4 Principles of Ethical Strategy

Exploring a vision for socially responsible corporate strategy

During a recent project on The Future of Personalized Healthcare, my team and I worked on an innovation strategy for a consumer genomics company. This company was making unethical decisions that was risking the company’s long term sustainability and consumer’s well-being and trust — in the pursuit of rapid financial growth. This approach is all too familiar — to sacrifice the future for a profitable present. I believe strategists, or those who set and implement direction for companies, have an ethical responsibility to do better.

I believe the role of the corporate strategist is changing. When other goals besides growth become more important the strategist as a tool in the creation of greater profits becomes irrelevant. Strategists need to evolve. To be the architects of organizations — who create positive social outcomes through organization design, futures thinking, and stakeholder collaboration.

In this essay, I’ll lay out why strategists must evolve, and propose some strategic principles that will create better outcomes for both the organization and society.

We’re Consuming Far Too Much

Climate change, overconsumption and the degradation of the environment are symptoms of a problem Donella Meadows calls, “The Limits to Growth.” As the diagram below shows, there are a finite number of resources on this planet, including breathable oxygen, natural life, inhabitable space, and drinkable water, of which, our overconsumption is leading to us consuming a greater proportion each year.

Data based on energy usage rates. Source

We’re approaching a point, characterized by water wars, climate refugees, rising illness rates, and economic collapse where we reach the limits of what we can consume.

In the life sciences, this is called population dynamics. Our planet has a certain number of resources available. Each of us requires a certain amount of these resources, which varies based on our consumption habits. As populations and our consumption habits grow, we’ll eventually reach our planets carrying capacity.

Population Dynamics. Image Credits

In the past, we’ve artificially expanded our planets carrying capacity through innovations like agriculture, and extracting energy from hydrocarbons — but our consumption is outpacing our capacity to develop and implement innovations. We need to change, or we’ll suffer the inevitable population collapse that comes when a species consumes beyond the resources available to them.

The below chart shows Earth Overshoot Day over time. Each year the day where we consume the number of resources the Earth can replenish in one year comes earlier. In 2018, that day was August 2nd, which means every day after we were using resources that wouldn’t be replenished. Currently, we require 1.7 Earths to replenish the resources we use each year like clean air, fresh water, arable land, and wildlife. If every country in the world lived like the US — we’d need 5 Earth’s to sustain us.

Success is Growth, but Unchecked Growth is Dooming Us

In 1937, a US Congress report introduced the concept of GDP. GDP quantifies and compares different society’s well-being. GDP informs policy at just about every level, and creates the monetary policy, “keep the economy growing, and everything will be fine.”

Legally US corporate directors are not required to pursue profit at the expense of everything else — but most do. The pressure to grow profits to maximize shareholder value comes from engaged shareholders, stock-based compensation schemes and financial market pressure.

We’re demanding more from the Earth and reducing its capacity to regenerate because we define success at both the corporate and individual levels as the creation of profits because of legislation, social pressure, and the pursuit of positive individual outcomes. Our desire to grow comes from a belief that growth creates social well-being — yet overconsumption and growth are harming humanity’s capacity to survive on this planet, and corporations as the vehicles of economic growth are responsible.

We The Corporation

As Adam Winkler explains in, “We The Corporation” corporations aren’t inherently evil; they just achieve the objectives we define for them, which is usually maximizing profits. Corporations are tools built to incentivize and organize people to achieve shared goals.

In the best case, corporations pursue profits and the creation of those profits creates social good. However, in practice, the creation of corporate profits usually harms society for two reasons.

1. The profit motive misaligns a corporation and society’s best interests. Recently Greenpeace created a “waste map” of over 10,000 litres of waste and found that 75% was plastic and over 65% came from the brands of three global consumer products companies. Or cigarette butts which constitute 31% of the urban litter in Toronto, and are cleaned up through taxpayer contributions. When companies aren’t made to pay for the externalities their business models create, like pollution, physical waste, or adverse social outcomes — they actively harm society with every dollar they make.
2. The profit motive fails to align companies with their customer’s best interests. In conventional economics the most valuable products get bought the most at the highest price — and thus their manufacturers make the most profits. In reality, bad behavior is profitable. Consumer protection laws have their limits and as Volkswagen found by lying for six years about their automobiles emissions, or pharmaceutical companies asking themselves if curing patients is a sustainable business model — the lure of present profit usually outweighs the fear of future loss.

Corporations Are Expected To Grow Forever

Corporations are tools of human self-organization we build to achieve outcomes — which currently, we define as the creation of profits. Corporations are doing what they’re supposed to.

Some of the money companies make they return to shareholders through cash payments, shares of stock or other dividends. The rest they reinvest into the company — to make more money.

Under capable leadership, this continues into perpetuity with companies amassing more money to keep rewarding shareholders and continue growing. Companies want to grow more each year, but as with consumption, this has its limits.

Good companies want to grow 10% per year. In 2018 Apple made roughly $265 billion. For Apple to grow 10% annually — they must find $26.5 billion in new revenue compounded every year. That may seem like a small number, but it’s more than the GDP of Moldova — an Eastern European country with a population of 3 million. Apple must grow by over 3 Moldova’s per year — or the equivalent production of about 10 million people just to meet our expectations. For comparison, Apple has 132,000 employees.

We wouldn’t expect children to perpetually grow, yet, we expect our largest companies to do just that. Which, in practice, means more resource extraction, disposable plastics, and exploitative business practices done because of pressure from society, and which harm society. Something structurally is broken here, and it’s the strategists who set and direct organizations who must change.

Why Corporate Strategists Can Save the World

Corporate strategists make sets of integrated, reinforcing decisions to achieve the corporation’s desired outcomes — which is almost always profit. We know the damage this corporate orthodoxy is causing our planet through overconsumption and unchecked growth.

For these reasons, I believe it’s unethical to build a corporate strategy around maximizing profits. Currently, it’s common for companies to use social good to drive shareholder value. They call them brand stories or facilitating employee engagement. But the point of them is to sell more products, or to make employees more productive, both of which are methods of making the company more money.

Corporate goals are usually reducing operational costs, doing customer research or some other proxy for creating more profits — which disproportionately benefits the executives and majority shareholders. Money is the means to create action and outcomes, and thus, is a source of great power. This taken-for-granted axiom of the business world — the profit motive — chafed some of my team members during The Future of Personalized Healthcare project. They believed that there was more to strategy than helping the rich become richer — and thus more powerful.

I explored my own biases around the business — and while I never truly stated it, I came to understand I believed the point of business was making money. In my mind making money was a substitute for creating social good, but it isn’t, and so I came to agree with my team members. Why?

The Opportunity For Socially Responsible Strategy

There is a silo in entrepreneurship called social entrepreneurship. Social entrepreneurs are the folks who choose to integrate social good directly into their business models. Take for instance Good Foot Delivery which provides delivery services on foot and public transit by those who are differently-abled. Every sale Good Foot makes is tied directly to creating positive externalities for society, by employing those who often struggle to find work. Rather than using social good to drives profits — they’re using profits to drive social good. The gap we need to cross is bringing our largest corporations to creating cohesive social good as a direct by-product of their day-to-day business — rather than as an afterthought or branding activity.

The strategy process conventionally begins with mapping the organization’s present state, setting objectives for the corporation’s desired future state, creating a plan to reach that desired future state, and then implementing that plan. This process is done rigidly, and upfront with little room for emergence, and in isolation without consulting those who are affected by the business models externalities. Take for instance a shoe brand who gives out a pair of shoes for every pair they sell. They’ve adopted a short-term solution to a long-term problem — with little room for sustainable development or self-empowerment.

The Principles of Ethical Strategy

There is both an opportunity, and a responsibility for strategists to do better. Pulling from the methodologies of systems thinking, foresight, entrepreneurship and conventional strategy I propose a reframing of corporate strategy, which I’ll layout in the following principles.

1. Co-creation: Corporations need to set strategy with those affected. This includes their customers, involved communities, even competitors. When money is no longer how we define success, and we’re no longer competing for scarce resources but are instead collaborating towards the abundant social good, competitors instead become allies on a shared journey towards creating a better world.
2. Values-Driven: The pursuit of profit is unsustainable, and the utility questionable. The happiness of our lives is affected far more by our political conditions, communities, self-image and the meaning behind our work. Money’s contribution to our happiness falls off sharply once we’ve reached a good standard of living. Corporations must decide the sort of world they’d like their grandchildren to live in, and build that today. Whether this means one where we co-exist with our environment or one where we all have enough to eat and drink.
3. Wayfinding: Strategy that creates social good must not be rigidly defined, and executed without paying attention to environmental cues. The best outcomes emerge by being attuned to our surroundings as Robert Chia, and Robin Holt found in Strategy Without Design. These are emergent outcomes, and as Nassim Nicholas Taleb found in Black Swan — these can often be the most impactful and are created by wayfinding or what Keith Grint calls clumsy solutions. Or iterative steps made in response to the environment to gradually realize the values behind a strategy, rather than rigidly implementing the specifics of it. This creates resilient organizations that aren’t vulnerable to rapid changes in their business environment.
4. Own Externalities: Corporations need to look at the deeper impacts of their models. Cars pollute and force urban sprawl through induced demand. Disposable plastics litter our beaches and harm sea life. Harmful or addictive consumable products contribute to high obesity and cancer rates. Through systems thinking and the principles of co-creation, being values-driven and wayfinding corporations can identify, and respond to the outcomes their models create rather than leaving it to society to suffer from their externalities as we currently struggle with climate change and air pollution.

We’re at a Turning Point

As Hans Rosling noted in, “Factfulness,” the five most pressing global concerns are the risks of a global pandemic, financial collapse, world war, climate change, and extreme poverty. These concerns are stymied by strong institutions and organizations which as Francis Fukuyama discusses in, “The Origins of Political Order,” are developed over time through the care and attention of society. Strategists of all kinds must look beyond profits, status, and power and towards guiding our institutions and organizations towards achieving broader social good. They must do this by following the principles of co-creation, being values-driven, wayfinding, and owning their externalities.

There will come a day where our grandchildren will look back at the actions we took today. What will they see? Will they see an engaged populace that took initiative to fix the intergenerational challenges we as a species face — or will they see a petty society sunk by turf wars, greed, and callousness to others suffering, and think — why didn’t they fix it when they had a chance?