A New Trinity of Corporate Creeds
Excerpted from the forthcoming book, Better Products, Better World: Leadership As If People Mattered, published by AHC Group.
Policymakers in Washington D.C. and state capitals need to recognize that a new trinity of corporate creeds is emerging among the most powerful and progressive companies in the world. Laws and regulations governing corporations are vital. Yet the most demanding task before lawmakers is shaping a marketplace where sustainability is encouraged by way of creative problem-solving, fostered by innovative corporations who recognize their role in the pursuit of environmental excellence.
Business management scholars spent several decades after World War II making sure that quality control processes were integrated into the strategy of corporations. This so-called “quality” revolution established a dual emphasis on the price and technical quality of products. Firms such as General Electric, Honeywell, Lockheed Martin and ConocoPhillips are now famous for endorsing corporate creeds focusing on price and quality.
We now live in a time that demands that a third belief be added to corporate strategy. This trinity of corporate beliefs now includes social response. This third variable is perhaps the most difficult to measure, but is the key factor in transforming corporations into vehicles of social change and sustainable value. Toyota’s hybrid cars, Whirlpool’s energy efficient Duet products, and HP’s “all in one” product series are now essential ingredients to success in the marketplace. It is only by following this creed of social response and adopting new strategies that winners, such as Toyota, HP and BP, will distinguish themselves from losers, such as Tyco and Enron, over the long-term.
Let there be no misunderstanding about this. As the world changes, we are not talking about some sort of do-goodism or corporate responsibility as some inessential throw-in that gets a company good public relations. We are talking about the coincidence -- and as time goes on -- the inextricable connection between social response product development and long-term profit. Better products, not superior corporate governance by itself, will make a better world.
“The company that can capture historic forces and align them with new products that speak to society’s desire to protect future generations stands on the cutting edge of contemporary business strategy. It has not a philanthropic but a competitive advantage,” notes Dennis Minano, the former head of energy and environment at General Motors.
Interestingly enough, growing numbers of Fortune 500s are now ahead of the curve, changing faster than the theory-building going on in academic circles and the laws being debated in Washington, D.C. Pioneering firms -- Starbucks, Nike and now petrol giants like Shell and BP -- have spent millions advertising ways to promote their “social brand,” forging long-term loyalty with consumers all over the world by virtue of their response to social concerns. Why? And, how do social response capitalists transact change?
Most arguments put forward on corporate responsibility are dominated by limited corporate self-interest and public relations and are detached from the primary motivator of the modern corporation -- the brand of its dominant products. The companies that I have mentioned, and others, have moved beyond this narrow and limited view. The Sarbanes/Oxley legislation and related legal remedies curtailing short-term corporate abuses can only go so far in promoting corporate responsbility. Moreover, regulation of consumer behavior can’t go as far as a revolution in consumer product choices -- especially in the developing world.
In producing benefits for the 21st century, the new trinity of corporate beliefs -- price and quality coupled with social responses -- will matter more than all the media coverage and corporate audit committee replies surrounding Sarbanes/ Oxley and the Attorney Generals of all 50 states combined. Of course, to a degree, we need such legislated reforms in corporate governance. But greater changes, more lasting changes, are made when firms invest in products that are worthwhile about a Toyota or an HP and a Whirlpool.
In short, better products can make a better corporate governance system in the same way separation of the executive, legislative and judicial systems have proven to serve as checks and balances in government. A focus on products allows companies to compete more honestly on what really matters: the end-product. More importantly, it is what informed consumers want. For the first time in history, the transparency of the modern corporation allows the tracking of performance by stakeholders, the investment community, and ordinary consumers. You can see this kind of critical evaluation of hidden value and intangible asset valuation happening in the leading investment rating groups, from Innovest and the Dow Jones Sustainability Index, to those more mainstream programs run by Moody’s, Fitch, and Standards and Poor.
To align themselves with these trends, those who study and shape corporate behavior need to bring a fresh perspective to the table. In the end, a social response product development path secures a more lasting means of boosting bottom lines, containing costs and providing new product opportunity programs. It is about to become much more. The issue of global climate change highlights why social response product development is gaining popularity among the world’s most influential companies.
The proof will be in how these companies, and near term competitors, implement these corporate product reforms over time. The next ten years are the critical window to institute such product changes, as the need to shift the energy systems and the product infrastructure require time, and are not built overnight.
Dr. Bruce Piasecki is the president and founder of the American Hazard Control Group, a management consulting firm specializing in energy, materials, and environmental corporate matters since 1981. He is the author of five books on business strategy, valuation, and corporate change, including the Nature Society's book of the year, In Search of Environmental Excellence: Moving Beyond Blame.