McKinsey and PwC On How Companies Think About Sustainability Management: All Hat, No Cattle

McKinsey and PwC On How Companies Think About Sustainability Management: All Hat, No Cattle

Summary: Two separate reports show a massive disconnect on sustainability between C-level strategic intent and real world performance. In the report Confronting Corruption, PWC surveyed executives and whilst 80% reported their companies had an anti corruption management programme, only 22% were confident such programmes were effective.

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TOPICS: Emerging Tech
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Two separate reports show a massive disconnect on sustainability between C-level strategic intent and real world performance. In the report Confronting Corruption, PWC surveyed executives and whilst 80% reported their companies had an anti corruption management programme, only 22% were confident such programmes were effective. On climate change, the McKinsey report, How Companies Think About Climate Change, similarly records more than 60% of executives think climate change is strategically important but less than a third are doing anything substantive about it.

So what is the explanation? Simple enough, executives are still just awakening to reality of managing sustainability within the context of global business operations.

Others are just waking up to the risk, often because high profile enforcement penalties have caught their attention or because they are seeking opportunities in unfamiliar markets.

The struggle against corruption is fundamental to sustainable development. Corruption undermines the development of a functioning market, its governing institutions and traps the poor in poverty. But the poor aren’t the only victims, last month Stanford Graduate School of Management professor Ernesto Dal Bo released a paper showing corruption not only damages the community but it also damages the firm itself through eroded efficiency. Indeed corruption has the potential to undermine progress on the climate change challenge. Last month an influential member of the ethical investment community in London shared her concerns with me that corruption associated with a future carbon certification process could undermine the emergence of a robust market for global emissions trading.

But in the case of both climate change and corruption is regulation the answer? More than 80% of the respondents to the McKinsey survey accept the inevitability of climate change related regulation within 5 years and most expect this to have a negative effect on profitability. Yet, if managed well, 61% of executives think climate change has the potential to have a positive impact on profitability.

When it comes to corruption Wayne Murdy, Chair of Newmont Mining expresses similar sentiment about the role of regulatory versus voluntary action:

You need governments on one side because they provide the teeth. But to me it's very important that the private sector drive the initiatives because they know their business. They know the hot buttons or the risky areas or issues. So they can focus on those.

No small task alas. Jermyn Brooks, head of private sector engagement at Transparency International says:

You have to look at all the internal systems to make sure that they're not countering your anti corruption policy. And that's a big job.

And that is the crux of the matter. Business leaders want to do the right thing, see the strategic value but the current business models, like super tankers, are going to take some time to turn around.

(Disclosure: SAP supports the work of Transparency International and I sit on the steering group of the Transparency International Business Principles)

Topic: Emerging Tech

James Farrar

About James Farrar

James has more than 15 years of experience working on corporate sustainability issues from both the corporate and NGO campaigning perspective.

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  • Further Thoughts on McKinsey

    Here are some thoughts on McKinsey from Francis McInerney (www.northriver.com)
    that speak along the same lines

    Thirteen years after Sean White and I published The Total Quality Corporation which
    showed how companies can make money by going green, McKinsey last week
    announced to the world that companies can make money by going green. Why did
    it take McKinsey so long to figure out what you can get from a used book site like
    exlibris for a dollar or two?

    McKinsey has locations in 51 countries, 20 full practices that speak 120 languages,
    and serves 70% of the Fortune Magazine's list of most admired companies. Yet it
    has to reinvent ideas that date from the early 1990s. What gives?

    The reason is that most large consulting houses do not have their own leading edge
    management systems, still less one that is driven by a modern theory of
    information. This means that their ideas are prone to error and expensive to
    implement. They have no rationale of their own and may, or may not, be right. You
    won't know until after you've spent millions to find out.

    The reason that green is the new color of money is that falling information costs
    drive up the rate of information substitution for other resources like land, labor,
    and capital. This drives costs down and yields up at the same time. The result, if
    the rest of your business model is in good shape, your profits rise, often quickly.

    Interestingly, the McKinsey findings appear only to deal with carbon emissions.
    Thirteen years ago, we dealt with a huge range of industries and applications from
    airframe painting to oil refining and photofinishing in sixteen case studies from all
    over the world.

    Without a leading-edge management system, it is very difficult to come to useful
    conclusions and harder still to make them work. I've had meetings with two of
    McKinesy's largest competitors in recent months and they both said the same
    thing: they have no way of showing what works, or why, and need help badly.

    Since you can implement my model without a cast of thousands, big consulting
    houses are obsolete. They are slow to reach conclusions, don't know why they
    reached them, and cost a King's ransom to implement. They are a huge layer of
    cost that you can do without.
    robert@...
    • Further Thoughts on McKinsey

      You know the green revolution does have an uncanny sense of deja vu about it doesn't it. My point wasn't really about McKinsey though it was about the survey results which show a gap between intent and execution. The falling cost of information is a great point though and I agree. Thanks for commenting .. good stuff!
      jamesfarrar.1@...
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