Leading Sustainable Organizations
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Business strategy expert and longtime MIT Sloan professor Rebecca Henderson is a sustainability integrationist. Like other founding members of the school’s Laboratory for Sustainable Business (S-Lab), she finds sustainability’s implications everywhere in daily economic and social life—and everywhere interrelated. But among the multi-disciplinary angles from which she attacks sustainability are two questions that are interestingly oblique: What capabilities and behaviors make organizations themselves sustainable? And, why are some organizations so extraordinarily better than others at getting new things done? (Learn more about Henderson, and find selected links to her work.)
In this installment of The MIT Sustainability Interview series, Henderson spoke with MIT Sloan Management Review editor-in-chief Michael S. Hopkins about the baseline understandings—and misunderstandings—about sustainability, and the choices it will present to leaders.
You’ve said that the concept of sustainability includes building sustainable societies and sustainable personal lives—that we can’t build an economic system that is in balance with the natural world without addressing the social issues. Why?
Well, we know the intersection between climate instability and political instability: every major region of the world where there is a failed state is also under very significant environmental stress. It’s most obvious in Sudan and Somalia, but we could point to areas in South America. Major environmental stress translates in a developing economy into agriculture problems and food problems, and when there’s not enough to eat, we have trouble.
The MIT Sustainability Interview Series
The MIT Sustainability Interview series includes thought leaders from arenas as diverse as management, urban studies, history, energy science, civil engineering, and design. The conversations area varied, but at root their goal is to help leading managers answer just two questions: “As sustainability—economic, environmental, social, and personal—becomes the defining business issue of our times, what decisions will I need to face, and what will I need to know when I face them?”
I remember reading a wonderful piece on why we shouldn’t respond to global warming, which could be translated more or less as, “We shouldn’t respond to global warming because it’s going to affect the grandchildren of peasants in Asia, and who cares about them?” But it is not okay to leave a scarred and broken world to our grandchildren.
So how do you define sustainability?
My personal definition is sustainability is the quest to find a way in which the economic activities of mankind can proceed in such a way that we do not actively degrade the capacity of the natural systems on which we rely to support our children.
Do you think that differs from the widely held definition?
I don’t think there is a widely held definition. I think it’s just a mess. People use the term to cover 100 million things.
In a modern corporation today, there’s not much room or permission to think about the broader issue. If I’m a sustainability officer for a major corporation, I’m trying to make sure we don’t pump toxics into the groundwater. Stop doing the egregiously bad stuff and then try to do some good stuff.
Climate change and energy, broadly defined, are the sustainability issues that will have the biggest implications for business. There’s huge uncertainty around this issue in terms of timing—we don’t know if it’s will be next year or 5 years or 20 years from now, but we know it’s going to be a very big issue. Businesses will find themselves gradually dealing with increased energy costs, the recent drop in oil price not withstanding.
The other issue is water. Businesses have been able to proceed essentially as if energy was close to free and water was close to free, and this will no longer be true. I mean, a lot of water goes into nearly every product we touch. There are several hundred gallons in that shirt you’re wearing.
Several hundred gallons? I’m done with shirts.
Good luck. Point is, we’ve not learned to think of things that way. How many barrels of oil and how many gallons of water are in everything we buy? We’re going to become much more aware of that.
Now, we’re so rich, we’re going to be able to insulate ourselves. But if you are in Tanzania or Bangladesh, that’s not true. Agriculture in Tanzania, where I just visited, is already under significant threat. For places in South America this is very real. Places in India, China.
HENDERSON’S SUSTAINABILITY TAKEAWAYS
How do you define sustainability?
- Ways for economic activities to not actively degrade the future capacity of natural systems
- Need to reduce carbon, water use, and waste and to build sustainable societies and personal lives
Which sustainability issues will have the biggest implications for managers?
- Coming increase in energy and water prices
- Worldwide social movement
- Climate instability and social instability
- Need to be proactive in face of coming regulation
Threats and Opportunities
What threats and opportunities will sustainability-related concerns present?
- Threat: Fear and greed leading to a turning away from the problem
- Opportunity: Working on sustainability releases new level of emotional commitment and excitement in firms
What obstacles keep organizations from acting on sustainability problems/opportunities?
- Economic system that assumes externalities don’t count
- Short-term pressures to maximize shareholder value
…Several hundred gallons of water go into one shirt … Challenge is that our economic system currently delivers enormous prosperity and wealth to many … The social movement to push sustainability will look like the civil rights or women’s suffrage movements … Question must not be “what might you do?” but “what are you doing today?”
Many people talk about sustainability in terms of reducing energy use, reducing water use, and reducing waste. But you’re particularly interested in social and even moral aspects of it—can you explain why?
You know, it’s not fashionable to talk about it, but I think there’s an important moral component here. Not moral in the sense of, you know, holier than thou—I mean, I really like a warm house, and I like my car, so there’s no holier than thou here.
But just as it’s now unacceptable in this country to employ eight-year-olds in cotton mills, in my dreams it will be unacceptable to waste energy, to waste water, to cut down materials without thinking about how they’re going to be replaced. This may be naïve, but give me a naïveté when it’s compared to the other outcomes.
Now, you should know I do not believe this to be the most plausible future. If you were asking me to lay odds, I think the most plausible future is a kind of slow unraveling and hunkering down. The equivalent of walled cities, walled states; people saying, “I’m fine. Go away.” When you talk to people, they may say they care about peasants in Asia because we are all living in a linked world, but when it comes to actually riding the subway instead of driving or having a smaller house instead of a bigger house, it’s not really what they care about. So I think the most plausible world is a rather nasty one.
But this issue is quite real and quite vivid outside the United States. I was working with a large mining conglomerate, and they’re all over social issues. Not because they suddenly got religion, but because political instability is sufficiently intense in many of the regions that they’re in, and the last major mine they tried to open was shut down by locals.
The need to prevent your operations from being summarily shuttered—that’s pressure any manager would feel.
Yes. My colleague Peter Senge has this wonderful phrase, which is, “It is necessary to breathe, but no one thinks that breathing is the point of life.” The parallel is that it is necessary to make profits and give an adequate return to shareholders, but it’s not clear that that’s the point of the corporation. And indeed, the single-minded pursuit of short-term profits has led to all kinds of uncomfortable outcomes, as we’re now seeing.
We need to find a way to talk about the purpose of the corporation which is not moralistic, which does not lead to the government picking winners, but which is not value free.
What are the impediments to getting companies to talk about sustainability and think about it in big ways?
We have built a hugely effective economic system that has delivered enormous prosperity and wealth to many people. Not to everyone, by any means, but to many people. The current crisis doesn’t change that basic fact. And you know, I talk a good line about non-financial values, but I look at the returns on my investments, and if my short-term returns consistently underperform the market, I’m tempted to move my money, right? I’ve been in board meetings where people have said, “On the one hand, the market is forcing us into short-term actions. How do we do the right thing for the company?”
Have you read Ben Friedman’s The Moral Consequences of Economic Growth?
No, I haven’t. Several interviewees have mentioned it, though.
It’s a very interesting book. The world is, in many ways, much more stable and prosperous than it was. I mean, just go back to 1909, let alone 1809 or 1709. In geological time, of course, these are tiny amounts of time, and even in historical time, these are tiny amounts of time; you know, we’re closer to Shakespeare than Shakespeare was to Julius Caesar.
We’ve built an economic system that assumes externalities don’t count. And that’s our biggest challenge: we need to find a way to embed in our mechanisms the value of these externalities.
That’s a huge task, getting people to think about the world in a markedly different way.
Yeah. The challenge is that when we talk to people who have big houses and two cars, arguments based on social equity have typically gone over like a lead balloon. And when we go to a single mom who’s working two jobs and living hand-to-mouth and say, “Oh, we’re doubling the price of gasoline because it’s good for the peasants in Asia” or even that “it’s good for your grandchildren,” she’s like, “ahhh, I don’t know….”
So the real impediments are the obvious impediments, which is that we’ve got a massive systemic problem that none of us are properly motivated to deal with.
At the same time, I saw Al Gore give a speech at Harvard last Fall, and he talks about the fact that we used to think the sun went round the Earth. We used to think that carbon dioxide was harmless. So when you start working on this issue, you become aware in a deep way that the challenge is not that it’s technically impossible, the challenge is that the issues are human. And human issues, in principle, we can fix. Humanity has made enormous shifts before. My personal favorite is the emancipation of women—I mean, we take that for granted, and here you are sitting in my office talking to me and I’m a tenured professor at MIT. That’s a huge deal, and 100 years ago I don’t think anyone would have believed it was possible. Same as electing an African American president. People do shift. They really do.
If one could imagine a social movement that looks like anti-slavery, that looks like civil rights, that looks like temperance, that looks like women’s suffrage, that insists we find a way through these issues, then it looks more possible.
When you talk to executives about these things, what do they raise as the roadblocks in the way of taking action?
All the things I’ve been mentioning—the incentives in the economic system, the pressures of self-interest, the mindset about what a business is about…. And I’m very sympathetic with them. My rant is not to say “blame the executives” or “they should be doing more,” because executives are in a box and the box is to max my shareholder value.
There are four things I say to executives. The first is that the price of energy will go way up and the price of water will go way up. Those things are facts and you need to prepare for them. Second, for some businesses, there are potentially enormous profit opportunities in sustainability, and you should go after them. Third, to the degree that the stresses and strains that will emerge as the result of these forces lead to a demand for business regulation, you are better off being informed and proactive. There’s enormous difference between a carbon tax and piecemeal ad hoc regulation to reduce carbon use, but either way you should move before regulators force you to. That’s a hard sell, of course
And there’s a fourth thing?
The fourth thing, which I’m beginning to see at some companies, is that working on sustainability issues in a coherent way releases a level of emotional commitment and excitement within the firm that’s very positive. Tackling these issues and really getting people psyched about what’s going on may cover the costs.
I recently did some preliminary work looking at the value of energy conservation, and for most regular firms, energy’s tiny. It’s, like, 3% of costs. So reducing the energy usage of a building might be nice, but it’s not really a high priority.
But if efforts to conserve energy, to reduce water, to act in ways that are more consistent with the individual values of your employees gets them more excited about your company? Whoa. That’s huge. People say to me that their number one reason for caring about these issues is hiring. That it really helps them get good people.
Are there other stakeholders that will put pressure on organizations? From where will business leaders feel the most pressure first?
That’s a great question. European companies feel under much more pressure than American companies, and it’s government-driven. So, government, when it’s moving, is a force.
At the American companies with whom I have worked, the initial movement appears to be driven by passionate individuals at leadership levels. I remember meeting the head of the climate change practice for the head of a major consulting company, and he said, “Rebecca, you should know I’m in this because I care about poor people and what climate change is going to do to the poor is absolutely unacceptable. The way I sell it to my partners, though, is by talking about what it means for our hiring.” When this goes well—which it does not always do—these individuals open up opportunities for more people inside the firm to go, “I want to act this way, too.” Then that can become self-reinforcing.
There’s a lovely story out of Nike. They made sneakers that were more environmentally friendly, and they brought them to Michael Jordan. The performance had to be amazing, but then they explained that everything about the new shoe was much greener than before, and he said, “That’s way cool. I want them all like that going forward.”
Are there questions you think we should be asking about personal commitment to this issue or what you personally are doing? Such as, “If you could undertake any sustainability initiative yourself, what would you do?”
No. I wouldn’t ask that.
What would you ask?
I would ask, “What are you doing about these issues?” Because, frankly, we hide behind this language. If it’s always, “What could you do for sustainability if you could do any project,” then—blah. The question must be, What are you doing right now?
This is a moment where this is about what we are doing with our lives. If we just keep playing by the old rules, we are toast. Really. A critical mass of us must start making different choices, and the way we make different choices is we talk about them. We think about them. We go public with them.
We change our own actions.
Yeah. That’s what I think.
About Rebecca Henderson
Rebecca Henderson is the Eastman Kodak Professor of management at the Sloan School of the Massachusetts Institute of Technology, and a research fellow at the National Bureau of Economic Research. She specializes in technology strategy and in the broader strategic problems faced by firms in high technology industries. She has experience working in a variety of industries, including machine tools, semiconductor capital equipment, computers, aerospace and consumer goods, but her current research focuses upon the pharmaceutical and biotechnology industries. She received an undergraduate degree in Mechanical Engineering from MIT in 1981 and a doctorate in Business Economics from Harvard University in 1988. She spent 1981 to 1983 working for the London office of McKinsey and Company.
There are many videos of Henderson available on MIT World. Those who’ve read this interview will be particularly interested in two of them:
- Stuck: Why It’s So Hard to Do New Things in Old Organizations
- Building Growth: Why Don’t We Use What We Know
Professor Henderson’s graduate-level course in technology strategy is available via MIT Open Courseware.