Sustainable business and the value of values
Joel Makower: You’ve been talking a lot lately about value versus values, and how companies give priority to the former over the latter. Shouldn’t they go hand in hand?
Bill McDonough: Total Quality Management began after the Second World War, when W. Edwards Deming went from the U.S. War Department to Japan. The question evolved from studying women in the factories who were making weapons. The question was, how many could they make and at what level of performance?
The women had outperformed the men by talking to each other and eliminating inspections and quotas because they didn’t want to make anything that wasn’t perfect to begin with. They removed quotas because they would only make as many as they could make perfectly.
So Deming went to Japan and ended up working on Total Quality Management. It’s fascinating that it ended up being called Total Quality Management because it was about statistical quantification and its sharpest tool, Six Sigma, is a statistical and numerical tool.
In a way, I wish it had been called Total Quantity Management because in the end, quality is a question of values and what is the right thing to do. Peter Drucker later said it’s the manager’s job to be efficient and do something the right way, but it’s actually the executive’s job to be effective and do the right thing.
This question between the executive, who is generating revenue, and the manager, who is seeking profit and correct process, is a critical one for modern commerce.
Makower: So, how does this relate to sustainability?
McDonough: I’ve been exploring the idea of starting with your values and then moving to your principles, then to your visions — realizing that visions without execution are hallucination and then setting your goals and objectives — then developing your strategies, then creating your tactical activities, measuring and then value creation.
What’s fascinating to me is that if you look at the question of value, including economic value, we’re looking at the things that we measure and consider statistically significant. It’s a search for truth in numbers and the science.
Makower: So you’re saying that value begins with values, which go beyond numbers.
McDonough: Modern economics are so focused on numbers that the notion that a business could be values-based and then produce business value is really crucial at this point. You and I have the privilege of dealing with companies that are well-meaning in their activities regarding the environment and social fairness. But generally, it’s all about numbers.
It’s been famously said that scientists and engineers know more and more about less and less until they know everything about nothing. And architects and artists know less and less about more and more until they know nothing about everything. We’re all somewhere in between.
Makower: Can you give me an example of how well-meaning companies get it wrong?
McDonough: We see certification systems in healthy materials that are just a few superficial statistical numbers that somebody is self-reporting, and that get characterized as being a real review of a material or a product without context when actually their values represented need to be questioned.
You will see a statement that says, “This is safe for you and the environment.” Then it tells you that it has components that can cause development problems in your children, reproductive problems in our mothers and endocrine disrupters of hormone systems.
But it told you it’s safe for you and the environment. There’s not even truth in data there, not to mention the fact that you have to question the values of the people who would continue to sell a product and talk about it in this way. It’s really amazing to me that they would create value for their business while promulgating and selling with a smile on their face.
Makower: How do we turn that around?
McDonough: We need to start with our values and say, “We really care about how we treat each other.” The way to turn around is waging peace through commerce. That’s what we do is when we start with values. We start with beliefs and hopes. As a human being, as a parent, as a member of the species, what are your codes of behavior? What do you think is nonnegotiable?
For me, it’s the Hannover Principles. So our value statement there was, “How do I love all children of all species for all time?” That expresses my values. It’s about love. It’s about children. It’s about all kinds of species. Those are the explicit statements of where I’m trying to take this thing. And then we go to strategy which is, “Here’s my plan.”
So let’s take an example. Bill Ford says, “Let’s redo the River Rouge [Ford manufacturing site] in Dearborn, Mich.” We say, “Okay, let’s do it with a set of values that says we’re going to have wetlands and bird migrations and we’re going to have a great quality of life in the workplace.”
So many people said you can’t do a 10.5-acre green roof. They’re too heavy. We went with Ford’s engineering folks and I went to Germany and we reviewed the green roofs there. They had 20 million square feet of them at that time. We found a horticulturalist who had done a roof used by the East German military to camouflage MIG fighters during the Cold War. They needed camouflage for hangars that was cheap and that changed colors with the seasons. We arranged to use that.
It turned out that our goal and visions — our values — led us to develop a strategy, and to create value. In that case, the value was $35 million in savings on CapEx over building conventional stormwater facilities. And $35 million in CapEx using natural systems instead of chemical plants and pipes was the same as walking in to the board to get approval for an order for $900 million worth of cars at a 4 percent margin.
We would have never gotten there if we had started with benchmarking metrics of conventional engineering practice and said, “We have a deadline for the building and a budget that couldn’t be changed.” There were engineered drawings for three chemical treatment plants and endless pipes to move all of the stormwater around underground. It was all budgeted and ready to build. We took one-third of that budget and did something else.
If we had started with value and said we’re going to be more efficient, we would have tried to do it with two chemical treatment plants and a little less pipe. But we wouldn’t have had a breakthrough unless we said, “We’re going to leave the system here and go to our values. How do we make habitats that purify water and invite back the species who were here? How do we be a good neighbor?”
What we do with our vision and values is to enrich our businesses with top-line revenue generation, not just bottom-line profit. We celebrate growth.
Makower: I don’t think most corporate sustainability is based on values.
McDonough: Look at the whole idea of being less bad. How is the world getting better if you’re letting it down, albeit more slowly? If somebody says, “I saved $15 million on energy and water last year while I made textiles, and still released all of the dyes into the river,” well, you saved 10 percent of your energy and water. Great. That was just business. That’s something you do because you know how to do math.
Makower: Isn’t that a lot of the kind of thing committed under the name of sustainable business?
McDonough: That’s my point. That’s eco-efficiency. A very important thing to do because it gives us the resources to do other things. It can reduce the rate of destruction. So it is great to see people doing this kind of thing but it’s insufficient if we are trying to make things “good.”
Makower: Isn’t eco-efficiency enough for some companies? They get to say, “We’re doing less bad and we’re saving some money. Leave us alone.”
McDonough: For most companies, that’s enough. But those are people where money or numbers is enough. That’s it. That’s exactly what we’re talking about. They’re not talking about values, just numbers.
Makower: Walmart’s value proposition is, in effect, “Our value is value.” It’s a value about saving customers money.
McDonough: That’s a great way to look at it. The byword at Walmart is “lowest price.” That’s very clear. But you’ll also hear “save money” together with “live better.” Then the question is, what is better? You’ll see people saying, “We have to reduce the number of toxic materials,” so you’ll do reductions in chemicals. Or, “We want companies to use less energy and water in their production because we’re worried about climate change.”
All of those things start to lead toward something that can actually flip. Even a company like Walmart, which is very focused on statistical significance and measurement, will find itself saying things like, “We are going to be 100 percent renewably powered.” That is a values statement. Walmart, I think, is the largest corporate owner of solar in America today.
It’s a numerical statement, but it’s also values. They’re saying these things because they actually matter to them and their customers.
Makower: I guess the problem for most companies that aren’t Walmart is that there’s no real business case for values.
McDonough: That’s the difference between waging war and waging peace. I think you’ve hit the nail on the head. Naturally, the main goal of the work that Cradle to Cradle answered is to show that creative values of humans can generate value creation significant enough to support continuous improvement and a graceful relationship between us, each other and the place we live.
Makower: So are we winning the war — or the peace?
McDonough: That’s where I think we need more design. I’m working on housing made out of discarded materials. It’s so exciting because for many years the companies that work in plastics said we couldn’t do it. They said you can’t recycle all of these old plastic bags and do things with them. People said it’s impossible and they were kind of right. It was for them because it’s undefined material and they’re in the business of defined materials.
I’m reminded of Dean Kamen’s remark upon hearing someone say to him, “It’s impossible.” His response was, “Don’t tell me it’s impossible. Just tell me you can’t do it.” I have waited for someone to tell me I can make a cereal box out of cornstalks and I have waited for someone to tell me I can make housing parts that people can use affordably and in culturally appropriate ways so they can exercise their desire for a home and can be rescued in an emergency situation.
That is, I’m working along while waiting for someone to say that I can do it. And that’s happened. Companies in these industries are coming and saying, “What you want can be done and we’re going to help you.”
So, you keep asking and you innovate into it.