Accounting for Social and Environmental Impact

The New Entrepreneurial Leader  highlights the questions that arise when leaders begin to integrate social, environmental, and economic value creation (which we will refer to as SEERS). Here are two examples:

In the 1990s, when managers at Hewlett-Packard (HP) recognized that the soldering lead used in the company’s manufacturing process was toxic, they voluntarily initiated R&D projects to develop nontoxic, nontarnishing, and nonoxidizing alternatives. In 2006, when the European Union passed the Restriction of Hazardous Substances Directive, HP was in compliance; this earned good will from regulators that resulted in a voice in future regulation of the industry, and it opened European markets for new services from HP (see here for more).

 Here’s another real-world example: In 2004, Costco Wholesale beat Wall Street’s expectations, posting a 25 percent profit and 14 percent sales growth. The market responded with a 4 percent decline in Costco’s stock price because analysts were concerned about Costco’s strategy of paying high wages relative to its competitor, Wal-Mart. Costco paid its workers well and achieved lower employee turnover, higher sales per square foot, and lower wages per dollar of sales than Wal-Mart did, yet Wall Street didn’t appreciate Costco’s human resource strategy and failed to reward it for its socially and economically responsible approach to employee compensation (see here for more).

 Why did these companies, both of which embarked on voluntary social and environmental activities, experience different reactions to their laudable efforts? It is because the links among these three components are not always direct. Social and environmental sustainability may yield economic sustainability, but there is no straight line connecting social and environmental efforts to cost savings, higher profitability, or favorable stock market responses, as the Costco story illustrates.


With this in mind, my discussion with Bob Turner aims to offer business leaders a better sense of the practical role accounting can (and can’t) play in organizations eager to pursue a more comprehensive approach to value creation, one that includes more than simply economic profit and loss.

Who Am I? Learning from Self -Awareness

In our book, Nan Langowitz contributes key insights on the fundamental role of self-awareness in the development of entrepreneurial leaders and their competencies. Consider, for instance, Jeff Immelt, CEO of General Electric (GE):

He has newly refocused on what he describes as becoming “self-reflective on steroids.” Immelt views his approach, and the one he hopes other leaders at GE will adopt, as a means to promote greater innovation to drive GE’s performance. While most entrepreneurial leaders do not have the high-profile role of an Immelt, each has unique strengths and challenges as well as passions, values, and skills that he or she needs to understand and engage to drive opportunities.

For more please see the video of my discussion with Nan here.


 Who Am I? Learning from Self-Awareness

Lead While You Practice Leading

We just wrote a new piece at Harvard Business Review looking into the relationship between practice and the expertise required to grow or lead an organization.

Research shows that it takes a minimum of 10,000 hours to develop this sort of expertise.The challenge, of course, is finding time to deliberately practice your skills.  

In HBR we offer three tips, grounded in our recent Babson Executive Education study of over 500 companies, to help you find the time by working and practicing simultaneously:

Try experimentation. Previous studies show that experimentation is one of the most fundamental forms of deliberate practice we can engage in. By performing more of their work in the form of experiments, employees can synchronously advance projects while putting hours in toward their 10,000.

How is an experimental approach different than business as usual? Much of conventional organizational work is about planning and analyzing how to act, often on a large scale; risk is controlled by repeatable processes and standard routines. Rather than planning to do things, experimenting means doing things in a new way on a small scale. You get quick feedback, allowing you to make timely adjustments and improvements. On seeing the results of your action, practitioners can adopt the new way, discard it, or modify it and try again.

Maximize your opportunities to experiment. By understanding a variety of ways to experiment, employees can create more opportunities to accrue their 10,000 hours. Donald Schon’s seminal work on reflective practice identifies three basic experimentation strategies, each of which we found at play in our own research: move testing, exploratory experimentation, and hypothesis testing.

Focus on the social side of experimentation. Our research shows that experimentation in organizations is social and highly collaborative. By networking with like-minded experimenters and teaching to uninitiated colleagues, you create additional opportunities to accelerate your way toward 10,000 hours.

Begin by asking a few tough questions. Where are the project delays? Is there a big idea in the innovation pipeline that never seems to go anywhere? These are situations that are ripe for experimentation. One senior manager at an agriculture products firm described how an “inexperienced team’s analysis paralysis” was preventing them from developing a marketing strategy for entering a lucrative geographic area. In response, the manager is helping the team to devise experiments to test competing hypotheses. Not only is he helping to break the impasse, but he is starting others on their own journey toward 10,000 hours.

You can find the full discussion here.

Why Business Schools Need to Go Back to School

We wrote an article that was just published in New England Journal of Higher Education. It looks at business schools’ aspiration to develop graduates that can pursue social, environmental and economic opportunity. 

Our finding is that very few schools are actually achieving this aspiration. Here are three reasons why:

  • First, this problem is rooted in how we are teaching future leaders to think. As McGill University management professor Henry Mintzberg points out, management education is too analytic and overly reliant on quantitative modeling. Future leaders learn how to plan for and control the future based on past data.
  • Second, social and economic opportunities are often created in unknowable situations where past approaches are not relevant. To pursue these opportunities, management students need to know how to use creativity, experimentation and action, counter Srikant M. Datar, David A. Garvin and Patrick Cullen in Rethinking the MBA: Business Education at the Crossroads.
  • Third, beyond teaching how to think, business schools have also been narrowly focused on what they teach students to think about. Too often management education has overemphasized shareholder value creation and underemphasized ethics and social and environmental value creation, according to a New York Times article by Kelley Holland asking, “Is It Time to Retrain B-Schools?” Leaders need to know how to connect to their values and passions if they are to create social and economic opportunities.

In sum: many programs would benefit from a careful study on where and how they can more effectively address these fundamental challenges. You can read our full article by clicking here.

Boosting Innovation with “Creation Logic”

 Jay Rao is a colleague who’s worked to solve thorny innovation problems with thousands of corporate practitioners over the years. He was also a key contributor to the book, and helped push our thinking around how entrepreneurial leaders address business uncertainty.

As Jay points out in the book:

Since innovation work is done in an unknowable environment, it demands that an entrepreneurial leader engage a cognitively ambidextrous mindset in which one cycles between a creation approach of acting and a prediction approach of learning from the data that are created during the action. Innovation occurs as entrepreneurial leaders start small with the resources at hand and rapidly create prototypes to generate new data and new ideas. They are able to minimize risk by failing fast and cheaply, learning quickly, and rapidly changing directions when reality does not match assumptions. Using their cognitively ambidextrous mindset, entrepreneurial leaders experiment, succeed, fail, and learn.

In the video, Jay and I discuss this theme of how entrepreneurial leaders shape opportunity in uncertain business environments using creation logic.

New Urgency to Rename the Senior Executive Job Title

We just came across an interesting report on how CEO is the least popular job title in Silicon Valley. The article notes that as a result:

…some tech industry veterans say it’s time for a new approach to choosing CEOs. Forget the old idea of finding an older, well-known operations or sales executive to maximize earnings and soothe nervous shareholders. Too often, those experiments—Dell’s (DELL) Kevin Rollins, Apple’s (AAPL) John Sculley, Yahoo’s Carol Bartz—have failed.[…] Now Old Guard tech companies need to find risk-takers willing to bet big on new visions. That’s hard enough for entrepreneurs such as’s (AMZN) Jeff Bezos. It may be even harder at companies settling into middle age. “Somebody is going to have to take some risks, and bring in younger CEOs for a while” …

May we suggest that replacing the acronymn “CEO” with “Entrepreneurial Leader” may be more effective at attracting the right candidates to these established and fast-growing companies?

The New Beliefs of a Seasoned Business Leader

Raymond Gilmartin, former CEO of Merck and now a management professor, has developed an important list of “New Guiding Beliefs” for executives.

In our view, the list offers a number of practical ways to guide the process of embedding SEERS (Social, Environmental and Economic Responsibility, and Sustainability) into corporate decision making.

Here’s a quick overview of the 5 key bullets:

  • Shareholders benefit most when CEOs and boards maximize value for society and act as agents of society rather than shareholders.
  • The market favorably receives projects with long-term payoffs, particularly those in research and development. 
  • Purpose, meaning, and recognition are more powerful motivators than economic self-interest, and large external rewards can reduce intrinsic motivation.
  • Actions to address societal issues should be an integral part of strategy, and operations and should not be isolated as a separate activity under the heading of corporate social responsibility.
  • The most successful CEOs, on balance, are those who are developed inside the company but manage to retain an outside perspective.

You can read the commentary and discussion about the list by clicking here.

Entrepreneurial Leadership in the Middle East

There are few spots more in need of entrepreneurship–and entrepreneurial leadership–than the middle east. As we note in the book, the gap between “haves” and “have nots” is growing there at a rate that governments can’t (or won’t) address. Thus entrepreneurial leaders need to step into the fray to make opportunities where they can’t be found. This won’t always be easy, and models for success are few and far between.

But here’s one model worth a careful look: the Anatolians of Turkey. As Guy Sorman reports in City Journal:

Fueling this economic expansion is a new generation of entrepreneurs from Anatolia, in eastern Turkey. These businesspeople are conservative Muslims, but they aren’t extremists. The Anatolians are astonishing; no one can say for sure how they arrived on the scene as the dynamic engine of Turkish modernity. Ask an Anatolian entrepreneur about this success and he may credit a strong work ethic, combined with family values ingrained in the Muslim faith. Or he may mention the business traditions of Anatolia, a crossroads between Asia and Europe under the Ottoman Empire. Pamuk, a secular Turk, points to mundane factors like the Anatolians’ low labor costs and Turkey’s proximity to the vast European market: Turkey now exports 25 percent of its national production, up from 3 percent in 1980. Whatever the reason for the Anatolian breakthrough, Islam has not impeded it.

Will the Turkish model spread to nearby Arab countries?

Dirty Details on Becoming an Entrepreneurial Leader

We just posted our new piece on Harvard Business Review online looking at how entrepreneurial leader Jim Poss is making opportunity in the trash and sanitation business.

One of the key’s to his success is his ability to consider multiple types of value simultaneously. As we note:

 We use the acronym SEERS — which refers to social, environmental and economic responsibility, and sustainability — to capture the full scope of impacts that entrepreneurial leaders consider at once…Poss was able to simultaneously consider customer benefits (reduced costs for municipalities) and environmental impact (lower fuels emissions) without instinctively privileging one dimension over another.

You can read our full HBR post by clicking here.




Leading While Silent

Self and social awareness (SSA), the ability to think about your decisions and intentions as byproducts of your peculiar culture, is a key principle of entrepreneurial leadership. Though most of our research on SSA has tended to look at its verbal aspects: what leaders communicate about opportunity using words will be interpreted differently across cultures.

But here’s some interesting research presented at the 2011 International Association for Conflict Management Conference in Istanbul, that supports the relevance of SSA in non-verbal communication as well. 

…as much as 65 percent of social meaning is conveyed through nonverbal means, and other research has shown that these signals and cues — which are assumed by many people to be “automatic” and representative of true feelings — are often trusted over spoken words. The problem is that such signals can mean different things in different cultures and thus can be incorrectly understood, with unintended and sometimes disastrous results…Executives who learn how to “read” what the other side is really saying with body signals — and who are sensitive to how their own signals might be perceived — will be a step ahead in negotiating international deals.

You can read more details in Strategy and Business.