Income/expenses: what's missing?

The nation behaves well if it treats the natural resources as assets which it must turn over to the next generation increased, and not impaired, in value. Teddy Roosevelt

We spent a lot of time this week talking about income statements, and what should and should not go on one.  If something is clearly titled an expense (i.e. payroll expenses), put it on the income statement.  Cost of materials purchased?  Income statement.  Member dividends?  Hmm…not so clear, right?  Well, yes, it is technically an expense, but it’s cash dispersal, so it goes on the balance sheet.

What are we leaving out of our income and expense discussion?  We get a sneak peak (I know, I know, we’ll get there but we’re starting with the basics—which is a good thing) from Willard on page 32 of The New Sustainability Advantage, where he introduces the concept of incorporating sustainability benefits into the income statement (and goes into much further detail in chapter 5, in our reading for this week).  In the first example, we have the typical income statement, representing revenues, COGS, SG&A, taxes, and net income.  In the next example, we have the enhanced income statement, which includes everything from the first example but adds reduced energy/waste/material expenses (all very tangible and easy to measure) and increased employee productivity and reduced turnover expenses (a bit more nebulous and hard to quantify). 

How can you measure and quantify positive word of mouth as potential income?  A pissed off customer and bad PR as a business expense?  A dedicated employee that is passionate about the mission of the organization?  Not having to hire and train new employees on a regular basis?  There are some great resources in chapter 5 of Willard’s book that I won’t detail since we’ll all read them, but wanted to share some additional resources I came across recently. 

I spent the past 3 days in a beautiful fishing lodge on the banks of the Snake River in Idaho, at the UnCommon Sense workshop I run for the Yellowstone Business Partnership.  This program is one of my favorite parts of my job.  I get to work with a diverse and innovative group of businesses, teaching them how to implement sustainable practices in their operations: from energy and water efficiencies to greenwashing to social & community investment to the intricacies of a dumpster dive.  I get to inspire and be inspired.  I get to facilitate the networking and collaboration of businesses who on the outside have absolutely nothing in common with each other—school districts, cattle ranches, restaurants, banks, even a platinum and palladium mine.  And every single one of them comes out of there not only learning from each other, but also actively helping one another address their unique challenges with regard to sustainability. 

This workshop, one class was going through the Transportation Efficiencies and the Business Response to Climate Change modules, while the other class was in the Responsible Purchasing and Social & Community Investment (SCI) modules.  In SCI, we shared a fantastic video from RSA Animate called "Drive" (I LOVE this series! This is the same series with the video we watched at the first intensive), on what really motivates us as humans.  A group of researchers (financed by a “left-wing socialist bank” aka the Federal Reserve Bank) conducted studies to determine the effectiveness of financial incentives for completing certain tasks.  What they found was not what they expected.  "As long as the tasks involved only mechanical skill, the bonuses worked as expected.  The higher the pay, the better the performance.  But once the tasks called for even rudimentary cognitive skill, a larger reward led to poorer performance.  Poorer performance!  How can that be?” 

The fact of money as a motivator is a problem.  Money drives nearly every decision we make.  From Drive: "If you don't pay people enough, they won't be motivated...another paradox...the best use of money is to pay people enough to take the issue of money off the table.  Pay people enough so that they're not thinking about money, and they're thinking about the work."  

We don’t typically consider employee productivity as an income or an expense, but it unquestionably is.  A 2010 Gallup study on employee engagement discovered that on average in the U.S., only 33% of employees are considered to be “engaged” in their work.  49% are not engaged, and even more troubling, 18% are actively disengaged, which means their employers are paying them to play on Facebook or look for another job on their dollar.  Gallup says that a ratio of 1.5 to 1 is the average healthy company’s employee engagement.  And a ratio of 8:1 is a world-class company’s employee engagement ratio.  A ray of sunshine? “The world’s top-performing organizations understand that employee engagement is a force that drives business outcomes. Research shows that engaged employees are more productive employees. They are more profitable, more customer-focused, safer, and more likely to withstand temptations to leave the organization.”  You would think that all companies would value having engaged and committed employees.  And some do; it’s just not the majority of companies or the prime business motivator for many. 

As a non-profit organization, YBP is fortunate to have employees that work for the organization because we all believe in the mission and vision.  I can’t say that YBP’s P&Ls reflect employee engagement, or environmental or social considerations, but I can say that I feel valued and I feel empowered at my job, which makes me more productive and gives the organization a better return on its investment in me.  I have a flexible schedule, I have health insurance, I make a living wage. 

The harsh reality is that money does “make the world go ‘round” in our society, and if you don’t have money, you will have a difficult time surviving.  And this directly correlates not only to people’s engagement with their work but also their motivations to care about the environment and their impacts.  If people aren’t getting their basic needs met, that is, food, shelter, water, health, they can’t afford the luxury of being passionate about their work or concerned about the environment. 

Random closing thought: my favorite new definition of Sustainability, from Charles Hopkins in Education Canada (from the Willard book) is “Enough, for All, Forever.”

Eternal optimism or blissful ignorance?

I am an eternal optimist.  I used to call myself a hopeless optimist, but being an optimist, I like to believe that there is hope for our technologically advancing society to figure out a way to survive on this planet without destroying the very thing that sustains us. 

I’ve long felt that we as a society won’t see a major shift in energy and transportation toward renewable resources until we run out of oil.  This is uncharacteristically pessimistic for me, but I haven’t seen the leadership or the motivation in our country to lead me to believe otherwise.  A March 2012 article in the Atlantic explores the magnitude of the effect rising oil prices will have on the US economy, and was particularly relevant to our discussions these past 2 weeks on the Great Recession and the financial crisis, the Federal Reserve, and finally supply and demand.  I especially liked the distinction between correlation and causation: “Rising oil prices will harm U.S. economic growth. But what is the likely magnitude? Higher oil prices have played a role in U.S. recessions since 1973. But correlation doesn't necessarily translate into causation. Causation depends on a number of factors and transmission through the economy and, most importantly, whether the Federal Reserve tightens monetary policy in response to higher oil prices. Furthermore, the impact is conditional on expectations of whether the price increase is transitory or longer lasting.”  The author does a stellar job of looking at the cause and effect: consumer shifts in discretionary spending, behavior change in response to higher gas prices, supply chains raising their prices in order to maintain profit margin and the ripple effect across multiple supply chains. 

Unfortunately, supply and demand doesn’t only function if/when the players take all of the aspects of a supply/demand curve into account.  Anyone at any point along the chain can affect the curve (positively or negatively), without consideration or even being cognizant of the remaining parts and the effects on individual parts or the system as a whole.  It is the exception for someone along that chain to consider the full life cycle impacts of a product or a process.  I’ve appreciated the simplistic introduction to supply and demand, ROI, and valuation, and I look forward to the complication of things when we add in externalities and multiple streams, but what really interested me this week was the concept of ecosystem services.  It baffles me that we don’t account for the external costs of our activities. 

The simple fact that the health of the planet’s ecosystems have been in steady decline since the mid 1980’s should be enough to spur a society to action. But we, as a collective developed society, continue to misplace “value” on such things as replacing our “old” iPhone 4S with the shiny, new iPhone 5, drive the 3 blocks to the grocery store and leave the car idling while we go inside, and measure the wealth of an individual by material goods.  The more “stuff” a person has, the better off they are. 

One phrase from the Natural Step primer really caught my attention:

“The main problem isn’t an absolute lack of resources; it is the fact that our global consumption of resources is extremely uneven and inefficient.  It may be hard to believe, but the richest 200 people in the world have a combined annual income that is greater than that of the poorest 2.5 billion people.”

I’m sorry, was that 2.5 billion people?  With a “B”?  Yep.  How can we shift the supply and demand curve, so that the rich aren’t driving the ship?  How can we give a voice to those 2.5 billion people, give them a chance at fair representation?  Can we shift how we consume along with what we consume?

Take Patagonia, for example: a hugely successful company with a respectable commitment to sustainability.  Their take on the concept of supply and demand?  The Common Threads initiative: http://www.patagonia.com/us/common-threads/. Don’t buy our products new if you don’t have to; instead, sell them on Ebay and buy someone else’s used Patagonia gear.  They received a lot of flack for that, with many believing it was one of the stupidest business moves ever.  It turned out to be brilliant.  Not only was Patagonia able to set an unprecedented example on consumption, they increased sales and likely increased brand loyalty.  Patagonia knows they make quality gear that is built to last.  They don’t design for obsolescence.   Beyond that, the company’s Footprint Chronicle’s (http://www.patagonia.com/us/footprint) outline the goal of using “transparency about our supply chain to help us reduce our adverse social and environmental impacts – and on an industrial scale. We’ve been in business long enough to know that when we can reduce or eliminate a harm, other businesses will be eager to follow suit.”   Transparency and accountability = good business. 

As long as we are stuck in a reinforcing loop of mindless consumption, we will continue down the path of eliminating our species from this great Earth.  My hope is that we will have more companies like Patagonia to set the bar and lead us down a different path.  

Just be good. Just do good.

“Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it is the only thing that ever has.”  ~Margaret Mead

Here's to new adventures and new approaches.  And my first ever blog.  In some ways I find it funny that my original blog web address was already taken: begooddogood.  That's my mantra, darn it!  And then I'm encouraged to know that others are approaching life with the same focus, even though it may mean something inherently different to them.  So now it's justbegooddogood.  With the "just" not diminishing the point.  Just be good.  Just do good. 

About me: today, I am working a dream job managing the sustainability programs for the non-profit Yellowstone Business Partnership, based in Bozeman MT and traveling all over Greater Yellowstone.  How did I get here?  I was fortunate to grow up in Montana with parents who instilled in me a love for the environment. I majored in Resource Conservation, and got a Master's degree in Environmental Science, Alternative Energy and Sustainable Building.  I had zero interest in business classes.  I wanted to change the world; you couldn't do that in business school!  I tried to leave several times, but was always drawn back to these mountains and this unparalleled natural world. 

Fast forward 7 years, and I find myself working intimately with businesses of all types and sizes, realizing daily how much more effective I could be with a solid business foundation.  It is clear to me that to be able to effect change, I have to work with, understand, and ultimately change the business world.  Businesses have enormous potential to help shape a positive future for the region.  Or…not.

Hence, BGI.   I've had BGI on my radar for 4 years, and the stars have finally aligned to bring me here.  I was drawn to BGI for the opportunity to question the status quo, to challenge the notion that life is, and should be, "business as usual".   I am excited about the education and real world case studies to come, the connections I have already made at Channel Rock and those that will arise this week at our first intensive.  With respect to our economics course (and this blog), I am eager to gain a better understanding of economic structures and the financial world.  I don't fully grasp the intricacies or the nuances of this foreign (to me) world: it often seems like Monopoly--is this real money?  I certainly feel the fallout first-hand--while I am grateful to have a job (especially one about which I am passionate), I'm not safeguarded from reduced hours and creative allocations of limited resources.  The financial instability of countless businesses and individuals has had a devastating trickle down effect, hitting those lowest on the totem pole the hardest, it seems.  As for Wall Street/big banks/mystery entities, I don't understand the process or the outcomes.  How can a trader make $35 million in bonuses on anticipated profits?  Who fronts the money?  And why would they, without a guaranteed return?  How is it possible that so few people can be in charge of so much, including all of our futures?  What is a hedge fund, anyway?

A recent article I read on class awareness and class imbalance titled "Why "Green" Consumer Choices Aren't Enough" gave a useful comparison to a disparity I've often struggled with.  I like to believe that we, as individuals, can make choices that will tip the scale, that we're not doomed to be out manned, outspent, and outplayed (although a recent speech at a Toastmaster's meeting on how the electoral college works essentially reinforced the fact that in Montana, a Republican state, my vote doesn't count.  I'm still voting.).  Here's some perspective: "When it comes to energy policy, power is not evenly distributed. An individual consumer’s choice to purchase a car instead of a bike is nothing like an individual CEO’s choice to blow up a mountaintop in order to mine coal. It could become trendy to eat local food—it already has, thank goodness—but an individual’s decision to buy at the farmers market and a bank’s decision to fund windmills instead of coal mining are not at all comparable in terms of their leverage or effect."

So my question is, how can we initiate a fundamental paradigm shift, so that the individual, the one just trying to be a good person and do the right thing, has a measurable influence on the paths our society and culture tread?  

A parting thought from Lakey's article: "...how can members of any class check themselves?  They can start by asking themselves whether they are operating inside their comfort zones. If the answer is "yes," their perspective might not be appropriate, since working for radical change (such as truly sustainable energy policy) cannot be done from inside our comfort zones...Outside our comfort zone is where the learning happens.  Outside our comfort zone is where we'll save the planet and ourselves."

Let's step outside our comfort zones.  I got your back.  You got mine?