Corporate Sustainability and the role of Knowledge ...



Corporate Sustainability and the role of Knowledge Management: preliminary exploration

Kim Sbarcea

February 2007

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I am exploring the links between knowledge management (KM) and sustainability and in a future post I’ll talk about the “KM footprint”, which is something I’m currently developing.

The terms “sustainability”, “climate change” and “global warming” are suddenly ringing loudly in our collective ears. But when you examine a number of themes closely:

• Globalisation

• Behaviour of global corporates

• Socio-economic trends

• Impact of knowledge management

• The rise of customers with a voice and demands for greener, cleaner products

they have really all come together over a period of time and result in a topic of increasing importance – corporate sustainability.

Much-publicised scandals, such as Enron and WorldCom, rocked the corporate world and have raised questions about the contemporary organisation inter alia:

o What constitutes ethical business conduct?

o Are workers still exploited and made to work harder?

o Are the stories of their organisational experiences being heard? Are employees respected?

o Is there a stringent focus on shareholder value at the expense of other stakeholders? eg communities; customers

o Are organisations still desperately clinging to a Tayloristic world-view of selfishness and disregard for the fact that they exist within a larger socio-economic system?

Thirty years ago, the Nobel-prize winning economist, Milton Friedman, said that the only social responsibility of business is to make a profit.

Globalisation has increasingly resulted in:

o shrinking of the world

o the rise of a growing segment of consumers, investors, environmental activitists, communities and NGOs who are demanding cleaner products

o an uncomfortable awareness that four billion people currently live on the margins of the global market economy;

o an alarming realisation that global corporations are exploiting non-renewable resources eg fossil fuels; minerals; coal; oil; natural gas even human resources – at a rapid pace.

o these are resources that took a considerable span of geological time to form and cannot be easily or quickly replaced.

o today 20% of the world’s population consumes 80% of the world’s non-renewable resources.

This state of affairs led the honorary Chairman of Canon, Ryuzaburo Kabu, to comment:

o “Global corporations rely on educated workers, consumers with money to spend, a healthy environment, and a peaceful existence between nations and ethnic groups…..At this watershed period in history, it is in the interests of the world’s most powerful corporations to work for the advancement of global peace and prosperity. To put it simply, global companies have no future if the earth has no future.

The ongoing destruction of our natural environment and the questionable conduct of some corporations has resulted in new business ethics that are values-based and not market-driven and which are redefining what we mean by ‘corporate responsibility”.

The responsibility of a corporation and its senior executives is now not just to the shareholders but its stakeholders – consumers; employees; business partners; local communities; NGOs; activist groups; nature herself. If a company wants its business to succeed, there is now a new set of measurable performance standards that has to be acknowledged and met.

Recognising that a company has stakeholders and not just shareholders means it has to broaden its knowledge base to succeed; and help build relationship capital that influences employees’ well-being and therefore their behaviour. A company has a web of relationships; each critical stakeholder is addressed by focusing the corporate lens on all diverse stakeholder needs.

Perhaps not surprisingly, at around the same time as globalisation and the rise of the call for a new business ethic came knowledge management with its demand to recognise employees as a major asset that can contribute to the ongoing strategic success of a corporation. KM helped companies to see that employees are critical stakeholders that the company must nurture, respect and grow.

So ….it’s time to critically review Friedman’s statement and explore what the responsibility of a corporation is today. There are three strands to my exploration :

o What will it take for a corporation to be sustainable?

o What might be the role KM has to contribute to sustainability?

o How can KM itself be sustainable?

WHY SUSTAINABILITY?

Let’s start out by asking ourselves why sustainability and sustainable development have recently become terms we’ve heard so much about.

In late 2006, the former chief economist of the World Bank, Sir Nicholas Stern, published the Stern Review Report on the Economics of Climate Change. This report has not only confirmed that our climate is in fact changing and heating up – but the report has for the first time placed a financial figure on an intangible:

o it will cost the world up to £3.68 trillion unless it is tackles climate change within 10 years

o that is 1% of global GDP

o and this is as much as £566 for every man, woman and child now on the planet.

So clearly we know and have known for some time that our world (as Al Gore says the “only home we have”) cannot sustain our human activity; depletion of its resources; or accommodate the predicted global population increase from the current 6 billion to a predicted 8 billion in 2030: of which 7 billion will live in the developing world.

THE ROOTS OF THE CORPORATION

At the same time, there is growing criticism of the damaging impact of global corporations as their roots reach into the four corners of our earth and deplete non-renewables.

A changing global landscape has certainly meant free movement of goods and trade, but it has also meant that of the world's 100 largest economies, 52 are corporations. Mitsubishi is larger than Indonesia and General Motors is larger than either Denmark or Norway.

And it has also resulted in sweat shops and some corporations being accused of hiring paramilitaries to intimidate or kill union leaders trying to organise decent living and wage conditions for workers of global corporates.

We’ve also seen the recent linking of the fast food industry with an increase in obesity. Super Size Us thanks!

FIRES BURNING

Burning oil fields - the burning of fossil fuels is the major cause of CO2 emissions that are resulting in global warming, which contributes to turbulent weather patterns that gave us Hurricane Katrina.

In late 2006, the sky over Singapore was clogged with pollution from fires in Indonesia. I remember flying into Singapore around that time and being quite astonished at the haze of smoke and affect on my respiratory system.

There is a point of tension in our world - poverty eradication and population growth lead to a rising demand for materials and natural resources. The developing countries ask why they too cannot benefit from air-conditioners, fast cars and mobile phones (the dead batteries being a major environmental hazard by the way).

DWINDLING DIVERSITY OF SPECIES

Global biological diversity is decreasing, due to direct and indirect human activity: hunting, loss of natural habitat due to deforestation etc.

Of course this means another “tragedy of the commons” in this case, our collective tragedy of loss of genetic diversity.

In the last 500 years, human activity has forced 844 species to extinction. In the early 1900s, cheetah numbers worldwide were perhaps has high as 100,000. Today, scientists’ estimate as few as 12,000 remain.

WATER POLLUTION & MERCURY POISONING

Pollution of water from factory outputs threatens our water and river systems as well as fish and other inhabitants of the surrounding ecosystem.

GLOBAL WARMING

And of course our human activity has led to our current predicament and a rather frightening future scenario of potential struggles over water as it becomes scarcer.

DOMAINS OF SUSTAINABILITY

This rather gloomy scenario starts to give us an understanding of what the terms sustainability and sustainable development mean.

Defining these terms is somewhat reminiscent of the early days of KM in that there are a number of definitions. The most common definition is that of the Brundtland Commission (1987) – the first to define sustainability as:

o “the ability to meet today’s global economic, environmental and social needs without compromising the opportunity for future generations to meet theirs”.

This is a human-centric definition, however, and does not address resource consumption.

Sustainable development in this context can be considered as:

o a state of mind that tries to address issues in a comprehensive way by considering the linkages between all issues.

o So for example - how can a global corporate, perhaps involved in bringing canned seafood to the market, reach back into its supply chain and help to bring about sustainable fishing ? instead of fish stocks depleting, how can the corporation work with its suppliers to benefit both people and the environment?

The way humans and corporations have been conducting themselves up to now has impacted on every area of life: wealth (increasing divide of rich/poor); health; pollution; urbanisation; human rights – to name a few.

If we look at it from four major areas or facets, we can start to build up our understanding of what sustainability means.

The world is changing its values – its becoming more interested in respecting diversity, caring for the individual AND society, sustaining rather than destroying and pillaging.

This leads to new questions being asked in the four quadrants of Economic; Environmental; Social (Collective); and Human (Individual):

ECONOMIC – perhaps the most difficult quadrant.

The question becomes- how does a corporation concentrate on wealth creation in balance and harmony with the environment, human and societal capital?

How does a corporation ensure its long term survival? can it do this by just myopically focusing on short-term shareholder value? No. It must now ensure it survives in the community where it exists and become a valued and trusted partner of the community; it must ensure it builds partnerships with customers, suppliers, etc. It must ensure it builds its social capital by attracting and retaining smart employees who can work with the corporation to achieve its business objectives.

It needs to focus on getting its values in harmony with those society is starting to demand ie transparency, accountability. Also, there is a pressing need for corporations to understand and value “natural capital” ie forests; healthy air; water etc

ENVIRONMENTAL – how do we improve human welfare by protecting natural capital? How do we hold waste emissions within the capacity of our environment without further harming it? How do we provide clean drinking water etc etc?

SOCIAL/SOCIETY (COLLECTIVE)

Capitalism can weaken social capital because it promotes competition and elevates the individual over the community. We have lost the historical concept of the “village commons”, ”the town square”. We have lost connectedness and trust.

So how can we have a rebirth of the collective spirit, maintain and grow human capital whilst still focusing on wealth creation?

How can we better leverage social networks that exist in the shadows of organisations?

How can we help an organisation understand it is a social system with obligations to its citizenry?

HUMAN (INDIVIDUAL)

The 20th Century has been described as the century of the individual, when individual rights, privacy etc were seen as a private good not to be trodden on.

So how do we continue to respect individual rights but at the same time re-instil within people the notion of the “village commons”, a time when communities were tightly woven and interconnected and people worked for the social good?

KM has demonstrated that an individual’s skills and knowledge should be leveraged for better social and business outcomes. And KM carries within it that notion of collaboration/connectivity.

So….how do we move towards building better social, human capital and bridging capital (ie between networks) whilst still respecting diversity and uniqueness?

THE ORGANISATIONAL CHALLENGE

Let’s narrow our focus and look at the organisation. In the context of sustainability, the questions are:

o how does business grow shareholder value without compromising human, social and natural capital?

o how does it contribute to the betterment of society and the individual?

The grand man of management theory, Peter Drucker, said that the 20th Century was the era of the organisation and the 21st Century shows no sign of this fact declining.

It’s worth remembering that legally speaking, corporations are legal entities in their own right. They were originally formed by an act of incorporation to take on projects that were too complex for the capitalists. The American railroads, for example, were built by corporations and the act of incorporation laid out the specific lifetime of the corporation, its charter etc.

Corporations were often in public ownership. In England, corporations were established to supply safe drinking water, to build sewage and drainage systems. Above all, corporations were originally established for the common good. Have corporations lost sight of the reasoning behind their formation?

With the decline of the Welfare State, amongst other factors, by the 20th Century corporations had become the dominant organisational form. Legislature and judiciary have given the corporation virtually the same rights, if not more rights, than a person. Corporations, for example, claim the right of free speech. The common good has become synonymous with profit and growth.

It’s been said that corporations are able to claim all the rights of sentient beings but accept none of the responsibilities.

So we’ve moved from a time when tribes and kinship, and Kings/Queens looked after the public good and its citizenry, to a time when the corporation is the dominant form on the landscape and is easily recognisable by its hierarchical structure and focus on growth and shareholders.

As Governments pull back funding on Universities and technical training programmes, we have looked to organisations to provide us with skill development and education; health benefits; and providing the sense of community we’ve lost.

There is almost a sense that the corporation has a moral responsibility to its citizenry to build human capability and fill the void vacated by the State.

But to meet this challenge and the challenge of customers refusing to buy non-sustainable products, the notion of the organisation needs to be modified so that it contributes to the continuing health of the planet; development of a just and humane society; and creation of work that is fulfilling & collaborative.

THE BALANCING ACT

This is a difficult transition for a corporation to make. It is focused simultaneously on a number of competing external factors:

o legal pressures that demand greater accountability and transparency in a post-Enron world (eg SOX)

o a tighter Regulatory framework that calls for compliance

o stakeholders and interest groups demanding development of sustainable products

o investors looking for Socially Responsible Investment opportunities in companies that are taking sustainability seriously.

o Corporate Sustainability Reporting (eg Global Reporting Initiative) which tells the corporation it must report on its non-financial performance (the so-called Triple Bottom Line of Social, Environmental & Economic).

Internally it is facing the challenges of :

o Identifying and leveraging mutually-held knowledge for its benefit

o building its innovative capacity by “knowing what it is it knows” and applying this intellectual capacity in new products and services;

o taking on the educational challenge of building higher order skills eg resilience; coaching; negotiation; networking etc.

From a leadership perspective, it involves the organisation acknowledging that it is an open-system, nestled within an environment that contains other systems. It means leadership has to ask - how do we lead differently in a world of multiple stakeholders?

This involves:

o Commitment to building knowledge

o Allowing self-managing teams greater flexibility and adaptability; less ‘command & control”

o Leadership cascading throughout the system

o Leader as “servant”; not ‘hero” being paid an obscene salary.

It means replacing old values with new ones:

▪ Cooperation not competition

▪ Understanding the whole picture not step-by-step linear planning and micro-management

▪ Co-evolving with the environment not controlling it

It calls for authentic dialogue so that all stakeholder needs and concerns are understood and it involves understanding that value is created by building long-term sustainable relationships with stakeholders and consulting with NGOs, voluntary cooperatives etc.

BUT the corporation (and we humans) LOVE predictability and balance.

To move towards sustainability, the organisation has to be in a state of non-equilibrium (ie keeping off balance/edge of chaos) so it can dynamically grow and adapt. It must receive new information and knowledge even if it disturbs the system.

The new environment we are facing globally will force the organisation to be off balance.

So just as the heat has been turned up on our planet, so the heat is on for the contemporary organisation.

RAY ANDERSON

Are there actually any companies or CEOs hearing this message of sustainability? I have found a number but the case study that most impresses me is that of Interface, a global carpet and manufacturing corporation started in 1973 in the United States.

Founder and CEO, Ray Anderson, was one of the first corporate leaders to realise that the contemporary organisation is in trouble . There is a powerful video where Ray Anderson talks about his transformation as a leader who realised that he has a responsibility beyond the corporation.

Watch it on YouTube

and hear about his moment of epiphany –the moment he realised that a corporation had not just a corporate responsibility to shareholders but a social and environmental responsibility.

Interface’s mission is to be a sustainable corporation by 2020.

THE EVEREST OF SUSTAINABILITY

Ray Anderson uses the metaphor of Mt Everest- for a corporation to become sustainable, it is akin to climbing Mt Everest – hard work as you climb, perhaps changing course when the weather gets rough, wondering if you will ever reach the summit, step by small step.

Using Anderson’s Everest metaphor, can we depict the phases a corporation passes through on its way to being sustainable ?

PLUNDERER

o This is the selfish organisation: not inherently evil, just not understanding or accepting it has a responsibility to anyone or anything beyond the shareholder

o the environment is seen as free good

o the corporation disregards its destructive impact and disregards the community it exists in

o it sees the organisation as a machine

o employees are to be exploited for economic gain

o no innovation or KM happening here

o primary corporate message is “maximise profit and we don’t care how we do it”.

IGNORANT

o the corporation is ignorant of a corporate ethic broader than financial gain

o the cost of its labour force occupies the corporate mind

o its workforce is compliant and training given to employees focuses on supervisory/technical

o hierarchy, bureaucracy, command & control are its hallmarks and the pride of the corporate vocabulary

COMPLIANCE

o the corporation is reacting to increased legal requirements but only so it avoids getting caught up in nasty or bothersome litigation over environmental issues

o it does not yet understand its social obligations

o it perhaps adopts KM as a strategy because everybody else seems to be!

OPPORTUNISTIC

o this is the corporation that sees sustainability as the “next big thing”, the next competitive advantage (rather like it saw KM as the shining light)

o And sustainability may be vulnerable to being seen as “the next big thing”

o This is the corporation that constantly reduces costs in the face of calling for operational efficiency

o There might be some reinvesting in staff if the corporation sees this of value to its mission and its stakeholders

INTELLIGENT

o The Intelligent corporation is starting to take self-responsibility

o Sustainability is seen as a way to co-evolve with stakeholders

o Employer of choice

o KM is strategic asset- driving the business

o Realises the need to be innovative, fast and adaptable in a complex world

SUSTAINABLE/PROTECTOR

o There is a Tipping Point when the corporation gets to the top of Mt Everest and starts the descent into the valleys below

o When the organisation is sustainable, it’s contributing to ecological and community regeneration

o It goes beyond its legal requirements and voluntarily reports on its non-financials

o It reinvests in its people and really does see them as “the greatest asset”

o It is part of a web of relationships

o It is very aware of its environmental responsibilities and seeks to protect natural capital.

Most companies are still puzzling over what this all means and how to climb the Everest of Sustainability.

KM & EVEREST

I suggest that KM has a key role in DRIVING sustainability. If sustainability is all about stakeholder engagement; building bridging capital; broadening the knowledge base of a company beyond its boundaries, then KM has a critical role to play.

When a system is off balance, it must constantly innovate and adapt. It is known as the space of creativity or edge of chaos. KM can push the system (corporation) towards the edge of chaos and force it to be continually challenged, continually respond to external stimuli; continually refresh itself.

Through activities such as :

o Building rich connections and conversations

o Communities of practice

o Value networks – where knowledge is exchanged and economic success for all participants in the value network is achieved.

o Coaching/mentoring

o Learning how to adapt and be resilient in the face of rapid change

the system can be presented with new ways of thinking; new behaviours; new ways of making sense of a rapidly changing environment; new ideas. It can create a new story for itself.

But KM ITSELF must be sustainable. CIO magazine 21/4/2004 quoted 85% of KM initiatives fail to achieve their business objectives.

Why? KM could be accused of not understanding that it is not just a supporting player but the celebrity! Without KM, the corporation doesn’t know what it needs to know to climb Everest.

Many companies have simply not invested in the infrastructure necessary for KM and are not “sustainability intelligent”.

KM practitioners are in a battle as corporations try to slide back to the safety and controlled environment of the plundering or ignorant entity.

AN INCONVENIENT TRUTH

Using Al Gore’s elegant phrase, unfortunately we are facing a very serious moment in history:

o our world is being smashed

o the human spirit has been squashed by large corporations

o we’ve lost the village commons notion

o we’ve lost the ability to tell stories

o we’ve become competitive and individualistic.

o We’ve become jaded and disenchanted.

There is a tension we must face:

• the corporation will continue to develop within the environment (be that society, human capital of employees, economy)

• although it is becoming aware of new business ethics and consumer concerns, there is a danger that the corporation will continue to be a plunderer.

RECONCILIATION

KM has the power to ease this tension and drive sustainability by helping the corporation to build bridging and relationship capital; broaden its knowledge base; view its employees as major stakeholders without whom the organisation would not be sustainable.

KM is a transformation agent – challenging the organisation to dispense with its 19th century magician’s bag of solutions for short-term profit; and adopt long-term consciousness of greater connectedness with one another and with nature.

RESOURCES

Helping me to reflect on the linkages between KM and sustainability are the following resources:

Dexter Dunphy, Andrew Griffiths, Suzanne Benn. Organisational Change for Corporate Sustainability: A Guide for Leaders & Change Agents of the Future. Routledge, 2003

Andrew Griffiths, Corporate Sustainability and Innovation

UQ Business School

The University of Queensland



Chris Lazlo. The Sustainable Company: How to Create Lasting Value Through Social & Environmental Performance. Island Press, 2005

Ray Anderson video

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