Corporation 2020? A review

Does Pavan Sukhdev's vision of the corporation in 2020 stand up?  

Indian economist Pavan Sukhdev in Corporation 2020 has brought to bear the many facets of his career as a banker with Deutsche Bank, an advisor to the United Nations with his Towards a Green Economy Report and The Economics of Ecosystems and Biodiversity and his studies for the Indian government on India's human and social capital. Thus, Corporation 2020 is a global, systemic and future-oriented review of the past of "Corporation 1920", how it has morphed into the global corporation of today and where it can evolve into a powerful agent for shaping the global transition to a green economy now underway.

Sukhdev believes that this transition can be led by a new "Corporation 2020" and he lays out all the viable changes and steps, examples of companies already emerging as new "green leaders" in Brazil, India, Germany, Spain, Britain, the USA and worldwide. This is a carefully researched, hopeful book - incorporating Sukhdev's wide practical experience both as practitioner and theorist exploring new methods and models. He states flatly that these changes: in corporate governance, accounting, management of innovation, technology, supply chains, human, social and ecological resources must happen in the next 8 years. He cites rising human populations, constraints on water, land and resources, all now driving innovation, greater energy and materials efficiencies, new approaches to workforce education, advertising and marketing to increasingly skittish consumers. We at Ethical Markets agree that such crises drive human evolution and that today's multiple breakdowns are driving the breakthroughs we track on the Green Transition Scoreboard.

Sukhdev uses all his banking experience to identify the need for asset managers and institutional investors to shift to longer-term, less-risky models and why financial firms need to hold more capital, lower leverage and broaden their strategies to fully value human, social and ecological capital. As a 30-year participant in the movement for responsible, ethical and green investing, I fully agree with the author - and share his view that pressure from shareholders, consumers, NGOs and community stakeholders is vital - since corporations today have often become "puppets of finance." Sadly, finance has lost its way - in the short-termism, leverage and ballooning of securitization, derivatives and risk-taking that crashed in 2008 and its "free market" ideologies that captured regulators and governments. Finance is now often a cause of social and environmental disruption, mis-pricing securities and mis-allocating capital, using outdated economic models which externalize costs - blinding investors to tail risks .

Thus I agree with Sukhdev that corporations with their grants of limited liability - even "personhood" in the USA are currently the most powerful engines for shifting toward greener sustainable economies. So they must be properly regulated, and incumbent industries must cease their lobbying to protect their subsidies and privileges. The author calls for accelerating the "creative destruction" of Schumpeter, phasing out the $650 billion of annual global subsidies to fossil fuels and enacting resource-taxes for mining and extraction. Similarly, companies and asset managers still using fossilized asset allocation models, instead, would calculate all negative externalities (pollution, health costs, loss of ecosystem services) and account for these costs, now available from firms like London-based Trucost and hundreds of scientific reports cited in the book. Business models based on externalized costs are no longer acceptable. Sukhdev also cites the positive externalities provided to society by exemplary, successful companies like Brazil's Natura, India's Infosys in training employees and bringing millions out of poverty and exclusion.

All this requires a wholesale re-think of economic theories, textbooks and models as well as full-cost accounting at both the firm and national level in correcting GDP indicators. As one who has written, advocated and participated in these reforms for 30 years, I applaud Sukhdev's systemic overview of all these statistical upgrades. They are now at last breaking through in many countries, as in the Rio+20 Declaration and the European Beyond GDP initiatives I helped to organize and steer. They include the prototype "dashboard" systems approach in the 12 multi-disciplinary Calvert-Henderson Quality of Life Indicators I co-developed in 2000 with the Calvert Group. This "beyond GDP" approach now also used by the OECD and Canada, as well as China's Green GDP and Bhutan's famous Gross National Happiness (GNH), also takes us beyond economics - which Sukhdev's work clearly implies.

Sukhdev, in his reluctance to challenge his own economics profession, still wrongly refers to economics as a science. The previous efforts at legitimation of the economics profession is the toughest nettle to grasp, as I explored in my Politics of the Solar Age (1981, 1988) since the profession became academically powerful in its service to and apologist of business-as-usual models of externalizing costs in finance and corporations. Economics and its core assumptions are now challenged and invalidated both from behavioral science and brain research and by the physical knowledge of thermodynamics, biology, ecology and complexity science as I document in my forthcoming paper for the ICAEW.

Sukhdev outlines four planks for evolving toward "corporation 2020": 1) accounting for externalities, 2) accountable advertising, 3) limits to leverage (for banks and all corporations) and 4) resource-taxation. I agree with these basics - and applaud his focus on advertising "which turns wants into needs" and misinforms consumers while avoiding accountability (in the US as "free speech"). Even the concept of "truth in advertising" is difficult to litigate. While globally advertising is only $500 billion, its effect on health in promoting tobacco use documented in this book, as well as in driving material consumption, manipulating public opinion (e.g., campaigns for "clean coal," "safe nuclear power," etc.), reinforcing corporate lobbying and in political campaigns is distorting public choice and democracy itself. 

This is why I and my partner created the Truth in Advertising Assurance Set-Aside (UNDP HDI, 1995) which would limit the tax-deductibility of advertising expenditures in cases where civic and academic groups challenged its veracity. I also founded the EthicMark Award for Advertising that Uplifts the Human Spirit and Society in 2004, as a carrot to raise the bar and honor advertising that fulfills its potential for public education and inspiration. Our 6th Annual EthicMark® Awards will be made in London, November 27-28 at the Sustainable Brands London conference.