Business Value and Sustainability

1
Business Value and Sustainability

• David Wheeler
• Erivan K Haub Program in Business and
  Sustainability

2
The SVA - sustainability paradox

• The test of a first class mind is the ability to
  hold two opposing ideas in the head at the same
  time and still retain the ability to function
• F Scott Fitzgerald

3
Shareholder Value Model
Tomorrow
Innovation Repositioning
Growth Path Trajectory
SVA
Internal
External
Profit Risk Reduction
Reputation Right to Operate
Today
4
Sustainable Value Model
Drivers
Tomorrow
Drivers
Sustainability Lens
Sustainability Lens
Innovation Repositioning
Growth Path Trajectory
SVA
Internal
External
Profit Risk Reduction
Legitimacy Right to Operate
Sustainability Lens
Sustainability Lens
Drivers
Drivers
Today
5
Sustainable Value Model
Tomorrow
Drivers
Drivers
Ballard Honeywell
Grameen HP
Growth Path Trajectory
Innovation Repositioning
Internal
External
Profit Risk Reduction
Reputation Right to Operate
3M DuPont
Suncor Placer Dome
Drivers
Drivers
Today
6
Drivers of change in stakeholder relations

• The shifting sands of taxation and fiscal policy
• internalisation of environmental and social costs
• ecotaxation and fiscal reform
• stakeholders need for assurance
• attitude of investors
• the governance issue
• changing societal and workplace values
• the rise of the gold collar worker
• the rise of the intelligent consumer
• technology, e-commerce and e-communication
• competition and competitiveness

7
Sources of wealth creation and competitive
advantage

• 20th Century
• production inputs
• access to capital
• market domination
• proprietary information

• 21st Century
• knowledge
• innovation
• competencies
• intellectual property and social capital
• brands
• reputation
• relationships

8
Descriptive typology of approaches to stakeholder
management

• defensive (relationships avoided)
• top down (risk and liability reduction)
• interactive and innovative (trust-based,
  opportunity driving)

9
Reconciling sustainability and corporate
social responsibility
10
Historical examples of stakeholder inclusion in
US corporate strategy

• General Electric - 1930s
• Shareholders
• Employees
• Customers
• General Public
• Sears - 1950s
• Customers
• Employees
• Community
• Stockholders

11
William Ford on stakeholders

• We want to find ingenious new ways to delight
  consumers, provide superior returns to
  shareholders and make the world a better place
  for us all. We can do well for employees,
  customers and shareholders, and we can do good
  for society.
• William C Ford Jr, Chairman, Ford Motor Company
• 13 May 1999

12
The business case for investing in stakeholder
relationships

• Eighteen mostly US companies with 50-100 year
  track records all demonstrated a strong
  commitment to people development and knowledge
  sharing. These companies built to last
  outperformed comparator companies stock price 15
  fold and average share prices 70 fold.
• James Collins Jerry Porras, Built to Last

13
The business case for balancing stakeholder
relations

• Over an eleven year period, established US
  companies which balanced the interests of
  customers and workers with those of owners
  demonstrated sales growth four times and
  employment growth eight times that of companies
  which followed a shareholder first strategy.
• James Kotter John Heskett, 1991

14
The business case for social capital

• US companies lose on average 50 per cent of
  their customers every five years, 50 per cent of
  their employees every four years and 50 per cent
  of their investors every year. But the most
  successful US companies have lower turnover
  rates.
• Frederick Reichheld, The Loyalty Effect

15
The business case for reputation and protection
of brand value

• Coca Cola
• Microsoft
• IBM
• General Electric
• Ford
• Disney
• Intel
• McDonalds
• Marlboro
• Nescafe

• 83.8 billion
• 56.6 billion
• 43.8 billion
• 33.5 billion
• 33.2 billion
• 32.3 billion
• 30.0 billion
• 26.2 billion
• 21.0 billion
• 17.6 billion
• Interbrand, 1999

16
Eco-efficiency
The Potential
10 AAA vs. 10 CCC companies in
EcoValue 21 Top and Bottom Rated Companies1998
Total Return

• aerospace defense
• specialty chemical
• chemicals
• communication equipment
• electric companies
• electronics (semiconductors)
• health care
• iron and steel
• paper, forest products, etc.
• petroleum

17
Social capital and the new economy

• Volatility and virtuality erode relationships -
  its that simple - which is why managers must
  learn to invest in social capital.
• Laurence Pruzak Don Cohen, HBR June 2001