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Sustainable Business: Wake Up and Smell the Coffee

Feb 24th, 2011
by Fred H. Schlegel.
8 comments

I just clicked ‘checkout’ for a few pounds of Dean’s Beans. Haven’t tried them before, but wanted to after hearing Dean Cycon, CEO of Dean’s Beans and author of Javatrekker: Dispatches From the World of Fair Trade Coffee, speak tonight at Indiana University.

“I don’t believe social justice is a formula, I believe it is a process.”

Passionate and positive, he shared his ideas on how socially responsible business practice and respect for quality of life can help change the world.

Sustainable business is all the rage, but efforts at many companies seem to get holed up in the marketing department or as purely charitable exercises. I asked Dean if he thought large organizations could change over to the sustainable thinking his company emulates:

“For a pre-existing large scale organization it’s hard because people are already in there looking for profit. […] However, when a corporation starts out and says these are our values: ‘We’re a triple bottom line corporation. Yes, we’re going to try and maximize profit but not at the expense of the third world sourcing ecology, or the health of the communities we buy from. We’re not going to do profit on the backs of people to the point it damages their air, water, or food, or their communities. Were going to balance that. Were going to give up a little of this to get that.’

So if you start like that there is a sufficient investment community out right now who’s willing to say, ‘I’ll vote my dollars there.’ “

Interesting take. Old business models are often replaced by new thinking.  Some organizations transform, but more often they decline and are replaced. A core difference between old and new thinking is the idea of profit maximization and value maximization for shareholders. The difficulty has been and continues to be a question of measurement and recognition. The ability to recognize the value of social responsibility for shareholders is key to the idea’s growth.

Efforts to elevate sustainability and Corporate Responsibility are being highlighted publicly by companies in annual reports (See Inditex’s annual report here pg 57), special reports (Apple recently released this supplier responsibility report) and in the media. Right now much of this work is justified to protect corporate reputations (avoiding negative customer reaction), as well as to improve operations (social problems impact supply chains).  This transparency helps, but the efforts show differences from Dean’s.

Dean says his company takes a three tier approach to meet the corporate responsibilities they have set for themselves. Environmental, Economic, and Social.  I had not realized the extent of pesticide use in the coffee industry, second only to cotton, and including multiple chemicals that have been banned for use in the United States. Dean’s Beans helps the co-ops they buy from go through the process of becoming Organically Certified (as he says, ‘organic by design.’) This is more than just ending pesticide use (something he calls ‘organic by neglect’).

Dean’s Beans also internally funds what Dean calls People Centered Development. I found the approach interesting: they work with the community itself, they listen and observe, and then help facilitate something the community is going to run. The variety of projects highlights the community specific approach. For example a revolving well fund in Ethiopia called Miriam’s Well, a tree planting project (over 100 thousand trees planted) in Peru, and a prosthetic program in Nicaragua.  The goal was to start projects that would self fund over time and last.  This approach appears to rely heavily on a very personal relationship between company and community and a belief that the programs must outlast the start-up efforts of Dean’s Beans.

When asked what makes a community development program sustainable:

“Buy in, community buy in.  The community must feel that it owns the program, that it’s not being forced on them and its not going to be taken away from them. But rather its their program, they own and operate it then and will invest their energy in it even in rough times.”

So, a great evening even if I was drinking the wrong brand of joe. In the next few days I hope to be enjoying a cup of Uprising!

Posted in: Leadership Leaps, Strategic Fire.
Tagged: · · · · ·

Are You An Artist Or A Scientist?

Feb 20th, 2011
by Fred H. Schlegel.
10 comments

Brad Shorr recently asked his readers if they considered themselves more marketing scientist or marketing artist. This idea of ‘artist vs scientist’ runs deep today and has implications for  education and innovation regardless of what profession we are discussing.  The first note I have of this cultural divide being discussed as a critical issue to be dealt with is by C.P. Snow, Cambridge:

“Literary intellectuals at one pole—at the other scientists, and as the most representative, the physical scientists. Between the two a gulf of mutual incomprehension—sometimes (particularly among the young) hostility and dislike, but most of all a lack of understanding.  They have a curious distorted image of each other. Their attitudes are so different that, even on the level of emotion, they can’t find much common ground.”  (The Two Cultures and The Scientific Revolution, The Rede Lecture, 1959 by C.P. Snow)

To me, the difference between artist and scientist is one of modes – or ways of thinking – in addition to underlying knowledge. Our education system forces decisions between the artistic and scientific early on. Declaring their difference. Daring you to cross between what appears to be a large cultural divide.

This is a false dichotomy. A fool’s choice. Never leave home with half a toolbox. Embrace the duality!

There are strong reasons to rethink how we look at the connections of art and science. The creative process depends on it. One of my biggest challenges in teaching undergrads has been to remind them of their own inner creativity-regardless of their focus.

Snow picks on the literary and physical sciences world intentionally.  I don’t think you’ll find two areas that view the world so differently. Their objectives are different. What they measure is different.

This is a natural outgrowth of focus. Disciplines develop what is a language of their own to describe the subjects and activities of interest.  Modes of thinking. It highlights their difference. It makes communication difficult. Understanding disagreeable.

“But at the heart of thought and creation we are letting some of our best chances go by default.  The clashing point of two subjects, two disciplines, two cultures—of two galaxies, so far as that goes—ought to produce creative chances. In the history of mental activity that has been where some of the breakthroughs came. The chances are there now. But they are there, as it were, in a vacuum, because those int he two cultures can’t talk to each other.”  (The Two Cultures and The Scientific Revolution, The Rede Lecture, 1959 by C.P. Snow)

It’s the difference that can create insight. Not uniformity.

So in answer to Brad’s query – are you marketing scientist or artists – I like to think of myself as both. Building the strength of both approaches I work to discover the insight and the change that will shake things up. (He’s running a science experiment at the moment – click here to figure out how to participate.)

As I was doing a bit of research I came across an Australian band: Art Vs. Science. Sorry, but I simply can’t pass up the chance to add battling mimes into the discussion…

What do you think?

Posted in: Frog Thoughts.
Tagged: ·

Think Can-Do In The New Year

Jan 1st, 2011
by Fred H. Schlegel.
14 comments

I’m sitting here New Year’s morning eyeing the Rose Bowl Parade, still chuckling from a traditional evening of Marx Brothers and thinking on the year to come. It’s been a year of change for the Schlegel household, change that has been absorbed, embraced and adapted to establish our next launchpad. Thanks to all who have taken part, helped and encouraged.

I grew up in the sixties on a healthy mix of impossible plans, building models of Apollo Saturn V’s and experimenting with solar cells. While I didn’t pursue a life in space, the mindset that practically anything is within the reach of a determined group never left me. Call me a product of Chicago where Birnham’s charge still sets the tone:

“Make no small plans: they have no magic to stir men’s blood.”

Double negative aside, it’s a neat way to live.

Is there hope in the new year? I taught entrepreneurship to undergrads at the Indiana University Kelley School of Business last semester and it helped recharge my own creative batteries. Why can’t we improve transportation? Why can’t we make housing easier? Why can’t we change the world? No reason. Building businesses and organizations that improve lives is hard, but never impossible. The students get that.

Good to see that American Dreams are alive and well as we head into 2011.

So what are my wishes for the new year?

For us all to have Big Plans. Impossible Plans. Amazing Plans. Get them on the table. Talk about them, argue them through.

Plow the road for entrepreneurs and visionaries. Bring on the Fultons, Fords and Wrights. Let loose the Hewletts, Andreessens, Jobs and Wilsons.

Create the economic playing fields that will usher in the next round of prosperity, protect the environment and improve life on (and off?) our planet.

I’ve never been one for giving things up in the new year. I’ve found it easier to replace a bad habit with a new, hopefully better one. Let’s get back to running forward on the path of what we can do, what we want to do.

Yup. Think Can-Do. It’s the mindset of 2011.

——

Many thanks to all of you who read and comment here at Frogblog. Your additions make this a much more interesting place.  Happy New Year.

Posted in: Entrepreneurship, Frog Thoughts.
Tagged: ·

You need a real leader…

Nov 4th, 2010
by Fred H. Schlegel.
8 comments

Is your organization run by a real leader?

Paul H. O’Neill, former Secretary of the Treasury and Alcoa CEO, said that if everyone in an organization can answer ‘Yes’ to the following three questions then you have a real leader at the top.

  1. Are you treated with dignity and respect every day without regard to who you are or your position in the company?
  2. Are you given the things you need – education, tools, money – so that you can make a contribution to the organization that provides meaning to your life?
  3. Are you recognized for what you do?

It’s the little extras in the definition above that caught my ear as he spoke this past Tuesday (11/2/2010) at Indiana University. …Respect regardless of position. …Provides meaning to your life. …Recognition. Have you worked at such a place where these points were universally true?

“A real leader unleashes the 20% discretionary intelligence and energy of the people in in the enterprise. You can not incentivise it out of them. You can’t give them enough money to so they’ll give you the extra 20%. You can only get it by creating the conditions. […] These conditions can not exist unless there is a real leader in place,” said O’Neill.

When I asked if he had examples in the U.S. who were pursuing this effort he mentioned the Seattle based Virginia Mason Clinic. When they asked themselves about caregiving from the viewpoint of the patient, they realized things could be better. Often during a 12 hour visit for chemo half the time was spent waiting for the convenience of the caregivers. By asking themselves from a value proposition – ‘we want to make life better for our patients’ – they redesigned the process, cutting visit length in half. This happened because the CEO Gary Kaplan pursues these principles. (The center is the subject of an upcoming book by Charles Kenney, Transforming Health Care: Virginia Mason Medical Center’s Pursuit of the Perfect Patient Experience. )

The ability of leaders to drive habitual organizational excellence enabling discover and continuous improvement is a critical element In the long term health and innovative ability of a company. Examples he gave of how creating an organization based on the three principles above seemed to indicate they could be a powerful way to see relationships and organizational challenges from a completely different point of view – thereby unleashing that extra 20% every company so desperately needs.

Posted in: Leadership Leaps.
Tagged: · ·

Sustaining Wealth Creation: Economic Recessions and Housing

Oct 29th, 2010
by Fred H. Schlegel.
9 comments

How do we get out of the current financial mess?

“Do whatever you can to allow the start of new businesses,” said 2002 Economic Nobel Laureate Vernon L. Smith, who spoke Thursday night (10/28/2010) at Indiana University.

In the history of recessions here and around the world, bubbles in the housing market are regularly more devastating to financial institutions and other parts of the economy than even larger disruptions elsewhere according to Smith, Professor of Economics at Chapman University.

Over the past few years I’ve been frustrated by simplified explanations of our recent financial crisis that place all blame on a single element of our system rather than dealing with what is a rather complex and intermixed systemic failure. Smith’s background in experimental microeconomics and long experience with bubbles led him and his associate, Dr. Steven Gjerstad, to study historic recessions and try to identify the differences that lead to more widespread disruptions. This is a great review of the major and less severe recessions since  the great depression as well as a primer into the importance of housing.

“Why housing?” is a significant question especially when you realize that the tech stock bubble early this decade wiped out significantly more wealth initially than the housing decline, and yet for the most part, financial institutions survived.

Price bubbles are common in lab experiments surrounding durable assets (items that we can expect to retain value and possibly be resold). When buyers are taking into account the future value of an item they regularly bid up the price into bubble territory. This was true of college students and stock pickers alike according to Smith. Bubbles are exacerbated when there is more cash available to participants or when there is significant room to buy on margin.

Smith identified several points that started the formation of the housing bubble including: Laws passed in the 90’s tying the rating of mortgage companies to low income loans and regulations and laws in the 90’s directing funds to lower income borrowers; 1997 tax relief act that raised home exemptions to $500k; The increasing US trade deficit causing a strong inflow of capital.

The bubble was sustained by easy monetary policy, continued capital inflows and my favorite target, CDS Derivatives that were not collaterized.

The key is that EVERY institution had a hand in creating and sustaining the bubble. It was a matter of law, government regulation, unwise trading in the financial community, unwise buying by homeowners.  The bad guy was all of us. And unfortunately it takes all of us to get ourselves out of the mess.

Later in the evening I was able to ask Dr. Smith about the parallels in housing seen between the extended great depression and our current situation. Like today, in the 30’s states tried to stop and slow foreclosures possibly extending the amount of time it took to get debt ratios back in line. He said that getting households past their current over-levered position is a key step to moving forward.  He said it was hard for him to believe he was saying it, but he actually felt that a restatement of mortgages might be the answer. (Saying that he did not feel it was a good answer, but maybe the best answer we had when all we have are bad answers.)

His key point of the evening comes back to the importance of moderating the impact of bubbles.  (He does not feel they are possible to prevent, given human nature.) A key way of moderating the impact would be to make sure buyers had to put more ‘skin in the game’ and make sure that CDS derivatives were collateralized. In other words put cash buffers through out the system so that shocks will be absorbed rather than toppling institutions like dominoes. In many ways the market worked this way from the Great Depression through the mid-90′s when reserves were reduced and money down requirements were reduced. Then the institutions ‘forgot’ what they new and set us up for catastrophe.

Complicated solutions to complicated problems requiring discussion that our 140 character political system doesn’t encourage very well.

But while the reforms and regulations, banking best practices and housing prices get worked out by those we vote for and those who have the money to lobby effectively – he left the solution to our mess in the hands of us.  Entrepreneurship has been and is something within reach of every person and will be what drives us finally out of the current mess.

Posted in: Entrepreneurship, Frog Thoughts.
Tagged: · ·

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