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February 03, 2010
Book Review: The Surprising Solution: Creating Possibility in a Swift and Severe World
    by Robert Kropp

Author Bruce Piasecki describes a new global equity culture in which the corporations that thrive will be those that respond to the social challenges of a resource-restrained world.


Bruce Piasecki, author of The Surprising Solution: Creating Possibility in a Swift and Severe World, is President of the AHC Group, a management consulting firm he founded in 1981, and his years of experience working with companies such as Toyota inform the insights into corporate innovation that he develops in his new book. Piasecki’s book is an update of a 2007 edition entitled World Inc.

The author wastes no time in repeatedly emphasizing that the world’s largest multinational corporations, because their assets now exceed the gross domestic product (GDP) of all but the largest national economies, have created a new global equity culture, one is which profitability is linked to social needs. He calls this emerging phenomenon Social Response Capitalism, in which such externalities as environmental concerns and supply chain management become as important to corporate strategic planning as the traditional concerns of price and product quality.

“Social Capitalists,” the author continues, “embed new products with social value. They compete…on price, technical quality, and social needs—often years ahead of government regulation.”

Addressing the concerns of those he calls “cynics” who believe that "corporations cannot be trusted with guarding our future," the author refers to such high-profile examples of corporate malfeasance as the Enron scandal as “receding examples of aging, outdated, and even primitive forms of capitalism.”

In the wake of the economic crisis, which led to a significant unraveling of the global economy in 2008, readers may wonder if Piasecki's description of corporate malfeasance as "receding" is overly optimistic. However, although Piasecki’s book carries a 2009 copyright, it is in fact an update, and he deals with the crisis only briefly, in an afterward.

Furthermore, the author views what many consider a glaring example of failed corporate governance as vindication of his concept of a “Social Frontier,” in which companies must compete in a socially responsible way to be successful in a resource-restrained world economy. He describes the economic crisis as a “cleansing,” in which companies “not sufficiently innovative to the new realities” are eliminated. In light of such recent developments as American International Group’s decision to award $100 million in bonuses after its $182.3 billion bailout by US taxpayers, such a formulation as the author’s seems incomplete at best.

At the same time, the author disparages the Corporate Social Responsibility (CSR) movement as “missing the full force of this new boat. Some haven’t even made it to the pier.” Elsewhere in his book, the author describes the CSR movement as “too narrow” in its focus on “certain social issues and image issues of a company,” comparing it unfavorably to what he calls “Social Response Product Development,” which, he says, embraces the entire company culture.

In a second afterward, George Dallas, Managing Director of the Standard & Poor’s rating agency, writes of the CSR movement, “It is unrealistic to simply expect the mainstream investment world to suddenly and immediately abandon its traditional approach to investment analyses to accommodate social and environmental factors as primary drivers or ends unto themselves.”

Such an observation by a representative of a rating agency whose failure to accurately grade the mortgage securities containing worthless sub-prime mortgage products contributed to the crisis raises questions of its own, questions that go unanswered in Piasecki’s new book. The reader can only assume that the laudatory terms reserved by the author for Standard & Poor’s—he calls it an “objective, balanced, and respected rating group” which “does its work by not letting the social assumptions noted by an Innovest or a Calvert bias its analysis”—are unfortunate leftovers from the earlier edition.

That said, Piasecki misses an opportunity to address the recent failures of Standard and Poor’s in his new afterward, and only refers to rating agencies in it by admitting to a “serious mistake” in writing that “a global standardization in the methods of rating agencies would occur by 2020.” In reality, he writes in his afterward, “the change in corporate transparency, reporting and positioning, and valuation happened so much sooner.”

Yet, regardless of concerns of shareowner activists, sustainability investors, and non-governmental organizations (NGOs), that Piasecki’s analysis gives insufficient credit to their efforts to reform corporate behavior, the essence of his argument cannot be denied. In many ways, large corporations have supplanted national governments as prime movers in the new global equity culture, and competition among them in a resource-restrained global environment will have to account for the inescapable social realities of that environment.

Using such successful innovations as Toyota’s development of hybrid cars and HP’s articulation of “the new worldview of a more equitable global market,” Piasecki writes that “products that create value for society as a whole are moving closer to the roof of the (corporate) mansion.” Corporate “leaders who heal by answering pressing social needs” head companies that stakeholders learn to trust.

In the new global equity culture described by the author, investors and consumers will enjoy increased influence over corporate decision-making. Companies that can combine growth with effective risk mitigation, often through consideration of nonfinancial issues that now constitute a considerable percentage of corporate stock values, will be rewarded, while those who pursue profits at the expense of externalities will be more likely to fail.

In another example of the author’s refusal to adopt fully the tenets of the CSR movement, he holds up the oil company Suncor as an example of a corporation that “has made a remarkable turnaround by establishing and accomplishing goals that reduce risks.” Among the responses to social pressure adopted by Suncor are the development of a Social Responsibility Management System, an extensive review of its corporate governance policies, and investments in wind energy projects in Canada.

Yet the author also contends that Suncor “solved many of its growth and sustainability matters by buying Petro-Canada,” whose extensive retail outlets will enable Suncor to be known as more than “giants in mining and oil sands only.” While Suncor has made efforts to mitigate some of the destructive environmental impacts of oil sands development, the extraction of oil from Canadian tar sands requires environmentally damaging strip mining of large tracts of land.

In conclusion, Piasecki’s analysis of the trend toward corporate activity on behalf of social good may seem overly optimistic about the reasons for such a trend. His emphasis on the beneficial decision-making by company managers may not give the efforts of shareowner activists, sustainability investors, and others in the CSR movement the credit they deserve for such a trend. But it cannot be denied that examples of improved corporate performance in response to social pressure exist, and those who recognize the importance of CSR can leave Piasecki’s book with a renewed determination to continue to seek such improvements.

 

 
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