One of Steve Jobs’ last initiatives before his death in October 2011 was a personal pitch to the Cupertino City Council of his vision for a state-of-the-art research and development facility shaped like a spaceship, an integrated 21st century campus surrounded by green space, designed with a commitment to energy efficiency, environmental sustainability, and generous amenities for employees. The updated plans in December 2011 stated: “This new development will provide a serene and secure environment reflecting Apple’s values of innovation, ease of use and beauty.”
About the same time these new campus plans were being developed, Apple was linked with a very different work environment—that of Foxconn Technology Group, the biggest maker of Apple iPhones and iPads. A workers’ rights controversy at Foxconn had dogged both companies for a few years due to worker suicides and factory explosions. Photos of Foxconn’s dormitories and factories at the time show netting outside the windows to catch suicide-jumpers—an image clearly not aligned with a “serene and secure environment reflecting Apple’s values.”
As Bloomberg journalist Tom Randall noted in “Inside Apple’s Foxconn Factories,” “the relationship between the two companies shows how the reputation of global brands is increasingly tethered to the emerging-market companies they do business with.” This is especially true when it comes to the place where the work is done, whether it’s at an address controlled by the corporation or one of its suppliers.
Following the suicides, Apple published a set of standards spelling out how factory workers should be treated and it also moved some of its production work. It’s a continuous process. As Apple noted in response to a December 2014 BBC Panorama News program about Apple’s ongoing challenge to protect Chinese factory workers, Apple stated: “We are aware of no other company doing as much as Apple to ensure fair and safe working conditions. We work with suppliers to address shortfalls, and we see continuous and significant improvement, but we know our work is never done.”
Where the work gets done—planning, making, selling, and servicing the company’s core bundle of products and services—is the workplace. It can be physical space the company owns or leases; it can be cyberspace, where work is done from anywhere, anytime; and, as noted above, it can also be the physical space used by key vendors to whom various stages of the work have been outsourced. It is often a large asset: in 2014, AT&T’s domestic real estate portfolio was 240 million square feet while RadioShack had 4,400 company retail outlets before it declared Chapter 11 bankruptcy in February 2015. In addition, investment in the workplace can approach that of labor and information technology, yet boards often pay little attention to it until there is a crisis.
The workplace is changing, as seen in Harvard Business Review’s October 2014 cover story, “Why we Hate Our Offices and How to Build a Workspace We Can Love,” devoting three articles on 21st century workspaces and the impacts of technology and culture on how and where we work, how we feel about our workspace, and how it impacts our productivity.
Two industry thought leaders described workplace strategy (WPS) more than a decade ago as “a bundle of occupancy, connectivity, and support services to enable those who do the work to get it done.” Michael Joroff from MIT and Michael Bell of the Gartner Group wrote then: “In this definition, all activities are designed to help the workforce accomplish its mission in physical space and cyberspace.”
Directors need to understand the risks to the business if there is no WPS or if the latter is not aligned with enterprise priorities and opportunities. WPS needs to be agile enough to keep pace with ever-changing business requirements and risks. Here are questions directors can ask senior management:
Does the company have a WPS? The fact that a company leases or owns real estate and facilities does not mean it has a strategy. WPS requires an analysis of the supply of and demand for space wherever work is done throughout the enterprise and across divisions, departments, subsidiaries and state, national, and international boundaries, combined with plans to address the gaps or oversupply of space consistent with enterprise goals. The demand side of the equation is the current and forecasted hiring plans for employees and contractors. The supply side is the existing inventory of work space to accommodate that demand, with the added complexity of alternative ways of working from almost anywhere anytime.
The risks of not having a WPS include:
Wasted costs from sub-optimizing the enterprise portfolio of workplace assets. For example, owning vacant real estate with no known or forecasted demand and/or potentially securing and building out new work space for a line of business when those costs could have been avoided by using under-utilized space from another business unit
Lost sales and market share. WPS can become an obstacle to getting the product or service to the customer if workplace is not available when and where it is needed or if it is not adaptable to enable evolving work processes
Impact on talent attraction and retention. Workplace can impact employee satisfaction, especially if it is disconnected from enterprise values that commit to provide a productive and satisfying work environment or if it is in a labor market that cannot meet the business requirements for specific skills
How can WPS support enterprise goals? WPS is becoming part of big data. Collecting, maintaining, and analyzing the data requires collaboration across myriad services including finance and accounting, human resources, information technology, and data analytics, sourcing/supply chain management, real estate and facilities, sales and marketing, and operations. Which group leads WPS varies by company so a report to the board on WPS might come from any of these groups. A WPS report includes trends in the total costs of occupancy with a breakdown by subsidiary, division, or line of business, and by region and real estate asset utilization, which include trends such as vacancy, the amount of square footage, and total workplace costs allocated per employee compared to industry benchmarks.
A good WPS includes performance metrics that flow from enterprise goals. WPS tactics and metrics should support enterprise goals such as cost containment, scaling business for high-growth initiatives, enterprise risk management, corporate social responsibility, sustainability, employee satisfaction, and retention goals.
WPS has long been a part of risk management—disaster preparedness from floods and blizzards, for example—but outsourcing has expanded the risks by including the working conditions of the workplace of one’s global vendors as well as cyber-risks of the supply chain. Consider these reputational risks:
Your product is manufactured in a Bangladeshi building that collapses and kills 900 workers inside
Your point-of-sale machines are breached by attackers whose first step is the theft of credentials of one of your vendors and ends with the theft on a massive scale of your customers’ personally identifiable information and credit card and debit card data.
Part of the update to the board should include an overview of workplace-related supply chain risks. It also includes an explanation of the governance structure that specifies how WPS decisions are made, executed, reinforced, and challenged in the company–at the enterprise level? At the line of business level? Who owns and is accountable for these decisions that can have a major impact on the business?
How agile is our WPS? Business is being disrupted at an accelerating pace. Whether it’s the impact of online shopping on a brick-and-mortar retailer or a merger, acquisition, or disposition of a business unit, directors should consider if the company’s WPS is flexible to enable a rapid response to sudden, unexpected risks and opportunities. Real estate is illiquid. There are ways to make a workplace more agile, but flexibility comes at a cost premium. The premium may be worth it compared to the impact to the business of not having space when you need it or of locating in a “low cost” place where the company cannot hire enough people qualified to meet the business requirements, or being stuck with millions of square feet of vacant space that can only be disposed of at pennies on the dollar. Service providers can help identify risks in the enterprise workplace portfolio and ways to mitigate these risks that align with your company’s goals and needs for agility.
Strategic questions to ask about WPS include:
How much are we spending on Workplace and how much should we spend?
How agile does our Workplace need to be given our competitive environment?
Does our Workplace reflect the values and strategy of the enterprise and align with corporate goals?
How do we know if the Workplace of our key suppliers aligns with our WPS and enterprise values?
A Reflection of Culture
The workplace is a reflection of corporate values and priorities. A headquarters campus, a retail store, a manufacturing plant, a call center, and the cleanliness and safety of an amusement park are all reflections of the culture, personality, and values of the founder or CEO. Office or facilities space is an indicator of the attention paid from the top down to where and how the work of the company gets done.
Here’s a thought experiment:
Recall Merrill Lynch CEO John Thain’s $1.2 Million office renovation in 2008. Because his private office sported luxury items that included a $38,000 commode and $87,000 rug, the CEO’s workplace became an embarrassing emblem of banking industry excess as global financial markets were crashing. The workplace renovation caused so much negative publicity that Thain soon agreed to pay back the shareholders
Now, think of your boardroom as the workplace of your board.
What does your board workplace convey about corporate values to your stakeholders?
Is the board’s workplace aligned with the priorities of the enterprise?
What do you know about the workplace of your key suppliers?
To go back to the example of Apple’s supply chain and the implications for a workplace, a March 27, 2015 article by Eric Pfenner in TheWall Street Journal hints at another way to outsource that has the potential to change the discussion about workplace. In “Japanese Robot Maker Fanuc& Reveals Some of Its Secrets—Company helps make iPhones and Teslas”, Pfenner reported that Fanuc’s giant Robodrill machine tools are used to help shape the aluminum cases for smartphones from Apple, Xiaomi, and other brands.
The efficiency of Fanuc’s robots is breathtaking. “One 86,000 square foot factory in Oshino, making industrial robots, is staffed by only four people at a time,” Pfenner writes. “In another factory, robots can assemble an industrial motor in 40 seconds.” As more industries accelerate the automation of work processes, reputation risk shifts from workplace conditions to workforce and impact on jobs. What WPS most closely aligns with your company’s goals and values?
In today’s evolving world of off-shoring, on-shoring, near-shoring, and right-sourcing, executives and the board would do well to think about the workplace as that bundle of occupancy, connectivity, and support services that enable those who do the work to get it done efficiently and effectively—wherever, whenever, however and-increasingly-whoever is doing the work on behalf of the company—and oversee that their company’s WPS enables enterprise goals and reflects the company’s values.
Margaret Latshaw’s experience includes seven years as an officer at Bank of America and at H&R Block and 10 years as a director on the board of a private real estate company. She is an advisory board member of the real estate center at the University of Missouri-Kansas City and an NACD Fellow since 2013. She currently advises on corporate real estate and business strategy. Contact her at email@example.com.
Ever since the rise of capitalism in post-feudal Europe, people have predicted its self-destruction. Private creation and ownership of wealth carries risks, and these risks have been spotted by advocates and enemies alike. Free-market proponent Adam Smith in Wealth of Nations warned against the dangers of separating ownership and liability in joint-stock companies. A century later, in Das Kapital, Karl Marx, a foe of capitalism, said capitalism would fail due in part to the inevitable decline of profits over time. And at the turn of this past century, capitalist icon and financier George Soros wrote of the “capitalist threat” in the Atlantic Monthly magazine, predicting that uninhibited pursuit of self-interest without concern for the common good would lead to a breakdown of the free-market economy.
In more recent times, however, we have not needed books or articles to sound the alarm. The current realities of persistent recession and excessive regulation say it all. Clearly, capitalism is under siege and we, its practitioners, are its only hope.
Fortunately, there are several existing communities devoted to this noble cause. One is NACD itself. At our national headquarters and in our chapters, we at NACD believe the organization is helping directors do their jobs well, which, in turn, strengthens companies and the economy.
But NACD is not alone in its dedication. A number of movements have emerged with the express purpose of saving capitalism from both itself and overregulation. One of the newest and fastest-growing is “conscious capitalism”—a movement that challenges business leaders and indeed all stakeholders to rediscover and live their companies’ true purpose—even while creating long-term wealth for owners.
The phrase was coined by Muhammad Yunus, who received a 2006 Nobel Peace Prize for founding the Grameen Bank, a provider of micro-loans. The term caught on quickly. Kip Tindell, CEO of the Container Store, and John Mackey, co-CEO of Whole Foods Market, co-founded Conscious Capitalism Alliance in 2007, which would join with an institute to become Conscious Capitalism Inc.(CCI).
The Conscious Capitalism movement, via CCI, has grown in less than half a decade to become a convening force—one strong enough to tear me away from my office! Last month I served on a panel at the Fourth Annual Conscious Capitalism Conference at Bentley University in Waltham, Massachusetts. The event focused on the importance of “love and care” in the workplace, along with similar topics, including the board’s role in corporate culture, the theme of my panel.
The conference brochure advised me that “conscious businesses have distinctive cultures that help to sustain their adherence to their higher purpose and their orientation towards maintaining a harmony of interests across stakeholders. Conscious cultures are self-sustaining, self-healing and evolutionary.” So far so good!
I assumed my purpose was to suit up, show up, and “carry the flag” for corporate directors. I could just picture myself as being the only “suit” among a sea of social activists and rising-star millennials, being a lone voice explaining that directors do care. In preparation for the panel, I had come up with what I call the 5 Cs:
code (help develop the code of conduct)
CEO (pick the company leader and successors with an eye to culture)
compensation (compensation committee sets incentives for nonfinancial and well as financial results)
controls (audit committee ensures compliance with laws, the code of conduct, and any other norms)
composition (nominating and governance committee selects the board, which then sets the tone at the top through all of the above)
But as it turns out, although I did intone my 5 Cs, I didn’t have to do much explaining about how the boardroom works. Directors and business VIPs were everywhere in the crowd of over three hundred—including some with strong NACD credentials.
Day 1 featured former Medtronics CEO Bill George, who co-chaired the NACD Blue Ribbon Commission on Executive Compensation, as a keynote panelist on the theme of love and trust in business.
On Day 2, the director community was also in evidence. The moderator of the corporate culture panel, Deborah Wallace, is an NACD Fellow, and her panel included NACD’s most recent Director of the Year, Jenne Britell, chair of United Rentals. Another director on the panel, Ralph “Bud” Sorenson, is the chair of the nominating and governance committee of Whole Foods. The conference also featured several notable CEOs, past and present (not only Tindell and Mackey, mentioned earlier, but also Ron Shaich, founder and co-CEO of Panera Bread; and Doug Rauch, former CEO of Trader Joe’s and current CEO of CCI).
Coming all the way from Australia was Ian Pollard, a prominent member of the Australian director community, active with the Australian Institute of Corporate Directors. And I couldn’t resist giving a shout-out to Steve Jordan, director of the U.S. Chamber of Commerce’s Business Civic Leadership Center. (BCLC advances businesses’ social and philanthropic interests through a variety of programs, including corporate citizenship awards and a disaster help desk that empowers businesses to help communities when natural disasters strike.) Like yours truly, Steve is a member of the advisory board of the Caux Round Table, which deserves its own full-length blog post—coming soon.
This star lineup told me that corporate America is already engaged in social responsibility, already devoted to making capitalism sustainable for the long term. Why else would such respected directors be there? And I noticed some knowing nods of agreement from the audience when I discussed the Global Reporting Initiative (GRI), the standard for reporting on company accomplishments in the environmental, social, and governance (ESG) realm—or “sustainability” for short. At NACD, we’ve been keeping our members in the know about such issues—which we will cover at our Board Leadership Conference in October 2012. As usual, our speakers and panels on sustainability-type issues will draw an appreciative crowd.
But Conscious Capitalism runs deeper than simply preaching to the choir about the importance of social issues. According to CCI co-founder Raj Sisodia, Conscious Capitalism has four defining characteristics: “First is a higher purpose. There needs to be some other reason why you exist, not just to make money. Second is aligning all the stakeholders around that sense of higher purpose and recognizing that their interests are all connected to each other, and therefore there’s no exploitation of one for the benefit of another. The third element is conscious leadership, which is driven by purpose and by service to people, and not by power or by personal enrichment. And the fourth is a conscious culture, which embodies trust, caring, compassion, and authenticity.”
Ideally, these values permeate the conscious corporation at every level, including all its employees. Keynote speaker Singh Kang, general manager of the Taj hotel in Boston, gave a good example. Taj is owned by the Tata Group, an $80 billion Indian conglomerate known for its benevolence to employees. Kang was general manager of Taj Mahal Palace in Mumbai during a terrorist attack on November 26, 2008, referred to as India’s 26/11. During the crisis, he stayed on duty, focusing on safety for all as his employees tried to protect guests, even taking bullets for them. Eleven employees died in the attacks. Their families received generous, lifelong survival benefits from their company, returning loyalty for loyalty.
This was Conscious Capitalism in action. These loyal employees and their equally loyal employer will remain forever etched in my mind, inspiring me to continue defending and protecting our economic system—along with the positive values it can foster.
But back to GRI: More than 1,300 companies worldwide use GRI standards for corporate reporting on environmental, social and economic performance (we’ll call these “social” issues for short). Most of the companies are located outside the U.S., however, hence the “Focal Point USA” campaign. The New York kickoff will be the first point in a tri-city tour. On February 3,The World Bank will host a breakfast meeting to gather the local sustainability community and discuss latest trends in social disclosure and sustainability reporting. On February 4, Ceres, the longtime sustainability initiative that launched GRI, will host a roundtable event in Boston for sustainability reporters. Will there be a dramatic surge in the number of companies adopting GRI and embracing social issues? The answer is yes—but only if corporate social responsibility can correct its image. Let me explain…
When yours truly was at Chesterbrook Elementary School in Falls Church, VA (later renamed as McLean), having gained a reputation as a writer for my stories on heroic figures such as “Slowpoke the Snail” (painstakingly handwritten on many pages of regulation line paper and usually circulated for only a few days before being ripped up by the school’s top bully) my peers elected me to become the editor of the school newspaper, produced with pungent purple ink on a mimeograph machine. Well, being a writer was one thing and being an editor was another. The deadline for the newspaper was fast approaching, and I had gathered no copy—not even from the boy who had taken the trouble to dance with me at Cotillion before revealing his true motives (“Will you make me a sports editor?” he asked, dashing my first hopes of unconditional love). So I had a bright idea. An artistically inclined pal of mine could draw a picture with as much incompetence as she could muster, and title it, What is wrong with this picture? The arrival of this first official submission to the school paper broke the logjam. Soon other articles appeared and I had enough copy to make a newspaper.
Alex's early ventures in editing
But when it comes to corporate social responsibility, something really IS wrong with the picture and I think I know what it is. But like the tale of “Slowpoke,” it will take me a while to tell, and I recount it in an environment—our current business world—that tends to overpower nuance.
Here is the two-part dilemma.
1. By their very existence, corporations are based in fundamentally moral principles such as meeting needs, setting viable prices, paying wages and so forth. There are of course, outlier exceptions like monopoly, fraud and other ills but these are already combated by government with taxpayer dollars. We need to shout that business really does do good day in and day out.
2. At the same time, however, there is overwhelming proof that companies making additional investments in social issues do better financially than peer companies that ignore such issues. Don’t just take my word for it. Read the extensive writing of Steven Jordan of the Business Civic Leadership Council of the U.S. Chamber of Commerce or of Stephen Young, Executive Director of the Caux Roundtable. Or consider the fact that a leading social/governance issues expert at the World Bank and International Finance Corporation, Mike Lubrano, cofounded the Cartica Capital and left a secure government job to invest his career by investing in companies that “get it right.” The fund is doing quite well.
Are these additional investments optional, like giving to a favorite charity, or necessary like paying insurance premiums? In my view, they are necessary, but not because corporations have or should have a “responsibility” to contribute to society. Any red-blooded company would rebel at such a guilt trip. It’s because corporations are woven into the social fabric, and if they harm that fabric, they themselves are harmed. If they help that fabric, they themselves are helped. So the problem is the picture. We need not envision a magnanimous corporation giving to society. But rather society giving to a corporation…employees give their time, customers give their treasure, and the public gives its trust. The real question is, will corporations receive or reject this wealth that is available to them in return for a modest and necessary premium?
In conclusion, what is wrong with the current picture of corporate social responsibility? The problem is that corporate responsibility is a confusing misnomer. Social investments are not merely a “responsibility.” They are economic necessities. As for me, yes, there was something wrong with my picture when, out of desperation, I had to commission that illustration. I was promoted beyond my level of competency. I needed to stick to writing. The same goes for corporations. They are not there to do good. They are there to do business—making good products and services, sold in free markets, and voluntarily investing in the social infrastructure that makes those markets possible.
Now that picture is worth a thousand words—and untold returns on investment.