CSR Archives

January 31, 2011

Wal-Mart Plays With Our Food

Every week, 140 million people — about the population of England and Germany combined — shop in a Wal-Mart store. Soon, all of these people will be eating healthier, and the environmental impact of their food will be lessened.


That's because in recent months, the world's largest grocer (and company) has started to fundamentally change the food on its shelves. Wal-Mart's recent announcements continue a five-year campaign to green the supply chain, but they add in some interesting new twists as well. The entire agricultural sector, and everyone who, well, eats, will feel the ripples of these moves.

Some of Wal-Mart's initiatives increase profitability while hitting sustainability goals; for others, the societal benefits are real, but the business benefits are not as clear, at least on the surface.

Three initiatives in particular demonstrate a strategic focus on food sustainability.

(1) In October, Wal-Mart announced that it would double the amount of locally-sourced produce on its shelves. There's some legitimate debate about whether shortening distances alone really reduces the environmental footprint (a fascinating new study says that cutting back on meat is far more effective in lowering impact than buying local). But Wal-Mart says the initiative will reduce spoilage and increase shelf-life. Those changes, by reducing the total amount of food needed, will certainly reduce overall environmental impacts throughout the value chain.

As is the case with most of Wal-Mart's sustainability initiatives, this one fits the company's mission and strategy perfectly. It will reduce environmental impacts, but also reduce logistics and supply chain costs (in part because what's noticeably absent from this announcement is anything about increasing sales of organic food, which usually costs more). Wal-Mart can pass on these operating savings to customers, so it all fits nicely within the company's normal business model.

But some more recent announcements are not as clear-cut on the business side.

(2) Last week, Wal-Mart said it will both lower the prices of fruit and vegetables (saving customers $1 billion) and reduce the amount of saturated fat, sugar, and salt in its private label products. On the latter point, Wal-Mart was not the first to the table, with companies such as Kraft and Pepsi setting similar goals last year.

It's more of a stretch to fit this announcement neatly into a sustainable/profitable business framework. The sustainability benefits are real — on the green side, reducing ingredients like sugar should have sizable ripple effects up the supply chain in saved energy and water. The business benefits are in there also, but are fuzzier.

Improving health of course fits a social goal, but it also demonstrates caring for your customers, which can drive loyalty, sales, and brand value. It's also not purely cheeky to suggest that keeping your customers alive longer, and healthier, will help your bottom line.

(3) The third recent announcement falls much more clearly in the pure corporate social responsibility world. In a fascinating display of smart philanthropy, Wal-Mart is helping the hungry by helping food banks lower their energy bills. The company donated $2 million to 16 food banks to, in the company's words, "upgrade their lighting, refrigeration or heating and air conditioning with equipment that performs better, uses less energy and costs less to operate."

Wal-Mart estimates annual energy savings of $625,000, which will buy 300,000 more meals every year from now on. The $2 million donation is in reality dwarfed by Wal-Mart's own $2 billion of cash and in-kind donations to reduce hunger. But I hope that this extremely clever model of philanthropy — where you give a gift that keeps on giving — will take hold even more. Lowering the footprint and operating costs for non-profits is pure win-win.

In short, as is always the case, sustainability initiatives do not fit neatly into one box within a company. Are they for social good or to make money? The answer is, invariably, yes. Again, pressing its supply chain to do more, faster, is what Wal-Mart has always done, but in recent years the pressure has been focused on sustainability. All these food initiatives expand on that approach, but also show Wal-Mart "walking the walk" and finding opportunities for smart philanthropy to round out the story. It's a robust strategy for covering many angles on the sustainable food movement.

The benefits to all possible bottom lines are substantial. If Wal-Mart and the other companies in its supply chain succeed in reducing fat, sugar, and salt in food; improving access to food for the poor; and sourcing it locally and using less energy to do so, both the planet and its inhabitants will be healthier.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

April 10, 2011

Corporate Citizenship Should Include Paying Taxes

General Electric paid no taxes in 2010. Or at least that was the major takeaway from a recent bomb-dropping exposé in the New York Times. At a time of obsessions with federal fiscal austerity, this was a big story, and everyone was talking about it last week.


I'll admit to having a visceral negative reaction, in part because GE is an important company that most people have high expectations for. So I wanted a bit of distance before composing some thoughts. I thought it would also be interesting to see GE's reaction and response before jumping to conclusions. But even after mulling it, I feel like the whole affair is not good for anyone — the country, the business world, or even GE itself.

Ok, so the facts are these. GE made $14 billion in profits in 2010, $5 billion in the U.S. Its tax bill in the U.S. will be negative $3.5 billion (as in getting money back). Is this legal? Of course it is. But the question on everyone's lips is whether a company can be a solid, contributing member of society and pay no taxes.

That's much less clear. After all, as I've long argued, responsible corporation, particularly one that is responsible with environmental resources, can create real value. GE has been a green leader for a number of years now with its ecomagination products and growth strategy through clean technology. And we always have to include the obligatory, but not insignificant, mention of providing jobs and livelihoods. We should also remember that this story is about income tax, not all taxes — I assume the company is still paying social security taxes on all employees (please tell me they are).

So what did GE have to say? The company's response to the clear implication of wrongdoing was not overwhelming. The perfunctory letter to the editor mainly says that GE Capital lost a bunch of money in previous years, so the losses carried forward. Verifying that point is really not easy, and the company didn't offer details.

I looked at GE's SEC filings and didn't see losses (please, someone educate us on this). The 10-K's show a run of profits — and positive return on equity — ranging from $11.0 to $22.2 billion over the last five fiscal years. On income taxes, the latest 10-K has this to say: "Income taxes (benefit) on consolidated earnings from continuing operations were 7.4% in 2010 compared with (11.5)% in 2009 and 5.6% in 2008." More numbers follow, but all are far lower than the statutory tax rate of 35%.

The morass of numbers and complicated logic involving foreign earnings is really the point here. GE, according to the Times, has dedicated some significant resources to legally gaming the system. The company employs 975 full time tax attorneys who have been told to spend half their time focusing on ways to reduce the companies tax bill (it was at this point that I wondered what 500 focused FTEs could accomplish on some more productive task, like inventing more ecomagination products). On top of this extensive internal tax law firm, GE spends $200 million on lobbying, much of which is dedicated to changing tax laws.

So let's look at the business logic here. GE has clearly seen the value in its socially-conscious programs, and the company has seen massive growth in its ecomagination portfolio to $18 billion in 2009 alone. Corporate social responsibility, the larger umbrella of environmental and social initiatives, also creates value, even if it's harder to put a number on. How your company is perceived on CSR issues affects sales, employee recruitment and retention, and brand value (I doubt that the coverage this tax story has driven is what GE is looking for).

But on a more tactical point, GE has a number of major business units that serve industries supported heavily by government spending: energy systems and the grid, transportation networks, and water systems to name a few. It's not silly to suggest that companies which need consistent and aggressive societal spending to thrive should consider it a good investment to pay into that system. I'm reminded of Henry Ford greatly increasing wages so that people could buy cars.

So there's a distinct possibility that tax strategies like GE's could destroy real brand and tangible business value and, given the fact that GE is not alone in this, impoverish the country.

But, to be blunt, it's also unfair.

As individuals, we all face taxes that we can't avoid in the form of the Alternative Minimum Tax. The landmark Citizens' United Supreme Court Case of 2010 continued a long tradition of giving companies the rights of citizens, in this case a form of free speech related to political donations. I could be convinced that "corporate personhood" is deserved, as long as it comes with accountability. A person with all rights and no responsibilities is basically a sociopath or, as one colleague joked, a teenager. It should be no different for a company.

GE is not a bad guy for doing what's in its charter and maximizing profits. Their actions are not illegal, or even immoral probably. But they are unfortunate at the least, and at the most, reduce the value of a great American company.

(This post first appeared at Harvard Business Online.)

January 22, 2012

A Vision of Real Corporate Leadership on Sustainability

[This piece appears on Sustainable Brands' site as part of a special monthlong focus on leadership. Chris Laszlo and I are guest editing. We have laid out a framework for true sustainability leadership to help shape the discussion. We each are also offering a deeper dive on one half of the two-by-two matrix we suggested. I'm focusing on the “external” side of leadership which focuses mainly on (a) how a company responds to global sustainability pressures and (b) how it does business in a way that’s visible to the outside world…its products, processes, relationships, and so on.]


The basics of sustainability excellence are fairly well known by now: reduce your footprint, create products and services that help customers do the same, drive employee engagement, think value chain, track data and enable transparency, and on and on. But real leaders will go further and address the scale of the sustainability challenges we face by fundamentally remaking their companies. Here’s what I envision in a few key areas:

Science-Based Goals

Footprint reduction targets are important, but if the goals are not based on what scientists tell us – i.e., we need an 80% reduction in absolute greenhouse gas emissions – they’re not good enough. Sony and a few others have targeted zero impact by 2050. This level of commitment needs to become the norm, and then a few brave souls can go beyond reducing harm (even to zero) and set goals to build restorative enterprises.


While uncommon today, the basic level of performance on policy should be to make lobbying efforts consistent with core business strategy and public messaging (for example, are you proudly launching products that use less energy, yet lobbying hard against higher efficiency standards?). Real leaders go much further and lobby for stricter standards and aggressive action on climate. CEOs can demonstrate their external leadership by promoting this agenda with corporate peers and government leaders. Some companies are on track, committing to the recent “2 Degree Challenge Communiqué” or joining groups like BICEP (led by Ceres, Nike, and others) which demand strong climate policy action.

Product and Service Innovation

Reducing the customer’s footprint will need to be the core aim of all innovation efforts and all product lines (not just a sliver of the portfolio as it is today). Sustainability innovators will open up their creativity process, inviting customers and partners to offer innovative solutions (GE’s Ecomagination Challengeis a good example). Innovators will embrace disruption and heresy (which I’ve written about before) by helping customers use less of their products. For a glimpse of the future, see Unilever’s campaigns to get customers to reduce water use and Patagonia’s Common Threads, which offers a grand bargain: “We make useful gear that lasts a long time…You don’t buy what you don’t need.”

Valuation and Investments: Financial and Operational Metrics

Leaders such as P&G and GE have set aggressive revenue targets for their greener products. A few companies put a price on carbon for internal capital allocation decisions or, like DuPont and Owens Corning, set aside a percentage of capex for eco-efficiency investments. These actions help correct the inherent flaws of ROI decision-making by valuing sustainability more explicitly. The next step is fully incorporating intangible value – employee engagement, customer loyalty, brand value, and the like – as well as measuring and including all externalized costs in investment decisions. Two trendsetters, Puma and Dow, have begun this important journey.

Investor Relations

I believe that the relentless pursuit of short-term, quarterly profit goals to please Wall Street analysts is bad for companies – great enterprises very rarely seek profit alone – and certainly isn’t good for the planet. Like Unilever’s CEO Paul Polman, the real leaders will stop providing quarterly guidance and ask managers to focus on the real measures of success: making great products, serving customer needs, creating good jobs, and driving both cash flow and long-term profitability. The most sustainable companies will become “benefit companies” or “B Corps”, with a broader charter than just pursuing shareholder value. Seek greatness and sustainability, and the money will follow.

Resources Dedicated

Most companies give their sustainability execs woefully inadequate resources to do their stated jobs, let alone transform their companies. A truly committed organization will allocate resources equal to the challenge and will give the sustainability function real power. I suggest creating a “skunk works” team run by sustainability, along with perhaps corporate strategy and R&D, to question everything and challenge the core business model (e.g., What if the product were a service? What if we used no fossil fuels?). This is how companies can systematize heretical innovation.

Employee Engagement

Educating all employees on sustainability principles and creating green teams are good first steps. Tying all executive compensation directly, and substantially, to sustainability goals is even better. But real leaders should work to convince those hostile to change throughout the organization…or eliminate them. In the words of Jim Collins in Good to Great, “get the right people on (and off) the bus.” Leaders will also help employees pursue sustainability in their own lives and communities and provide an outlet for organizing campaigns, such as the awareness-raising “climate ride” conducted by apparel company Eileen Fisher. If the workplace is appropriate for United Way drives, why not for climate action?

In short, I’m imagining a very different kind of company. The overwhelming challenges we face demand profound shifts. Of course, much more than I’ve mentioned will need to change – on the social side of the equation for sure – so please let me know what you would add to my vision of true leadership.

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

February 6, 2012

Apple's Greatness, and Its Shame

Is there such a thing as too much profit? A disciple of Milton Friedman would say "never." The idea that companies should only maximize shareholder value has had a stranglehold on the business world for decades. It's time to rethink this assumption.


A couple of weeks ago, Apple reported breathtaking earnings. In the fourth calendar quarter of 2011, Christmas shoppers snapped up 15 million iPads and 37 million iPhone 4Ss. The world's most innovative company brought in $46 billion in revenues, $13 billion in profit, and an eye-popping $17.5 billion in cash flow. Apple is the only company competing with, and now beating, Exxon for the title of "most profitable company ever."

Right when Apple's earnings came out, the New York Times also hit us with two powerful articles about Apple's supply chain that revealed some deeply troubling issues for the company's business model. The first, "How the U.S. Lost Out on iPhone Work," painted a dim picture of U.S. competitiveness by demonstrating what Chinese suppliers are willing to do to get Apple's business. But the second article, "In China, Human Costs are Built Into an iPad," shows us the enormous human cost of getting work for cheap. It's a horrifying picture of life at the now infamous Foxconn facilities.

Combine Apple's incredible earnings with the reality of life in its supply chain, and it's clear that the tech giant could afford to do much better by workers. It's not sustainable for any company to continue relying on people with such limited rights and life prospects.

But is it fair to pick on Apple? Yes, to some degree, since other companies with deep connections to China have done better on working conditions (a Times source name checks HP, Intel, and Nike for example). In the spirit of being balanced, a few points: (1) even with a few good actors, worker treatment is a systemic challenge common to electronics, apparel, and any other sector with complex, worldwide supply chains; (2) Apple has put some effort into improving supplier conditionsand CEO Tim Cook replied last week to the concerns; (3) Consumers also take on some responsibility-we should be demanding more transparency and information about how our products are made (I'm targeting myself here as well since I'm typing this on a MacBook Pro).

But Apple too should be doing far more.

We'll only fix the problem if the largest, most profitable, and most powerful brands demand better treatment for all people who work on a product. The most damning quotes in the Timespiece come from former Apple execs: "Noncompliance is tolerated...If we meant business, core violations would disappear" and "Suppliers would change everything tomorrow if Apple told them they didn't have another choice."

So am I suggesting companies pursue unprofitable paths? Hardly. These labor challenges are complicated, but any argument that it would be too expensive to pay people better and give them much better working conditions is absurd.

Some reasonable estimates from The Atlantic place the cost of materials (of a mid-level 32GB $600 iPad) at about $325. Labor is a whopping $10. If we assume, very conservatively, that iPhone assembly costs the same, then in the fourth quarter, Apple spent about $500 million assembling iPhones and iPads.

Let's imagine that Apple tripled expense on assembly to ensure better pay and worker treatment. The total additional cost: $1 billion The cost of an iPad or iPhone would go up $20 or — and here's a radical thought — Apple would make a little bit less money. I'm not remotely saying Apple shouldn't be profitable.

But would anybody in their right mind be disappointed with $16.5 billion in quarterly cash flow instead of $17.5 billion?

Am I making a complex issue too simple? To check my thinking, I spoke with a former Nike exec with deep experience in supply chains and China. Here's his view:

"Someone needs to break the cycle...why not Nike — or Apple? I don't see that as an oversimplification at all. The current "low cost" business model is not really low cost. Isn't one purpose of business to create the prosperity needed to increase the number of consumers capable of buying the goods we make? In fact, I would argue that what Apple is doing now is against the best interests of the shareholders...I've never heard a lucid explanation of what I'm missing."

This is about what we value in the world. Consider IKEA, one of the most sustainability-minded large companies in the world. The Swedish furniture giant has its own challenges (some history of labor issues as well and concerns about the sustainability of its short-lived products, for example), but the company has stated clearly that it's about "low prices...but not at any price."

Why is that a radical idea? I refuse the notion that maintaining a moral compass is anti-business, anti-competitive, or naïve in some way. Smart, innovative, lean companies can make plenty of money and do the right thing. And, frankly, since companies have an awful lot of the rights of humans, they should share some of the moral responsibility as well.

Our system of competition yields amazing results — incredible technological innovation provided in massive quantities very quickly. But these marvels often rely on very real human costs. The whole system has some deep flaws that we must fix.

Apple prides itself on changing the game. So just imagine a world where the company applied its staggering innovation and design skills to create the iSupplyChain or iWorkingConditions. Everyone, including this fan of Apple products, would be a lot iHappier.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

March 20, 2012

Corporate Sustainability Efforts -- Feast or Famine?

Is corporate sustainability on the wane or growing more important to top executives? At the beginning of the year, two big-picture reports on the state of green business painted divergent pictures.


In GreenBiz's annual review of 20 indicators of "how business is doing" on green, we learn that 6 of those indicators are on a downward trend. But in the report "Sustainability Nears a Tipping Point," MIT and BCG prove their point with a fast-rising graph of companies that recently put sustainability "on the management agenda."

While they seem at odds, both views are right — companies are no longer ignoring sustainability; most big companies now have someone focused on it, at least in part. That's why execs can honestly tell MIT that it's on their agenda. But with sustainability often siloed into just one person or department in each organization, it's hardly a surprise that, at the same time, we're seeing some loss of momentum. Sustainability has moved from being a hot, new management trend to being just one more thing for execs to keep an eye on: for many it's become a check-box exercise..

This structural gap reveals the fundamental misunderstanding about what sustainability really means for organizations. I've seen it time and again in the companies that I work with or study. For them, sustainability is a thing to tackle, a functional area; it's a what, like marketing or product development.

But sustainability needs to be viewed as much more of a how concept, like quality or innovation. It's a way of operating that creates the most value when it's embedded throughout the organization.

Of course companies have distinct quality or R&D departments and professionals, but the most committed companies drive the thinking into every aspect of the business. This is the mindset that sustainability needs to engender throughout an organization. And as with quality, this isn't just about ethical or aspirational hopes — acting with sustainable values, for example, as covered well by many, including Dov Seidman in his book How.

No, I'm talking here about the more prosaic, everyday, tactical, blocking-and-tackling of business. Sustainability pressures force changes in how we build our supply chains, how we design and manufacture products, how we deliver services, how we create and execute our business models and strategies, how we develop financial metrics to measure success, how we attract and retain 21st-century, holistic thinkers, and on and on. So sustainability pressures, if acted on, drive us to create and build better products, design more efficient services, execute better, and hire the best. Those are goals that reach throughout the entire organizational structure, and they're actually enabled by sustainable thinking.

Given the scale of these goals — and the global challenges we all face — putting just one (or a few) people against the what of sustainability is a woefully inadequate response.Resource constraints and rising input prices; increasing demands from customers, employees, and consumers; the risks of severe business continuity disruptions from water, climate, or labor problems in the supply chain...the list of big pressures grows more complicated every day. And these issues require a full-court press from all aspects of operations.

It's become a mantra in the sustainability world that green needs to be a part of everyone's job. Of course that's true, since detecting risks and innovating around them will often fall to those closest to the ground (hint, that's rarely the c-suite). But most companies are missing a big step.

To conquer a how you need more than just a mantra. You need a significant investment of resources in time, top-leader focus, people, and money. You need people to ride herd and drive the agenda — to do the cross-cutting analyses such as lifecycle assessments, to track and get a handle on the many diverse and complex issues, to present a unified front to employees and external stakeholders, to question business models and find new, heretical ways to operate and serve customers...the list goes on.

There's no "ideal" structure for sustainability efforts, just as no two companies would tackle innovation the same way. Most large companies have now appointed a lead on sustainability, but have provided limited financial support and fewer human resources. There are exceptions: a few well-known sustainability leaders, such as Starbucks, Nike, and Coca-Cola employ central teams with specialists in areas like water, climate, and packaging, as well as reps spread out around the organization.

One of my clients, Kimberly-Clark, a much quieter sustainability leader, has a centralized team of 5 to 10 sustainability-only managers (and that's only part of the 50-plus central staff covering environmental, health &safety (EHS), OSHA, and, yes, quality). More importantly, Kimberly-Clark has another couple dozen professionals in dedicated sustainability roles (again, not EHS) embedded in business lines and geographic regions.

But even the leaders with robust organizations are rarely putting much money specifically into sustainability-driven innovation or disruptive changes that might dramatically reduce the value chain footprint of the company's products. Let's be honest: It's very hard to assess how much is "enough" when you're investing in a strategic priority. But it helps if the organization first defines it as a strategic priority. And given the ever-rising costs of under-reacting to sustainability pressures (such as direct costs from rising input prices, or business discontinuity risks from extreme weather), it's clear that companies should put a lot more people and money against an agenda as large, complicated, pressing — and let's not forget profitable — as sustainability.

Only with significant investment can we move down the path to sustainability integration and real, ongoing, full value creation. A robust network of sustainability professionals within a company — whether or not they sit in one "department" — may need to obsolete themselves over time. But until then, sustainability can't drive anything — it will just remain a nice side show.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

May 1, 2012

Walmart's Shades of Gray

Many people love to attack Walmart — as the world's largest company it's an easy target. And although the retail giant's green efforts have done a lot to showcase the company's commitment to sustainability, sometimes Walmart gives its critics some legitimate ammo, like the recent revelations and allegations of corruption in its Mexican operations.


As the New York Times recently reported, in the early 2000s, when Walmart de Mexico was building stores at a furious pace (making the country the company's second largest market), it was making illegal payments to get building permits and speed store expansion. The growth miracle was, it turns out, not so miraculous.

Of course this is not a good thing in and of itself. But where the story gets really troubling, if the accusations are true, is in how the company handled the matter. After its internal, FBI-trained watchdog group investigated the allegations — and made waves — the case was given back to the chief lawyer for the Mexican operations. This was, as the Times put it, "a remarkable choice since the same general counsel was alleged to have authorized bribes." It sure looks like something not flattering, and possibly illegal, was swept under the rug.

So what do the recent allegations mean for Walmart's sustainability efforts? On the one hand, nothing. In fact, the same week this story surfaced, the company released its 2012 Global Responsibility Report, an interesting juxtaposition to say the least. I've long been a fan and chronicler of the company's green efforts (full disclosure: I've spoken at multiple Walmart events, including a sustainability summit held by Walmart Mexico in 2010), and this report did not disappoint on that front.

Walmart listed some impressive accomplishments, from diverting 80% of waste from landfills, to doubling the amount of local food sold, to generating over 1 billion kilowatt-hours of renewable energy onsite (the second most of any corporation in the U.S.). These achievements, along with a 5-year record of pushing the sustainability agenda harder than almost any company, are real and demonstrate leadership in responsible business.

So here's the rub with sustainability, corporate social responsibility, ethics, and anything else that's generally (if sometimes awkwardly) thrown together into the vast bucket of "good stuff": The measurable and legitimately good things a company does will not make up for what it does wrong. But nor will the bad cancel out the good — the good things are no less legitimate just because the company does some things its leaders should be ashamed of. The good practices are worth emulating regardless of the larger context.

The significant challenge of how to view, judge, and learn from the actions of a complex, messy thing called a "company" is nothing new. If an oil and gas company wages a multi-decade campaign to muddy climate science, but also funds next generation low-carbon fuels research and operates incredibly efficiently, is that original campaign any less immoral? Should other companies avoid the cost-saving, innovative, best practices of the bad actor? Of course not. When it comes to what we can learn or gain from a company's profitable and sustainable initiatives, the bad things don't really come to bear.

But when thinking about a company as a whole and that vague thing called a "brand," it's a different story — everything is related. Key stakeholders, such as customers, consumers, employees, and even the investors and markets, judge the value and values of a company and then decide if they want to interact with it. That judgment so far is pretty clear in this case. Even though one can never have too much faith in short-term market reactions, this one was serious: Walmart's stock dropped 5% when the story broke and, as of this writing, is down 8%, or $16 billion in market cap (while the Dow was flat).

I'm frankly surprised investors care — there's historically, and unfortunately, little downside for companies that engage in this kind of corruption in developing countries. But the immediate market reaction here is fascinating. It says to me that there's some recognition of real risk to the company in these practices: that the hit to the brand matters, or that people may not want to work for or buy from a company they can't trust.

There's some understanding that a company's value in the market is connected to its values (of which sustainability efforts can be a good indication). Just as it's not sustainable to over-consume natural resources, it's not sustainable to alienate key stakeholders through ethical lapses.

The totality of a company's actions does matter. We should demand consistent, ethical behavior and a real commitment to doing what's good for people, planet, and profit, which includes not compromising on ethics. We can expect more from companies we buy from and work with and for, especially the very large ones that show such promise and leadership.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

May 14, 2012

Microsoft Taxes Itself

This week, Microsoft is announcing an unusual initiative that it hopes will change how the company operates: an internal fee on carbon.

Starting July 1st — the beginning of the company's fiscal year 2013 — the software giant will charge all of its 100-plus global offices and datacenters a fee for every ton of carbon they produce (mostly from plugging into the electric grid, so-called "indirect" emissions). The money collected will go to purchase Renewable Energy Certificates (RECs) and carbon offsets, allowing Microsoft to declare itself carbon neutral.


Although carbon neutrality is a claim that's gotten less credible over the last few years, Microsoft seems well aware of the challenge and is handling it well. Here's the problem with asserting neutrality: it's hard to ensure that any carbon reductions you're paying for — from, say, capturing methane from a landfill or replacing inefficient cook stoves in Africa — would not have happened anyway (this is the problem of "additionality").

So to navigate this tricky terrain and make the most of its efforts, Microsoft is working with a handful of NGOs and a well-respected partner, Sterling Planet, which will buy the RECs and offsets.

Interestingly, however, carbon neutrality doesn't seem to be the real point of Microsoft's initiative. From my conversations with the company, I take away four major reasons they're doing this:

  1. Behavior change. Microsoft seems more interested in lowering overall carbon emissions and energy use, not just neutrality in and of itself. This focus on actual emissions and outcomes is the right way to go. The offsets become a tool, a last resort to be avoided, and both energy efficiency and using renewable energy (onsite or directly purchased) become the paths of least resistance and cost. As Rob Bernard, Microsoft's Chief Environmental Strategist says, "If you run one of our offices, and you choose to use carbon-based power, we'll charge you more for your energy." And this charge will, in theory, move managers to make greener choices. So the point of this fee, like all "taxes," is to change behavior, discouraging some pathways by making them less palatable.

  2. Accountability throughout the organization. Each division is going to own this issue. Let's say NGOs or customers are asking questions about what kind of energy Microsoft uses to power its datacenters. The executives running that facility, not just centrally located sustainability professionals, will be empowered to address any concerns, drive for greater efficiency, and choose greener power. Pricing carbon is an excellent way to raise awareness internally before the external pressure builds.

  3. Risk reduction. Bernard and his colleague who's running the program, TJ DiCaprio, have encouraged the organization to better understand its profound energy-related risks. As Microsoft takes on more of its customers' operations through cloud-based services, reliance on the utility grid creates real operational and price risk (from outages and volatile prices). Cloud service providers are increasingly proxies for utilities — they require 100% uptime, significant quantities of their own power, and predictable variable cost (which for renewables is nearly zero).

  4. Sales/Becoming the Vendor of Choice. The company knows that its customers are increasingly looking for providers that can offer reliable service at low cost — and low carbon emissions. Driving the organization to use more alternative energy helps land large customers concerned about their value-chain footprint.

So how will Microsoft make this initiative a reality? The execution plan has some interesting elements (see a pithy white paper on the full carbon neutrality plan here). The company will measure carbon footprint in different operational buckets such as plug load (electricity used) and business travel, and then offset each category "like for like" (i.e., buying RECs for electricity and offsets for travel). The fees will vary as well; for example, the company will charge employees for all air travel on a per-mile basis, which raises awareness at the individual level.

The program is smart, but I'm left with one major concern: Will the fees be high enough to change behavior? Right now, the market price of carbon is very low, so Microsoft is charging a small amount per ton. Even so, they will collect north of $10 million, which is enough to buy offsets. Over time, by my calculations, given the growth in cloud services the company is banking on, these carbon fees could rise to a more noticeable $50 million by 2020. But let's be honest, these numbers are clearly rounding errors to a company that netted $23 billion last year.

To be fair, as the behavioral psychology gurus (from books like Nudge) will tell you, sometimes just making people aware of a cost is enough to foment change. So the minor nudge here may be good enough. But in the longer run, the price on carbon needs to be more of a sledgehammer than a nudge. It should reflect the full cost to society of health impacts, national security risks, and price volatility, all of which add up to tens of dollars per ton or more.

Pricing carbon on your own, without a real market in place, is hard, which is why there are so few examples of companies doing it. Going back over a decade, BP put in place an internal carbon trading system that used a "shadow" price to encourage divisions to find the cheapest reduction opportunities (others like Shell have also used this tactic). But executives weren't charged real money. And more recently, athletic apparel company Puma (working with my colleagues at PwC and the UK's TruCost) produced an "environmental P&L" which measured the "real" cost of carbon and other environmental inputs like water. The company is exploring how to include the "price" in operations and give ownership to line managers; it currently says the metrics will "inform operational decisions."

So even with important experiments like these that have gone before, Microsoft's program is perhaps the first actual internal fee at this scale (my research isn't turning up anything exactly like this — please send me examples if you have them!). It's innovative and committed, but it also points to a massive global failure of leadership on climate policy. We should put a price on carbon across the entire economy. But as Bernard says, "While governments have an important role to play, we hope there's a benefit in us moving faster than the policy world."

He's absolutely right. Companies cannot wait for the government wheels to turn to price and manage carbon — the cost saving, risk reduction, and brand benefits of leading are too high.

(This post first appeared at Harvard Business Online.)

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June 18, 2012

Kaiser Permanente Links Climate Change to Health Care

Kaiser Permanente (KP), one of the largest health care providers in America, has a clear mission: improve health. In a surprising and welcome twist, KP is publicly recognizing that climate change threatens that mission. This health care leader is showing how an authentic, mission-driven connection to global issues can drive change.


The topic of climate change has become so politicized, it's rare to hear company representatives and CEOs admit that they're taking a course of action specifically in response to a climate-related threat. But that's starting to change, even in sectors you might not think have a direct stake in climate change.

KP is not a minor player in a health care industry that accounts for 16% of U.S. GDP and 8% of greenhouse gas emissions. With $44 billion in revenues, KP runs hospitals, clinics and health plans, serving more than 9 million members in nine states (and Washington, DC). The "company" is technically a not-for-profit, but in my experience that matters little to medical device and pharma companies that experience KP as a very, very large customer with large demands.

The company has made increasing commitments to renewable energy as part of its aggressive greenhouse gas (GHG) reduction goals (30% by 2020). KP is buying both carbon offsets and significant onsite energy — 11 megawatts of solar and 4 megawatts of fuel cell generation, for example.

All of this is surprising since the health care sustainability agenda has mostly focused on supply chain issues, reducing exposure of patients and workers to toxic chemicals, green building, and general eco-efficiency. Why are they doing so much on renewable energy?

I spoke recently with Kathy Gerwig, KP's Environmental Stewardship Officer, to find out. I expected a more typical answer about achieving GHG reduction goals or doing the right thing. What I got instead was one of the most straightforward statements about the role of climate change in public health and in corporate strategy.

As Gerwig put it, "there's credible evidence of significant climate change that will impact our ability to provide quality health care."

She laid out four broad categories of the health effects:

  1. Severe weather: Hurricanes, wildfires, floods, and heat waves all injure and kill people. Hospitals — and all businesses for that matter — need to prepare for these extremes.

  2. Respiratory diseases: Air quality in general deeply affects health. This is, as Gerwig says, mainly about the short-term consequences of not dealing with burning fossil fuels and the changing climate.

  3. Infectious diseases: As the planet warms, bugs like mosquitos can survive and thrive further north, spreading diseases to new areas. According to the UN, previously untouched areas like the southern U.S. and Mexico will face malaria, yellow fever, and dengue by 2050.

  4. The "what we don't know" bucket: While the science is clear that climate change is a serious problem, we still don't know a lot about how it will play out (this is not the same as saying the science is so uncertain that we shouldn't do something). "What we know so far about the repercussions of climate change isn't good," Gerwig says, "such as water shortages and increased wars over resources, and all the health issues that go along with those."

KP is not laying low on the other areas of the health care sustainability agenda, with many impressive initiatives, such as its sector-leading supplier scorecard. But KP is demonstrating a larger view of the company's place in society and in the battle to salvage a healthy, stable climate.

We need all sectors to man the barricades and take positions. Setting a 30 percent absolute GHG reduction goal by 2020 is in line with what scientists tell us we need to do, and it's unusually aggressive. But integrating sustainability and climate change into the health care mission of the organization is the real story here, and its one that companies should emulate quickly.

(This post first appeared at Harvard Business Online.)

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October 10, 2012

How Walmart's Green Performance Reviews Could Change Retail for Good

Walmart's efforts to green its supply chain are about to get much more effective. Sustainability will now play a role in its merchants' performance reviews, which help determine pay raises and potential for future promotion. This is a big deal: these merchants are high-level managers responsible for multibillion-dollar buying decisions. They're the people who determine which products appear on the shelves of the world's largest retailer.


Some quick background: Walmart deserves praise for its industry-leading sustainability successes, such as improving its fleet fuel efficiency by 69% and becoming the nation's leading commercial buyer of solar energy. The company's most important sustainability initiative — the pressure it puts on its 100,000 suppliers to improve their environmental performance — has changed how thousands of products are made, packaged and sold.

For the past five years, Walmart has built sturdy scaffolding around what could be a world-beating green supply chain, including:

  • Developing Sustainable Value Networks, which bring together major suppliers with cross-functional internal teams to tackle issues from packaging to waste to energy use.
  • Asking 100,000 suppliers to answer and provide data on 15 environmental impact questions.
  • Building the Sustainability Consortium (TSC) with many of the world's largest consumer products companies and big retail competitors. TSC created metrics to evaluate suppliers and their products on environmental and social performance, and Walmart has integrated these metrics into its own supplier Sustainability Index and scorecards.

But greening its supply chain has been a tough task. Suppliers have repeatedly voiced one critical and legitimate complaint: Walmart's merchants don't really take sustainability into account when they make buying decisions. This flaw in Walmart's green supply chain program has threatened to undermine the foundations of a highly-touted and important initiative.

In essence, the suppliers and other stakeholders have told the company, according to Walmart's Sustainability director Jeff Rice, "It's great to ask your suppliers questions, but it only matters if you do something with the information." In their view, the company has continued to choose the products it sells primarily on price.

But now, in addition to Walmart's long-standing, laser-like focus on cost, its merchants will have to consider sustainability in their buying decisions — or risk a weak performance review. And all because of a simple shift in incentives.

Jeff Rice gave me a great example of how this change is already working, in the form of how Walmart selects the personal computers it sells. Laptops use a lot of energy over their lifetime, and a big driver of energy use is the default setting on power management. These settings determine how fast (if at all) the computer goes to sleep or when the screen dims. Using the index scorecards I mentioned above, Walmart's laptop buyer identified energy use as the biggest determinant of the computer's total lifecycle footprint and emissions.

The buyer then discovered that only 30% of the laptops sold at Walmart ship with the advanced energy-saving settings in place. To compound the problem, the company's research shows that most consumers leave such settings at factory default. So the laptop buyer set a new goal for herself: to increase the percentage of laptops sold with the advanced power settings from 30% to 100% by this Christmas. This single product shift will reduce CO2 emissions by hundreds of thousands of metric tons and save customers money on their electric bills.

Rice told me that performance evaluations for buyers only include a handful of targets, and all are discussed thoroughly at annual reviews. Sustainability performance won't determine the entire evaluation, of course, but it's high profile enough that it should affect behavior.

Incentives matter and cultures shift over time. Hard-won operational changes like modifying performance reviews may not be sexy, but the results can be profound. And when it's the world's largest retailer changing its buying criteria, the ripples will likely be felt around the world.

(This post first appeared at Harvard Business Online

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August 24, 2015

Fortune Magazine's "Change the World" List Needs More Hard Data

Fortune Magazine has taken on a fascinating and very challenging task of ranking companies that are "changing the world" for the good. Their new list could be a solid addition to their other non-financial rankings, such as Best Companies to Work For, Most Admired, or Most Powerful Women.


But that said, this list is odd, and not for the reasons you might think. Two quick areas that I will not criticize:

- The underlying assumption or impetus. That doing 'good' in the world is also good for business, I'm obviously on board with. Companies can, and should make what I call a "Big Pivot" and put solving the world's largest problems at the center of their business models -- and do it very profitably.

- Who made the list (others will certainly jump on this issue)? Most of the usual suspects that many sustainability watchers (including me) consider clear leaders on tackling environmental and social challenges -- like Unilever, Patagonia, Nike, Marks & Spencer, and Starbucks -- made the cut. As did the more controversial companies that many (again, including me) also give props to (like Walmart). But, of course, people will find fault with every company on the list. Multinational companies are not monolithic and I agree with Fortune that these giants "may be ameliorating one great global problem even as they contribute to another."

But even so, the list is strange in a key way. It's a "ranking" that doesn't exactly rank. Fortune says "We have made no effort here to rate companies on their overall 'goodness' or 'social responsibility.' That's a task beyond our competence." Really? Why?

If we can measure how powerful women are, or who's most admired or most innovative, we should be able to handle this task. Yes, "goodness" is tough to measure, but that's not the same as impossible, and Fortune shouldn't punt on that. If this list is saying that creating societal value creates business value, then let's use some financial (or perhaps blended) metrics.

We could use dollars. My colleague Freya Williams just released a new book, Green Giants, which focuses on 9 brands with over $1 billion in annual revenues that are "directly attributable to a product, service, or line of business with sustainability or social good at its core." Williams includes in her list, which totals $100 billion in revenues from more sustainable products, all of the sales of companies like Chipotle, Unilever, Tesla, Whole Foods, and Natura...and just the greener parts of GE (its ecomagination portfolio), Nike (Flyknit shoes), IKEA, and Toyota (the Prius).

It's not a perfect method, but it's not bad either. So why not rank all of the world's biggest companies by total dollars or percentage of revenues (or profits) coming from "good" products. It's not an exact science, but it would yield interesting results. Total dollars would put Walmart near the top -- even if you just count their organic food sales or some percentage of the business because of its renewable energy investments. Percentage of business dedicated to doing better would highlight those like Patagonia and Natura that are arguably at 100%.

And even without financial metrics, we could estimate how much impact the companies have on the world: number of people whose lives are improved, amount of economic growth driven for those near the bottom of the pyramid, and so on. There's a ton of work going on out there on changing the metrics we use at the scale of companies and the economy (GDP as a measure of well-being has some serious flaws).

Clearly, some of these considerations went into the Fortune ranking -- the think tank that helped build the list, FSG (founded by Michael Porter and Mark Kramer), is a major proponent of "shared value" creation between business and society. But it could all be more concrete. So, by all means, let's recognize the companies finding business value in social and environmental progress. But let's get more specific on how much credit we give them.

(Photo: Flickr, tracyshaun)

(This post first appeared at Huffington Post)

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

February 12, 2016

Which of Today's Business Practices Will Seem Barbaric in the Future?

My family and I recently visited the Jefferson Memorial in Washington, DC. Surrounding the giant statue of the man himself are four quotes in foot-high letters. They all, remarkably, still resonate today, but one in particular struck me hard:


[As] the human mind becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change...institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as a civilized society to remain ever under the regimen of their barbarous ancestors.

What a profound level of self-reflection. Jefferson knew what the world considered acceptable in his time -- such as advocating individual liberties while owning slaves -- could become intolerable in the future. So he suggested that rules and institutions remain flexible to allow for changes of hearts and minds.

Jefferson was speaking mainly about keeping governments in particular up-to-date. But we should apply this thinking to all institutions, including business. In previous eras, businesses relied on many horrific practices. Slavery and indentured servitude propped up the pre-industrial age. And child labor, 7-day workweeks, and unchecked monopolies were the norm into the 20th century.

Sadly, many of these practices continue in some form today, including even what'seffectively slavery in a range of industries and countries. But mainstream business finds the practice abhorrent and the prevalence is greatly reduced.

But what about ways of doing business that are perfectly common now? What will our descendants consider unseemly, unacceptable, or just plain stupid? I reached out to the Twittersphere to ask for opinions on this question and combined their thoughts with my own list. Here are 10 business practices that we are already challenging, and a few that we need to question:

1. Paying women less than men for the same job.

2. Overall levels of inequity, including absurd ratios of executive pay to average salary.

3. Emitting gases that change the climate without paying for them. Climate change is intergenerational oppression. More simply, a few tweeters pointed out that using energy from fossil fuels would be quaint someday.

4. Not putting a value or price on all that the natural world provides (free clean air and water, a stable climate, materials, flood prevention, and more). As consultant Sanjay Kapoor put it, we can't continue to "boost economic capital while depleting natural capital."

5. Linear business models that take in materials, produce products mainly for quick consumption, use them, and then throw them out. As we build circular models, we will see our current model as incredibly wasteful and expensive.

6. Letting short-term investors and stock price gyrations dictate our actions. Investor Dan Saccardi tweeted that it will be anachronistic that sustainability considerations (or "ESG") are an "afterthought/niche rather than baked into every investor's calculus."

7. Running businesses as groups of financial assets, not as groups of people making and doing things for other people (i.e., a common lack of humanism in business).

8. Seeing the role of business as purely financial rather than serving some need and purpose in the world. Millennials in particular want to work for companies that share values and have purpose.

9. Focusing solely on competitive advantage versus more collaborative practices that enlarge the pie for all. Kimberly-Clark sustainability exec Peggy Ward suggested that "not working collaboratively will be unacceptable."

10. Keeping hidden almost anything about your product, ingredients, supply chain, compensation, investors/backers, employees, and so on. Transparency will be expected.

All that said, we should still acknowledge what some of our dated practices accomplished, even as we look to move beyond them...

• Fossil fuels were not immoral -- we needed them to build a modern society. But we now know what they're doing to our health and the planet. And, most importantly, we have alternatives.

• Linear models get things done -- Henry Ford and Frederick Taylor helped the world produce orders of magnitude more than ever before. But now it's time for new levels of innovation to close loops and treat physical capital as precious.

• Investor-led capitalism was a reasonable experiment, but it may be time to take what works -- such as efficiently matching human and financial capital with needs and investments -- and improve upon it, infusing more humanity into the process.

Change is not easy. Moving to less barbaric modes of operation will require (at least) three things: flexible structures of governance (Jefferson's main point), a change of mindset (easily the hardest part), and innovation and technologies that enable the shift.

Picturing and bringing about a better future is not an academic exercise that only applies to some imagined great grandchildren. Given the longer lifespans and the radically increased rate of change, arguably we'll be around to experience the ramifications of our own choices. We're our own ancestors.

As we look forward into this new year and consider where we want to be in 52 weeks -- and 520 or 5200 weeks -- how can we avoid being barbarous ancestors? Or to flip the script, how can we be kind to our descendants and ourselves?

(This post first appeared on Huffington Post.)

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

If you enjoyed this blog, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

May 16, 2016

Business Is Taking Action on LGBT Rights. Will Climate Change Be Next?

After North Carolina passed a bizarre transgender bathroom law with sweeping implications (one that, according to the Justice Department, is probably illegal), an impressive list of big companies made their displeasure known. The CEOs of dozens of corporate giants — including Alcoa, Apple, Bank of America, Citibank, Facebook, Google, IBM, Kellogg, Marriott, PwC, and Starbucks — sent an open letter to the governor to defend “protections for LGBT people.” PayPal canceled plans for an operations center in the state, and Deutsche Bank announced it would freeze the addition of 250 employees in the state because of the law.

The floodgates of business proactively influencing societal norms and public policy are finally opening. And while some people may get nervous about this use of corporate power, I believe that businesses can have an enormous impact for good. Many other issues could, and should, follow.

At the same time, it’s worth asking why is this happening now — and what are the implications?

The facile answer, at least to the first question, is that societal norms have changed and business is just following customers. But the reality is more nuanced.

In 2006 55% of Americans opposed same-sex marriage and 35% supported it. And yet by that same year over half of the Fortune 500 offered domestic partner benefits. In the last decade the percentage of these large companies that prohibited discrimination based on gender identity skyrocketed from 16% to 66%, well ahead of mainstream acceptance of transgender rights. Many business sectors started marketing to and hiring talented members of the gay community years ago.

Equality efforts in the corporate world have not been perfect, but stepping back, it’s clear that there’s a dual logic for companies to jump into public policy: the moral imperative of a workplace without discrimination is intertwined with the reality of running a business catering to diverse customers and employees. So business has often acted years ahead of public sentiment.

And while societal shifts like this bring out enormous emotion and backlash — in some cases, it’s two steps forward (the Supreme Court legalizes gay marriage) and one step back (states try to squelch LGBT rights) — the language of the corporate rebuke to the North Carolina law shows that big businesses are now willing to step up in a very public way and challenge legislation directly on economic grounds. As the open letter puts it, “…such laws are bad for our employees and bad for business. This is not a direction in which states move when they are seeking to provide successful, thriving hubs for business and economic development.”

In theory, then, any moral issue that moves us away from thriving economically is also a business problem — so why stop at LGBT rights? A large number of issues could fall under the same dual logic: avoiding brand-damaging human-rights issues in the supply chain, fighting income and opportunity inequality (including supporting minimum wages), and, of course, tackling big environmental issues such as climate change.

There has been some corporate movement on the latter. Before the 175-country signing of the Paris Agreement on April 22, a group of 100 large U.S. companies, assembled by the NGOs Ceres and WWF, publicly supported the move. And tech giants Apple, Google, Amazon, and Microsoft took an unusual step recently, filing an amicus brief to support the Obama administration’s Clean Power Plan(one of the lynchpins in the U.S. commitment to the Paris Agreement).

But the current track record of pro-climate lobbying in particular, though growing, is still spotty and lacks the passion behind the moves to support LGBT rights. Let’s go back a few years to another state rule, also in North Carolina and also ridiculous. While writing a new law covering coastal development, the state legislature pointedly ignored a science panel’s estimates on sea level rise. The story flew around the web as a meme that North Carolina made talking about sea level rise illegal. Not 100% accurate, but close enough.

So shouldn’t companies pounce on that kind of law, with its shocking level of ignorance and poor strategy, as “bad for business”? After all, rising seas will have a real impact on business and economic development. But the business reaction to the sea level law was nearly nonexistent.

Compare that to the scale and speed of the reaction on the anti-LGBT law. The business community has acted in a visceral way. Big companies are saying, “We may not bring our business to North Carolina if you don’t get your act together.”

In short, talk is cheap. Signing a public declaration is one thing. Taking your business elsewhere, or threatening to do so, is quite another. At this point companies almost never shift their business based on the environmental performance of their suppliers or the climate laws in the regions they operate in.

We’ll only see local, regional, and federal support for laws that move the needle on climate change — a carbon tax, public-private investment in renewables, auto and appliance efficiency laws, and so on — when companies make it clear they only want to do business in places and with partners that have pro-climate rules in place.

Of course, comparing business’s action on LGBT issues with its action on climate change isn’t exactly comparing apples to apples. However, it allows us to more closely examine what might cause companies to take a stand on an issue that’s important to humanity but that would traditionally be considered the domain of society and government rather than business (a line that’s getting blurrier by the day).

So what’s missing when it comes to climate change? A lack of understanding by business about the economic and moral arguments, though that gap is closing. On the economic side, tackling climate change has reached the tipping point, entering no-brainer territory. A shifting climate is on track to cost investors and the global economy many trillions of dollars.

The human toll of extreme weather is hard to ignore as well. And big voices are making the moral case. In his amazing encyclical last year and in his speeches for the U.S. Congress and UN General Assembly, Pope Francis made the connection between climate change and human rights very clear. Major development organizations such as the World Bank are singing from the same hymnal. A new, systemic view of our challenges should help light a fire under companies to take a stronger stand.

What businesses will tolerate in society — and vice versa, what society considers acceptable business practice — is changing fast. I believe that business leaders will continue to get more comfortable leaning in on big environmental and social issues, including climate change. Their pressure may be our only path to real change.

[After I posted this last week on HBR, it occurred to me that there was another example of a local climate/energy related law that companies should be fighting. In Nevada the government and the Public Utility Commission took a huge step backward on renewables. The recent moves to slash payments for solar power that customers generate (on their homes and buildings) have made solar drastically more expensive in the state (and decimated the solar installation business). Big business should be fighting this kind of law aggressively.]

(This post first appeared at Harvard Business Review online.)

(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

If you enjoyed this blog, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

September 25, 2017

The Same, But Different: Some Thoughts on Japanese Business


I recently visited Tokyo on a business trip and had the chance to meet with a number of Japanese companies. At the end of a three-hour meeting with sustainability professionals from a dozen or so multinationals, the host asked me for my impressions of Japanese organizations and their sustainability efforts. My honest answer: “I’m confused.”

My perspective is limited, but I can compare what I know about corporate sustainability in general to how these execs described the way things work in Japan. I left with the impression that these big companies were both leading and lagging. The core tension seems to be between, on the one hand, their unusual ability to take a broad, long-term, systemic view of business and its role in society; while, on the other, approaching sustainability tactically in narrow, somewhat dated terms.

Consider how many Japanese companies have set ambitious, long-reaching sustainability goals, with many focused on what they can accomplish by 2050 (decades further out than most Western companies are comfortable thinking about). Look at Sony’s Road to Zero goal of leaving no environmental footprint by 2050. Or Toyota’s Environmental Challenge 2050, which lays out a similar vision for its vehicles and plants, but then adds expansive statements about building a recycling-based society in harmony with nature.

While I was there, I also learned about some companies I hadn’t been familiar with. An executive from Kao, a $12.5-billion consumer products company, told us about its solid performance on energy, waste, product redesign, and more. But what surprised me was Kao's corporate mission, “The Kao Way,” which begins: “Our mission is to strive for the wholehearted satisfaction and enrichment of the lives of people globally and to contribute to the sustainability of the world.”

Besides Unilever’s Sustainable Living Plan, very few companies have put sustainability at the center of their corporate vison and strategy. For most, the sustainability mission, if there is one, is in a silo.

So, thinking big and long term seems more comfortable for Japanese companies. As one specific proof point, anecdotally I’d say that more Japanese companies (and those in the EU) have embraced the Sustainable Development Goals as a blueprint for their targets. Companies in the U.S. seem to lag on this front.

And yet, there was one really important area where Japanese corporate sustainability was behind. The sustainability and top executives are still talking only in terms of “corporate social responsibility,” not the broader more impactful sustainability-style language we see in the U.S. and EU. It’s about the common good and philanthropy. It’s not like U.S. companies have all made sustainability into core strategic issues, but the language still felt dated in Japan.

For all of those differences, a lot seemed eerily familiar, even when many people I met with insisted that “things are different” in Japan. Part of that perception gap is based on some misperceptions about stakeholder pressure in the West. For example, they told me that consumers in Japan don’t really care much about the environmental or social aspects of products, unlike, they thought, those Western consumers that are forcing the hand of sustainability leaders such as Unilever. Or, they’d tell me, investors don’t care and just want short-term performance.

Sure, there may be some differences in stakeholder pressure – e.g., the people from consumer products companies said the “clean label” movement I described was not big in Japan, and I don’t have regional data to argue the point one way or the other. But I had to break it to them that consumers in the West, outside of a few product categories such as organics and some personal care, are not really driving the agenda, either. In fact, I hear the samecomplaints about consumers from the big CPG companies here.

And the mantra “Wall Street doesn’t get it” is getting less true in Western sustainability circles, but I still hear it a great deal. The institutional investors around the world are asking more questions about long-term issues, but the analysts and hedge fund guys? Not so much.

In total, the conversations I had while sitting down with 20 sustainability execs in Japan to share my Big Pivot story – a saga of mega-trends, a growing clean economy, Millennial attitude shifts, big risks and opportunities, and corporate heroes – felt incredibly familiar.

They face similar hurdles in the marketplace and perhaps more so internally, where they’re not taken as seriously as they should be. Again, that CSR-only languagesidelines them. It likely explains, along with Japanese culture in general, the self-effacing approach I witnessed: It’s really hard to get them to brag about anything they’ve done.

These companies are likely doing more than we realize, and more than they give themselves credit for. But they need to advocate for their importance in their enterprises.

So, in essence, corporate sustainability in Japan is the same as … but also different from ... everywhere else.

On a lighter note, here are some random impressions from an outsider coming to Japan:

  • Business is formal and hierarchy in meetings reigns. But the dress is more casual than you’d think (few ties, short-sleeve business shirts), primarily because the 12-year-old “cool biz” program – which keeps office temps warmer in the summer to save energy – is clearly working.
  • Everyone was unfailingly polite and incredibly helpful as I navigated culture and food (I’m pescatarian) with non-existent Japanese language skills outside of the helpful Styx lyric from the ‘80s, “Domo arigato, Mr. Roboto,” which doesn’t get you as far as you’d think.
  • They follow the rules. Nobody crosses the street until the walk sign is green, no matter how empty the streets. I lived in New York for 12 years, where you walk if there’s any semblance of daylight between cars, so this one felt like torture.
  • Tokyo is the cleanest city I’ve ever seen by far. Many streets looked like Disney’s version of a Japanese city.
  • And they take their personal hygiene seriously. People wear masks, presumably to keep their germs from rudely spreading to others. Also, for no reason I can discern, the urinals flush as you approach them and when you leave (perhaps not the best use of resources). And the toilet in my hotel had more computing power than the Apollo mission.

In total, it was a fascinating and eye-opening trip, from bathrooms to boardrooms.

(This post first appeared at Sustainable Brands online.)

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Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

November 15, 2017

Focusing on What 90% of Businesses Do Now Is a Big Mistake

I have a new quarterly column for MIT Sloan Management Review. Logically, I'm the sustainability guy, but I'll be leaning into technology topics as well. Here's my first piece (also here), where I talk about the change in expectations of companies and in the goals they set on environmental and social issues. I'll have more on how those goals have evolved in a future blog (I just ran some great data from pivotgoals.com). Enjoy.

I was driving through rural Pennsylvania recently and saw a fascinating billboard. Sponsored by an organization that promotes coal and natural gas, the sign declared, “The truth is that 90% of our energy comes from fossil fuels.”

Technically, that’s true (ish), but it’s also meaningless.


On the surface, the facts are a bit exaggerated — fossil fuels provided more like 80% of our energy in the United States in 2016. But even if it’s roughly correct, who cares? The future belongs to renewable energy and clean technology.

The majority of the new energy capacity put on the electrical grid — both globally and in the United States — now comes from renewables. In 2016, wind, solar, biomass, and hydroelectric energy accounted for 63% of the additional capacity built in the United States, and an amazing 86% in Europe). As for our transportation systems, a growing list of countries, including France, Norway, the U.K., India, and China, have announced either future bans on selling diesel or gas cars or official targets for electric car sales.

Automakers are also moving quickly: Volvo, for instance, has said that in just two years, it will stop making cars that have only an internal combustion engine — that is, every car will be electric or hybrid, with both a battery and smaller engine. So the fossil-fuel sector is waging a losing battle.

Rearview-mirror strategy is a bad idea

But the billboard got me thinking about a more general point for business: It’s not smart to base any part of your strategy on what you see in the rearview mirror. And that’s particularly true when you develop strategies for navigating modern, thorny environmental and social challenges. If you run a business (or a government) as if the future will look exactly like the past, you will become irrelevant.

Consider the sheer fact that there were points in human history, not that long ago, when:

  • 90% of lighting came from candles and oil (from whales, not from oil rigs)
  • 90% of transportation relied on horsepower — from actual horses
  • 90% of written communication existed on paper, not email
  • 90% of new music came on vinyl ... and then 8-track or cassette ... and then CDs
  • 90% of photographs needed to be “developed” (a truly alien concept to my kids)
  • 90% of movies rented or bought came on something physical (VHS or DVD)

The list goes on and on. Many of the companies in those industries have ignored the “dead man walking” aspect of their business, especially when those that dominant market shares. But their downfalls became classic cautionary tales — think film company Eastman Kodak Co. and video rental chain Blockbuster LLC. The history of technology adoption is pretty clear, and it’s speeding up. Try to imagine some past billboards announcing (proudly!) that 90% of TVs are black-and-white, or that 90% of food preservation is from salt, not this newfangled “fridge” thing.

Now make the small leap to think beyond shifts in what’s normal in technology or the energy sectors. Social change also comes to the world — and to business — fast and furious. At distinct moments in the history of the developed world, 90% of elite college students (and corporate new hires) were white males, and 90% of companies would not even think of having domestic partner or LGBT policies. In Saudi Arabia, until just a few weeks ago, men drove about 100% of the car miles.

Expectations About How Companies Manage Sustainability Issues Are Moving Fast

My larger point is that change is coming to business — and executives need to adjust. The norms and expectations about how companies manage environmental and social issues are shifting fast.

Just six years ago, only 20% of the S&P 500 companies produced sustainability reports. By 2016, 82% did, providing public, detailed looks at their environmental and social actions and performance. A growing number have integrated these sustainability reports into their annual financial reports.

My company keeps a public database of the sustainability goals set by multinational businesses. These commitments include statements such as “reduce greenhouse gas emissions by 50% by 2025” and “ensure women make up 40% of management roles.” Roughly 85% of the 200 largest companies in the world now have public targets on social or environmental performance — and it’s actually over 90% if we exclude Chinese government-owned enterprises, which don’t often set individual targets separate from government planning. More than 100 of the world’s largest companies have now committed to 100% renewable energy. Ten years ago, the number of large companies with renewable energy goals, or any sustainability targets, was negligible.

We’re in the early stages of big shifts in how companies do business more sustainably, with much more attention to their role in society. Most companies are aggressively reducing their own operational footprints.

But that’s arguably just table stakes. A growing number of companies are engaging with the broader world in ways that were rare until quite recently. U.S. CEOs are taking public stands on issues from LGBT rights to immigration. After the state of North Carolina passed a bizarre bill that mandated which bathrooms transgender people could use, dozens of large company CEOs wrote an open letter to the state’s governor saying that the legislation is “not a bill that reflects the values of our companies.” What percentage of large companies would’ve spoken out on something so socially sensitive five years ago?

So what’s coming next? On technology, as always, plenty.

For example, I’m sure that 90% of companies do not have artificial intelligence deeply embedded in their operations today. But how long do you want to bet it will be until Siri, Alexa, and Watson get together to change that statistic?

Technology is always changing, so that’s nothing new. But a far deeper change is brewing. Business faces rising expectations from society, and that shift is changing the nature of strategy and competition.

On all megatrends, but particularly sustainability, look beyond what the 90% are doing right now. Even with all the talk about carbon footprint and renewable energy, the vast majority of companies have not made climate action or sustainability a top priority. Based on my experience with multinationals, I’m confident that 90% of large company C-suite execs still believe that their primary (and often only) goal is maximizing shareholder value.

But leading companies are now expanding their definition of corporate success. They’re listening, in part, to the shocking 87% of millennials who agree that “the success of a business should be measured in terms of more than just its financial performance.”

It’s a new world for business, and expectations keep rising. Looking at yesterday’s norms will make your business outdated and irrelevant. So, look forward to be part of — or better yet, to help create — a thriving future.


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Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

December 31, 2017

The Top 10 Sustainable Business Stories of 2017

(I recently published my 9th annual roundup of top themes/stories impacting how business navigates environmental and social issues. See original at HBR. I've reposted it here with a couple smaller "honorable mention" stories at the end that got edited out of the HBR version. A few social media comments pointed out my list is perhaps too U.S. focused -- fair enough, I am U.S. based. And one big thing I definitely should've included here was Brexit. I was probably too focused on our own dysfunction in the U.S. Oops. But overall, readers have said they thought I was balanced and, surprisingly, fairly optimistic. See what you think and enjoy the New Year!)

The year 2017 has been a long, strange trip. The definition of sustainability in business evolved quickly — the topic in executive suites now covers a wide range of issues that address how a company navigates environmental and social challenges. From carbon footprint to taking a stand on human rights or immigration, companies need a position and strategy on all of this and more.

We saw big leaps both backward and forward this year, some of which weren’t especially surprising. In my year-end wrap up for 2016, for instance, I predicted that “the context for sustainable business in 2017 may center on the competition between two stories, the election of Donald Trump and significant action on climate change.” That’s pretty much what happened. Trump pulled the U.S. out of the Paris climate accord, the hard-won global agreement to tackle the greatest threat to humanity and the economy, becoming the only country in the world on the sidelines.

But the Newtonian equal-and-opposite reaction from business, states, and cities was nothing short of amazing. Their pushback on policy decisions is my #1 story of 2017. Here’s more on that, plus nine additional developments business leaders need to pay attention to.

Climate, Clean Tech, and the Environment

1. U.S. leaders from the public and private sectors rejected Trump’s decision on the Paris accord and committed to climate action.
On the day of the president’s announcement about the Paris climate accord, 25 multinationals — including Apple, Facebook, Google, HPE, Ingersoll Rand, Intel, Microsoft, PG&E, Tiffany, and Unilever — ran a full page ad in the Wall Street Journal asking Trump to stay committed to the agreement. By that weekend, dozens of big companies declared, We Are Still In. This public statement includes thousands of signatories — not just companies, but states, cities, and universities.

On the governmental side, the states of California, Washington, New York, and others representing a third of the U.S. population and GDP announced the formation of the U.S. Climate Alliance. California Governor Jerry Brown emerged as the de facto climate leader for the United States, holding his own meetings in China and headlining a delegation to the global climate talks in Bonn. A growing list of 385 local leaders have joined the U.S. Climate Mayors pact as well. A group of high -profile business leaders offered their thoughts on the sustainability agenda right here at HBR (I am also an adviser to that effort). In total, the message to the rest of the world has been clear: “sub-national” support for climate action is very strong in the United States.

2. The deadly costs of climate change became even more obvious.
This year, the science got clearer about the connection between extreme weather and human-caused climate change. And that extreme weather was horrifying. Record-setting storms, floods, and drought-driven fires wreaked havoc around the world. Flooding in South Asia killed more than 1,200 people. Asia also experienced shocking heat, including a day in Pakistan that hit nearly 130 degrees Fahrenheit. Hurricane Harvey hit Houston hard (the before-and-after flooding pictures are mind-boggling), and the national weather service added colors to flood maps to reflect the record 30 inches of rain that fell. Hurricane Irma demolished Caribbean islands, and Hurricane Maria created an economic and humanitarian disaster in Puerto Rico. As of this writing, months after the storm, a third of the island is still without power, and 10% of these U.S. citizens have no water. On the U.S. mainland, unprecedented wildfires ripped through Napa and central California, as well as Los Angeles County.

These extreme weather events are primarily human tragedies, but they’re economic and business disasters as well. When entire regions are under water or lose power for months, it’s not good for local and national economies. In fact, the economic cost of extreme weather is vast and rising. In the 1980s, 27 weather events cost the U.S. more than $1 billion each (in today’s dollars). A little more than halfway through the current decade, we’ve already experienced 89 billion-dollar events, and they’re much, much larger. Hurricane Sandy in 2012 and the big trio of Hurricanes Harvey, Irma, and Maria this year are all $50 billion to $100 billion storms.

3. The Trump administration started dismantling environmental protections.
In the U.S., the new administration’s policy goes beyond pulling out of Paris. We’re seeing an all-out assault on our air, water, climate, and land. The EPA head, Scott Pruitt, spent years suing the agency and essentially intends on dismantling it. Pruitt and Trump, with assists from Interior Secretary Ryan Zinke and Energy Secretary Rick Perry, are working to, for example:

Bi-partisan groups of former energy commissioners and EPA heads have spoken out against every move. And while many companies may hope to save money in the short run with fewer regulatory hurdles, it’s also clear that an unhealthier environment is not great for businesses, its customers, its communities, or its employees in the long term.

4. Investors woke up about climate risk and benefits of sustainability.
I know, I know, Wall Street only cares about short-term earnings performance. And yet there’s something brewing among big institutional players, the economy’s risk assessors, and even some Wall Street types. For example, Larry Fink, the CEO of BlackRock (with $6 trillion in assets under its management) asked business leaders to focus on “long-term value creation” in his third annual letterto S&P 500 CEOs. BlackRock also said its “engagement priorities” for talking to CEOs would include climate risk and boardroom diversity.

Shareholder resolutions on climate disclosure and strategies succeeded for the first time at Occidental Petroleum and ExxonMobil as well. Fund giant Vanguard, which led the charge at Exxon, also declared climate risk and gender diversity “defining themes” of its investment strategy. Institutional investors continued to drive climate action also, with hundreds signing a statement of support for the Paris agreement. And Norway’s $1 trillion Wealth Fund is forcing banks to disclose the carbon footprint of loans and will divest from fossil fuels. In late-breaking news, the World Bank will stop financing upstream oil and gas projects after 2019.

Finally, a few big developing stories could create long-term ripples. First, the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (or TCFD) — chaired and led by financial giant and former New York City mayor Michael Bloomberg — issued a critical set of guidelines for investors and insurers to understand climate risks. On the heels of TCFD, a group of 225 global investors with $26 trillion under management launched “Climate Action 100+” to “engage” with large emitters on their management and disclosure of climate risks. And in fascinatings new on the debt financing front, Moody’s told cities to address climate risks or face downgrades on their bonds. Could shifting rates on company debt be far behind?

5. China accelerated its clean tech advantage.
On the fifth day of 2017, China announced it would spend $360 billion on renewable energy by 2020. The rest of the year brought even more leadership: China cancelled 103 coal plants, committed to cut coal by 30%, made big moves in electric vehicles (see #9, below), erected the world’s largest land-basedand floating solar farms (becoming the world’s largest solar producer in the process), and – in one of the most fun stories of the year — built a solar farm in the shape of a giant panda just for the heck of it. Essentially, in 2017, China took over the role of global climate leader and then, to top it off, committed nearly a trillion dollars in infrastructure spending to connect China to the rest of the world.

6. Clean tech continued its relentless march (and coal continued to die).
As a whole, the economics of every major green technology got radically better. (Morgan Stanley predicted an “inflection point” in 2020, when renewables become the cheapest energy source globally.) But to focus on two intertwined areas, look at what happened with electric vehicles (EVs) and battery storage.

On the former, some large economies, including France, India, Britain, Norway, and China, committed to ban diesel and gas vehicles. Automakers moved quickly as well, with GM and Ford announcing major investments in EVs and Volvo phasing out conventional engines starting as soon as 2019. A group of multinationals with big logistics operations launched EV100, an initiative to speed up the switch to EVs. One big city, Shenzhen, China, moved its entire bus fleet to EV. In total, EV sales were up 63% globally.

The economics of batteries (needed for EVs and, critically, the grid so we can store clean energy) continued to get much better—50% cheaper since 2014. Tesla built grid-scale storage for Southern California and quickly erected the world’s largest lithium ion battery storage in Australia. The end result is going to be the end of coal, bolstered by commitments from states like Michigan to go coal-free—and the entire EU, which will build no new coal plants after 2020.

The Role of Business in Society

7. Famous CEOs took moral stands.
One group of business leaders faced a tough decision this year: stay in the president’s CEO advisory councils or protest his policies by pulling out. A few, like Tesla’s Elon Musk and Disney’s Robert Iger, left in the spring after the Paris climate decision. But most stayed on — that is, until the Charlottesville, Virginia white nationalist marches. When the president said there were “some very fine people” among the white supremacists, the CEO Advisory Councils disbanded quickly, with the leaders of Pepsi, IBM, GM, BCG, Merck, 3M, and others walking away (a few wanted to stay, but the momentum was clear).

One CEO in particular, Apple’s Tim Cook (who was not formally on the councils) denounced the “moral equivalence” of white supremacists and human rights protesters, but he also went on to say something more important about business: “We have a moral responsibility to help grow the economy, to help grow jobs, to contribute to this country and to other countries that we do business in.” In essence, Cook made a blended argument for sustainability that isn’t about philanthropy and the polar bears, but about the core business and its role in society. And yet, Apple had its own challenges. Proving that no company’s actions are black and white, the world discovered that Apple has stashed a quarter of a trillion dollars in cash outside the U.S. to avoid taxes. Yes, it’s legal, but is it right? Given Cook’s own argument, it’s an uncomfortable disconnect.

8. Companies went to court.
This year large companies dove into legal battles on social hot-button issues to an unusual degree. Tech companies big and small filed an “amicus brief” to fight the president’s first executive order on immigration (biotech firms spoke out as well). Fifty big companies asked a New York federal appeals court to fight discrimination based on sexual orientation. Companies also lobbied for pro-environmental and social policies. Companies went local as well, with seven big guns — Procter & Gamble, Walmart, Unilever, General Mills, Target, General Motors, and Nestle — pushing the state of Missouri to pass a bill to make it easier for them to buy renewable energy.

9. The super bowl of sustainability advertising was… the actual Super Bowl.
A surprising number of big brands used the most expensive, most viewed advertising time in the world to do something different this year: Instead of pitching products the old-fashioned way, focusing on how great it tastes or will make you feel, they chose to say something about an important aspect of social sustainability. And they took risky stands, in often not-so-veiled ways, against the policies of the new U.S. president.

Budweiser’s ad told the story of their founder and proudly pointed out his immigrant status. Little-known 84 Lumber went viral with a five-minute video about the journey of a family from central America. Coca-Cola focused on diversity and inclusion with its multi-lingual ad. And Audi’s ad “Daughter” lamented the lack of pay equity for women (though Audi then took heat for its own record on pay and women in leadership, showing that sustainability-focused ads can be risky).

10. Unilever fights off a hostile takeover bid.
Unilever is the consensus corporate leader on managing sustainability for business and societal value. That’s why I consider the attempted takeover of Unilever by Kraft Heinz and 3G Capital an important sustainability story.

It is unlikely that a firm like 3G would continue supporting the sustainability strategy at the heart of Unilever, even though the strategy has been wildly successful (the company’s market cap was at an all-time high — and then went up another 20% after the takeover attempt). As Unilever’s CEO, Paul Polman told the Financial Times, it was “clearly a clash between a long-term, sustainable business model for multiple stakeholders and a model that is entirely focused on shareholder primacy.” Everyone interested in seeing companies lead the charge to a thriving world breathed a sigh of relief. (Full disclosure: I’ve been an advisor to Unilever North America, but I had zero involvement on this issue.)

Honorable mentions
- Big new sustainability goals. Kudos to Mars, Inc. for committing $1 billion toward becoming “sustainable in a generation” and to HPE and H&M for setting science-based and carbon neutral goals for their suppliers.
- More transparency and accountability. New technologies (hello, blockchain) are capturing more information about products. Transparency is increasing. Panera went 100% “clean label”, Target and Walmart leaned into chemical management, and Unilever set a for transparency on fragrances.
- Citizen action on a grand scale. The women’s march and #metoo revealed a lot of pent up frustration with the world’s businesses and institutions (and with men).

So what’s next?

It’s risky to say anything definitive about the future. But I do believe that some mega-trends have too much inertia for any one stakeholder to completely disrupt. So some light predictions for 2018:

  • The climate will continue to get more volatile. Any remaining business leaders who don’t understand climate as a systemic risk and opportunity will have to get on board.

  • Millennials and Gen Z will continue to push for purpose and meaning in work and life.

  • AI, big data, blockchain, and other tech will change how we understand companies, products, and services, leading even more to embrace “clean labels”.

  • To meet ever-rising expectations, and drive business value, companies will set more and more aggressive sustainability goals.

  • Clean tech will be under attack by the U.S. administration, but it will continue to prevail globally.

  • Finally, the #metoo movement against sexual harassment, which is sweeping through politics and media, will hit big business. We may see some senior Fortune 500 execs fall.
  • Onward to 2018. Have a happy, healthy, and sustainable New Year!


    If you enjoyed this article, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston

    Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.