MAURIZIO ZOLLO: Good morning. We're here today to tackle some of the key driving questions of this course, with the help of a number of colleagues here at Bocconi University. The first overarching question is the one related to the notion of sustainable enterprise. I'm going to ask each of my colleagues to take this question, essentially what is sustainable enterprise, from your own perspective. Anne would you like to start? ANNE JACQUEMINET: Thank you Maurizio. So my perspective being one of multinational enterprises, this is what I will focus on, and the good news is that for multinational enterprises there are a lot of guidelines that exist out there. From the OECD, the International Labor Organization, then we have also the United Nations through the Global Compact, and then some guidelines related to the sustainable development goals. That said, I believe that sustainable enterprises, in the context of multi-national enterprises, does not only mean compliance to existing guidelines, but that also means not only self-regulation and stewardship, but also integrating sustainability, really in the heart of the business. And in that sense I think more recent guidelines, related for instance, to the sustainable development goals, might be more helpful in terms of shaping, not only what issues should be tackled, but the ways in which they should be better integrated into strategic decision making, into innovation, into business models of the firms. ZOLLO: Thank you, Mike? MICHAEL RUSSO: I think what's great about the sustainable development goals is that they direct attention to the longer term, and I think that for any organization to be sustainable it has to have its eyes on the long term. The good part about that is that sustainability at its base, is about innovation and creativity. And the only way that an organization can go on for a long period of time is to continually innovate and recreate itself in ways that promote sustainablility. ZOLLO: Excellent. Miles? MILES BERNARD GIETZMANN: From an accounting perspective I think the critical issue is the performance measures that an organization works and operates with, and importantly reports to the shareholders and the community at large. I think it's critical at this time that organizations don't just try and measure costs in a very narrow way, you know, operating costs in the business, but also understand the wider nature of those costs, and how that gives rise to implications for sustainability. So from my perspective I think the key issue is companies using innovative new measures to set performance goals, and methods that they can communicate with. ZOLLO: Armando, from a marketing perspective? ARMANDO CIRRINCIONE: Yes from the point of view of marketing sustainability, it refers to providing a product that is, not only sustainable as far as the production process is concerned, but also and especially as far as the consumption process is concerned, and also at the end of the lifecycle of the product. When we consider the sustainability of a product, we also consider the reuse or the recycling of its components at the end of the first use. That is, that we enter a different perspective, that is, typically the (INAUDIBLE) perspective. ZOLLO: And Christiane? CHRISTIANE BODE: I think from a strategy perspective most people think about, sort of more the environmental aspects initially. So a firm that's committed to reducing their carbon footprint, to you know, conserving the natural resources. So sustainability would really mean about being able to continue producing an output at the sort of current level of inputs, so not ultimately running out of natural resources. Kind of zooming in more from the employee perspective, sort of HR, human capital perspective, I don't think there’s really consensus yet on what it means. One could simply extend that perspective and say, okay, sustainable enterprise would be one where employees are happy to engage and work with the firm for long periods of time, and kind of keeping the current level of innovation, and productivity and so on. ZOLLO: Excellent, so essentially what I would say to kind of integrate the various perspectives is that there are a lot of different ways to tackle this question, and to some extent we are still working, not only as academics, but also as practitioners in order to shape an integrated view from all these various perspectives. MICHAEL: If I could add, I think one of the most important things that just came out of the comments is the importance of a cross-disciplinary approach. For example, Armando talking about green markets, but from an operations point of view, developing products that can be reused and recycled, and going from a supply chain to a circular economy is important. And my two colleagues on either side talked about measurement of metrics which goes across every discipline. It's important to know where you are as a way to know where you can go. ZOLLLO: That’s exact, I think on that perspective we can all certainly agree. So based on what we just discussed, I think we probably want to be A bit more concrete and provide some examples about what companies are currently doing in your own areas of expertise, in order to try to action, to integrate these principles of sustainability in their own way of managing their own businesses. Christiane, what is your take on this? CHRISTIANE: So I think firms have made a lot of progress in areas where there is a clear link between the sustainability aspect and the financial performance, and again, the conservation of natural resources comes to mind. So it's clear if a hotel chain asks its guests to reuse their towels, this is good for the environment, it's good for the hotel, right, less use of water, probably faster to clean up the room, right? So there's a clear link. So I think in those areas companies have done a really good job. I think now we're moving into these areas of tradeoffs, right, so it’s an ambiguity, so it's less clear. We know engaging with communities is helpful, for the communities, for a firm performance. Engaging with employees, engaging with suppliers, but it's less clear how $1 spent in making that happen actually translates into, again, financial performance. So we're looking at, from an employee perspective, right, a lot of companies are now trying to give employees the chance to use part of their time as working in the company to contribute to social causes, in terms of volunteering, in terms of, even on company time, you know working with NGOs, development organizations. And we know this has a positive impact on them, they tend to be happier, potentially stay longer with the firm, perform more highly. But we don't know what's the net net benefit of this, and I think that is sort of the frontier a little bit in that area. ZOLLO: Thank you. Armando? ARMANDO: Well, there are several examples of companies that are very successful in being involved into an aperture that is more sustainable. For instance in the automotive industry, we have the example of Renault, with its plant in Charlevoix. It is a plant that is designed in order to disassemble the cars that are at the end of the first life cycle, and reuse the components of these cars, or recycle the raw materials. And this way, the car producer is able to get a very high amount of savings in terms of cost of materials and the cost of components. And this savings can can allow the brand to reduce the price of the final product that embody this kind of reused, or recycled components and materials. So this is a very interesting example, but we have also other examples. For instance, in the cosmetic industry here in Italy, we have Domus (?) which is an example, an extraordinary example of a successful industry that uses a sustainable approach to both the production process, but also the consumption process of its products. But also in the fashion industry we have Timberland, or we have Patagonia, examples that are very, very interesting examples. Thank you. Miles? MILES: I think from an accounting perspective one thing I think is important to distinguish is between firms that say they are making investments in sustainable changes and those that are actually doing it. So I don't want to push the route that it has to be on the balance sheet or the income statement, but I think it's important for firms to communicate how they are changing their attempts at making, improving sustainability. Because sometimes it can be costly, sometimes it comes for free by better attention management, but sometimes it's costly, and I think we want to see senior management making conscious decisions to invest in certain practices and defending those investments to shareholders and society at large, so for me I think the issue is about reporting the actual investment in these changes. ZOLLO: These internal changes, internal to the firm… >> exactly. Final point, interestingly there is an initiative in accounting in reporting called integrated reporting, where firms are required to report more widely on the use and investment of resources to achieve certain sustainable goals, and that initiative started in South Africa but now many countries throughout the world, companies in various countries are investigating that. A good example in Italy being UniCredit, which reports its own integrated reporting. ZOLLO: All right, thank you. Mike? MIKE: I think it's important, when we look at the accounting challenges, also to appreciate that we measure also the benefits. So often times, investments in sustainability are easy to identify on the cost side, but the benefits are rather more difficult. For example, how do we quantify that we get better employees for a given wage or that our employees stay with us for a longer time? And I think companies that are particularly savvy about this do a good job of appreciating the cost but also the benefits. One of the things that I'm seeing that's really exciting is the enormous outburst of innovation in business models. So, there are so many entrepreneurs that are looking at, for example, a product and say, is this a product or a service? do you need an automobile, or do you need to just get from place to place? So people like Zipcar came, in the last 10 to 15 years, to provide transportation services to people that don't need an automobile, but every so often they just need to get from one place to another. And I think this view of the transformation of selling physical products to selling the services that they reflect is one of the truly transformational trends that we're seeing in sustainability. ZOLLO: Thank you that’s great. Ann? ANNE: so in the context of multinational enterprises I would like to jump a little bit on what Miles has been saying about reporting, and there has been some progress in terms of transparency, more exhaustive reporting, integrated reporting, so that means there’s really a link between sustainability and the firm’s core business, financial performance, and so on. But in the context of multinational enterprises there is an extra challenge that comes from the fact that the company is present throughout the world. It probably operates in different industries and so on, so that might generate some kind of discrepancy between the discourse, the policies, and so on, and what the units are actually doing. So it's not necessarily an intentional decision to lie about what the firm is doing and actually not walking the talk, but this is challenging. It takes time to actually follow the discourse with concrete actions. And also, different units within the firms might have different incentives to go for a certain initiative, at the expense of others. So I think there is really a need to try, and to some extent align, those incentives. And I think the practice of managerial incentives, related to sustainability, is potentially a promising one. It is still quite limited. I read a study in the Harvard Business Review last summer, in August 2017, that suggests that only 2 percent of companies in the S&P 500 actually have managerial incentives connected to the environment, and 2.6 percent to diversity, and 5 percent to safety, so a little bit more. But this is still quite marginal as a practice, but I see it as a promising way to potentially, at all levels of the organizations, align the adoption of practices that are consistent with the discourse. >> Right. ARMANDO: May I add just something, just one word about what has been said just a minute before? I totally agree with you that we need to change our perspective, also, on our business model, because we no longer sell the product, but probably, we will sell services associated with the product. And this is because, also because in the circular economy perspective, we need to control our product. Because at the end of the lifecycle, the first and the second, and the third lifecycle, we need to get again the product, then to disassemble the product and to recycle its components. Now from the marketing point of view, this means to shift from a selling paradigm to a renting paradigm, or just providing services that are associated with the product. And this means also to strengthen the relationship with our customers. That is very positive, from the point of view of the marketing, so sustainability is not only something that benefits the environment, but also something that can benefit the company also, because of this relationship that you need to maintain with your customers. ZOLLO: And the really interesting perspective here is to integrate, if you want, the transition, in terms of products and services, with the transition in terms of internal practices where there are incentive systems or accounting systems or HR practices. The question about experimenting and innovating on how to do that, both the external frontier, if you want, of the outcomes, as well as the internal processes and how to produce different forms of outcomes, that is where, you know, really the frontier, if you want, the challenge really is, as far as we can we can observe at this point. So let us look at the future evolution now of the business corporation as they try to integrate, embed these principles of sustainability. What would you say are the next steps or the efforts that are necessary at this stage for the foreseeable future in your own areas obviously, of expertise? Miles, would you like to start us? MILES: I think a common theme in the things we've discussed so far is new business models. What there is, I think an almost complete lack of, is valuation as a new business model so I think from an accounting perspective something we have to evolve and change very quickly is the way we value organizations, whether it be from mergers and acquisitions, takeovers or for whatever purpose, so introducing new valuation models I think is a really important topic for accounting research. One other thing I'd just like to add as well is that in the U.S., companies building on the performance measurement point of view, have to talk about something called compensation discussion and analysis of their senior executives. I think the extent to which the compensation packages encourage them to make these changes should be more clearly articulated and explained as well. ZOLLO: And I was just curious, what about the investment decision-making processes? To what extent, for example, the environmental and social impacts of those investments are being currently, really taken into account, is there any efforts that companies could be doing in order to scrutinize those measures in their internal accounting system, their control systems? MILES: So I think looking at peer excellence in terms of non-financial performance measures, that's certainly something that companies are looking at. So if we can have one or two companies that lead the revision and the updating of non-financial disclosure, I think other companies will follow. So it's a question of having a leader out there to show the way for others. ZOLLO: Mike what's your perspective? MIKE: A couple of thoughts. I think we're moving from a model, as we said before, of supply chains to circular economies but those supply relationships now will never again be completely arm's length, so the supply chain is becoming the responsibility chain. You are responsible for everything that happens upstream, and one of the driving forces behind this, is the intertwining effect of demands for transparency and then information technologies which allow the acquisition and diffusion of ever more information about what companies are doing, who they're involved with, what their performance is, and rapid communications. All enormously important. The other thing that I think is worth talking about, is possible transformations to the governance of corporations. And we're seeing a movement of companies, mostly privately held benefit corporations and also B corporations that provide voice to stakeholders other than shareholders, and they’re trying to develop models that will allow companies to be successful and work with each other in service of goals, of environmental stewardship and social responsibility. ZOLLO: So do you see also the possibility for non B corps, right, so the regular large corporations, to really enlarge the representation for example, of stakeholders on the board of directors, providing also sharing of, for example, access to profits or non, essentially profitable organizations available and willing to share their proceeds with stakeholders, non-financial, non-shareholding stakeholders. Is that something that you see happening? MIKE: Could be. I mean it takes an open, broadminded organization to have an NGO on the board, it may not be any NGO, but what NGOs bring to companies, particularly in supply chain is incredible expertise and knowledge about what is going on in the context of upstream markets and upstream locations, and so they bring a lot of expertise to the company in that regard. As far as being on the board, that's another step still, but we're starting to see that, and what it does for companies is it forces them to be much more open than they’re used to being, and that can be a good thing. ZOLLO: But the sharing the non-return earnings is still very far away from where we are today. Sharing with employees, with suppliers, customers and so on. That's something that is still to go. But something worth exploring and experimenting with. ZOLLO: Anne? ANNE: Yes, so building on what has been said, I would like to mention two points which I see as particularly challenging for multinational enterprises. The first one is not measuring what is easy to measure in a standardized way on a global scale, but measure what matters. I think for what regards environmental impact, there is, we're on the way, let's say, to achieving that goal of measuring what matters. I think we can still go one step further from what is our specific level of impact, to what is the damage that is caused to the environment. But still I think we're getting there. On the social side however, the tools that exist, like social impact assessment and the kind, they are not really adopted by large organizations yet. And I think there there is something that might be more challenging in implementing, rolling out these tools on a global basis. The second element has to do also with global sustainable value chain, which is particularly challenging again for multinational organizations, enterprises. Some countries like France are starting to think about laws to regulate firms’ multinational responsibility regarding their foreign affiliates operations but also their suppliers, environmental and social behavior. So I think we're also slowly getting there. But then how to improve those behaviors is still a question mark. I think the studies conducted by Richard Locke and his colleagues at Nike in particular, can be helpful in that respect. And one of the findings which I think is particularly interesting is that it's not sufficient to monitor and audit what the suppliers are doing, but you need next to that to have some kind of training, working with them, help them improve, and only under that condition can that the monitoring aspect lead to an improvement in the performance. ZOLLO: Right, it’s this learning process that actually has to be ignited with the supply chain as well as the subsidiary of the multinational. ANN: Yes, but that again is challenging because it's costly, it's time consuming, and then it might not be very easy to coordinate that on the global scale within the organization, and also around the organization. ZOLLO: Thank you. Christiane? CHRISTIANE: And perhaps building directly on that, I think as we're moving into this area of, I mean ambiguity between potentially sustainability and financial performance, or even potentially trade-offs, I think genuine experiments are really important. So we actually don't necessarily know how these factors relate and firms probably don't either. So it's tempting to probably implement something and you know, roll it out and hope it works, but I think genuine experimentation, in the sense of randomized controlled trials, so having a baseline, trying one kind of program, trying another kind of program and generally having, as has already been discussed, some kind of outcome that we're actually able to measure and and compare. And I think that's probably really important because we don't know some of the possibilities or we also don't know some things that might simply not work, so rather than fooling ourselves that they do, it might be a good idea to actually have an experiment to figure it out. And so I think pushing companies to try to do that internally is difficult. Nobody likes to try things that they might not be convinced will work, but I think pushing towards that would be would be really interesting. ZOLLO: And that is where for example, companies with suppliers, but also NGOs, even advisors, academics, could collaborate together in order to make sure that those kind of experiments are well-designed, well carried-out, and then eventually expanded to the rest of the organization. Armando, what's your perspective? ARMANDO: Well from the point of view of marketing, two different phenomena are expected to push organizations and companies of all sizes towards being more sustainable in the next future. The first one refers to the idea of the competitive pressure on prices. Being more sustainable in the long term means also being more efficient. That is something that allows to reduce prices, and in a very competitive arena, like most industries, in the next future, being able to reduce prices is something that is valuable and something that will be very, very important. So other organizations will need to be more sustainable, also because being more sustainable means being more resilient and being able to face changes in the market arena that are unexpected. And then there is something else that we need to understand from the marketing point of view, that is, at the end of the last century, providing sustainable products was considered as something that was able to provide benefits to consumers. The consumers were willing to pay more for. It was a false promise, consumers were and are not willing to pay more for something that is considered in charge to companies, to enterprises. They, in the perception of consumers, they are in charge to be more sustainable and to provide more sustainable products. That is, being sustainable today or in the next future, will be considered as a point of parity in order to stay in the market, and not something that can be your competitive advantage from the point of view of consumers. And to me, in the next future, all the organizations of all sizes, the big, the medium, and the small organizations, will need to be, will have to be, more sustainable. ZOLLO: Absolutely. So, and sustainability therefore will become more and more of a hygiene factor, right? We need to be sustainable, and more, right? In order to be on the business, you need to be sustainable, and then to create competitive advantage, obviously, you have to add even more. >> Yes. And that is that is a very nice way to put it. It sounds like we are all in agreement that the current state of the art is in highly dynamic flux, to say the least, right? There is a lot of goodwill by corporations to try and innovate and experiment, not as much as we would like, maybe, to see. And most importantly, this type of innovation and experimentation will require more and more collaborativeness and more and more openness vis-a-vis stakeholders, vis-a-vis sources of competence. And you know in a way, it's a change in mindset that is required to kind of open the fort and allow all the various, not only providers of capital, different forms of capital, but also the other providers of maybe ideas and insights to collaborate with companies in order to get this innovation and experimentation going. Thank you so much for all your insights and input to this discussion. Of course, the rest will be will be seen in the near future. hopefully. Thank you.