PROFESSOR JEFFREY J. YOUNGER MELANIE FERREIRA & NATASCHA YOGACHANDRA
PROFESSOR JEFFREY J. YOUNGER MELANIE FERREIRA & NATASCHA YOGACHANDRA Designed by DAVID OLMOS with Photography by REBECCA ZEIDMAN
Asian Carp for the Needy: Food for Thought
Capturing Value with Industrial Symbiosis
Letter from the Dean
Walt Disney Company: “The Happiest Place on Earth?”
Introduction to Business and Its Publics
We Might Have a Drinking Problem Vivian Sze
Manhattan’s Garment District: An Opportunity to Save “Made in New York”
Closing the Digital Divide, One Community at a Time Christopher Drake
Revlon: Beauty & Morality
Fake Snow for Real Water Cesar Miranda
Cogeneration: Reducing Thermal Pollution While Increasing Efficiency William Sacks
True Light: Generating Energy for Rural Bangladesh
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Letter from the Dean This is a pivotal time for the business world as it continues to adjust to new realities. We are experiencing advancing information technologies, growing connections between government and commerce, shifting regulatory environments, and expanding awareness of the world around us through research. This new backdrop is driving the evolution of businesses, large and small, around the world as they are challenged to think and act differently to stay relevant in today’s global marketplace. I am immensely proud of the students in our Business and Its Publics course. I am also thrilled to write this foreward for the second volume of The Call for Corporate Action because it clearly demonstrates the new ideals, expectations, and conduits for change that are woven into the fabric of the next generation. Within the pages of The Call are suggested threads of change as seen through the eyes of NYU Stern undergraduates. These students take on the worldwide business community and discuss the most pressing social dilemmas of our time, including hunger, unsafe factory conditions, information technology literacy, and global warming. More than that, they make suggestions about how the business community can change the direction of these dilemmas and at the same time prosper. Today’s business leaders must consider the impact that the business enterprise can have—for better or worse—on society at large. Our mission at the NYU Stern School of Business is to educate students to be leaders who can visualize synergies beyond the boardroom and across traditional boundaries to transform their knowledge into tangible outcomes that benefit not just business’s bottom line, but all of its publics around the world. I hope you enjoy this edition of The Call for Corporate Action.
Geeta Menon Dean of the Undergraduate College Abraham Krasnoff Professor of Global Busines and Professor of Marketing Leonard N. Stern School of Business New York University
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Business and Its Publics Business corporations have arguably become the most important institution in the world today—more influential than many nation-states. They play a vital role in economic development and in the lives and well-being of people across the globe. Business and Its Publics introduces students to the role of business in the broader society as well as the relationships between business and other important societal institutions, such as governments and non-profits. Students explore the novel partnerships that are being developed today to address society’s pressing needs. Based on an emergent understanding of how society is structured and the role of business within it, the course explores critical public goods—such as the natural environment and institutional trust—and the negative externalities created when public goods are threatened. Most importantly, we bring attention to the role of business, independently or in partnership with other societal institutions, in addressing social needs. Indeed, this responsibility is the recurrent theme of the collection of essays selected here. While much recent attention has been paid to how businesses distribute value, our students recognize that before you can claim value or distribute value you must first create value.
At their core, this collection of essays suggests how businesses can create value while addressing important needs. Here, students lever innovation, the hallmark of market-oriented solutions, to offer a promising vision of a future in which society’s needs and problems are effectively addressed through value creation. Business and Its Publics trains Stern students to address both feasibility, or how to get things done, and desirability, or the strategic ability to set the right goals. The course prepares students to offer novel, value-creating solutions by developing critical thinking skills that help students analyze issues, evaluate arguments, and become aware of and embrace multiple perspectives. Ultimately, as this collection of essays demonstrates, students internalize these skills by advocating their own vision while optimizing efficiency and fairness.
Batia Wiesenfeld Professor of Management David Margolis Faculty Fellow Leonard N. Stern School of Business New York University
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Asian Carp Needy for the
Food For Thought Essay by RAYMOND LI
Three large companies are uniquely positioned to subdue the Asian Carp invasion currently threatening U.S. waterways. Raymond Li proposes branding and marketing the domestic fish in order to promote this underappreciated food source. His strategy is designed to create new market sales while feeding the hungry. 6
THE CALL FOR CORPORATE ACTION
sian Carp, an invasive fish species originating from China, comprises more than 60% of total fish biomass in the Illinois River.1 Due to its characteristic weight of up to 100 pounds and its ability to reproduce rapidly, the species has taken over the river ecosystem. Asian Carp have massively multiplied and become extremely cheap on the fish market. The average ocean fish costs $6 per pound, while the Asian Carp costs only 6¢ to 20¢ per pound.2 Tracy Smith, director of Feeding Illinois, an organization consisting of 8 food banks that distributed 127 million pounds of food to those in need in 2011, sees Asian Carp as a potential solution to the food shortage.3 Illustration ©iStockphoto.com/exxorian
Schafer Fisheries, a plant that processes an estimated 30 million pounds of carp every year, currently exports Asian Carp fillets to 16 different countries.4 In doing so, it incurs large export costs. With the help of Silverfin Promotion LLC, a marketing and culinary preparation company specializing in Asian Carp, Schafer Fisheries may be able to find a domestic consumer base and expand its product lines as well. If Schafer Fisheries, Silverfin Promotion LLC, and Feeding Illinois partner together to supply an overabundant Asian Carp to the poor, Schafer Fisheries could sell its products to a domestic market, avoid large export costs, and profit while providing a cheap and healthy supply of food to those in need.
Feeding Illinois is Running Short on Food
Feeding Illinois is a subset of Feeding America, the nation’s largest hunger-relief charity. Established in 1979, Feeding Illinois has played a significant role in providing food to the less fortunate. In 2010, it distributed 109 million pounds of food to approximately 1.4 million Illinoisans.5 However, demand for subsidized food for the poor has been rising. Reliance on the state’s Supplemental Nutrition Assistance Program has increased from 1.2 million people in 2006 to 1.8 million people in 2011.6 Illinois has been struggling to supply enough food to match this increasing demand. Tracy Smith elaborates, “Every single pantry that we’ve walked into has said, ‘look at my empty shelves.’ This is a crisis situation.”7 In order to solve this dilemma, Feeding Illinois needs access to a cheap, but healthy, food supply that can be distributed to a large population. Asian Carp may be the right solution to this crisis.
Asian Carp Could be the Right Fish for Feeding Illinois
The sheer number of Asian Carp wreaking havoc in the Illinois River and Mississippi River Basin has fueled its low price
on the fish market. There are an estimated 100 million pounds of Asian Carp in the Illinois River alone.8 The LaSalle News-Tribune reported that a group of fishermen in North Central Illinois caught 65,000 pounds of Asian Carp in two days.9 According to the Illinois Department of Natural Resources, Asian Carp made up 82% of the commercial catch on the Illinois River and 30% on the Mississippi in 2008.10 Priced at around 15¢ by fishermen, this is a cheaper alternative to the average $6 per pound cost of salt-water fish.11 Asian Carp are not only affordable, but nutritious as well. They are high in protein and have large amounts of healthy omega-3 fatty acids—almost as much as those found in salmon.12 This could be beneficial for Feeding Illinois, which faces a shortage of foods with a lot of protein, the most expensive nutrient to obtain. Furthermore, the fish are low in contaminates and mercury since they do not feed on other fish.13 Feeding Illinois has begun to embrace the idea of distributing Asian Carp to the needy. With its new Target Hunger Now! Program, the Illinois Department of Natural Resources has openly accepted Asian Carp donations to its kitchens to be prepared and served to the public. The program currently features primarily venison tacos made from overpopulated deer. Representatives of the program have stated that they would be willing to work with more Asian Carp.14
Asian Carp are Difficult to Process
One of the biggest obstacles to overcome in mass-producing edible Asian Carp lies in the difficulty of processing the fish. Asian Carp have an intricate bone structure that makes them difficult to fillet. Chef Ryan Poli states, “The pinbones are very strange on the fish because they run down the center, the side by the belly, and they go all the way down through the tail. When you try to take them out with tweezers, they tear the flesh.”15 Furthermore, there are high start-up costs of producing
a facility to manage this intricate bone structure. Schafer Fisheries is in a unique position to tackle this problem.
Schafer Fisheries Can Mass-Process Asian Carp
Schafer Fisheries processes about 30 million pounds of Asian Carp a year and is the largest handler of Asian Carp in the Midwest.16 Many of its facilities already specialize in removing the complex bone structure from the Asian Carp and filleting the body. Schafer Fisheries currently exports these fish to 16 countries and makes about $10 million in profits a year. Yet even greater profits could be achieved if large export costs are reduced. In 2010, owner Mike Schafer found himself struggling to avoid a 120% import duty imposed by Israel on the 400,000 pounds of frozen Asian Carp fillets he had prepared for export.17 The cost of transporting fish overseas combined with high import duties would be minimized if Asian Carp were sold in a domestic market, particularly to Feeding Illinois. Since domestic demand for the fish is lower than foreign demand, the price would be reduced. The lower cost paid for these fillets could be balanced by the export costs Schafer Fisheries would have normally faced if it had shipped the fillets to foreign countries. Through this transaction, both Schafer Fisheries and Feeding Illinois would gain shared value. Schafer Fisheries would be able to demonstrate corporate social responsibility and maintain or even increase profits, while also providing Feeding Illinois with a cheap and healthy food source that the non-profit organization needs.
The Government Could Temporarily Subsidize this Partnership
If the money saved by Schafer Fisheries from cutting export costs and import tariffs is not sufficient to offset the lower prices offered by Feeding Illinois, government
THE CALL FOR CORPORATE ACTION
may subsidize the remaining losses of this operation. The Asian Carp population has caused an overwhelming amount of damage to the Mississippi and Illinois River systems and affected local residents. Along with out-competing native fresh-water fish species for food and threatening a $7 billion sport-fishing industry, Asian Carp have damaged property and even caused serious injuries due to their tendency to jump out of water upon hearing motor noises.18 The Illinois state government has already subsidized some efforts to reduce the Asian Carp population. The Obama administration spent $51.5 million in 2012 to reduce their numbers and prevent the fish from spreading to the Great Lakes where they may cause even greater destruction.19 Illinois has already granted financial incentives to those involved in the carp industry. Along with paying fishermen to directly remove carp from waterways just south of Chicago, Illinois has given $2 million in funding to one of the largest frozen carp exporters, Big River Fish, to help develop additional plants to flash-freeze carp for export.20 Schafer Fisheries too has received hundreds of thousands of dollars in state grant money to purchase additional carp processing equipment.21 If this partnership is successful, government may be willing to further subsidize the operations of Schafer Fisheries. Not only would government be supporting the needy through the fish given to Feeding Illinois, but it would also save money by minimizing the development of other costly, carp-reducing mechanisms and by preventing thousands of dollars in potential damage. Moreover, if Asian Carp were to spread to the Great Lakes, the $15 billion Illinois shipping industry could be threatened by a forced closing of Chicago’s
THE CALL FOR CORPORATE ACTION
navigation locks and subsequent legal action.22 Government subsidies might only be temporary; but as Asian Carp gain domestic popularity, demand would increase, causing prices to increase as well. This shift would then relieve the need for government subsidy.
The Market for Asian Carp Must be Developed
In order for Schafer Fisheries to sell Asian Carp fillets in America, a domestic market must be created. The fish currently holds a weak reputation as a food dish for several reasons. First, people are discouraged by the very name of the fish. The word “carp” holds a negative connotation because it is often associated with the American Carp, which feeds off river floors and is consequently thought of as a “dirty fish.” Furthermore, people are well aware that the Asian Carp is an invasive species. Professor Julie Anderson explains, “You hear about it so much on the news as a nuisance, a problem. People don’t associate nuisances with a good dinner.”23 In addition, the fish itself is extremely unattractive. Restaurant owner David Carrier elaborates, “The shape was salmon-like, with a bull head. It kind of looked like a character from Return of the Jedi.”24 Yet regardless of the associations and contrary to popular belief, the fish can taste delicious. Chef Phillip Foss states, “It’s a very good fish. About as good of a freshwater fish as I’ve found, period. Very rich.”25 Some of these problems have been dealt with in the past, and with the help of Silverfin Promotion LLC, many of them can be overcome through marketing. Led by world-renowned head chef Phillippe Parola, Silverfin Promotion LLC has aimed to remove the negative stigma from Asian Carp. It has also worked to produce more factories to ship frozen fish fillet
meals. Having cooked for President Gerald Ford and George W. Bush, as well as being featured on The Food Network, Chef Parola holds a personal endorsement as a critically acclaimed professional chef.26 He has been promoting Asian Carp under the name “Silverfin” to get rid of its negative perception. This renaming strategy has worked with various fish in the past, including the Patagonian Toothfish, also known as “Chilean Sea Bass.” Once similarly criticized for its ugly appearance and unappealing name, it is now ironically an overly popular food endangered due to overfishing. With Chef Parola’s strong reputation, the name “Silverfin” might just stick.
Schafer Fisheries and Silverfin Promotion LLC Complement Each Other
If Schafer Fisheries partnered with Silverfin Promotion LLC in the production of Asian Carp fish fillets, Silverfin Promotion LLC could save money while improving Schafer Fisheries’ fish fillets and increase sales by bolstering demand in the domestic market. Currently, Chef Parola plans to build facilities to process, research, and market Asian Carp. Silverfin Promotion LLC could avoid high start-up costs by partnering with Schafer Fisheries and using its existing processing facilities instead of building them from scratch. Rather than using the money to establish new filleting facilities, Silverfin Promotion LLC could use its capital to fund product creation and marketing campaigns. Chef Parola plans to sell four Asian Carp products: Blackened Cajun Fillets, Pecan Crusted Fillets, Lemon Meuniere Fillets, and Classic Fishcakes.27 These products will be “Chef Endorsed” and will have Chef Parola’s photo on each package.28 This labeling is crucial to the
1 Southern Illinois University Carbondale. “Extent of Illinois’ Asian Carp Problem
Detailed.” ScienceDaily, 21 Apr. 2012. Web. 8 May 2012.
2 Farabaugh, Kane. “Illinois’ Solution to Asian Carp Invasion: Eat Them.” Voice of America
News, 28 Sep 2011. Web. 8 May 2012.
marketing of the product. There is currently no other fish fillet on the market that is “Chef Endorsed,” let alone approved by a world-renowned chef.29 The suggested price of each unit will be $3.50, making it extremely affordable to Feeding Illinois and the public at large.30 Should this product differentiation provide a convincing case for “Silverfin” as food, it could boost Schafer Fisheries’ fillet sales. Moreover, federal agencies Sea Grant and the U.S. Fish and Wildlife Service have expressed an interest in financing and assisting the promotion of these products. 31 With government aid, the possibility for a domestic market and the mass-production of Asian Carp becomes extremely feasible.
The solution to hunger in Illinois is not an easy one. This proposal requires the cooperation and communication of three large companies, as well as possible government assistance. Yet within this solution lies the potential for all parties to gain immense shared value while fostering corporate social responsibility. If successful, it could provide delicious, healthy meals for those in need, boost company profits, and reduce the destructive power of an invasive species that is devastating its current ecosystem. With enough popularity, the Asian Carp rebranded “Silverfin” could become the next Chilean Sea Bass, producing a national demand for the domestic fish. The companies involved are each in a unique position to answer the call for corporate action. This solution is not simply a partnership between several parties, but a golden opportunity for a seamless alliance between business and society that could solve one of the nation’s most pressing social issues. ¥
3 Curwood, Steve. “Asian Carp Radio.” Living On Earth, 25 Nov. 2011. Radio. 8 May 2012. 4 Sula, Mike. “The Culinary Solution.” The Chicago Reader, 25 Mar 2010, Features. 5 Feeding Illinois Staff. “Feeding Illinois Who We Are.” Feeding Illinois. 8 May 2012.
6 Tareen, Sophia. “Illinois Plans to Feed Hungry with Asian Carp, An Invasive Species.”
Cybercast News Service, 22 Sep 2011. Web. 8 May 2012.
7 Curwood. 8 Riley, Marcus and James Langton. “Asian Carp: Can’t Beat ’Em? Eat ’Em.” NBC Chicago,
13 Jul 2010. Web. 8 May 2012.
9 CBS Radio. “Plant Turns Asian Carp into Fillets, Fertilizer.” CBS Chicago, 1 Nov 2011.
Web. 8 May 2011.
10 Gallagher, Jim. “Let Them Eat Carp: Illinois to Feed Pest Fish to the Poor.” St. Louis
Today, 14 Jul 2011. Web. 8 May 2012.
11 Farabaugh. 12 Southern Illinois University Carbondale. 13 Ibid. 14 Feeding Illinois Staff. 15 Sula. 16 CBS Radio. 17 Sula. 18 Wang, Yue. “The Crusade Against Asian Carp — Where Does It Go Now?” Medill Reports,
28 Feb 2012. Web. 8 May 2012.
19 Flesher, John. “Asian Carp Fight to Cost Feds $51.5 Million in 2012.” Minnesota Public
Radio News, 24 Feb 2012. Web. May 8 2012.
20 Mertens, Richard. “Asian Carp Invasion: Can We Fish Our Way Out of the Problem?” The
Christian Science Monitor, 4 Nov 2011. Web. May 8, 2012.
21 Sula. 22 Feeding Illinois Staff. 23 Tareen. 24 Ibid. 25 Sula. 26 Parola, Phillippe. “Asian Carp Solution.” Silverfin Promotion LLC, 2011. 27 Ibid. 28 Ibid. 29 Ibid. 30 Ibid. 31 Ibid.
Raymond is a sophomore at NYU Stern majoring in business with a concentration in finance and minoring in computer science. He is currently studying in Shanghai.
THE CALL FOR CORPORATE ACTION
Walt Disney Company:
“The Happiest Place on Earth?” essay by
O Overseas sweatshops conjure an image of underage peasants working untold hours in unsafe conditions. And while we have associated corporate names such as Nike, Apple, and Foxconn with the issue, it may be surprising to learn that the Walt Disney Company is also on this list. Emil Chen investigates Disney’s role in sweatshops and demonstrates how the company might leverage its filmed entertainment to make a difference.
THE CALL FOR CORPORATE ACTION
n April 5th 2009, a devastating accident occurred in a factory in Southern China when a young boy was found crushed to death in a box-producing machine. Immediately, local Chinese officials investigated the plant in question, Yiuwah Stationary Factory, only to uncover despicable details. The young boy, Liu Pan, was a 17-year-old factory worker. He was forced to work 12-hour shifts, 5 days a week, for a monthly paycheck of just $175. Upon further investigation by non-profit organizations and labor rights groups such as China Labor Watch, widespread labor violations were exposed. These included “the hiring of children as young as 13, forced overtime and the failure of many workers to sign labor contracts.”1 Given such deplorable and inhumane conditions, it is perhaps ironic that Liu Pan died operating a machine that produced boxes covered with a popular Walt Disney princess design. Evidently, the people responsible for “The Happiest Place on Earth” may also be responsible for some of the most miserable places as well. Some may be shocked to hear about Disney’s involvement in this incident, but they must understand the underlying conditions surrounding the issue. Factories such as Yiuwah are commonly
Photo by flickr.com/denn
labeled sweatshops for their subpar conditions and mistreatment of workers. By definition, sweatshops are “[shops] or [factories] in which employees work for long hours at low wages and under unhealthy conditions.”2 They are pervasive in impoverished areas of the world where low standards of living and high rates of unemployment allow factories to underpay and abuse their workers. As shown by the event that occurred at Yiuwah, people in Southern China are often desperate for economic security, even if it means long hours of manual labor for just a few dollars.3 The underlying motivation to operate sweatshops is the desire for cheap labor. For corporations, cheap labor simply translates into greater profits. Reputable corporations like Walt Disney are attracted to the low costs of these factories, even if it means exploiting their workers’ impoverished situations. Many of the conditions in sweatshops are in violation of the International Labor Standards (ILS). The ILS is a set of guidelines for basic labor rights that was ratified in 1919 by the International Labour Organization (ILO), a United Nations agency that seeks to ensure “decent and productive work, in conditions of freedom, equity, security and dignity” in the workplace.4 In most countries, national labor laws are drafted to comply with the ILS. And recently, a majority of U.S. companies, including Walt Disney, have adopted the ILS as their own ethical work standards. When sweatshops violate the ILS by hiring underage workers or by refusing labor contracts, they are not just breaching moral and ethical boundaries, they are also breaking the law in most cases. As a result of the overwhelming moral and legal arguments against sweatshops, it seems only logical for labor rights organizations and the ILO to eliminate these factories. However, these groups are incapable of forcing a social change of this magnitude. Although the ILO is a UN agency, it can only work with labor unions and merely encourage national governments to comply with the ILS.5 In countries like China, where the government controls the only functioning labor union and has historically limited worker rights, the ILO is essentially powerless. In order to successfully implement social change, the institutions with the most potential impact must take action. As the main perpetrators of these social wrongdoings, corporations are in the best position to move sweatshops into the spotlight. In addition, corporations have a global influence on society and therefore have the power to implement the social change necessary. As mentioned, one such corporation should be the Walt Disney Company. Disney currently owns the largest licensing business in the world,6 possessing authority over numerous factory workers. According to Fortune 500 rankings, Disney also ranks highest amongst all companies in the entertainment industry in terms of revenue and profit.7 The company affects several stakeholders— from the millions of people who go to one of Disney’s 11 theme
parks worldwide, to the mistreated workers in sweatshops. With such prominence, Disney must engage in corporate social responsibility (CSR), the idea that corporations are “[obligated] to benefit society” by implementing social change.8 Disney is responsible for its factory stakeholders and must engage in CSR to improve its sweatshop conditions in China. Opponents may argue that Disney has no reason to pursue CSR because the company requires low cost labor to generate the greatest profits. However, growing unpopular sentiment will ultimately tarnish Disney’s reputation as “The Happiest Place on Earth,” a positive image that has taken decades to develop. It is in Disney’s best interest to start improving sweatshop conditions. These actions may even bolster its reputation by setting a standard for other corporations. Eliminating sweatshops is an extremely arduous task that will take years of innovative solutions, corporate activism, and governmental policy changes. This report seeks to propose a solution that will serve as a step in the right direction for the Walt Disney Company. This step calls for Disney to restructure its auditing system through a partnership with the Fair Labor Association. In addition, Disney should work with the Chinese government to create and promote local labor unions. The first issue Disney needs to address is the auditing system of its supply chain. As the supply chain currently stands, the vast majority of Disney products are manufactured under licenses granted by Disney. This means that licensed manufacturers are treated like independent businesses with the “ability to choose the manner in which they produce their products, including determining where and in which facilities they schedule production.”9 Since Disney complies with the International Labour Standards, it needs to ensure that all licensed factories and vendors comply as well. Disney has already integrated the ILS into its Code of Conduct and requires all licensees to uphold the Code’s standards. The traditional purpose of auditing is to determine whether factories are maintaining these standards. Any discovered violations or non-compliance is reported back to Disney and sent through “remediation” procedures.10 The problem with this existing system is that factories perceive audits as a negative experience. Disney has a reputation for shutting down the factory and putting the licensee out of business when non-compliances are sent through remediation.11 Consequently, factory managers tend to hide many of their violations before scheduled audits without actually improving conditions. In some cases, managers resort to temporary, unsustainable solutions. To solve this issue, Disney should partner with the Fair Labor Association (FLA), an independent labor watchdog organization that performs auditing and monitoring services for companies. As a separate entity, the FLA does not interfere with internal
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corporate interests. Audits are even posted publicly on the FLA’s website to maintain corporate honesty. The FLA recognizes many of the problems associated with traditional auditing and performs an innovative procedure called the “3.0 Process.”12 This practice starts with unannounced visits so that the FLA can more easily uncover a factory’s violations. But instead of penalizing the factory, the FLA seeks to work with factory managers to address the root causes of the issue. This way, factory managers view auditors as partners rather than enemies. After several assessments and meetings, the Process produces a “capacity building plan” that retrains workers and managers to deal with outstanding problems. Ultimately, the 3.0 Process achieves a sustainable solution and “creates a positive experience for both the factory and the company as opposed to the negative experience in the traditional model.”13 With over 24,400 facilities, Disney can start by applying the 3.0 Process to its historically problematic factories.14 While the procedure may seem time-consuming and costly, there is a source of potential profit and heightened motivation. According to Auret
domestic versus the export sector.”17 All of these issues represent a source of social instability that the government does not want to exacerbate. As a result, the Chinese government has passed new legislation that has pushed for stronger labor rights, including improved regulations on worker contracts.18 The Chinese government wants to focus on state-approved unions next. The current state-run monopoly, the All-China Federation of Trade Union, is pushing corporations to establish local unions for their Chinese operations. However, many companies are hesitant and fear that “unions will give their Chinese employees the power to disrupt their operations and will significantly increase the cost of doing business.”19 This is a serious issue for companies such as Walt Disney, as they were initially attracted to China for its reputably cheap labor. Yet instead of viewing these social changes as a barrier, Disney should turn them into opportunities and work with the Chinese government to gain an edge over its competitors. Many large corporations, such as Microsoft and PricewaterhouseCoopers, are hesitant to establish unions. However, Disney can comply
...[P]eople in Southern China are often desperate for economic security even if it means long hours of manual labor for just a few dollars. van Heerden, President and CEO of the FLA, sweatshops create an unstable workforce that only causes firms to “[bleed] ridiculous amounts of money.”15 If the 3.0 Process creates a more stable workplace, workers will be more productive. Heeden cites that he has seen “100 percent labor turnover per year” in some places.16 Therefore, working with the FLA will benefit Disney by increasing worker productivity and profits while working to eliminate sweatshop conditions. In addition, Disney can achieve a truly sustainable solution by working with the Chinese government to permit local labor unions. Through unions, workers can defend their rights and demand better working conditions. Recently in fact, China has been pushing for more blue-collar labor rights. This may seem unusual for a nation that has historically limited its workers’ rights; but because of China’s booming economy, blue-collar workers are beginning to show signs of unrest and discontent. The government believes that much of this dissatisfaction is due to “the cleavage between urban and rural, employed and unemployed, and the
THE CALL FOR CORPORATE ACTION
with the government’s request and work out a mutually beneficial deal.20 While unions will increase costs in Disney’s factories, Disney Consumer Products (DCPs) account for only 5–7% of the company’s total revenue. Most of Disney’s income is instead produced by its theme parks and studio/cinema entertainment. 21 Therefore, to make up for decreased profits from DCPs, Disney can work with the Chinese government to promote one of its more profitable markets, specifically studio entertainment. This proposal may not sound feasible, considering that the government permits theatres to show only 20 non-Chinese films a year.22 Yet, Disney currently sits in a prime position to make this offer work. The company has historically been on relatively good terms with the Chinese government. This can be seen by a recent, monumental breakthrough which occurred in 2009 when the government approved a Disneyworld in Shanghai.23 Disney has also been able to show some of its television programming on local stations each week. In return for such leniency, Disney has provided language schools to teach students English.24 If
Disney continues to show its willingness to cooperate with the government, especially on a controversial issue like labor unions, it might be able to expand its brand further through more television programming and increased film distribution. China remains a huge, profitable, untapped resource in the media world. This proposal, if successful, would bolster Disney’s revenue and drive demand for its products among 1.3 billion people. Through these initiatives, Disney is capable of implementing crucial steps towards eliminating sweatshops. While there are many details and complications with these proposals, they remain plausible solutions that benefit all parties involved. Working with the Chinese government will prove to be an extremely difficult task that will take years of concessions. There is also the risk that negotiations will simply fall through. In the end, it is up to Disney’s executives to weigh these risks against the potential upside. Even if these proposals do not return as large a profit as Disney might have hoped, the company will be looked upon as an exemplar of socially sound business practices. Such an image is sure to be appreciated by consumers, employees, and all other stakeholders. Only then can Disney truly claim to be “The Happiest Place on Earth.” ¥
1 Barboza, David. “Job Conditions Worsen in Areas of China, Experts
Say.” The New York Times. 23 Jun 2009. Web. 6 May 2011. <http:// www.nytimes.com/2009/06/23/business/global/23labor.html>. 2 “Sweatshops.” Dictionary and Thesaurus – Merriam-Webster Online. Web. 6 May 2011. <http://www.merriam-webster.com/dictionary/ sweatshops>. 3 Barboza. 4 “Introduction to International Labour Standards.” International Labour Organization. Web. 6 May 2011. <http://www.ilo.org/global/ standards/introduction-to-international-labour-standards/lang-en/index.htm>. 5 “How the ILO Works.” International Labour Organization, Web. 6 May 2011. <http://www.ilo.org/global/about-the-ilo/how-the-iloworks/lang--en/index.htm>. 6 “Students and Scholars Against Corporate Misbehaviour,” trans. “Mickey Mouse Is No Longer Lovely.” Rep. Students Disney Watch (China), 27 Nov 2009. Web. 6 May 2011. <http://sacom.hk/wpcontent/uploads/2009/12/sdw-labour-report_summary.pdf>. 7 “Fortune 500 2011: Industry: Entertainment.” CNNMoney.com. Fortune 500 Magazine, 3 May 2011. Web. 6 May 2011. <http://money.cnn.com/magazines/fortune/ fortune500/2011/industries/145/index.html>. 8 Schuyler, Shannon. “Corporate Responsibility at PwC.” Business and Its Publics. Skirball Auditorium, New York. 24 Jan 2011. Lecture. 9 “Supply Chain – About | Corporate Citizenship Report | Disney.” The Walt Disney Company and Affiliated Companies – Corporate Information. 2010. Web. 6 May 2011. <http://corporate. disney.go.com/citizenship2010/supplychain/overview/ aboutthesupplychain>.
Emil is a junior at NYU Stern and is majoring in finance and economics.
10 “2008 CR Report – Labor Standards in Licensing and Product
Sourcing.” The Walt Disney Company, 2008. Web. 6 May 2011. <http://disney.go.com/crreport/workplaces/laborstandards/ focusareas.html>. 11 “Code of Conduct Is No More than False Advertising, Disney Suppliers Continue Exploiting Chinese Workers.” Rep. China Labor Watch, Nov 2010. Web. 6 May 2011. <http://www.chinalaborwatch. org/investigations/2010_11_10/I00404E.pdf>. 12 “The 3.0 Process.” The Fair Labor Organization, 2011. Web. 6 May 2011. <http://oldsite.fairlabor.org/what_we_do_fla_3.0_c3.html>. 13 Ibid. 14 “Supply Chain.” 15 Adams, Jonathan. “Is China’s Labor Law Working.” Newseek.com. Newsweek, 13 Feb 2008. Web. 6 May 2011. <http://www.newsweek. com/2008/02/13/chinese-union.html>. 16 Ibid. 17 Adams. 18 Ibid. 19 Barboza, David. “Foreign Companies Pushed to Allow Chinese Unions.” The New York Times. 11 Sep 2008. Web. 6 May 2011. <http://www.nytimes.com/2008/09/11/business/worldbusiness/ wwiht-yuan.4.16084372.html>. 20 Ibid. 21 “Code of Conduct.” 22 Barnes, Brooks. “China Approves Disney Theme Park in Shanghai.” The New York Times. 4 Nov 2009. Web. 6 May 2011. <http://www. nytimes.com/2009/11/04/business/global/04disney.html>. 23 Ibid. 24 Barnes.
THE CALL FOR CORPORATE ACTION
We Might Have a
Drinking Problem Hydraulic Fracturing creates consternation to those who believe their health has been compromised, yet is a “boon” for the natural gas economy. Author Vivian Sze feels that Cabot Oil and Gas Corporation, a huge driller of natural gas, should set aside time and resources to research all the ramifications of “fracking.” For Vivian, measuring environmental impact makes good business sense.
THE CALL FOR CORPORATE ACTION
Vivian C. Sze
Photo by flickr.com/arimoore
Many critics are starting to see the situation as analogous to the Gold Rush, the housing crisis, and the crash of technology stocks
magine turning on your faucet and instead of seeing a pleasant flow of tap water, you are greeted with dirt sediments, methane, a whiff of diesel, and a thin layering of oil. This situation may seem like a nightmare. The truth is, this is the reality for an increasing number of Americans, as Amy Mall accounts in her article “Incidents where Hydraulic Fracturing is a Suspected Cause of Drinking Water Contamination.” For instance, in Marshall County, West Virginia, Jeremiah Magers reported that his well water was becoming tainted with gas.1 In Las Animas County Colorado, landowner Tracy Dahl discovered “approximately 500 gallons of grayish brown murky water”2 instead of the usually unclouded water in his cistern. And in Washington County, Pennsylvania, the Zimmerman family found that their water had arsenic, benzene, naphthalene, mercury, and selenium at up to “2,600 times above acceptable levels.”3 Although these water contamination incidents occurred thousands of miles apart, there is a connection between them: they all occurred in the vicinity of major oil and gas production sites that employ hydraulic fracturing.
When a resource as vital as water is contaminated, especially by gas and sediment, the adverse effects include an increase in health-related issues. Yet, much of the evidence of the causal relationship between hydraulic fracturing and water contamination is anecdotal and therefore disregarded due to uncertainty. This neglect leaves a vital commodity at risk, exposed to possible further contamination. Many opponents of the oil and gas industry find themselves in conflicts of interest so the search for the true effects of hydraulic fracturing requires businesses in the oil and gas industry to address these issues themselves. It is essential that energy companies like Cabot Oil & Gas Corporation take action. Cabot, a major player in the new natural gas initiative, must propose and execute solutions to resolve the haziness surrounding the situation. Further, it must ensure that natural gas prices reflect all of the costs of extraction. Due to their use of hydraulic fracturing, energy companies like Cabot are often blamed for the contamination of water in various regions of the United States where they operate. Hydraulic fracturing itself is a technique for extracting natural gas from underground reserves. Yet the
surrounding environment is impacted with the “initiation and propagation of a fracture in a rock by means of hydraulic pressure,” according to the Environmental Protection Agency.4 Major oil companies begin with anywhere from fifty thousand to five million gallons of water mixed with a fracturing fluid containing hydrochloric acid, gel, and diesel fuel. They pump the mixture into the ground at extremely high pressures via a drilled well to penetrate a target shale reserve. This process makes the natural gas float to the surface where it is captured and contained.5 Because a large amount of liquid is required, this process must occur in places where water is readily available. Selected locations might be near major water basins, rivers, and other surrounding freshwater bodies—water supplies that provide drinking water to millions of people. When the health of so many individuals is at risk, it is important to speculate. Why has little been done to investigate possible contamination? Are current government regulations sufficient? Surprisingly, the lack of investigation revolves around “rare support” from the energy companies’ “usual sparring partners,” which include
THE CALL FOR CORPORATE ACTION
environmentalists, lawmakers, and the government.6 Many individuals promote the natural gas initiative because they believe it will increase employment, ease the transition from coal and oil to renewable energy, and encourage the United States to shrink away from its foreign oil dependency. According to some critics, further “brainwashing” has come from the energy companies themselves.7 Companies like Cabot publish newsletters and create presentations to reiterate the efficiency of domestically produced natural gas and promote the idea that their approach “creates a smaller ‘footprint’ [to] minimize impacts.”8 With so much support for natural gas, and indirectly, hydraulic fracturing, little can be done unless the companies take it upon themselves to care for citizens. As the “leading independent North American natural gas producer,” Cabot greatly endorses the use of hydraulic fracturing to obtain natural gas.9 It claims that it is “committed to partnering with federal, state and local regulators to ensure the best regulations are in place,” and that its “[well] casing with [additional] cement surrounding the casing, is pressure-tested at pressures greater than those that will be used during fracturing operations.”10 Yet Cabot fails to acknowledge that it is virtually impossible to ensure that all machinery will work properly. This fact is especially true when the use of high pressure equipment is called into question. Under the intense pressure that is required in hydraulic fracturing, cement failures can occur. Cement can be cracked and broken, allowing the natural gas to escape to the surface which translates into contaminated water.11 In addition, Cabot does not seem to take into account that the equipment it uses runs the risk of degradation, which is inevitable due to water erosion and aging. The central government lacks adequate evidence to correlate hydraulic
THE CALL FOR CORPORATE ACTION
fracturing with health risks and therefore cannot coerce Cabot to halt the practice. Cabot should take the initiative in addressing the damage that “coincidentally” happens in areas near hydraulic fracturing use. Ignoring the connection may seem like the more appealing option, but as Paul Hawken says in Natural Capitalism: “It’s [ultimately] cheaper to take care of something… than to let it decay and try to fix it later.”12 Since something as important as human health and as vital as water is being threatened, Cabot must tend to the issue as soon as possible. Cabot’s failure to ensure a problem-free way of extracting natural gas results in negative externalities. The company should conduct as much research as is necessary to prevent any future contamination. It would be ideal for Cabot to conduct its own investigation on the matter. But unfortunately, history provides us with examples in which companies, like Nike and Wal-Mart, hold themselves accountable for looking into their social impact yet end up turning a blind eye. It is up to Cabot to guarantee that research is collected via a third party organization. This organization could be an environmental group, similar to the EPA, but without the government component. It needs to exhibit no prior loyalty to Cabot and have expertise in hydraulic fracturing. Cabot’s employment of a third party will offer the objectivity that this situation requires. One may argue that measuring and regulating the effects of hydraulic fracturing is a difficult feat and that this responsibility should not be given solely to Cabot. Even the EPA, whose mission is to “protect human health and the environment,” has curtailed its efforts due to political and economic pressures.13 In the 1980s under the Nixon administration, for instance, the EPA aided Congress in deciding whether to “regulate more closely the handling of wastes from oil and gas drilling,” having already concluded that “the drillers’ waste was hazardous and should
be tightly controlled.” 14 However, the “findings were altered by political and economic considerations,” and then released to the public.15 Others may also argue that Cabot may be hesitant to conduct meaningful research because of the novelty of shale drilling and the widespread hype for natural gas. Since hydraulic fracturing is relatively new, not enough time has passed to gather the necessary data to make credible conclusions regarding its practice. The need for more time is the true inhibitor. Because this industry involves such hefty investments and is expanding so rapidly, there is a race to see who can extract the largest amount of natural gas. There is also a race to see who can sell the most leases to homeowners in regions rich in shale. Cabot may fear that investigation will slow down production and lead to a loss in revenue. It may seem as if only the public benefits if Cabot were to regulate its activities in an environmentally conscious manner and find a third party to research its operations. However, these actions will ultimately benefit Cabot as well. The company currently has limited knowledge surrounding the production of natural gas in the United States. Relying on data released from the Energy Information Agency stating, “natural gas reserves have increased 39% over the past two years,” Cabot estimates that we have a “100-year supply of natural gas at our current rate of consumption.”16 But since shale drilling is relatively new, many of the forecasts about the real amount of gas in the reserves are based on a combination of science, guesswork and modeling.17 This means that there is a large possibility that estimations are overstated. The fault in these forecasts has already been reflected within wells that are depleting at an unforeseen rate, leading many to believe that the “operators are in an expensive game of ‘catch-up.’”18 While the Energy Department steadily increases “its estimates of
domestic supplies of natural gas,” the notion that the gas is not all that plentiful has prompted skepticism about the methods of obtaining it.19 If Cabot can accurately predict supply with additional research, it will improve the company and the natural gas industry as a whole. Cabot should not view thorough examination as a hindrance but as a huge step forward in eliminating uncertainty and risk. Should it take these matters into its own hands, Cabot will improve its reputation while making a positive societal impact. It is even possible that current research could help doctors treat patients who may be affected by hydraulic fracturing. Research would also prevent Cabot from a situation in which the cost of making a well is greater than the value of the gas it collects. This next step will hopefully occur before the adverse effects really hit home. Many critics are starting to see the situation as analogous to the Gold Rush, the housing crisis, and the crash of technology stocks, in that they were all overhyped events that did not yield the results that many people had anticipated. The investment that Cabot is making may be extremely dangerous in terms of magnitude should it fail to see the long-run effects of its actions. Ian Urbina of The New York Times wrote, “An industry response that hydraulic fracturing has been performed safely for decades, rather than engaging the range of issues concerning the public, will not succeed.”20 In other words, the “shale industry may be ‘set up for failure.’”21 As a major player in the natural gas initiative, Cabot has the proper manpower and the expertise to deal with the situation at hand. After remedying the issue, perhaps people like Jeremiah Magers, Tracy Dahl, and the Zimmermans, who had “anecdotal reports of health problems near gas drilling sites,”22 can finally get back their drinking water—and their health. ¥
1 Mall, Amy. “Incidents where Hydraulic Fracturing Is a Suspected Cause of Drinking
Water Contamination.” Switchboard. Web. 2011. <http://switchboard.nrdc.org/blogs/ amall/incidents_where_hydraulic_frac.html>. 2 Ibid. 3 Ibid. 4 United States Environmental Protection Agency. Natural Gas Extraction—Hydraulic Fracturing. Washington: GPO, 2011. 5 Ibid. 6 Urbina, Ian. “Regulation Lax as Gas Wells’ Tainted Water Hits Rivers.” The New York Times. Web. 2011. <http://www.nytimes.com/2011/02/27/us/27gas.html>. 7 Ibid. 8 Cabot Oil & Gas Corporation. Information you need to know regarding Cabot Oil & Gas Corporation’s natural gas production activities and hydraulic fracturing. Houston, Texas. 2012. 9 Ibid. 10 Cabot Oil & Gas Corporation. Steps Cabot Oil & Gas Corporation is taking to ensure that its operations protect Pennsylvania’s water and air resources. Houston, Texas. 2012. 11 Graham, Roberts, Mika Grondahl, and Bill Marsh. “Extracting Natural Gas from Rock.” The New York Times. Web. 2011. <http://www.nytimes.com/interactive/2011/02/27/us/ fracking.html>. 12 Hawken, Paul. “Natural Capitalism: The Next Industrial Revolution.” London: Earthscan, 1999. Print. 13 United States Environmental Protection Agency. 14 Urbina, Ian. “Pressure Limits Efforts to Police Drilling for Gas.” The New York Times. Web. 2011. <http://www.nytimes.com/2011/03/04/us/04gas.html>. 15 Coman, Hannah. “Balancing the Need for Energy and Clean Water: The Case for Applying Strict Liability in Hydraulic Fracturing Suits.” Environmental Affairs Law Review. Boston College. (2012). 131–160. Print. 16 Cabot Oil & Gas Corporation. Information you need to know. 17 Urbina, Ian. “Insiders Sound an Alarm Amid a Natural Gas Rush.” The New York Times. Web. 2011. <http://www.nytimes.com/2011/06/26/us/26gas.html>. 18 Ibid. 19 Urbina, Ian. “Behind Veneer, Doubt on Future of Natural Gas.” The New York Times. Web. 2011. <http://www.nytimes.com/2011/06/27/us/27gas.html>. 20 Urbina, Ian. “Learning Too Late of the Perils in Gas Well Leases.” The New York Times. Web. 2011. <http://www.nytimes.com/2011/12/02/us/drilling-down-fighting-over-oiland-gas-well-leases.html>. 21 Ibid. 22 Lustgarten, Abrahm. “The Trouble With Health Problems Near Gas Fracking.” NPR. Web. 2011. <http://www.npr.org/2011/09/29/140872251/the-trouble-with-healthproblems-near-gas-fracking>.
Vivian is a sophomore at NYU Stern majoring in finance and management. She is currently studying at NYU London.
THE CALL FOR CORPORATE ACTION
Eco-industrial parks are co-located businesses whose operational needs present opportunities for shared benefits. Citing industrial symbiosis in several global studies, author Ben Johnston makes a case for “clustered” industries that share resources and repurpose their waste products in order to both enhance operational efficiency and reduce pollution. Ultimately, he offers a business model through which outside investors could unearth value from these symbiotic arrangements.
usiness and nature share many of the same goals. Both entities are concerned with survival and evolution as they work to manage future environments. But while both seek efficiency, nature is a step ahead. Natural ecosystems recycle matter so resourcefully that it never leaves the system. Closed-loop ecosystems, from forests to oceans to deserts, use natural inputs continuously and production is self-sustaining.
THE CALL FOR CORPORATE ACTION
The balanced ecosystem has allowed nature, and in turn mankind, to exist on Earth for millions of years. Businesses, in the interest of being self-sufficient, could learn to replicate this efficiency in their own “ecosystems.” By adopting the principles of nature, businesses could sharply reduce costs while protecting the environment. The process of “industrial symbiosis” models nature within manufacturing. The Yale Center for Industrial Ecology explains
that industrial symbiosis “engages traditionally separate industries in cooperative approaches for managing resource flows that improve their overall environmental performance.”1 Instead of disposing of waste, manufacturers recycle these outputs or sell them as commodities. For instance, let us establish that a specific process generates waste methane. With traditional manufacturing, this methane would likely be pumped into the air via a valve or vent. Air pollution would occur, harming the environment. However, using industrial symbiosis, the company could sell this methane to a power plant. The resulting link would reduce methane emissions and create value for both parties. In Kalundborg, Denmark, a network of symbiotic relationships among businesses has led to massive resource savings. According to Yale’s Center for Industrial Ecology, “[a]pproximately 3 million cubic meters of water, 20,000 tons of oil, 80,000 tons of coal ash, and 200,000 tons of virgin gypsum are saved annually” through the process.2 Since increased efficiency reduces costs and waste, both business and the environment benefit from successful industrial symbiosis. Businesses pollute on an enormous scale. The Commission for Environmental Cooperation claimed that in 2006, businesses generated approximately 3.5 billion kilograms of pollution, excluding greenhouse gases.3 Of those pollutants, 49% were “released on site” and only 11% were sent to “Energy Recovery” or “Treatment.”4 This suggests that while businesses are beginning to recycle materials, they can do more. Businesses discharge over four times the amount of pollutants than they recycle. This indicates a lack of efficiency that seriously harms stakeholders.5 Industrial symbiosis impacts a wide range of groups through its environmental effects. The Center for Economics Research outlines a few of these stakeholders. The list includes governments (state, local, and federal), citizens of the areas surrounding manufacturers, and “the environment as a whole.”6 The Journal of Cleaner Production adds business representatives and “[the] community and environmental organizations” to round out the list.7 Environmental effects represent externalities. When a business pollutes, it does not immediately bear the costs of the environmental and health effects it causes. For instance, the Center for Disease Control records “decreases in lung function and increases in heart attacks” among the long-term health effects of air pollution.8 Businesses might cause the pollution, but they do not pay the medical bills of affected citizens. It is in the best interest of local governments, local residents, and the environment to regulate these businesses so that they either bear their costs or reduce the unwanted output. Stakeholders have certainly effected change in the past. The U.S. government and interest groups have increased environmental regulations to curb pollution. In 1970, the Environmental Protection Agency (EPA) was established and Congress passed
the Clean Air Act Amendments.9 Of particular concern are oil and gas-fired power plants, which released an estimated 770 million kilograms of air pollutants in 2006.10 To address this, the EPA passed the Mercury & Air Toxics Standards, which require fossil fuel power plants to sharply reduce emissions by December 16, 2015.11 This regulation is only one of many emerging standards aimed at making businesses responsible for external cost reduction. Additionally, environmental groups like the Sierra Club often take action by suing the EPA or polluters directly.12 In a 2007 settlement, the EPA was forced to fine American Electric Power $75,000,000 in penalties and cleanup costs because of chemical and air pollution problems.13 By instituting proactive measures such as industrial symbiosis, businesses can avoid harsh repercussions and public outrage. It is crucial to remember that businesses are themselves stakeholders in the pollution issue. For business stakeholders, industrial symbiosis adds economic value; in essence, it increases return on investment (ROI). A business might use this eco-friendly strategy to sell the waste it once paid to ship off-site or have treated. In Kalundborg, it is estimated that between US$12 and $15 million is saved annually through industrial symbiosis.14 The Journal of Cleaner Production estimates that by 2001, Kalundborg’s businesses had “saved US$160 million… on the total investments of $75 million.”15 While the marketing and compliance benefits from these integrated relationships are certainly desirable, businesses can also save on operation costs. The eco-industrial park (EIP), a cluster of businesses sharing outputs and processes, embodies the prominent model of industrial symbiosis. In the EIP at Kalundborg there are 5 main partners: Asnæs Power Station, Gyproc (a plasterboard factory), Novo Nordisk (a biotech company manufacturing 40% of the world’s insulin), Statoil Refinery, and last but not least, the city of Kalundborg itself. Ironically, Kalundborg was never intended to be the center of an EIP, as only one partner moved there expressly for symbiotic purposes.16 Gyproc managers struck the first deal of the EIP when they noticed Statoil’s gas flares. Sensing a low-cost fuel supply, they constructed the Gyproc plant near the refinery and began using Statoil’s excess gas for their own purposes.17 Today, there are many symbiotic links within the Kalundburg EIP. Asnæs provides steam for the city’s heating, as well as for Statoil and Novo Nordisk.18 The power plant also provides hot salt water to fish farms and burns Statoil refinery gas.19 Novo Nordisk’s waste sludge is now used as fertilizer, and desulfurized ash from the power plant is used for cement.20 Asnæs supplies 2/3 of Gyproc’s gypsum through its waste sulfur dioxide outputs, and Novo Nordisk’s waste yeast becomes pig food.21 As the network grows, Kalundborg’s EIP model represents ever-increasing efficiency and ever-decreasing pollution. However, attempts to create an EIP often fail. In 1996, the President’s Council on Sustainable Development presented 15
THE CALL FOR CORPORATE ACTION
EIP plans to be executed in subsequent years.22 Of those 15, none have been completed according to the original vision, though some have opened as traditional industrial parks. One critical problem with these parks was a reliance on public funding.23 If the project was truly profitable for all businesses involved, then public funding would not have been necessary. Furthermore, planned EIPs often lack communal motivation among the businesses involved. When assessing Dutch EIP attempts, which carry a relatively high success rate, the Journal of Cleaner Production found that business associations, NGOs, trade unions, and educational institutions often act as “invested leader[s] or ‘champion[s]’.”24 The government too can help by playing a supportive role—advising companies rather than directing them.25 Doing so gives companies more ownership and accountability in the project, requiring them to build the necessary trade relationships for successful symbiosis. Once companies are motivated to cooperate, they begin to uncover symbiotic relationships. A study by Marian Chertow of Yale’s Center for Industrial Ecology found that businesses often do not know that their activities are symbiotic. Many businesses exchange materials for economic or compliance reasons, only later discovering that their actions fit the “industrial symbiosis” criteria. In North Carolina, a study found that 36% of businesses surveyed “already engaged in activities beyond simple recycling.”26 To explore further benefits, the companies can bring in a third party to assess inputs and outputs. In the North Carolina case, researchers took an “inventory of business inputs and outputs” spanning 182 companies and 108 industries to identify possible links.27 In these cases, businesses are proximate within an established market cluster. Building within established businesses or market clusters appears to be the most feasible and profitable way to implement industrial symbiosis. One reason for this practicability is that businesses do not have to move much, if at all. By building on existing facilities, engineers and managers remove the risks inherent in a large-scale plant investment. Furthermore, businesses within established clusters are much more likely to trust one another. One of the principal challenges of EIP development is overcoming social isolation between companies.28 Members of established industrial communities will be more willing to work together, as was the case in Kalundborg.29 Regardless of whether the industries involved are varied or similar, businesses can typically exploit some kind of unique relationship. One readily available form of industrial symbiosis is resource pooling. This approach is best suited for industrial clusters of similar industries, as they will often have either the same input or disposal needs. In Barceloneta, Puerto Rico, there is a large pharmaceutical complex. By sharing a wastewater treatment plant, the firms can “increase their production without increasing their wastewater treatment cost.”30 Since the production outputs are
THE CALL FOR CORPORATE ACTION
similar, the firms employ a single waste company that recovers reusable solvents, reducing the need for “virgin material” inputs.31 As of 2008, the companies were exploring the possibility of sharing a “joint energy and steam co-generation facility” as well.32 Opportunities for industrial symbiosis also exist in mixedindustry developments. In Guayama, Puerto Rico, multiple businesses formed an arrangement worth approximately $8 million a year in shared steam alone.33 The businesses involved are a “petrochemical refinery… three pharmaceutical manufacturing plants… a 454 MW coal-fired power plant,” and a road construction company. These varying industries exchange wastewater, fly ash, steam, and “condensate.”34 As a result, Guayama was able to reap massive environmental benefits. Sulfur dioxide emissions are down 99.5%; nitrous oxide emissions are down 84%; and microparticle pollution (particles of less than 10 microns) is down 95%.35 Furthermore, this arrangement created the necessary conditions for the power plant to get an operating license.36 Even in seemingly unrelated industries, industrial symbiosis can benefit all the stakeholders involved. In order to expedite relationship building, a venture capital firm (VC) could help bring such stakeholders together. The firm would act as a private investor and negotiator in industrial symbiosis projects. VC sponsorship offers a sensible solution to obstacles that currently hinder the creation of EIPs. A venture capital firm would be monetarily incentivized to help companies realize and utilize potential symbiotic opportunities. First, the firm would approach businesses in existing industrial parks and offer to perform a general examination of their facilities. After receiving approval from interested managers, an engineering team would examine the operations. Each input and output would be catalogued, along with its current disposal or transport method. The data would remain property of the venture capital firm and a contract would prohibit the firm from selling the data to other companies. Next, the engineers would examine the data and determine if any processes match, either in sharedresource form or in input-output recycling form. Once the engineers determine potential matches, the firm would approach the respective businesses with a plan. The plan would include the savings uncovered by the engineers and the executable steps to achieve them. These steps might include construction or the sale of outputs to a nearby facility. Business managers would review the plan and decide whether or not they would want to pursue it. If the interested managers approve the plan, the venture capital firm would finance its implementation through an investment. The firm would then be required to pay for necessary construction of new facilities or the brokerage of an output-recycling deal. To gain a return, the venture capital firm might charge an upfront fee for engineering work or own a fixed percentage of the cost savings in raw materials. For example, if as a result of the firm’s work a business saves $500K/year on steam, and the firm
owns 20% of the savings, then the firm would receive $100K that year. The savings would be compared to the operating costs before implementation, averaged over the 5 previous years. To account for growing businesses, these savings could be examined on a unit-cost basis (material savings per unit produced). By basing its profits primarily on the savings it creates, the venture capital firm would generate meaningful environmental impact through industrial symbiosis. The venture capital firm would be a catalyst for change. It would act as the “champion” that brings businesses together to generate economic and environmental value. It would create the efficiency sought by both capitalists and natural ecosystems. In other words, the venture capital firm would be the third party that helps businesses realize their potential. And most importantly, both businesses and the environment would greatly benefit from its assistance. ¥
1 Chertow, Marian R., Weslynne S. Ashton, and Juan C. Espinosa.
“Industrial Symbiosis in Puerto Rico: Environmentally Related Agglomeration Economies.” Regional Studies. 42.10. (2008). 1299–1312. 2 Ibid. 3 Taking Stock: North American Pollutant Releases and Transfers. Rep. no. 13. Commission for Environmental Cooperation, 11 Apr 2011. Web. 3 May 2012. <http://www.cec.org/Page.asp?PageID=30101&Co ntentID=25091&SiteNodeID=483&BL_ExpandID=>. 4 Ibid. 5 Taking Stock. 6 Martin, Sheila A., Keith A. Weitz, Robert A. Cushman, Aarti Sharma, Richard C. Lindrooth, and Stephen R. Moran. “Eco-Industrial Parks: A Case Study and Analysis of Economic, Technical and Regulatory Issues.” Rep. Research. Triangle Park, NC: Center for Economics Research, 1996. Web. 3 May 2012. 7 Heeres, R.R., W.J.V. Vermeulen, and F.B. de Walle. “Eco-industrial park initiatives in the USA and the Netherlands: first lessons.” Journal of Cleaner Production. 12.8–10. (Oct–Dec 2004). 985–995, ISSN 09596526, 10.1016/j.jclepro.2004.02.014. <http://www.sciencedirect. com/science/article/pii/S0959652604000873>. 8 “Air Pollution.” ATSDR. Center for Disease Control, 20 Mar 2009. Web. 3 May 2012. <http://www.atsdr.cdc.gov/general/theair.html>. 9 “Emissions Standards for Boilers and Process Heaters and Commercial/Industrial Solid Waste Incinerators.” EPA. Environmental Protection Agency, 13 Dec 2011. Web. 3 May 2012. <http://www.epa.gov/airquality/combustion>. 10 Taking Stock. 11 “Mercury and Air Toxics Standards (MATS) for Power Plants.” EPA. Environmental Protection Agency, 10 Apr 2012. Web. 3 May 2012. <http://www.epa.gov/mats/basic.html>. 12 “Power Firm Agrees to Record Pollution Cleanup.” MSNBC.com. MSNBC Digital Network, 9 Oct 2007. Web. 3 May 2012. <http:// www.msnbc.msn.com/id/21198255/ns/us_news-environment/t/ power-firm-agrees-record-pollution-cleanup>. 13 Ibid. 14 Heeres.
Ben is a sophomore majoring in finance and mathematics. He is Fundraising Chair of Pi Kappa Alpha.
15 Karlsson, Magnus and Anna Wolf. “Using an optimization model
to evaluate the economic benefits of industrial symbiosis in the forest industry.” Journal of Cleaner Production. 16.14. (Sep 2008). 1536–1544. ISSN 0959-6526, 10.1016/j.jclepro.2007.08.017. <http:// www.sciencedirect.com/science/article/pii/S0959652607001916>. 16 “The Industrial Symbiosis at Kalundborg, Denmark.” Indigo Development. Indigo Development. Web. 3 May 2012. <http://www. indigodev.com/Kal.html>. 17 Ibid. 18 “The Industrial Symbiosis at Kalundborg, Denmark.” 19 Ibid. 20 “The Industrial Symbiosis at Kalundborg, Denmark.” 21 Ibid. 22 Chertow, Marian R. “Uncovering Industrial Symbiosis.” Journal of Industrial Ecology. 11: 11–30. (2007). Print. doi: 10.1162/jiec.2007.1110. 23 Ibid. 24 Sakr, D., L. Baas, S. El-Haggar, D. Huisingh. “Critical success and limiting factors for eco-industrial parks: global trends and Egyptian context.” Journal of Cleaner Production. 19.11. (Jul 2011) 1158–1169. ISSN 0959-6526, 10.1016/j.jclepro.2011.01.001. <http://www. sciencedirect.com/science/article/pii/S0959652611000059>. 25 Ibid. 26 Chertow, Marian R. (2007). 27 Ibid. 28 Sakr. 29 Ibid. 30 Chertow, Marian R., Weslynne S. Ashton, and Juan C. Espinosa. (2008). 31 Ibid. 32 Chertow, Marian R., Weslynne S. Ashton, and Juan C. Espinosa. (2008). 33 Chertow, Marian R. (2007). 34 Ibid. 35 Chertow, Marian R. (2007). 36 Ibid.
THE CALL FOR CORPORATE ACTION
Manhattan’s GA R MENT DISTR ICT AN OPPORTUNIT Y TO SAVE
THE CALL FOR CORPORATE ACTION
Student author Rafay Sardar paints a gloomy picture of New York City’s Garment District but moves quickly to illustrate its future possibilities. Rafay notes that Barneys luxury men’s store has had a longstanding link with New York’s design and manufacturing and may be in a position to develop a creative and lucrative business model. Vertical integration is at the core of this recommendation for Barneys and the goal is a revitalized, sustainable New York City manufacturing center.
he decline of Manhattan’s Garment District is a threat to New York in many ways. The district, which is densely concentrated between Fifth and Ninth Avenue from 34th to 42nd Street, has been the backbone of New York’s fashion industry for over a century. It caters “to all aspects of the fashion process—from design and production to wholesale selling. No other city has a comparable concentration of fashion businesses and talent in a single district.”1 This cluster has been integral to the rise of several major American brands including Ralph Lauren and Liz Claiborne. The Garment District provides the opportunity for designers to build successful businesses and promotes entrepreneurship—a principle that this nation was not only built on, but thrives on. This opportunity is currently under attack. The district is beginning to crumble due to rising rent costs, increasingly weak or neglected zoning regulations, and large designers’ ability to cheaply manufacture their clothing overseas. As a result, factories have closed and tens of thousands of jobs have been lost. The Garment District is “hanging by a thread.”2 And by extension, so too is New York’s ability to attract and support skilled jobs and new talent, characteristics that can ensure the city’s continued economic and cultural dominance. Given the district’s decline and uncertain future, Barneys New York, a major luxury clothing retailer, has a prime opportunity to invest in the future of the company while benefitting society. The decline of the Garment District has reached an inflection point. While Mayor Bloomberg publicly supports the New York fashion industry, the city is soon likely to drop or alter zoning regulations that make it affordable for manufacturers to remain in the district. Combined with rising rent costs and the loss of skilled workers, this move would only accelerate the decline, threatening to deprive aspiring designers of the opportunity to enter the market and limiting competition in the industry.3
Market entry is made possible by the Garment District, as start-up designers cannot afford the large orders required to manufacture their clothing offshore. Even if it were inexpensive, offshore manufacturing would fail to give designers direct control over the creation process, a factor that is crucial to initial success. “We feel very strongly about producing in New York—young designers like us wouldn’t be able to do it otherwise,” claim the designers for Eva Khurshid, a one-year-old line.4 The increasing likelihood that the district may someday dwindle to nothing is an urgent issue. By reinvigorating “Made in New York,” Barneys has the chance to bring jobs back to America, spur further innovation, and create shared value. Barneys, which is privately owned and headquartered in Manhattan, “is bolstered mainly by its three flagships in New York, Beverly Hills and Chicago.”5 Its success has historically been tied to that of the Garment District.6 Even today, there are several local designers whose products are carried only by Barneys and its direct competitors. One example is Rag & Bone, a young New York-made brand that recognizes the importance of the district in its success. It has stated that “[i]f the Garment District were to disappear… New York might cease to be the focus of the garment industry.”7 Barneys is well-positioned to help the Garment District, in part because of the tremendous power it has in turning new brands into household names. This power is perhaps best demonstrated by its historic decision to carry Giorgio Armani, a now major line that was unknown in the U.S. when introduced exclusively to Barneys in 1976.8 The retailer has an interdependent relationship with local designers. Therefore, it must immediately take steps to reinvigorate the foundation of its success. Barneys must employ a multi-faceted approach to counteract the decline of the district. The first steps should be aimed at solving the core of the problem: the decrease in the number of manufacturers in the garment-making trade. According to the Fashion
THE CALL FOR CORPORATE ACTION
Center Business Improvement District, a local non-profit organization, the “district is currently home to 21,500 fashion related jobs,” a figure which “has dropped 42% over the past 15 years” and “represents only a fraction of the 200,000-plus people who once worked in fashion in the city during the 1960s.”9 The factors that have fueled the deterioration of the district threaten “even the remaining factories and shops that make the couture coats, dresses and other apparel for glamorous fashion designers.”10 Barneys must counteract these forces by establishing meaningful relationships as it works to sustain and grow local businesses. Barneys will ultimately profit from its efforts. Barneys should begin by subsidizing rent or by directly purchasing various critical manufacturers. It would then become a retailer directly tied to the manufacturing process itself. Attention should be given to manufacturers who are struggling to either pay rent or hire more employees, or both. Additionally, a main target should be specialty manufacturers, who are in imminent danger of disappearing. For example, “[t]here are… only two pleaters now when once there were eight.”11 Similarly unique groups focus on specialties, such as lace, buttons, and other embroidery, rather than the entire design process. Because the majority of manufacturers employ at most 20 to 30 workers, and many even less, this endeavor is an inexpensive and viable option. One particular manufacturer that Barneys could subsidize is New World Fashion, a sewing room that supports 28 employees. The owner of New World Fashion had to “recently sublet 15 percent of his space to a yoga studio” in order to “pay his rising rent.”12 And in a recent panel discussion titled “Made in Midtown: The Garment District Today & Tomorrow,” designer Yeohlee Teng, whose collections are carried by both Barneys and Bergdorf Goodman, claimed that the decline in manufacturers and trade skills is as much a “people problem” as it is a real estate problem.13 Factories are facing difficulty in attracting new employees and the average age of Garment District workers is on the rise; the skills for actually making garments are dying out. This difficulty is a consequence of the uncertainty plaguing the future of the industry.14 Barneys should utilize a set of guidelines associated with each manufacturer it subsidizes or acquires. With sustainability in mind, Barneys might guarantee to subsidize the manufacturer’s rent for a set period of time. This would allow selected manufacturers to better market themselves to potential employees by adding job security to their open positions. This, in turn, would help revitalize the workforce. To emphasize its involvement, Barneys could label each of its affiliated manufacturers as “Barneys Certified,” an initiative somewhat analogous to the LEED certification given by the U.S. Green Building Council to low-energy buildings. The LEED certification has led to an increase in profits and clientele for certified businesses.15 Similarly, the Barneys certification would be an indicator of high-quality services, encouraging designers to
THE CALL FOR CORPORATE ACTION
use certified manufacturers for both the service and marketing of their brands. In return, subsidized manufacturers must give preference to Barneys’ in-house designers and exclusive brands. This plan allows those designers and brands to take advantage of the short production time that comes with producing in the Garment District, while also giving Barneys an edge on the competition through carrying the latest trends. Subsidized manufacturers could share a portion of their profits with Barneys based on an agreed-upon limit. Barneys would be able to measure the success of acquired manufacturers both monetarily (through profits) and socially (through jobs saved). It would become an equity investor in Garment District manufacturers, using its in-depth industry knowledge to seek out and improve businesses. Barneys could also complement its work in the manufacturing sector by targeting new designers. The retailer’s CEO, Mark Lee, claims that “Barneys’ focus continues to be on obtaining ‘exclusives’ with designers, meaning that consumers cannot find the products anywhere else. But he acknowledged that in 2011, when many luxury brands have grown to be $1 billion-plus businesses, this will be a difficult challenge.”16 One of the major differentiators between Barneys and its direct competitors is the exclusive brands each retailer carries. Therefore, the increasing domination of the industry by major brands poses a threat to the exclusive retailers, Garment District manufacturers, and entrepreneurial designers. As major brands expand and hire up new design graduates, solo manufacturers in the district will continue to suffer. The appeal of starting one’s own label is diminished due to the opportunities provided by large brands and the increasing difficulty in entering the market. This continued trend will ensure an industry lacking competition and innovation, as new designers’ styles will simply embody their employers’ aesthetics. To alleviate this issue and promote ease of entry into the industry, Barneys should also create a competitive program for new design graduates from Manhattan schools like the Fashion Institute of Technology and Parsons The New School for Design. The program would give designers with ready-to-sell qualities subsidized workspace. It would also require them to create their collections exclusively for Barneys and to produce their clothes through “Barneys Certified” manufacturers. The Barneys CO-OP stores, which are targeted at a younger demographic, could be used to attract and support a variety of unique designers. The Garment District’s decline has not gone completely unnoticed. And the plan here gives Barneys the opportunity to work with outside stakeholders to achieve its goals. One possible nonprofit partner is Showroom New York. The mission of this organization is to “strengthen the local apparel industry” by offering free showroom space to designers who produce their clothing in New York.17 A partnership between Barneys and Showroom NY would help Barneys advertise its new designers and increase revenue while helping Showroom NY advance its goal of helping
designers and manufacturers. The two companies could also collaborate by establishing a tent at Fashion Week New York, giving their cause even greater exposure. Additionally, Barneys has the opportunity to work with local government. The city has generally turned a blind-eye towards the decline of the Garment District and only recently has Mayor Bloomberg announced “six new programs to help fuel New York City’s fashion industry.”18 Although his support has been welcomed by the industry, many fear that the programs will not go “far enough” and will be difficult to utilize.19 The city should support the initiatives proposed here by fostering a public-private partnership with Barneys. The company could be offered tax breaks and other perks for its socially beneficial ventures. This subsidy would benefit the local government too as it has been criticized for not addressing the “problems faced by local factories.”20 Instead of haphazardly trying to rebuild the Garment District through its own initiatives, the local government will better achieve its goals (and improve its reputation) by supporting a business already within the industry. Barneys New York has the power to reinvigorate the Garment District, maintain jobs in America, and uphold the American value of entrepreneurship that characterizes the company itself. Rather than engage in corporate social responsibility for the sake of creating a positive image, Barneys can create shared value and increase profits by maximizing the potential of its supply chain. By improving the circumstances for designers and Garment District manufacturers alike, Barneys will be at the forefront of “the next wave of business innovation and growth.”21 The decline of the district may, in reality, create an opportunity for cooperation across sectors that will once again bring allure to “Made in New York.” ¥
1 “The Fashion Capital.” NYC Fashion. New York City Economic
Development Corporation. Web. 8 May 2011. 2 Colvin, Jill. “Garment District Factories Hanging on by a Thread.” DNAinfo. Digital Network Associates. 18 Mar 2011. Web. 8 May 2011. 3 Pasquarelli, Adrianne. “Fashion world reacts to Bloomberg initiatives.” Crain’s New York Business. Crain’s Communications. 3 Nov 2010. Web. 8 May 2011. 4 Chernikoff, Leah, and Amy Eisinger. “Nanette Lepore and other local designers fashion a drive to save New York’s Garment District.” NY Daily News. NYDailyNews.com. 19 Oct 2009. Web. 8 May 2011. 5 Fashionologie. “Barneys Drops Prada Handbags and Womenswear; CEO Mark Lee Talks More Upcoming Changes.” Fashionologie. 4 Feb 2011. Web. 8 May 2011. 6 Steinhauer, Jennifer. “Fred Pressman, Who Elevated Barneys New York, Dies at 73.” The New York Times. The New York Times Company. 15 Jul 1996. Web. 8 May 2011. 7 Chernikoff. 8 Steinhauer. 9 Pasquarelli.
Rafay is a junior majoring in finance and business economics.
10 Bagli, Charles V. “New York Seeks to Consolidate Its Garment
District.” The New York Times. The New York Times Company. 19 Aug 2009. Web. 8 May 2011. 11 Colvin. 12 Bagli. 13 “Made in Midtown: The Garment District Today & Tomorrow.” The Municipal Art Society of New York. The Municipal Art Society of New York. Jun 2010. Web. 8 May 2011. 14 Ibid. 15 U.S. Green Building Council. U.S. Green Building Council. Web. 8 May 2011. 16 Dodes, Rachel. “Barneys, Prada in Tussle.” The Wall Street Journal. Dow Jones & Company. 5 Feb 2011. Web. 8 May 2011. 17 Showroom New York. Showroom New York. Web. 8 May 2011. 18 Pasquarelli. 19 Ibid. 20 Ibid. 21 Porter, Michael E. And Mark R. Kramer. “Creating Shared Value.” Harvard Business Review. Business. Jan–Feb 2011. Web. 8 May 2011.
THE CALL FOR CORPORATE ACTION
Closing the Digital Divide, One Community at a Time Essay by Christopher Drake
As software programs proliferate and Internet media increase, computer access and computer literacy are necessary for a modern global education. Author Christopher Drake recommends that we start small by targeting high-need neighborhoods in order to stem the Digital Divide. Christopher’s small step could effect big change for tomorrow’s job-seekers.
THE CALL FOR CORPORATE ACTION
he term “Digital Divide” entered our lexicon in the 1990s, reflecting the inequality of access to Information Technologies (IT). This divide highlights the social stratification present in the United States,1 where high-income Caucasians have more access to IT than low-income African Americans and Latinos.2 As the minority population lacks IT in its curriculum, the existing gap in scholastic performance between these two groups may widen. Yet scholastic performance is not the only challenge. The National Telecommunications and Information Administration (NTIA) indicates that children’s ready access to computers and the Internet increases future employment opportunities and income.3 It may not be possible to eradicate the inequity entirely, but providing a solution on a small scale is a step in the right direction.
THE DIGITAL DIVIDE
It is not the technology itself, but the opportunities afforded by computers and the Internet that engenders this “Digital Divide”—the alienation of the “Have-nots” from the “Haves.” The Internet provides information for people’s lives, careers, and welfare. It provides more direct access to government, supplements children’s educations, and supplies informational infrastructure to support existing and emerging industries.4 People that have Internet access are simply more empowered and have more opportunities than those without. In addition to Internet access, computer literacy is another aspect that struggling “Have-nots” must deal with. Research suggests that “[i]nequalities in earnings might increase as a result of poor and minority youth being less prepared to compete for higher paying jobs that require IT skills.”5 Children in low-income families have minimal, if any, access to computer education programs that can improve their future potential in the job market. In addition to reading, writing, and math skills, these children are falling behind in computer literacy. According to a 2006 study by the National Center for Education Statistics, Caucasians, Asians, students with educated parents, and students living in higher income families are more likely to use computers than their counterparts.6 Furthermore, the students that are disadvantaged mainly interact with computers at school. The study points out that schools help “bridge the digital divide.”7 For children living in very low-income homes, schools are usually the only chance they have of breaking out of the poverty cycle. Unfortunately, schools closest to this demographic—inner-city schools—see little government funding. Due to tight budgets, these schools cannot allocate enough money to computer education programs.
Results from a study at the University of Illinois show that “poor youth were… [a third] as likely to own a home computer, but equally as likely to use their home computer for academic purposes as were non-poor youth.”8 In other words, these underprivileged students, who would use IT academically, do not always have the means to do so. Without a computer at home, and without access at school, these students cannot acquire the necessary IT skills to compete in the workforce.
DIGITAL INEQUALITY AT COMMUNITY SCHOOL 300
East Tremont in the Bronx is a very lowincome neighborhood and is home to Community School 300, an elementary school for over 600 students (the student body is 43 percent African American and 56 percent Latino).9 Many of these children are in foster care or raised by grandparents. Others live below the poverty line in shelters. The school is an oasis for them and a place to forget about their troubles. In addition to the shortage of funding, minimal parental involvement, absence of an established library, and lack of a gym facility, C.S. 300 does not have enough computers to develop a computer education program. Most classrooms have only 1 to 3 computers to be shared among 25 students. Implementing IT into the curriculum is almost impossible as only 3 students can use computers at one time. All of these factors are reflected in the school’s evaluation report: only 10 to 20 percent of each grade level meets New York State’s proficiency standard in mathematics and language arts, resulting in an Overall Student Performance score of “F.”10 A study done at the University of Illinois emphasizes how IT can radically improve schools. In addition to providing an enormous amount of information, IT can promote the development of higher-order
cognitive skills, increase student attentiveness and motivation, and improve parent communication and involvement.11 With a more integrated IT environment, it is possible that Community School 300 can realize these benefits and obtain higher overall student performance. Strengthening the presence of IT can increase student achievement and student computer literacy, both of which play an integral role in the children’s future.
SOLUTION THROUGH SHARED VALUE
Alleviating the digital inequality at Community School 300 presents an opportunity for creating shared value. Michael Porter and Mark Kramer define shared value in a Harvard Business Review article as, “[P]olicies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.”12 In the case of Community School 300 in East Tremont, the IT company Hewlett Packard (HP) is ideally suited to address the digital divide while boosting its own competitiveness. Currently, Hewlett Packard is engaged in charity work in many different areas, from donating to disaster relief programs to offering pro bono legal work.13 HP even tried to bridge the digital divide 8 years ago by developing new technologies, such as a low-cost email device to sell to rural consumers in third-world countries. 14 However, most of these efforts are purely donation-based and do not exemplify sustainable shared value models. HP’s efforts gloss over poor minority groups in the United States that can use IT to increase their standard of living. HP’s competitors, on the other hand, have realized the need and the opportunity to enhance their corporate image and
THE CALL FOR CORPORATE ACTION
have developed programs to target this precise societal issue. For example, Dell has introduced the program Dell YouthConnect, which provides grants, funding, and technology to communities and non-profit organizations that are trying to connect underprivileged children with IT.15 Yet this initiative too is donationbased and is not built on the principles of shared value. This situation presents Hewlett Packard with an opportunity to reinvent the approach to alleviating digital inequality. In short, HP can partner with Community School 300 and market the opportunity for customers to help underprivileged children receive a computer education. For instance, a simple sales promotion might offer a 10 percent to 25 percent discount on their next HP purchase to consumers who donate a desktop or laptop. HP would act as the intermediary between the donor and C.S. 300. It receives the donated computers, cleans them, resets the hard drives for optimal use by students, installs the appropriate educational software, and transports them to the school. Once C.S. 300 receives enough computers, there are several possible next steps. A dedicated computer lab is the ideal goal, but because of space limitations, it may not be viable. The next best solution is to install the desktops in each of the classrooms, giving the teachers an opportunity to integrate them into the curriculum. If enough laptops are donated, a rolling cart of computers might be feasible. A laptop loan system, similar to book loans from libraries, builds on the idea of increasing student interaction with the computers. There may not be enough time in school for the children to get adequate exposure, but by taking the laptops home, they can continue their computer education. With annual profits in excess of $7 billion, HP has the ability to truly help this community. It can afford to train teachers to integrate the computers into the curriculum, and develop an after-school program to extend the students’ time online.
THE CALL FOR CORPORATE ACTION
It is not the technology itself, but the opportunities afforded by computers and the Internet that engenders this “Digital Divide”…
If at the end of the program there are still not enough computers to give equal access to each student, HP might make up the remainder by donating them directly. This is not a large-scale endeavor; there are only 700 children at C.S. 300, making the goal very achievable.
IT DOES NOT STOP THERE
The effects of this program can extend beyond C.S. 300. If the computers are donated in volume, the program can expand to include the surrounding neighborhood. Some adults in East Tremont are just as computer illiterate as their children. The laptop loan system could expose the parents and guardians to computers when the students bring them home for the night. At night and on weekends, the computers would also be generally unused in the school. Thus, night and weekend programs can be created to bring computer literacy to the adults as well. This possibility highlights the program’s key strength: its scalability. At first, a single entity—Community School 300—would benefit from the computers. But over time, the program can grow to incorporate the entire community.
Furthermore, this scalability is complemented by low cost. The majority of the expense (which is very little to start with) occurs in the beginning: the transportation, cleaning, installation, and training. After these one-time (sunk) costs, little else is needed to grow the program. Teachers can direct the children’s programs and volunteers can conduct the adult programs. The various possibilities for this proposed solution build the potential for success. To determine whether success is achieved, results in both the community and the corporation must be analyzed. For Community School 300, success can be assessed through the number of computers that are donated, the engagement of the students, and the improvements in the students’ computer literacy and standardized tests. For HP, success can be quantified through a cost-benefit analysis where the profits from computers sold through the discount and the additional revenue brought in from the initiative are weighed against the costs of supporting the program. Long-term impacts aside, the plan has immediate, visible benefits. C.S. 300 receives computers, children receive a
computer education, donors receive a discount to purchase a new computer, and HP locks in repeat customers, all while enhancing its corporate image. With any business endeavor, barriers exist that reduce a corporation’s willingness to act. One of HP’s responsibilities is to collect and clean the computer hard drives. The company may not be willing to burden the employees with this work. It must also absorb the costs of the educational software and transporting the computers to the school, which might further reduce incentive to take action. However, these are small hurdles in a much larger race. HP has been regaining PC market share recently and this plan will increase that momentum. Further, corporate social responsibility (CSR) has been an attractive selling point for many companies. It offers a new way to advertise. Taking action shows the world that HP cares about the community. Its computer donations function as a positive externality. Profit, growth, and market leadership are all part of HP’s mission statement, and this model can help reach these targets. For continued success, HP must get behind this endeavor. This project is not a one-time payout for a distant cause; it is the opportunity to immediately alleviate digital inequality on a small scale.
1 Eamon, Mary K. “Digital Divide in Computer Access and Use Between Poor and Non-
poor Youth.” Rep. Vol. XXXI. University of Illinois at Urbana-Champaign. Journal of Sociology and Social Welfare. Jun 2004. Web. 2 National Telecommunications and Information Administration. U. S. Department of Commerce. “Falling Through the Net: Toward digital inclusion.” Washington, DC. 2000. 3 Eamon. 4 “Digital Divide – ICT Information Communications Technology – 50x15 Initiative.” Digital Divide – ICT Information Communications Technology – 50x15 Initiative. Web. 07 May 2012. <http://www.internetworldstats.com/links10.htm>. 5 Jencks, C., & Phillips, M. “Aptitude or achievement: Why do test scores predict educational attainment and earnings?” In S. E. Mayer & P. E. Peterson (Eds.), Earning and learning: How schools matter. Washington, DC: Brookings Institution Press. 15–47. 1999. 6 DeBell, M., and Chapman, C. “Computer and Internet Use by Students in 2003” (NCES 2006-065). U.S. Department of Education. Washington, DC: National Center for Education Statistics. 2006. 7 Ibid. 8 Eamon. 9 The New York State School Report Card. Rep. New York State Education Department, 17 Mar 2012. Web. <http://schools.nyc.gov/SchoolPortals/12/X300/AboutUs/Statistics/ default.htm>. 10 Ibid. 11 Eamon. 12 Porter, Michael E., and Mark R. Kramer. “The Big Idea: Creating Shared Value: How to Reinvent Capitalism—and Unleash a Wave of Innovation and Growth.” Harvard Business Review. Jan 2011. Web. 13 “Stakeholder Engagement.” HP Global Citizenship. Web. 7 May 2012. <http://www. hp.com/hpinfo/globalcitizenship/commitment/stakeholder_engagement.html>. 14 “Beyond the Digital Divide.” The Economist. The Economist Newspaper, 11 Mar 2004. Web. 7 May 2012. <http://www.economist.com/node/2476920>. 15 “Dell YouthConnect.” Dell. Web. 7 May 2012. <http://content.dell.com/us/en/corp/d/ corp-comm/powering-possible-learning.aspx>. 16 Sen, Amartya. “A Matter of Choice.” ProQuest Central. Sept. 1996. Web.
A HOPEFUL FUTURE
The Indian economist Amartya Sen observed that poverty is not only a state of impoverishment, but also a “lack of real opportunity imposed by social constraints as well as personal circumstances.”16 The children attending Community School 300 were unwillingly born into this environment. Their lack of opportunity is perpetuated by society, and the only way to break the cycle is to have each member and group of the community, including students, C.S. 300, East Tremont, and Hewlett Packard, embrace a new paradigm of shared value. While this plan does not end digital inequality entirely, it does set a precedent for others to follow. ¥
Christopher is a sophomore studying finance, accounting, and philosophy. He is currently studying abroad in London.
THE CALL FOR CORPORATE ACTION
Lead in lipstick may be an old battle but now more confusing chemicals are upping the stakes. Author Diana Zarowin targets Revlon with a direct call to action. She insists that the time to remove the dangerous ingredients in cosmetics is now. Diana offers three helpful approaches that can translate to profits down the line.
Revlon BE AUT Y & MOR A LIT Y
THE CALL FOR CORPORATE ACTION
evlon. Founded in 1932. Male or female, young or old, anyone who has walked the aisles of an American department store knows this company and its seemingly endless array of cosmetic products. With lipsticks and facial moisturizers, hair coloring products and fragrances, billion-dollar Revlon is the largest manufacturer of cosmetics in the United States. Yet most of its client base is likely unaware that Revlon’s Super Frost Lipstick, Toast of New York edition, has a hazard rating of 9/10 and contains a “robust” amount of the cancercausing endocrine disruptor BHA.1
These revelations were brought to light by the Skin Deep Cosmetics Database (SDC) of the Environmental Working Group (EWG). The EWG is a national non-profit environmental organization concerned with the chemicals in various consumer products. The SDC Database catalogs the medical effects and hazard levels of thousands of beauty, body, and household cleaning products. The EWG specifically measured Revlon products for BHA, an ingredient the United States government has labeled carcinogenic. But what about Revlon’s Moon Drops Moisture Frost Lipstick in Poppysilk Red? It obtained a hazard rating of 9/10 and has the active ingredient Padimate O, another cancer-causing, endocrine-disrupting, and allergy-provoking chemical.2 Scary stuff! Revlon’s Moon Drops Lip Conditioner with SPF 6 has a hazard rating of 7/10 because it contains Fragrance, Oxybenzone, and Padimate O.3 The list unfortunately goes on and on. Over 300 of Revlon’s lip-related makeup products contain a selection of highly toxic chemicals such as the previously mentioned BHA (Butylated Hidroxyanisole), Fragrance, Methylparaben, Oxybenzone, Padimate O, Propylparaben, and an assortment of other multisyllabic chemicals whose names we too often ignore when choosing our products. To the uneducated individual, Revlon and other name brand products are simply grooming tools—eye enhancers, lip embellishers—nothing more, nothing less. To the more eco-knowledgeable consumer, use of these products is regarded as dangerous since it may lead to serious health consequences. In a perfect world, products that fail to adhere to environmentally friendly standards would not be manufactured in the first place. At the very least, potentially dangerous products would be swiftly removed from store shelves to be replaced by healthier alternatives. But the world we live in is not perfect. There are not enough educated consumers to push for sweeping change. Yet, a handful of consumers does exist that would like to purchase makeup products without worrying about their chemical “make-up.” I propose that Revlon create an eco-friendly, environmentally sensitive line of lip products that does not contain harmful chemicals. These products would target those consumers who are aware and do care about the contents of their beauty products. For financial reasons, the company may not feel that it is in a position to entirely eliminate its longstanding line of lip products. And the existing line may continue as long as every effort is made to limit harmful ingredients and to ultimately phase out these components. In this paper, I explain the environmental and business benefits that these steps would bring to the company and the consumer. In addition, I suggest possible methods to facilitate the reformulation of these popular cosmetics. Why should Revlon invest in the creation of an additional line of chemically safe lip products? First: the health factor. The
majority of consumers cannot be expected to have ample knowledge of the chemicals contained in beauty and body products, nor do they routinely attempt to educate themselves. They know little about the effects of components such as BHA and Fragrance, just a few of the unsavory ingredients in Revlon lip products. Butylated Hydroxyanisole (BHA), a yellowish-white waxy mixture of 3-tertbutyl-4-hydroxyanisole and 2-tert-butyl-4hydroxyanisole, is an antioxidant and preservative in food, food packaging, animal feed, rubber, petroleum products, and cosmetics. It is “reasonably anticipated to be a human carcinogen based on sufficient evidence of carcinogenicity in experimental animals,” reported the National Institute of Health (NIH).4 The United States Food and Drug Administration (FDA) adds, “[T]here are reports that very low concentrations of BHA interfere with bradykinin and prostaglandin synthesis.”5 This means that BHA can affect a person’s blood pressure and the normal physiological processes that the human body experiences. The FDA also states that “in man, single doses of BHA require 10 days for elimination probably due to the solubility and retention of the compound in fat.”6 The fact that nearly all Revlon lip products contain high concentrations of BHA does not bode well for the consumer who uses the products daily. Fragrance and flavoring also loom large in Revlon’s lip products. The EWG Skin Deep Database explains that “the word fragrance or parfum on the product label [of cosmetics items] represents an undisclosed mixture of various scent chemicals and ingredients used as fragrance dispersants such as diethyl phthalate. Fragrance mixes have been associated with allergies, dermatitis, respiratory distress and potential effects on the reproductive system.”7 In a paper titled Fragrance Allergy in Consumers, the Scientific Committee on Cosmetic Products and Non-Food Products Intended for Consumers confirms the Skin Deep Database statement concerning the lack of chemical information on products with fragrance listed as an ingredient. The Committee writes that the “lack of information on the ingredients of cosmetic products seriously interferes with the adequate diagnosis of patients with cosmetic allergy.”8 It explains that “the Fragrance Mixture identifies 50–80% of cases with perfume allergy… there are patients where the correct diagnosis cannot be made as the diagnostic test is negative, but no information is available on the content of other fragrance allergens in the products used by the patient. It has been the policy of the fragrance industry not to disclose the fragrance formula for many years.”9 This is a worrisome fact for both consumers and Revlon. There is a second reason for Revlon to invest in safer products: business considerations. If Revlon provides products geared to the eco-sensitive customer, its consumer base will likely expand. The CDF Corporation is a Massachusetts-based, environmentallyconscious liquid food packaging company employed by large
THE CALL FOR CORPORATE ACTION
organizations such as Dole. In the Market Trends section of its “Green Ideas” bulletin, it posits that “the cosmetic industry is going green and has been for a number of years under the radar.”10 According to the market research group Mintel, eco-friendly and ethical personal care products are likely to represent one of the most significant worldwide trends in the cosmetic industry going forward.11 Further, according to the Organic Monitor, a marketing and information services company that specializes in organic products, the major drivers of market growth are the “mainstreaming of natural and organic cosmetics, inward investment and growing consumer demand for green products.”12 From a video report, “The All-Natural Makeup Revolution,” ABC News pointed out that the market for organic and natural products was about US$1 billion in 1990 and has grown to US$30 billion by 2011,13 leaving significant growth potential for eager manufacturers. It would be a smart move on Revlon’s part to contribute to this trend while it is still growing. Missing the boat, so to speak, could prove to be financially devastating. If Revlon invests in producing a line of eco-friendly lip products, the result will be an advantage over the competition. Given its enormous resources, including financial reserves and market-
Number of Revlon’s lip-related makeup products that contain toxic chemicals ing talents, Revlon has the potential to completely eclipse its rivals. And if Revlon changes all the lip product ingredients to environmentally and medically safe components, it would be possible for the company to achieve a lower hazard rating (or even a score of zero) within the Skin Deep Cosmetics Database. A “stamp-ofenvironmental-approval” granted by the EWG could greatly increase consumer interest and loyalty. There may also be a side benefit if Revlon carries out its product reformulation successfully. The company would then be in an excellent position to suggest that the government institute stringent regulations on the chemicals and ingredients used by the cosmetics industry as a whole. The government could institute a “grading” program, similar to the restaurant grading system used in New York City. The products manufactured by cosmetics companies would be awarded a grade that consumers could then use to make informed purchasing choices. Revlon would be at the forefront of the effort to promote eco-friendly cosmetics and would demonstrate concern for the health and well-being of consumers. Competitors would surely be motivated to follow Revlon’s lead in order to obtain the coveted rankings. And while
THE CALL FOR CORPORATE ACTION
others may be dithering, Revlon would likely expand its consumer base. The company would be supporting the idea that, “if you’re not part of the solution, you’re part of the problem.”14 Corporate Social Responsibility (CSR) should be a key motivator for Revlon. While promoting change because of its intrinsic “rightness” and compelling business reasons, Revlon should reap some impressive branding benefits. That is, it may be the first leading cosmetics company to undertake real and meaningful eco efforts. Shannon Schuyler, the Managing Director of Corporate Social Responsibility at PricewaterhouseCoopers, has spoken about the importance of CSR for companies. According to Schuyler, whatever the extent of the CSR efforts, they are always good for a company and can lead to important improvements in image.15 Years ago, when the discussion of lead in lipstick was in full swing, the national Campaign for Safe Cosmetics conducted a lead test in over 30 lipsticks of different colors and brands. Revlon participated in the study. It was found that several of the company’s lipsticks contained varying levels of lead. “When we lick our lips, eat and drink while wearing lipstick, or kiss someone who is wearing lipstick, we ingest the lipstick’s ingredients,” says the Campaign for Safe Cosmetics in the paper A Poison Kiss: The Problem of Lead in Lipstick. The paper notes, “[w]omen inadvertently (but harmlessly) eat about 4 lbs. of lipstick in a lifetime. Unfortunately, the latest science shows that no level of lead is ‘harmless.’”16 Since these results were released in October 2007, Revlon successfully reformulated many of the targeted lipsticks and made them lead-free. In the Daily Green, an eco supplement to the magazine Good Housekeeping, 3 of the 11 lipsticks listed as lead-free were Revlon products from its popular Super Lustrous and Colorstay Soft and Smooth collections.17 By tackling the lead issue, Revlon was able to make important changes to its lipstick products. Why not go even further? As demonstrated by the lead effort, Revlon has the wherewithal and ethical commitment to effect meaningful change. And, it is likely that making these alterations will also promote significant business gains. Although these changes seem to be the right thing to do for both health and business reasons, most enterprises require some practical guidance on how to actually tackle the problem. I present three possible ways for Revlon to succeed. One, I suggest that Revlon reallocate a small portion of the funds raised from its annual Entertainment Industry Foundation Run/Walk for Women to a cosmetic reformulation program. This effort raises over $50 million for cancer research, counseling, and outreach programs across the nation. Revlon could easily allot a portion of these funds to create healthier, carcinogenic-free makeup products, which may in fact be a preemptive measure against cancer. Although money can be directed towards cancer
research, it might be more meaningful to invest funds in creating products that can help prevent the onset of the disease. A second option is to partner with an eco makeup company, such as Jane Iredale Cosmetics, to market a Revlon/Jane Iredale product. This alliance would not only enhance the credibility of a first time eco-Revlon product, but would also help put a lesserknown eco-makeup company on the map. It would be a mutually beneficial partnership, lending a serious eco-sensitive aspect to giant Revlon, while promoting a smaller cosmetics company’s operation. The third and final option is one that can only be instituted following a major change on Revlon’s part. If the company successfully creates an eco line of cosmetics, it will have the credibility to partner with lobbyists, such as the Campaign for Safe Cosmetics, Teens Turning Green, and the Environmental Working Group. Revlon and its partners could then advocate regulatory-based closure of companies that refuse to reform their dangerous products. These lobbyists have already begun the process. For example, on May 10th, 2011, I received an email update from the EWG which discussed its Safe Cosmetics Petition. The petition requests that the government formally and finally regulate the ingredients in makeup and body items. A genuine effort to jump on the ecofriendly bandwagon can greatly benefit Revlon. It can make the company an attractive partner for lobbyists like the EWG, while shining a negative light on those companies not making changes. Another win-win for Revlon. To summarize, I suggest that Revlon create an eco line of cosmetic products, in addition to reformulating its regular lipstick lines. I believe that this change would benefit Revlon’s bottom line and status as a health-conscious company. Using the above noted strategies to facilitate these changes, I think that Revlon is in an ideal position to meet the challenge of reforming its products to create a safer and healthier world for consumers. To reiterate, “If you’re not part of the solution, you’re part of the problem.” Revlon has the potential to be an essential part of the solution and make significant inroads in the eco market. The company’s development of its lead-free lipstick line already shows that Revlon has the moral commitment to achieve this lofty goal. ¥
Diana is a junior at NYU Stern majoring in accounting and management. She is Treasurer of Undergraduate Stern Women in Business.
1 “Revlon Super Lustrous Frost Lipstick, Toast of New York
(2006 Formulation) || Skin Deep Cosmetics Database | Environmental Working Group.” EWG Home | Environmental Working Group, Aug 2007. Web. 13 May 2011. <http://www. ewg.org/skindeep/product/848/Revlon_Super_Lustrous_ Frost_Lipstick_Toast_of_New_York_(2006_formulation)>. 2 “Revlon Moon Drops Frost Moisture Frost Lipstick, Poppysilk Red (2006 Formulation) || Skin Deep Cosmetics Database | Environmental Working Group.” EWG Home | Environmental Working Group, Aug 2007. Web. 13 May 2011. <http://www. ewg.org/skindeep/product/23816/Revlon_Moon_Drops_ Frost_Moisture_Frost_Lipstick,_Poppysilk_Red_(2006_ formulation)>. 3 “Revlon Moon Drops Lip Conditioner, SPF 6 || Skin Deep Cosmetics Database | Environmental Working Group.” EWG Home | Environmental Working Group, Oct 2009. Web. 13 May 2011. <http://www.ewg.org/skindeep/product/230890/ Revlon_Moon_Drops_Lip_Conditioner,_SPF_6>. 4 “Substance Profiles: Butylated Hydroxyanisole CAS No. 2501316-5. National Institute of Health.” 1991–present, Web. 13 May 2011. <http://ntp.niehs.nih.gov/ntp/roc/eleventh/profiles/ s027bha.pdf>. 5 “Database of Select Committee on GRAS Substances (SCOGS) Reviews: Butylated Hydoxyanisole (BHA). Food and Drug Administration.” Oct 2006. Web. 13 May 2011 <http:// www.accessdata.fda.gov/scripts/fcn/fcnDetailNavigation. cfm?rpt=scogsListing&id=40>. 6 Ibid. 7 “Fragrance || Skin Deep Cosmetics Database | Environmental Working Group.” EWG Home | Environmental Working Group, Apr 2011. Web. 13 May 2011. <http://www.ewg.org/skindeep/ ingredient/702512/FRAGRANCE>. 8 “Fragrance Allergy in Consumers – A Review of the Problem. The Scientific Committee on Cosmetic Products and NonFood Products Intended for Consumers.” Dec 1999. Web. 13 May 2011. <http://ec.europa.eu/health/ph_risk/committees/ sccp/documents/out98_en.pdf>. 9 Ibid. 10 “Green Ideas.” The CDF Corporation, 2008. Web. 14 May 2011. <http://www.cdf1.com/white%20papers/white_paper_ Cosmetic_Sustainability.pdf>. 11 Ibid. 12 “Green Ideas.” 13 “The All-Natural Makeup Revolution.” ABC News, 11 Aug 2011. Web. 11 Jan 2013. <http://abcnews.go.com/GMA/video/ organic-natural-cosmetic-sales-off-14203746>. 14 Younger, Jeffrey. Business and Its Publics Discourse Professor. Personal quote. New York, New York. 2011. 15 Schuyler, Shannon. Business and Its Publics Plenary Speaker, New York, New York, Jan 2011. 16 “The Campaign for Safe Cosmetics. A Poison Kiss: The Problem of Lead in Lipstick.” Oct 2007. Web. 13 May 2011. <http://www. boston.com/news/daily/11/poison_kiss_final1.pdf>. 17 “The Daily Green’s 11 Lead Free Lipsticks for Safer Kisses.” Dec 2007. Web. 13 May 2011. <http://www.thedailygreen.com/ environmental-news/latest/lead-free-lipsticks-470402>.
THE CALL FOR CORPORATE ACTION
for Real Water Whitewashing usually carries a negative connotation, but maybe not when it comes to global warming. Author Cesar Miranda suggests that painting a reflective camouflage on the barren mountaintops of Peru may bring snow back to those peaks, restoring a vital source of water for the nation’s people and economy. While the concept may seem far-fetched, the real challenge is manpower rather than science. Fortunately, like Tom Sawyer trying to get a fence painted, Miranda identifies one company with not only the resources to help, but a thirst for both the water and better reputation needed to keep its business healthy.
THE CALL FOR CORPORATE ACTION
halón Sombrero, Ayacucho, Peru. About 15,600 feet above sea level. A barren mountain with dark-colored rocks covering its surface. However, on one side, from a distance, one can see a white colored layer. It looks like the remnants of the once beautiful snow cap. But it is not snow. This layer is whitewash, arduously painted on the rocks by Peruvian inventor Eduardo Gold and four local helpers. But what are they doing? If this entire effort was put into place merely to improve the mountain’s appearance, anyone would consider these men insane. However, this is not their aim. They intend to bring snow back to the Andes Mountains, one bucketful of whitewash at a time. Noble as that may sound, the stakes are too grave to sit back and watch the paint dry. The Peruvian people and their
economy rely on Andean glaciers for water. Those five pairs of hands need help— a perfect opportunity for the Peruvian mining operation of Xstrata PLC to pitch in, protecting the viability of its business while aiding the people who make its profits possible.
Global Warming and the Andes
Global climate change has affected the Andes greatly, with warmer temperatures melting the ice and snow on the mountaintops—frozen reservoirs that have long served as water for millions of South Americans. Glacier surface in Peru alone has shrunk 22% in the past 30 years and threatens to diminish even further.1 Greenhouse gases, produced primarily in the Northern Hemisphere by coal-fired power plants, steel mills and other factories, have collaborated in this massive deterioration of mountain snow tops.
Snow Essay by CESAR MIRANDA
The snow’s disappearance poses grave consequences. Almost all water reservoirs in Peru come from rivers and lakes that originate from glaciers and about threequarters of the nation’s electricity comes from hydroelectric generators that rely upon the same source.2 With this reduction in snow, the country risks losing the immense ice reservoirs it relies upon during dry spells. Water shortages may undermine the national food supply, killing pastures needed for grazing by alpaca and other livestock. As a result, agricultural activity may become more expensive.3 This crisis poses a threat to the stability and growth of the Peruvian economy.
Xstrata-Tintaya and Water in the Andes
Xstrata PLC, a Swiss mining company operating the Tintaya copper mine in Peru, knows that water plays a critical role for both business and society. Like
other mining companies in Peru, Xstrata has been criticized for polluting water sources, as well as degrading the fragile ecosystem of the highlands.4 Additionally, non-government organizations (NGOs) and local political parties accuse it of diverting fresh water from public consumption for use in mining. Although it recycles about 80% of the water it uses,5 Xstrata’s public image has already been damaged. In fact, earlier this year, protesters led by the mayor of Espinar province, where the mine is located, held a series of violent demonstrations against the company. They argued that Xstrata should give 30% of its pre-tax profits to the community instead of the current 3% to compensate for severe water pollution.6 Combine this issue with an ongoing investigation into a recent mining disaster and it is easy to see that the company’s public image has been severely damaged.
Alongside this public outcry affecting its reputation, Xstrata-Tintaya faces a looming water crisis. As part of the copper extraction process, it requires about 200 million cubic feet of fresh water per year,7 almost 14 times the entire water production of the small South Pacific nation of Nauru.8 Depletion of the remaining frozen Andean reservoirs threatens the company’s ability to operate. If water stops flowing to the mine, Tintaya will need to close down. Xstrata-Tintaya has both an opportunity and a need to prove its commitment to sustainability, protecting the nation’s future water supply. It also needs to convince its shareholders that mining operations will not be shut down and that the company will remain profitable. This problem illustrates what Harvard University Professor Michael Porter and corporate executive Mark Kramer call the “social dimensions of competitive context,”9
THE CALL FOR CORPORATE ACTION
where an external issue threatens underlying drivers of competitiveness. Global warming, although external, significantly impacts Xstrata’s operating environment, as water scarcity and social unrest may hinder its ability to compete. Maybe Mr. Eduardo Gold’s ideas could help Xstrata fulfill its objectives.
Creating “Fake Snow”
Eduardo Gold, a self-proclaimed inventor with no formal education in glaciology, has used empirical knowledge and physics to show that white surfaces tend to retain less heat than dark ones.10 Today, since snow has receded on many of the mountains, all that remains visible is a dark, rocky surface. According to Mr. Gold, this newly-revealed color creates a warmer microclimate that prevents snow accumulation on the peaks. A white surface— such as the original snow caps and, in this case, white paint— reflects sunlight back into the atmosphere, leaving the mountain tops cooler. Boosting the “albedo,” a measure of the peak’s light reflection capability, to past levels would at least partly offset the temperature increase from global warming. Therefore, dyeing the mountain tops with whitewash will decrease the temperatures on the rocky surface, allowing snow to accumulate rather than melt.11,12 Gold decided to use a pre-Columbian, environmentally-friendly formula to create white paint consisting of lime and egg whites, mixed with water. When comparing two rocks from the same source in Chalón Sombrero, one whitewashed and one in its natural state, Gold was able to prove his point. The white rock’s temperature was at least 30 degrees Fahrenheit colder than the untreated one.13 Embracing this same principle, U.S. Secretary of Energy Steven Chu began a campaign in 2009 to encourage Americans to paint their roofs white to help counteract the global warming cycle. By cutting back on heat absorption, homeowners might use less electricity for air conditioning, reducing fossil fuel consumption
THE CALL FOR CORPORATE ACTION
and the resulting greenhouse gas pollution.14 Chu based his initiative on a study by the Lawrence Berkeley National Laboratory finding that, “increasing the solar reflectance of urban surfaces reduces their solar heat gain, [and] lowers their temperatures.” This could, in the end, reduce carbon dioxide emissions by billions of tons,15 helping fight the bigger problem behind melting glaciers: global warming. The whitewash by Gold and his helpers is already visible in the village nearby, but still doesn’t cover the entire mountain top. Gold has had to overcome limitations such as lack of resources and personnel, as well as the tough climate at high altitude. In 2009, however, the World Bank awarded his concept, along with 26 others worldwide, a $200,000 grant as a part of its “100 Ideas to Save the Planet” competition. 16,17 With the backing of such an important organization, Gold has gained more credibility, with more people joining him in his effort to bring the Andes back to their former color.
Pairing Gold with Xstrata
Four people simply cannot paint such an enormous surface by themselves. However, a huge business such as XstrataTintaya, with over 1,000 employees, has many helping hands to offer. About 30% of these workers are hired from local communities.18 Since these workers have directly witnessed deglaciation, they’ll likely understand the urgency of bringing snow back to the mountains. This intrinsic motivation could be complemented with economic incentives, such as additional pay for their time or extra benefits like education, health care, and vacation days. Additionally, the mining corporation could fund Gold’s non-government organization, Glaciares Perú, allowing him to hire more workers from villages surrounding other extinct glaciers, expanding the scope of the initiative. Regardless, Enrique Velarde, the CEO of Xstrata-Tintaya, will have to address certain issues before the company decides to support this initiative. This
unconventional idea has not been tested on a broad scale and poses many logistical problems. Many people, for example, think that Gold’s idea borders on lunacy. The former Environment Minister of Peru, Antonio Brack, calls the project a waste of time and resources. His argument, and that of some scientists, governments and environmental groups, says that efforts need to focus on reducing carbon emissions rather than minor, reactive measures like Gold’s initiative. They claim that the effects of whitewashing a mountain will remain localized, with no “domino effect” on the surrounding area.19 Gold, however, claims that covering the mountains with snow once again will gradually affect regional temperature. He uses the same principle that proponents of “cool roofs” in the United States use, which is that reflective surfaces also reduce temperatures in urban “heat islands.” Therefore, a reduction in the temperature of the mountain will reduce overall temperature in the area. Painting the entire Andes Mountains may not be needed. Gold says that, as the first whitewashed mountains recover their snowcaps, others will follow suit. And whether or not the former environmental minister disagrees with the project, the government still granted Gold the authorization to proceed with the whitewashing. Despite public incredulity surrounding the inventor’s idea, it has produced some early success. The whitewashing process began in March 2010, on a barren peak in southern Peru. A year later, in March 2011, that same peak, painted with the traditional mix of lime and egg whites, was covered in snow. The entirety of the snow was located around this peak, and Chalón Sombrero became white once again.20
The darkening color of the Andes Mountains spells trouble. The problem of reduction in water reservoirs for future generations deserves to be addressed, and Eduardo Gold intends to do just that.
Gold’s goal happens to match Xstrata’s needs. For it to remain a profitable company, not only must Xstrata try to improve its relationship with local communities, but it must also ensure that it will have enough water to continue extracting minerals. While the proposal to whitewash a mountain might cause detractors to raise their eyebrows in disbelief, it has proven to have a tangible effect on glaciers. Since the company’s success also depends on the country’s economic stability, the recovery of water reservoirs required by the nation’s people and businesses is crucial. Shareholders must understand that this company-funded approach involves more than philanthropy or good will. It seeks to tackle a problem that affects investors directly. As Eduardo Gold’s efforts are transformed into a large-scale project, citizens all over the country will be ensured the essential resources they need to live and prosper. Children will not need to learn from storybooks about the days when the Andes Mountains were white. Once “fake snow” turns into real snow, they will be able to see it themselves. ¥
Cesar is a sophomore majoring in business and political economy. He is currently studying in London and will study in Shanghai in Fall 2013 as part of the BPE program.
1 Ministry of Environment of Peru. “Adaptation in the Tropical Andes.” 8 Jun 2010.
<http://www.unep.org/climatechange/adaptation/Portals/133/documents/ AdaptationKnowledgeDay_EDurand.pdf>. 2 Ministry of Energy and Mining of Peru. “Anuario Estadístico de Electricidad 2009.” 2009. <http://www.minem.gob.pe/archivos/estadistica-estadistica-Anuario_Estad_2009z386plz5zh8.pdf>. 3 United Nations. World Economic and Social Survey 2009: Promoting Development, Saving the Planet. New York: United Nations Publishing Section. 2009. 4 N. Mapstone. “Mining: Copper production set to rival Chile.” 21 Sep 2010. <http://www. ft.com/intl/cms/s/0/c16b1e82-c513-11df-b785-00144feab49a.html#axzz1u859QbbS>. 5 H. Virrueta Medina. “Manejo y Reutilizacion de Agua en Tintaya.” 22 Sep 2006. <http:// www.labor.org.pe/webermisa/1foro_docs/Hugo%20Virrueta-Manejo%20y%20 reutilizacion%20de%20agua%20en%20Tintaya.PDF>. 6 Aquino, Marco. “Xstrata committed to Peru despite protest.” 28 May 2012. Reuters. <http://www.reuters.com/article/2012/05/28/us-xstrata-peruidUSBRE84R0NT20120528>. 7 Xstrata Copper – División Sur del Perú. “Informe de Sostenibilidad 2010.” Xstrata Copper, 2010. <http://www.xstrata.com/content/assets/pdf/xcu_sustainability_2010_ surdelperu.sp.pdf>. 8 Engineering and Consulting Firms Association, Japan. “Project Formation Study on Nauru Water Supply Improvement Project, Republic of Nauru.” UNICO International Corporation, Japan, 2010. 9 Porter, Michael E., and Mark R. Kramer. “Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility.” Boston, MA: Harvard Business School, 2007. Print. 10 W. Ilizarbe, Director, Cumbres de Cal. Peru. 2012. Film. 11 Ibid. 12 D. Collyns. “Can painting a mountain restore a glacier?” 17 Jun 2010. < http://www.bbc. co.uk/news/10333304>. 13 W. Ilizarbe, Director, Cumbres de Cal. Peru. 2012. Film Trailer. <http://www.youtube. com/watch?v=hx12frp9Mns>. 14 K. Johnson, “Steven Chu: White Roofs to Fight Global Warming.” 27 May 2009. <http:// blogs.wsj.com/environmentalcapital/2009/05/27/steven-chu-white-roofs-to-fightglobal-warming>. 15 Lawrence Berkeley National Laboratory. “White Roofs Cool the World, Directly Offset CO2 and Delay Global Warming.” 10 Nov 2008. <http://www.energy. ca.gov/2008publications/CEC-999-2008-031/CEC-999-2008-031.PDF>. 16 Lvovsky, Kseniya, “Development Marketplace: 100 Ideas to Save the Planet,” 13 Nov 2009. Worldbank. <http://blogs.worldbank.org/climatechange/developmentmarketplace-100-ideas-save-planet>. 17 “Artisanal High Andean Global Warming Adaptation Methodology and Industry: Increasing Superficial Albedo.” 2012 The World Bank Group. Worldbank: Developmental Marketplace. Accessed 17 Jan 2013. <http://wbi.worldbank.org/ developmentmarketplace/idea/artisanal-high-andean-global-warming-adaptationmethodology-and-industry-increasing-superficial>. 18 Xstrata Copper – División Sur del Perú, “Informe de Sostenibilidad 2010.” Xstrata Copper, 2010. <http://www.xstrata.com/content/assets/pdf/xcu_sustainability_2010_ surdelperu.sp.pdf>. 19 D. Collyns. “Can painting a mountain restore a glacier?” 17 Jun 2010. <http://www.bbc. co.uk/news/10333304>. 20 Glaciares-Perú, Director. Trabajando por los Glaciares Tropicales. Film.
THE CALL FOR CORPORATE ACTION
Author William Sacks initially investigates problems of thermal pollution but moves quickly toward offering a new business model for power plants. William suggests that large power plants consider building smaller cogeneration facilities similar to the one recently established at NYU. These plants run far more efficiently by utilizing the heat normally treated as a byproduct. His solution here represents a monumental shift and a thought-provoking challenge.
COGENERATION: Reducing Thermal Pollution while Increasing Efficiency Essay by William Sacks
THE CALL FOR CORPORATE ACTION
he Vermont Yankee Nuclear Power Plant currently withdraws 543 million gallons of water per day for cooling purposes, only to discharge it at temperatures higher than the surrounding Connecticut River. 1 This process threatens the biodiversity of neighboring ecosystems. Further, it has drawn attention and spurred litigation against Entergy Corporation, the parent company of Vermont Yankee. The company has been attacked for its continued practice of thermal pollution, despite the availability of an ecofriendly closed system which cycles water through the plant’s cooling towers. Angered, citizens and environmental groups continue to push regulators for tighter restrictions that would cost Entergy millions of dollars per year to implement. It is in Entergy’s best interest to consider all stakeholders and incur the short-run costs of using a closed-cooling system to create a more sustainable future. However, Entergy should not just implement an improved method for the disposal of thermal waste. As it considers constructing new power generation sites, Entergy should strive to reduce, if not eliminate, the existence of such waste in the first place. To accomplish this goal, the company should move away from developing large, centralized power plants. It should begin to build smaller, decentralized cogeneration facilities that reuse excess heat from the production process to provide heating, cooling, and hot water to customers. In so doing, Entergy would create shared value by reducing its environmental footprint and shrinking costs through dramatically increased efficiency.
Referred to as a “once-through” system, the standard open cooling method employed by power plants inherently threatens aquatic ecosystems via both its intake and outflow system. Highpowered suction “inhales” millions of gallons of water per day and leaves many species defenseless. Fish lay trapped in intake screens, and microscopic organisms perish while cycling through the plant.2 In 2010, the Pickering nuclear power plant in Toronto was charged with killing “one million fish and 62 million fish eggs and larvae each year” in the coolant intake process.3 Then, after the water has cycled through the plant (but not through the cooling towers), it is discharged at temperatures higher than ambient. In the case of Vermont Yankee, the water outflow reaches temperatures as high as 105˚ F.4 Dubbed “thermal pollution,” this rise in water temperature threatens the viability of species of all sizes by reducing the presence of dissolved oxygen.5 It increases respiration rates and also draws fish away from seasonal migration paths to new warmer locations. As a result of any sudden plant shutdowns, these relocated fish will likely die from cold shock.6 The continued use of once-through cooling systems, the standard in the electrical utility industry, continues to wipe out local fish populations. Entergy Corporation needs to reevaluate its use of a oncethrough system. The company incurs financial penalties and still its cooling systems continue to harm fish populations. For the past few years, Entergy has been entangled in a costly legal battle to renew its permit, allowing it to discharge thermal effluent. The Connecticut River Watershed Council (CRWC) has filed petitions against the existing permit that allows “Vermont Yankee to bypass its cooling towers and discharge super-heated water to the river.”7 This initiative reveals the adversarial relationship between Entergy and environmental groups that may someday result in the shutdown of Vermont Yankee. This outcome would result in a massive write-off on Entergy’s balance sheet and astronomical costs for the company. The risk of shutdown alone justifies management’s need to employ a less harmful method—one that is readily available and only marginally more expensive to implement. Entergy must cease using a once-through system because of the immense damage it inflicts upon stakeholders and ultimately on the company itself. As Freeman argues in “Managing for Stakeholders,” to stay competitive, corporations must consider the interests of all stakeholders beyond solely maximizing profits for shareholders.8 In the vicinity of Vermont Yankee, American Shad are absent where the fish once thrived twenty years ago.9 Therefore, professional fishermen must relocate or lose their livelihoods should their source of income vanish. Other stakeholders include locals who stand to lose a favorite recreational activity. Yet these effects will not be borne solely by locals and fishermen, especially if Entergy continues along its current trajectory. Less biodiversity in an ecosystem leads to the same situation in surrounding ecosystems. By extension, an increasing number of
THE CALL FOR CORPORATE ACTION
people may be deprived of healthy vegetation, clean air, and the aesthetic pleasure that the outdoors provide. Paul Hawken would argue that these are devastating costs that financial metrics fail to detect and measure.10 Further, in a dire situation, power companies like Entergy must live with the consequences just like everyone else. Entergy’s management must begin listening to the interests of stakeholders and utilize a “closed-cycle” system at all times. This would require a simple executive decision. Yes, cycling water through cooling towers is more expensive and thus less economical than using a once-through system.11 However, if using the standard system does in fact lead to deleterious environmental results, applying conventional economic wisdom would “become the equivalent of [using] house rules on a sinking cruise ship.”12 As Hawken advocates in “Natural Capitalism,” it is imperative that management begin to consider “physics, biology, and common sense,” and not just supply and demand.13 The company must replace its traditional cost-benefit analysis with one that includes the long-term financial, environmental, and ethical consequences of its actions for all stakeholders. By broadening its perspective, Entergy would ultimately recognize, as Porter and Kramer argue, that business and society are interdependent and not at odds with each other. It is therefore strategic for Entergy to stop resisting the allowances of its water discharge permit and begin proactively using its cooling towers to reduce its “negative value-chain social impacts.”14 Entergy should transition to a model of “Strategic CSR,” in which a company “transform[s] value-chain activities to benefit society while reinforcing strategy.”15 The root cause of thermal pollution is the remarkably low efficiency at which power plants produce electricity. Typical fossil fuel and nuclear plants operate at only 35% efficiency, while the remaining 65% of generated energy is released into the environment as heat.16 Entergy should recognize this reality as a “suboptimal equilibrium, [and] see embedded in it an opportunity to provide a new solution.”17 Entergy can dramatically increase efficiency through a process known as “cogeneration” or “combined heat and power.”18 This process recycles heat from the electricity production process to generate heat, air conditioning, and hot water for customers. To begin increasing efficiency levels, Entergy must replace its existing power plants with smaller, decentralized ones that employ cogeneration. Centralized power plants, including Vermont Yankee, are often located far from population centers. It is therefore impractical, if not impossible, to find sufficient demand within the immediate vicinity of the plant to consume excess heat.19 NYU’s CoGen system shows how generating power onsite can solve this problem. With the ability to reuse a large portion of excess heat instead of releasing it into the environment, CoGen generates electricity at an astounding 90% efficiency.20 And if we consider other generation sites performing with similarly high levels of efficiency, it becomes clear that the economies of scale
THE CALL FOR CORPORATE ACTION
that once justified centralized electricity production are no longer adequate.21 Entergy should take the lead in redesigning the way electrical power is generated and distributed in the United States. To capture value from such an opportunity, Entergy must begin by partnering with the stakeholders it currently threatens. It can do so by joining the EPA’s Combined Heat and Power Partnership (CHP), which links state and local governments, end users, related industries, and utilities, “to facilitate the development of new projects and to promote their environmental and economic benefits.”22 By joining this partnership, Entergy would gain access to a network that would support its entrance into the cogeneration market. The partners would work with Entergy to determine where the company may be most needed and to perform the costbenefit analysis that determines the viability of each cogeneration project. Most importantly, joining this partnership would help reverse Entergy’s unsustainable, adversarial relationship with its stakeholders. If Entergy embarks on this course of action, it will benefit society far beyond any of its current CSR initiatives. The ability to make more efficient use of fuel while avoiding the discharge of thermal effluent into local bodies of water will mean that the company is no longer a participant in Garrett Hardin’s “Tragedy of the Commons.”23 Not only will it find a way to stop damaging water ecosystems, but as an industry leader it may inspire other power companies to do the same. It will build a prototype that not only reduces its environmental impact, but simultaneously increases profits. As Robert F. Kennedy Jr. emphasized, an alternative energy revolution would be no different than the recent tech boom or the invention of the steam engine. It would spur an onslaught of innovation and creativity, and create jobs across all economic strata.24 Thus, Entergy could help spur an overhaul of the electrical grid and demonstrate that economics and environment work more in unison than in opposition. Milton Friedman argues for stockholder theory over stakeholder theory.25 But even if management should be primarily concerned with expanding profits, cogeneration through the model of redistributed energy makes good business sense. Increasing efficiency through the utilization of waste heat would provide new revenue streams from new customers, or at the very least, decrease costs when used onsite. Additionally, the company would significantly reduce the liability it carries as a result of possible legal and financial action. Finally, by constructing cogeneration facilities and participating in the EPA’s CHP Partnership, Entergy will receive a host of tax benefits on the state and federal level.26 Constructing conventional power plants results in government taxes, restrictions and penalties, and resistance from numerous stakeholders. And at the end of the day, stakeholders provide the company with its “license to operate.”27 The benefits of cogeneration can permanently shift the dynamic between Entergy and its stakeholders, from one of conflict to one of cooperation.
It may seem daunting, risky, and perhaps unwise for a profitable company such as Entergy Corporation to change its entire business model for the sake of environmental concerns. However, the adverse environmental effects of existing operations will only increase with time—as will resistance from key stakeholders. Because thermal pollution puts Entergy’s “license to operate” in jeopardy, the company should follow the emerging CSR trend of striving to increase the “triple bottom line” of people, planet and profit. As NYU Stern’s Professor Wiesenfeld explains, companies must measure their success or failure not just through profit or loss, but also by reviewing the social and environmental consequences of their actions.28 If Entergy can successfully break into the market of Combined Heat and Power, it will have found a way to not only decrease its ecological footprint but also to create value across its triple bottom line. ¥
1 Peters, Olga. “ANR to Review Vermont Yankee’s Water Discharge
Permit.” The Commons [Windham County, VT] 30 Mar 2011. The Commons Online. Web. 1 May 2012. <http://www.commonsnews. org/site/site05/story.php?articleno=3237&page=1>. 2 Laws, Edward A. Aquatic Pollution: An Introductory Text. New York: John Wiley & Sons, 2000. 335–359. Print. 3 Vynhak, Carola. “Pickering Nuclear Plant Ordered to Quit Killing Fish.” TheStar.com. The Toronto Star, 6 Jul 2010. Web. 30 Mar 2012. <http://www.thestar.com/news/article/832748--pickering-nuclearplant-ordered-to-quit-killing-fish>. 4 Peters. 5 Kennisch, Michael J. “Effects of Electric Generating Stations.” Ecology of Estuaries: Anthropogenic Effects. Boca Raton: CRC, 1992. 400–436. Print. 6 Laws. 7 “Vermont Yankee.” Environmental and Natural Resources Law Clinic. Vermont Law School. Web. 2 May 2012. <http://www. vermontlaw.edu/Academics/Clinics_and_Experiential_Programs/ Environmental_and_Natural_Resources_Law_Clinic/Cases/ Vermont_Yankee.html>. 8 Freeman, Edward R. “Managing for Stakeholders.” Business & Its Publics. New York: McGraw-Hill Learning Solutions, 2011. 23–37. Print. 9 Peters. 10 Hawken, Paul. “Natural Capitalism.” Business & Its Publics. New York: McGraw-Hill Learning Solutions, 2011. 155–165. Print. 11 Laws. 12 Hawken. 13 Ibid. 14 Porter, Michael E., and Mark R. Kramer. “Strategy & Society.” Business & Its Publics. New York: McGraw-Hill Learning Solutions, 2011. 125–140. Print. 15 Ibid.
William is a sophomore at NYU Stern majoring in finance and mathematics. He is currently studying in Shanghai.
16 “Energy Technology Fact Sheet.” United Nations Environment
Programme. The United Nations. Web. 2 May 2012. <http://www.unep.fr/energy/information/publications/factsheets/ pdf/cogeneration.pdf>. 17 Martin, Roger L., and Sally Osberg. “Social Entrepreneurship: The Case for Definition.” Business & Its Publics. New York: McGraw-Hill Learning Solutions, 2011. 141–154. Print. 18 “Combined Heat and Power Partnership.” US EPA. Environmental Protection Agency. Web. 2 May 2012. <http://www.epa.gov/chp/ basic/economics.html>. 19 Laws. 20 “NYU Switches on CoGen Plant and Powers Up for the Sustainable Future.” NYU.edu. New York University, 21 Jan 2011. Web. 26 Apr 2012. <http://www.nyu.edu/about/news-publications/ news/2011/01/21/nyu-switches-on-green-cogen-plant-and-powersup-for-the-sustainable-future.html>. 21 Takahashi, Kenji. “Policy Options to Support Distributed Resources.” Center for Energy and Environmental Policy. University of Delaware, 2005. Web. 18 Apr 2012. <http://www.ceep.udel.edu/ publications/energysustainability/2005_es_policy_options_ distributed%20resources%5B1%5D.pdf>. 22 “Combined Heat and Power Partnership.” 23 Hardin, Garrett. “The Tragedy of the Commons.” Business & Its Publics. New York: McGraw-Hill Learning Solutions, 2011. 71–80. Print. 24 Kennedy, Robert F., Jr. “Environmental Sustainability and Entrepreneurship.” Business and Its Publics Plenary. NYU Stern, New York. 16 Apr 2012. Lecture. 25 Friedman, Milton. “The Social Responsibility of Business Is to Increase Its Profits.” Business & Its Publics. New York: McGraw-Hill Learning Solutions, 2011. 1–6. Print. 26 “Combined Heat and Power Partnership.” 27 Freeman. 28 Wiesenfeld, Batia. “Environmental Sustainability and Entrepreneurship.” Business and Its Publics Plenary. NYU Stern, New York. 16 Apr 2012. Lecture.
THE CALL FOR CORPORATE ACTION
As the price of solar panels drops and their efficiency improves, author Rasheeq Haq sees potential in the sun‑baked area of Bangladesh. Decidedly impoverished, the region may offer a unique market opportunity for General Electric and Grameen Bank. While perhaps an unlikely pairing ten years ago, economic factors have aligned favorably for corporations to unite to promote social and financial advancement.
life without a computer can be hard. A life without a mobile phone can be harder. Yet, a life without a single light bulb in the house is probably the hardest. For the villagers of Brammonchak, Bangladesh, this is what life has been like for the last century. They have had only kerosene lamps to light the dark, unheated water to bathe in, and remote telecommunication kiosks where they can make phone calls. With the nearest city miles away, Brammonchak and similar villages are cut off from the national power grid. These villages constitute nearly 50% of Bangladesh’s population, representing a staggering 74 million people who have no access to electricity. Even with the help of the United Nations Development Project (UNDP), the International Energy Association (IEA), and the World Bank, the Bangladesh government is facing difficulty delivering energy to its citizens. The country might find a practical solution to its problems in the recent advancements in solar energy and microfinancing. With some help from General Electric and Grameen Bank, Bangladesh might be able to lift the dark that plagues its rural nightscape.
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Current Energy Situation
Generating Light for Rural Bangladesh
In today’s emerging economies of Southeast Asia, Bangladesh is often overlooked when discussing the potential regions for rural development. Unlike its neighbor India, Bangladesh lacks the resources and infrastructure to sustain current energy output. With a rural population density of 1,335.32 people/km2 of arable land, it has many scattered, isolated, and densely populated villages.1 These rural areas are located far from the grid’s major power plants. Proximity is not the only problem. Bangladesh’s capital, Dhaka, is run by two nearby power plants that are facing major energy shortages. Dhaka has a daily shortfall of 2,000 megawatts of power, which is half of the country’s average daily production.2 Since existing energy output can barely service inner cities, adding to the electric grid would be both costly and ineffective. In India, the problem with energy poverty lies in creating an effective distribution for grid resources. Much of the energy output exists in India—it just has to be channeled to the right places. The problem with Bangladesh is that there isn’t enough energy to distribute in the first place. And even if there were available energy, there would be no way to distribute it to rural areas.
A Push for Solar
Currently, 90% of the rural population is utilizing biomass in order to create energy.3 This use of burnable fuel is leading to a degradation of resources, with wood now becoming a hot commodity in many rural markets. In conjunction with depleting natural gas reserves and increasing petroleum and oil imports, the Bangladesh government appealed to the World Bank in 2001 for renewable energy funding. In 2002, the World Bank created a program called “Rural Electrification and Renewable Energy Development,” and gave the Bangladesh government a 191 million dollar grant in order to meet its energy goals for 2020.4
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Most of the renewable energy programs that have evolved from that grant involve the use of solar energy. Bangladesh is situated between the equator and the Tropic of Cancer. This is an ideal location for solar energy utilization. Average daily solar radiation varies from 4 to 6.5 kWh per square meter—enough to power a television, household lights, fans, and cell phone chargers for a night.5 Though a maximum amount of sunshine is available in the months of March and April, the monsoon season poses a problem. This period of the year, from mid-July to late August, is usually marked with torrential rains and limited access to sunlight. Potential solutions to the problem have emerged with the advent of efficient solar battery banks. These battery banks would serve as a back-up generator during the months of monsoons. Even if these batteries cannot adequately store energy for the entirety of the brief season, other renewable energy sources, such as biomass, can offset the power shortage.
A History of Corruption
Bangladesh has tremendous backing from the UNDP, World Bank, and IEA to fuel its rural development projects. Yet, the country has suffered from a reputation of corruption. Funds that were used in the construction of the Padma Bridge were diverted from the Local Government Development Agency into the hands of political secretaries. Money laundering of this kind developed only recently in Bangladesh. For years, various military leaders have held the top post, acting as interim president of Bangladesh. But since 1991, the governing power was returned to the office of the prime minister.6 Despite the democratic process, the elections of several corrupt officials, mainly under Prime Minister Khaleda Zia, were disputed. The corruption spread to such a degree that Zia’s own son was convicted of diverting World Bank funds from the Rural Electrification project.7 The global media outrage that followed put Bangladesh in no position to ask for more grants and extensions. The World Bank, which had lent the country 191 million dollars back in 2002 for its rural renewable energy program, rejected further aid. With a mere 14% completion rate among infrastructure initiatives for private sector development, Bangladesh failed to extend the national grid to its rural population.8 There may be another solution for Bangladesh to meet its energy goals. Recent changes in the global economy and success from microfinancing may hold the key.
As of 2002, many advances have been made in the areas of renewable energy resources. The IEA and the UNDP have declared 2012 the International Year of Sustainable Energy for All. The two organizations published a detailed report that explained
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how universal energy could be financed for even the poorest of communities. These advances, combined with a huge decrease in costs for renewable energy (particularly solar panels) give Bangladesh a strategic opportunity to institute a new renewable energy program. Grameen Shakti, a pioneer in the promotion of green energy, started out as a lone player in 2005. Today, it is the largest distributor of solar home systems (SHS). These systems consist of solar voltaic cells connected to a basic wiring frame. From the frame, there are outlets for external applications such as televisions, cell phone chargers, and light bulbs. Grameen Shakti has sold over 700,000 of these units out of a total of about 1.1 million in the country. It has contributed about 60 megawatts of solar power to daily energy generation.9 Grameen Shakti sells these Solar Home Systems through microfinancing in villages throughout Bangladesh. Various packages are offered to villagers and they are suited to different income groups. One option offers a solution where “[t]he very poor can own an SHS, paying as low as 10% of the total cost with the rest payable in 36 equal installments.”10 According to Grameen Shakti, the cheapest SHS set costs 124 dollars and is capable of generating about 20 watts of electricity. Many villagers have found this sort of financing affordable. Some say that the monthly installments are more than recompensed by the increased electricity generation.11 Children can now do their schoolwork, farmers can watch television, and merchants can stay open for longer hours. While Grameen is able to lend panels through microcredit, there is still a problem in obtaining and subsidizing them. Many of these solar panels are imported from China. The government subsidizes these costs (to banks like Grameen) in order to make electricity available to the poor. Under the current system, the government must take a loss to reach its energy targets. With funds running low, Grameen and other Bengali banks are being forced to find partnerships with solar energy suppliers. The increased demand has given rise to many domestic suppliers, but there is still enough room for one corporation to take the lead in rural solar energy deployment.
A Case for General Electric
GE has recently been aiming to focus many of its energy efforts in the renewable power sector. It has increased its asset portfolio by 8 billion dollars to include new solar and wind initiatives abroad.12 This interest lies primarily in European countries like Austria. However, GE stated in 2010 that it is looking to increase its portfolio operations in emerging markets.13 The company is looking to expand its operations in Southeast Asia with a particular focus on Bangladesh. Bangladesh is important to GE as business there is growing three or four times faster than in any other part of the world. Due
to a lack of market penetration, GE’s activities have been mainly focused on healthcare initiatives. In Bangladesh, where electrical inefficiency has remained a problem, GE can leverage its corporate power to create shared value impact in rural communities. This will give these regions access to a market that would have otherwise been closed to them. The proposition is to join General Electric’s “Ecomagination” project with Grameen Shakti in order to see real bottom line profits. GE produces some of the industry’s best solar panels, and with sets varying from 78W to 150W, there is a large list of potential buyers in these rural villages. Grameen Shakti could provide the direct financing for these panels, given that General Electric provides a competitive discount rate. Current SHS are sold at an average price of 140 dollars and produce about 25 watts. The sets that GE would provide cost approximately 350 dollars and produce 78 watts.14 The profit margin for these panels are somewhat high, and compared to cheaper Chinese panels on the market, GE may agree to reduce the price. Perhaps GE could provide the panels at close to break-even. This way, individual villagers could buy larger community packages and finance the operation through Grameen. Once market penetration has been achieved—a benchmark of a 50% rural electrification rate—GE can perform follow-up services such as repair and maintenance, and provide electrical goods and appliances in order to counter the loss in profits. Further, GE’s extensive auxiliary services make a partnership with Grameen Shakti beneficial. Not only can GE provide electricity to the poor, but it can also create a huge market stake in Bangladesh.
Creating Lasting Impact
Though Bangladesh has done a lot over the years to eradicate poverty, it still faces issues due to a growing and unsustainable population. Providing energy to people will continue to be a tough challenge in the near future, and with dwindling gas reserves, Bangladesh will soon have to find a solution. If General Electric is able to promote solar energy products in the market, there will be many potential winners—from city dwellers who face rolling blackouts, to villagers who receive electricity for the first time; from corporations that profit from social good, to a government that is alleviated from a distressing private sector role. In “Managing for Stakeholders,” Edward Freeman says, “Capitalism works because we can pursue our purpose with others. When we coalesce around a big idea, or a joint purpose evolves from our day-to-day activities with each other, then great things can happen.”15 Grameen Shakti provides the poor with money while General Electric provides the poor with energy. Their combined ambitions can truly make great things happen. Lighting a way and lighting a hope, two things that General Electric and Grameen Shakti stand for, can be combined to create one light for Bangladesh. ¥
1 “Geography Stats: Bangladesh vs. India.” NationMaster.com.
NationMaster. Web. 10 May 2012. <http://www.nationmaster. com/compare/Bangladesh/India/Geography>. 2 Khan, Kamrul H. “AFP: ‘Living Hell’ in Energy-deprived Dhaka.” Google News. 10 Apr 2010. Web. 10 May 2012. <http://www.google.com/hostednews/afp/article/ ALeqM5hOfm1VrwqSTgk-9CiTQj4-diNy0g>. 3 Barnes, Douglas F. “Energy for Development and Poverty Reduction.” Facing Rural Energy Realities in Bangladesh. 8 Apr 2010. Web. 10 May 2012. <http://www. energyfordevelopment.com/2010/04/bangladesh-ruralenergy.html>. 4 “Bangladesh: Rural Electrification and Renewable Energy.” The World Bank. The World Bank Group, 2012. Web. 10 May 2012. <http://go.worldbank.org/P7ABESISZ0>. 5 Islam, A.K.M. S. “Appropriate Renewable Energy Technology Options for Bangladesh.” 8 Feb 2007. <http://www.lged-rein. org/archive_file/Presentation_country_paper_WREN07_ Australia.pdf>. 6 Country Studies. Country Studies US, 2012. Web. 10 May 2012. <http://www.countrystudies.us>. 7 Dhume, Sadanand. “Bangladesh Watchdog.” Bangladesh Watchdog. 4 May 2010. Web. 10 May 2012. <http:// bangladeshwatchdog.blogspot.com>. 8 Ibid. 9 Haq, Naimul. “Solar Power Lights up Bangladesh.” AlJazeera. 30 Dec 2011. Web. 10 May 2012. <http://www.aljazeera.com/ indepth/features/2011/12/20111230112731633200.html>. 10 Ibid. 11 Ibid. 12 General Electric. “GE Energy Financial Services.” GE Energy Financial Services. Web. 10 May 2012. <http://www. geenergyfinancialservices.com/investment/investfocus_ renew.asp>. 13 “GE Seeks Stronger Foothold in Bangladesh.” The Daily Star. thedailystar.net. Web. 10 May 2012. <http://www.thedailystar. net/newDesign/news-details.php?nid=222714>. 14 “GE Energy – Guide to Purchasing Commercial Solar.” GE Energy – Guide to Purchasing Commercial Solar. Web. 10 May 2012. <http://site.geenergy.com/prod_serv?products/solar/ en/publishing_commercial_solar.htm>. 15 Freeman, R. Edward. “Managing for Stakeholders.” Web. 10 May 2012. <http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=1186402>.
Rasheeq is a sophomore at NYU Stern majoring in finance.
THE CALL FOR CORPORATE ACTION
Melanie Ferreira Senior Editor Natascha Yogachandra Associate Editor David Olmos Graphic Designer Rebecca Zeidman Photographer
Cover photo ©iStockphoto.com/wdstock Back cover photo ©iStockphoto.com/4x6
THE CALL FOR CORPORATE ACTION
Acknowledgements This second edition of ‘The Call’ began shortly after the first issue was published in April 2011. We collected (literally) hundreds of student essays from 2011 and 2012 and I thank all those students for their hard work. All these writers are the ultimate inspiration for this magazine. It is my hope that current and future writers are moved by the high caliber of the prose and the challenging ideas contained here. Specific criteria were followed to select 10 finalists from all the papers received. Winning essays were chosen based on evidence of critical thinking; intriguing recommendations delivered using powerful prose was paramount. We looked for specific “calls for corporate action” that were realistic, creative, passionate—and different. We tried to display a mix of student thinking and a collection of topics that complemented each other. Finally, to demonstrate the complexity of societal connections, we looked for interesting insights into the interrelations between commerce, society and government. This publication was written, assembled and edited by NYU students, most notably by senior editor, Melanie Ferreira, who did most of the heavy lifting, and associate editor Natascha Yogachandra. Also crucial to the process was our talented graphic designer, David Olmos, and our skilled photographer, Rebecca Zeidman. Their work is present on every page and the dramatic results speak for themselves. Thank you to NYU Stern Undergraduate Dean Geeta Menon for her gracious opening letter and to Professor Batia Wiesenfeld for her introduction to the BiP course. Overall, I owe gratitude to the many dedicated instructors who manage the weekly discussions, critical thinking, and critical writing sessions that make up Business and Its Publics: Inquiry and Discourse. Their hard work is evident within these essays. The plenary and inquiry discussion sections are currently overseen by Batia Wiesenfeld. The administration of the class-wide student course is handled ably
by Kristy McCadden and Teaching Fellow Anna Mancusi. NYU Stern’s professional faculty lead the smaller class “inquiry” discussions and thanks are due to all: Aaron Hipscher (may he rest in peace), Arun Sundararajan, Barbara Holt, Batia Wiesenfeld, Bruce Buchanan, Eric Schoenberg, George Smith, Ingo Walter, Jeff Carr, Jen Petersen, Jenny Carpenter, Joe Foudy, Karen Brenner, Ken Bigel, Larry White, Leigh-Anne Walker, Les Levi, Mark Brennan, Matt Statler, Michael Pollack, Paul Wachtel, Rachel Kowal, Rex Mixon, Roy Smith, Richard Sylla, Sam Craig, Sam Preston, Shelly London, Steve Blader, Steve Marlowe, Susan Greenbaum, and Tom Cooley. Discourse instructors lead the critical writing portion of the class and, without their dedication, you would not be reading this publication. Management Communication Chair Irv Schenkler and Professor Robert Lyon formulate much of the discourse curriculum and numerous colleagues put the plans into play. Thank you to the following: Aya Tanaka, Brian Hanssen, Briana Barocas, Bruce Meyerson, Carol Newell, Claudia Caruana, David Purdy, Eileen Gilmartin, Ellen Pluta, Jen Telesca, Josh Stager, Larry Menna, Laura Noren, Leah Hanes, Matt Powers, Paul Melton, Rachel Crumpler, Rachel Somerstein, Rob Wosnitzer, Sam Carter, Solon Barocas, Stacy Rosenberg and Tim Doocey. Finally I would like to thank our own Management Communication Department for their support throughout this project. Thanks to Aline Wolff, David Purdy, Diane Lennard, Irv Schenkler, Patricia Bower, Robert Lyon and Susan Stehlik—and a special thank you to MC Administrator, Todd Amodeo.
Professor Jeffrey J. Younger Clinical Assistant Professor Management Communication Leonard N. Stern School of Business New York University
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ÂŠ2013 NYU Stern School of Business