System Change Opportunity in the Corporate Sector
July 25, 2017
System change is by far the most important sustainability issue in the corporate sector. Climate change and virtually every other major environmental and social issue only can be resolved through systemic changes at the sector and overarching system levels. Companies proactively involved in system change are the true sustainability leaders. Like current sustainability leaders, they will attain many financial and competitive benefits. This article summarizes the system change opportunity in the corporate sector and how companies can capitalize on it.
Modern economic and political systems were developed from a reductionistic perspective that ignores much of reality. These systems unintentionally place business in conflict with society. Companies usually are required to put profits and shareholder returns ahead of the environment, customers, employees and all other aspects of society. Very generally speaking, businesses only can mitigate about 20 percent of tangible and intangible, short-term and long-term, negative environmental and social impacts in a profit-neutral or profit-enhancing manner. Beyond this point, costs usually go up. If companies continue down this path of voluntary corporate responsibility, they will put themselves out of business.
Flawed systems compel all companies, without exception, to degrade the environment and society. System change is about 80 percent of the sustainability problem and solution. But it gets relatively little attention compared to company change. Nearly all corporate sustainability strategies are focused on unilateral efforts to mitigate negative environmental and social impacts.
As companies are forced to negatively impact society, impacts increasingly return to harm them. This pushback often takes the form of market rejection, reputation damage, lawsuits, inability to attract and retain a high quality workforce, weakened competitive position, and ultimately reduced profitability and shareholder returns. Businesses have strong financial incentives to reduce negative impacts. But the vast majority of impacts only can be mitigated through system change. To protect business and society, the focus of corporate sustainability strategies must be substantially switched from company change to system change.
The Total Corporate Responsibility (TCR®) approach, developed in 2003, provides a practical and profitable way to do this. TCR defines two broad levels of system change – mid-level and high-level. Mid-level system change involves systemic changes at the sector, stakeholder or environmental/social issue level. High-level system change refers to evolving overarching economic, political and social systems into sustainable forms. A growing number of companies are getting involved in collaborative mid-level system change. But few businesses are engaged in high-level system change.
This is the most important sustainability issue. Flawed economic and political systems often do not hold companies fully responsible for negative impacts. This is the primary mechanism compelling businesses to degrade the environment and society. Holding companies fully responsible makes acting in a fully responsible manner the profit-maximizing strategy.
Our economic and political systems inevitably will evolve or collapse. Nature and reality force all flawed systems to change, as occurred with the American and French revolutions, end of slavery in the US and fall of communism in the Soviet Union. Attempting to maintain the status quo will cause traumatic, possibly catastrophic system change. Companies are much better off taking a seat at the system change table and proactively managing the process.
A companion series of whole system books to TCR, called Global System Change, identifies major economic, political and social system changes needed to achieve sustainability and real prosperity. TCR and Global System Change provide a system change roadmap for the corporate sector and broader society. Detailed descriptions of how to implement TCR and Global System Change in the corporate and financial sectors are provided in the last book of the Global System Change series – Global System Change: We the People Achieving True Democracy, Sustainable Economy and Total Corporate Responsibility.
Many actions are needed to achieve successful system change in the corporate sector. Two of the most important are raising awareness and convening collaborative high-level system change efforts. Raising awareness about the need for mid-level and high-level system change is essential, especially in the financial sector. Over $20 trillion are invested in the global socially responsible investing (SRI) market. Investor interest was a main factor driving most large companies to implement sustainability strategies.
TCR combines traditional environmental, social and governance (ESG) metrics with assessment of mid-level and high-level system change performance. As the financial community realizes the importance of system change, TCR and similar system change-based corporate sustainability ratings will be used to construct SRI funds. This will encourage companies to engage in system change, in the same way that ESG rating compelled them to adopt sustainability strategies.
System change awareness raising also is essential in the corporate sector, academia and broader society. As companies better understand the need for system change, and the availability of profitable ways to achieve it, many businesses will proactively engage in it.
Convening collaborative high-level system change efforts is perhaps the most important action needed to promote and facilitate system change in the corporate sector. As noted, many companies are improving sustainability performance by collaborating at the sector level. But there are very few opportunities to collaborate on evolving economic and political systems into sustainable forms. Establishing this type of collaboration is essential for achieving successful high-level system change.
Identifying the right convener for such a complex and far-reaching endeavor is critical. A prestigious academic institution with extensive business, sustainability and systems theory programs potentially could be an ideal convener. As a few highly credible corporations, business leaders, NGOs and other partners engage in the collaboration, many others will join.
Early outputs of the collaboration could include publishing papers that explain the need for a high-level system change and how to achieve it. Critical issues to address include root causes of major environmental, social, economic and political problems, barriers to system change, key leverage points, necessary collaboration participants and important system changes. The Global System Change series of books thoroughly describes hundreds of essential sector-level and overarching system changes, and how to achieve them. Providing extensive research such as this could greatly facilitate and accelerate collaborative high-level system change efforts.
In addition to raising awareness and facilitating collaboration, early high-level system change actions should include seeking quick system change wins and providing reputation enhancement, financial and other benefits to collaboration participants.
Clear, compelling communication will be essential for system change success. Questioning systems that focus on maximizing economic growth and shareholder returns (instead of the actual well-being of society) could threaten companies, business leaders, politicians and other important collaboration participants. Making a strong business case for system change and providing practical, non-disruptive ways to achieve it are essential for engaging business and other parties in high-level system change collaborations.
High-level system change probably is the most complex challenge ever faced by business and humanity overall. Some people might argue that it is not possible to voluntarily evolve our economic and political systems into sustainable forms. This could be true. If it is, business and society almost certainly will face highly traumatic and painful changes. We have an obligation to at least try to voluntarily change our flawed systems before nature and reality change them for us.
The technological sophistication, coordination and symmetry of nature are nearly infinitely greater than that of humanity. As parts of nature, we can achieve the high levels of sustainability and real prosperity seen there. Human society has shown itself to be tremendously creative and adaptive. We have the potential to be far better than we are now. Business has driven many positive transformations in society. Through practical, logical collaborative efforts, business can play a major role in the most important transformation needed in human society – high-level system change.
Ongoing environmental and social degradation will make sustainability the primary business issue of the 21st Century. Business, academic and other pioneers leading high-level system change will be seen as the true sustainability leaders. The expected outcomes of high-level system change include enhanced reputation and other benefits for those who lead it. At a broader level, collaborative high-level system change represents the best, and perhaps only, way for business and society to achieve sustainability and real prosperity.
Frank Dixon oversaw the sustainability analysis and rating of the world’s 2,000 largest companies for many years as the Managing Director of Research at Innovest Strategic Value Advisors, formerly the largest corporate sustainability research firm in the world. Institutional investors used Innovest research to develop high-performing socially responsible investing products. Extensive corporate sustainability experience made it clear that flawed systems compel all companies to degrade the environment and society. Frank Dixon developed the TCR® approach to provide a practical and profitable way for companies and investors to engage in system change. Following Innovest, he provided sustainability and system change consulting to companies in the US and Europe. Most recently, he wrote the Global System Change series of books. Using a whole system approach, the books describe the major economic, political and social system changes needed to achieve sustainability and real prosperity.
Frank Dixon has an MBA from the Harvard Business School.