Why disruptive sustainability is the new leadership framework

At the recent GreenBIz Forum 2013 in New York, there was an informative and energetic panel discussion, “The Power of Wall Street in Promoting Sustainability,” with Erika Karp, head of UBS Global Research and Matt Arnold, head of environmental affairs at JP Morgan Chase.

In trying to forge the link between sustainability and business drivers like revenue and ROI, Karp said “It’s not easy to prove this case … but they [Julie Hudson of UBS London and her team of ESG analysts] have figured out how to use traditional business analysis, Michael Porter of Harvard ‘Five Forces’ analysis, to talk about what [are] the most material issues, risks and opportunities, facing an industry and even facing a company … and when you have a framework, this is how you make things systematic.”

Using traditional business analysis to elucidate the bottom-line benefits of sustainability seems logical. After all, to show the relevance and applicability of sustainability to business metrics you need to speak the traditional language of business, and the keepers of that language are found in places like Harvard Business School and personified by people like Porter. Logical as that seems, is traditional business analysis really the correct approach? As corporate responsibility and ESG professionals plead their case for relevance using the language of business strategy, Porter, the chief architect of that language, is changing the vocabulary -- and even more broadly, he is building an entirely new framework.

Creating Shared Value

When Porter speaks today, he is unlikely to emphasize his Five Forces of competitive strategy (1. Bargaining power of suppliers, 2. Bargaining power of customers, 3. Threat of new entrants, 4. Threat of substitute products, and 5. Competitive rivalry within an industry). Instead, he is more likely to point out six ways the capital markets are undermining value creation. In a 2011 presentation Porter made at a UBS conference in New York, he listed these value destroyers as:

  1. Search for short-term “surprises” in earnings or revenue.
  2. Use of industrywide metrics that are misaligned with true economic value and drive strategic convergence.
  3. Encouraging companies to emulate currently “successful” peers.
  4. Strong pressure to grow faster than the industry.
  5. Bias in favor of “doing deals” (M&A).
  6. A narrow view of economic value creation that overlooks shared value.

Porter is attacking management’s short-term orientation, its blind use of metrics, its worship of growth, its groupthink and its narrow perspective.

This is not the typical message coming out of B-schools, and sounds a lot closer to ESG and CSR than Harvard. His criticism of the capital markets is part of larger framework for thinking about business strategy that Porter calls “Creating Shared Value” -- a crunchy name itself. It is hard to imagine that this is Michael Porter of Harvard Business School, once called the father of competitive strategy, sought after by the world’s biggest corporations and institutions for his insights into fierce global competition. He’s now talking about, of all things, sharing? What changed?

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