The missing Business and Public Policy Issue of our Time
How can corporations be designed so as to blend social, environmental, and financial mission at their very core? This is the design challenge of the 21st century.
By Marjorie Kelly and Allen White
usiness leaders operate today inside a corporate design largelyinherited from the 19th century, with ownership and governing structures put in place during the horse and buggy era. In that time, when nature offered seemingly unlimited resources, we had not yet confronted the ecological limits we face today. In
could an oversight system be designed to project journalistic integrity? The question the Bancrofts faced was one of corporate design for socialmission. How could a company design its governance structure to balance financial demands with a nonnegotiable social purpose? b Companies such as Nike, Disney, and New Balance have sought to put in place protections for workers at overseas factories manufacturing their products. These companies have created codes of conduct and fielded teams of social auditors to ensure compliance, yet factory workingconditions still have fallen well short of company standards. At many factories, workers are subjected to demeaning criticism by contract factory managers, prevented from taking bathroom breaks, and denied the full value of wages earned. The problem is that these companies send mixed messages. On the one hand, their codes of conduct tell suppliers to run safe workplaces and pay fair wages. On theother hand, their purchasing managers tell suppliers to produce low-cost products and deliver them on highly demanding schedules. The result? Purchasing is the winner and workers the loser. Companies such as these with complex supply chains have not solved the corporate design issue at stake: How can social issue management move from the periphery to the core of company operations? b In still adifferent form, corporate design issues have confronted BP, the British company that at one time enjoyed a largely unblemished global reputation as an environmentally conscious oil company, marketed as the “Beyond Petroleum” organization. That was before 15 people died in Texas City, Texas, and 180 were injured owing to an explosion at a BP refinery, after the company decided to reduce costs byskimping on maintenance. These were the allegations in a May 2007 investigation by the U.S. House of Representatives, which was also looking into two oil spills by BP at Alaska’s Prudhoe Bay oil field in 2006. Those spills
that era, when labor meant interchangeable strong backs wielding hammers and picks, employee knowledge and capacity to innovate did not yet represent the foundation ofcompetitive
advantage as it does today. In that time of hands-on ownership by company founders and direct investors, it was impossible to imagine today’s environment of dispersed and passive share-holding, where trading may occur in nanoseconds. Yet, while these essential elements inside and outside the corporation have changed dramatically, surprisingly little has changed in the design of corporateforms. The dominant ethos retains a focus on short-term benefit to “owners,” regardless of how remote, passive, or transient they may be. Within this narrow purpose, we struggle to fit contemporary concerns. Executives are forced to focus on costcutting, quarterly returns, and short-term quick fixes to boost revenues. Companies are drawn into mergers that benefit few, while short-term gains in shareprice give way to long-term losses for shareholders and layoffs for employees. Firms are unable to invest in environmental sustainability options that will pay off far down the line, instead feeling pressure to devote assets to buying back stock. There is an urgent need for corporate designs that free executives to focus on the long term, to recognize and reward the contributions of multiple...