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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.
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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scandal as “receding examples of aging, outdated, and even primitive forms of capitalism.”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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