House of Futures Talk, Copenhagen, Denmark

This presentation is as it was presented on September 21st, 2011 in Copenhagen, Denmark. You can read the notes from the presentation below”with slides where appropriate”or, you can download the full presentation PDF.

My message today is one of hope. It is based on the strength of the human spirit, our survival instinct and our capacity to alter mindsets when faced with imminent danger.

This is not to say I see an easy road ahead. As we look over the world economy and ecosystems today, we see a planet at grave risk. Humanity uses the equivalent of 1.5 planet earths to provide the resources we use and to absorb our waste. To the detriment of future generations, this overstep has been growing at an accelerating pace, causing life-threatening ecological degradation and economic catastrophe beyond normal comprehension. We know this. We see it every day. And we want to stop it. That’s why we’re here.

To get out of this mess, I believe, we need to know how we got into it in the first place. Although some will disagree, I submit it’s not because humanity has become more greedy or immoral, but because we are trapped in mental models of reality that have led us in the wrong direction.

If I can digress a moment: The mindsets that lured us into our present overstep were formed hundreds of years ago when natural resources seemed limitless and capital scarce. Because capital could leverage returns on land and labor, capitalists began to assume that capital took precedence over people and Nature a dangerous thought that still carries influence today because it is so deeply rooted.

Nevertheless, to our credit as an adaptive species, starting nearly a century ago, an alternative worldview began to coalesce that today holds great promise. Its early roots were in complexity theory and ecology, which caused us to think more holistically about the world we live in and how deeply interconnected we are with the rest of life. These notions later became incorporated into systems thinking and modeling and into the ways some leadership companies are organized and managed today.

The companies leading today’s corporate renaissance operate from this holistic worldview. Rather than modeling themselves on mechanical systems a machine-like behavior that emerged from the industrial revolution they mimic living systems. They are acutely aware that their primary assets (people and Nature) are alive. Beyond that they know all value ultimately emanates from life. It is an integrative, harmonic way of thinking that inspires great insight and accomplishments. In this disruptively creative sense it echoes the earlier European renaissance.

 

To understand the gathering energy of today’s corporate renaissance, and to assess its future potential, I’d like to do three things:

  1. Create a framework for understanding the underlying beliefs and force of the renaissance;
  2. Summarize common attributes of companies leading this change so we, as change agents, can be more aware of their interests; and
  3. Discuss what we can do to accelerate the renaissance in this time of deep economic and ecological crisis.

To historian Thomas Kuhn, what ultimately causes a system to change is the accumulation of anomalies observations that can’t be explained by the prevailing paradigm of beliefs and mindsets.

In the next few slides I’ll try to summarize how the anomalies we’re seeing today the ecosystem and financial distress emerged from well-intended visions that were built on false assumptions.

Following that we’ll look at the promise of the renaissance model. And for the sake of clarity, we’ll frame these alternative systems in a metaphor familiar to us all.

 

To understand the dynamics of a system of human enterprise, such as our global economy, think of an iceberg. What we see at the top is only 10% of its mass. The largest part, as we see here, lies beneath the surface invisible to the naked eye.

The things we see above the surface are quantifiable results things such as GDP, profit, ecological impacts and public health. But most important, as suggested here, are the behaviors, organizational structures, visions, values and beliefs that ultimately produce those results.

Think of it this way. Beliefs frame our concepts of how the world works. Our worldview, in turn, frames our visions of what is possible. Those visions then affect how we organize ourselves and behave in pursuit of our goals. Therefore, the deeper we go towards the beliefs, assumptions and mindsets that govern our behaviors, the greater our potential for effecting transformative change.

 

The traditional model of the firm is premised on beliefs we now know to be erroneous: that earth’s geological and biological resources are limitless; that perpetual consumption growth is good; that technology is universally beneficial; and that non-living capital assets are worth more than people and Nature, which I describe as living assets.

This distinction between non-living capital and living assets is worth repeating because it frames a fundamental difference between traditionally managed companies and those that mimic life. Traditionalists tend to place a higher value on capital than on people and Nature, while life-mimicking companies do the exact opposite.

In any event, as we move up through this iceberg diagram, we see how widely-shared beliefs inform visions, values, structures, behaviors and results at the tip of the iceberg. And on the next slide we’ll see how these beliefs have led us unwittingly into the unsustainable bubble we’re now trying to escape.

 

In the far right column of this image we see how the systemic failures we’re experiencing today emanate from systemic stress and the dehumanizing, disconnected structures producing that stress, much of which arises when we put a higher value on non-living capital than we do on life.

This is not the outcome that traditional capitalists envisioned. Their ethos, described by Jeremy Bentham, was the utilitarian ideal of “the greatest good for the greatest number.” This ideal looked to rising living standards later defined as per capita consumption and doing it quickly with machine-like efficiency.

The tragic flaw of this approach, as we now know, is its shortsighted dismissal of social and ecological costs that exist outside the process of commercial value creation costs that mainstream economists call “externalities.” The sheer weight of these external costs is today crippling the world economy and devastating earth’s biological carrying capacity upon which all species depend.

This is not new news. Our most progressive companies saw the approach of this tsunami decades ago and began taking corrective action.

 

The emerging organic model of the firm couldn’t be more different than the industrial capitalist model. As earlier suggested, companies that mimic life reverse the practices of traditionally managed ones by placing a higher value on living assets than on capital assets. They understand at a basic level that living assets are the source of capital assets and that capital assets can’t function without living ones.

In similar fashion, the value systems of these life-mimicking companies are bio-centric rather than anthropocentric. That is to say they’re concerned with total systemic health the possibilities of long-term ecological and economic wellbeing rather than the quickest shortcuts to GDP growth and profit.

These distinctions are hugely important. They lead us to think more deeply about life, our innate connections to the biospheric web-of-life and our ethical urge to live in harmony with life an urge the eminent Harvard biologist, Edward O. Wilson, calls “biophilia.”

As summarized on this slide, life-mimicking companies seek harmony with the larger web-of-life by becoming more life-like themselves. Their visions are fittingly more positive and inspiring, their structures more synergistic, their behaviors more constructive and their results more sustainably prosperous. Companies that operate this way practice what I call living asset stewardship (LAS).

About 16 years ago, I created a learning lab of these exemplary firms called the Global Living Asset Management Performance (LAMP) Index. Its constituent companies were those I believed to be best-of-breed living asset stewards in their industry/sectors.

As you will see in the next two slides, these LAMP companies became prodigious innovators and creators of value because their life-mimicking qualities inspired employees to work with their hearts as well as their minds.

The secret to success of LAMP companies resides in their spirit, which catalyzes the reinforcing cycle shown on this slide.

Here is how it works. We become inspired when corporate cultures affiliate with our biophilic (life affirming) instincts. In companies that practice living asset stewardship (LAS), we’re more likely to find meaning in what we do. This makes us more eager to learn and more likely to access our higher thinking capacities. Our eagerness for learning and deeper understanding ignites our capacities to innovate. And visionary innovation increases the odds of turning a profit. The cycle repeats as profit reinforces LAS.

It’s important to note here that Global LAMP companies approach LAS with the same professional competence they bring to other critical disciplines such as finance, marketing and product design. And they do this with carefully constructed metric and audit systems, which continually assess the strength of their relationships with employees, customers and other key stakeholders.

The strength of those relationships defines a firm’s relational equity. And this is a critical point: Relational equity is the best leading indicator of financial equity I know.

The chart you see here reflects the value of relational equity through the results of our Global LAMP Index relative to three commonly used peer indices. And it illustrates the effects of compounding consistently advantageous returns.

To grasp the importance of compounding, consider this. The average annual return of the Global LAMP Index over this 15-year period was not quite double the return of its peer indices. However, because it consistently made more in up years and lost less in down years, the compounded result of the LAMP Index was 4 to 5 times better.

Some have asked if this result was the product of frequently changing LAMP Index composition and the answer is no. LAMP results were achieved with less than 1% one-way annual turnover since 2002, when the Index became the research source for my book, Profit For Life. (Results prior to 2002 were on the same 60 companies, which were selected with some benefit of hindsight.)

Also significant, the risk profile of the LAMP Index is comparable to peer global indices a finding that has been validated by the global investment consultancy Northfield Information Services. So what we see here are above average returns achieved with average risk a result that strongly suggests Global LAMP companies are better organized and managed.

To people schooled in traditional economic and investment theory, these results defy logic. Performance advantages, such as those we see here, are supposed to be quickly arbitraged away as the successes of leadership companies are copied.

While I agree that such copying will take place and that the advantages of LAMP companies will eventually be arbitraged away, I doubt that this will happen quickly for one simple reason. What needs to be copied here is not a technology or a manufacturing process, but a corporate culture “¦ and that culture runs counter to conventional practice.

To achieve the requisite cultural shift, traditionally managed companies must dive to the bottom of the iceberg where our beliefs, mindsets and assumptions reside. This takes time especially for companies that are accustomed to command-and-control hierarchies and linear mechanistic reasoning.

Before leaving this slide, I should note that much of the profit growth of LAMP companies is derived from rolling up market share against traditionally managed competitors. This will not go on forever because eventually LAS cultures will prevail everywhere. From that point forward, profit growth must depend upon service and intelligent value added not on using up scarce earth resources.

So, what are we talking about here? If we could define a framework for companies that mimic life, what would it look like?

The broadly shared attributes of life-mimicking companies are easy to understand once you get inside their beliefs and mindsets. Each of the attributes I shall mention in the next slide have been extensively researched and described in books and professional journals. This, however, is likely the first time you will see them presented as a coherent whole.

And that brings me to another important point about life-mimicking companies relative to traditionally managed ones. The defining properties of life are properties of the whole whereas those of machines can be reduced to the sum of their parts. If we want companies to exceed the sum of their parts, to be highly conscious and self-sustaining, they must become more life-like.

Some of you may remember that my first description of LAMP companies’ life-mimicking attributes listed only the first five you see on this slide. Later on I added a sixth one consciousness believing it to be an emergent quality that stems from the original five.

The first attribute you see here concerns networking. Companies that mimic life are organized as radically decentralized networks, much like the organization of our bodies. While they maintain some degree of hierarchy for structure, they localize decision-making just as our sense of touch is localized. They also foster the development of informal collegial networks linking experts within the firm to those outside the firm, including suppliers, universities, key customers and the like. This sensing capacity greatly accelerates knowledge acquisition a huge advantage as we transition from the industrial age into the age of knowledge.

The second attribute you see here concerns the self-organizing, self-renewing and ultimately self-making “autopoietic” attributes that are unique to life. To achieve these qualities LAMP companies serve the professional growth of employees by a process called servant leadership. Their goal is to increase the capacity of individuals and work teams to spontaneously adapt as market conditions change by making decisions on the front lines. In the most advanced LAMP companies, these autopoietic attributes continually refresh product offers and enable firms to reinvent themselves from within.

The third attribute is frugality. Companies that mimic life are frugal in the ways they manage energy and resources because wastefulness makes them vulnerable to predators or early death. Frugality is a survival instinct common to all species.

The fourth attribute looks to the synergies achieved when we are exposed to diverse sources of information and feedback. To optimize such synergies, life-mimicking companies openly share and exchange information within their market ecosystems. Such transparency invites diverse stakeholder feedback, which greatly increases the firm’s capacity to learn, adapt and innovate. Just as in Nature, LAMP companies derive great strength from their diversity of perspective and experience.

The fifth attribute is a symbiotic mindset. Companies that mimic life give back to the larger living systems that support them a behavior we see in all ecosystems. This sense of higher purpose is typically expressed in their values, visions and missions and in the respect they show to their employees, host communities and Nature. It is a source of great inspiration to employees and creates bonds of trust and loyalty among customers.

Finally, companies that mimic life are highly conscious. This attribute covers a spectrum from their self-image as a living system to their awareness of the larger web-of-life. The consciousness of LAMP companies arises from their earlier noted self-organizing networks, which function much like the brain in assimilating information, and from their symbiotic sense of caring. This duality simulates the heart-brain connection that links our emotions and desire to learn, which activate our higher (quantum) thinking capacities. In the best LAMP companies this heightened awareness becomes so integral to employee thinking that it’s like a second nature.

Once we understand these attributes and how they are interconnected we begin to see companies in a different light. Reflecting back on the earlier iceberg metaphor, we now have a conceptual framework and a vocabulary to understand the renaissance now taking place in corporate management.

The three companies on this slide are interesting because they come from industry sectors with very different economic sensitivities and behaviors and because they come from parts of the world with different cultures. Nevertheless, each one affirms the core message of the Global LAMP Index: that living asset stewardship and respect for life resonate everywhere.

In the next three slides we’ll look at the qualities of life-mimicking companies in pairs in such a way that we cover all six attributes. My purpose here is to focus on important structural elements and how they relate to one another so the whole becomes more than the sum of its parts. For lack of time this can’t be a detailed discussion. But I hope it will create a context that leads to greater understanding.

In Nucor we find a model of decentralization and deep networking a web of networks within networks from the corporate level to individual business units and down into the informal communications among work teams at the mill level. The strength of these networks is defined by the strength of the individuals and trusting relationships that exist within them. (Trust, I might add, is the utility through which information flows.)

A close reading of the Nucor story will show how it reinvented the steel industry in three distinct ways. First, and most important in the company’s mind, it put its workers at the center of its universe rather than on the outer fringes a Copernican revolution of industry practice Nucor put into effect more than 40 years ago. In a second point of departure, Nucor created a decentralized web of mini-mills that reprocess locally sourced recycled steel a radical change from the mammoth integrated mills that dominated the industry for most of the past century. Its third innovation was to become an industry leader in industrial ecology with a vision of closed loop manufacturing an idea that still eludes its primary competitors.

Nucor’s culture is one where mill workers write their own job descriptions, manage their work schedules, teach one another and freely share ideas as they work together. The impetus to excel in each facility comes from within the team and it is so strong that Nucor has become the steel industry’s innovation leader with no R&D department. In fact, the firm’s capacity to learn is such we could call it an idea mill that happens to make steel. And the extraordinary thing is: most of its mill workers have no more than a high school education.

Today Nucor is the largest steelmaker in the US and by far the most productive a radical change from its status at the time of its cultural transformation, when it would not have made the top ten.

Canon, like Nucor, is a highly networked generator of ideas and for decades it’s been the global leader in imaging technologies. I feature it here because of its self-generating energy and symbiotic vision.

Canon’s San-ji spirit is a model of autopoietic self-making and self-organizing corporate energy and it has been a core value since the company’s founding 75 years ago. In essence, San-ji asks employees to be conscious of their roles in the larger web of social and environmental life and to take responsibility for their actions and impacts.

Together with its corporate philosophy of kyosei, which envisions living and working together for the common good, Canon appeals to the spirit of employees. They are asked to imagine a better world and to collaborate in making this happen, setting in motion the reinforcing cycle of learning, innovation and profit that energizes all LAMP companies.

Canon’s long-term vision, summarized in its recent Sustainability Report, gives further definition to its mission. It looks to a balance between social prosperity and environmental sustainability that will be a standard of excellence for the next 100 to 200 years a rare exercise in foresight for any organization.

What we see in this culture is a call to innovate towards a transcendent life-affirming goal in ways that balance individual freedom and responsibility. It’s a powerful mixture because it engages people’s hearts as well as their minds: their longing to create a meaningful legacy for future generations.

Novo is perhaps the best example of LAS I have yet seen. Like a living eco-system, it works to conserve energy and the resources it needs to function. And it does this through an inclusive culture of high ideals and prolific idea sharing.

Last year Novo’s Danish operations became fully converted to renewable enrgy. The extra cost of this conversion was almost entirely offset by energy savings that Novo employees found in their individual workplaces.

Novo accomplished this extraordinary feat because the firm uses all its intellectual resources. With four employees represented on the board, front line knowledge and experience gets blended into strategic thinking and visioning. Employees know what the board is thinking, and vice versa. Further, through regular inclusive dialogue, Novo finds it easier to form a common sense of purpose and to implement strategy.

As a healthcare company with a holistic sense of mission, Novo derives much of its energy from giving employees big intellectual challenges. One such is its concern with bio-ethics an issue that connects its work in human health to the biological health of the planet. Another is its goal of “positive net impact” wherein it seeks to return more value to the earth than it takes in, creating value for its customers.

Novo’s over-arching goal of systemic health is also reflected in its frugal financial management. To honor company commitments to employees, customers, suppliers, host communities and investors, Novo consistently holds more cash than debt on its balance sheet. This cash cushion enables the company to thrive and innovate through difficult times, such as the one we’re now in, while less prepared competitors must cut back in ways that compromise their stakeholder relationships.

Over the 20 years ending September 1, Nucor stock has had a total return from shares and reinvested dividends of 925 percent more than 13 times the return of US Steel, which was formerly the largest steel company in North America.

During this same period Bethlehem Steel and Republic Steel formerly the second and third largest steel companies in North America entered bankruptcy in large part because of their inability to compete with Nucor.

Over the past 20 years Canon stock has risen 682% while key competitors Kodak and Xerox either lost value or were marginally profitable. Because of its productivity, Canon today is worth more than 5X Kodak and Xerox combined. This is quite a change from 30 years ago when Canon was smaller than either of these once dominant competitors.

Finally, Novo’s total return to investors over the past 20 years has been more than 3,700% far above industry competitors Eli Lilly and Pfizer. If we were to add the value of the Novozyme and ZymoGenetics spin-offs to these results, I believe Novo Nordisk’s total return to shareholders would have been closer to 6,000%.

These companies, and others in the LAMP Index, are on the leading edge of the emerging corporate renaissance. Rather than trying to dominate and control people and Nature, they are learning how to nurture and affiliate with these living assets.

To paraphrase historian James Carse, LAMP companies are on a learning journey from the finite game of growth for its own sake towards the infinite game of life, where bio-ethics and LAS are central to the enterprise.

This journey, this existential awakening, is not an abstraction. It is real. And the results of its leading exemplars cannot be ignored.

To step back and look at the big picture unfolding before us, we now see why companies that mimic life accrue advantages over their traditionally managed peers.

By placing a higher value on life than on capital in their quest for value, they inspire deep stakeholder loyalty and trust. This feeds back into exceptional employee commitment and innovation, repeat business and referrals from happy customers, patient long-term investors and well-intended advice from other stakeholders.

The growing systems thinking capacities of life mimicking companies convey another important advantage. Because they are more adept at seeing the diverse interconnects and feedbacks in natural and social systems, and understanding the limits of those systems, they are more skilled at dealing with complexity.

The operating leverage of life-mimicking companies, then, is in their reach to human heart and spirit, which are links to our higher (quantum) thinking capacities.

Now we come to the core question of this conference. What can we do to support this emerging corporate renaissance, to create a sustainable path into the next century?

As systems thinker Dana Meadows once said, “Challenging a paradigm is not part-time work. It is not sufficient to make your point once and then blame the world for not getting it.” In fact, those in power often have a vested interest in resisting change, no matter how beneficial it may be.

So we must be strategic, knowing our leverage resides in shifting beliefs and mental models and in reawakening humanity’s biophilic instincts, which have been wired into our genes for thousands of generations.

People today are hungry for change, desperate for solutions. They are also deeply perplexed by the adverse impacts of an industrial system that once carried such great promise.

Yet, few know the story I’m telling today because it’s foreign to their belief systems and excluded from the evening news. Although some may like the sound of it, most don’t trust that respect for life will work in this hyper-competitive world of industrial capitalism.

I, however, am more optimistic because I can see the important changes taking place beneath the surface of events, at the bottom of our metaphorical iceberg. The mind shifts occurring in this important space have major implications for our future. And these, like returns on the Global LAMP Index, have a way of compounding. Success breeds success.

My principal concern is that defenders of the traditional industrial capitalist system will prevail on governments to keep bailing them out and that this will compound error upon error. That is why it is important that we become proactive in demanding change in our capacities as voters, consumers, employees, investors, educators, systems analysts and the like.

Juxtaposed against the failures of industrial capitalism, demonstrated success stories can change fundamental belief systems. Powerful leverage in those most committed to learning.

In conclusion, I believe brain rich companies have a huge role to play in our economic and ecological future. Within this realm, the most powerful leverage for transformative change resides in companies that mimic life because they are the most open and committed to learning.

We, as change agents, must know how these life-mimicking companies think and operate both in order to work with them and so we can explain to others the sources of their success.

People are attracted to success stories. Success overcomes fear and kindles hope. And in hope resides the possibilities of transformative change so beautifully captured in Canon’s kyosei philosophy, Nucor’s employee-centric culture and Novo’s desire for net positive impact. This is how success compounds.

Although much of my case this morning is built on systemic thinking and bio-mimicry, there is yet a more important catalyst to the change we seek. I believe that impetus resides in our spirit, our love of life, our biophilic instinct because these impel us to look ever deeper into the systems that impact our lives.

It is my hope that we all embrace that spirit, that love, and so become full partners in co-creating and expanding today’s renaissance.

Thank you very much.