Those of us who advocate for greater sustainability in business rail against the fact that financial markets don't take into account externalities -- impacts to people and planet. The metrics and values by which we construct business success comprise what we believe to be a false narrative of the world, which means serious risks to the world's most vulnerable communities.
On the other hand, market fundamentalists believe that free markets are the ultimate solution.
Where is the truth? Is there anything we can learn from how other disciplines find truth? Last week, I attended a panel entitled "Truth Be Told: Separating Fact from Fiction" at Baruch College that provided some food for thought.
Noble Laureate and director of the National Cancer Institute Harold Varmus talked about the scientific method: Hypotheses are tested; results are peer reviewed. Georgetown Law professor Jane Aiken spoke about the legal process: Each side picks a hypothesis, determines how much evidence is needed to support that hypothesis (e.g. beyond a reasonable doubt), who bears the burden of finding that evidence, and gathers facts within certain restrictions (e.g. against use of hearsay). The New York Times public editor Margaret Sullivan spoke of the journalist's need to find multiple, accurate, authoritative sources who can be held accountable.
Each of these methods has their flaws, of course. Varmus brought up the phenomenon of FFP: falsification, fabrication and plagiarism, which plagues all three disciplines. The panelists discussed how biases, poor technology, lack of context and competitive pressures all lead to flawed outcomes.
Also on the panel was Sotheby's professor (and business school friend of mine) Amy Whitaker, who works at the intersection of art and business. She spoke about the challenges of finding truth in the markets of art, for example how the price of a piece can be determined by a talented auctioneer, or the dynamics between two bidders, rather than any inherent worth of the item; and business, citing the conflicting valuations of Twitter leading up to its IPO.
Particularly in the business world, value equates truth. The invisible hand of the markets sets the "right" price for company stocks; an entrepreneur has her gut instinct affirmed when customers, venture capitalists, or Kickstarter backers reach into their wallets; a bonus justifies the actions of the previous year.
But as Whitaker pointed out, numbers seem authoritative, whereas they're actually heavily dependent on stories and imaginations. Twitter's founders had a compelling story about "a company for which there is a fantastic use case for every person on the planet," While those who had an eye on Twitter's lack of profitability painted a much less rosy picture.
Sustainability advocates in and outside big companies push for a narrative in which the well-being of people and planet underpin the success of globalization and of individual companies. As is sought in other disciplines, there is plenty of evidence of the costs of acting unsustainably -- even on social issues, which have lagged behind environmental topics in being calculated:
- The Deepwater Horizon explosion is said to have cost BP $42.5 billion and counting.
- The 2001 four-month shutdown of ExxonMobil's liquefied natural gas plant in Aceh because of the social unrest in the area that some accuse the company of exacerbating was reported to have caused a 350.8 million loss.
- U.S. mining company Freeport-McMoran spent $28 million in 2010 on security at its Grasberg copper and gold mine, also in Indonesia, up from22 million in 2009.
- According to one study, a major mine can lose 20 million for every week its production is delayed, due to local conflicts.
To many of us this evidence seems clear-cut. But as in other disciplines, we have to ask ourselves a number of questions: How were these figures compiled, and where and how did subjectivity figure into that process? Did the people putting them forth have their own agendas, and can they be held accountable for their conclusions? Which emerging narratives are most compelling, and why? Whatever we choose to believe, what actions logically follow, and what are the implications of those actions?
There is a movement towards "full or true cost accounting," which takes into account environmental and social factors. If it catches on more broadly, it may move both free marketeers and sustainability advocates away from truthiness and towards a shared truth, which would benefit us all.