TransFair USA’s new Board Chairman Michael Conroy was in town last week. He spent time with us at TransFair, and also had a chance to visit with Irwandi Yusuf - the Governor of the coffee-rich Sumatran province of Aceh. The Governor’s story is quite amazing, and Time Magazine
covered it far better than I can in this blog.
Michael spoke with our team about his recently published book Branded: How the Certification Revolution Is Transforming Global Corporations
. Michael is in a unique position to understand the potential and holistic impact of third party certification and NGOs on the future of global commerce. He has been a key player at Rockefeller Brothers Fund and Ford Foundation, a lecturer and research scholar at the Yale School of Forestry and Environmental Studies, and a Professor of Economics at the University of Texas. He also serves on the FLO certification board.
Michael’s book points out that as global corporations grow their brands, they also assume more risk if those brands are found to be lacking in social and environmental accountability. The value of global brands
is often estimated to be in the billions of dollars, and every dollar successfully invested in expanding brand recognition also increases risk of challenges to the brand on social and environmental grounds.
Michael argues that with so much to gain or lose, it has become virtually impossible for firms to self-police. Third party certification systems are seen as both much more impartial and "having teeth", particularly those that are mission driven non profits with NGO support, such as Transfair USA. Industry-based systems often end up with lowest common denominator standards, change continuously, and lack credibility. Given the brand value at stake, you might expect these systems to be iron-clad, but protecting the brand often seems to require more change than firms are willing to undertake. Michael points out that a major flaw in non-third party systems seems to be a reluctance to effect major industry change in corporate practices.
Internal inertia and change-aversion are possible factors, but I suspect that Wall Street expectations play a part as well. The ‘market’ has never done well in understanding and valuing long term trends and value drivers as opposed to short term profits. My own book
describes the rebellion that Kodak institutional shareholders ignited when Kodak tried to follow an inevitable consumer shift to digital photography. Imagine the leap of faith required to justify changes in sourcing practices and cost reducing efforts based on sustainability and CSR.
The good news is that change is most certainly in the air. Some bold innovators - both big and small - are proving that environmentally sustainable and ethically responsible sourcing and business practices are good long term business plays. Perhaps sourcing practices will become another ubiquitous Wall Street tool in evaluating the risks and value of firms. As always, the voices of advocates and the everyday choices of each of us as consumers will be key.