A new working paper from Harvard Business School digs down into market trends and company characteristics to determine if a culture of sustainability actually matters. How does it affect executive behavior and performance outcomes? Do the long-term positive results we expect to see with high-Future Quotient companies show up in econometric data? Authors Robert Eccles, Ioannis Ioannou and George Serafeim conclude that they do.
Conducting a matched analysis of 180 companies (90 identified as High Sustainability and 90 Low Sustainability), the report helps answer five key questions:
(1) Does the governance structure of sustainable firms differ from traditional firms?
Yes. Boards of directors in sustainable firms are more likely to be held responsible for sustainability, and often form a separate board committee for that mission. Top executive incentives are also more likely to be based on environmental, social and external perception metrics.
(2) Do sustainable firms have better stakeholder engagement?
Yes. Sustainable firms are more likely to have organized procedures for stakeholder engagement.
(3) Do sustainable firms operate on longer time horizons?
Yes. Sustainable firms are more long-term oriented, with investor bases consisting of more long-term oriented investors. In conference calls with sell-side and buy-side analysts, they also tend to communicate more long-term information in their conversations.
(4) How do their information collection and dissemination systems differ?
Sustainable firms exhibit better measurement and disclosure of non-financial information.
(5) What are the performance implications?
Sustainable companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance. Tracking market performance for 18 years, the authors find that annual abnormal performance is higher for sustainable firms by 4.8%. $1 invested in 1993 into a sustainable firm would’ve grown to $7.1 by now (based on ROA), as opposed to $4.4 with a portfolio of traditional firms.
While we should remain cautious of reverse causality and confounding factors, this study takes a major step forward in quantifying (and qualifying) the effects of high-FQ leadership around sustainability. Further questions lie in how cultures of sustainability are created, how they vary internationally and the effects of common tradeoffs in internal resource allocation. Watch this space.
Seriously long-term innovation meets social enterprise in this week’s Social Enterprise Live feature. How are social enterprises thinking wider, deeper, higher and longer?
A 100-year business plan sounds too good to be true, and so far, it is. When Project Virgle - a 100-year plan allegedly developed by Google and Virgin to create a human settlement on Mars - was chosen for the FQ50, there was something in it that seemed to chime with what we already knew about the two companies. Google and Virgin had both been mentioned repeatedly in our survey as highly innovative businesses. Richard Branson has his Virgin Galactic, and Google has its $30m (£19m) Lunar X-Prize, which will go to the first privately funded team to land operational robots on the Moon — but Project Virgle was a hoax that fed on our desire to believe in such collaborative future quo thinking. John Elkington writes about the dynamics of Virgling in the Guardian and CSRWire.
So why are 100-year plans so rare, and should they be tools more businesses adopt in order to chart a vision into ‘seriously long term’ time horizons? We asked our network.
Sophia Tickell of Meteos, member of the FQ Advisory Group, responded:
I suspect that 100 year plans are rare because the idea of feeling you can have any influence over events beyond a 20 year horizon is for most people and organisations complete anathema. Even for big infrastructure organisations or those with long NPVs the awareness of the unpredictable nature of the future is strong. And I suspect that growing awareness of the unpredictable impacts of environmental negligence and social cohesion means the situation is only going to get worse. For me, the issue is whether 100 plans have any meaning and if so, how to make the case?
What do you think? Tweet answers with hashtag #100years / #futurequo.
On October 28, John Elkington keynoted the annual summit meeting for the Family Business Network International - and using SpotMe, polled the 700-strong audience on six questions linking back to our Future Quotient Work. This year’s Summit, The Art of Family Business, aimed to help family businesses embrace new models of financial, social and environmental sustainability through developing mastery in three domains - self, family and business. Following on from Teo Chee Hean, Deputy Prime Minister, Minister for Home Affairs and Coordinating Minister for National Security, John spoke about ‘Intergenerational Innovation.’ To kick off - and end - his presentation, he invited participants to vote on two groups of three questions. The assertions he used to provoke their thinking are reproduced here, together with the results.
Drawing on these results, we conclude that this sample of family business owners and senior executives are aware of the sustainability challenge, see the need to engage younger people (an even greater necessity in intergenerational family businesses), think Asia is streets ahead of both Europe and the United States in terms of Future Quotient scores, and yet agree—to an impressive degree—that family businesses, wherever they are based, need to improve their FQ. This is a challenge to which we intend to turn our attention in the coming months.
1. Family business are much better able to think long-term.
2. Thinking about the longer term, the global biosphere will comfortably fit 9 billion people by 2050.
3. Given the challenges they will face, young people should have a significantly greater say in key business decisions.
4. South-East Asia has a higher Future Quotient than Europe.
5. South-East Asia has a higher Future Quotient than the United States.
6. We need to boost the Future Quotient of family businesses, wherever they are based.
Around 200 ‘FQers’ have now completed the short questionnaire at www.mindtimemaps.com/fq and the results so far are shown here. At a total level, our group thinking style is Future. This was one of the questions raised on the night of the launch - how do we make sure it’s not just those who already have high FQ that engage with this thinking?
Volans Chief Executive, Charmian Love and JWT (Toronto) CEO, Tony Pigott introduced The Future Quotient on a webinar for Canada’s SiG (Social Innovation Generation) yesterday. As part of KPMG’s Inspiring Impact for Social Impact series they explained that leaders that posses this ‘Future Quotient’ embody 7 characteristics. They are:
Launch event at JWT London. Tweet any more questions or comments.
Our launch-night Prezi
Following the the UK launch of The Future Quotient on Wednesday in London, we’ve written a short article for GSB here.
Photograph: Anthony West/ Anthony West/Corbis as featured in the Guardian article.
Report co-author John Elkington writes about our greatest deficit for CSRWire, the first of a three-part series. In it he talks of the leadership crisis, which forms one of the premises in the report, and a sign that we need this measure called Future Quotient. The article is here.