TCR: A Paradigm Shift in Corporate Sustainability
June 27, 2017
A paradigm shift is needed in business. Whole system thinking shows that two foundational business ideas are reductionistic, irrational and unintentionally destructive. The first is that it is acceptable for businesses to focus primarily on their own financial well-being without regard for the larger economic, social and environmental systems that enable business existence and success. The second is that it is acceptable for companies to take responsibility only for their own negative impacts, rather than the economic and political systems that largely control corporate behavior and compel them to cause negative impacts.
Whole system, new paradigm thinking shows that it is not rational to consider the well-being of companies apart from the well-being of larger systems that support them, in the same way that it is not logical to consider the well-being of cells apart from the larger body that enables them to exist. In reality, businesses are parts of larger economic, social and environmental systems. The well-being of these systems takes priority because there is no economy, society or even life without them.
Dominant economic and political systems were developed from a reductionistic perspective that ignores much of reality. Myopic systems usually compel companies to place financial returns ahead of the environment, employees, customers and all other aspects of society. This narrow focus produces unintended consequences, such as widespread and environmental social degradation.
Flawed systems compel all companies, without exception, to degrade the environment and society. If businesses attempt to voluntarily eliminate all negative impacts, they would put themselves out of business. Very generally speaking, companies can voluntarily mitigate about 20 percent of negative environmental and social impacts in a profit-neutral or profit-enhancing manner. Beyond this point, costs usually go up. Reductionistic systems make it impossible for companies to eliminate about 80 percent of negative impacts.
As the human economy expands in the finite Earth system, negative impacts return more quickly to harm companies. This pushback often takes the form of reputation damage, boycotts, lawsuits, difficulty attracting and retaining a high quality workforce, reduced ability to site facilities and expand operations, weakened competitive position, and ultimately reduced profitability and shareholder returns. The growing financial relevance of environmental and social issues has compelled nearly all large companies to implement sustainability strategies.
These strategies are almost completely focused on unilaterally mitigating negative impacts, for example, by developing environmentally and socially responsible products, taking better care of employees and reducing pollution. Companies often can fully mitigate certain types of impacts. But as noted, they only can eliminate about 20 percent of total long-term and short-term, tangible and intangible, negative environmental and social impacts. Inability to eliminate the large majority of impacts means that companies inevitably will receive growing, profit-reducing pushback from society.
Under current systems, businesses only can prosper by degrading the environment and society. A whole system perspective shows our systems to be highly irrational and destructive. They compel companies to act like cancer in the human body. They are unintentionally suicidal.
New paradigm business thinking reveals that it is not acceptable to consider the well-being of business apart from the well-being of society. It also is not acceptable for companies to only take responsibility for impacts that can be profitably mitigated under current systems. Flawed economic and political systems are the unintentional enemies of business and society. As actors in the whole system, businesses must take responsibility for the systems that compel their destructive behavior.
The Total Corporate Responsibility approach (TCR®) provides a practical and profitable way for companies to do this. Developed in 2003, TCR is based on whole system, new paradigm business thinking. The approach represents the next generation of corporate sustainability. It combines leading-edge corporate responsibility strategies with collaborative system change actions.
TCR defines two broad levels of system change – mid-level and high-level. Mid-level system change involves systemic change at the sector, stakeholder or environmental/social issue level. High-level system change involves evolving economic, political and social systems into sustainable forms. A growing number of companies are participating in collaborative sector-level (i.e. mid-level) system change. But few companies are involved in high-level system change. This is by far the most important sustainability issue. Achieving sustainability and real prosperity requires that the focus of the corporate sustainability movement be largely shifted from company change to system change.
A companion series of books to TCR, called Global System Change, extensively describes hundreds of sector-specific and overarching system changes needed to achieve sustainability and real prosperity. The books also describe the collaborative processes needed to implement system change. TCR and Global System Change enable businesses to implement the most advanced, effective and beneficial sustainability strategies.
As investors, customers, governments and broader society recognize that system change is the most important sustainability issue, companies effectively engaged in collaborative mid-level and high-level system change will be seen as the true sustainability leaders. They often will attain many competitive and financial benefits, including enhanced reputation, facilitated access to new markets, and increased ability to attract and retain a high quality workforce. Over $20 trillion are invested in the global socially responsible investing market. Another major benefit of sustainability leadership is upward pressure on stock prices.
The current US administration is reducing environmental and social protections. This well-meaning, but reductionistic approach will accelerate environmental social degradation. In competitive markets, failing to hold companies responsible for all negative impacts compels them to degrade the environment and society. Holding companies fully responsible makes acting responsibly the profit-maximizing strategy.
New paradigm business thinking moves companies from the ivory tower of reductionism to the reality of whole system thinking. Being dependent on larger systems, companies take responsibility for them, and thereby greatly increase their ability to prosper over the long-term, and increasingly short-term.
TCR and Global System Change enable businesses to profit and protect themselves by promoting system changes that align what’s best for business with what’s best for society. Implementing the TCR approach in the corporate and financial sectors is fully described in the last book of the Global System Change series, called Global System Change: We the People Achieving True Democracy, Sustainable Economy and Total Corporate Responsibility.
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.
Copyright © 2017 Frank Dixon