Guiding Corporate Sustainability

As an academic who has spent decades researching and teaching sustainability, Ivey Business School Professor Tima Bansal remembers students revolting against the material she was teaching. “The first time I taught this stuff,” she notes, “many students were skeptical about climate change and even angry that it was being taught in class. They were paying high business school fees to learn how to make more money, not social and environmental issues. But things have changed radically, with business students now pushing for more sustainability in the curriculum.”

However, while Bansal is delighted to see greater student awareness of issues driving sustainability, the business community has been slow to catch on. “While most executives personally care about these issues,” she says, “their businesses still tend to choose profits over society when forced to make a choice between the two.” As a result, the Professor of Sustainability and Strategy says showing businesses that they can build long-term value and resilience through sustainability is still an uphill battle. And fighting this battle isn’t made any easier by old-school capitalists who bill sustainability as a subversive threat.

In recognition of her longstanding commitment to sustainable development by business, Bansal was just awarded honorary doctorates from the University of Hamburg and HEC (Montreal). She also recently received one of Western University’s most prestigious research awards—the Hellmuth Prize for Achievement in Research.

Simply put, Bansal is one of the sustainability field’s most cited scholars, not to mention the Canada Research Chair in Business Sustainability, Fellow of the Royal Society of Canada, Fellow of the Academy of Management, and founder and former executive director of Ivey’s Network for Business Sustainability and Centre for Building Sustainable Value. But her life’s work isn’t why the Ivey professor vehemently disagrees with people who bill sustainability as a threat to capitalism—she just says that their arguments are simply illogical.

In this Ivey Business Journal Q&A, Bansal explains why there is nothing anti-capitalist about sustainability, while making the case for old-school capitalists to embrace Ivey’s ambitious Innovation North initiative—which aims to show how companies can embrace a more enlightened form of capitalism through new thinking about innovation.

Ivey Business Journal: Earlier this year, on the 30th anniversary of the official end of the Soviet Union, the National Post published “The Capitalist Manifesto,” a series of commentaries saluting the “unfashionable yet awesome power of the free-market system.” While defending the shareholder primacy model of capitalism, this series used the writings of Adam Smith and Milton Friedman to insist the best way to contribute to social improvement is to focus on EPS (earnings per share) and ignore what it called subversive ideas related to ESG (environmental, social, and governance). Many of the newspaper’s business journalists were appalled by the series, which sparked a rebuttal by billionaire Michael McCain, who was then verbally attacked by some Post subscribers for arguing in favour of change. What was your reaction?

Tima Bansal: I only read one of the articles about how an alleged climate emergency is being used by misguided individuals to drive an unnecessary sustainability agenda, and how this agenda represents a bigger threat to global prosperity than climate change. I’ve heard this argument often and it is made with religious fervor. But the rhetoric is outdated. It’s based on an old-fashioned view of business—one espoused by Milton Friedman over 50 years ago. Much has changed in 50 years! He spoke about corporate social responsibility, not sustainability.

IBJ: Didn’t you co-author an IBJ article years ago that noted how people frequently confuse business sustainability with CSR?

TB: Right. It was called “Don’t Confuse Sustainability with CSR.

IBJ: Can you briefly summarize that article for people who haven’t read it?

TB: Sure. In 1987, the World Commission on Environment and Development defined sustainable development as economic development that meets the needs of current generations without compromising the ability of future generations to meet their own needs. In other words, it is simply intergenerational equity. Most people subscribe to this ethic, as they want their children to live at least as well as they are. But if we consume too much of our resources today—whether it is for personal consumption or to alleviate poverty—then there just won’t be enough left for tomorrow. Sustainability isn’t subversive. It is simply ensuring that there is enough stuff for everyone to live well, including clean air and water and safe food to eat. There is nothing anti-capitalist about it. It’s pure economics and science: if you consume too much now, there will be nothing left for tomorrow.

IBJ: The Post series included a commentary that argued the greater good is best served when competitive displacement is allowed to drive innovation in every nook and cranny of society, especially in the economy. And yet, it insisted that nothing about shareholder capitalism needs to change because the free-market system “has created more prosperity and progress for more people than any other system in human history.” In other words, the so-called “Capitalist Manifesto” supports creative destruction, except when it comes to dated capitalist thinking. Do you find this ironic?

TB: I’d point out that the shareholder primacy model isn’t responsible for all the prosperity that is attributed to it. In fact, much wealth is created by privately held companies and governments who do not put profits at the centre. Yet, I do recognize the value of capitalism and that it has created enormous wealth. Sustainability seeks to ensure that this success is maintained over time.

“We are talking about capitalism making money by doing good for the world. We are not asking business to make less money. There doesn’t need to be a trade-off between making money and doing good.”

IBJ: Why do you think sustainability scares some people?

TB: I think that sustainability suffers from two issues. First, some people think that sustainability is asking them to do less and cut back on what they buy, where they go, how they live. That isn’t palatable to everyone in the business community. So, the discussion has been framed in an impoverished way that turns some people off.

IBJ: And the other issue?

TB: The second issue is that many people, including executives, just don’t know what to do and how to do it. You can see a desire to do something with the recent trend towards corporate net-zero commitments, but many companies are just spit-balling those goals and don’t really know how they will get there.

IBJ: So, what’s the solution?

TB: We need to reframe the discussion as prosperity—an opportunity to realize better health and community. It’s about making the world better, not about doing less. And we need to give executives specific ideas about how to get there.

IBJ: So, how do we do this?

TB: Instead of talking about sustainability as reforming capitalism, we need to think about sustainability as innovating for prosperity. Capitalism has always fostered innovation, but we need to figure out how to innovate differently. That’s why I am excited about the Innovation North initiative.

IBJ: For people who don’t know about Innovation North, can you elaborate?

TB: It’s an ambitious initiative that aims to disrupt the stereotype of capitalism based on Friedman economics, which makes sense in theory, but its application to business practice is deeply flawed. We are looking to displace it with something that more accurately reflects corporate realities. The idea emerged out of previous collaboration I led with the private sector. In 2003, I founded the Network for Business Sustainability, which brings together researchers and managers to challenge current ideas of sustainability. We had a Leadership Council of 15 of the most proactive companies in Canada. I wanted to move beyond ideas and dialogue to real action. So, at Innovation North, we assemble senior business leaders, academics, and world-renowned systems thinkers every three months to discuss how we can innovate the innovation process. Innovation North is building a toolkit that takes a systems-based approach to innovation. As the world is becoming increasingly connected, we believe that companies can innovate to strengthen systems, not break them. It’s exciting.

IBJ: Can you give us a brief Systems Thinking 101?

TB: A system is just a set of interconnected actors. What’s interesting is that these interconnections are growing in number and density. People and things are moving around the world and digital technologies have created opportunities for social networks, financial transactions, even connections through the Internet of things. Almost everyone is connected to everyone else through invisible direct or indirect ties. That means there are many hidden risks and barriers to success, but it also means companies that can tap into these systems can be hugely successful—both for themselves and for the world.

IBJ: And the end game is some sort of toolkit that supports sustainability?

TB: Yeah. We are working with partner companies, ranging from Bell and RBC to Walmart and Suncor, to create a toolkit that bakes systems thinking into innovation—we call it the Innovation North Compass.

IBJ: Can you give me an example of how the Innovation North Compass differs from other approaches to systems thinking?

TB: Sure. There are currently two main approaches to innovation. There’s the stage-gate model in which an organization takes an idea for a new product or service through various gates to determine if it will be viable and profitable before launching it. The second model applies design thinking. Instead of starting with the idea, it starts with a problem and designs solutions. In both those cases, the innovation model is very firm-centric, so they find profitable solutions. The societal or environmental implications are merely constraints or afterthoughts. Our approach bakes society and the environment into the process, so the innovations are good for the firm and good for the world. In our approach, we cycle between ideas and solutions. Einstein is attributed as saying that if you have 60 minutes to solve a problem, you should spend 55 minutes thinking about the problem. But given the complexity of today’s world, you could spend all the time in the world thinking about the problem and never understand it. You need to go out and explore and prototype solutions. We argue that innovation is iterative, between probleming, ideating, acting, back to probleming. This is why we call it a compass. Once you embrace systems thinking, you see the world differently and navigate it differently, which fosters more and better innovations.

IBJ: Does this require specific training or skills?

TB: A systems thinker just thinks differently than how we teach people to think in business schools. They work though problems differently, not looking for the right answer but looking for patterns and possibilities. Understanding the HR needs of systems innovation is a big part of what we are working on.

IBJ: Capitalism is about seizing profitable opportunities. And you’re just talking about disrupting our process of innovation so that money is made in ways that doesn’t keep people who worry about social issues and climate change up at night while giving future generations a shot at a decent life, maybe even one that includes trees.

TB: That’s right. That’s exactly right. We are talking about capitalism making money by doing good for the world. We are not asking business to make less money. There doesn’t need to be a trade-off between making money and doing good. There are burning issues out there that need to be addressed. For example, we have a shortage of packaging options that fit net-zero requirements. So why not gain a competitive advantage by innovating something new to help others make money in sustainable ways? The company that figures this out will make money for a lot longer than the company that finds a new plastic molding, which is facing a declining market.

“Defenders of the shareholder primacy model are stuck in the past. I did my economics degree in the early eighties, when Milton Friedman was still alive and his ideas on corporate social responsibility were gospel. That was decades ago. So, man, it is time to move on.”

IBJ: So, what is your message for contributors to the National Post’s “Capitalist Manifesto”?

TB: Defenders of the shareholder primacy model are stuck in the past. I did my economics degree in the early eighties, when Milton Friedman was still alive and his ideas on corporate social responsibility were gospel. That was decades ago. So, man, it is time to move on. Friedman pontificated about wealth trickling down from the rich to the poor. He believed that governments could set fair rules for business to limit their ability to act strictly in their self-interest at the cost of society. We know that this may be good in theory, but it is not how things work in reality. Governments are corrupt, incapable, or simply slow and do not regulate bad corporate behaviour. We also know that income inequality is growing. What’s more, Friedman never spoke about natural resource limits. He didn’t even imagine, much less theorize, that we would reach natural resource limits and be suffocating the planet with waste. If old-school capitalists opened their eyes to systems complexity and limits to growth, they might see the flaws in Friedman’s arguments. We need to counter this reality with a new form of innovation that recognizes the impact of business decisions on our societal and ecological systems, so we don’t create negative unintended consequences.

IBJ: When you talk about self-interest not working for the greater good under shareholder capitalism, are you talking about corruption?

TB: No. We will always have bad apples in the apple cart. What I am saying is that the apple cart itself is bad. The institutional structures permit the powerful to set the rules of the game and become even more powerful. This conflict of interest makes current approaches to capitalism and the shareholder primacy model untenable and unsustainable. These companies and people are controlling resources to serve themselves, not the greater good—not even indirectly. With politically powerful corporations focused on maximizing profits while setting the rules of the game, the cold, hard truth is that capitalism is leading society off a cliff. The only way to save society is to change the way we think. It requires us to start by thinking about the system, not about ourselves. This doesn’t mean we have to create less wealth or produce less profits for shareholders. Our companies can focus on making money and doing good things for the world at the same time. We just need to think and innovate differently. Why wouldn’t we do this? There is nothing subversive about sustainability. It shouldn’t be polarizing because it isn’t ideological. It is just what we need to do to ensure the wealth that capitalism creates is sustainable and supports the greater good. I’m confident Friedman would have agreed. He was, after all, a good theoretician, even if his feet were not grounded in reality.

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