November 21, 2014
The following is an excerpt from “The Conscience Economy: How a Mass Movement for Good Is Great for Business” by Steven Overman. This excerpt discusses the ramifications of social and digital media, and their impact on how customers interact with business initiatives.
New Accountability in the Conscience Economy
The Marshall Plan, or as it was officially called, the European Recovery Program, was as visionary as the secretary of state and Nobel Laureate who led its creation. General Marshall had experienced firsthand the human toll, environmental ravages, and economic destruction of world war. He spoke eloquently of a broken Europe, garnering support for policies that helped the region rebuild itself, in the full knowledge that this was more than a charitable act—it was pragmatic. Getting the European economy back on its feet was vital to America’s own economic and national security interests. This is as true today as it ever was. Healthy economies everywhere are mutually dependent.
But here’s the big difference today. We are no longer distant from the “plight and consequent reactions of the long-suffering peoples.” Thanks to real-time digital media, we are closer to them than ever before. The person in the street can feel direct consequences from individual and corporate financial decisions, whether it’s a product purchase, fuel consumption, or a company’s worker safety record. A virtuous and unstoppable flywheel of cause and effect is gaining momentum; easier access to knowledge about enviro-social consequences has created a hunger for it, and this conscience-driven demand fuels the innovation of solutions that deliver even more access to knowledge and insight. With such awareness comes the expectation that business will be a positive force in the world. Every business will require its form of a Marshall Plan.
Indeed, as many business leaders have already acknowledged, there is a revolution underway in the way financial performance is measured, not only in terms of the profitability, risk, and long-term value of the enterprise, but in assessing and tracking financial investments. It’s long past time to abandon any expectation for linear, predictable progress, comforting as the notion is. It is also long past time to abandon the debate between “pure” free market capitalism (which has never existed anyway) and government interventionist regulation. Adam Smith’s “invisible hand” is no longer invisible. It has revealed itself. The invisible hand is us, the connected citizens of the world, held out metaphorically and digitally—thumbs up, thumbs down. We like, or we don’t like, and we let everyone else know. We vote for the outcomes in which we most believe, not only with our voices but with our wallets.
Measuring the Immeasurable
The classic Six Sigma adage “If you don’t measure it, it doesn’t get done” gets a slight semantic makeover in the Conscience Economy: In order to manage it, you need to monitor it. The Conscience Economy business needs a new dashboard. Future-proof businesses must reconsider and redesign their accountability infrastructure.
The paradigm of the “economic externality” is being turned on its head. In the Conscience Economy, externality becomes materiality. To put it in layman’s terms, everything a business does matters. It all impacts the bottom line.
In the Conscience Economy, a business commits to being environmentally and socially sensible for a host of reasons: Because business relies on limited and often fragile natural and social capital that must be managed; because the practice exceeds customer expectations; because it is brand differentiating and builds trust; because it provides a guiding mission for innovation; because it attracts and engages talent; and, ultimately, because it’s the right thing to do. The new reality of operational interdependence, resource fragility, and individual empowerment means that doing what’s best for the whole business ecosystem (which includes natural and social capital) is just how it’s done. The correlation of environmentally and socially sensible business practices with profit is set to become a given, although the levers will be different depending upon your offering. In the Conscience Economy, as a business, you must sustain profitability, but never at the expense of social or environmental outcomes.
Establishing a link between conscientious business practice and profitability has long been, as you can imagine, the Holy Grail for CSR professionals and corporate idealists. As the CSR discipline was ascending, this quest made perfect sense, because intuition would suggest doing good is simply good business, and good business should be profitable. Meanwhile, no department—particularly one with such missionary zeal for changing the world—wants to be perceived as a nice‑to‑have function but, ultimately, a cost center. However, quantifying intangibles in the same way that we can quantify hard assets—no matter how intuitively we may feel there is a value in those intangibles—is a notoriously tricky prospect, not least because most boardrooms aren’t exactly hospitable environments for qualitatively sourced evidence. Hard quantitative evidence—the kind you can break down and add—is the universal language of business accountability. Counting is what ultimately counts.
The problem is, counting looks backward, not ahead. Counting is something you do after the big decisions have been made. How much product is still in the warehouse? How much sold? How much didn’t? How much cash is in the bank? How many employees are on the payroll?
If counting were an accurate predictor of future business success and not just an assessment of past performance, then theoretically, no big business would ever fail unless it truly botched on execution. Of course, we know that great big hairy intangibles—like sudden shifts in consumer expectations—are what ultimately drive customer demand, the “utility” motivation that underpins all current economic theories. That which is hardest to count or hardest to measure is also that which is most fundamental to the assessment of future business performance.
What if we’ve been looking at measurement principles from the wrong angle? The very search for a pattern of correlation between improved corporate citizenship and a rise in profit implies that doing good is an “add‑on,” a “nice‑to‑have” incremental investment of time and resource. An enterprise initiates a program that diminishes negative environmental impact, and then it asks, “Was it worth it?” as it looks for evidence of a correlating rise in profitability or value share.
This, the typical approach to measurement and reporting, is firmly entrenched in looking back on the comfortable certainties (even if they depict uncomfortable truths) of past performance. It’s the proverbial driving‑by‑looking‑in‑the-rearview-mirror. It’s a well-used crutch. Metrics illustrating past performance are used to rationalize decisions. Too often, measurement gets in the way of understanding rather than enriching it. Nassim Nicholas Taleb has famously stated that the past is no accurate predictor of the future. In the Conscience Economy, business expends the bulk of its energy looking forward, using a real-time dashboard of analytics that support its mission to do its part in making the world better for all humanity. Just as an actual dashboard shows when we’ve breached the speed limit, the new accountability dashboard will show when we’ve begun to do harm.