The Stephen Hester Bonus saga reads like a really good episode of The West Wing - or indeed my current favourite political drama, Borgen.
The President/Prime Minister inherits a 83% public stake in one of the banks that collapsed through greed and stupidity in the economic crisis. With it comes a newish Chief Exec, Stephen Hester, a board of directors and multi-million pound salaries and bonuses. Each year these make the headlines to much grumbling but no outrage until this year when the public, now feeling a tight squeeze on their own incomes from the Prime Minister's austerity programme, start to get angry and the Opposition starts to land a few telling blows. Sensing a threat, the bank's board of directors threaten to resign if they are over-ruled - arguing that Hester has been doing a good job and should be paid what was agreed.
The Prime Minister has a big dilemma - stick to the contract and take a big political hit, or sacrifice the contract (if he can) to send out the message that everyone is in it together, risking disruption at the bank which could cost the taxpayer more than the bonus. As he mulls on these options, Mr Hester finally decides that it is not worth £1m (he has plenty of those) to become the most hated man in the country and says he will voluntarily give up the shares. The PM sighs a big sigh of relief. Credits roll.
There was another story in the press last week which made fewer ripples, but was just as interesting from an ethics point of view. David Harnett, boss of Her Majesty's Revenue and Customs, accused people who pay domestic cleaners and builders cash in hand of encouraging tax evasion. That's the very same David Harnett who made 'sweetheart deals' with big corporations allowing them to pay less tax than they should - at a cost to the Treasury of some £20bn. So it is OK for big business to dodge tax - as long as the cleaner on minimum wage doesn't.
I could make lots of political points here, but the issue that is most relevant for this blog is the difference between the individual and the organisation when it comes to responsibility. We talk about corporate social responsibility, but what we are really talking about is interaction between the individual ethics of a group of people. One of the craftiest ways to hide an unethical decision is to make it by committee - and remuneration committees have been blamed for the wage inflation which has UK directors' pay rising much faster than stockmarket results would suggest they should. Likewise HMRC is clearly tougher on individuals than they are on organisations - cleaners don't get sweetheart deals - but why let the big guys off?
At the end of the day, organisations are made of people and those people must take responsibility for their own decisions - as Stephen Hester has belatedly realised. Maybe the term Corporate Social Responsibility is a little misleading as corporations cannot have ethics - instead we need more Executive Social Responsibility.
All of a sudden corporate social responsibility has been thrust into the UK political spotlight. The three major party leaders have spent the last few months jostling for pole position, and business secretary Vince Cable has this week published proposals for more transparency on executive pay which is probably the hottest of the current hot potatoes.
Now in the interests of transparency, I should make it clear I'm a Liberal Democrat party member and councillor, but I try to keep this blog free from party politics. So I'm not going to critique the different party records on this - if you want an good objective assessment, try this piece by Allegra Stratton in the Guardian. I will reflect instead on the opportunities and threats posed by the current emphasis on this issue.
Overall, this debate can only be a good thing - the whole point of our democratic system is for the opposition to keep snapping at the heels of Government and keep them on their toes, so competition for who's making the boldest calls is welcome. Previously politicians have shown far too much obeisance to big business, especially those who employ large numbers of people in unemployment blackspots, but now we have a great opportunity to make some movement in the right direction. Also, the debate itself can lead to cultural change. If the zeitgeist is that excessive pay is evil, then those setting pay levels will think twice before continuing with business as usual.
However, there are a number of threats. Firstly that political point scoring can lead to a focus on issues which are easily translated into newspaper headlines rather than getting to the underlying (and relatively dull) issue. For example, there's been much debate over a putative bonus for one bank chief, when the nub of the problem is the more technocratic issue of linking reward to performance.
Secondly, crafty politicians and political journalists like to try and undermine good proposals using an extreme exception to the rule. OK, the ill-fated Lehman Brothers bank was sort of a co-operative, but evidence shows that co-operatives on average are more responsible than other business structures, so we shouldn't let that one bad apple spoil the barrel.
Thirdly, getting regulation right is difficult. There is a massive risk of unintended consequences with major changes, and fear of getting egg on their faces often drives politicians to be conservative (with a small 'c'!) in their ambition. This fear is exacerbated by the fragility of the economy. Therefore change is more likely to be incremental than revolutionary.
Of course, the best solution is for business to voluntarily embrace true corporate social responsibility. This means going beyond a few handouts and embracing values like fairness, equity, transparency, respect and co-operation. That view might seem naive to some, but there is a stack of evidence that more ethical businesses do better financially than their bottom-line fixated equivalents. The new maxim is "doing well by doing good" and business would do well to adopt it so they can come up with solutions which work for them, rather than being bent into uncomfortable positions by politicians.
If they don't act, they can't complain if CSR is forced upon them.
Photo credits: Creative Commons Licences: David Cameron and Nick Clegg photos are from the World Economic Forum, Ed Miliband from Mandate for Change
Poor Kodak. You couldn't make it up. A classic brand invents a great new technology (digital photography) but decides it would cannibalise their own products, so they ditch it. Someone else takes up the baton and they get eaten up anyway while desperately trying to claw back a piece of their action.
This isn't a new story - when transistors arrived on the market, the valve manufacturers decided not to embrace the new technology and paid the price - they've all gone. You could argue the same has happened to Zavvi and the struggling HMV - they're suffering at the hands of newer business models. The tragedy for Kodak is they weren't blindsided by someone's innovation, they had the ball and gave it away.
To my mind, Apple is one of the few examples of a major business which had its niche (desktop computers), then rode a wave of innovation and ended up dominating the new markets of mobile computing and digital media. But that took the particularly twisted genius of a certain S Jobs Esq.
So what's the lesson for Green Business in general and clean tech in particular?
Well you can see the same thing happening in the energy market. A while ago Big Oil redefined themselves as Energy Companies, invested in renewables, messed about with them for a while, then ditched them and headed for the familiar grounds of oil and (fracking) gas. They appeared fearful of commercialising technologies which might 'cannibalise' their traditional business, but if they don't do it someone else will. BP's "Beyond Petroleum Generation" of bright young things are almost all working for cleantech start ups now. I'm sure most of them would want to crush their former employer in the energy marketplace.
The only thing that protects the traditional energy sector is the lack of true competition in the market, but, with the UK Government trying to break the near-monopoly of electricity producers and introducing the carbon floor price, those advantages might be starting to slip away. If I were a fossil fuel based company, the Kodak story would make me very worried indeed.
There were stories in the press this month about £1.2m worth of 'constraint payments' made to Scottish wind farms over Christmas to not generate electricity when demand was low. These stories appear to have been placed by dodgy "think tanks" (read: propaganda machines) protesting about public subsidies going to renewables.
And I agree with them.
It is madness to pay to restrain renewable energy. We need as much renewable energy as we can get (here I diverge sharply from the propagandists), so what on earth are we doing saying "not now! take some cash"?
The money would be much better invested in smart grid technology and storage facilities. In a smart energy world such "excess" renewable energy would be used to cheaply charge electric vehicles and portable devices as well as distributed storage systems.
The problem is our thinking hasn't got past that of the 1930s. The grid we plug wind turbines into in the UK hasn't changed much since 1938. 1938! That grid was designed to distribute electricity from centralised power stations - a bit like television channels broadcast the same entertainment to lots of people. A sustainable energy system would be more like the internet than TV with energy entering, being stored, and accessed at different places and times by a wide variety of players. It's about time we brought energy into the internet age.
The wider point is our tendency to be hidebound by linear, incremental thinking - to innovate to the degree to tackle the sustainability challenge, we need to break free of business as usual.
The BusinessGreen webcast on customer behaviour went really well on Monday. The recorded version will be online soon and I'll put the link in the comments below. I'm not going to summarise the sessions in detaiul here as you will be able to watch it, but instead I'll pull out some key messages from the participants.
Sophie Flak of hotel group Accor (Sofitel, Novotel, Formule1) emphasised the need to use facts rather than following the crowd or to "think twice before acting" as she put it.
Carmel McQuaid of Marks & Spencer emphasised that the green message must be fully integrated into mainstream marketing. So M&S uses the same models (Danii, Twiggy et al) for their green campaigns as their normal advertising - and they sync their "clear out days" to promote the recycling of clothes with their seasonal changes in stock.
My main point was to put yourself in the customers shoes. You need to make green behaviour as frictionless as possible while adding friction to the less green behaviour - exactly the same principle to promote green behaviour within your organisation.
We got some great questions, too.
One was about the message you use. All the panellists agreed that preaching was counterproductive. I suggested that humour was a good option, such as replacing the po-faced "Consider the environment before printing this e-mail" with a wittier version like "Printing this e-mail will make Al Gore cry."
Another was along the lines of "is greening products enough or do we not need a different type of economy?" My response was that it was already happening in certain areas - music, books, movies where people were increasingly buying the service rather than the equivalent physical artefact, but that in others it was difficult as many people see a product such as a car as a sign of status - which is why many car clubs are targetting the second car rather than the first one.
The most worrying was about the 'cost downside' of doing all this. I was quite blunt and pointed out that study after study had shown that companies who took sustainability seriously were doing better in the downturn than average (acknowledging that cause and effect weren't completely clear).
I'm writing this on the East Coast Mainline, charging across the frozen fields of eastern England as the sun casts various tints of orange across the monochrome landscape. I'm on my way down to the bright lights of London to take part on a webinar about engaging customers on how to use your products and services in a greener way. The event is organised by BusinessGreen.com, sponsored by Accor and also includes Marks & Spencer, so I'm in pretty good company.
If you read this in time, you can still sign up here - I'll post a summary on Wednesday for all those who missed it!
Just to give some background - customer engagement is one of the three big challenges for green business I identified back in December. Effectively all those green collar jobs everyone hopes says will emerge from the green economy will be delivering products and services which allow others to go greener. This is the top level of the business case model in my book, the Green Executive. So why is this such a big issue?
Well look at the diagram below (taken from The Green Executive) which shows lifecycle carbon emissions for a variety of generic products - computer, car, food and washing powder - which:
Food is the only common example I could find where the emissions from the use phase (in this case cooking at home) don't dominate the lifecycle. In the case of food this is because of the huge amount of energy required for fertiliser, pesticides and irrigation. But for the other three, the biggest element of the emissions is in the hands of the user.
The washing powder data above came from Procter & Gamble and was the evidence that drove them to create Ariel Excel Gel which allows washing at 15°C - a massive potential improvement in lifecycle emissions. But that improvement hinges on the consumer being able/wanting to wash at that temperature. First up, my A+ rated washing machine doesn't have a 15°C setting and secondly, (on the rare occasions I put a wash on) I'm forever turning the dial from 40°C down to 30°C - the fairies turn it back up when I turn my back. Marks & Spencer may have run a massive "Wash at 30°C" campaign on their clothes, but there is a residual feeling amongst many consumers that warmer = cleaner.
So you can (and must) enable greener behaviour, you can (and must) inform the consumer/customer of the benefits, but that's often not enough to actually change their behaviour. We'll look at that in part 2.
Here's the video of my book launch for The Green Executive back in June. Given the diverse audience, I focus on the lessons I learnt from the 18 Green Executives I interviewed for the book (people like stories).
There's disappointing news from the world of low emission vehicles (LEVs) - while sales of all cars were up 10% last year in the US, alternatively fuelled vehicles (incl hybrids) only rose 2.3%. In the UK, however, road fuel sales were down. This broadly suggests that people are simply driving less rather than investing a premium in a vehicle which would cost less to run overall. But it may also be fear of the new - will that electric car run out of charge half way down the M1?
The relationship between green products of any type and consumers has always been complicated - for example organic food dominates baby food sales but not 'adult food' - we're happy to eat cheap crap ourselves but won't feed it to our kids. There are many reasons for consumers being lukewarm on green products:
Costs - perceived or otherwise
Perceived low quality
Lack of understanding/fear that a new system will be complicated
I've argued for a long time that it is retail which is acting as a gatekeeper for fast moving consumer goods. Their huge buying power can both drive innovation, ensure quality and keep costs reasonable. The consumer can then trust the retailer to get it right on their behalf.
But what for other sectors? The golden rule is to put yourself in your customers' shoes. If you are aiming for a green niche then you can compromise on performance or price for a very green product. However if you want to go mainstream, you must compete on performance, price and planet.
Of course the ultimate goal is a green product that people deeply desire. MP3s and e-Books aren't marketed as green, but they are - and they sell in their millions. It may be that the auto industry needs to go through another couple of iterations before they hit that level of customer pull for LEVs - after all one technology has dominated the industry for 120 years and that it take some shifting.
Just this weekend, my partner and I were chatting about the UK petrol protests of 2000 (it's laugh a minute in our house sometimes...). At the time my partner was working in Poland for a week and couldn't believe my reports from home - empty petrol stations, empty roads, no fresh fruit in the supermarkets and semi-panic buying of staple foods - all within a couple of days of fuel depots getting picketed. This small action had a massive impact on business, communities and individuals. It was a graphic demonstration of how vulnerable our modern economy is to quite minor events.
As chance would have it, Chatham House has released a report today suggesting our economy has taken 'just in time' to an extreme, leaving it vulnerable to low-probability/high-impact events like the Icelandic volcano, the Japanese earthquake and the 2004 tsunami. But, the report notes, there are also concerns about the resilience to high-probability/incremental impact environmental issues like climate change, resource depletion and water pressures.
We are seeing the pressures of unsustainability across the economy with energy prices having a higher impact on the economy than Government spending cuts. The big question for individual organisations is "are we resilient to these sudden and long term events?"
The subsidiary questions are:
What will rising energy bills do to our business?
What will scarcity of resources like rare earth metals do to our business?
What will scarcity of water do to our business?
What would legislation designed to protect or ration natural resources do to our business?
What would the impact of more extreme weather events be on our business?
Are our data and other resources safe from, say, increased flood risk?
Do we have contingency plans in place for, say, expected lack of travel?
Of course the flip side to this is providing resilience to others as a business offering. As the effects of climate change and resource depletion ratchet up, this will be a growing market.
I've found it weird reading the inevitable deluge of "that was 2011, what will 2012 have in store" articles in the press. The consensus of opinion is that the year just gone was one of the most turbulent in recent times and what will happen in the year to come is likewise extremely hard to predict. The weirdness comes from the disconnect between what I read and what I experienced - 2011 was a brilliant year for myself and Terra Infirma. Here's just a few of the highlights:
Launching and delivering the Green Academy on-line training system;
Bringing on board a roster of fabulous new clients including BAE Systems plc, Johnson Matthey plc and the BBC;
Maintaining our working relationships with long term clients like Business to Business Ltd and the National Industrial Symbiosis Programme (North East);
Delivering guest lectures at Universities of Newcastle, Durham and Northumbria;
Through all this, interacting with somewhere in the region of 1500 great individuals from across the UK and indeed around the world. This is the highlight for me as I learn as much from them as they learn from me.
Again unlike the predictions for the world economy, the future of the Eurozone or the Middle East, the year ahead for Terra Infirma seems remarkably stable:
A number of our projects are continuing into the New Year and we are currently negotiating extensions to them and others - most involve engaging staff in sustainability;
Kicking off the Green Academy cycle again - note there's a free introductory session on 25 January - details here;
I'll be doing a webinar for my friends at BusinessGreen.com on 16 Jan - details here;
You'll get the usual programme of blog posts here and, of course the monthly Low Carbon Agenda Newsletter which you can subscribe to on the right.
So, I hope you'll come with us in 2012 and together we will leave the world in 2013 a more sustainable place than we found it in 2011!