I‘ve spent a fair bit of time recently talking with some Canadian business leaders about what’s keeping them awake at night. I’ve been pleasantly surprised at their social and environmental consciousness. I had expected I would have to persuade them that failure to be aware of social and environmental issues would expose their companies to business and financial risk. I didn’t. They have families who reinforce their responsibility to future generations. They are well-read, and most of them know that climate change and other social and environmental threats are real.
What’s more, they know that even if they were to try to ignore these risks, they would be squeezed by two groups who would punish them for doing so: Investors, who are increasingly concerned about the ethical conduct of the companies they invest in, and customers, who are increasingly willing to boycott irresponsible companies and favour responsible ones.
For most, then, the right thing to do as a citizen of their community and the world, and the right thing to do as a business decision-maker, are one and the same. So why are so many businesses, including many Canadian businesses, still part of the problem instead of part of the solution?
For the most socially and environmentally irresponsible companies, like ExxonMobil, the cost of coming clean is just too great. Such ugly corporate citizens use a variety of tactics to obfuscate their wrongdoing and scare off anyone who would dare hold them to account:
For the majority of corporations though, the issue is one of ignorance, not malice or deliberate negligence. Like the majority of citizens, the majority of companies don’t know what harm they’re doing, don’t know that there are more responsible ways to operate without hurting the bottom line, don’t know that their practices are utterly unsustainable.
For them, it makes sense to bring the discussion back to risks. The chart above shows what large corporate executives in the US think is the probability and consequence of a variety of risks. For the most part, they think social and environmental risks have a low probability of occurring, but would have serious consequences if they occurred.
On the chart below, these risks are mostly perceived to fall in the lower right box, the ones executives (and individuals) tend to keep a watch on, but, because they are seen as longer-term risks unlikely to occur, not otherwise acted upon. They include these risks:
It’s the old important-not-urgent problem — it’s our nature to put off acting on these issues until they become more probable and hence more urgent. Even if (as often happens) that’s too late.
If we perceive the probability (and therefore risk) to be a bit higher, we’ll buy insurance, just-in-case. If the probability becomes even more certain, insurance becomes too expensive, so if the economic consequences are relatively small we’ll self-insure (set aside a bit of money to cover the cost when it occurs), and if the consequences are greater (e.g. we live in a major hurricane zone) it makes sense to have a substantial mitigation plan to prepare for, and if possible reduce exposure to, the risk. Maybe.
In other words, we will only act to become more sustainable if and when we are relatively certain that our sustainability is immediately at risk. That’s true whether we’re a corporation in denial about our dependence on low interest rates or cheap oil or cheap labour, or an individual in denial about the continued economic viability of our SUV for our hour-long commute.
Public companies are currently required to disclose ‘significant’ risks in their annual filings, so that investors can assess their vulnerability. What I would like to see is, for selected risks (like the bulleted list above), what would be the consequences if these events occurred — how vulnerable is the company to each of these risks? Perhaps the risk of each is low, but what happens if or when the probability increases suddenly. Shouldn’t investors have this information, and make their own assessment on just how low the probability is? Shouldn’t management know, and employees, and the people in the communities that depend on (and often subsidize) these companies? Shouldn’t the regulators?
I’m not saying companies should have to guess how likely these risks are, just that they should have to assesswhat would happen if these risks were suddenly realized. And then they should develop (for their own benefit, not just shareholders’) resilience measures — programs that would enable to organization to reduce either the negative impact of these risks, or their exposure to these risks, such as:
I’m sure that quantifiable measures of these and other actions to increase organizational resilience could be developed. These are measures that matter, and they should be reported.
Education is a longer-term project, but I think just by starting to think about vulnerabilities to these risks, organizations will self-educate themselves and learn that some of the risks they thought were low-probability (lower right quadrant) are actually greater than they imagined. And some of this education should not be difficult — there is a ton of data that indicates that a pandemic is not only highly probably in the next twenty years (and it could happen anytime, with no notice), but it will last a year or two, and even if it is mild in death count it will be global and will wreak havoc on the economy worldwide.
Perhaps Canadians (and perhaps Europeans) are more enlightened than Americans, but the more I speak to Canadians in business in a position to make a real difference, the more I realize they do get it (most of them, anyway) and do care, and the more optimistic I get that we can be models, we can show the world that there is a better way. Not sohopeless after all.
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Public companies in Canada soon must also show a Disaster Recovery Plan. Part of my job is helping the IT departments find solutions that we provide that will work for them. Granted this mainly applies to natural disasters (in relation to what I do) but corporate DR plans will have to also take into account all other significant risks to their business and means to mitigate those risks.
Risk = probability x impactRisk = hazard + outrage http://psandman.comProbability of “any one of a long list of things” occurring = approaches 1, no?(Still thinking about whether I have changed lately and what triggered it. Not much has been conducive to real action, I’m sad to report.)
The point re mandatory disclosure of exposure relative to a defined list of risks is interesting. The current disclosure requirements are generally based on a notion of materiality, in the sense of information that would likely influence a
I think leaders don’t act because they are lazy. All the reasons that you give may be true, and the fact is that we do what is comfortable until we are no longer comfortable.
Dave and all, please do look at http://newfluwiki2.com/showDiary.do?diaryId=1689 and http://www.redefiningreadiness.netThanks!
Hint: “redefining readiness” is about local resilience and not-strictly-open-space-at-all community conversation.There’s a number of other things to “redefine”, btw.