There is an emerging consensus that all is not well with today’s market-centric economic model. Although it has delivered wealth over the last half century and pulled millions out of poverty, it is recession-prone, leaves too many unemployed, creates ecological scarcities and environmental risks, and widens the gap between the rich and the poor. Around $1 trillion a year in perverse subsidies and barriers to entry for alternative products maintain “business-as-usual” while obscuring their associated environmental and societal costs. The result is the broken system of social inequity, environmental degradation, and political manipulation that marks today’s corporations. We aren’t stuck with this dysfunctional corporate model, but business needs a new DNA if it is to enact the comprehensive approach we need. Pavan Sukhdev lays out a sweeping new vision for tomorrow’s corporation: one that will increase human wellbeing and social equity, decrease environmental risks and ecological losses, and still generate profit. Through a combination of internal changes in corporate governance and external regulations and policies, Corporation 2020 can become a reality in the next decade—and it must, argues Sukhdev, if we are to avert catastrophic social imbalance and ecological harm. Corporation 2020 presents new approaches to measuring the true costs of business and the corporation’s obligation to society. From his insightful look into the history of the corporation to his thoughtful discussion of the steps needed to craft a better corporate model, Sukhdev offers a hopeful vision for the role of business in shaping a more equitable, sustainable future.
All is not well with today’s market-centric economic model. Although it has delivered enormous wealth over the last half century and pulled millions out of poverty, it is recession- prone, leaves too many unemployed, creates ecological scarcities and environmental risks, and widens the gap between the rich and the poor. e model for today’s corporations—formed over the last two centuries in a world of seemingly limitless resources—is clearly broken. Around $1 trillion a year in perverse subsidies and needless barriers to entry for alternative solutions maintain “business-as-usual” while obscuring its environmental and societal costs. e result is the social inequity, environmental degradation, and political manipulation that are the unwanted by-products of today’s corporations. We aren’t stuck with this dysfunctional cor- porate model. If it is to enact the comprehensive approach we now need, however, business needs a new DNA. In this sweeping vision for a new species of corporation, Pavan Sukhdev p roposes the new incentives and regulations that will en- able corporations to increase human well-being and social equity, decrease environmental risks and ecological losses, and continue to generate strong profits. e status quo is no longer an op- tion. Corporation 2020 can become a reality in the next decade—and it must if we are to avert catastrophic social imbalance and ecological harm. From his insightful look into the history of the corporation to his thoughtful discussion of the steps needed to craft a better corporate model, Corporation 2020 offers an important and hopeful vision for the role of business in shaping a more equitable, sustainable future. 2020 CORPORATION CORPORATION 2020 Pavan Sukhdev Pavan Sukhdev SUKHDEV Transforming Business for Tomorrow’s World BUSINESS | ENVIRONMENT Advance Praise for Corporation 2020 “Much has recently been written about how a new wave of ‘green’ corporations is just around the corner, an endogenously transformed phalanx of knights in shining armour just waiting to rescue us. Pavan Sukhdev says ‘not so,’ but he also shows, with consummate skill and clarity, what exog- enous changes can be made to re-engineer the ‘social contract’ between society and corporations in the 21st Century.” —Achim steiner, Executive Director, United Nations Environment Programme “e ideas and assertions in this book blow well past ‘insightful’ and edge toward ‘revolution- ary’ insofar as they expose major fallacies in our most basic assumptions about what we call our ‘economy.’ It’s an equally important exposure for corporate leaders and leaders of the movement for environmental sustainability, because both need to move beyond the ‘infancy phase’ in terms of truly understanding and acknowledging the value of natural resources. A seriously inspiring and, ultimately, very hopeful piece of work.” —edwArd norton, United Nations Goodwill Ambassador for Biodiversity “Pavan Sukhdev writes with extraordinary clarity, compassion, and conscience, laying the ground for a new, whole-system economics. Recognizing that all human activity is part of nature, and that nature is essential for human well-being, Sukhdev creates a framework for the restoration of human and natural systems. Corporation 2020 brilliantly lays out a pathway for corporations, countries, and citizens towards the earth’s health.” —JonAthAn F. P. rose, President, Jonathan Rose Companies “When Pavan Sukhdev comes along and writes an extraordinary book, and backs it up with an extraordinary campaign and a really good website to promote . . . a change in the basic culture, definition, and orientation of corporations in our society, it’s very timely, and it’s very important to take what he has to say seriously.” — JAmes GustAve sPeth, Professor of Law, Vermont Law School and Distinguished Senior Fellow, Demos Jacket design and illustration by Maureen Gately In 2008, PAvAn sukhdev took a sabbati- cal from Deutsche Bank, where he’d worked for fifteen years, to write two reports on the green economy. His “Green Economy Report” for the United Nations Environment Programme (UNEP) synthesized years of research to show that environmentally sound development is not a bar to growth, but rather a new engine for growing wealth and creating employment in the face of persistent poverty. His groundbreaking “TEEB” report counted the global economic benefits of biodiversity, encouraging countries to develop and publish “natural capital accounts” tracking the value of natural wealth alongside traditional financial measures. Sukhdev has chaired the Global Agenda Council on Biodiversity and Ecosystems for the World Economic Forum and was a speaker at the World Economic Forum meetings at Davos in 2010 and 2011. He serves on the boards of Conservation International and the Stockholm Resilience Centre. In 2011, he was named a Visiting Fellow at Yale University, where he was awarded a McCluskey Fellowship. Corporation 2020 CORPORATION 2020 Transforming Business for Tomorrow’s World Pavan Sukhdev Washington | Covelo | London Copyright © 2012 Pavan Sukhdev All rights reserved under International and Pan-American Copyright Conventions. No part of this book may be reproduced in any form or by any means without permission in writing from the publisher: Island Press, Suite 300, 1718 Connecticut Ave., NW, Washington, DC 20009 ISLAND PRESS is a trademark of the Center for Resource Economics. Library of Congress Cataloging-in-Publication Data Sukhdev, Pavan. Corporation 2020 : transforming business for tomorrow’s world / Pavan Sukhdev. p. cm. Includes bibliographical references and index. ISBN 978-1-61091-238-9 (cloth : alk. paper) ISBN 1-61091-238-1 (cloth : alk. paper) ISBN 978-1-61091-239-6 (pbk. : alk. paper) ISBN 1-61091-239-X (pbk. : alk. paper) 1. Social responsibility of business. 2. Corporations Environmental aspects. 3. Industries Environmental aspects. I. Title. HD60.S8844 2012 658.4’08 dc23 2012020609 ISBN-13: 978-1-61091-238-9 (cloth) ISBN-13: 978-1-61091-360-7 (e-book) Printed on recycled, acid-free paper Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 Keywords: Island Press, economics, sustainability, business, corporate responsibility, corporate externalities, environmental commons, sustainable economy To today’s students, tomorrow’s corporate leaders This is your book, make it happen vii Contents Foreword ix Acknowledgments xiii Introduction 1 Chapter 1. The Legal History of the Corporation 15 Chapter 2. The Great Alignment: 1945–2000 25 Chapter 3. Corporation 1920 49 Chapter 4. Through the Looking Glass of Corporate Externalities 67 Chapter 5. Incorporating Externalities 91 Chapter 6. Accountable Advertising 111 Chapter 7. Limiting Financial Leverage 133 Chapter 8. Resource Taxation 165 Chapter 9. Corporation 2020 187 Chapter 10. The World of Corporation 2020 211 Notes 237 Index 267 ix Foreword Our oceans are severely depleted, deforestation continues apace, biodiver- sity is dwindling and concentrations of greenhouse gases continue to rise rapidly. The lives and livelihoods of the world’s people are under increas- ing risk as a result of the damage our activities are doing to the ecosys- tems and environment of the planet. The risks of profoundly damaging irreversibilities and tipping points are increasing. As a result, inaction is dangerous: indeed the dangers are intensi ed by the ratchet e ects of accumulation processes such as greenhouse gas concentrations and the lock-in of long-lived polluting capital. It is the poorest who are and will be hit earliest and hardest. But all of us will be profoundly a ected by con- tinuing neglect and delay, including by major movements of population and the tension and con ict these are likely to bring. Many or most of our problems lie in combinations of market failure and irresponsible and short-term behaviour. We have it in our hands to overcome these problems through sound policy, collaborative behaviour, a more far-sighted approach to the consequences of our action, and the processes of discovery about technology, organisation and policy. All of these reinforce each other. And they can bring advances in material liv- ing standards, particularly for poor people, greater social and economic inclusion and equity, and a more attractive and hospitable environment for us all. In other words greater economic, social and environmental sus- tainability. Indeed, unless we act to put all three together, each of them is likely to be undermined. This book sets out these arguments strongly and clearly. And it shows the key details of actions and policy that are necessary. The policies are designed to go to the heart of the problem and particularly the market failures involved. It shows how the entrepreneurship and creativity of rms, individuals and communities can be re-orientated away from the damage caused by distorted markets and irresponsible behaviour towards actions and discoveries that are economically and socially pro table for [...]... social costs that businesses pass on to the wider world: their so-called “negative externalities.”13 Indeed, if market forces are the market’s “invisible hand,” then the corporation the economy’s main agent and the market’s main player— might perhaps be called an “invisible foot.” For what would be the impact of Smith’s four market forces, in the absence of the corporation? Without today’s corporations,... hundred years also freed the corporation from social purpose, and established the primacy of profits as the corporation s raison d’etre A landmark judgment in the United States (Dodge v Ford, 1919) affirmed that the purpose of the corporation was indeed its own self-interest By 1920, therefore, the corporate form had crystallized as the corporation we recognize today, and for the purposes of this book,... array of capitals (physical, social, human, and natural), and not just for itself, but also (in the form of positive externalities) for society at large This behavior at the “micro” level will make way for a very different world at the “macro” level, the world of Corporation 2020 We are not compelled to live with the risks and costs of Corporation 1920 as the main agent of our economy and the most significant... 18 CORPORATION 2020 The Era of the Social Corporation It would take almost a millennium for governments and commercial enterprises to once again develop a robust corporate form within Europe The Middle Ages saw the incorporation of Europe’s nonprofit social institutions, such as churches and universities.11 In the case of for- profit corporations, the important limitation of the times was that incorporation... Allen White I thank Michael Parker from Yale for arranging these video recordings, often in remote locations My thanks to Rick Leone, Doug Forbush, Phil Kearney, and Lucas Swineford of Yale Broadcast and Media Center for their excellent recording of many of these interviews For their encouragement and support with launch events for this book and our ongoing Corporation 2020” campaign, I thank Camilla... process by which corporations most able to adapt in this efficient environment would survive and facilitate the creation of more such businesses In the long run, therefore, the social benefits and social costs of corporations’ activities would be reflected in their accounts as much as possible, thus realigning the corporations’ profits with society’s gains Introduction 13 The World of Corporation 2020... structures that could be used for general purposes They developed and made extensive use of a corporate form that looked remarkably similar to that of a modern public corporation, which could easily have been utilized for general business endeavors The reason that this did not happen might be due to the high transaction costs for ensuring governance structures sufficient for protecting investors and... ecological scarcities? A new DNA for the corporation needs to have numerous strands, but our focus will be the four key strands that are likely to make the most difference: corporate goal alignment with society, the corporation as 12 CORPORATION 2020 community, the corporation as institute, and the corporation as a capital factory As early as the early 1900s, Henry Ford was aligning his company’s goals... today’s corporation happened during an eventful century beginning in the early 1820s and 6 CORPORATION 2020 lasting until early in the twentieth century These hundred years achieved limitations on shareholder liability, established corporate personhood, and unshackled the corporation s operations from restrictions on time, place, and purpose, enabling the corporation to engage in any business, anywhere, for. .. tax avoidance, lobbying, and externalizing costs I for one know that the world of Corporation 2020 is one in which I am looking forward to contributing to business Jochen Zeitz July 2012 Editor’s note: Jochen Zeitz conceived and developed the first-ever Environmental Profit and Loss Account statement which places an economic value on a business s environmental impacts across the entire . Fellowship. Corporation 2020 CORPORATION 2020 Transforming Business for Tomorrow’s World Pavan Sukhdev Washington | Covelo | London Copyright © 2012 Pavan Sukhdev All. future. 2020 CORPORATION CORPORATION 2020 Pavan Sukhdev Pavan Sukhdev SUKHDEV Transforming Business for Tomorrow’s World BUSINESS | ENVIRONMENT Advance Praise for Corporation 2020 “Much