6 x 9
21 photos and illustrations
6 x 9
21 photos and illustrations
There is an emerging consensus that all is not well with today’s market-centric economic model. Although it has delivered wealth over the last half century and pulled millions out of poverty, it is recession-prone, leaves too many unemployed, creates ecological scarcities and environmental risks, and widens the gap between the rich and the poor. Around $1 trillion a year in perverse subsidies and barriers to entry for alternative products maintain “business-as-usual” while obscuring their associated environmental and societal costs. The result is the broken system of social inequity, environmental degradation, and political manipulation that marks today’s corporations.
We aren’t stuck with this dysfunctional corporate model, but business needs a new DNA if it is to enact the comprehensive approach we need. Pavan Sukhdev lays out a sweeping new vision for tomorrow’s corporation: one that will increase human wellbeing and social equity, decrease environmental risks and ecological losses, and still generate profit. Through a combination of internal changes in corporate governance and external regulations and policies, Corporation 2020 can become a reality in the next decade—and it must, argues Sukhdev, if we are to avert catastrophic social imbalance and ecological harm.
Corporation 2020 presents new approaches to measuring the true costs of business and the corporation’s obligation to society. From his insightful look into the history of the corporation to his thoughtful discussion of the steps needed to craft a better corporate model, Sukhdev offers a hopeful vision for the role of business in shaping a more equitable, sustainable future.
"In his nuanced analysis, corporations need to align their aims with society, becoming viable communities, institutes and financial, human and natural capital 'factories'."
"A strong case for why corporations, extolled as agents of change, should transform themselves"
"Much has recently been written about how a new wave of 'green' corporations is just around the corner, an endogenously transformed phalanx of knights in shining armour just waiting to rescue us. Pavan Sukhdev says 'not so', but he also shows with consummate skill and clarity what exogenous changes can be made, to re-engineer the 'social contract' between society and corporations in the twenty-first century."
Achim Steiner, Executive Director, United Nations Environment Programme
"The ideas and assertions in this book blow well past 'insightful' and edge toward 'revolutionary' insofar as they expose major fallacies in our most basic assumptions about what we call our 'economy'. It's an equally important exposure for corporate leaders and leaders of the movement for environmental sustainability, because both need to move beyond the 'infancy phase' in terms of truly understanding and acknowledging the value of natural resources. A seriously inspiring and, ultimately, very hopeful piece of work."
Edward Norton, United Nations Goodwill Ambassador for Biodiversity
"Pavan Sukhdev writes with extraordinary clarity, compassion and conscience, laying the ground for a whole system economics. Recognizing that all human activity is part of nature, and that nature is essential for human wellbeing, Sukhdev creates an economic framework for the restoration of human and natural systems. Corporation 2020 brilliantly lays out a pathway for corporations, countries and citizens towards the earth's health."
Jonathan F. P. Rose, President, Jonathan Rose Companies
"When Pavan Sukhdev comes along and writes an extraordinary book, and backs it up with an extraordinary campaign and a really good website to promote...a change in the basic culture, definition, and orientation of corporations in our society, it's very timely, and it's very important to take what he has to say seriously."
James Gustave Speth, Professor of Law, Vermont Law School and Distinguished Senior Fellow, Demos
"Pavan Sukhdev discusses in every detail the problems we have created for ourselves today and our apathy towards participating in discussions which are no longer 'maybes' and 'ifs' but are in fact certainties. Yet in the end, he provides us with a positive manifesto for transformation. Corporation 2020, written with clarity and concern, offers a realistic framework within which we can redesign and rebuild our global community."
"Corporation 2020 is an indispensable contribution to the global transformation of finance and corporations as humanity re-integrates centuries of knowledge and continues its inevitable transition from the first Industrial Era... Pavan Sukhdev is a powerful standard-bearer leading us to the cleaner, knowledge-rich Green Economy globally, and this book provides a benchmark and guide to this better future for humanity."
"It's rare that reading someone else's book persuades you that a new book you are about to write is going in the wrong direction, but Corporation 2020 did that for (or perhaps to) me."
John Elkington, Resurgence & Ecologist
Chapter 1. The Legal History of the Corporation
Chapter 2. The Great Alignment: 1945?2000
Chapter 3. Corporation 1920
Chapter 4. Through the Looking Glass of Corporate Externalities
Chapter 5. Incorporating Externalities
Chapter 6. Accountable Advertising
Chapter 7. Limiting Financial Leverage
Chapter 8. Resource Taxation
Chapter 9. Corporation 2020
Chapter 10. The World of Corporation 2020
What happens when a company misleads consumers and intentionally pollutes the environment? We asked some of our authors to comment on the recent Volkswagen emissions scandal. Check out what they had to say below and share your own thoughts in the comments.
Photo Credit: Manik at Flickr.com
As an environmentalist, I probably shouldn’t say this, but I love my car.
For starters, I love its exceptional fuel economy—an average of 37.5 miles per gallon in the four years I’ve owned it and typically up to 45 mpg on the highway, a significant boost above the U.S. vehicle fleet average of 23.6 mpg. I love its understated style—sleek, compact, and modern without looking flashy. I’ve even come to love the feline purr of its diesel engine, the little rumble that signals its latent power.
Unfortunately, my dream car is something of a mirage. That’s because I’m the owner of a 2010 Volkswagen Jetta SportWagen TDI, one of the nearly half a million VWs that, as the company now admits, was secretly manipulated to evade U.S. and California clean air regulations. VW sold me, and hundreds of thousands of other Americans, a vehicle whose green promises (“clean diesel!”) were little more than a smoke screen.
Let’s be real: Owning a car is a regrettable necessity in our sprawling, industrial landscape. I’m lucky enough to live in a region—the San Francisco Bay Area—where I don’t have to drive much. I commute by bike and train, and I can get everything I need within walking distance of my home. Most weeks, my car sits curbside gathering dust and leaves. But on the weekends, my family and I like to get away to the seashore, the forests, or the mountains—and for that we need a car.
Continue reading more of Jason's thoughts here.
The deliberate deception on Volkswagen’s part represents a breach of trust that will undoubtedly affect the company’s reputation and brand image for years to come. But the ripple effects of this scandal are even broader. For those who are cynical about capitalist motives, it simply reinforces the unfortunate stereotypes of corporate greed and manipulation. For those who respect the efforts of global corporations to be environmentally and socially responsible, myself included, it represents a setback in public perception of the business community. From my experience, the large majority of companies work hard to uphold their values and ethical standards, and are sincerely dedicated to the sustainability goals that they profess. Occasionally they are guilty of errors in judgment, and we have certainly witnessed a number of incidents where automotive companies clearly failed to protect the safety of their customers. However, even though no one was physically injured by Volkswagen’s actions, the company grossly violated the basic claim of their product—clean diesel engines. This is an unprecedented insult to society, comparable to the Enron scandal, and I expect that in the near term it will taint the credibility of corporate sustainability programs in every industry.
Photo Credit: littlemoresunshine at Flickr.com
My book Corporation 2020 (Island Press, 2012) on the evolution of the Corporation – past, present and future – explored the changes that were needed in policies, prices and institutions to change the DNA of the Corporation. Today's economy and politics is dominated by the ethically challenged DNA of 'Corporation 1920,' steeped in the economic philosophy of Milton Friedman, and guided solely by the pursuit of profits, with their goals mis-aligned with society, generating trillions of dollars in social costs: the negative externalities of "business-as-usual." But I was able to find and describe many successful instances of the new DNA – corporations with social purpose, positive externalities, achieving private profits without inflicting public losses. And every so often, I hear or see something that makes me think I have found another one….
Such was my impression when I visited Volkswagen in Wolfsburg a year ago, to teach a seminar. I learned that their cars and assembly lines were being designed to ensure each model and chassis could take four types of engines: petrol, diesel, hybrid and electric. It seemed a very pragmatic way of staying open to business for a fossil-fuel-free world of tomorrow. But in hindsight, it was more likely a pragmatic way of staying open to a diesel-engine-free future. Volkswagen is guilty of misdemeanour on a massive scale but it looks like they are not alone. Recent research by the Institute for Transport Studies at Leeds University, UK, suggests that Mercedes, BMW, Ford, and Mazda diesel cars are even more polluting than Volkswagen, and up to the same software deceit. How can an entire industry go so wrong? Very simple: by being driven solely by the pursuit of financial profits, totally ignoring the wider world of human, social and natural capital that they depend on and have impacts on. That is why we need a new corporate performance measuring system such as Akzo-Nobel's "4D-P&L" concept, see www.corp2020.com. You cannot manage what you do not measure. Accountancy regulators need to wake up from their sleep of a century, and realise that the financial reporting of 1920 is simply NOT good enough for 2020!
Katharine Sucher is the Publicity & Marketing Assistant at Island Press.
Pavan Sukhdev, author of Corporation 2020, reflects on Peabody Energy filing for bankruptcy protection in light of news that the company has funded dozens of climate-denying groups. He offers his thoughts on how this funding undermines the resilience of Peabody and how it undermines the resilience of all businesses.
Peabody Energy, the world’s largest private-sector coal producer, applied for “reorganisation” under Chapter 11 of the Bankruptcy Code on April 13, 2016. This means it will retain control of its operations, but under judicial oversight, and present to the court a reorganization plan within 120 days, and persuade its creditors to accept the plan within 180 days. The company had been struggling to stay afloat due to a drop in coal prices, competitive natural gas prices, the Chinese economic slowdown and increasing environmental regulation.
In late-2015, Peabody settled an investigation launched in 2007 by the New York State Attorney General, recognising the need for and agreeing to make full disclosures around the business risks posed by climate change to its investors. The AG’s office accused Peabody of “providing incomplete and one-sided discussions” of the International Energy Agency’s findings by only reporting the highest future coal use projections in an attempt to mislead investors2. Further, a consulting firm hired by Peabody projected in March 2014, that a $20/tonne carbon tax would reduce coal demand for power generation in 2020 by 38% - 58%; it did not disclose this either to its investors.
Investors ought to have been sceptical of a carbon intensive company claiming inflated future profit projections, as Peabody’s bankruptcy was by no means an outlier. Since 2012, around 50 coal companies in the U.S. have declared bankruptcy, including three of the four largest coal producers in the U.S. - Peabody, Arch Coal and Alpha Natural Resources - accounting for 41% of total output. Given such adverse conditions, investors now find themselves in a risky environment where, on a conservative scenario analysis, global assets worth $2 trillion risk becoming stranded assets. Over 500 institutions valued at $3.4 trillion have already divested from the fossil fuel industry.
Peabody’s stock price has fallen from a high of $72.71 in April 2011 to $1.37 in June 2016. This is not the first time we have come across such a story. Years ago, Enron also pursued risky investments under highly leveraged structures to the point that they declared bankruptcy. Their stock also tumbled from $90 in 2000 to less than $1 in 2001. Much of Peabody’s downfall can be ascribed to its poorly timed $5.2 billion purchase of Macarthur Coal in 2011, for which it borrowed $4.1 billion, even as industry experts projected a grim outlook. Peabody’s pursuit of size and overleveraging, much akin to Enron’s, placed in danger the futures of its 7,000 employees, its creditors, and its investors.
On its way to bankruptcy, Peabody, along with four other major U.S. coal producers spent nearly $100 million over the last ten years on political lobbying to help protect federal tax-funded fossil fuel subsidies. As part of its aggressive and unethical lobbying, Peabody made generous Political Action Committee (PAC) donations to federal candidates—an alarming majority of which went to Republican candidates over each of the last nine election cycles (Table 1).
Peabody’s bankruptcy filing inadvertently exposed its funding of the "climate denial" movement by means of donations to think tanks, climate sceptic scientists and lobby groups. In 2014-15, the company donated $332,000 in “charitable gifts and donations” through the Peabody Investment Corporation to organisations involved in attacks on climate science. Donations were also made to several climate deniers, most notably Richard Berman, who had once compared the U.S. EPA to terrorists. Peabody is also a vocal opponent of President Obama’s Clean Power Plan, which is widely hailed as the most ambitious step taken against climate change and supported by major corporations such as Unilever, Nestle, eBay and L’Oréal.
By funding the climate denial lobby, Peabody acted in a self-serving manner in a failed attempt to maintain its position in the market. It was evidently trying everything it could to survive in a changing economic landscape where the vast majority of consumers have chosen to no longer ignore anthropogenic global warming.
In my book Corporation 2020 I identify some key characteristics of today’s dominant yet defunct corporate model, which I call “Corporation 1920:” the pursuit of size, aggressive and unethical lobbying, unethical advertising, leverage without limits, all leading to huge negative externalities: the public costs of private profits. Peabody ticks every box of “Corporation 1920.”
In an evolving landscape of consumer interests and citizen demands, Peabody’s “Corporation 1920” model and ethics are outdated. Peabody undermined its own future and survival by acting against the public interest. Worldwide, capital misallocation to earth-system-threatening fossil fuel fuels over the last decade has been huge, averaging an estimated USD 950 billion a year. Markets are meant to punish the misallocation of capital, and the message from investors is clear: they recognize that fossil fuel investments are stranded assets, and will gradually re-allocate capital away from them. The lesson for the fossil fuel industry as well as those that produce fossil-fuel-intensive goods and services is clear: evolve or perish.
We have been here before—with the tales of Enron, Volkswagen, ExxonMobil, BP and several other such corporations that made considered choices to pursue private profits at the expense of public risks and losses. They all have recurring themes that revolved around the DNA of “Corporation 1920.” We must address these recurring corporate traits through appropriate legislation while improving citizen education in order to tackle the demand and supply sides of our Corporation 1920 challenge. To build an inclusive green economy of permanence, one that works for everyone, we need Corporation 2020. Its time is now.
Peabody Bankruptcy Papers
Pavan Sukhdev is author of Corporation 2020 and Founder-CEO of GIST Advisory, an environmental consulting firm that helps governments and corporations discover, value, and manage their impacts on natural and human capital.
Earlier this week, Corporation 2020 author Pavan Sukhdev wrote about Peabody Energy filing for bankruptcy protection in light of news that the company has funded dozens of climate-denying groups. Read what he had to say about how this funding undermines the resilience of business and relates to lessons from Corporation 2020, and check out an excerpt from his book below.
Katharine Sucher is the Publicity & Marketing Assistant at Island Press.