Wal-Mart is Going Green

There is an excellent feature in Fortune Magazine ("The Green Machine," 7/27/06) about Wal-Mart and the changes that the company has been through with regard to it's CSR attitude and actions. This company fascinates me. It's such an incongruous mixture of good and bad influences on our society and on our planet - but it's hard to say whether they balance out, since every impact is so huge.

As many people have pointed out, if Wal-Mart makes a move to stock organic foods, it will reshape the organics industry - possibly making organic food available to the masses at reasonable prices, and making organic growing proceedures a much more common standard around the world. If it asks suppliers to reduce waste, those changes will trickle down through the rest of the economy.

On the other hand, Wal-Mart operates on an unprecedented scale. The company is huge, its stores are huge, and its impact on our lives is huge. Many of the objections to Wal-Mart are intrinisic to its success, whether it attains that success ecologically and humanely or not. New stores still displace "inefficient" but beloved Mom-and-Pop stores, they still lead to the homogenization of our consumerist society, and they still encourage us to buy more and more stuff that we probably don't need.

I want to reward Wal-Mart for the progress it's making, but at the same time I'm not sure if I want to see it succeed under any circumstances. I decided almost a year ago that I would no longer "refuse" to shop at Wal-Mart on ethical grounds, but I'm not sure if I'll ever be a huge fan.

For me, the decision of whether I should shop at Wal-Mart is almost purely theoretical - I live in Boston, and the nearest Wal-Mart is about 20 miles away. Most of the country lives much closer to one. I'm curious, has Boston resisted the company, or are we a poor market for it due to our staunchly independent/individualistic values?

Fairtrade Cotton

Today's Financial Times has a wonderful feature on Fairtrade (see "Follow the Thread" on p. W1), with a special focus on the relatively new market for Fairtrade cotton.

Cotton's legacies make it a particulary compelling product for social action - two hundred years ago, in the U.S. South, it was a slavery product; in this century British, Mahatma Ghandi resisted the the colonial system in which India grew cotton and sold it cheaply to Britain, where it was spun and made into clothing, which was sold at disproportionately high prices back to Indians. So to establish a system through which cotton-growers can earn a good living would be a major advance from the industry's history.

The article does point out some of the pitfalls of fairtrade, particularly those based on simple economic principles. One of these is that paying above-market prices "encourages farmers to stay in unprofitable sectors, inducing oversupply and pushing down prices for everyone else." A second critique is not one of theory but of practice, namely that "supermarket chains and international commodity brokers (are) reaping more bnefit than Guatamalan farmers."

These are real and serious concerns, but remember that similar arguments have been made about the minimum wage in the U.S. - that requiring a wage above the "market" wage would imbalance the labor market, leading to unemployment. Most empirical studies of the minimum wage have failed to show such a negative effect.

In the end, forcing apparel companies to devote a reasonable amount of money to cotton sourcing seems to be a wise pre-requisite for helping cotton farmers earn a decent living. Currently, it is the lack of global regulation that allows companies to seek ever-lower prices, erroding any profits that might have accrued to farmers were we still in a pre-globalized world. Since no one nation can impose a minimum price, for fear of being out-competed by another nation, it makes sense that regulation should come on the side of industry, with de-facto rules forcing companies to pay some reasonable minimum. It isn't easy for one company to do this, since it must compete with others in the industry, so it makes sense to do this on an industry-wide basis.

Creating a social norm that says fairtrade labelling is necessary would be one way - perhaps the best way- to balance all the above. We can't ignore the potential pitfalls (so it's important to see how much farmers are gaining and how equally farmers are gaining) but they shouldn't lead us to give up on the idea of fairtrade sourcing.

The ultimate constraint: Time

Apparently, a recent U.K. study (as described in Net Impact's weekly newsletter) has found that multi-stakeholder dialogues don't seem to "satisfy" stakeholders, because they usually bring up more demands than they resolve. These groups tend to find that attitudes have changed through engagement, and relationships have strengthened - but that there are more issues on the table at the end than at the beginning.

At a recent Kennedy School conference, "partnerships" were the mot-du-jour for CSR practitioners. This survey indicates that partnerships are doing some good, but also may not be accomplishing what they were set up to do - i.e., resolving disputes between stakeholder groups. (Partnerships don't usually say this is their goal, but broadly speaking, I belive it is.)

Sometimes I wonder, with all the great CSR things we want to do, by how much can we really increase the energy we put into these activities? How much can we expect ordinary consumers and shareholders to increase the time they put in? I'm afraid that time and energy are serious constraints on raising awareness and motivating action.

This, among other reasons, is why I support solutions that make it easier for us to move in the right direction - like ethical labels that tell us in a glance that a certain product meets a certain widely-accepted standard. I've started compiling a list of these on my website. Please feel free to sugest more!

Making Fairtrade more fair

An article in Tuesday's Financial Times (7/11/06) discusses the annual meeting of AgroFair, a company that supplies Fairtrade fruit to European consumers. This year's gathering was held in the Rotterdam Zoo; as always, it was attended by representatives from both the developed world and the developing world - leading to some useful and entertaining insights on both sides.

Though AgroFair provides "Fairtrade" products, it is not affiliated with TransFair, the most-recognized organization involved in Fairtrade-certified agricultural products. I find this encouraging. TransFair has had a tendency to blur the line between the concept of fair-trade pricing and its own proprietary certification label. While its mission is an admirable one, and its public recognition is impressive, like all organizations it is imperfect - but unlike many it lacks transparency.

A few of the inperfections of TransFair's "FairTrade" brand:

1. It pressures companies to use its label, even if their own relationships with farmers are as good or better.
   
2. When a company switches to FairTrade, it must use pre-certified farmers, which means that many farmers currently supplying the company no longer qualify.
3. It does not incorporate environmental aspects of ethical sourcing.
4. A student-recruitment brochure of 20+ pages fails to mention the per-pound fee that TransFair collects.
5. In order to expand, the organization faces downward pressure on the prices it guarantees to farmers - exactly the situation it is trying to remedy!

I believe in the concept of fair-trade pricing, and the mechanism of using recognizable certification labels. These are some of the most useful things we can be doing to promote global corporate social responsibility. But at this point in time, we need more competition among fair-trade labels.

Until we have a commonly-accepted certification process that is transparent, objective, and inclusive, consumers should support a variety of fair-trade organizations - AgroFair among them.

GOOD Magazine

The other day a friend from my old Net Impact chapter sent around a link to GOOD Magazine, which will be debuting in September 2006.

Though its website does not specifically mention the term CSR, this is basically a magazine that is making CSR happen from a grassroots level - by helping people educate themselves about social and environmental issues, and how different companies are handling them. It gives the tools for ethical consumerism, investment and activism.

I like the way GOOD Magazine describes its purpose: "GOOD, a new voice in media, embraces this generation's merger of capitalism and idealism. We provide an entertaining, thought-provoking, cultural platform for those who want to do well by doing good. We engage and challenge the people, ideas and institutions driving change in the world. Our mission is to stimulate the culture of good by creating dialogue around things that matter."

Couldn't have said it better myself.

And if that weren't enough good news, the magazine has pledged to donate 100% of its subscription sales (at $20 each) to a pre-specified list of charities from which subscribers can choose - with a fundraising goal of $1 million in the first year. The editors hope this will create a buzz about the magazine, saving them the money of launching a junk-mail blitz. They candidly explain this strategy here.

I'm eagerly awaiting the first issue, and will cover GOOD articles here if they turn out to be as, well, good, as I expect. To find out more, or to subscribe, go to www.goodmagazine.com.

Cape Wind makes the international news

Friday's Financial Times has an article about Cape Wind, the controversial offshore wind-power project that has my home community up in arms. Advocates of the project say that locals have a selfish not-in-my-backyard mentality, and are therefore objecting to a clean energy source because they like the view as it is. Opposition claims are that the windmills will not only be unsightly, but will pose environmental and navigational hazards.

In my opinion, neither side is portraying the issue clearly. For one thing, aesthetics are not just a passing fancy on Cape Cod; they are the basis of the economy. And most year-round residents are nowhere near rich; they depend on beautiful beaches to supply their businesses with vacationers and wealthy part-time residents.

Also, a little-cited issue is the fact that Horshoe Shoal, the proposed site of the wind farm, is a small triangle of federal waters, entirely surrounded by state-controlled waters. This creates a regulatory loophole, so that Cape Wind need not seek state approval for its project. These boundaries must have been established before 420-foot structures were a likely possibility, and so it seems reasonable that the project really should be required to seek state approval.

Overall, Cape Wind has done a poor job of stakeholder management. I think the project may have merit, but it was essential for the proponents to convince locals that their property values and tourist industry would not be harmed.

A new era of American philanthropy

Earlier this week, Warren Buffett announced that he will be giving the majority of his fortune to the Bill & Melinda Gates Foundation, which has already been putting billions toward causes such as third-world health and U.S. schools. I've always admired the Gates Foundation for its relentless focus on leveraging the most social good for its dollar - for example by fighting malaria, one of the deadliest yet most-treatable diseases for a large population in the world. Apparently Buffet also admired the way it was run, and the fact that is was already scaled-up to handle large sums and large problems.

The numbers are staggering: Gates has put $31 billion into his own foundation, and still has $50 billion "burning a hole in his pocket"; Buffett will be donating stock worth $37 billion, of which $6 billion will go to family-run foundations and the remainder will go to the Gates Foundation. By comparison, John D. Rockefeller and Andrew Carnegie gave far less: in 2006 dollars they donated $7.6 billion and $4.1 billion, respectively.

What is perhaps most interesting to me is that all these tycoons - Rockefeller, Carnegie, Gates and Buffett - are following a model of corporate social responsibility that has largely been branded as insufficient: to make as much money as possible in one's lifetime, and then donate it back to society. In a way, it's a Robin Hood philosophy, and perhaps it deserves greater credibility among today's CSR proponents. On the other hand, it wouldn't seem right to earn billions through fraudulent or immoral business practices, then use the ill-gotten gains to "fix" the problems that one has helped create. In the end, I think there is a spectrum of choice, and Buffett may not be entirely on one end of that spectrum; his management style has been famous for directness, honesty, and long-term outlook.

Buffett's reasoning, as usual, is direct and common-sense. Believing that the rich should leave their children "enough money to do anything, but not enough to do nothing," he had planned to leave most of his estate to a foundation, to be run by his wife. Statistically speaking, his wife was likely to survive him, given that she was two years younger and women tend to live longer - but she died two years ago. Meanwhile, the Gates Foundation has been doing admirable work, and the Gates are still relatively young - Melinda is 41 and Bill is 50. Buffett therefore decided to "invest" his charitable dollars with a trusted and capable friend who is likely to be able to oversee their disbursement over a long time period. It was the same reasoning that had led him to invest in other people's companies through Berkshire-Hathaway, and to make so much money doing it. At the same time, it shows a remarkable humility, to put his money under someone else's name rather than his own. Ironically, Buffet is the second-richest man in the world, and he is, in a sense, giving his money to the richest man in the world.

There are several insightful articles on this big news story, including ones in Fortune Magazine and The Economist. The former seems to have broken the story, and has the original interview here: http://money.cnn.com/2006/06/25/magazines/fortune/charity2.fortune/index.htm

A plug for a great new book

A colleague of mine, Andy Savitz, will see his book The Triple Bottom Line published next month. I've seen an early copy of it myself, and can vouch that it is well-written and insightful. One of my favorite CSR journalists, Alison Maitland of the Financial Times, seems to agree. Here is her review in its entirety:

Book Review: The Triple Bottom Line

Every company has a sustainability sweet spot. This lively and cogent guide can help managers find ways to make shareholders' and society's interests overlap.

By Alison Maitland

Financial Times

Published: July 5 2006 03:00 | Last updated: July 5 2006 03:00

Andrew Savitz recalls a conversation he had with a purchasing manager at a large telecommunications company. The man was adamant that social responsibility had nothing to do with his job, which was to buy products at the lowest price.

"Would you buy from a foreign supplier that you knew was employing 10-year-old girls and paying them 60 cents a day for their labour?" Savitz asked. "Of course I wouldn't do that," came the reply. Not even if the supplier offered the lowest price, if child labour was legal in that country and if no one could possibly find out? No, the manager replied. It would not be right.

"Do you think your company would support your decision to sacrifice profit in this case?" Savitz persisted. "Absolutely, I'm certain of it," the manager said.

Do not be deterred by the unfortunate title of this forthcoming book. In just 250 pages, rich in anecdotes, Savitz makes a lively and cogent case that no company or manager can afford any longer to ignore the world around them.

Many of the reasons companies face "the age of accountability" are familiar, but it is useful to see them pulled together: our shared sense of vulnerability, fostered by climate change and natural disasters, coupled with the awesome power that global corporations have accumulated; the goldfish bowl in which companies operate; their increased exposure through networks of business partners and global supply chains; the campaigns mounted by lawyers, non-governmental organisations and shareholder activists.

But this book is not a tract admonishing business to take its responsibilities seriously. Its central argument is an upbeat one that is gaining currency: it makes financial sense for companies to anticipate and respond to society's emerging demands. In the long run, says Savitz, the sustainable company is likely to be highly profitable. There is a flipside: companies that fail to respond, or thumb their noses at society, are likely to pay the price.

What is a sustainable company? Savitz and Karl Weber, his co-author, spend time on their definitions - a sensible move given the confusion and spin that often surround this debate.

Sustainability is not about philanthropy, which has nothing to do with the company's main purpose. Nor is it merely about ethics. The authors even prefer "sustainability" to "responsibility", arguing that the latter emphasises benefits to society rather than benefits to the company.

For Savitz, who created the environmental practice at PwC and has worked with some of America's biggest companies, it is about conducting business in a way that benefits employees, customers, business partners, communities and shareholders at the same time. It is "the art of doing business in an interdependent world".

The best-run companies find "sustainability sweet spots" - areas where shareholders' long-term interests overlap with those of society. Implausible? Look at General Electric, with its revenue-boosting Ecomagination green technology, says Savitz. Or Toyota's fuel-efficient Prius. Or Unilever's Project Shakti in India, training 13,000 women to distribute its products to rural customers and thereby greatly increasing families' income while expanding its market penetration.

Every company can find a sweet spot, he suggests, even if it is the minimal one of cutting costs by reducing energy use, employee accidents or the chances of a lawsuit - though some of this could just as well be called smart risk management.

In the second half of the book, he explains how to translate all this into "business as usual": how to decide what it means for the company; how to work with stakeholders, not against them; how to set enforceable goals in difficult areas such as child labour. Throughout, the arguments are driven by pragmatism, not dewy-eyed altruism. The narrative occasionally suffers from its American slant. The English Quakers, after all, pioneered decent working and community practices long before Henry Ford.

Even if you do not agree with it all, this is a thoughtful guide for managers who still harbour doubts about the point of sustainability, who are taking tentative steps towards it or who are seeking a clearer path through the maze. With luck, it should also help the anoraks in the sustainability industry to distinguish the wood from the trees.