Capitalism at the Crossroads: Next Generation Business Strategies for a Post-Crisis World, Third Edition

Stuart L. Hart, Johnson Graduate School of Management Cornell University

Prentice Hall

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Library of Congress Cataloging-in-Publication Data:
Hart, Stuart L.
Capitalism at the crossroads : next generation business strategies for a post-crisis world / Stuart L.
Hart. — 3rd ed.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-13-704232-6 (pbk. : alk. paper) 1. Social responsibility of business. 2. Capitalism. I. Title.
HD60.H388 2010
658.4’08—dc22
2010010594

Dedication

To all the children, yet unborn.

Praise for Capitalism at the Crossroads

“The third edition of Capitalism at the Crossroads arrives at a pivotal moment—it follows the world’s most serious financial crisis since the Great Depression. As we address the recession’s dire consequences and rebound from the brink of economic collapse, Stuart Hart proposes a sustainable, socially responsible model of capitalism and compels us to seize the opportunities afforded by a fresh start.”

—Bill Clinton, Founder of the Clinton Global Initiative and Former President of the United States

“Stuart Hart presents a systematic thinking towards sustainable business, full of creativity, wisdom and enlightenment.”

—Professor Jining Chen, Vice President, Tsinghua University, China

“In this very timely book, Stuart Hart dissects the contemporary issues impacting capitalism and prescribes how we can ‘walk the walk’ to cocreate a more effective and harmonious world tomorrow.”

—Kevin McGovern, Founder and CEO, The Water Initiative

“Rising civil society awareness and tougher regulations imply that companies that pursue sustainable practices and deliver larger societal value will also gain from a new source of competitive advantage. Stuart Hart in this new edition brings fresh insights to further the cause for corporate sustainability.”

—Y C Deveshwar, Chairman, ITC Ltd, India

“Stuart Hart has written an important, compelling book that provides both provocation and inspiration in equal measures. In Capitalism at the Crossroads, he explores the future of capitalism in an increasingly complex and interconnected world, arguing that all players are needed to be more aware and more innovative—corporations, governments, and NGOs—if we are to build a truly sustainable, inclusive global economy. Our very survival depends on it. This book is for you, whether you are a forward thinking CEO or policymaker, a social entrepreneur or student of the world.”

—Jacqueline Novogratz, Founder and CEO of Acumen Fund, and author, The Blue Sweater

“Stu Hart charts a course to a better future in which the corporate sector can create a sustainable form of commerce that benefits all the world’s peoples. Capitalism at the Crossroads was a path-breaking work when it came out in 2005; this third edition takes it up to the present. But the basic thesis of the book remains as compelling as ever. I highly recommend reading the book and following the path that Hart illuminates.”

—David Skorton, President of Cornell University

“Capitalism at the Crossroads is a practical manifesto for business in the twenty-first century. Professor Stuart L. Hart provides a succinct framework for managers to harmonize concerns for the planet with wealth creation and unambiguously demonstrates the connection between the two. This book represents a turning point in the debate about the emerging role and responsibility of business in society.”

—C.K. Prahalad, Ross School of Business, University of Michigan, coauthor, Competing for the Future and author, The Fortune at the Bottom of the Pyramid

“Stuart Hart was there at the beginning. Years ago when the term ‘sustainability’ had not yet reached the business schools, Stuart Hart stood as a beacon glowing in the umbrage. It is clear commerce is the engine of change, design the first signal of human intention, and global capitalism is at the crossroads. Stuart Hart is there again; this time lighting up the intersection.”

—William McDonough, University of Virginia, coauthor, Cradle to Cradle

“Professor Hart is on the leading edge of making sustainability an understandable and useful framework for building business value. This book brings together much of his insights developed over the past decade. Through case studies and practical advice, he argues powerfully that unlimited opportunities for profitable business growth will flow to those companies that bring innovative technology and solutions to bear on some of the world’s most intractable social and environmental problems.”

—Chad Holliday, Former Chairman and CEO, DuPont

“Stuart Hart has written a book full of big insights painted with bold strokes. He may make you mad. He will certainly make you think.”

—Jonathan Lash, President, The World Resources Institute

“A must-read for every CEO—and every MBA.”

—John Elkington, Chairman, SustainAbility

“This book provides us with a vast array of innovative and practical ideas to accelerate the transformation to global sustainability and the role businesses and corporations will have to play therein. Stuart Hart manages to contribute in an essential way to the growing intellectual capital that addresses this topic. But, beyond that, the book will also prove to be a pioneer in the literature on corporate strategy by adding this new dimension to the current thinking.”

—Jan Oosterveld, Professor, IESE Business School, Barcelona, Spain Member, Group Management Committee (Ret.), Royal Philips Electronics

“Stuart L. Hart makes a very important contribution to the understanding of how enterprise can help save the world’s environment. Crucial reading.”

—Hernando de Soto, President of The Institute for Liberty and Democracy and author, The Mystery of Capital

“Stuart Hart’s insights into the business sense of sustainability come through compellingly in Capitalism at the Crossroads. Any businessperson interested in the long view will find resonance with his wise reasoning.”

—Ray Anderson, Founder and Chairman, Interface, Inc.

“The people of the world are in desperate need of new ideas if global industrial development is ever to result in something other than the rich getting richer and the poor getting poorer, with nature (and potentially all of us) suffering the collateral damage. Few have contributed more to meeting this need over the past decade than Stuart Hart by helping to illuminate the potential role for business and new thinking in business strategy in the journey ahead. Capitalism at the Crossroads challenges, provokes, and no doubt will stimulate many debates—which is exactly what is needed.”

—Peter Senge, Massachusetts Institute of Technology, Chairperson of the Society for Organizational Learning, and author, The Fifth Discipline: The Art and Practice of The Learning Organization

About the Author

Stuart L. Hart is one of the world’s top authorities on the implications of sustainable development and environment for business strategy. He is currently the Samuel C. Johnson Chair in Sustainable Global Enterprise and Professor of Management at Cornell’s Johnson Graduate School of Management. He also serves as Distinguished Fellow at the William Davidson Institute (University of Michigan) and President of Enterprise for a Sustainable World.

Previously, he taught strategic management and founded both the Center for Sustainable Enterprise (CSE) at the University of North Carolina’s Kenan-Flagler Business School and the Corporate Environmental Management Program (now the Erb Institute Dual Master’s Program) at the University of Michigan. His consulting clients range from DuPont and SC Johnson to Unilever and General Electric. He is an internationally recognized speaker and has delivered hundreds of keynote addresses on the topic of sustainable business around the world.

He wrote the seminal article “Beyond Greening: Strategies for a Sustainable World,” which won the McKinsey Award for Best Article in Harvard Business Review in 1997, and helped launch the movement for corporate sustainability. With C.K. Prahalad, Hart also wrote the path-breaking 2002 article “The Fortune at the Bottom of the Pyramid,” which provided the first articulation of how business could profitably serve the needs of the four billion poor in the developing world. He invites his readers to email him at slh55@cornell.edu and to visit his website at www.stuartlhart.com.

Acknowledgments

This book pulls together and extends work I have been doing in the area of sustainability and business over the past 20 years, but it has actually been 40 years in the making. Indeed, there is no doubt that this work was influenced, shaped, and determined to a large extent by my prior experiences in college, graduate school, and the real world. I owe a great debt, therefore, to a number of people—mentors, professors, benefactors, colleagues, associates, and students—as well as friends and family.

As an undergraduate student at the University of Rochester, I would have never embarked on the path of environmental studies and management were it not for the inspiration of professors Larry Lundgren and Christian Kling. These two professors were the ones who awakened my interest and stirred my passion for this domain and set me on a course that has continued to this day. I am living proof that college professors really do have an enormously important, shaping influence on their students. To them I owe a huge debt of gratitude.

At Yale, during my time at the School of Forestry and Environmental Studies, I am very thankful to have had the honor to work with the late Professor Joe Miller, as well as Professors Lloyd Irland and Garth Voight. These three in particular helped to shape my interest and deepen my knowledge in environmental policy and management. They also enabled me to develop a much broader intellectual grasp of the history of the environmental movement and how it fit into the larger pattern of societal evolution toward greater inclusiveness.^[1]

My first encounter with the “real world” (in the form of an actual job) came at the Institute on Man and Science in upstate New York in the late 1970s. As a research associate in economic and environmental studies, I worked with Dr. Gordon Enk—my first boss. This job resulted in a professional and personal relationship that continues to this day. In fact, if I had to name the one person who has had the biggest impact on me, it would have to be Gordon Enk. With his background and deep commitment both to the environment and to the economic system (Gordon holds a Ph.D. from Yale in natural resource economics), he was the first person to show me that we need not accept trade-offs when it comes to societal and economic performance. Gordon was also way ahead of his time when it came to stakeholder involvement in strategic decision making. Under his guidance, we embarked on a series of projects that sought to involve diverse voices in important social and strategic decisions. We wrote about learning from these experiences in a range of publications that stand the test of time to this day.^[2]

Since that time in the late 1970s, Gordon and I have continued to work together: He served on my dissertation committee at Michigan;^[3] I served as a consultant to him during his years as an executive at International Paper Company. More recently, he has been an active participant in the advisory boards for the Corporate Environmental Management Program at the University of Michigan, the Center for Sustainable Enterprise at UNC, and now the Center for Sustainable Global Enterprise at Cornell. He is also a key figure in the development of my new nonprofit organization, Enterprise for a Sustainable World. In reading the pages of this manuscript, Gordon will no doubt see the shaping effect he has had on my point of view. He should take satisfaction in knowing that he has taught me well.

During my time in the doctoral program at the University of Michigan, I was mentored and influenced by several key faculty members. Professors Pete Andrews (now at UNC), Rachel Kaplan, Jim Crowfoot, Kan Chen, Paul Nowak, and (the late) Bill Drake were of particular influence and importance. Rachel Kaplan deserves special mention for her encouragement and support of my dissertation work. After completing my doctoral work in 1983, I was appointed post-doctoral fellow and research scientist at the Institute for Social Research in Ann Arbor. During this time, I worked closely with Dr. Mark Berg, Dr. Don Michael, and professors Donald Pelz and Nate Kaplan. This was also the time that I met and established life-long personal and professional relationships with two other highly influential people: Professor Dan Denison (now at IMD in Switzerland) and Professor Jac Geurts (at Tilburg University in the Netherlands). They had an enormous influence on my intellectual development, especially when it came to combining interests in strategy and organizational change with a concern for social impact and environmental management. I continue to work with both of them to this day.^[4]

My career as a professor of strategic management began in the mid-1980s at the University of Michigan Business School. There, I was greatly helped by relationships with professors Jane Dutton, Bob Quinn, and Noel Tichy. Professor Jim Walsh has also been a particularly helpful and special friend, confidant, and advisor over the years. Without him, it would have been much more difficult to work up the courage to take the career risks that I have taken. Most recently, my work with Bob Kennedy, Director of the Davidson Institute at Michigan, and Professor Michael Gordon has been especially productive.

However, there is one faculty mentor, in particular, who deserves special mention: the late Professor C.K. Prahalad. By the late 1980s, I was becoming frustrated with my career: I was increasingly spending time on research and teaching that did not reflect my real interests or passions. My performance in both research and teaching was, as a result, mediocre. Where most senior faculty advised me to forget about my background and interest in environment and sustainable development, C.K. was one of the few supportive voices. I still remember how he urged me to pursue my passion and leverage my unique background in this area. Were it not for C.K., I never would have made the conscious decision (which I did in 1990) to devote the rest of my professional career to the connections between business and sustainability. C.K.’s unique perspective on strategy as innovation has also had a huge impact on how I have formulated my ideas about sustainable enterprise. For this, and much more, I owe C.K. a huge debt of gratitude. He will be sorely missed.

Other early contributors who had important influence on my thinking included Paul Hawken, particularly his work The Ecology of Commerce; Ed Freeman, with his important book Strategic Management: A Stakeholder View; John Elkington, with his concept of the “triple bottom line,” first published in Cannibals With Forks, and professors Dick Vietor and Forest Reinhardt at the Harvard Business School, who produced most of the early teaching cases on environmental management and business in the early 1990s.

Two other faculty members also deserve special mention for inspiring me to pursue this path: Professor Paul Shrivastava, now at Concordia University, and Professor Tom Gladwin, now at the University of Michigan.^[5] In my view, Paul and Tom were the academic pioneers in this area. They were both working this space before most others in business schools even gave it a second look. Like C.K. Prahalad, Paul and Tom provided both the example and encouragement that led me to take the bold step of dedicating my professional life to this topic. It was the best decision I ever made, and I am tremendously thankful to both of them.

Were it not for two other people, it would have never been possible to successfully develop the Corporate Environmental Management Program (CEMP) at Michigan, a dual-degree program between two previously disconnected entities (now the Erb Institute’s Dual Masters Program). Garry Brewer, who came to Michigan from Yale as the Dean of the School of Natural Resources and Environment in 1990, and Joe White, who became the new Dean of the Business School at the same time. Garry Brewer, in particular, was instrumental in forging the relationship between the two schools and helping to secure the early support for the program. Without the commitment of Garry and Joe, the CEMP Program would have never happened. Both also helped me to better understand the challenges and opportunities in attempting to bring these two worlds together.

At the University of North Carolina, I am indebted to professors Hugh O’Neill, Rich Bettis, and Ben Rosen, and, later, Dean Robert Sullivan for giving me the opportunity to develop the Center for Sustainable Enterprise. However, it was really Professor Anne York who deserves the most credit for attracting me to UNC in the first place. It was her passion, vision, and persistence that helped to make it a reality. With regard to the center itself, however, my professional and personal relationship with Professor Jim Johnson has been especially fruitful. In his role as faculty codirector of the center with me, Jim has taught me a great deal about the social aspects of sustainability, particularly those relating to minorities and the economically disadvantaged. I also owe Jim a debt of thanks for helping to create the title for this book: For several years, the two of us discussed (but never completed) an article together entitled (tentatively) “Capitalism at the Crossroads.” For Jim’s unswerving support as both a friend and a close colleague, I am very grateful.

As with the creation of CEMP at Michigan, the Center for Sustainable Enterprise at UNC would have never been possible if it were not for the visionary support of two people: Professor Jack Kasarda (Director of the Kenan Institute for Private Enterprise) and Professor Bill Glaze (former Director of the Carolina Environmental Program). Both showed the willingness to financially support the fledgling concept for a new Center before anyone else at either the business school or the university would pay any attention. Without them, the body of new work generated over the past decade would not have been possible—nor would the establishment of an MBA concentration at Kenan-Flagler Business School that, by the early 2000s, attracted nearly one-third of the admitted students each year to the school. For this accomplishment, I should also thank Jim Dean, now the Dean of the School but who was Dean of the MBA program during the creation of the concentration.

For the opportunity at Cornell, I am indebted to several people: Dean Robert Swieringa; Senior Associate Dean Joe Thomas; and professors Alan McAdams, Norm Scott, Bob Libby, Beta Mannix, and Bob Frank, to name but a few. Over the past two years, Cornell President David Skorton has also become an important supporter; he was instrumental in helping us launch the Cornell Global Forum on Sustainable Enterprise in 2009. The opportunity to work with Cornell Trustee Kevin McGovern and the start-up team at The Water Initiative (TWI) over these past two years has also been an invaluable experience. However, the ultimate acknowledgment must be made to the late Sam Johnson, Chairman Emeritus of S. C. Johnson & Son, Inc. It was Sam and the Johnson family who had the vision to endow both the S. C. Johnson Chair in Sustainable Global Enterprise and the new Center for Sustainable Global Enterprise. Other pioneering benefactors also deserve recognition: Dr. Hans Zulliger, Swiss scientist and businessperson, for endowing the Chair in Sustainable Enterprise at UNC; and Fred Erb and the Max McGraw Foundation for endowing the Erb Institute for Global Sustainable Enterprise and the Max McGraw Chair, respectively, at Michigan. It is important to recognize the crucial contribution that such gifts make to the legitimacy and institutionalization of this work at major universities and business schools.

There are also a number of people from the corporate and not-for-profit sector who deserve recognition for both their support and influence over the years. Paul Tebo at DuPont, in particular, deserves special recognition. Like Gordon Enk, Paul and DuPont have been involved with the initiatives at Michigan, UNC, and now Cornell. DuPont has also financially supported the initiatives at all three institutions. Dawn Rittenhouse, John Lott, John Hodgson, Eduardo Wanick, and Tony Arnold, all of DuPont, have also been key supporters of our work, as has former CEO Chad Holliday. Matt Arnold, originally of the Management Institute for Environment and Business (MEB) and later the World Resources Institute (WRI), has been enormously influential over the years. We began together on this adventure in the early 1990s, as he was forming MEB and I was developing the CEMP Program at Michigan. Matt has since gone on to found a practice in Sustainable Finance at PWC.

Like DuPont, WRI has been a long-term partner for more than a decade, with people like Jonathan Lash, Rick Bunch, Jennifer Layke, Rob Day, Meghan Chapple, Al Hammond, and Liz Cook providing key support. Dow Chemical Company, in general, and Dave Buzzelli and Scott Noesen, in particular, also deserve special mention. Dow was among the early supporters of the CEMP Program at Michigan and has since endowed a chair jointly between the Business School and the School of Natural Resources and Environment. Jane Pratt and Jed Schilling of the World Bank and (later) the Mountain Institute have also been key long-term collaborators and partners. Both have been indispensable champions of the content area and the programs over the years.

For their business leadership and program involvement, I am also indebted to Lee Schilling and Mac Bridger, then senior executives at Tandus Group (Collins & Aikman Floorcoverings), as well as Sam Moore of Burlington Chemical Company, Dan Vermeer from Coca Cola (now at Duke University), and Debbie Zemke, then at Ford. Jim Sheats, Barbara Waugh, and Gary Herman from Hewlett-Packard also deserve acknowledgment, as do Greg Allgood, Chuck Gagel, Keith Zook, and George Carpenter at Procter & Gamble. Over the past five years, Fisk Johnson, Scott Johnson, and Jane Hutterly, all of SC Johnson, deserve special mention as key supporters and collaborators in moving the sustainable global enterprise agenda forward—both at Cornell and within the company.

While this list of acknowledgments has grown long, I would be terribly remiss if I did not directly recognize the crucial contributions of coauthors and colleagues in influencing and shaping both my thought and, in some instances, the actual words written in this book. Although the conceptual foundation for this book was clearly laid in several single-authored articles during the 1990s, later collaborations were of critical importance.^[6] I would like to recognize Professor C.K. Prahalad (University of Michigan Business School) for his important influence in our joint work that developed the original idea of the bottom of the pyramid as a business opportunity.^[7] This work can be found in parts of Chapters 5, 6, and 8. Professor Clayton Christensen (Harvard Business School) also deserves special note. He and I have coauthored two articles that join his theory of disruptive innovation with my work on sustainable development and the base of the pyramid.^[8] This joint work can be found in Chapter 5. I have also worked closely with Professor Sanjay Sharma (now Dean of the Molson School of Business at Concordia University) in recent years. Our joint work on engaging fringe stakeholders and radical transactiveness can be found in the pages of Chapter 7.^[9]

Two former doctoral students at the University of North Carolina have also been important colleagues and collaborators over the past ten years. I have known Mark Milstein for over 15 years, beginning at Michigan, where he was a student in the CEMP Program. Since he began as a doctoral student at UNC, he and I have coauthored three articles.^[10] Our joint work on creative destruction and sustainability can be found in the pages of Chapters 2 and 4; portions of Chapter 3 are also directly attributable to our collaboration on creating sustainable value. I am proud to say that our work together continues—Mark is currently Director of the Center for Sustainable Global Enterprise at Cornell. Collaboration with Ted London, given his extensive international experience, has also been extremely valuable. Joint work with Ted during his doctoral student days at North Carolina examining emerging market strategies for the base of the pyramid business entry can be found in parts of Chapters 6 and 8.^[11] Ted, who is now a Senior Fellow at the Davidson Institute at Michigan, heading up their program on the Base of the Pyramid, has already made several important written contributions to this emerging field. Ted and I are also in the final stages of editing a new book on the Base of the Pyramid, to be published by Prentice Hall later this year.

Two current doctoral students at Cornell also deserve special mention: Erik Simanis and Duncan Duke. My collaboration with Erik began in Chapel Hill where he worked with me to help launch the Base of the Pyramid Protocol project. Erik led the field teams for both the SC Johnson and DuPont/Solae BoP Protocol Projects and has led the development of the BoP field cocreation process. Since then, he and I have written three pieces together, and he has had a significant influence on my thinking over the past few years.^[12] The mark of his work, which brings anthropology and action research into the business strategy field, can be found in parts of Chapters 7, 8, and 9. In fact, significant portions of Chapter 9 are adapted from our recent article in Sloan Management Review. Duncan Duke has also become a key contributor to the development of the BoP Protocol process. Duncan led the field team in the cocreation process for The Water Initiative (TWI), which is described in Chapter 9. Along with Erik, Duncan and I have written an additional piece together, which has greatly influenced my thinking.^[13]

All four of these current and former students made tremendous contributions to both the Center for Sustainable Enterprise at UNC and most recently the Center for Sustainable Global Enterprise at Cornell: Mark Milstein served as research director for the center at UNC and, with Monica Touesnard, essentially ran the Center before joining me at Cornell in 2005. Erik Simanis helped me to conceive the original idea for the Base of the Pyramid Learning Laboratory at UNC in 2000 as a recently minted MBA, prior to starting the doctoral program. And Ted London served with great effectiveness as the Director of the BoP Learning Lab from 2001–2004 and has been a close collaborator in our international work in Asia, Africa, and Latin America. Duncan Duke has been especially important in developing the BoP protocol work at Cornell. Look for these four to make important independent contributions in the near future.

My participation as a core faculty member in the Sustainable Enterprise Academy (SEA) has also provided a wonderful venue for trying out new ideas—and learning in the process. In this regard, I would like to recognize and thank my faculty colleagues in SEA, particularly Brian Kelly, David Wheeler, Bryan Smith, John Ehrenfeld, David Bell, and Nigel Roome, for their honest feedback and support in helping me develop and present my ideas in such a way to achieve maximum impact.

Finally, I would like to acknowledge the patience, support, and editorial skills of my publisher, Prentice Hall—in particular, my editor, Jim Boyd (fellow University of Rochester classmate); developmental editor, Elisa Adams; project editors, Kristy Hart and Anne Goebel; copy editors, Krista Hansing and Chrissy White; and Wharton representative Professor Paul Kleindorfer. The book has been vastly improved as a direct result of their skilled eyes—and pens. My colleagues Gordon Enk, Jac Geurts, Ted London, Erik Simanis, Paul Tebo, Bob Frank, Alan McAdams, and Mark Milstein also provided invaluable feedback on the many drafts of the manuscript. My long-time colleagues Jac Geurts and Gordon Enk were especially helpful in commenting on the revisions for the third edition. Charlie Hargroves of the Natural Edge Project also provided valuable feedback during the revision process. Thanks also to Peter Knight for facilitating the Preface by Al Gore.

Clearly, the writing of a book like this “takes a village,” as Hillary Clinton would say. While I have done my best to recognize as many of the important contributors to my professional life as space allows, there are many more who could have been included. For my friends and colleagues in this group, please forgive me! However, no acknowledgment would be complete without recognizing my parents, Lloyd and Katherine Hart, for their support of my education, and, I’m sure what seemed to be aimless wanderings, for the better part of a decade during the 1970s and 80s. I’m just sorry that my father did not live to see this book finally come to fruition. I’d also like to recognize my brother, Paul, who set the example for me in pursuing the academic route long before I ever imagined doing doctoral work.

Finally, my wife Patricia has been nothing short of an inspiration over the years. She has been the ultimate enabler of my work for over 35 years. Without her love and support, none of this would have been possible. She is also a very talented editor and confidante. I shudder to think how much time she has spent reading and commenting on my work. My older daughter Jaren also deserves special recognition. For the past two years, she has worked with me as part of both Enterprise for a Sustainable World and The Water Initiative (TWI). In the process, she has made important material contributions to this third edition, both as an editor and research assistant. Much of the updating of cases was done by her, and she helped to write the section on TWI in Chapter 9. It has been an honor to work with her over these past two years, and I look forward to continuing the collaboration in the future.

I dedicate this book to my two daughters, Jaren and Jane, in the hopes that it is of some use to them in navigating the troubled waters ahead. For better or worse, it will be their generation that will ultimately have to ensure our transition toward a sustainable world. I wish them both Godspeed and hope it is not too late.

Stuart L. Hart
Ithaca, New York
April 2010

Notes

1.	See, for example, Stuart Hart, “The Environmental Movement: Fulfillment of the Renaissance Prophesy?” Natural Resources Journal 20 (1980): 501–522.
2.	A few of these publications include the following: Gordon Enk and Stuart Hart, “An Eight-Step Approach to Strategic Problem Solving,” Human Systems Management, 5 (1985): 245–258; Stuart Hart, Mark Boroush, Gordon Enk, and William Hornick, “Managing Complexity Through Consensus Mapping: Technology for the Structuring of Group Decisions,” Academy of Management Review, 10 (1985): 587–600; Stuart Hart, Gordon Enk, and William Hornick, (eds.), Improving Impact Assessment (Boulder, CO: Westview Press, 1984); and Stuart Hart and Gordon Enk, Green Goals and Greenbacks (Boulder: Westview Press, 1980).
3.	Stuart Hart, Strategic Problem Solving in Turbulent Environments (Ann Arbor, MI: University of Michigan, 1983).
4.	A couple of sample publications include Jac Geurts, Stuart Hart, and Nate Caplan, “Decision Techniques and Social Research: A Contingency Framework for Problem Solving,” Human Systems Management, 5 (1985): 333–347; and Daniel Denison and Stuart Hart, Revival in the Rust Belt (Ann Arbor, MI: Institute for Social Research, 1987).
5.	Some of my earliest published work in the area was done with Paul Shrivastava. See, for example, his (and Stuart Hart’s) Greening Organizations, Academy of Management Best Paper Proceedings, 52 (1992): 185–189.
6.	Two of my most important single-authored articles were “A Natural Resource-Based View of the Firm,” Academy of Management Review, 20 (1995): 986–1014; and “Beyond Greening: Strategies for a Sustainable World,” Harvard Business Review (January–February 1997): 66–76.
7.	C.K. Prahalad and Stuart Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business, 26 (2002): 54–67.
8.	Christensen, Clayton, Thomas Craig, and Stuart Hart, “The Great Disruption,” Foreign Affairs, 80(2) (2001): 80–95; and Stuart Hart and Clayton Christensen, “The Great Leap: Driving Innovation from the Base of the Pyramid,” Sloan Management Review, 44(1) (2002): 51–56.
9.	Stuart Hart and Sanjay Sharma, “Engaging Fringe Stakeholders for Competitive Imagination,” Academy of Management Executive, 18(1) (2004): 7–18.
10.	Stuart Hart and Mark Milstein, “Global Sustainability and the Creative Destruction of Industries,” Sloan Management Review, 41(1) (1999): 23-33; “Creating Sustainable Value,” Academy of Management Executive, 17(2) (2003): 56-69; and “In Search of Sustainable Enterprise: The Case of GE’s Ecomagination Initiative,” Value, 1(1) (2006): 36-43.
11.	Ted London and Stuart Hart, “Reinventing Strategies for Emerging Markets: Beyond the Transnational Model,” Journal of International Business Studies, 35 (2004): 350-370; and Stuart Hart and Ted London, “Developing Native Capability: What Multinational Corporations Can Learn from the Base of the Pyramid,” Stanford Social Innovation Review, Summer (2005): 28-33.
12.	Erik Simanis and Stuart Hart, “Expanding the Possibilities at the Base of the Pyramid,” Innovations, Winter (2006): 43-51; Erik Simanis and Stuart Hart, “The Base of the Pyramid Protocol: Toward Next Generation BoP Strategy,” Cornell Center for Sustainable Global Enterprise, 2008; and Erik Simanis and Stuart Hart, “Innovation from the Inside Out,” Sloan Management Review, Summer (2009): 77-86.
13.	Erik Simanis, Duncan Duke, and Stuart Hart, “The Base of the Pyramid Protocol: Beyond ‘Basic Needs’ Business Strategies: Innovations, Winter (2008): 57–83.

Preface: Al Gore, Former Vice President of the United States

The global context for business continues to change at an unprecedented rate, and Stuart Hart has effectively captured important insights into the nature of this contextual shift in this third edition of Capitalism at the Crossroads. I agree. In fact, my partners and I at Generation Investment Management believe that sustainability will be a key driver of global economic change over the next 50 years. And we think companies face an unprecedented opportunity to create shareholder value by helping to chart the way forward, and by contributing to sustainable development.

Now, more than ever, factors beyond the scope of economist John Maynard Keynes’ “national accounts” (the backbone of today’s gross domestic product) are directly affecting a company’s ability to generate revenues, manage risks, and sustain competitive advantage. While our current system is precise in its ability to account for capital goods, it is imprecise in its ability to account for natural, social, and human capital. Natural resources, for example, are still—in some ways—assumed to be limitless. This, in part, explains why our current model of economic development is hardwired to externalize as many costs as possible, therefore imposing environmental and social costs on society at large.

The interests of shareholders, both public and private, over time, will be best served by companies that maximize their financial performance by strategically managing their economic, social, environmental, and ethical performance. This is increasingly true as we confront the limits of our ecological system and its ability to hold up under current patterns of use. “License to operate” can no longer be taken for granted by business when challenges such as the climate crisis, HIV/AIDS, and other pandemics, water scarcity, and poverty reach a point where civil society and consumers demand a response from business and government. Leading companies understand this and are already moving ahead of legislators and regulators and, in so doing, securing competitive advantage.

The global climate crisis is the perfect example of a challenge that pushes our companies and our policymakers beyond their traditional comfort zone. The risks and opportunities presented by global warming are clearly material to the long-term health of our economic system. Companies that are part of the climate change solution will be able to enhance revenues, attract the best talent, and develop brand benefits—all of which will translate into optimized shareholder value over the long run. Today, action on the climate crisis makes sense not only for reputation and risk management, but for revenue generation and competitive positioning. Investors and companies that fully integrate climate considerations into their strategies, cultures, and operations will be best positioned to create shareholder value.

Business, as Hart points out, is a powerful agent of change and is well equipped to forge the way to a more sustainable future in conjunction with government and a strong civil society. However, he points out the inherent short- and long-term tensions within companies, which still have to balance forward-looking sustainability initiatives with legacy investments and old (and often unsustainable) habits.

There are, of course, limits to the ability of traditional business to deal with sustainability challenges by themselves. Now, more than ever, our societies need new models to address systemic, long-term challenges like the climate crisis, poverty, pandemics, water scarcity, and demographic shifts. This will involve more business and government innovation, social entrepreneurship, public-private partnerships, and more effective civil society participation.

The age of sustainability has arrived, but now we must drive it fully through our economic system. To do so, markets will have to continue to evolve to take into account the full environmental and social externalities of business in order to enable the efficient allocation of capital to its highest and best use. The regulated carbon markets in Europe, worth $25 billion in 2006, are a good example of how capitalism can powerfully address environmental challenges when a price signal exists—in this case, the price of a ton of carbon dioxide. Only as markets improve their ability to price externalities, will we see capital allocated more effectively to sustainable development. This shift will require nothing less than a complete change in mindset—one that views our planet as a long-term investment, rather than a business in liquidation.

Al Gore

Cofounder and Chairman, Generation Investment Management, and Former Vice President of the United States

Foreword: Fisk Johnson, Chairman and CEO, S. C. Johnson & Son, Inc.

The release of the third edition of Stuart L. Hart’s book underscores a time when it is becoming increasingly crucial that business leaders grasp their roles and responsibilities in building a sustainable future. Hart’s book gives voice to an inescapable reality: that the corporate sector can be the catalyst for a truly sustainable force of global development for all on the planet.

As the chairman and CEO of a consumer products company with global operations, I see every day the value that business can bring. I see that its products can improve the health and safety of people around the world. I see that its jobs enable parents to support their children and allow children to achieve dreams not even imagined by their parents.

I also recognize that business has provided fuel for those who oppose globalization. But despite what some see as the inevitable stain of “progress,” I know there are many business leaders who share my belief that you cannot purely pursue greater profitability every quarter and have that be an acceptable mission statement. Or that improving the lives of workers in one country while degrading the environment in another is an acceptable demonstration of civic responsibility. Short-term quarterly profits cannot trump long-term sustainability.

As the author makes clear in Capitalism at the Crossroads, there is no inherent conflict between making the world a better place and achieving economic prosperity for all. Maintaining a principled commitment to global sustainability is not a soft approach to business—it is, in fact, the only pragmatic approach for long-term growth.

Capitalism at the Crossroads presents a scenario in which business can generate growth and satisfy social and environmental stakeholders. By focusing on the four billion people currently at the “Base of the Pyramid,” Hart contends that companies can reap incredible growth while sowing tremendous improvement in people’s lives and at the same time preserving the other species that live on this planet.

The early stages of our company’s own work at the Base of the Pyramid gives further credence to Hart’s argument. As Hart describes, in testing the Base of the Pyramid Protocol and developing more holistic relationships in Nairobi, Kenya, we have cocreated a mutually valuable business model. Moving beyond charity to create a sustainable business partnership in the slums of Kenya where many businesses may never venture is not without challenges. While too premature to call this project a success, we remain committed to building a viable business at the Base of the Pyramid.

Business driving sustainability is not a new concept to me. The seed was planted and then cultivated throughout a lifetime of conversations with my father, Samuel C. Johnson. He shared stories about my grandfather, who traveled to Brazil in the 1930s in search of a sustainable source of wax for our products. He described his own 1975 decision to voluntarily and unilaterally ban CFCs from our products despite fervent opposition from colleagues and competitors alike.

My father’s pioneering social and environmental efforts led to his selection as an original member of the President’s Council on Sustainable Development and as a founding member of the World Business Council on Sustainable Development. He led our family company, SC Johnson, to new heights of corporate environmental and social achievement.

Perhaps most important, my father ensured that the dialogue on sustainability would continue. In 2000, he endowed the Samuel C. Johnson Chair in Sustainable Global Enterprise, and it is this Chair that Hart now so ably and deservedly occupies. He also endowed the new Center for Sustainable Global Enterprise of the Johnson School at Cornell University. By doing so, he was fulfilling a vital obligation that Hart sets forth for business in this book: being optimistic about the future and the opportunities inherent in the global challenges we face.

I share that optimism. That is why in 2001 our company unilaterally developed the Greenlist environmental classification system to institutionalize the selection of environmentally preferred raw materials and packaging components, far exceeding government regulation and driving our business with better products. It is why in 2003 we launched programs to attack the menace of malaria in sub-Saharan Africa and the misery of asthma among Hispanic children in Miami, and we are working to significantly expand these programs. It is why in 2004 we joined with Conservation International’s Carbon Conservation Program to help save one of the world’s most critically threatened hotspots of biodiversity. It is why we have a comprehensive program to reduce greenhouse gas emissions and have implemented innovative systems like cogeneration to fuel our largest global manufacturing facility with natural gas and waste methane from a public landfill. This program has reduced emissions for our top global factories by 42 percent from our 2000 baseline year.

Although Hart calls for “drastic changes” to “avert catastrophe,” optimism underlies all the arguments in Capitalism at the Crossroads, and the author presents us with a call to optimistic action. He asks us to involve the full range of stakeholders in crafting solutions to the issues of sustainability. He demands that we embrace a new business paradigm built not on incremental change, but on creative destruction and reinvention. He challenges us to base our policies and businesses on the unassailable truth that shareholder value can be created while solving social and environmental problems.

Some might say linking “global business” and “sustainable development” is an oxymoron, but they would be sorely mistaken. All of us are tied together: the radical environmentalist and the corporate CEO, the Sudanese refugee and the British socialite, the U.S. factory worker and the Argentine farmer. We all share a stake in the future of our global environment and economy. That is the undeniable truth of Capitalism at the Crossroads: We are all fundamentally linked, dependent on the same finite resources and driven by the same hopes for ourselves and our children.

I steadfastly believe there is honor and value in business. In Capitalism at the Crossroads, Stuart Hart demands that we embrace that truth. I’m convinced this may well be the best opportunity global businesses have to ensure their long-term sustainability. And I am tremendously optimistic about the future.

Dr. H. Fisk Johnson
Chairman and CEO
S. C. Johnson & Son, Inc.