I’m the CEO of a 30-person marketing communications agency. My firm has no shareholders to satisfy, no Wall Street forecasts to beat, and we don’t do any prognosticating about quarterly profits to anyone other than the 30 folks who work here.
So I don’t really know what it’s like to be in the shoes of a CEO of a publicly traded company … but I can’t imagine the tug-of-war related to sustainability is any fun. If you’re not sure what I’m talking about, go to ANY conference on sustainability – last week’s was the GreenBiz Forum in San Francisco – and you’ll hear something like this:
“Corporations exist to create wealth for their shareholders, and profits must be reported quarterly. Yet investing in sustainability is a long-term play. An investment in sustainability today may hurt this quarter’s profits and help profits 10–15 years from now … but that won’t satisfy Wall Street’s demand for profits this quarter.”
It’s quite the paradox, isn’t it? CEOs are paid to hold the long view, to put wheels in motion to help a company thrive for years beyond their tenure. And if you were the CEO of a publicly traded company, you’d see the looming threats related to sustainability (looming legislation/carbon taxes in more and more countries, price spikes in raw materials related to scarcity of resources, increased competition from new, private companies without the quarterly reporting shackles, and growing consumer demand that companies “do the right thing” or fall out of the consideration set). Yet, you’d be punished for executing against that long view, for investing today to protect the company’s interests tomorrow.
A few CEOs have gotten away with it – Unilever’s Paul Polman is a good example. Lee Scott, formerly of Wal-Mart, was another. Here’s my view on what it takes to get off the quarterly profits treadmill and make the investment in sustainability now:
– Fearlessness and a personal commitment. Whenever I hear of a company fully committing to sustainability as a business strategy and practice, the story of “how we got here” ALWAYS includes a deep commitment from a CEO, and that personal commitment usually comes from some personal experience. (CEOs are just like the rest of us … they’re moved by what they personally experience, see, feel, touch.) Once a CEO has that personal epiphany, it takes a lot of guts to tell Wall Street to be patient.
– Early results. An investment in sustainability may take years to fully bear fruit … but it’s a lot easier for investors to be patient if they can see early wins. So invest first in the things that can pay off quickly – like investments in operations and sourcing that will reduce overhead, and/or compliance with regulations that will avoid taxes and help get products on shelves in other countries. And that leads us to:
– Legislation. As someone at last week’s GreenBiz conference noted, if companies were made to pay for their environmental impact – if a carbon tax was imposed, essentially – it could cut profits by as much as 50%. Some countries are going this route, which is forcing some companies on the sustainability path whether they like it or not. Changing operations in one country to avoid taxation can have a ripple effect, causing operations to change for the better, environmentally, across the board.
– Market threats. One word here: Blockbuster. They didn’t act quickly enough to respond to the threat of video on demand, streaming, Netflix, RedBox, etc. In short, they got clobbered by new business models that better satisfied consumer desire for convenience. We’re seeing the same sort of script play out in the sustainability world. Though collaborative consumption is driven far more by economics than a desire to be green, the success of companies like Airbnb and Zipcar is a very real threat to current business models. Further, we know Millennials and Hispanics are highly attitudinally green and, in time, will likely be behaviorally green. Fast forward 20 years, and they will be the mainstream market in America.
I’m certain these aren’t all the answers to the quarterly profits/sustainability investment tug-of-war, but it’s a start. If you’ve had success getting the top-down commitment required to invest in sustainability, drop us a line and let us know how you did it. We’d all benefit from your story.