How to Build a Profitable, Equitable, and Sustainable World

I just read Reimagining Capitalism in a World on Fire, by Harvard Business Professor Rebecca Henderson, which came out in April. I loved it and wanted to share some thoughts.

In Reimagining Capitalism, Henderson persuasively argues that business can (and should) step up and take bold action right now to save the world. I’ve made similar arguments myself over the years, as have many leaders and activists whom I admire very much. But I think Henderson takes the argument to a higher level, using facts, rigorous analysis, and a clear-eyed assessment of all the challenges and opportunities involved to state its case. It’s the kind of thorough examination that you’d expect from a HBS Professor.

The book is especially timely right now, as society struggles with the COVID-19 crisis and rightly worries about other crises that lurk around the corner. People yearn for leadership that can move us forward in a positive way. Business will have a big role to play if we want to tackle these upcoming challenges successfully.

Who should read the book

• CEOs, investors, and business people at all levels (not just execs) who believe the private sector should do much more to address environmental degradation, economic inequality, and institutional collapse. Believing in the fight is good. But being in it is difficult. Henderson provides the analysis, guidance, and encouragement you’ll need to get started.
• But Henderson isn’t just preaching to the choir. Skeptics who don’t believe this is the private sector’s responsibility or don’t see the business case should read this book as well. If you’re in this group and you think protecting the environment is someone else’s job, challenge yourself to see a new viewpoint.
• Indeed, everybody who wants to see society get on a better trajectory, big business-connected or not, should give Reimagining Climate a read. We’re all in this (and on this planet) together. Henderson lays out very specifically how each one of us can tackle these challenges and make a positive difference, big business notwithstanding.

Some big takeaways from the book for me

Looking ahead, business-as-usual will get very messy.

Henderson says “it’s going to be hard to make money” in a world where cities are underwater, huge numbers of people are unemployed or holding down low-paying jobs, and democratic governments are replaced by oligarchs. That might sound obvious. But Henderson shows how business leaders continually tend to underestimate the likelihood that the enormous changes ahead will bring both risk and opportunities. As Henderson notes, there’s a huge business upside to anticipating these risks and opportunities better.

Companies with a clear sense of “organizational purpose” outperform.

Here, Henderson’s analysis aligns with the message BlackRock’s Larry Fink has been championing about the concept of purpose. I know many who say they agree with Fink, but are unsure how best to achieve this. In classic HBS fashion, Henderson draws on some great case studies — both good and bad — to show business leaders the way forward. It takes a lot of work to get this right, and Henderson shows it doesn’t just involve spouting feel-good fluff. Rather, it’s about “choosing to do the right thing and then fighting hard to find the business case to make it possible.”

The financial returns of getting this right can be big. Henderson notes that in every industry, the most productive firms are in fact twice as productive as the least. She argues that being authentically purpose-driven is a proven way to get your company into the superior group.

Finance needs to be “re-wired.”

Henderson acknowledges we have a long way to go here. Fixing finance won’t be easy. Some good stuff is happening — like better accounting and disclosure, ESG screens, the rise of “impact investing” — all of which help, but are likely insufficient. I think Henderson could here put more emphasis on the need for CEOs to boldly make the business case for a more enlightened approach. Timidity won’t work. CEOs need to fully own these initiatives.

One finance idea Henderson touches on that I think has significant promise: the notion that a small number of huge passive fund managers could combine forces and push companies hard to get on a better path. Some 70% of all equities in the US are held by index and quasi index funds. They are “universal owners,” i.e., they own everything. Henderson says that “the best way to improve their performance is to improve the performance of the economy as a whole.” She uses an inspiring case study to show how Hiro Mizuno — who since 2014 has been CIO of the Japanese Government Pension Investment Fund — has been trying to do exactly that in Japan.

In the US, Henderson notes, the mega index fund investors could try to do the same, and seek to move the “entire economy in more sustainable directions.” They could require all of the companies in their portfolio (or the ones in a particular sector) “to move away from fossil fuels, end deforestation, or embrace high road labor strategies.” The bold idea is that by making society more sustainable and equitable, these investors would improve the performance of their funds. Of course, achieving such extraordinary cooperation wouldn’t be easy, but Henderson offers guidance on that front, too.

Industry-wide cooperation can work.

It’s not wrong for critics of business to be suspicious of self-regulation or industry’s cooperative efforts. Those efforts don’t always work (see, for instance, the financial crisis on Wall Street in 2008). But sometimes — even often — they do. Henderson demonstrates this using the example of the mid-2000s Brazil soy moratorium, an extraordinary effort that reduced deforestation in the Amazon by about 80%. I told the same story in my book, as I view it as one of greatest success stories. Commodity firms, consumer goods companies, soy growers, NGOs, and — most critically — government at local, provincial, and federal levels worked together to make this huge success possible. The fight is never over, of course. But as these different players build trust and learn how to work together, there’s a good chance more can be accomplished. See also Brazil’s subsequent “Cattle Agreement,” which had a similar function to the soy moratorium.

One of the book’s best chapters is “Protecting What Has Made Us Rich and Free.”

Here, Henderson powerfully documents why business leaders should do much more on the public policy and regulatory front. She argues that “both environmental degradation and inequality are systemic problems that cannot be solved without government action.” In my view, the need for business leaders to focus on getting this right doesn’t get enough attention. Henderson shows how business leaders have made a critical difference on this front on numerous occasions throughout the course of history, using examples like the recent fight to protect LGBTQ rights in the states of Indiana and North Carolina. We all need to push companies to up their game in this area.

Henderson also reminds us that business leaders (and all of us) can do more to restore trust in government. Here, she reminded me of Michael Lewis’s recent book, The Fifth Risk. There is a real downside of constantly belittling government, i.e. nonstop portrayals of the public sector as “hopelessly gridlocked and ineffective.” Henderson shows that a lot of this widespread knee-jerk criticism has been at least partially constructed by a 50-year propaganda campaign. We don’t have to keep doing this. Smart business leaders can do more to stand up for government.

So what can you do?

Henderson concludes the book with superb guidance for how each of us can engage and find our own path to change the world. I’ve written about this myself, but I really admire Henderson’s checklist. “Do something now,” she advises, as, “taking a first step will lead to more.” Finding allies, getting political, working for the government, and bringing your values to work are all sound recommendations she makes.

Henderson brings her argument to a personal place, too, which makes her book much more moving and persuasive than most business tomes. She tells the story of her own transition to focusing on business efforts to save the world — ideas that were not always welcome on business school campuses.

She also writes about the loss of her first husband, John. She writes, “I learned that it is not death that is the tragedy. It is failing to live that is the tragedy. Everybody dies. But not everybody lives.” This great book challenges all of us not to make that mistake. Instead, we learn how to throw ourselves into life in order to make the world a much better place. Please read this fine book, and do your best to do exactly that.

The above blog is the seventh in a series on investing in nature. It was originally published on LinkedIn. Read the first six blogs in this series: Nature Needs Investment Bankers (March 3, 2020); Raising the Capital to Protect and Restore a Forest (March 10, 2020); Environmentalists, Prepare Now for Opportunities in Fiscal Stimulus Programs (April 10, 2020); How to Support the Environment When You’re Stuck Inside During the Pandemic (April 16, 2020); Now Is the Right Moment for Building Inclusive, Diverse, and Non-Partisan Support for Nature (April 23, 2020); Here’s What CEOs Should Do Right Now to Up Their Company’s Environmental Game (April 29, 2020).

@MarkTercek is an advisor to companies, start-ups, institutional investors and NGOs on environmental strategies, organizational management, and impact investing. He is the former CEO of The Nature Conservancy (July 2008 — June 2019) and former Partner and Managing Director for Goldman Sachs (1984–2008). He believes that business can be a force for good and strives to help organizations realize benefits for both the environment and their bottom line.