In its Fall, 2009 issue, the MIT Sloan Management Review reported on a wide-ranging study in which 1500 business leaders were surveyed to ascertain their views on the new skills managers will need to address climate change and build sustainable enterprises in the 21st century. Results of interviews with experts in the field indicated that there were five management responsibilities that needed improvement: (1) the ability to act on a system-wide basis; (2) collaboration across conventional internal and external boundaries; (3) a business culture that rewards and encourages long-term thinking; (4) new capabilities in activity measurement, process redesign, financial modeling/reporting; and (5) new skills for engaging and communicating with external stakeholders. The survey results indicated that what is lacking in many sustainability initiatives is an overall plan. Efforts are often defensive and tactical rather than strategic; multiple initiatives are disconnected with one focusing on products, another on facilities, and perhaps others addressing employees, customers, or the general public. And sustainability initiatives as a whole reflect incremental rather than transformational change.
W. Edwards Deming – a giant of 20th century management thinking – spoke about transformational change. And even though he rarely used the term sustainability, Deming would have recognized his ideas reflected in each of the five areas that the Sloan Review cited: Deming taught (1) an appreciation for business as a system, (2) the importance of cooperation and collaboration as well as competition, (3) the need for managing for the long-term to foster a robust and durable enterprise, (4) new ways of looking at and understanding data and variation and the implications this has for management, and (5) an understanding of business in the broader context of community and society. The kinds of management approaches that sustainability experts today see as critical were being discussed – indeed urged – by Deming decades ago.
Today the issues facing top management are more daunting than ever. The economic well being of the business enterprise, and indeed the future of the entire planet are currently at risk from unsustainable practices such as the burning of fossil fuels leading to potentially catastrophic climate change. Executive leadership needs new ideas and approaches to the practices of management, the kind suggested by Deming years ago, in order to address this urgent challenge.
Appreciation for a System
When CEO’s first think about climate change, they often view it as a problem. Yet if studied at length, it becomes clear that climate change is not a problem, but a symptom – an indicator of a lack of alignment between two highly complex and adaptive systems - the planet earth and the global economy embedded within it. From this perspective, addressing climate change requires an understanding of systems.
A system can be defined as a grouping of interrelated and interdependent components in the service of an aim. Lack of alignment of components to overall aim can lead to sub-optimization, decay, and the ultimate destruction of the system. As a system, a business is made up of many interrelated and interdependent parts each of which must ultimately be aligned with the aim of the system – i.e. the mission of the enterprise. On a larger scale this is true of businesses within the global economy; each business is an interconnected and interdependent part of the global economy. The global economy in turn is a part of an even larger system: the earth and its biosphere.
Climate change has revealed that humanity has misunderstood the systems relationship between the global economy and the earth. Since the dawn of civilization, mankind has seen the earth as a vast resource to be put in service of the human economy. This is akin to the tail wagging the dog – and now the dog is beginning to get annoyed. A new systems model sees things the other way around, the human economy in service of the earth - that is, the economy as a subsystem of the earth, requiring alignment with the aim and workings of the earth and its biosphere. Successful CEOs today are those who are beginning to understand that sustainability is simply another word for seeing business as a system in alignment with the global economy which in turn is in alignment with the biosphere. The implications of this systems model will be the driving force behind 21st century commerce, including renewable energy, resource efficiency, information intensity, and closed loop production.
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Knowledge about Variation
Since CEO’s are surrounded by variation, how do they make sense of the numbers that come their way? What do the fluctuations in the numbers mean? Do they ascribe too much meaning or too little to the fluctuations? Can executives use the numbers to predict with a high degree of belief what the future holds? What kinds of actions should business leaders take to change the future? These kinds of questions have great importance to leaders of business and some understanding of variation can be helpful to answer those questions.
Variation that shows a clear pattern can sometimes be modeled and theories can be constructed about the causes of the pattern. Variations in the level of atmospheric concentrations of CO2 show clear patterns. Recent changes in the variation are causing scientists to predict that unless human industry radically changes course from business-as-usual, the concentration of CO2 in the earth’s atmosphere will be higher by mid-century than it has been in over fifty million years – a time when the earth’s climate was very different and much hotter.
Business leaders today have an immense influence on society. The meaning CEO’s ascribe today to the variation in atmospheric CO2, the predictions they make, and how they choose to address them may well determine the fate of our planet for centuries to come.
Theory of Knowledge
Executive leaders know that above all else, management is prediction. But rational prediction requires theory. And by comparing prediction based in theory with observation, new knowledge can be created. (A great practical form of this is the Plan-Do-Study-Act Cycle that Deming developed from the work of Walter Shewhart.) When there are competing predictions, as there are in the case of global warming, the soundness of the work that has gone into development of each prediction must be evaluated so that degree of belief in different predictions may be assessed.
Today, some CEOs and others who continue to question the validity or urgency of human-induced climate change often dismiss it as “just a theory.” Yet, human civilization has been built on theory. The greatest achievements of Newton, Darwin and Einstein were their theories – and those theories reshaped mankind and our planet. Climate change theory is already shaping the future and changing the ways humans interact with our surroundings – and for CEOs it is opening the door to new knowledge.
Psychology
Addressing climate change will take transformation. Deming knew that transformation could not take place without driving fear out of the organization - fear that saps people of energy, takes their focus away from the organizational aim, damages cooperation and constancy of purpose, and leaves people thinking about their own self-preservation. Driving out fear and building trust can unlock the creative potential that will lead to innovation and sustainability.
As climate change transforms the human systems that are corporations, psychology will play a key role in determining whether and how these corporations succeed. Given the mountains of scientific evidence, the decades of peer-reviewed vetting, and the magnitude of the threat posed, one may question why American society has not acted sooner and more swiftly. The answer is, in part, bound up in human psychology. CEOs that understand the psychology of individuals and groups can put that understanding to work to improve the lives of people and the effectiveness of organizations. On a larger scale, in understanding of psychology, corporate leadership can help to design approaches that will help society at large become more knowledgeable of the effects of climate change and the human population’s role in acting to prevent further damage to the biosphere.
Conclusion
Two decades ago, W. Edwards Deming called for new ways of management to address America’s competitive decline. He knew that tweaking business-as-usual practices would be ineffective and indeed counterproductive. Transformation was needed, and it had to be informed by knowledge. Today’s CEOs are living in a new era, where the term ‘business-as-usual’ refers to the continued practice of burning fossil fuels. Some business leaders are advocating sticking to business-as-usual or perhaps tweaking it around the edges. But such action will be ineffective and indeed counterproductive. A great transformation is required to avoid the worst consequences of a warming world – a transformation that aligns the global economy with the workings of the earth’s biosphere. It will require skillful management informed by new knowledge – using many of the very same ideas Deming introduced to transform management years ago
Jeremy Grantham is the chairman of Boston-based GMO LLC, a global investment firm with over $100 Billion under management. He is not only a hugely successful investor, but also a person of the highest integrity and ethics. He is widely admired and well respected. But he should have gone to jail. 
