‘Al-Gore-ithms’ revisited – things to speed up in 2011!
Three weeks ago I met Al Gore at a dinner meeting organized by Deloitte. He was speaking to a group of around 30 CEOs at Schiphol Airport Amsterdam. For me it was the third time meeting him in person; the first time I saw Al speaking live was at the 2006 GRI Reporting & Transparency Conference (at which the G3 Guidelines were officially launched). It was this event that triggered Al to start his European tour of ‘inconvenient truth’ speeches in Europe. I was wondering in how far his style of presenting has changed over these 4 years and in how far he now made the switch from awareness-raising to solution-oriented storytelling. It ended up to be a great evening, but honestly I again heard many of the quotes from 4 years ago; it seems that the repetition of the (I admit: updated) facts still works and also seems to be still needed, at least with that group I was with that evening.
Al doesn’t call himself an expert on specifically the ‘transparency agenda’, but many of the real problems that we need to solve and that he’s talking about – environmental degradation (esp. climate change as an outcome thereof), demographic changes, poverty alleviation – are also partially caused by systemic intransparancy, and I strongly believe they can only be solved by getting over these thresholds. A couple of those he already captured well in 2006 at the GRI G3 launch conference, so I digged back into some of my older files, see if I could make a compilation of those pieces of text, enrich them where needed with own ideas and come up with a compendium of steps towards a transparency agenda that could help speed up our most urgent problems. This was the moment when I stumbled over the wordplay Al Gore/Algorithm. In mathematics and related subjects, an algorithm is an effective method for solving a problem expressed as a ‘finite sequence of steps’. An algorithm is a list of well-defined instructions for completing a task. Starting from an initial state, the instructions describe a computation that proceeds through a defined series of successive states, terminating in a final ending state. Bare this wordplay with me, I simply like the idea 😉. So, here are some of my ‘Al-Gore-ithms’:
1) One of those phrases that I think is the boldest of all statements to make for transparency is: ‘Sunlight is the best desinfectant’. Former US Justice Louis Brandeis coined this marvelous phrase in praise of transparency and honesty in public policy, but for me it really works best for sustainability overall. What’s strange to me is how few companies and organizations actually practice this in an effective manner. In this interconnected internet age, it is most astonishing how a company thinks it can “manage” its way out of a crisis without stating the simple truth (and I don’t have to repeat the list of companies that again tried it this year, right?), mostly reacting in slow motion or full hibernation until realizing that ‘if you’re not around the table, you’re most likely on the menu’. Clearly, this is naive and reflects an old understanding of the role of business in society (‘us and them’), and the step to take now is just simply to give in to the fact that if an organization is not fully transparent, somebody else will. The loyalty of staff is limited to what is personally felt as justifiable. The whole movement of whistleblowers up to today’s global Wikileaks movement is a cry for help from (focused representatives of) society, a wake-up call to old-age politics and behind closed doors decision-making of those who impact every person’s life circumstances, some of them reaching hundreds of millions all over the world. If 52 out of the 100world’s biggest economies are companies, special responsibility comes with it, full transparancy is the logic consequence and ethical (business) behavior a must.
2) Al Gore often quotes the great psychologist Abraham Maslow, best known for his hierarchy of values, who had an aphorism: “If the only tool you have is a hammer, every problem begins to look like a nail”. What we can we learn from that: if the only tool we use to measure what is valuable and important is a price-tag, then those things that don’t have price-tags begin to seem unimportant. Al: ‘It is a very basic characteristic of our human nature that we identify ourselves with the tools we use, and we use them as short-cuts to focus our consciousness and understanding. We conserve energy and attention by ignoring those things that are outside the boundaries of the tools that we have decided are the appropriate focus for our attention’. What steps are necessary? Clearly both sides of the economic perspective need our support, meaning the macroeconomic perspectice and the microeconomic perspective. We should strongly support the ‘beyond GDP’ movement, which got a strong boost this year through the Stigliz/Sen/Fitoussi report (commissioned by the French president Sarkozy), but also the great work of the Global Footprint Network which serves as an easy-to-understand dooropener to shift our mental stereotypes away from our devastating consumerism. On the microeconomic side we saw the start of the IIRC (International Integrated Reporting Committee) and the announcement of he GRI G4 development, both need our attention and buy-in. It will in my view be the combination of both the macroeconomic and the microeconomic perspective that will give us the context for good statistics, reporting and success measurement. My hope is that this will then also help to address the fundamental malfunctioning of our global taxation and subsidies regime and systems. Thought through from a sustainability perspective the tax mechanisms and subsidies are often just desastrous for our overall guidance towards making the world a better place.
3) I also like Al’s oftenly used analogy to the spectrum of light: the spectrum goes from ultraviolet to infrared and it has all these different wave lengths and there is a little tiny slice in that huge spectrum that represents visible light. All that information and all that reality is outside that little, narrow slice, confined in those thin boundaries. He tells the story that during the eight years he served in the White House as Vice-President, he began every morning with an hour-long report from the intelligence community, and every day the pictures – the visible light – were supplemented by infrared imagery and ultraviolet imagery; all combined they painted a fuller picture and a more accurate view of the full reality that was being looked at. Al continues ‘…and in just that way, the full spectrum of value that is represented by a corporation’s activities can only be understood if one looks outside the narrow confines of the financial reports as they have been constructed. Because the information relevant to their impact – on the environment, on the communities in which they operate, on the employees – will affect the brand-value affected and autheticity to their commitment to ethics. In fact, one could say that those who focus only on the narrow financial reports are becoming just a niche. The old way of measuring value is becoming irrelevant to the more complete approach to what we really need to understand and track’. What to take away from this? I have seen many positive and proactive moves of companies this year to be involved early in some of the explorations to discover what additional areas of success measurement are feasible in the future: water footprinting, biodiversity (involvement in TEEB), human rights due dilligence (the Ruggie-Framework), integrated reporting (IIRC), etc. This appetite to learn is now more and more visible, often together with some of the major stakeholders (and amongst them important NGOs). Pushing stronger to be part of those developments and using own stakeholders as the best R&D potential one could think of, initiatives of ‘co-creation’ and collaboration, are enlightening, will become even more important in the next years. Be in it to win it!
4) Herman Daly wrote years ago: “We are managing our planet as if it were business in liquidation”. Al Gore uses this to explain our need to fundamentally shift away from short-term analysis to long-term analysis.‘How our modern world has become so fixated on the short-term consequences of our actions and the short-term performance of corporations is in some ways a mystery, because it has shown to be self-destructive and self-defeating if you are really interested in ‘investing’. We use the word frequently, its been a long time since we’ve really tried to examine its essential meaning. Corporate Finance 101 teaches that the bulk of a company’s value builds up over a business cycle at normally five to eight years. So, if you put money into the purchase of a share of ownership in a company, you are placing a bet that the value of that company will increase over time. And as a result the value of your investment will increase along with it. If that process takes a period of years and you withdraw your investment after thirty days – are you then investing? If the entire market place is so focused on a short-term pattern of putting money in and taking it out, according to a time horizon that no longer bears any relationship to the build-up of genuine value, that’s not really investing, it’s speculating. In the U.S. thirty years ago the average holding period for equities was seven years. Today, thirty years later, the average mutual fund dominant in equities turns over a hundred percent of its portfolio in eleven months, which means the average holding period for each stock is a fraction of that’. At the meeting in Schiphol three weeks ago Al complemented that trend with the example of value propositions from software system providers that are focusing on the millisecond differences in share prices and buying/selling based on the diffences that occur at the blink of an eye. What to take away here? Well, the entire market is short on long and long on short. And the consequences are quite profound. We have become accustomed to the critique of CEOs managing their companies according to the next quarterly report. Consider a CEO who also knows that brief, who understands it fully and still makes a commitment to look beyond the next quarterly report. If the company in question is not strong enough and secure enough in its finances to be independent of large investors, that CEO will normally face serious consequences if he or she misses the next quarterly projection. We should be thankful to CEOs like e.g. Paul Poolman from Unilever who just recently proclaimed that shareholders need to understand that long-term value creation is his focus, embedded in a strategy with reducing footprints by 50 % while doubling turnover. In the same way we should appreciate the work of all the movements that build awareness and strategies with financial markets players, like e.g. UN PRI, Equator principles, CDP, or Effas’ work on sectoral sustainability indicators. They need more of our help next year!
5) Our current system for accounting is derived in significant measure from approaches that were created by a group that was led by Lord Keynes in the 1930s between the two World Wars. Those accounts are very precise in measuring the impact of capital, but they are not very accurate when it goes beyond capital goods. Capital goods are depreciated. Al Gore rightly says: ‘Labor is dealt with less reliability and accuracy and the environmental consequences are hardly dealt with at all. Maybe one reason that this giant of economics made a category error is that he worked in an era that was during the last decades of the colonial era, when the perception particularly in Europe was that natural resources were effective limitless. Joseph Stiglitz wrote a book focusing on the consequences of failing to apply that one measure – depreciation – to natural resources. If a developing country with a million acres of rain forest decides to clear-cut that rain forest this year the consequences, according to the financial reports, are terrific, what a windfall! The fact that its future has been destroyed is not reflected in the ledger’. So, what steps to take away from here? Well, where is the major movement in the accounting world to cure the negative side-effect of the the old accounting rules? Maybe I’m not fully up to date (and would therefore welcome reactions!), but I am not seeing or hearing this movement loud enough. I have been involved in environmental managerial accounting already a decade ago, and see it continues to work hard (e.g. carbon accounting, supply chain accounting, water and biodiversity accounting), but still it isn’t picked up on necessary scale. Clearly, the accounting practice and especially the academic fraction has more homework to do in getting this issue high-up on the agenda, not just into curriculums, but also piloted and implemented in the real world. If companies and governments embrace it, changes to the existing accounting stereotypes can happen. This would just fit in well into the macroeconomic and microeconomic developments described above and would be a timely exercise.
6) Al Gore also tackles the issue of externalisation: ‘An externality means something that is external to the system, but what is external to the system? We actually internalize air regularly. Similarly, we regularly internalize water. The beauty of a sunset. The habitability of the planet. All are labeled externalities. Really the word means: ‘we don’t want to think about it, so don’t bother us with it.’ The ‘Polluter Pays’ principle is just one example of ways to internalize externalities. Some countries already do this and I think that we ought to reduce taxes on employment and make it up with taxes on pollution, with CO2 at the head of the list. There has been concern with free riders in this reporting system, but the biggest free riders of what we are doing are the governments’. Again the question of steps needed: we need these changes in public policies, clearly in governments, around the world. We need to continue to demand public policy that works to allow the market forces to help us solve these problems. My personal prediction is that we will be globally successful in 2012 when the world gathers for the Rio + 20 conference and the next climate negotiation round in South Africa will have made progress (COP 17) and paved a way for the global political leaders to be in the limelight again. I am saying this out of two reasons: firstly, many corporate leaders have stopped waiting for the governments to agree, taking the current insecure situation as it is (namely as a business risk) and already moved forward. But they will constantly increase the pressure on governments to agree on the long awaited level playing field to reduce their respective business risk. Secondly, China is then two years into their new five years plan, in which climate change leapfrogging is a key pillar; China is currently working on thousands of standards to implement this leapfrogging, they will be ready to move in 2012, leaving the US with no choice but to move as well.
7) Let me finish with the last saying that I like very much: ‘The stone age did not end because we ran out of stones’, as far as I know this quotes dates back to Sheikh Yamani, a former OPEC council member and oil minister. The fossil fuel age will not end because of peak oil, it will end when we move on to something better. That something better will be more efficient. Al Gore, when asked about the future of nuclear power recently also used this quote. To him, nuclear power providers simply aren’t able to fully explain the zero ecological footprint over the full value cycle (mostly the waste management part is ‘externalized’ into the future without a real solution yet). But the biggest problem is the insecurity to get buy-in to the cost calculation of these megaprojects. In these times of insecurity and limited budgets, who is really willing to sign a more or less open cheque? So, it seems the lower scale, better predictable, grid-oriented sustainable solutions will also be the pragmatic way to go forward, and we should be supporting and demanding these developments with more enthusiasm.
The Chinese often express the word crisis with two symbols joined together back-to-back. The first means ‘danger’, the second means ‘opportunity’. Those companies that make the shift to a full spectrum approach and a longer-term horizon over time generally perform better for their shareholders. But there is an even greater opportunity since while we rise to meet this challenge and improve shareholder value, we also come to new survival technologies and realize improvements to the quality of life. And that is the largest opportunity: to come to an overall shared common moral purpose of our human nature, compelling enough to lift us above and beyond our current mental limitations.
To all my 2010 readers: A happy New Year 2011, may we all continue to add our pieces to the puzzle of making 2011 a successful year and this world a better place. Thanks for all the great responses to my blog entries, please continue doing so in 2011.