November 2013 Archives

The Corporate Sustainability Advisory Council (SAC) is now part of the standard apparatus for most major corporations. 

The first SACs were launched in the 1990s; and with a few notable exceptions, they were used primarily as PR tools to curry favor with increasingly vocal environmentalists and other troublesome social stakeholders.  Back in the day, members of SACs (myself included), were typically engaged to review (what were then new) Corporate Responsibility/Sustainability Reports, serve as judges for staff sustainability awards,  and provide advice on specific CSR or environmental initiatives by the company.

SACs typically met once or twice a year and members were almost always prominently featured on the corporate website, but seldom compensated, other than covering travel expenses and accommodations.  This was presumably done to avoid the appearance that members were being "bought" but in reality, it was a statement about the perceived value of these councils: Meetings were usually run by CSR or environmental management staff.  The CEO might make a symbolic appearance at the beginning or end of the meeting, but generally no senior executives or business leaders were engaged in the work of the SAC.  It was a largely symbolic initiative convened for external appearances and social legitimacy.  That was then.

This is now: The days of the Symbolic SAC are rapidly coming to an end:  As social and environmental challenges become increasingly material, gaining serious advice on these matters is no longer a luxury. Increasingly corporations are seeking to elevate the SAC--to make it an integral part of the strategic process of the company. 

In my experience, there are five keys to taking the SAC to the next level:

1.    Encourage Free Speech.  Include only the highest quality people from diverse backgrounds with stellar reputations and strong views.  And then encourage them to speak their minds.  The last thing you need is a polite group of advisors willing to rubber stamp CSR initiatives.  SAC members should be encouraged to ask hard questions and introduce variety, not provide cover for existing practices and strategies.

2.    Make it Real.   Don't waste valuable time on peripheral activities like Sustainability Reports, Websites, and Staff Awards.  Instead, engage the SAC in the real stuff--the strategic and operating challenges that are most significant to the company's future.  If SAC members have not signed NDAs there is something wrong.

3.    Engage the C-Suite.  Cameo appearances by the Chief Executive no longer cut it.  If the SAC is tackling serious strategic issues, then the CEO and other key C-Suite Executives need to be active participants in the deliberations.  Deep dialogue and mutual learning can only happen when people spend time together and get to know each other.

4.    Interact with the Board.  The past separation between the SAC and the Board of Directors must come to an end.  In tomorrow's world where sustainability and strategy are joined at the hip, the Board cannot govern effectively without access to the SAC's expertise, and the SAC cannot gain the necessary perspective without knowledge of the Board's concerns and priorities.  Hold at least one joint meeting (or overlap the two meetings) each year.

5.    Compensate Appropriately. Members of the Board of Directors are paid serious money for their year-round engagement in the company's governance.  Nothing less should be expected from SAC members.  This means that pro-bono appointments and token honoraria must give way to compensation commensurate with the new expectations.  Bottom line: Don't skimp on SAC member compensation if you expect them to prioritize SAC work over the myriad of other opportunities and obligations on their plates.

We have come a long way since I began my academic career as a business school faculty member nearly 30 years ago.  In fact, as an assistant professor in the mid-1980s, I was told by most of my more senior colleagues to forget about my interests in environmental and social issues--that pursuing such a path would effectively kill my chances for promotion and tenure in top tier business schools. 

Despite some bumps in the road, my decision to focus the rest of my profession life on this connection, while seemingly risky at the time, proved to be the best move I ever made:  Over the past 25 years, most major business school in the world have added some kind of initiative, center, or institute focused on sustainability, corporate citizenship, or social entrepreneurship.  I myself have been involved in creating three such centers over the past 25 years--at the University of Michigan's Ross School and School of  Natural Resources & Environment (The Erb Institute), at the University of North Carolina's Kenan-Flagler Business School (Center for Sustainable Enterprise), and at Cornell University's Johnson School (Center for Sustainable Global Enterprise).

The problem is that virtually all of these initiatives, centers, or institutes continue to merely hang off the side of the existing business school edifice.  Like the proverbial "saddle bag" on a horse, the issues are contained within separate compartments that are readily visible from the outside, but have little impact on the behavior of the animal itself.  Sustainability has joined other business school "saddle bag" issues such as ethics, entrepreneurship, and emerging economies, as a way to recognize, but stop short of fully integrating them into the core DNA of the institutions.

Indeed, save for cosmetic changes, the MBA curriculum at top-tier business schools remains startlingly unchanged from what it was when I started 30 years ago:  Functional core courses in finance, accounting, marketing, operations, OB, and strategy still rule, with the "saddle bag" issues addressed as elective courses or "immersions" after students have completed the "real" content.   Tenured faculty are typically researchers focused on the established functions and disciplines, not on the challenges contained in the saddle bags (which are more unruly and difficult to study).  Faculty focused on the saddle bags are therefore typically untenured adjuncts, lecturers, or clinical professors with little say in the governance of the schools.  As a result, institutional inertia reigns supreme.

And so, it is high time to move beyond saddle bag sustainability in business education.  Not unexpectedly, the few pioneers that have thus far sought to integrate the "saddle bag" challenges into a new MBA model have been independent players with no prior baggage such as the Bainbridge Institute and Presidio Graduate Institute.  Unfortunately, these up-starts also lack the institutional legitimacy and reputation to mount a serious challenge to the status quo.

That is why the University of Vermont Business School's new Sustainable Entrepreneurship MBA Program (SEMBA)  represents such an important milestone:  It represents the first time (to my knowledge) a major University has sought to fundamentally reinvent business education and the MBA degree to address the challenges we face in the 21st century--environment, ethics, entrepreneurship, poverty, and inequality. 

Bottom line for the established top twenty:  Ignore this new program at your peril.

The world confronts us with the challenge of accelerating radical, leapfrog innovation.

Whether in the form of disruptive, frugal, trickle-up, clean-tech, exponential, blue ocean, inclusive, reverse, or base of the pyramid (BoP), it is becoming clear that we are in the midst of one of those transformational times when innovation alters the fundamental fabric of civilization-and competitive success. Schumpeterian creative destruction increasingly reigns supreme: Entrepreneurs thrive, new entrants emerge, and incumbents fall...or so we are told.

Yet such times need not spell doom for large, incumbent corporations. Indeed, it is possible for these titans of the 20th century to lead the process of transformation toward a sustainable future--but only if they focus conscious attention on building the necessary organizational infrastructure--the "white space"-- as a complement to the existing corporate structure.

Let's face it: current corporate organizational structures are designed for self-replication--producing more of the same, or at best, continuously improving/adapting current products and processes. Yet growing social inequality and environmental degradation steadily render self-replication and continuous improvement obsolete. Not surprisingly, leapfrog innovation calls for a fundamentally different structure since the existing corporate "immune system" is very strong--any project that deviates too far from the norm is quickly surrounded by "antibodies" and rendered harmless!

So what does it take to build an effective corporate innovation "white space?" My colleagues and I have written extensively about the importance of creating a separate unit focused on co-creating solutions appropriate to the new social or environmental realities. Vijay Govindarajan and his colleagues have spelled out a similar logic for what they call "Local Growth Teams"--innovation teams with a timeline, set of metrics, and deliverables that are appropriate to the task of driving leapfrog innovation. Such a unit must also have the power to develop its own strategy, organization, products, and ultimately, its own P&L responsibility.

Let's be clear: We are not talking about a completely separate "skunkworks" which seeks to separate itself from the mother company. Instead, leapfrog innovation needs to link to corporate-level resources and capabilities while at the same time maintaining sufficient independence from the routines that govern the existing core business. It is therefore crucial to have the support and protection of the CEO to create the protected space for such units to exist and to provide them with the necessary level of autonomy, resources, and connections.

But even CEO-level support is not enough. I have learned this the hard way in my own work focused on BoP innovation in corporations. Indeed, depending solely on the goodwill and support of the CEO, or any other single senior executive can be risky. The "white space" can come crashing down if this person changes positions, leaves the company, or is replaced. It is for this reason that I strongly recommend the creation of a White Space Innovation Leadership Team consisting of 8-10 key executives that span the company--business heads, functional heads, and heads of staff organizations such as R&D, HR, Strategy, and Sustainability. The Leadership Team provides legitimacy, oversight, and much-needed protection for the White Space. By recruiting a diverse team of executives from across the company, the probability that the whole thing collapses with the departure of a single key individual is greatly reduced. Such a Leadership Team can even withstand CEO succession if it has been thoughtfully constructed and nurtured.

Often the biggest challenge to leapfrog innovation is internal: We have met the enemy and it is us. But by combining a "top-down" corporate strategic support system with a "bottom up" business co-creation capability, the prospect for success in this new and exciting innovation space is greatly enhanced. Leapfrog innovators must thus seek to develop multifaceted relationships with all the corporate stakeholders and partners to better realize their core purpose--accelerating the number and success of new "leapfrog" ventures and initiatives that have a chance of moving us toward a more socially inclusive and environmentally sustainable world.