Part of the solution or part of the problem?

Published November 20, 2020

2020-11-20 12:41:36

ARCS was formed to promote serious research on corporate sustainability.  Over the last decade, we have built a strong community, but we have lost out in the broad market for ideas.

One popular notion, a story really, holds most of the market share, and it has done so for more than two decades.  It includes an attractive plot twist and provides a happy ending; it has enemies to hiss and heroes to cheer; it leaves people feeling hopeful and energized, and its telling fits neatly into a 90 minute class.

It goes like this.  Economists have deluded all of us into believing that the pursuit of profit may impede the cause of sustainability.  As a result, our thinking has become so narrow that we overlook opportunities all around us and imagine tradeoffs where there are none.  But all is not lost, because a genius has perceived a new way forward!  He or she has proclaimed to business leaders that if they open their eyes and minds, they will become agents of the good: profits will grow from protecting the environment, fortunes will be made lifting people out of poverty, value will be shared broadly, and climate change will be solved for fun and profit.

If you think I exaggerate, consider these sentences from Michael Porter and Mark Kramer: “Business and society have been pitted against each other for too long.  That is in part because economists have legitimized the idea that to provide societal benefits, companies must temper their economic success.[1]”  Porter and Kramer promise that if done properly, something called shared value will “drive the next wave of innovation and productivity growth.”  If you still think I overstate the case, consider CK Prahalad’s promise that a fortune lies waiting for firms at the base of the pyramid, or contemplate VG Govindarajan’s proclamation that Reverse Innovation “will transform just about every industry, including energy, healthcare, transportation, housing, and consumer products.[2]”  And Amory Lovins really did write that climate change could be fixed for “fun and profit”.

Such predictions would be marvelous indeed, were they backed by evidence, but as Ken Pucker (a former COO of Timberland) and I argue in a piece published today in the Stanford Social Innovation Review[3], they depend instead on cherry-picked cases for support, and their proposed mechanisms seem to rely on magic.  To explain why so many opportunities lie all around us, their advocates drag out that old chestnut of a story about the economist and his granddaughter.  You know the one: she sees a $20 bill on the street and goes to fetch it, but the economist says: “don’t bother, if it were real someone would have picked it up already.”  Something like that story lies at the base of all popular ideas of corporate voluntary action: opportunities lie all around us, we just need to open our eyes to see them; free-minds and free-hearts will allow us to overcome any obstacle, even well-established principles of economics or physics.  If we truly believe, we will be able to fly.

Soaring over seemingly insurmountable barriers is an alluring notion, and precisely the kind of idea that ARCS was founded to scrutinize, and debunk if needed.  ARCS founders wanted to ensure that solid well-tested ideas diffused, and sloppy untested ideas were held in check.  In the last decade, we have made headway in the academic literature, but we have had little influence on the ideas flowing to the public.  Worse still, we have sometimes endorsed popular feel-good notions.

Or at least I have, particularly in the MBA classroom.  It is fun to teach a class on how Patagonia makes money while being good for the planet, and it’s a drag to teach students about Pigouvian taxes.  It is entertaining and uplifting to talk about the successes of industry self-regulation, and it is a big downer to talk about how seldom they work.  So my course syllabi have tended to include some empty calories, in the form of win-win ideas, to sweeten its otherwise vinegary servings.  I suspect I am not alone.

But prevarications in the classroom don’t explain why we in the ARCS community haven’t tested popular ideas and pruned them back.  Yet I know of no rigorous test of the idea of shared value, or fortunes at the base of the pyramid, or Reverse Innovation.  Do we think the advocates of these ideas will test them for us?  They won’t.  Ken and I spoke to several and discovered that they don’t intend to do rigorous empirical testing.  Some are so confident that they think it unnecessary.  In fact, one told us his ideas were relatively risk free, because they follow deductively from the “physics” of how things work.  Another big-name scholar told us he thought testing should be done, but not by him.  His job was to come up with intriguing notions, and it was the job of others, like those in ARCS, to test them.  If so, we missed the assignment.

Why?  Do we consider these popular ideas so sloppy that they do not deserve our time?  I am ashamed to say that I sometimes hold this belief.  Many popular win-win proposals are so ill-structured that they are hard to test…and the data are hard to collect…and besides none of my close colleagues take them seriously anyway.

Or perhaps we don’t think that a little sugar does anyone harm.  That is the argument I have heard most often.  Popular win-win ideas may be overblown or even wrong, I’ve heard people admit, but they make students excited and motivated.  As one ARCS member said in a recent seminar, they may be “rhetoric” rather than scholarship, but they might still be useful in persuading business leaders to take action.  Maybe that’s right, but it sounds dangerous to me.  As Ken and I argue in our article, some happy win-win ideas have caused real harm.  And I think it dangerous for ARCS members to endorse unsupported ideas, even as rhetoric.  In a world struggling with alternative facts and fake news, I would rather ARCS stand for careful science and objectivity.

I am well aware that the untenured faculty reading this post have another reason for not testing popular win-win ideas.  There is great risk in popping a senior Professor’s gilded balloon, and not much upside.  What counts are peer-reviewed publications, and no time can be wasted on glamor projects.  I get that, and I feel for you. Being untenured sucks. Go in peace.

But what about the rest of us?  ARCS, as an organization, is close to becoming a teenager, so perhaps it is time for us to engage in a little angst.  After more than ten years, have we been part of the solution or part of the problem?  And where shall we go from here?  I’d love to hear your thoughts, even if they pop my favorite balloon.

[1] Porter, Michael E., and Mark R. Kramer. “The Big Idea: Creating Shared Value. How to reinvent capitalism—and unleash a wave of innovation and growth.” Harvard Business Review 89.1-2 (2011).

[2] Jason Kornwitz, “Why Reverse Innovation Will Change the World,” News@North-eastern, March 12, 2013.

[3] King, A. & Pucker, K, “The Dangerous Allure of Win-Win Strategies”, The Stanford Social Innovation Review, Winter 2020.  https://ssir.org/articles/entry/the_dangerous_allure_of_win_win_strategies

 

Original article posted on The Stanford Social Innovation Review. We encourage readers to engage in conversation on the original article.

Comments

16 responses to “Part of the solution or part of the problem?”

  1. Tom Lyon says:

    “If You Meet the Buddha on the Road, Kill Him!”

    This famous Zen koan is attributed to Linji Yixuan (d. 866), one of the early Zen teachers. Koans are notoriously difficult to parse—indeed that is their whole point! Yet one simple interpretation of this saying is this: Don’t trust anyone who claims to be a guru.

    King and Pucker argue that sustainability gurus have led us astray. Like the Pied Piper, they lure well-intentioned academics into spending years of their lives testing whether appealing anecdotes generalize. And usually the win/win anecdotes contain a grain of truth. Energy efficiency sometimes does pay (just not as much as predicted), many green firms do perform better financially than brown firms (we just can’t establish the causality clearly), and sometimes there is money to be made selling things to poor people (but selling high-margin luxury goods is still an easier way to get rich).

    The hitch is that win/win solutions do not invalidate the basic principles of economics. China burns massive amounts of coal because it is cheap. Big pharma firms charge high prices in the US because they can. Walmart pays low wages because they have monopsony power in many markets. The ocean is choking on plastic waste because plastic packaging is cheap and convenient. Poor Americans are badly educated because rich Americans want their property taxes to pay for their own kids, not those of needy kids down the road.

    Economists have long argued that in the presence of significant transaction costs (i.e., in the real world) externalities need to be regulated. But sustainability gurus don’t focus on the need for business to stop covertly lobbying against needed regulations; after all, changing that is hard! Instead, they sell the quick and easy win/win opportunity. Small wins can be profitable, and they make the firm look good. After all, Lee Scott successfully diverted attention from Walmart’s harsh labor practices by squeezing waste out of its supply chain. Hooray!

    Can anyone prove definitely that win/wins will not ultimately deliver a sustainable planet? No. But just think about it—if eliminating pollution paid so well, would we be in a climate crisis?

    Try on this possibility instead: big business has so captured the political process that needed government regulations have been dragged to the bathroom and drowned (as anti-tax zealot Grover Norquist would have it). Business scholars have simply accepted this as fact, and studied how we can make some small progress without the most powerful tool at our disposal.

    But today we are at a point of systemic crisis, and we need to pivot. We need to refocus on how to bring about a just transition to a low-carbon economy in the next decade or so. We need to refocus on how to create a society where truth is valued and Americans don’t buy into conspiracy stories just because they hear them from The Leader on Twitter or on Fox News. We need to refocus on how to create a society where racial justice is real, and upward mobility is not a relic of the past.

    If we keep nibbling around the edges, as King and Pucker claim, then we corporate sustainability scholars really may be part of the problem.

    • Jorge Rivera says:

      Friends,

      A “postcard from the edge” (as Andy would say)…: meaning, I am old enough to don’t care about promotion or tenure or more articles. Just seeking to leave a better world for others.

      I could not agree more, we need more empirical work to test ideas and theories…but, it is not going to happen in top management journals that continue to be obsessed with “theory contributions.”

      When are these journals going to stop trying to prove that business school scholarship is like other scientific disciplines (The Carnegie report that called business schools ‘trade schools’ was published in the 1970s after all)?

      In any other science, testing of theories is actually rewarded. Econ and other social science top journal are doing what Andy is calling for. We simple don’t. For instance, top management journals…would say that proving the effectiveness of the Covid vaccines is “not a contribution.” That would be published, of course, by Science or Nature but not in AMJ.

      Anyway, nobody outside cares or knows about the “theory contributions” coming out of top management journals. What we publish in those journal is for the most part irrelevant to practice. Take climate change for example, between 1995 and 2015: the top 23 business academic journals published 22,903 articles. On climate change they published a grand total of 32 articles. Zero in the top Finance journals, same with marketing. Management only about 10.

      Enough rambling…..;-)

      Best,

      Jorge Rivera

      • Joseph Sarkis says:

        Heckman (Nobel Laureate in Economics) and a colleague mention the tyranny of the top 5; and how the top 5 journals are risk averse and/or do not provide much of the innovation for their field. I think the same can be said for many of the top journals in most fields; but this gets back to the rigor versus relevance argument too. Heckman’s paper is at: https://www.nber.org/papers/w25093

  2. Mike Barnett says:

    Indeed. It’s time to recognize that the scope of “win-win” solutions ranges from narrow to unicorn, and that we must sort out how to better manage the broad range of “win-lose” scenarios we face, by bringing government back under the business school scholarship tent.

  3. Mike Toffel says:

    Other reasons why so-called “feel good” theories aren’t getting tested are (1) it’s easy to confuse “no evidence of an effect” for “evidence that there is no effect”, and (2) it’s hard to publish null results in peer reviewed academic journals.

    Regardless, as scholars and teachers, we certainly have the obligation when presenting ideas and theories to be clear about which have been empirically validated and which remain mere conjecture.

  4. Tom Lyon says:

    The other key question is whether modest win/win outcomes fuel demand for government to be more aggressive, or convince citizens that government action is unnecessary because business will solve the problem. Neil Malhotra and colleagues have conducted some fascinating new survey research that provides fresh insights into this question:

    Malhotra, Neil, Benoît Monin, and Michael Tomz. “Does private regulation preempt public regulation?.” American Political Science Review 113, no. 1 (2019): 19-37.

    They find that if the whole industry takes action (even if it is not very stringent), support for regulation is greatly reduced. But if only some firms take action (even if it is very stringent), support for regulation is not undercut nearly as much.

    The implication, of course, is that if a trade association can orchestrate collective modest win/wins, they can stave off meaningful regulation. The American Chemistry Council should be paying attention!

  5. Glen Dowell says:

    My friend Tom has responded with a Zen koan, as befits a person of his depth and educational background. My own metaphor for Andy’s post is a little less classical – Andy has become Phoebe from Friends. In one of that sit-com’s most famous episodes, Phoebe becomes a children’s entertainer, and gains notoriety by becoming “the lady who sings the truth.” Andy has spent most of the last decade ‘singing the truth’ to business academics, whether by pointing out methodological shortcomings or overly-reaching guru models.

    So, in this post and the article on which it is based, are Andy and Kenneth “the professor/practitioner who sing the truth?” Should ARCS scholars be investigating, evaluating, and ‘ruling’ on these win-win ideas? Yes, absolutely. Then, why aren’t we (or at least, why aren’t we doing it enough)? Others above have offered good answers – risks, especially for junior faculty, difficulty in publishing null results, e.g. There is also a challenge in getting data to investigate these issues – if a guru says “there are billions to be made by being better for the planet” and few firms have really done much, we don’t have good evidence to evaluate. We need to do better on this front.

    Second, is Andy going too far in telling us that we shouldn’t give our students any of these sugary ideas? Yes, I think he is. We have a responsibility not to over-sell ideas, and to lean on empirically-demonstrated models where they are available. But, we also have a responsibility to give students examples of firms that have innovated and reduced environmental/social problems (or implemented solutions), while discussing how hard it is to do that. Managers will not see what they don’t look for, and if we don’t plant the idea in students to search for profitable improvements, they will be that much less likely to do so.

    Of course, if we simply assign our students one of the win-win articles without discussing all the challenges and limitations to that article, we aren’t really being academics and they don’t need us. We’re just the boring children’s entertainers that sing the regular songs, and students need the “ladies and men who sing the truth”; they need “Smelly Cat”, even if it makes some of the adults uncomfortable to hear it.

    • Andrew King says:

      Sheesh. Phoebe, really?

      I prefer Eeyore. I think of myself living in a house that gets knocked over often and even at the best of times is a “gloomy place: rather sad and boggy”.

    • Andrew King says:

      How often can we present Patagonia before we admit it is unusual? Why select on success? Shouldn’t we present a representative number of failures? If we don’t, aren’t we misleading our students?

  6. Tom Lyon says:

    My good friend Glen has mounted the “Smelly Cat” defense, and I suspect ARCS will never be quite the same again.

    His comment raises the larger issue of how we academics can provide the most value if we really do believe that our society needs to make some pretty drastic changes soon. Economists have offered “first best” policy solutions such as a carbon tax and R&D subsidies as ways to combat climate change. Those are extremely useful reference points, but what do we do when our political system refuses to adopt first-best solutions? What is the role for second-best solutions?

    Once we leave the realm of the first best, it becomes extremely difficult to know what paths forward are the most promising. Empirical work relies on data from the past, and cannot shed much light on what new alternatives are worth pursuing. Randomized control trials are great but are hard to execute at scale. And what should we study in order to make the biggest difference? Should we focus on exposing the corruptions that corporate money visit upon the political process, and pressing for Corporate Political Responsibility? Or should we push for social innovation, B-corporations, and hybrid firms? Rely on standards and certification to raise the bar for the production process? Perhaps we have no choice but to try a lot of alternatives, and do our best to document their success or failure.

    To take our collective minds off of “Smelly Cat,” let me quote from Brian Eno, who wrote of the limitations of human reason in comprehending the vast interconnected system of the Universe in “Backwater”:

    “If you follow the logistics and heuristics of the mystics
    You will find that their minds rarely move in a line
    So it’s much more realistic to abandon such ballistics
    And resign to be trapped on a leaf in the vine.”

  7. Mike Barnett says:

    Now that we’ve brought animals into the conversation …. https://businessandsociety.org/time-to-monkey-with-the-business-case/

    I am glad to see that we’re trying to sort out why, when, and how “win-win” works, not just does it or doesn’t it. The blog post above highlights a few ideas on the tricky and contradictory conditions necessary to make the business case work. And it features a monkey. Not sure if the monkey is smellier than a smelly cat.

  8. Joseph Sarkis says:

    Does being an anti-guru make one a guru? Here are some thoughts…rambling a bit…but touches upon a few of my getting older all the time…nerves.

    I think there are ample greening opportunities. But let’s go back to the “Not easy being green” argument. There are also non-greening opportunities, and these opportunities can be lost if the focus is only on greening.

    But it returns to what is considered ‘win-win’. Looking only at the organizational level may have blinded us to the much broader ‘win-win’s in society. What if these internalities (not sure if this is an economic term) and costs were subsidized by external agents, such that win-wins are almost always likely to occur for an individual organization? What if we picked up social $20 bills and gave them to companies so that they can be green?

    Why do I say this, because there are places in the world that will try to do this. In Europe the Green Deal builds includes these possibilities. We have a new administration, they have appointed a (and not a popular term overall) a ‘Climate’ Czar. Will this Czar see opportunities to help organizations build ‘win-wins’.

    How much is needed to make an economic win?

    I know that vast majority of organizations, the rest of the tree that has been cherry picked, that do not care about sustainability other than lip service. Do we need something beyond the neo-liberal idea that industry can do all this without regulation and pressure to get beyond the traditional ‘win-win’ ideas?

    Also, I noticed something very peculiar about the debate and discussion here. We are taking a very masculine, money and might, perspective. I also know that of all the fields in economics, management, and business, sustainability has some of the greatest gender diversity. But, the loudest voices of this august group is very much developed country (specifically U.S. focused). I do not hear other voices, is this our privilege, the privilege of arguing whether ‘win-win’ exists or not?

    Which gets me to thinking on whether we are making any difference….

  9. We agree that you cannot rely on win-win alone. See Aragon-Correa, J. A., Marcus, A. A., & Vogel, D. (2020). The effects of mandatory and voluntary regulatory pressures on firms’ environmental strategies: A review and recommendations for future research. Academy of Management Annals, 14(1), 339-365. This is true. “It is time to turn away from alluring unproven strategies and refocus our efforts on those interventions that have proven effective—such as government regulation. When US citizens were faced with dirty rivers in the 1970s, they didn’t encourage firms to consider that it might pay to be green; they demanded that pollutants be regulated. When smog overcame many US cities, activists didn’t ask firms to create shared value; they called for emission standards. When the world faced its first global threat to our shared atmosphere, growing damage to our ozone layer, citizens did not ask for companies to create new “social purpose” charters; they forced global leaders to negotiate a worldwide ban on chlorofluorocarbons. As a result, our rivers are healthier, our air is safer, and the hole in the ozone layer is closing.”

  10. As I have argued elsewhere green management matters regardless.
    see Alfred, A. Marcus, and R. Fremeth Adam. “Green management matters regardless.” Academy of Management Perspectives 23, no. 3 (2009): 17-26.
    And in our recent review of empirical studies we show that without government regulation, progress does not happen. Corporate environmentalism that is voluntary in nature as many have pointed out is insufficient. By now, this should be obvious.
    Aragon-Correa, J. A., Marcus, A. A., & Vogel, D. (2020). The effects of mandatory and voluntary regulatory pressures on firms’ environmental strategies: A review and recommendations for future research. Academy of Management Annals, 14(1), 339-365.
    ” Although mandatory regulation typically has a strong and positive influence on firms’ environmental performance, studies of the effects of voluntary pressures demonstrate that by themselves they are unlikely to bring about significant improvement in environmental outcomes. Accordingly, future research should focus on the complementary impacts of mandatory and voluntary programs on organizations’ environmental strategies and performance rather than analyzing their separate influence. Scholars should examine i) more than a single environmental pressure at a given time, ii) more than one response to the regulatory context, iii) the synergy between mandatory and voluntary pressures, iv) the impact of imperfect enforcement, and v) the political influence corporations exert on the mandatory and voluntary pressures that affect them. This essay argues that managers react to environmental regulations in different ways depending on how they understand the multiple pressures that they confront and their opportunities to influence the outcomes.”

  11. Gorgi Krlev says:

    Although tempted by Andrew’s AOM list post, I’ll refrain from bringing in new animal analogies, yet try and stress a potential middle way between embracing “win thinking” and condemning it altogether.

    First, I agree we focus too little on failures, or daring postulations that never seem to be followed-up properly. One of many examples that comes to my mind is Adidas’ 1-$-Sneaker that they wanted to produce with Grameen. Lauded to become a big success (https://www.firstpost.com/business/adidas-to-launch-usd-1-shoe-in-india-135225.html), but to my knowledge never really accounted for since. No matter whether we find the successes more encouraging or not, focusing on them alone hampers our ability to investigate, as Mike said, when, how and why things work and don’t.

    The other side of the coin is that even empty words may have positive effects. This applies if we assume for instance, that all the fuzz about Grameen’s joint ventures with big business led to Danone’s ambition for all its subsidiaries to become B Corps by 2030 (https://qz.com/work/1739547/danone-ceo-emmanuel-faber-is-building-the-worlds-largest-b-corp/) –and supposing that would in fact be a positive thing in terms of addressing social and environmental sustainability challenges. So focusing on the positive side might be justified to some degree, complementing to some extent what Glen said.

    Second, it’s still worth considering why it’s so easy to get away with focusing on win-win cases as well as rhetoric, when we see so much failure. There’s a time and distance dimension that fuels win-win talk and makes it persist, even without much evidence supporting it, or despite explicit counter-evidence that is. No one is currently saying that countering the COVID-19 crisis is fun and needs no sacrifice. This is because it is immediate and everyone is experiencing it. It is much easier to make such claims on challenges that are distant time wise in in terms of locality.

    This doesn’t mean there is no responsible, innovative and impactful action by business on the crisis. But “wins” come in a different form here and are appreciated as such, namely less as fun, or “harness your business acumen and solve the crisis” but as a good handling of tradeoffs, mitigated cut-backs etc. with the potential to be of some value to the company is well (https://socialinnovation.blog.jbs.cam.ac.uk/2020/03/25/the-corporate-pivot-radical-change-in-times-of-crisis/). Maybe one of the positive sides of the current crisis is that it moves us more closely to thinking about “shared pain” rather than shared value, which is unavoidable in view of for example climate emergency or the other persistent problems Tom mentioned.

    Third, I think the shared pain understanding of a win is much needed, since even in situations where financial and social value might go hand in hand, transformations may entail a continuous and long struggle (also in SSIR: “Clean Energy by the People, for the People” https://www.ews-schoenau.de/export/sites/ews/ews/presse/.files/1901-stanford-review-clean-energy-ews.pdf). I suggest, there’s quite a bit to learn from civil society and social movements about this process—although I am pretty sure Tom would disagree, as we had an argument some time ago about how much such actors have ever contributed to sustainability.

    So what I think would move us forward is to: (1) sample on both sides (with a wider understanding of wins) to understand the process and its conditions rather than promised outcomes, (2) move towards understanding shared pain as a win, (3) focus on the (arduous) transformation rather than instances of when the win materialized.

  12. Lin Lerpold says:

    As many of you rightly point out, regulation is alpha omega in that companies will at least in the short term maximise their profits within the confines of the “rules of the game”. As I see it, regulations form the rules of competition in a liberal market economy, thus steering corporate behavior also on sustainability. From a continental (north) European vantage point, unilateral national and multilateral regulations are more accepted and perhaps not as contested as they are in the US perspective. And overwhelmingly, the regulations are in many ways trying to correct for the limitations of a liberal market economy and the negative externalities attributed to it and its actors. Furthermore, I hear leading Swedish MNCs saying that should they voluntarily undertake sustainability investments, say e.g., on reducing climate emissions or improving working conditions beyond regulations, they would be at an unfair competitive disadvantage. There are several examples of leading companies pushing for stricter regulations to as they say, level the competitive landscape.

    Perhaps one of my biggest soap box issues with the shared value idea is that obvious tradeoffs are seldom explored. These tradeoffs are often between social versus environmental sustainability, of course also tradeoffs between economic and the others in the short, or long term. Not least of all I think we need to accept that at least in the short term there may not always be a win-win proposition in what a company must do to be ethical, legitimate, responsible or sustainable, choose your label. Win-win propositions seem instead to be the lowest hanging fruits, or those propositions that a company anyhow should be innovating on as normal business or in a “business as usual” mode. What about the sustainability initiatives that may be most impactful but not easily measured in terms of profitability? There may be no obvious win-win potential, at least in the short term. You could probably make the argument that most sustainability initiatives have some long term win-win potential, but in the zeitgeist of short CEO tenure, quarterly reporting and the hegemony of shareholder primacy, I experience that consultants and sustainability managers have grasped the shared value concept, “the business case” to convince their CFOs/CEOs and shareholders – and perhaps even we as teachers have a little too unproblematically used the concept to engage our MBA students in the importance of sustainability.

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