Why foreign firms must go green in China, why sustainability consulting is a local pursuit, and three ways to improve public trust in business

Slaying the toxic dragon

Manufacturing success used to be measured by units made and revenue. Today, carbon dioxide emissions provide an alternative marker of industrial growth. By that count, China is set to overtake the US this year, signalling its arrival as a major world producer.

But how are Chinese manufacturers dealing with their carbon output? And are government policies sufficient to mitigate the environmental stain of China’s roaring dragon? Current projections do not bode well. Seven of the world’s 10 most polluted cities are now found within its borders. Pressure is mounting for China to act.

Despite some progress, government attitudes towards environmental legislation remain ambivalent at best, according to this joint paper by Wharton Business School and the Boston Consulting Group. National regulators say one thing, but local officials charged with enforcing those regulations frequently pay little notice. China, for example, boasts over 125,000MW of coal-fired power plants. None has official approval.

Things may have to become worse before they get better, the paper warns. Regulators will stamp down only when public opprobrium reaches a tipping point. It is unclear when that might come. Even so, responsible companies are advised to do “too much instead of too little”. Foreign companies should be particularly cautious. Their national competitors have better links with local politicians and are therefore more likely to have room to manoeuvre. On the flip side, a tougher compliance framework could feasibly squeeze out less green local players and play into the hands of bigger, environmentally better-managed companies.

The Dragon Turns Green: China’s manufacturers adapt to a new era, Wharton Business School, Working Paper, June 2009

Big Four not so big after all

Think global, act local. That’s the message drummed into the latest generation of business graduates. Academics are now not so sure. New evidence seems to suggest that the world’s biggest corporations are more regional beasts than the global giants they like to think they are.

This paper turns attention on the Big Four accountancy firms, asking: how global are they really? And how global are their sustainability services, more particularly?

The first question at first seems straightforward. The Big Four – Ernst & Young, PricewaterhouseCoopers, Deloitte and KPMG – boast offices in more than 140 countries. Together they audit 98% of the world’s 1,500 largest public companies. But look at the regional split and their incomes are heavily weighted on their domestic markets. At best, their reliance on Europe and North America might render them closer to bi-regional than global.

As for their sustainability services, the case for the Big Four being genuinely global looks even shakier. The authors examined the companies’ offerings in 15 countries in five regions. Some decentralised transfer of innovation occurred, such as the sharing of sustainability research between local firms and corporate centre. But little evidence was found of standardisation across the firms’ operations, a key indicator of globalisation.

From an academic perspective, this latter finding promises to spark further questions about the global integration of multinational service companies. From a sustainability viewpoint, however, the rationale behind the localised approach appears logical and welcome. Every market presents different sustainability requirements and social expectations. Of course, every sector needs generic rules. The Global Reporting Initiative and international climate change accords point towards this. Yet, it’s right for these firms to be locally embedded. If the Big Four end up standardising their services into a one-size-fits-all menu, the worldwide sustainability movement will be much the worse for it.

Globalisation/regionalisation of Accounting Firm and their Sustainability Services, Ans Kolk and Andreea Margineantu, International Marketing Review, forthcoming.

Rebuilding trust

Global equity markets down $30 trillion in 2008. Job losses in the US of 650,000 in one month alone. Consumer confidence down to record lows.

Lose public trust and it’s frightening how quickly the slide starts. This report is worth a read if only because it bucks the trend in business literature by dwelling on the upside, not the downside, of the current financial turmoil. Crises present opportunities, advocates of creative capitalism like to argue. So step up leaders and “make business better”, this paper urges.

To turn a negative into a positive requires understanding the dynamics of trust. Get that and a meaningful dialogue can start. In essence, it comes down to a question of “vulnerability”, this paper argues. How much and what kind of vulnerability is the public willing to assume? At present, most people feel they are unfairly vulnerable in business relationships because of the power imbalance that exists between companies (which enjoy low risk) and everyday individuals (who suffer high risks).

The paper proposes the following starting point for discussion: “Trust creation is an exercise in mutual value creation among parties who are unequal with respect to power, resources and knowledge.” Break that down and three core components to rebuilding trust emerge: mutuality (joint values), balance of power (shared risks and opportunities) and trust safeguards (limited vulnerability). The paper is dotted with examples and recommendations, but acknowledges that the road back to trust in the private sector is long and slow.

The Dynamics of Public Trust in Business, Business Roundtable Institute for Corporate Ethics and Arthur W Page Society, June 2009.

From campus

Delivery and logistics firm FedEx has teamed up with the Aspen Institute to release a ready-made teaching module on the subject of “access”. The module examines the theme in the context of to new markets, labour, information, communities and ideas. It is available through CasePlace.org.

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