Business Thought

Influence | Creating the Virtuous Organization

Organizations, by nature, have a great potential to influence. With all the value that resources of human and financial capital bring, along with the power of infrastructure, reach, and influence, they hold a natural position to impact the world around them far beyond their core business. They have the power to shape broad human behavior and to mobilize an individual’s capabilities and time for social good. A virtuous organization thoughtful and persistently organizes all of this power to work with others to build systems that create maximum value. 

Within an organization, individuals have the power to step up as leaders to facilitate change. Any employee can be the catalfyst for creating a virtuous organization. This change can begin at the top level or lower levels of a company, and will follow processes of social cohesion and contagion as the ideas spread throughout the organization. 

In partnership with other organizations, a virtuous organization can transform its industry for maximum social value creation and impact. By setting common goals, working across sectors, and building virtuous systems, a business can play an invaluable role in elevating individual, communities, and society.

Business Thought

Mobilization | Creating the Virtuous Organization

As with many practices of virtuous organizations, the principle of mobilization happens on two levels. First, as businesses are mission driven and strategically aligned, they are inherently mobilizing individuals into positive collective action. All of the virtuous organization’s resources, including human capital, are acting collectively to achieve the organization’s vision and mission. Secondly, the virtuous organization sees itself as an independent social actor that can help mobilize other organizations into collective action as engaged industries – like a band of businesses, moving together for positive social impact that would otherwise not happen. This is the virtuous organization’s power: an exemplar embracing their great responsibility. 

Social problems are very complex. These serious issues require a capacity to deal with the nuances of common problems that shift in different contexts, the savvy to navigate serious resource constraints, the grit to carry out tenacious long-term tracking and impact measurement, and the network to scale best practices. Many have abandoned their efforts in frustration over a perceived lack of progress, even in the midst of undoubtedly important improvements. Working for systemic change, particularly when one is outside a system, can be discouraging if not crushing. Large-scale social change comes from collaboration and coordination. 

Many of the needs listed above are core competencies of businesses – some of their greatest strengths. 

Yet, as businesses compete – to bolster productivity, create broad accessibility, and drop prices – the importance of their own agenda may lead them to pursue individuality to preserve competitive edge. This sense of independence includes becoming too comfortable with social initiatives that have an isolated impact. These well-intentioned organizations may become oblivious to their own power to work with others for unparalleled value creation. Working together doesn’t happen often, because it is rarely attempted. In the frenetic envi-ronment of viewing competitors as organization to be acquired or destroyed, a firm may miss the exp-onential possibilities (within the market and for social good) inherent in mobilizing with other anal-ogous companies or industries for collective impact. 

No single organization, however innovative or resource rich, can accomplish system change alone. There certainly is strength in numbers, but systems thinking also acknowledges that nothing gets better without all parts involved, contributing and improving within the same time as the whole. 

Indeed, virtuous organizations embrace systems thinking, in general. They specifically see themselves as part of the ecosystems of industry, society, the natural world, and specific communities. They work to understand how each of the constituent parts interrelate, how the system works, and how the system fits into the context of other, larger systems. 

For example, a manufacturing company headquartered in a large city may do the following: examine their connection to maintaining the current practices and products in their industry; self evaluate their role driving forward the overconsumption practices in the United States; measure the environmental impacts of their use of plastics on air and water pollution; and decide to address their apparent disconnect from the decreasing education and employment attainment in their city. Virtuous organizations always have a persistent work to do within the dynamic systems they exist in. 

With awareness of their own power and responsibility within systems, and both the desire and position to lead, virtuous organizations begin to mobilize all parts for collective action. 

Mars, Incorporated, the celebrated maker of M&M’s and many other chocolate treats, works with direct competitors and local governments to improve the lives of more than 500,000 impoverished cocoa farmers where Mars sources large portions of its cocoa. Better farming practices can triple plant yield, significantly increasing farmer incomes and improving the sustainability of Mars’s supply chain. 

When companies face an industry challenge common to them all, in this case the need to address poverty among workers in their supply chain, the notion of pre-competitive consortiums can serve as a platform for aligning efforts to solve systemic problems. No chocolate company would gain a competitive advantage by this problem with farmers persisting, or by being alleviated. In fact, all stakeholders (customers, farmers, shareholders) would benefit by the shared problem being solved. By working together, these direct competitors were able to accomplish more for their industry on a larger scale and at a minimized cost. Mars led this effort and to reach farmers in and outside its supply chain. They also worked with the country’s government to provide agricultural training, the World Bank to finance roads, and donors to fund health and education system improvements in the farmer’s communities. 

No doubt, this unified, collaborative approach takes leadership, commitment, and organization. There are plenty of examples, particularly in the social sector, of partnerships and collaboration. 

However, very few of them ascend as effectively to the systems level of involvement as collective impact initiatives. This framework involves organizations coming together in a structured way, to achieve social change. 

This also takes trust. Right from the start, those leading or invited to join collective impact initiatives come together to collectively define the problem and create a shared vision to solve it. Collective impact initiatives have a structured process, a shared agenda, a dedicated team as staff (often called “the backbone organization”), and continuous communication. Developing a common language, team, and measurement system, will build the trust necessary for organizations to do critical, impactful work. 

As virtuous organizations mobilize stakeholder organizations to collaborate on addressing shared problems, they are using their power and position to uniquely deploy a coalition of signature strengths. These organizations do what they excel at, in ways that mutually reinforce (rather than duplicate) the differentiated actions of other organizations, for the benefit of all. Working this way, a virtuous organization create new standards, norms, and motivation for other firms to follow as they change their industry, the market, and even the world – for the better.

Business Thought

Leadership: Exemplar | Creating the Virtuous Organization

Any organization can be or become a virtuous organization, no matter the industry or how old or young, large or small, local or global the organization is. The mom-and-pop ice cream shop, booming tech start-up, and decades-old Fortune 500 company all have the capabilities to build up virtuous practices or become virtuous organizations. Vital to this success is buy-in from the people who run and operate the organization: executives, managers, supervisors, and employees at all levels. 

Organizational change faces many barriers – often human barriers – that occur when leaders or teams fail to engage with the change initiative. This may be because they do not understand the initiative; do not like it; or do not know how to incorporate it with their position or team, let alone sustain it. For organizational change initiatives to be successful, each internal stakeholders must know about the initiative, be motivated by it, and understand how to apply the parts or whole within the context of their own responsibilities. 

Leadership is the right people, in the right places in the organization, getting strategic changes and innovation to stick in the right ways. This involves communication, implementing processes, and trust. 

Typically change initiatives are top-down, beginning with the executive team’s vision for how the organization needs to change. 

The pressure to change may come from shareholders, an upcoming merger or acquisition, the ushering in of a new executive or team looking to differentiate, or the need to res-pond to problems in the organization. Social scientists have found in “fair process theory” that in any effective change, executives must determine a process that empowers the managers to act with integrity and that builds employee trust. Particularly in a knowledge economy, which is dependent on employee ideas and innovation, employees will commit to change if they believe that the process the manager used to reach the decision was fair. 

Decisions, initiatives, and change processes that are not clearly communicated and perceived as fair, no matter how good their intention, can cause frustration, fear, and distrust. On the other hand, transparency, authenticity, clear communication, collaboration across the organization, and providing sufficient resources and support can make top down organizational change initiatives effective and build employee trust. 

While becoming a virtuous organization could occur in a traditional organizational change pattern, it can also happen through social cohesion and social contagion pathways. Social cohesion is the willingness of individuals to then work together toward a common objective – more of a change from the bottom up. Social contagion is when individuals change their behavior based on interactions with others. 

Within an organization, change that starts with interactions among individuals can cohese into collective action of a group that can have a far greater impact than any of the individuals who are part of it. For a virtuous organization, the transition to becoming virtuous may begin with the desire of an individual or group of individuals to collectively lead their company toward being a place that they are ever more proud to work at and for. The process can – but does not need to – begin with the executive team of an organization. 

When implementing organizational changes or cultural shifts, getting everyone in the affected group on the same page from the start can mean the difference between success and failure. Many companies do this by kicking off initiatives with an ask of all employees of a department to read a book. This creation of shared language and concrete examples is foundational to sustainable change, as well as preparing employees to contribute to any initiative. Many are made more comfortable with change by seeing a great deal of data or information: customer surveys, industry analysis, fleshed out strategic planning might be a few of the ways to show where management is coming from. 

After learning about virtuous organizations, an individual employee may start the process of transforming the organization by sharing the principles of virtuous organizations with a group of coworkers with whom they work often or share common concerns. 

Together, they may lay claim to bold aspirations as to how they can use their team’s resources, strengths, and responsibilities to support the company’s mission and vision. They can draw on data to give strength to an idea, identifying barriers and mitigating risks – working the idea until there is consensus and then regular prioritization of the initiative, backed up by the commitment of resources and capabilities. The transformation has begun with the ownership of an individual moving into a team. 

From there, the team may work with other teams or within their department to replicate the experience. This ripple process may begin strategically or organically, with a compelling change story that continues adoption until their entire department has aligned to the organization’s mission and has elevated their practices. These efforts can then spread to other employees and departments who will join the effort to institutionalize culture, practices, and policies that support the mission of the organization to elevate society.Though organization-wide ownership and commitment is shown to be the most critical component for successful change outcomes, executive involvement can hasten change by raising the changes as priori-ties and committing resources, and instituting accountability. 

People care about where they work and what their work accomplishes in the world. Virtuous organizations are started and strengthened by institutional leaders with the vision to use their organizational power to impact the world beyond their profit model, or by the less formal leadership of an employee to start making change where they stand. Becoming a virtuous organization is a continuous and aspirational process requiring time, iterations, and celebrations. Virtuous organizations encourage leadership to find ways to improve not only their product and service, but their alignment to a vision and mission to create greater value. To aid in this process, a virtuous organization creates and supports a climate for employees to initiate and adopt new ideas – indeed, to show leadership – as they actively participate in connecting to the mission, other stakeholders, and society’s deepest needs.

Business Thought

Power: Great Responsibility | Creating the Virtuous Organization

As institutions, businesses of all sizes can derive power from their resources, relationships, reputation, and reach. Institutional power can be organized into three types, each successively more virtuous: 

-power over – Use of coercion to limit choices of others, either to promote self-interest or to push for positive impact in an unvirtuous system. 

-power with – Joint exercise of influence to capacitate greater impact, though sometimes at the expense of some individual values. 

-power to – Empowerment and responsibility to take independent action and lead others in creating a more virtuous system. 

The virtuous use of power by businesses depends on the type of power they are using and the purpose they are using it for. If informed by a deep purpose and oriented to its mission, a business can use its power to have a virtuous impact on its stakeholders, industry, and the world. 

Because power is inherently relational, the specifics of this spectrum of power look different with each stakeholder relationship, including those found in the supply chain, through competition and collaboration, by involvement in politics or public policy, while investing in community well-being, in use of customer data, and through monitoring financial transactions.

However in each of these relationships, a virtuous organization demonstrates an overall systems thinking in which they simultaneously check and use their power for the greater good. Interactions involving use of power with each of these stakeholders have different steps to become more virtuous. Virtuous organizations might use their power in a variety of situations. 

Supply chain. Rather than knowingly permitting their suppliers to treat employees unfairly or use unsustainable practices in their goods creation, virtuous organizations stand out for incentivizing and inspiring (rather than forcing) suppliers to take positive action and for providing hands-on support to them to develop into those capabilities. They choose suppliers who not only meet their desired criteria, but who are also eager to catalyze reform further down the supply chain as well. They work with them to coproduce virtuous products and employ a virtuous means of manufacturing those products. By using “power with” suppliers and setting high expectations and transparent practices, a virtuous organization can springboard into “power to” influence within its industry to create new standards for social good.

Competition. When a business achieves scale and leadership in market share, it develops “power over” other actors in the competitive landscape. Here, a business may inadvertently impede consumer welfare because a consolidated market can lead to reduced service quality, higher prices, decreased innovation, limited consumer choices, lower wages, and/or greater overall societal inequality. So how does a virtuous organization remain competitive in the market while still granting others the freedom to compete as well? One solution is to be consistently fair. Rather than looking for shortcuts to market leadership by taking advantage of or eliminating less powerful actors in the competitive landscape, virtuous organizations strive to differentiate themselves by meeting customers’ needs in a truly innovative way. They grow their business in ways that encourage sustainable industry growth and/or improvement. In this way, the development of industry best practices continues while innovation is simultaneously facilitated, improving the ability of markets to creatively meet consumer needs and improve society overall. 

Politics and civic engagement. Organizations also have tremendous power for good or ill through their involvement in political and civic affairs. A virtuous company can provide useful information, expert insight, and diverse perspectives to policymakers on issues that have the power to improve the lives of their customers and community. Political freedoms and equal rights are fundamental aspects of a virtuous system, and inaction on political issues may mean that one is acting complicit in building a non-virtuous system. In all these cases, a virtuous organization strives to represent its employees, consumers, and communities accurately and fairly. To increase the validity of an organization’s involvement in political affairs, this “power with” a diverse coalition of other organizations and strong support from citizens can be exercised collectively. 

Community and society. Organizations can respond to the increasing internal and external demand to use their ‘power to’ in order to positively influence critical social issues. By leveraging an organization’s access, visibility, industry leadership, resources, and social capital, virtuous organizations can raise awareness and call others to action. Corporate philanthropy is one way a company can use ‘power to’ as they invest their funds in socially responsible causes. When making investment decisions, virtuous organizations not only factor in financial rewards, but also consider the long-term social impact of their investments, including the long-term view of building more virtuous systems. There is a seemingly endless list of community and societal challenges to address, and organizations can’t sit at every table and solve every problem. Virtuous organizations prioritize which issues they can take a stand on, taking stock of all the various opportunities for impact and reviewing where the organization can make the greatest impact – based on the nature of the company resources, influence among decision-makers, and existing gaps in the efforts of others. Such action demonstrates an organization’s lived values. 

In a virtuous organization, corporate activism must be genuine with community interests as the priority. Smaller organizations may actually have an advantage in this aspect of the work, because while they may have less access to decision-makers, they typically have greater access to the community members they are advocating for. Regardless of size, virtuous organizations take the time to evaluate whether their work furthers the intended mission of the cause in an appropriate and sensitive way, or if there is a risk of co-opting the cause to increase their profit. 

Regardless of size or structure, the virtuous organization is regularly evaluating its ability to ensure that its power is used for good: to create a more ethical supply chain, healthy competition, civic freedom, and social well-being. This virtuous use of power will, in turn, gain greater community trust, reduce risk, and increase innovation through collaboration. Most importantly, it will enable organizations to shift systems to work towards improving the lives of people in communities and the broader world.

Business Thought

Reporting: Open Book | Creating the Virtuous Organization

The cloud of the stock market crash of 1929 did have a silver lining: more mandated business accountability through reporting. This collapse birthed the legislation that ensured public disclosure of a company’s corporate activities over the past year, affectionately known as the annual report. This report is provided to shareholders (and often made available to other stakeholders) to evaluate the business’ financial performance. Since it’s auspicious start, the report has reliably contained general corporate information, operating and financial highlights, a CEO letter, financial statements, an auditor’s report, and other notes and summaries. 

Perhaps the most vital element of accountability is open book transparency. Transparency refers to the ability of relevant stakeholders to readily observe the decisions that drive an organization and the consequences of those decisions. In practice, transparency takes on different dimensions according to an organization’s sector, industry, governance model (e.g. private vs. public company), and stakeholder set. If stakeholders are able to observe what is going on at all levels of an organization, they will create natural pressure to move towards agreed-upon goals. 

Along with more valuable and more interesting reporting, the last decade has also seen significant adoption of the idea and practice of integrated reporting – a process that consolidates and discusses all dimensions of business performance in one report. Integrated reports combine the mandated corporate financial reports with voluntary, nonfinancial disclosures. Virtuous organizations are strategic about their use of financial, natural, and human resources and want to account for the positive and negative externalities these decisions create. Typically, reports on corporate governance, environmental responsibility, social responsibility, and corporate performance have been published separately and directed towards disparate audiences. The broad adoption of integrated reporting has the potential to externally engage more stakeholders in support of the way a company does business, at the same time it supports the expansive way in which corporations internally view their role in society. 

Unlike self-evaluation, which is done internally and may be kept mostly internal, reporting takes what is helpful for the more external or public parts groups of stakeholders to know and puts it out there. But, similar to self-evaluation, integrated reporting is not a function put in place to respond to an external government regulation or social expectation. Virtuous organizations see highly transparent reporting as part of strategic alignment and creating accountability to various stakeholders. They use it to maintain accountability to sustainability strategies and approaches to broad value growth. Reporting practices, and making the reports broadly available and accessible to stakeholders, help virtuous organizations align and integrate approaches across business divisions and improve strategy and management. 

This type of open book reporting demonstrates an organization’s confidence and can motivate stakeholders. It also does not seem to be without risk or discomfort. Transparent reporting opens a company up to a more public view of difficult conversations and complicated decisions. While the virtuous organization holds the voice and impact of decisions on all stakeholders in high regard, businesses can rarely satisfy everyone. 

However, reporting that allows stakeholders to clearly see the long-term thought, trade-offs, or other relationships between financial and nonfinancial business decisions as a business navigates its role in society, is powerful for deepening stakeholder trust and loyalty. 

Virtuous organizations orient their reporting to mission driven goals in a way that may require reporting on progress more than the achievement of a goal. For example, the consumer goods giant Unilever has the vision of a “waste-free world.” They have committed to an absolute plastics reduction across its portfolio and publicly announced that it intends to cut it’s use of virgin plastic in half and process more used plastic than it sells, all by 2025. These goals are built on existing packaging targets to make all its plastic packaging reusable, recyclable, or compostable by 2025. They are attacking this goal to eliminate plastic waste by involving product design, reducing actual use, and increasing recycled sources in their supply chain. By setting goals and reporting on progress, Unilever demonstrates how it is responding to its self-evaluation and is committed to integrating strategies to minimize harm and maximize value. 

Virtuous organizations thrive in their stakeholder interactions with this open book accounting. Employees, made aware of reports, are empowered to speak more substantially to the company’s strategic goals and progress. Customers and investors, having heard first from organizations about the harms caused by a company’s products and processes, are empowered by consumer education rather than slick marketing when also told the benefits of a company’s products and processes. 

This type of forward-based and transparent accounting helps the virtuous organization to report, in effect, “These are our values. We are working hard to honor them. Our vision for the world is aspirational, and our mission is ambitious. We’re not there yet. But we are committed to everything we say we are committed to. Here is exactly where we fall short and what we are doing to be better.”

Business Thought

Evaluation: Introspection | Creating the Virtuous Organization

Many of the most powerful contemporary business concepts originate from introspective processes. Businesses that do not learn, grow, adapt and change are likely to face irrelevance and obsolescence as the rapidly changing social and technological environment continues to evolve. Like people, organizations can learn. Organizations can try new things and adapt to change. Organizations can evolve not only their production processes and technologies, but also their social awareness, their impact on society, and their commitment to upholding core values. 

A virtuous organization evaluates everything. The organization that produces a product or uses a process should know the most about those products and processes. If the product or processes cause good or harm, the organization should be the first to know about these effects and the first to take action, either celebrating success or taking steps to mitigate problems. The consequences of not conducting regular and rigorous self-evaluation may cause a business to miss opportunities at best, and undercut or destroy the business at worst. 

An introspective organization takes a progressive approach, accepting that it will never reach perfection in any value area, but determining nevertheless to continue moving in a positive direction. Similar to individuals (but perhaps with more data), organizational introspection allows for an examination of sources of stress and misalignment. Introspection invites an examination of culture, an acceptance of responsibility for actions, and then moving on from mistakes by charting a new course. 

Self-evaluation can be painful, or even threatening for a business because it requires acknowledgement of fault, weaknesses, or failures. Yet, it is through this process that an organization maintains freedom to determine its own future and success by choosing to operate more aligned to signature strengths. 

Conversely, the lack of introspection in an organization can play out very loudly, as has been seen recently in some of the failings of Big Tech businesses. Many of these businesses have included “making the world a better place” as part of their brand, but have been brought under strict scrutiny for unethical practices that have been harmful to their stakeholders. Facebook hit organizational unreadiness on issues like privacy rights, content moderation, the use of data, hate speech, election interference, and cryptocurrency. The issues were so serious that the CEO was called to testify before the U.S. Congress multiple times. Lawyers for Apple, Amazon, Facebook, and Google have also been questioned by lawmakers on their particular business practices. 

A virtuous organization, in contrast, follows some key principles to ensure that they are avoiding harm and maximizing value. This includes self-regulation, involving stakeholders, measuring social impact, using mission-informed metrics, and actively responding to their findings. 

Self-regulation. A virtuous organization, instead of being held to standards of external pressure from government regulation, consumer blowback, or market pressures are first to identify the harms and benefits of its products and processes. In this way, virtuous organizations are self-regulating. Industry and government regulators will seek to enforce ethical standards and certain types of change, but virtuous organizations are ahead of regulations and go beyond what is required. They truly view their purpose as serving the customer and society, and will make necessary adjustments to their product to help their stakeholders in the long-term. 

Involving stakeholders. Virtuous organizations establish processes to assess progress on forward thinking goals in employee development, customer experience, environmental stewardship, and shareholder involvement. By actively including their stakeholders in the ongoing process of reviewing efforts, outcomes, and future expectations, the organization puts information about their mission alignment efforts into the hands of their most dedicated brand champions. 

Measuring social impact. For the virtuous organization, a regular and hard look at the metrics and accountability in place for corporate responsibility initiatives are as important as financial reports. Virtuous organizations go beyond tracking outputs and outcomes and move deeper into measuring impact. 

Using mission-informed metrics. In conducting self-evaluation, a virtuous organization judges its own performance against predetermined criteria. Businesses have very clear scorecards, most of them related to efficiency and profitability. Other measurements may be used, but often not with rigor or not at all. 

Virtuous organizations are open, even hungry, for feedback and data on all parts of their business, When a vision, mission, or value is used as the predetermined criteria for measurement and feedback, there are powerful examples of how the company and even entire industries are affected. 

Actively responding. Since virtuous organizations strive to be the first to know the negative and positive impacts of their products and services and are first to share that impact with users, this information can fuel an openness towards change, improvement, and innovation that benefits all stakeholders. Virtuous organizations are also confident enough in their own products and services to be using them internally and evaluating how they are being helped or harmed by their own product. The way a business uses information they gain from self-evaluations, through reporting and change, is an indication of their commitment to virtuous practices. 

Years ago Google, another data obsessive company that uses its own core competencies on itself, made news for creating a position for a “design ethicist.” Google’s mission statement is “to organize the world’s information and make it universally accessible and useful.” This has meant getting more people to spend more time on the internet, not less. Yet, internally, Google employees also shared the value that “great technology should improve life, not distract from it.” A manager, concerned that Google was not living this value, circulated a slide deck called “A Call to Minimize Distraction and Respect Users’ Attention.” He wrote, “Change like this can only happen top-down, from large institutions that define the standards for millions of people. We’re in a great position to do something about all this.” 

Google began to create tools and features that help consumers better understand their tech usage, disconnect when needed, and create healthier habits. Instead of telling people to use their product differently if they have a problem, companies are starting to self-evaluate and design technology in a way that cares about people first, whether the issues are mental health, loneliness, or addiction. These tech companies have reacted fairly quickly to calls for change, with products and solutions no external force would have known to ask for. 

Rigorous and honest self-evaluation with the intent to mitigate harm and maximize value is core to the activities of a virtuous organization. Through intentional self-regulation and by actively responding to the results of their self-evaluation, a virtuous organization continues to push itself toward practices that improve its own products, services, and processes to elevate society. 

Business Thought

Accountability | Creating the Virtuous Organization

Accountability is key to aligning an organization’s day-to-day activities with its stated values. A virtuous organization is accountable to its stakeholders (including shareholders, employees, and customers), as well as to its mission, vision, and values. A virtuous organization practices introspection and self-evaluation, holding itself accountable, because it is deeply committed to avoiding harm and creating both social and financial value. 

Being accountable includes an organization striving to accurately measure its impact. A virtuous organization moves past measuring outputs and outcomes in order to rigorously and honestly evaluate total impact. It responds to this information by adjusting programs, processes, and product mix to mitigate harm and increase value, and by transparently reporting to both the outside public and to people inside the organization. 

The paradox organizations face is that in order to be virtuous, they must admit the ways in which they are failing to achieve virtue. If the organization wants to be good, it has to know the ways in which it is bad. While this tension is uncomfortable, it is also inspiring because a virtuous organization understands that mission-driven progress has an aspirational purpose. It is willing to confront shortcomings to improve. Accountability brings an organization into alignment, providing a natural course of action for improvement.

Business Thought

Environment: Non-permanence| Creating the Virtuous Organization

As businesses shift away from a shareholder primacy model toward a comprehensive stakeholder doctrine, deeply considering the environment becomes a mandate. Research over the last 20 years has indicated that while defining stakeholders can be challenging, there is ample reason for virtuous organizations to consider the natural environment as a stakeholder for strategic, moral, and ethical reasons. Research aside, some of the shocking consequences of environmental neglect, missteps, and even illegal activity at the hands of business have been documented for the public in the media. Water pollution, contaminated air, culmination of waste, and interrupted ecosystems can harm both human stakeholders and the voiceless biodiversity that is so critical to sustaining communities and businesses. 

Different people and organizations consider the environment a stakeholder for different reasons, but harmonious across all these perspectives is an understanding that current and future generations of people are impacted by what society takes from and puts into the earth. In a world where the ramifications of climate change play out in increasingly dramatic ways upon both resources and people, virtuous businesses shrewdly recognize their role in impacting or being impacted by such environmental shifts and subsequently take into consideration both the upstream and downstream influence they can have. 

Businesses are already implementing strategies that consider environmental impact, including building LEED-certified facilities, incentivizing employees to use public or active transportation, diving deep into the supply chain and partnering with vendors to change manufacturing or sourcing issues, or working on eco-friendly initiatives through corporate responsibility and philanthropy efforts. Often these efforts are undertaken because of external pressure or to compensate for the businesses’ negative environmental impact. 

A virtuous organization actively implements corporate environmental sustainability practices not just because of external pressure from watchdogs or consumers, government regulation, or market recognition for environmental innovation, but because they consciously give environmental considerations a place at the table. This may be complicated because the environment is – by most definitions – outside of individuals and organizations (and thus voiceless), but a virtuous organization performs due diligence to discover how it can minimize its negative impact and contribute to environmental sustainability efforts at all levels of organizational activities. 

From an organizational longevity standpoint, the availability of environmental resources and the presence and wellness of future generations should be of utmost interest.

Without either resources or future customers, organizations cannot survive, and, as previously discussed, virtuous organizations have a sustainability philosophy because of the value businesses can create. Both organizations and individuals desire permanence. Organizations and individuals value durability and resilience, and want to know that things they have made won’t just dissolve or disappear. 

But it’s the permanent machine-made things that clutter the planet. It’s the permanent synthetic products that no longer cycle with the rest of the planet through the delicate ecosystems that rely on the constant construction and deconstruction of energy and matter. It’s permanent things that disrupt the flow of air, water, sunlight, and sometimes even life itself. 

For this reason, non-permanence is thought of as a central principle of environmental responsibility. For any action – using trees from a forest, paving through a wetland, mining copper, creating plastics, dumping wastes, creating products and byproducts – the virtuous organization asks a single question: Can this be undone? 

Upstream harm generally results from irreparably harming, transforming, or destroying a resource, either by taking too much or by using damaging processes. In general, the remedy is to cause less permanent damage, either by replenishing resources, taking less of the resource, or preventing actions that will cause irreparable harm. 

Reducing harm upstream might be as simple as switching providers or coaching a vendor on more ecologically sustainable practices. Consider as an example all the packaging and carbon emissions that come from large scale online retail distributors. If a company relies on products from an online retailer, they could reduce environmental harm upstream by requesting that the order parts be shipped together, not in separate packages with separate trips. Decreasing harm upstream means knowing the supply chain. Understanding the products, processes, and outputs of vendors, and ideally even vendors’ vendors, is essential to determining how an organization can reduce harm. 

Downstream harms generally result from the production of products or byproducts that are either relatively permanent, and therefore harmful upon accumulation, or immediately damaging regardless of their level of permanence. Of course, the worst cases of downstream harm are those situations in which products or byproducts are both permanent and damaging. 

Ways of mitigating downstream harms can occur by either reducing the amount of harm caused by a product or byproduct, by reducing its permanence, or by reducing its quantity. In some cases, focus on reducing the quantity of downstream effects can also reduce upstream effects, as in the case of combustible fuel consumption where decreasing the quantity of fuel burned can both reduce emissions and reduce depletion of non-renewable resources. 

Another consideration for some companies is the issue of overproduction and overconsumption. In a consumer world, individuals and organizations often produce, purchase, and/or consume more than they need to. Consumption is another avenue for causing environmental harm. However, it seems impossible to suggest that companies should encourage their consumers to consume less. But several companies in the clothing industry have already started doing just that. From returns and donation programs to clothing repair services, many businesses have already successfully addressed issues of overconsumption. 

The challenge for organizations is to prevent themselves from thinking in terms of tradeoffs and zero sum games. Instead, such tensions can be thought of as maximization problems that culminate in an opportunity to innovate. 

It is up to virtuous organizations to rigorously and honestly assess their environmental impact and innovatively and courageously adopt ecological standards for operations, manufacturing, and distribution within their sphere of influence, perhaps going beyond regulation-level requirements. Organizations that do not take the time to align their organizational mission and vision of the world with self transcendent, environmental concerns may not realize that such alignment is possible. Like with prosocial initiatives, environmental initiatives can provide value that far outweighs the dollar contributions of their efforts. 

Business Thought

Society: Every Person Matters | Creating the Virtuous Organization

In 578 AD, Shigemitsu Kongo, a renowned temple builder in Korea, made his way to Japan to build a temple which still stands in Osaka today. Buddhism, supported by the Empress, was growing quickly in Japan, and Kongo saw the opportunity to form a construction company knowing he’d have enough work for at least a few decades. His estimate was off by a few centuries and his construction company, Kongo Gumi, lasted 1,428 years and closed in 2009 over financing decisions rather than a lack of work. 

Shigemitsu Kongo’s vision reflects the power of business to support and shape society as a whole. Society can be looked at as any group of individuals involved in persistent social interaction, with some shared authority, and cultural expectations. Shigemitsu Kongo found expression for his gifts and gathered a group – Kongo Gumi – to work within a larger society, for the benefit of all. 

Civilized society has long served to enable individuals to build upon and benefit from collective tools: language and writing systems, evolving ideologies, reciprocal relationships, centralization, governance, and safety. Individuals build society, and society, in turn, shapes individuals. Each individual person matters because of the role they fill in creating and shaping society. Understanding the reciprocal relationship between individuals and society, virtuous organizations seek long term positive societal influence. 

How businesses influence individuals and society 

Businesses have the possibility for staying power and far reaching impact that individuals, on their own, do not have. As businesses have evolved over time, different phases in their evolution have emphasized different values. Early traditional business values, studied within the Industrial Revolution by sociologist Max Weber, were highly effective in helping organizations achieve efficient, reliable, smooth-flowing, and predictable output. This was, quite literally, collecting individuals previously working on farms and in the cottage industry, and helping them become a cog in a well-oiled business machine. 

Thriving in stability, these business values were soon supplemented by the assertive notion of scale (more!) with the Second Industrial Revolution: profitability, competitiveness, bottom line results, and stretch targets. As this era of reach settled in, business centers did, too. Values began to focus on the collective: shared values and goals, cohesion, teamwork, and corporate commitment. Quantity and availability was no longer lone business differentiators, but a desire for business to provide added quality in product and in life, too. Business and society in the last quarter century has adopted values to fit the accelerated growth and depth of complexity: innovation, speed, entrepreneurship, and a swing back to the individual. 

Beyond creating a powerful foundation for society, businesses provide a practical and direct community for their stakeholders, especially employees and customers, to be a part of. Businesses can create communities that positively impact individ-uals by bringing them into a group. Research indi-cates that being part of a group is good for the wellbeing of individuals. Being connected with others increases feelings of security and motivation. Business employees, who spend the majority of their waking hours working, can be positively influ-enced by a company culture that brings them together with a group of people working toward a common cause. Likewise, research shows that cus-tomers make purchases, in part, to buy into the symbolic community created by a company and product. In this way, customers, too, become part of a business’ community. Being part of a society, whether by geographical proximity or mission-driven affinity, can enable individuals to benefit in ways otherwise not possible. 

How individuals build businesses and society 

While businesses create a foundation society, individuals are the actors that construct the foundation. When individuals come together, as teams, congregations, or in formal organizations, they have a collective, societal power that no single individual possesses alone. As a collective of individuals, organizations have the power to create change and culture. Consider the major movements of the last century: civil rights, women’s rights, and the more recent #MeToo movement. These movements, composed of the collective efforts of individuals, would not have succeeded if a group of people had not come together to support the movement as a group. 

Businesses, similarly, are successful because of the collective effort of groups of people. For example, a business could not create a brand, sell a product, or perform a service without the various departments who contribute to its success. As long as organizations have to interact with each other and the public, there will be a need for marketing. As long as there are resources to acquire and account for, there will be supply chains and finance. As long as there is something to be done, there will be a need for the skills of strategy along with the management of human capital to accomplish the mission. The efforts of one department of a company would not succeed without the collective work of the whole. 

The virtuous organization perspective 

Integrated in the fabric of society and businesses is community, which values both individuals and the collective. Virtuous organizations intentionally work to richly fill the role of creating community. Internally, virtuous organizations build a culture that carries the best of community: valuable relationships, opportunities for co-learning, mentoring and support, constructive feedback, diversity of opinion and ideas, collaboration, the intangible value of a trusted network, and on and on. Externally, virtuous organizations see themselves as a good social actor in the community in which they reside: aware of needs, considerate of impact, joining initiatives, stepping into leadership, providing resources, seeking feedback, collaborating, communicating, and on and on. 

Virtuous organizations are preparing for the future by working to capture the best of historical and ongoing shifts in business values and society. They actively seek to build community for their stakeholders. They demonstrate what it looks like to practice in the tension of individual and societal level influence. They hold to the belief that every person matters. Businesses are now in the midst of the seismic business and societal shifts represented in the rise of robotics and artificial intelligence, speed of innovation for new products and services, the shift into full factory automation to and self automated vehicles. The tension virtuous organizations are asked to hold in these new, uncharted times is a classic and steady one: to consider and contribute to society while not losing sight of the individual.

Business Thought

Humanizing Interactions | Creating the Virtuous Organization

People interact with businesses in a variety of roles: as shareholders who provide valuable capital; as employees who conduct the day to day tasks of the business and whose families are supported by the wages provided in exchange for employee labor; as consumers and customers who interact directly with the products and services of the company and determine their value; as community members who are touched by the impact of the organization in their city; and as onlookers who view advertisements promoting the business and its values. It is not an exaggeration to assert that business, as a collective system, touches the life of every person. In this powerful role, the way businesses interact with and represent people is of great importance. 

Businesses would not exist without people – people to found and fund them, run and grow them, value and benefit from them. Yet it is all too common for systems to see people as a means to a very narrow end. In business, profit strategy may often precede and outweigh considerations about how decisions will impact various stakeholders beyond shareholders. Whether intentional or unintentional, this strategy may lead to the mistreatment of individuals through actions that reduce or undervalue people (for example, low-wage payment to employees, pollution in communities, or the objectification of people in advertisements). 

On the other hand, virtuous organizations see people as the end rather than the means, thoughtfully acknowledging their power and responsibility in interactions with all of their stakeholders. Virtuous organizations see whole-person creation as a critical part of the balance to an organization. A virtuous organization is saturated with the belief that people have basic needs and rights that the organization is capable of honoring. 

According to psychologist Abraham Maslow, all humans have a basic need for physiological care (food, shelter, rest), safety, love and belonging, esteem, and self-actualization (the ability to reach one’s potential), and these needs are met in a hierarchical fashion. In addition, the United Nations has described a set of universal human rights, including the right to freedom of expression, a standard of physical, emotional, and mental well-being, and to be treated as equals. Virtuous organizations actively protect their stakeholders’ human rights and enable them to move up the hierarchy of needs. They do not impede the needs or rights of their stakeholders, nor do they partner with others who do so. 

Virtuous organizations seek to understand the ways that their company touches individuals in a variety of roles. Then they strive to humanize those individuals, even if those individuals are removed from directly interacting with the company. 

Humanizing interactions – collaborative interactions in which all party’s basic human needs and rights are considered, respected, and protected, regardless of blood-relation or organizational affiliation – are central to how a business interfaces with all stake-holders and onlookers. 

For example, a core motivation for creating a humanizing workplace for employees is the recognition that employees are spending the majority of their time giving their energy to help the business accomplish its purpose. In return, virtuous organizations can honor the employees’ whole selves: treating them respectfully, providing them with fair compensation and benefits, creating a safe and inclusive workplace, and providing opportunities for professional and personal development opportunities. As people, they matter to the organization even if these practices do not enhance productivity and increase financial gains. 

Brands in the beauty industry are creating humanizing experiences for their stakeholders. Companies have launched advertising initiatives with the commitment to stop retouching their models and to include people with disabilities and more diverse skin tones, body shapes, and ages as models. These companies’ customers, typically young women, are prone to internalize the images they see representing beauty, and they experience psychological distress if they don’t look the same as the images they see. 

These adjustments to better represent their customer base humanizes a sometimes uncomfortable experience for consumers. The reported impact of these initiatives includes increased body confidence for both models and consumers viewing the advertisements, plus positive financial returns for the companies. 

Virtuous organizations also embrace the responsibility to ensure that suppliers, buyers, contractors, and others touching their supply chain are not violating the human rights of their stakeholders. While the complications of supply chains often prevent an intense focus on the practices of a partners’ stakeholders, virtuous organizations are aware of them and commit to treating them in humanizing ways. 

Honoring the humanity of stakeholders is done by offering them voice and choice, ensuring their ideas, feedback, and interests are correctly identified and recorded. Organizations can consider requests, see nuance and recognize complications, respond personally, and connect in more deep and meaningful ways. 

Virtuous organizations can use their tremendous power and access to resources to embrace the opportunity to move individuals up the hierarchy of physiological needs, safety, love/belonging, esteem, and self-actualization. Thoughtfulness and intentionality in how businesses interact with individuals has the potential to transform individual lives and contribute to the creation of a more unified society.