The Elkington Report

Designing sustainability’s first product recall

ShutterstockJIANG HONGYAN

I was in the Ford boardroom in Dearborn, Michigan, as the 2000 Firestone tire recall exploded. Indeed, I had been quoted the previous day in the Wall Street Journal arguing that it was time for the giant auto company to "overreact" in the same way that Johnson & Johnson did during the Tylenol scare. This was not popular with Ford’s then-CEO, Jacques Nasser, chairing the meeting on the 12th floor of the company’s world headquarters building.

The recall ultimately involved some 13 million tires and estimated costs to Ford of $3 billion. So, I know well that product recalls are the stuff of nightmares for business leaders. Who in their right mind would wish one on themselves?

Look no further. Having announed what may well be the first product recall for a management concept — the Triple Bottom Line — back in June, I have been energetically scanning to find out what recent decades have taught us about designing and executing effective recalls.

Product recalls 101

The standard advice seems to include the following: Assume responsibility and deploy your best available leaders to lead the recovery process; ensure you have the best available facts on what has gone wrong and why; explore temporary fixes and workarounds, but also begin a thorough root-cause analysis; alert the authorities as soon as possible; offer some form of take-back and/or refund, keeping lines of communications wide open with customers; find ways to surprise and delight key stakeholders who otherwise could turn against you; and, if all else fails, explore third-party mediation.

How can we apply this advice to our recall of the Triple Bottom Line? Alas, there don’t seem to be any relevant authorities to alert (that, you might conclude, is a key part of the problem), so the fourth item doesn’t really apply. And we’re hoping to avoid the need for third-party mediation. Apart from that, we aim to do this by the book.

Our first task, then, having assumed responsibility, is to figure out what went wrong — and what "wrong" means here.

As noted in the HBR article announcing the recall, the TBL’s goal from the outset was system change. It was never supposed to be just an accounting framework. So, yes, it is great news is that thousands of companies, thanks to outfits such as the Global Reporting Initiative, now apply TBL principles in their reporting and disclosure. And that thousands more, notably through the 2,500-strong B Corp movement, are beginning to incorporate them into their corporate charters.

But how many of these organizations really use the TBL to drive decision-making? How many evaluate every action through an increasingly integrated financial, environmental and social lens — and show the same unwillingness to compromise on the latter two as on the former? How may are explicitly trying to drive system change?

Alas, not so many. So, how would we know whether progress is being made?

From extraction to generation

In her 2012 book, "Owning Our Future," Marjorie Kelly identifies five key traits that shape companies’ capacity to shift from an "extractive" to a "generative" model. These are: purpose; governance; networks; ownership; and finance. Her conclusion is that we cannot transform companies piecemeal: Unless all five of these traits are aligned with the TBL, progress will be limited — and prone to reversals.

Ownership and finance, in particular, have been the source of many of the corporate sustainability movement’s moments of high drama. Witness the profound — and ongoing — ripple effects caused by Kraft Heinz’s unsolicited 2017 bid to take over Unilever, a company that has appeared on top of GlobeScan/SustainAbility’s annual ranking of corporate sustainability leaders for eight consecutive years.

CEO Paul Polman publicly acknowledged that the takeover bid forced the Anglo-Dutch FMCG giant to make some "practical compromises." Those include a $5.80 billion share buyback program, a 12 percent increase in the company’s dividend and a doubling of planned cost cuts to $2.32 billion by 2020. The company’s flagship Sustainable Living Plan will not escape the pain of the cost-cutter’s ax.

In other cases, ownership transitions have tested the ability of even the most TBL-committed companies to stay the course. The Body Shop International is another case in point. Founded in 1976 by the late Anita Roddick, a social and environmental activist turned entrepreneur, The Body Shop had TBL principles at its core from the outset.

In 2006, it was bought by L’Oréal — a company with a rather different outlook — and for a decade The Body Shop’s TBL instincts were not exactly abandoned, but certainly muted. Last year, the company was sold to the Brazilian B Corp, Natura — and already there are signs of The Body Shop’s old campaigning ethos coming out of hibernation, with the TBL core to the new strategy.

Another, even more heartening, example is that of Covestro (formerly Bayer MaterialScience and, interest declared, a Volans client). Since 2015, the company has managed to successfully IPO out of the Bayer Group — with the TBL a core element of its proposition to investors.

So far, the transition to public ownership has not forced the company to make compromises on its commitment to people and planet. Add into the mix a shift in personnel at the top (Markus Steilemann replaced Patrick Thomas as CEO earlier this year) and the unexpected death of the company’s chief sustainability officer, Richard Northcote, and Covestro’s unwavering commitment to the TBL agenda is all the more impressive.

Often, too, external shocks, linked to the volatile nature of societal values, can play a key role in the development of a company’s TBL strategy and culture. This was a lesson I was taught by Novo Nordisk’s then-president, Mads Øvlisen, back in 1989.

Early lessons from Novo Nordisk

When our 1988 million-selling book "The Green Consumer Guide" massively dented the Danish company’s sales of detergent enzymes to major brands such as Lever and Procter & Gamble, Øvlisen promptly invited us in to talk.

He opened up the company to us, unconditionally, explaining why he was doing so — in terms later repeated in the company’s corporate history. This unusual openness tracked back to what happened when consumer activist Ralph Nader had targeted the company in the late 1960s:

For the first time, Novo experienced the great influence an NGO campaign could have on public opinion and, consequently, on company sales. From 1969 to 1971, Novo’s yearly turnover plummeted from over $777 million to $388 million. This in turn made it necessary to dismiss 400 Danish employees, reducing the total company workforce from 2,100 to 1,700.

(For more on the history, see page 20 of "The Novo Nordisk History (PDF)." For a brief account of the company’s adoption of the Triple Bottom Line, see pages 46-47.)

Novo was determined to keep the memory of that upset alive, so that its people had a sense of how such challenges can appear apparently out of nowhere. By reaching out to us as our green consumer campaign took off, Novo Nordisk ensured strengthened links with the global sustainability movement. It later pioneered Triple Bottom Line reporting — indeed, rechartered itself around the TBL in 2004, as part of a demerger of its enzymes business as Novozymes.

That was then.

Now, as part of the fact-finding phase of our TBL recall, we will be putting a number of leading companies under the microscope. Our aim: to uncover what has worked, what hasn’t and, crucially, how the next generation of TBL-minded business leaders can ensure that social, environmental and economic value evolve into a triple helix of transformative change, the genetic code for tomorrow’s capitalism.

Special thanks to Richard Roberts and Lorraine Smith of Volans.

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