[MUSIC] This is Mike Rosenberg back with strategy and sustainability and today we're going to start session three. Session three is about the strategic options that accompany has, at least in my opinion, with respect to this very important issue of environmental sustainability in this link, in business strategy. We've seen in session one the link between business and its environment. So we've looked at the fundamental issue, the importance of governance. We've looked at the history of the relationship between business and the environment, we've looked at how companies have responded, and we've also looked at a little bit about the differences in how people think in the environmental space and in the business world. In the last session, session two, we looked at five strategic issues, which I feel are very, very important for companies to look at. And again, this is regardless of your approach to politics or your belief in even climate change or even your ethical structure. This is about a company doing the right thing, it's about people on the board and at the CEO level doing their fiduciary responsibility. So what we'll look at in this session, is first, I'll introduce a construct or a way of looking at things with two different points of view. One is what I call environmental sensibility, and the other is the degree to which a company complies with or does more than the law requires. Then we'll look at five different strategic options, which are take the low road, what I call break the law, you could imagine what that means. Wait and see, show and tell, pay for principle, and think ahead. So I'll explain what these five different options are in this very first introductory segment. And then, the rest of the segments in the session will go into quite a lot more detail on each of these five strategic options. So what is environmental sensibility? The environmental sensibility is the basic idea that not all companies are in the same situation. Companies have a different starting point, if you will. And the government regulators look at different companies differently. Here in the business school, we don't have a lot of environmental regulation. If you're running a power plant, you'd have a lot more. So depending upon the business you're in, the degree of interest that the regulator has in your business can be very, very different. Shareholders, some shareholders care a lot about the environment. Different shareholders have a different interest in the environment. One of the things we'll talk about in the next session is this whole issue of impact investing and how that's increased over the last few years. Others don't seem to care. So this, again, depends a little bit about who the shareholders of a company are in terms of how much it needs to do beyond what the law requires. Customers, and there's a lot of work in this issue, and we talked about this in the last session. And what is consumer response? How much do customers care? Are they willing to pay more money for something they perceive as being more sustainable? Or will they simply not buy something, that they perceive is less sustainable? So the degree of a customer's interest in what you're doing in your company, I believe is one of the things which contributes to the overall environmental sensibility that your company needs to deal with. Employees, in some businesses if your employees are millennials from certain parts of the planet, these people care. These people are terribly interested. Many of you maybe watching this course because of your interest in the subject. And people like that, or people like you, in that case, will only work for companies that they perceive to be doing the right thing by the natural environment. Partners in the food business, in the retail business. Many retail chains are very, very interested in having only products on their shelves which somehow are more sustainable. That's because that's what their customers are demanding, so depending upon where you are in some of these supply chains, you might have different points of view. Different communities might be paying more attention. And finally, civil society itself can pay more or less attention. The other access of the framework is the level of compliance. Will a company choose to obey the law or will it do more than the law requires? This is what Harvard's Forrest Reinhart called going beyond compliance. And years ago he wrote a fantastic paper explaining what the micro economic reality is and why a company might choose to do so. This has to do with resource efficiency, water pollution, air pollution, carbon emissions, product safety and disposal or many, many other issues, and there's a lot of regulations out there which govern what we do. And to what degree do we want to be just on the line, in terms of compliance. Or to what degree do we want to go beyond compliance? Now, of course, you might actually think about going below compliance, and that's something I'll talk about in a minute, which I call break the law. So this gives us a framework, and as you can see in the chart, there's Environmental Sensibility is on the vertical axis, and Level of Compliance is on the other axis. And this gives us the first strategy, and I'll talk about this in session two, which is called, take the low road. Which means obey the law. If you're in a business where things aren't that critical, obeying the law makes a lot of sense. What I don't agree with and I don't recommend to anybody, is to go over the line and break the law. Interesting to note, in my opinion, environmental sensibility has to be a little bit higher for a company breaking the law, because at least you should know you're breaking the law. Whereas just to comply with the law, is fairly straightforward. And then what we'll see in the rest of these segments, in this session, is different strategies. Wait and see, is to see what's going to happen next. Show and tell, is to do a lot of stuff and tell the world about it, and I'll show you some examples. Pay for principle, is shareholders themselves have a strong opinion. And they say, we're going to do what we think is the right thing. And if it costs us some money, that's okay. And think ahead, is a strategy about imagining what the future can look like. So this session will go into these different strategic options, if you will. And then, the idea is for you to start thinking about which option might be right for you and your company. [MUSIC]
