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Net Impact Sets Stage for a Sustainable Decade

11/23/2010 --

National conference at Ross highlights latest ideas and challenges of corporate responsibility.

ANN ARBOR, Mich. — The business path toward a more sustainable decade was cleared at the Ross School of Business Oct. 28 with the national Net Impact Conference.

The goal was to spark the next generation of leaders on how to use the engine of business to make the world more sustainable by 2020. About 2,500 attendees enjoyed a comprehensive program featuring business and thought leaders from around the globe. One key takeaway was clear: Businesses have to be more engaged with all stakeholders and less inward-focused if they are to survive in the future.

Engagement drives everything, from finding the best way to reach consumers at the base of the economic pyramid to making sure suppliers act responsibly to reducing the impact of your packaging. Gary Hirshberg, president and "CE-YO" of organic yogurt producer Stonyfield Farms, said he rejects the traditional model of shareholder primacy.

"I really donít think there can be a primacy of the shareholder when the other stakeholders are losing," he said, wondering how a company can be considered successful and beat up its suppliers or mistreat employees to the point of constant turnover. True success for a business comes when all stakeholders win, not just shareholders, he noted.

And Stonyfield stakeholders appear to be winning. The company has enjoyed a 23 percent compound annual growth rate over the last 20 years.

The idea of deep engagement, or co-creation, was amplified by Ross professor Ted London and his colleague at the University's William Davidson Institute, Cornell professor Stuart Hart. Both are carrying the torch for an idea pioneered by Hart and the late Ross professor C.K. Prahalad that businesses could profit by serving the world's poor. They could improve consumers' lives while enhancing the firm's bottom line.

However, the past decade has delivered few homeruns on that front. Most companies oversimplified the message to mean selling cheaper versions of current products. Few took the time to engage with these new customers to find out how they lived and what they wanted. Hart said companies need to start a true, two-way dialogue with people in a community.

"That gives us a chance to create more sustainable, more embedded businesses at the base of the pyramid," he said.

And we may have been asking the wrong questions all along. Instead of asking how to tap the fortune at the base of the pyramid, we should ask how to create a fortune with the base of the pyramid.

Companies also are engaging more with their suppliers on the issue of social responsibility. As supply chains become longer and more complex, this requires more work on the part of the manufacturer since they will bear the brunt of any misbehavior on the part of a supplier.

Contracts with the top-level suppliers and occasional audits aren't enough to prevent problems, said Monique Oxender, global manager of supply chain sustainability for Ford Motor Co. The risks are seven steps down the supply chain and the public and shareholders hold the company responsible for issues all the way down to the end of the line.

This is where engagement comes in, said Bama Athreya, executive director of the International Labor Rights Forum. Companies need to send people to local markets where they're sourcing to engage the population. Too often a company is the last to know that a particular industry in a country is rife with labor abuses or other ethical lapses.

Engagement, though, is just the start and it can take a long time to solve a problem. Kim Jeffery, president and CEO of Nestle Waters North American Inc., spends a lot of time thinking about the environmental impact of the company's water bottles.

The PET plastic used to make the bottles (except the caps) is re-usable, but only 50 percent of the U.S. has curbside recycling. And of that 50 percent, only about half of the people use it.

"We have a totally inadequate, fragmented recycling system in America," he said, noting that only 30 percent of all PET plastic in the U.S. is recycled. That means recycled plastic is in high demand and costs more than virgin plastic resin.

Still, consumer demand for bottled water remains high and the political will to create a large recycling infrastructure remains low. Jeffery says it's up to companies like Nestle to help build recycling systems.

Nestle has engaged with the government of Manitoba in Canada to expand curbside recycling of all re-usable products. The provincial government sets the goals and companies have to meet them, but the infrastructure is privately funded.

"We think itís going to be very successful,Ē Jeffery said.

—Terry Kosdrosky



For more information, contact:
Terry Kosdrosky, (734) 936-2502, terrykos@umich.edu