated over $1 billion in global sales by the late 1990s. Carpeting was mainly made of nylon, a highly durable but also nonrecyclable product that ended up in landfills and takes 20,000 years to degrade. Interface followed standard industry practice, recycling no more than 4 percent of its production. The company grew to become the world's leading commercial provider. The turning point for Anderson and Interface came at the confluence of two seemingly minor events. In the mid1990s, Interface's research department invited Anderson to deliver a talk to a global meeting of employees focused on the company's environmental efforts. That invitation was prompted by queries from customerswhat was Interface doing for the environment?that grew out of the cultural-political climate of the decade. Anderson was reluctant to attend such a meeting. After all, his only vision for an environmentally responsible company was quite simple: \"obey the law, comply, comply, comply.\" Certainly, the notion that his company or any other could be harming the environment while complying with environmental regulations never crossed his mind. At the same time, and purely by coincidence, Anderson was reading Paul Hawken's Ecology of Commerce. \"It changed my life,\" said Anderson. \"It hit me right between the eyes. It was an epiphany.\" Anderson was inspired to begin a transformation, which he referred to in his typically understated manner, as a midcourse correction. \"I'm dedicating the rest of my life to creating a company that can grow and prosper without doing harm to the earth.\" Of course, not all potential trigger events actually trigger any significant change. Nike's Phil Knight could have attempted to paper over charges of labor abuse with public relations efforts, and Ray Anderson could have continued with his compliancebased vision of environmental responsibility. Much depends on company leadership. Jack Welch, for instance, fought community and government attempts to have General Electric (GE) contribute to the cleanup of the Hudson River. His successor, Jeffrey Immelt, on the other hand, launched \"Ecoimagination\" designed to commit GE to developing \"tomorrow's solutions such as solar energy, hybrid locomotives, fuel cells, lower emission aircraft engines, lighter and stronger durable materials, efficient lighting, and water purification technology.\" Once the trigger event motivates a reevaluation of values, goals, and strategies, companies seeking to go green undergo a transformation that follows a set of sequential interventions: Set the vision Diagnose the status quo Alter first informal and then formal design elements. Ultimately, the leadership of the organization will need to bear the responsibility for setting a green culture in which sustainability becomes interwoven into the fabric of the organization. Set the Vision For existing organizations, going green represents a new direction: not just a new strategy but a new way of thinking about strategy. Not surprisingly, then, it seems quite helpful for organizational leaders to set the path and define the PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. territory. In that regard, going green starts when top leadership offers a vision about what is meant by going green: Theory into Practice Going green starts with a visionary statement from top leadership. When Jan Stenberg, then CEO of Scandinavian Airlines (SAS), committed his company to be an early mover in addressing environmental concerns related to airplane emissions, he explained: \"A sound environmental profile is profitable. But it is more than that. It is our contribution to a sustainable society and to future generations.19 In 2002, Jeff Immelt, CEO of GE, launched the company's ecoimagination campaign in order to achieve his goal of building a \"great and good\" company.20 Interface's Ray Anderson made clear that his commitment to sustainability was not just about pollution. His vision of sustainability involved \"taking nothing from the earth that is not rapidly and naturally renewable, and doing no harm to the biosphere.\" The leadership team at Subaru's automobile plant in Lafayette, Indiana set as their goal \"zerolandfill\" in the production of 1,000 cars per day.21 The vision sets a consistent strategy that helps avoid the complaint of one executive that, when it came to sustainability, his company had \"too many unaligned programs and messages.\" The power of the vision to motivate, unify, and excite, comes not just from its boldness but also from its alignment with the strategy of the company itself. Compare Coca Cola pledging donations to the Boys and Girls Clubs of America to Nike's effort to recycle athletic shoes and donating them to schools and communities to be used as the material for tracks.22 Michael Porter and Mark Kramer differentiate between \"generic\" social issues and issues that are more directly related to the activities of a company or the social environment in which the company operates. Take the issue of HIV/AIDs. That may be a generic issue to a large American retailer but a strategic issue to pharmaceutical company thinking about investing in the development of a treatment or a South Africanbased mining company whose employees are directly affected.23 Green visions have three characteristics in common: 1. They articulate some specific territory in which the organization can contribute to sustainable development. 2. They state a belief that going green and performing well is mutually reinforcing rather than mutually exclusive. 3. They vow a commitment to a longterm social responsibility that transcends the performance of the company. Typically, Porter and Kramer conclude, \"the more closely tied a social issue is to a company's business, the greater the opportunity to leverage the firm's resourcesand benefit society.\"24 Theory into Practice To be effective, green visions embed and connect the firm's commitment to sustainability with its business mission that way, going green is seen as strategic, not peripheral. Diagnose the Current Situation In 2005, WalMart's image as a \"good neighbor\" was slowly but significantly eroding in the public mind.25 Sure, the company delivered on its promise of everyday low prices, thereby saving consumers money. But a question was raised: at what costs? A popular documentary movie, The High Cost of Low Price, suggested the social costs of WalMart's labor practices low wages, dependence on parttime workers and even illegal immigrants, lack of health carepassed on the true labor costs to society.26 WalMart's image was damaged, and customers were noticing and responding. Although WalMart had reacted defensively to such attacks in the past, CEO Lee Scott now considered a new approach. He would address in a positive way WalMart's impact on the environment with particular attention to \"energy, waste, and products.\" A team of executives and high potential employees were brought together to recommend targets and steps. That team did not work on its own, however. In addition to hiring consultants, the team worked with Conservation International and Environmental Defense, and relied on data supplied by the Union of Concerned Scientists. Kicking off sustainability efforts with diagnosis helps focus employees on what needs to change. Because sustainability involves a larger commitment to the community in which the organization exists, diagnostic efforts will need to focus not just on the company but also on the other businesses in the supply chain. The employee team at WalMart learned how little impact the company could have without addressing its supply chain. Said one member: \"If we had focused on just our own operations, we would have limited ourselves to 10 percent of our effect on the environment and, quite frankly, eliminated 90 percent of the opportunity that's out there.\"27 Theory into Practice Early diagnostic efforts will need to include not just the company itself, but also its supply chain partners. Supply chain partners are the companies that provide services, goods, or raw materials that are needed to design, produce, market, deliver, and support a company's offer. In the case of McDonald's, for instance, supply chain partners provide meat, buns, potatoes, and other key ingredients of the product. In order to promote sustainability across its supply chain, McDonald's created the Supply Chain Working Group in 2006.28 The mission was to create a sustainable supply PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. chain \"that profitably yields high quality, safe products without supply interruption while creating a net benefit for employees, their communities, biodiversity, and the environment.\"29 The group developed a set of social/economic, environmental, and animal welfare guidelines intended to drive the effort. Once the diagnosis identifies areas of opportunity, the organization can address its own systems, altering informal design first before moving to formal design. Alter Informal Design Elements In the introductory case, we saw Nike make an implementation mistake that is often committed in change efforts. The company made a formal design change too early in the process. In response to the CEO's call to refurbish the company's image, Nike created a new department structure: the CSR function. The office had little real impact. The commitment to sustainability had not yet been embedded in Nike's strategy. Going green represented not a business reality but a corporate nicety. No wonder line managers treated the office's commitment to social responsibility as a peripheral matter. Organizational design, as defined in Chapter 4 , refers to the arrangements, both formal and informal, that an organization calls upon to help shape employee behavior. In effective change implementation, informal redesignaltering roles, responsibilities, and relationships proceeds formal change. Formal design changesmeasurements, structures, pay, and so forthfollow later in the sequence of interventions in order to reinforce and institutionalizes new behaviors. Going green requires new patterns of employee behavior. Perhaps the most significant change is that going green is inherently a collaborative effort.30 That collaboration is both horizontal (crossfunctional) and vertical (crosshierarchical levels). Horizontal collaboration occurs within the organization when employees from different functions and units combine their efforts. It also occurs when employees collocate with supply chain partners. Theory into Practice Informal design changes associated with going green start with building high levels of collaboration. Remember Nike's Considered Design process? The idea of considering sustainability at the earliest possible stage of product development has become increasingly common the past several years.31 Considered Design requires that organizations abandon their traditional silos and functional boundaries. Instead of the traditional stepbystep sequential approach to product design, all participants in the productfrom raw material suppliers to design engineers, manufacturers, logistical experts, and market professionalscome together at the outset of a process at work together to develop, produce, merchandise, deliver, and recycle green products. Collaboration will also need to occur vertically, that is, across hierarchical boundaries. Companies that have moved toward sustainability find that many of the most important innovations come not from top executives but from frontline employees. Bloomberg's BGreen initiativean effort started in 2007 to reduce the company's carbon blueprintgrew out of an employee suggestion.32 Interface's Ray Anderson acknowledged that the very basis of his company's green mission has been empowered employees. Mission Zero, he said, \"empowered our people to dare to risk, working in teams, and challenging everything that we were doing. In other words, challenge the status quo.33 Alter Formal Design Elements Formal resign can be used to reinforce and institutionalize new behaviors. In the case of Nike, we saw a number of formal design changes: Placing the head of the newly created SBI department on the company's strategic leadership team and staff members within the different business lines. Altering incentives offered to supply chain partners to align with company goals focused on improving local labor conditions. Reengineering inventory systems in order to eliminate lastminute rushes and the potential abuses in standards that such rushes might produce. One of the most significant formal design changes that occur in the process of going green involves the manner in which the firm measures performance. That change has both an internal and external aspect to it. Internal Measurement Amanco, a leading Latin American building solutions company, is part of the Grupo Nueva holding company. At the group's urging, Amanco management committed the business unit to the triple bottom line, specifically: 1. Create economic stability in the long run. 2. Generate value through a system of CSR. 3. Generate value through environmental management.34 One of the questions that faced Amanco was about measurement. There were, in fact, two aspects of that question. First, what outcomes do we measure? And second, how do we ensure that we are achieving satisfactory results on environmental, social, and economic performance? To help provide an answer, Amanco turned to the balanced scorecard. The premise for the balanced scorecard (BSC) is that financial returns need to be understood as one among several vital outcome measures (Exhibit 83 ). Financial measures of performance, wrote Robert Kaplan and David Norton, \"are lag indicators that report on the outcomes from past actions. Exclusive reliance on financial indicators could promote behavior that sacrifices longterm value creation for shortterm performance.\"35 Building a Vocabulary of Change Balanced scorecard (BSC) a tool for measuring multiple outcomesfinancial performance, customer satisfaction, internal process excellence, and employee learning and growthand the connection of those outcomes to the vision and strategy of the organization. The scorecard balances financial measures with three additional metrics: 1. CustomerTo achieve our vision, how should we appear to our customers? 2. Internal Business ProcessesTo satisfy our shareholders and customers, what business processes must we excel at? PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Exhibit 83 Balanced Scorecard. Source: http://www.balancedscorecard.org/basics/bsc1.html Learning and GrowthTo achieve our vision, how will we sustain our ability to change and improve?36 By focusing on multiple outcomescustomers, internal processes, and learningthe BSC can help managers escape the exclusive focus on a single outcomemostly financialand help ensure that their change interventions are having the intended results on the other key activities of their firm. Theory into Practice BSC is a tool for measuring the effectiveness of change efforts on multiple dimensions. At the core of the BSC lies a clearly stated and widely understood vision and strategy for the organization. The vision and strategy determined in the earlier phases of change can now be used to drive all performance measures, financial measures included. Each perspective can be evaluated only in terms of objectives, measures, targets, and initiatives when that vision and strategy are clear and widely shared. A growing number of companies, including Electricit de France, LVMH, and Lusotur, S.A., have called on the BSC to help them integrate sustainability objectives with their strategy.37 In these cases, green metrics specific objective measurements of social and environmental impactare built into the scorecard. WalMart, PepsiCo, and P&G also require their supplies to use a sustainability BSC in order to be approved by the corporation for use by their business units. In other cases, investment firms insist that potential clients provide them with a sustainability BSC in order to be rated as a socially responsible investment. Building a Vocabulary of Change Green metrics specific objective measurements of a firm's social and environmental impact. Theory into Practice A sustainability balanced scorecard can help an organization measure its performance on the triple bottom line. There is no standard approach either to how companies utilize the BSC in going green or in what outcomes they measure.38 Some companies place sustainability within the \"internal business processes\" domain. Others place sustainability \"key success factors\" and \"key performance indicators\" in all four dimensions. Still others add a fifth dimension to the traditional BSC, focusing on social and environmental indicators that link to the other four perspectives. The appropriate choice is based on the specific challenges facing each company. The choice of outcomes to be measured will also be based on the company's strategy, its industry, and its social environment. Exhibit 84 presents the green metrics that are used by carpet tile manufacturer Interface. Whatever the specific choices, sustainability BSC needs to meet two criteria to be effective: 1. It should be specific to the business unit utilizing the tool rather than genetic. 2. It should reflect the overall strategy of the firm so it is not seen as a mere addon that can be ignored or slighted in difficult financial times. Environmental Sustainability Cumulative avoided costs from waste elimination activities since 1995 Decrease in total energy consumption required to manufacture carpet since 1996 per m 2 Percentage of total energy consumption from renewable sources Social Sustainability Employee volunteer hours in community activities Percentage of women in management positions Exhibit 84 Examples of Interface 2004 Measures of Sustainability.39 Source: Wendy Stubbs and Chris Cocklin, \"An Ecological Modernist Interpretation of Sustainability: The Case of Interface, Inc.,\" Business Strategy and the Environment 17 (2008), p. 519. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. The goal, of course, is to integrate sustainability into the overall management of the firm. Waste discharged per vehicle Electricity needed to make each vehicle Packaging material reused External Measurement Given the increasing public interest in sustainability, it is not surprising that a number of external organizations have devised rankings of companies' social and environmental impact. The Dow Jones Sustainability Index, the FTSE4Good Index, and Newsweek magazine all offer ratings that are available to the companies and the public. External ratings are useful to organizations for three reasons: 1. They provide board members, executives, and employees with a perspective on the company's performance relative to others in the same industry. 2. They can be used as outcomes for the firm's sustainability BSC. 3. They provide information to concerned consumers and investors. The ratings are not without problems, however. There can be significant differences across rating systems as to the criteria used and the relative weight assigned to each criterion. Additionally, they often rely on data supplied by the companies themselves.40 Shaping a Green Culture Sustainability efforts grow out of a value system or culture in an organization. Organizational culture refers to the common and shared values that help shape employee behavior and are typically passed down from current to future employees. Culture serves as the glue that binds an organization or, in the words of Terrence Deal and Allan Kennedy, \"the way we do things around here.\"41 Marcel van Marrewijk and Marco Wewe have suggested that a sustainability culture is built over multiple levels. At its most committed, a sustainability culture accepts that sustainability on a worldwide scale is required and that sustainability should be fully integrated and embedded in every aspect of the organization.42 See Exhibit 85 for a summary of that cultural evolution. Building a Vocabulary of Change Organizational culture the common and shared values and assumptions that help shape employee behavior and are typically passed down from current to future employees. Theory into Practice Organizational culture can help embed a green mindset and shape employee behaviors. Foundersthink of Yvon Chounard of Patagonia, Ben Cohen and Jerry Greenfield of Ben & Jerry's, Paul Newman and A.E. Hotchner of Newman's Own, and Anita Roddick of the Body Shopare the ones responsible for the original establishment of a culture. Once founders exit the company, it is the organizational leaders who have responsibility for shaping the culture. It is their decisions and actions that resonate throughout the company. Leaders can Culture of Compliance Culture of Commitment Ambition No ambition for Sustainability fully integrated and embedded into every level sustainability but aspect of organization aimed at contributing to quality and awareness of need to continuation of all societies comply Motivation Take on sustainability Belief that everyone in the organization has a universal merely in order to responsibility to both current and future generations improve reputation firm Criteria How will it affect my for personal reputation and decision that of the firm? How will it affect the overall wellbeing of the planet? making Exhibit 85 An Evolving Sustainability Culture.43 examine four sets of behaviors that Edgar Schein says help create and embed culture in an organization.44 1. Leaders make choices about what to pay attention to, what to measure, control, and reward. What sustainability outcomes will the company measure and reward? If all the significant rewards flow to economic outcomes, it will be impossible to maintain a green culture. 2. Leaders react to critical incidents and crises. Whether it is Phil Knight responding to the drubbing Nike took in the press in the early 1990s or Ray Anderson responding to a speaking engagement just after reading Paul Hawken's book, the reaction of the leaders set the pace and direction for the company. 3. Leaders call upon the \"observed criteria\" to allocate scarce resources.45 A CEO who extols the virtue of going green but slices budgets in order to meet shortterm financial goals sends a signal about what the company values. The same can be said of a managing director who refuses to cut training budgets during a downturn emphasizes the extent to which the company values human resources. Making tough choices about resource allocation helps shape the values and resulting culture of an organization. 4. Leaders choose to emphasize certain criteria in their recruitment, selection, and promotion of employees and future leaders. Going green requires new skill sets, both technical and interpersonal, that can be considered in hiring and promoting employees. Top executives are the most visible embodiment of their organization's culture. Their behaviors are apparent to both external stakeholderscustomers, suppliers, labor markets, and the host communityand to employees. What leaders say matters what leaders do matters even more. Key choices and decisions, more than speeches and documents posted on walls, embed values and spread culture. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. government gave up its complete ownership (although it still controls a majority of voting stock) and allowed for competition. Since then, the company has compiled a troubling history of disasters. In January 2000, a poorly maintained pipeline spilled oil into Guanabara Bay for two hours before the leak was detected. Six months later, a Petrobras refinery spewed millions of gallons of oil into two nearby rivers. A BBC news report referred to \"an embarrassing level of incompetence\" on the part of Petrobras managers. Then, less than a year later, a Petrobras drilling platformthe world's largest at the timeblew up, killing 11 employees and dumping 300,000 gallons of oil into the water. Gabrielli saw that troubled history as a business problem to be solved as well as an environmental threat to be addressed. \"From a purely financial perspective,\" he said, \"environmental mismanagement was just bad business. From an investor relations perspective, ignoring the growing demand for transparency and sustainability was also bad business.\"49 Plus, added Gabrielli, his personal values and political beliefs led him to move Petrobras into a position of environmental leadership. Gabrielli Acts In pursuit of his goal, Gabrielli took a number of steps: Increasing the budget of the company's health, safety, and environment programs Using the enormous market clout of Petrobras (which was the largest company in Latin America) to demand that all of its suppliers comply with best standards for environmental management Personally touring sites to check compliance with company standards Moving Petrobras' new refineries away from gasoline and toward biofuels Joining the Dow Jones Sustainability Index in order to invite external monitoring of and reporting on Petrobras' efforts Endorsing (and sitting on the board of) the United Nations Global Compact Personally blogging and tweeting in order to make the case for Petrobras' efforts directly to the public. As evidence that these activities were changing the culture and operations of Petrobras, Gabrielli pointed to two facts: The company had gone eight years without a \"major\" environmental accident. The private consulting firm, Management and Excellence, ranked Petrobras as number one among the world's oil and gas companies for promoting sustainability. Petrobras' 5Year Strategic Plan, announced in 2010, called for additional investment in refining capacity. The company's goal was to make Brazil fuel independent by 2014. That independence, it was hoped, would be supplied by Petrobras' 2008 discovery of a major oil reserve coming from a vast deep water offshore region known as the subsalt. Later that same year, however, the Gulf of Mexico oil spilla British Petroleum rig exploded, killing 11 workers and pouring nearly 185 million gallons of oil into the Gulfraised questions about the viability and the costs of future deep water drilling. How Green Is Petrobras? In 2010, Newsweek conducted an audit of the top ranking \"green\" companies in the world.50 The highest ranking companiesIBM, HewlettPackard, Novartis, and Panasonic among themreceived an overall score in the 90s. The highest ranking oil and gas company, Frenchbased Total, received a score of 65. Petrobras' score was 48, placing it sixth in the list of oil and gas companies and 84th overall in the top 100 companies. In fact, five of the bottom ten on that list were oil and gas companies. Endnotes 1 . Information on Nike is from Jeffrey Ballinger, \"The New FreeTrade Heel,\" Harper's Magazine (Aug. 1992), pp. 46-47 Simon Zadek, \"The Path to Corporate Responsibility,\" Harvard Business Review (Dec. 2004), pp. 125-132 Stanley Holmes, \"Nike Goes for the Green,\" Business Week (Sept. 25, 2006) Reena Jana and Burt Helm, \"Nike Goes Green, Very Quietly,\" Business Week (June 22, 2009), p. 56 Maurice Berns, Andrew Townend, Zayna Khayat, Balu Balagopal, Martin Reeves, Michael Hopkins, and Nina Kruchwitz, The Business of Sustainability: Imperatives, Advantages, and Actions (New York: Boston Consulting Group, 2009) Marc J. Epstein, Adriana Rejc Buhovac, and Kristi Yuthas, \"Why Nike Kicks Butt in Sustainability,\" Organizational Dynamics 39 (2010), pp. 353-356. The Newsweek rankings can be found at newsweek.com/feature/2010/greenrankings. 2 . Susan Albers Mohrman and Christopher G. Worley, \"The Organizational Sustainability Journey: Introduction to the Special Issue,\" Organizational Dynamics 39 (2009), p. 289. 3 . Wallace B. Donham, \"The Emerging Profession of Business,\" Harvard Business Review 5 (July 1927), p. 401 Wallace B. Donham, \"The Social Significance of Business,\" Harvard Business Review 5 (July 1927), p. 406 Jeffrey L. Cruikshank, A Delicate Experiment: The Harvard Business School, 1908- 1945 (Boston, MA: Harvard Business School Press, 1987). 4 . Theodore Levitt, \"The Dangers of Social Responsibility,\" Harvard Business Review 36 (Sept.-Oct. 1958), p. 52 Milton Freidman, \"The Social Responsibility of Business Is to Increase Profits,\" New York Times Magazine (Sept. 13, 1970). 5 . This history is traced in John Elkington. \"Towards the Sustainable Corpporation: WinWinWin Business Strategiues for Siustanable Development,\" California Management Review 36 (Winter 1994), pp. 90-100. Elkington is either the original source of the term \"triple bottom line\" or certainly the popularizer of the concept. See Elkington, Cannibals with Forks: The Triple Bottom Line of 21st Century Business (London: Capstone, 1997). 6 . Paul Hawken, The Ecology of Commerce (New York: Harper Business, 1993), p. 3. 7 . Some scientists argue that the Triple Bottom Line is inherently delusional and nonsustainable in that it assumes that growth and ecological concerns can be reconciled. Robinson's \"Squaring the Circle\" has an excellent, brief overview of