Radical Shift

Neela Bettridge will address a London conference on 6 June about the future of management, describing the radically new agenda that opens up with the latest research on sustainable business. She will describe how business thinking has evolved from a defensive or piecemeal approach on social responsibility to one where it is central to business strategy and development.

The point is underlined by case studies of firms like Whole Foods that have registered strong and sustainable business returns both while and by treating workers well and protecting the environment. Neela will also point to the examples in the forthcoming New Normal, Radical Shift book.

The Management-Issues 5D Business Development Conference, sponsored by Onrec, is a half-day conference, taking place at The Grange Tower Bridge Hotel, London. Other speakers are Professor Ken Starkey of the University of Nottingham Business School, John Blakey, an expert on systems thinking, and Dawna Jones, specialist on complexity and uncertainty.

• Agreement has been reached between Neela Bettridge and Philip Whiteley with the publishing house Gower for publication of New Normal, Radical Shift. The authors are delighted to be partnering with such a prestigious brand. Hardback, paperback and electronic versions will be available, with publication date expected to be early 2013.

Those of us who regularly travel between Britain and the Mediterranean and Middle East have been puzzled that the apparently lush and verdant northern European island has apparently been suffering from a ‘drought’ in recent months, with water rationing measures imposed by water companies, while more arid countries seem to experience fewer shortages.

‘Drought’ conditions are officially in place in seven water authorities across southern Britain, despite rainfall levels that many countries could only dream about. Record falls of rain in April did not alleviate the ‘drought’ because, the authorities explain, it is still not enough, and has fallen at the wrong time of year, when plants are growing, so not enough falls to the underwater reserves upon which the companies depend.

An alternative explanation for shortage comes from the GMB union, which pointed to the sale of 25 reservoirs in the London area in the past two decades by the privatized utilities, principally to property developers. This switches the focus from rainfall to management, and a suspicion of short-termism by the water companies, which appear not to have invested sufficiently in capacity to deal with a growing population. Their inability to capture and store rainwater in certain periods of the year is surely more of a management failing than an act of God.

In drier countries, water is harvested and nurtured more carefully. Israel, for example, completed a National Water Carrier nearly 50 years ago, to cope with rising demand. This is not without controversy; extraction from the River Jordan caused tension with Syria and was probably a factor behind the 1967 war; a possible precursor of wars over access to water that many fear for the coming millennium. Reduced flow in the river has been causing real concern for a few years now.

Certainly, access to fresh water is a major priority for the coming decades, and ought to be the subject of strategic planning, as Jane-Fiona Cumming pointed out in a recent blog, whether it is sustainable extraction for irrigation in a drier country, or effective capture and storage in a wetter one. Either way, the challenge is one of management. In defence of its record the London-based Thames Water company responded to the union’s protests by saying that the closures happened when the reservoirs ‘became surplus to operational requirements’. Well, clearly they weren’t.

Book review by Philip Whiteley: In The Road to Cooperation, Gordon Pearson has drafted a lucid critique of the damage caused to our economies in recent decades by the cult of neo-liberal economic orthodoxy and in particular its celebration of ‘maximising shareholder value’.

Without over-indulgence in historical narrative, he traces the ideological development since Adam Smith, and shows how the most recent adaptations of his theory have become doctrinaire, extremist and amoral: how self-interest became profit maximisation which in turn became shareholder-value maximisation and then accept as mainstream, without any evidence or logic to support this philosophy of the Austro-Chicago school. Particularly telling is the contrast with the relatively balanced and benign view of Smith himself: that self-interest should be gauged over the longer term; that economic stewards should be concerned with reputation and inter-dependence, not just short-term speculative gains.

Pearson chronicles how the original, rational purpose of shareholder investment – to finance socially useful projects such as infrastructure and manufacturing – has been turned on its head: under the doctrine of ‘maximising shareholder returns’, the firm only exists for the shareholders. Industry and invention now serves finance, when it should be the other way round.

For full review and further links, click here.

In the first century or two of industrial production, it never troubled the conscience of factory owners to release waste gases into the air. Only force of public opinion and the law have restrained such activities, limiting first of all sulphur emissions, because of acid rain, and more recently, with less success so far, carbon dioxide.

There has been much discussion on company reporting practices: the costs of clearing up pollution do not appear on the balance sheet, which means there is no direct obligation to attend to the matter.

At least with toxic gas emissions, there is now widespread recognition of the problem, and regulators and the more enlightened companies are edging towards more sustainable practices.

When it comes to financial sustainability, there is less progress. Our political systems and attitudes make it perfectly permissible, even ‘progressive’, to pass on debts to the next generation. In the wake of the crisis, brought about by irrational exuberance across the board – investment banks, governments, property speculators and leveraged businesses – there is a political backlash. Unfortunately, this response simply seeks to intensify, rather than counter-balance the powerful forces of crisis.

The problem lies with the expansion of the notion of entitlement, or rights. The 18^th Century pioneers of the Rights of Man – it took another 150 years or so for women to be added to the agenda – sought to establish the principles that people should be treated with respect and equality as of right, rather than depend upon the whim or philanthropy of a wealthy benefactor.

Over the years, the concept of entitlement has been extended to include economic rights. To begin with, this sounded perfectly reasonable: the right to a minimum wage, paid holidays and some kind of welfare safety net.

The problem with economic rights, as opposed to civil rights such as freedom of expression or right to a fair trial, is that they cost money, often vast amounts. In recent years in the west, especially in Europe, this money has been found by borrowing.

This practice generates a healthy income stream for the world’s investment banks, which often directly encourage Government borrowing. On occasion, if you listen to an investment bank economist, and a left-wing European politician, it is impossible to tell which is which. These comments last year by Jan Hatzius, chief economist of Goldman Sachs, could have been uttered by Gordon Brown or François Hollande.

Even as life expectancy and public debt soar upwards, it is still considered a ‘right’ to be able to retire in middle age, subsidized by the taxpayer. It is also possible to accrue holiday while you are on long-term sick leave, following a European Court ruling on behalf of British public sector workers (ironically enough, tax collectors!).

Jean-Luc Mélenchon, the left-wing candidate in the French Presidential elections, is gaining admiring comments from the ‘progressive’ media around the continent as he calls for, among other measures, full pensions for all from the age of 60 and a reduction of working hours (already low by European standards, never mind the rest of the economic world).

His platform is heralded as a radical break, but it is actually just more of the same. The collusion between left-wing political parties and the investment banks is based upon short-termism: give us growth and entitlements now, and let the future take care of the costs, in the same way that 19^th Century industrialists did not care about the build-up of CO₂ in the atmosphere.

We are entitled to ask: Is it really ‘progressive’ for healthy and wealthy 61-year-old Europeans enjoying life in their second homes, to be subsidised by hard-working, lower paid people? And to be enjoying such leisure at the public expense not for a few years, but for a few decades?

In the left-wing rhetoric of European public sector unions and their parties, their ‘entitlements’ counter-balance the reckless activity of the investment banks. The economic reality is that often they are complicit. The economic victims are owners of small businesses, immigrant workers, the unemployed, those on lower pay in the private sector. And anyone born after 1975.

It ought to be as unacceptable to pass on fiscal pollution to the next generation as it is to leak toxic gases for others to clean up. There needs to be a sense of social responsibility shared by all stakeholders – not just businesses – and a recognition that economic ‘entitlements’ have economic costs, and that those costs typically do not fall upon the rich.

• Chapter 6 of New Normal, Radical Shift includes a critique of the ‘right-left’ spectrum. View an excerpt here.

As the Rio+20 Issues Brief on Science and Technology points out, technological progress has helped to address many problems in the last 20 years, writes Jane Fiona Cumming. And over the same period, we have also seen the beginnings of a two-way traffic in technology transfers. It is no longer entirely from the developed world to the developing. Particularly in the area of clean technology, there is now some traffic travelling in the opposite direction.

But one trend in particular is blocking the path to the full realisation of the benefits that could accrue to some of the planet’s most impoverished people from the open sharing of scientific and technological advances. The rise of strategic patenting. And legislative changes in many parts of the world are actually making it easier for large companies to exploit their IPR [Intellectual Property Rights] in what some might describe as a highly defensive manner.

Moreover, the developing world is catching on fast to what has traditionally been a developed world practice. According to the Issues Brief, China’s patent office is expected to become the world’s largest in the very near future. India features in the top five countries for solar PV patents, and Brazil and Mexico share the top two positions in the hydro/marine sector.

Nobody is seriously arguing that companies should lose the right to profit from their investment in R & D, but I would argue that if they are truly committed to the principles of sustainable development, they should be thinking seriously about the implications of their IPR strategies. And they could start by taking a look at the ‘social movement’ phenomenon.

With a little imagination, many companies could undoubtedly identify opportunities for creating a social movement around one of their own technological developments that could be used to address a critical social issue in one or more of the poorest regions of the world. How about, for example, the use of a clean technology (or technologies) to launch a community-based approach to building sustainable homes? It could represent an exciting double-hit – achieving a sustainability objective by using an approach rooted in sustainability thinking.

The point is that rather than searching for ever more ingenious ways of limiting the benefits of technological development to the few, governments and corporations should be trying to find ways of cascading those benefits to the many.

The rise of the Tea Party in the USA and some previously fringe parties in Europe is an inevitable by-product of mistakes in the policies of deregulated finance and the European single currency. The mainstream parties are losing ground because they lack a description of what has gone wrong and a clear pathway out. This does not mean that every alternative will be better. We’re entering dangerous territory.

The National Front and Jean-Luc Mélenchon in France currently have the support of almost 30% between them, in pre-election opinion polls. For all their antagonism, these two forces have similar policies: anti-European Union, heavily interventionist in economics, and with a tendency to protectionism. In power, they would probably resemble Juan Domingo Perón in Argentina, or Hugo Chávez in Venezuela: nationalist, opportunistic and seeking to buy short-term support of interest groups.

Our view is that the left-right orientation in politics has failed; we do not need more extreme versions of the same. The big failed idea on the left is that you can generate greater economic equality through laws and taxes. In the real economic world, you can only build greater equality by developing strong businesses, either cooperatives or other forms of participative organization. This is a feature of the more equal societies, such as Germany, Japan and Scandinavian countries. It is no coincidence that the demagogues find it harder to gain support there.