Page last updated at 08:07 Asia/Manila, Thursday, 06 October 2016 PH
The appointment by President Duterte of Gina Lopez, a well-known advocate of environmental sustainability, as Secretary of the Department of Environment and Natural Resources (DENR), should be taken as an opportunity by business people to take a hard and close look at their ability to incorporate the protection of the environment into the very core of their corporate strategy. Protection of the environment should no longer be an after thought or worse, just a PR ploy of companies operating in the Philippines and for that matter in the entire ASEAN region in which there are many challenges to environmental sustainability, especially in mining, agribusiness, and power plants.
What should be a must reading for top executives in the ASEAN is a book entitled Strategy and Sustainability (A Hard Nosed and Clear-Eye Approach to Environmental Sustainability for Business) by Mike Rosenberg, a top management professor and consultant on strategic management at one of the best business schools in the world, the IESE Business School in Barcelona Spain. As explained in the book cover, business and environmental sustainability are not natural bedfellows. Business is all about profit seeking while sustainability is about saving the planet. In most cases, business is measured in months and quarters, especially for those listed in the stock markets. In contrast, sustainability often requires significant short-term costs to attain what could be uncertain long-term benefits. To some environmental activists, all business people are exploitative and greedy. To a good number of executives, all activists are irresponsible, unrealistic, and unyielding extremists. And yet engaging with the environmental issue is no longer optional. All businesses must have a strategy to deal with sustainability and, like any strategy, this involves making choices.
Professor Rosenberg, with whom I had the pleasure of working when I spent two years at IESE as a Visiting Professor, starts the book by re-framing the central challenge of putting together the worlds of business strategy and environmental sustainability in terms of the way senior management tends to look at the world. He presented six differences between what could be called a business viewpoint and that of activists, journalists, and legislators. Briefly, these six differences are as follows:
--Firstly, business has a hard time engaging with groups which do not share the starting point and reject the very idea that business is a positive force in the world, producing goods and services that promote the welfare of the consumers and generating much needed employment.
--Secondly, the time frames that interest groups and government regulators who are concerned about the environment use are simply well beyond the scope, planning cycle, or even the imagination of many people in business.
--Thirdly, a tremendous amount of senior management’s time and energy is spent on looking at financial issues. Unintended environmental problems can occur below the radar or even as a result of cost saving measures that had sound business logic, but for which environmental externalities were not foreseen or even considered.
--Fourth, business is inherently about risk taking. When accidents happen, business leaders are often taken aback that people affected by the accident simply reject the idea of probabilistic risk and immediately blame the people responsible for malfeasance or criminal neglect.
--Fifth, at the limit, business leaders look to governments to establish the rules of the game are often surprised when the public or activists demand that they comply with some higher, unwritten law. The idea, for example, that a firm is liable for actions done many years ago, which were legal at the time, can be considered unfair by business people who want the rules to be clear.
--Finally, business leaders often have a hard time understanding activists who question the very reason for the existence of the companies in which they serve, such as in mining firms or power plants. This is especially true for entrepreneurs, who may feel their purpose in life is deeply tied to the firm they have built and thus any rejection of the organization is a rejection of themselves.
It is clear that only by addressing the fundamental logic of business can one hope to engage in any kind of sensible discussion about how business strategy can be reconciled with environmental sustainability. In terms of corporate governance, the fiduciary responsibility of the CEO and board members is to protect the value of a company and increase that value over time. To carry out this responsibility, it is important not to be caught off guard or surprised, as has happened frequently in the past. When crisis strikes, what have been the various ways in which senior management have responded? While there are a myriad of ways in which different companies all over the world have responded to environmental issues as they erupt, it is possible to group these responses into six broad categories which can serve as guidelines for companies, especially in the ASEAN region. (To be continued).