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A reply to the “Sustainable Capitalism” Manifesto

By Tom Glendenning
Posted Monday, January 16, 2012

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Pittsboro, NC - Sustainable has become the new king’s clothing in the American marketplace of mentality. The buzzword was invented by the people whose minds were shaped by the 1950's sales concept that “new” was better. Decades of marketing influence have led unsuspecting citizens to believe the maxim. Credence in the performance of old, former, dependable methods and products has almost disappeared. The sales job is almost complete.

The manifesto published by Al Gore and David Blood states several principles. They are presented as if the group which invented “sustainable” also invented the concepts. The points are basic principles of business with one false assumption included.

Manifesto article:

1. “Developing sustainable products and services can increase a company's profits, enhance its brand, and improve its competitive positioning, as the market increasingly rewards this behavior.”

The idea in this point is the development and promotion of a sales buzzword which can be sold to the public. If the sales job is successful, branding products with the term will attract buyers away from items which are not branded with the new sales term. A strategy used for the growing deficit in American citizen attention span.

Ads, especially television media, use images which last milliseconds to keep viewers attention rather than the older method of presenting a sound argument for the product. The content of the presentation took second place to visual stimulation in hopes that the impression left in the mind of the viewer was stronger with visual gimics. This ad style accelerated visual images over the last forty years to the point that many of them make no sense or have no connection to the product. The pretty woman or handsome man sells more than an image of a factory.

“Sustainable” can be presented with images of green pastures, cows, healthy looking young people, rivers, trees, etcetera. But the concept is simply another marketing ploy to say that products branded as such are better than the old, standard products sold in the marketplace. No correlation was found between application of these sustainable capitalism principles and corporate profitability and growth in a survey of major corporations.

The basic idea is sound. Make things which last longer, are better quality, serve a useful purpose, and cost less. However, these guidelines are not new. They are the foundations of industry, marketing and sales. People always seek value, buy better products and support companies which produce them.

2. “Sustainable capitalism can also help companies save money by reducing waste and increasing energy efficiency in the supply chain, and by improving human-capital practices so that retention rates rise and the costs of training new employees decline.”

As obvious as this principle is a restatement of basic marketing and industry, it is presented as a new concept in the sustainable quiver of arguments. A sustainable company will survive the challenges of production, distribution, marketing and profitability. Reducing waste, efficiency, development of human resources, training are parts of normal product development. A sustainable economy is one that survives. It is not a new concept or a replacement for business as usual.

3. “Focusing on ESG metrics allows companies to achieve higher compliance standards and better manage risk since they have a more holistic understanding of the material issues affecting their business.”

This point illustrates my whole argument about the term “sustainable” and sales jobs. ESG is a media consulting firm whose self described role is to manage spin. Founded by a reasonably well educated man with nineteen years as a network news producer, it is a recent company whose main function is to “manage the complex nexus of media, public policy and sustainable management.” Any company whose mission statement includes the word nexus is suspect. The main point is that ESG, as a measuring stick for corporate and product performance, is based on media image.

The relegation of the American consumer into the ranks of a blind, stupid and easily led herd of sheep is the biggest psychological discount that marketing strategists created. Though proven via marketing surveys over decades, the strategy has pegged Americans in that place and further degraded the perception of the public intelligence, education and capability to discern.

4. “Researchers (including Rob Bauer and Daniel Hann of Maastricht University, and Beiting Cheng, Ioannis Ioannou and George Serafeim of Harvard) have found that sustainable businesses realize financial benefits such as lower cost of debt and lower capital constraints.”

Point one, lower cost of debt, is policy decision based on government grants and regulation. Banks do not favor one corporation over another because one says that it is green and another does not.

Point two: lower capital restraints come from either regulation or more available capital, not green or sustainable mission statement.

These two items are a product of government policy. A company’s sound fiscal management is not an automatic reward for being green, it is the product of wise management and internal policy. Banks respect both. The government does not.

5. “Identify and incorporate risk from stranded assets. "Stranded assets" are those whose value would dramatically change, either positively or negatively, when large externalities are taken into account...”

This point is another standard fiscal survival strategy, not a new invention of the green marketers. Stranded assets are discussed in business school classes, financial reports and board meetings. Market pressures are addressed by corporate strategy sessions. They were not introduced to the corporate world by sustainable educators.

6. “Mandate integrated reporting. Despite an increase in the volume and frequency of information made available by companies, access to more data for public equity investors has not necessarily translated into more comprehensive insight into companies. Integrated reporting addresses this problem by encouraging companies to integrate both their financial and ESG performance into one report that includes only the most salient or material metrics. “

This item is a repeat of item three and a description of public relations strategy for company investment reports. It desires to complete the circle to control by having companies list their “sustainable assets” by ESG standards. Previous statements make the argument that the “sustainable” branding is no more than a shell image of a ploy to sell a concept, promote products and inflate the image of a specific company.

7. “End the default practice of issuing quarterly earnings guidance. The quarterly calendar frequently incentivizes executives to manage for the short-term. It also encourages some investors to overemphasize the significance of these measures at the expense of longer-term, more meaningful measures of sustainable value creation. Ending this practice in favor of companies' issuing guidance only as they deem appropriate (if at all) would encourage a longer-term view of the business. “

The movement of companies away from long term planning has developed over decades. As profitability became the focus of investment houses selling investment services, as more middle class investors began investing in the market, the stock market and members responded by focusing on shorter term goals.

This shift has become more dramatic as the US and world economy suffered and weakened. Long term thinking was almost hidden from public view in the early part of last century. As the media and analysts promoted and mandated shorter term thinking, dramatized unimportant events to support that strategy, and successfully shortened the American attention span, corporations responded with more spin in their public relations reports.

Detailed study of investments is the responsibility of the investor. Any information can be gained by diligence. An investor’s money is his charge and he knows that he needs to manage it wisely, not accounting for fraud or crime committed by the company or investment house. The choice of a blue chip stock or a commodity is up to the investor or broker and made to conform to the strategy for the portfolio. Besides, corporations whose boards and management only review financial reports once a year are bound to fail in today’s mercurial economic environment. And which is it, detailed and integrated reporting from item six or reduced reporting on quarterly statements?

8. “Align compensation structures with long-term sustainable performance. Most existing compensation schemes emphasize short-term actions and fail to hold asset managers and corporate executives accountable for the ramifications of their decisions over the long-term.”

In today’s investment climate could use more long term thinking. In this point, the main difference between sustainable and contemporary is made. This point is the only pertinent one in the whole argument. Who has verified that corporations are ignoring long term planning?

9. “Incentivize long-term investing with loyalty-driven securities. The dominance of short-termism in the market fosters general market instability and undermines the efforts of executives seeking long-term value creation.”

The main problem with this point is that it implies government policy applied to the free market economy using tax dollars to achieve the effect. Words like “incentivize” and “termism” could be replaced with English words, but, then, the presentation would not appear as new or inventive without these words. Maybe they have already been approved for inclusion of Webster’s or Funk and Wagnall’s because of the common usage standard for acceptance.

The marketplace will respond to longer term thinking when investors and consumers demand it. Leave the government out of private sector management. It has trouble enough managing itself efficiently, effectively and responsibly.

The use of the word argument is meant as a discussion involving differing points of view. It is debate, in the legal sense, not a violent altercation. At times though, the situation may warrant violence to return the debate to a sensible exchange instead of a runaway delusion.

Al Gore is an active part of the sustainable movement and champions the idea that global warming is a reality which demands government intervention. But that is not a part of this article, no matter that the South Pole ice cap is stable though moving, not having lost any ice mass.

The basic points made in the manifesto are no more than restatements of standard, tried and true policies and practices packaged in a new “termism” for popular consumption of a public which can not remember last week. It is a construct of media specialists, promoted by government policies and foisted off on the American public for the purpose of increasing prices and government control.

Last sentence in the article on the sustainable manifesto:

“Sustainable capitalism will create opportunities and rewards, but it will also mean challenging the pernicious orthodoxy of short-termism. As we face an inflection point in the global economy and the global environment, the imperative for change has never been greater.”

The point is valid, but the suggested strategy is more government policy and regulation. Is the world government echoed by Gore and other proponents far off? Would this “new” world offer any protection from errant and misguided government?

If you like organic products, buy them. If you want a hybrid car buy one. If you want a long term investment, choose one. If you want an effective, efficient and productive government, vote for reduction of government role, not expansion of it into our homes and marketplace where it has proven to produce none of these benefits by its expansion..

 
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