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Don Tapscott: The Corporate Ethics Bar Rises Globally After 9/11

Don Tapscott is a business technology consultant and international authority on business strategy and organizational transformation. His clients include executives of many of the world’s largest corporations and government leaders from many countries. In 1994 he co-founded Digital 4Sight (www.digital4sight.com) a company that researches and designs new business models. He is also founder and president of New Paradigm Learning Corporation (www.nplc.com), chairman of Maptuit, an application service provider offering location-based and eLogistics services using both wireline and wireless protocols via the Internet, and adjunct professor of management at the University of Toronto. A prolific and best-selling author, Don Tapscott regularly contributes articles and opinion pieces to many newspapers and magazines, and is a columnist for enRoute, Intelligent Enterprise and Director magazines. He is author or co-author of seven widely read books on the application of technology in business. His newest book, co-authored with David Ticoll and Alex Lowy, Digital Capital: Harnessing the Power of Business Webs (Harvard Business School Press, 2000), describes how business webs are replacing the traditional model of the firm and changing the dynamics of wealth creation and competition. Tapscott’s earlier books include Paradigm Shift: The New Promise of Information Technology (1992), the first book to describe the fundamental change in computing from host-based systems for controlling costs to networks for transforming business models and strategy; The Digital Economy: Promise and Peril in the Age of Networked Intelligence (1996), which was seven months on Business Week’s best-seller list and has been translated into 20 languages; Who Knows: Safeguarding Your Privacy in a Networked World (1997); and Growing Up Digital: The Rise of the Net Generation (1998).

Mr. Tapscott earned a B.Sc. (psychology and statistics) and an M.Ed. (specializing in research methodology), and was awarded an honorary doctor of laws by the University of Alberta.

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Ethix: Your work through the ’90s described and analyzed a fundamental “paradigm shift” in business, driven by information technology. What do you see as the hallmark of business change in this first decade of the 21st century?

Don Tapscott: In the world of instant communications there is a whole new set of powerful drivers coming together to change the basic architecture of the corporation. Rather than vertically integrating, firms can focus on what they do best and partner in “business webs” to do the rest. But there is a broader change occurring in the way we think about the role of the corporation in society. The corporation is having to become a responsible and ethical instrument for social good, not out of some moralistic purpose but in order to compete and create shareholder value. Companies should think of themselves as needing to be “blue.” They’ve always understood the need to operate in the black and stay out of the red, and then this was supplemented by wanting to be green. But in the modern, ultra-transparent economy, companies should now strive for blue. When companies do the Right Thing, they are blue. Our companies are having to rethink how they interact with markets and societies. This is particularly true after 9/11.

The corporation is having to become a responsible and ethical instrument for social good, not out of some moralistic purpose but in order to compete and create shareholder value.

Historically, though, haven’t companies who have tried this not been very successful? Control Data, for example, made a big push for social responsibility and lost its way as a company. They were doing it out of generosity and for ethical and philanthropic reasons …

Blue has nothing to do with philanthropy. It has everything to do with how you compete in business. We now have a world of powerful communication technologies. There are 450 million people on the Internet and as that becomes what we call the Hypernet — pervasive, ubiquitous, broadband computing — there will be billions of people on this vast network of networks. This is changing the basic model of the corporation as we now have network-based enterprises — and it means the rise of the transparent corporation where just about everything you do will become known. Throughout the enterprise, employees are guided in decision making by whether or not their customers would approve of the choices made.

If you have slave labor in your value chain, everyone will find out about it. The chocolate industry was recently rocked by revelations of child slavery in the Ivory Coast. Nestle and Cadbury responded that they hadn’t known anything about this and had just been buying their cocoa on an open market. But in a world where everybody knows everything that’s not an adequate response. So for business reasons, Nestle and Cadbury got together with governments, non-profits, cocoa growers, and others, in a big program to eradicate slavery from the value chain.

Companies should think of themselves as needing to be “blue.”

Even in Asia — where corporations have been very opaque, often privately owned, without good governance structures, and with boards of directors that didn’t really know what was going on in their companies — everything is changing. Transparency is forcing every company to think about the implications of their entire operation being scrutinized.

People out there want to know what your whole supply chain looks like. Who is in it? Are you moving factories to places in the world that have less stringent or even unethical labor practices? What is your policy about sustainability? How do you approach the protection of the environment? Labor relations? How do you view the placement of research and development in the world? This transparency of the networked enterprise is the first big driver of fundamental corporate change in our decade.

The second driver is the phenomenon we call globalization. It’s been going on for a while but now it has really hit its stride. It’s not just about global markets or even global operations. We used to have national economies and nation-states based on these national economies. A nation-state has borders, an internal domestic market, a rule of law, and policies to govern the behavior of everybody, including corporations. As long as a company didn’t break the laws it could pretty much do whatever it wanted.

But the emerging global economy has no corresponding global institutions of governance and this leaves a huge gap. You may be subject to certain laws and behavioral guidelines in the country where your corporation is based but elsewhere around the world be subject to no standards about many things. Many corporations are bigger than the countries within which they operate. They have massive power and can pretty much do whatever they want, unencumbered and unfettered.

Are you suggesting that the control will come from the marketplace rather than the government?

That’s exactly what’s happening. Increasingly, civil society is organizing to fill the vacuum. It’s as though the old consumer groups of the industrial economy are suddenly on steroids. With the Internet, hundreds of millions of people now have at their fingertips a vast, powerful tool for sharing information and organizing. In the industrial economy, an issue had to be sustained in the media to play an ongoing part in consumer behavior. This is no longer true. Customers can refresh their memories at any time without relying on the fourth estate. Web sites and email can persistently remind consumers to boycott or give their business to particular corporations. Blue companies understand that this spotlight is relentless and that bad decisions won’t fade away.

In 1992 Nike decided it needed to address the issue of its supply chain. It started by adopting a whole series of internal values and policies to govern its operations. It took steps to improve its labor practices in countries around the world. But it still had a few incidents where it got caught and then punished in the marketplace. In one story a customer ordered a custom pair of Nike shoes (a Nike practice) with the word “sweatshop” embroidered on the side. Some low level manager at Nike said “no.” The frustrated customer sent out an e-mail to a few friends and shortly thereafter was on Good Morning America speaking to 10 million people. Nike probably lost tens of millions of dollars as a result and its brand was once again tarnished. Anybody with a brand to protect is very vulnerable in this environment.

This transparency of the networked enterprise is the first big driver of fundamental corporate change in our decade.

In the past you competed by having lower costs or better products and services. The emerging, new dynamic is that companies will also be judged by the way they behave in the societies in which they operate. A majority of Americans already bring this kind of thinking to bear on their purchases. This is especially true of the young “Net generation.” I just met a 22 year old who was buying his first car. He likes four wheel drive vehicles but decided not to buy an SUV because he views them as unethical. In the past, companies have felt threatened by questions scrutinizing their operations; in the future, smart companies will welcome this scrutiny.

What has to happen to the leadership of these companies? They obviously have to go through a transformation if they’ve been thinking under one model and now are going to have to act under a different model.

Leaders of old paradigms are often the last to embrace the new, so this is going to be a gut-wrenching change for corporate leaders. This is not something that should be left to a VP of social responsibility or a VP of business ethics or something like that. Just like war is too important to be left to the generals, this is something that all senior management needs to become involved in.

Do you see this happening in the corporations that you visit?

It is already happening in some corporations. Where it doesn’t happen, punishment in the marketplace will be swift. They’re in danger of being Nike’d or Monsanto’d or Home Depot’d. These are now verbs, referring to what happens to corporations that are not on top of this. These three companies are now leaders on these issues, by the way.

All of this is especially true after 9/11; companies are now held to higher standards of ethics and corporate behavior. The insurance companies immediately dropped the war and terrorism exclusions in their policies. Bayer and other pharmaceuticals offered Cipro and other drugs at highly reduced prices. General Motors pumped up its internal cultural diversity program because it was fearful of a major backlash in racism and conflict between ethnic and religious groups.

All around the world companies are looking carefully at their operations, not just from the point of view of security, but from the point of view of perceived power in our super-politicized environment. That’s one way of describing it. Business is becoming politicized and that means ethical behavior will come to the fore. In a politicized world everybody is supersensitive to what you do. Any action by a corporation is interpreted as a “statement,” whether intended as such or not.

There’s a great irony here. In the past decade everyone talked about government becoming more business-like. The national performance review; better, cheaper government; bringing market forces to bear on operations. The same thing happened with NGOs and civil society organizations. The irony is that now companies are having to move the other way, caring more about the kinds of things governments are supposed to care about: the interests of citizens and society, interests that go beyond consumption. So this is really an historic change.

…companies are having to care more about the kinds of things governments are supposed to care about: the interests of citizens and society, interests that go beyond consumption.

In the traditional, common view, business affects politics by lobbying, making campaign contributions, and then “collecting” when politicians revise tax structures, trade policies, and environmental regulations. In the emerging global environment you describe, how will business affect political entities? And what role will remain for government in regulating business?

The business of government and the division of labor in society regarding who does what is changing. The nature of governance itself, the relationship between citizens and the state, and the nature of the democratic process is changing as well.

In the past, national governments necessarily became large bureaucracies with sufficient infrastructure to manage very complex nation-states, maintain accountability within society, and control graft and corruption. Large industrial-age corporations themselves looked a lot like their governments; the two grew up hand-in-hand. These large corporations did everything from soup to nuts and were vertically-integrated because the cost of partnering was much greater than the cost of doing everything within the boundaries of the corporation.

Along comes the Internet and the transaction and partnering costs out there on the open market often plummet lower than the cost of doing things within the boundaries of the corporation. Companies can now deliver more value through a business web, a partnership, than through a traditional vertically-integrated corporation.

Now just as business webs are emerging in the private sector, governance webs are increasing in the public sector. Companies, civil society organizations, and governments are partnering together, using the Internet to create and deliver the value of citizenship out in society. This is not about out-sourcing from the public to the private sector and it’s not about reducing the size of government (although that may be a byproduct of all this). It’s about rethinking the way that we create value for citizens in society.

The Networked Knowledge Los Angeles (NKLA) is a good example of a governance web — a G-web — that brings together groups that care about communities in L.A. Underutilized government data is made available not just to government agencies but to private companies, developers, civil society organizations, and community activists. This data shows everyone when a community is getting into trouble. You can see that housing code violations are going up, or petty crime, or school dropouts, or whatever. Storm warnings, early warning signs of a community that’s falling into trouble, are made broadly available. Interested groups can then come together and do an intervention. Developers can get involved and help respond to the problems; non-profits can set up programs to work with the community; and government agencies can play their role. It’s not so much that each of these entities is changing fundamentally but more that the division of labor in society is changing and through partnership they can do things that before weren’t possible. All this is enabled by the Internet.

Will governmental action still be necessary to deal with, say, graft among multinational corporations? Or will citizen and marketplace uprisings be enough?

Monopolies would be another problem. How will businesses be prevented from developing competition- (and then quality-) destroying monopolies?

Well, until further notice there’s not going to be a global government, not in our lifetime. Unfortunately, there will always be rogues. For example, most companies today in the United States have privacy policies protecting customer information; they don’t sell it to others without customer permission. But there are always the rogues who are into short term profit-taking and then move on to the next thing. There will probably always be a role for some kind of global legal framework to prevent predatory practices. What’s happening now is that in the absence of such global institutions of governance, civil society is organizing and companies will have to change their behavior or they’re going to get punished by the market.

Should we view a radical Islamic fundamentalist movement like the Taliban, or even Al Qaeda, as just another kind of consumer group pressuring global business to do things differently?

For better or worse, these new communication networks have an awesome neutrality. They will be used for that which we command. The old broadcast media were centralized, one way, hierarchical, one-to-many, narrow message, and controlled by powerful owners. This new technology is the antithesis of that. It is distributive, highly malleable, two-way and many-way, and neutral. What happens on it reflects everything both good and bad in society. There is a dark side to all of this. Some of “civil society” is not very civil. Ultimately Al Qaeda is a self-organized alliance enabled by computer communications technologies.

When Ethix has interviewed various CEOs over the past three years they often seem mystified why anyone would be protesting against the WTO or globalization. They tend to dismiss such protesters as not really knowing what is good for them. But it seems to me these protesters are unlikely to accept that sort of patronizing dismissal, that their concerns run a lot deeper than some CEOs have been thinking. Now you seem very optimistic about Internet-enabled globalization and its responsiveness to the moral concerns of people in the marketplace. I love your vision of ethically, socially and environmentally responsible corporations, but why should we share your confidence in the future you forecast?

I don’t find many CEOs these days who say the anti-globalization movement is just a bunch of losers that don’t get it. The really smart CEOs know that while globalization is the future and that ultimately the breakdown of trade and other barriers is something good for society, there remain all kinds of problems. These movements are very heterogeneous, sometimes confused, with ideologies from anarchist to conservative, but with a deep-seated concern regarding the behavior of corporations and this is not founded purely on ignorance.

You have recently said that many corporations lack the “sensors” to sense adequately what’s going on out there among people and societies — and they also lack adequate structures and processes to engage their critics. What is needed to do better here?

Well, it’s much more than having a VP of culture sensing. It’s having a corporation with a clear set of values that permeate down into the bones of every person in the corporation on a global basis. A senior banking executive said to me recently, “If we don’t have our values right we could be put out of business in 48 hours by an incident. Imagine if one of our branches somewhere has been financing Al Qaeda because they thought it was good business. They suspected something funny was going on but thought the company would want them go ahead because it would help the bottom line. But we’re toast in a day or two as the message gets out that we’re ‘the company that finances terrorists’.” So the whole company needs to be on the case and a set of values needs to be infused throughout the organization. Everybody must be on board.

Maybe this becomes truer as authority and responsibility are increasingly pushed down and distributed throughout today’s corporation.

Sure. And it’s not just people in your own company, it’s everybody in your whole supply chain. In the world of business webs it’s tough for you to say “well, they’re just a supplier.” They are, in a sense, part of your extended enterprise, part of your business web, so you have a real interest in their behavior. Home Depot, for example, makes and sells hammers — not exactly a controversial kind of business likely to get caught in a big social, ethical, or environmental movement controversy. Well, the Rain Forest Action Network launched a campaign against Home Depot because it was the biggest North American retailer of old growth lumber. After a bruising two-year battle, Home Depot changed its approach and is phasing out old growth lumber from its supply lines.

I think that you can have a higher order of principles that governs your behavior on a global basis, that results in you being a successful corporation. We need to be sensitive to local markets but driven by a high level of ethical behavior.

The Internet brings these issues to focus and awareness and completes the distribution of power.

So companies need to have a clear set of values. They need to rethink stakeholder relations and governance structures. They must figure out how to establish sensors to know what’s going on, so that if, for example, there is slave labor in the supply chain they will find out about it. How does the board of directors take responsibility for ensuring that they don’t get put out of business in 48 hours by a slip-up in one of these areas? What are the ways to measure performance on this different but equally critical bottom line? Increasingly shareholders are wanting to know not just what the financial bottom line looks like, but about the social and environmental bottom lines as well.

The recent annual report from AES, the energy company, clearly illustrates this concern for more than financial bottom lines and grades company performance on a variety of criteria.

Let’s go back to the dynamics of citizen/consumer pressure on organizations in today’s world. How does a company arbitrate between competing social values and pressures? For example, one important value would be respect for local custom and tradition. We don’t want to be cultural imperialists trampling on people around the world. But on the other hand, we may not want to respect, for example, a local tradition of discriminating against women. Sounds simple but these are huge cultural conflicts. How will they be worked out? Will the new Internet communications media really give voice to every player or stakeholder? Is it capable of capturing the complexity of issues and the depth of feeling on all sides?

How will it all be worked out? With great difficulty! I think that you can have a higher order of principles that governs your behavior on a global basis, that results in your being a successful corporation. We need to be sensitive to local markets but driven by a high level of ethical behavior. Practically speaking, it’s hard to discuss a theoretical situation without getting very context specific. It may be possible, for example, to help change local customs for the better, enlighten a population, or free people from oppression. That’s exactly what’s happening with Cadbury and Nestle in the Ivory Coast. Child slavery may be okay for some people but it’s not okay for Cadbury and Nestle and so they’re working hard to change that practice.

What this does is add to your “relationship capital” — the assets that are actually contained in relationships that you build. This gets back to measurements and financial reporting. We think you’re going to able to measure relationship capital and you’ll be able to monetize it and take it to the bank. That’s how important your relationships with customers will be.

Will this affect accountants and their approach to balance sheets?

I believe so. This is a new form of intangible asset that may ultimately be more important than the traditional assets. Traditional physical plants, plans, and resources are fleeting assets. Twenty-five years ago Microsoft had no financial capital. Today it’s huge. Twenty-five years from now they may have none again if they make a couple of mistakes in the marketplace.

Now these relational assets are not just those within your organization but people outside your organization in the marketplace — customers, suppliers, and so on. Again, this is a historic change. In the past, important relationships were all internal — to your boss, your secretary, your project team relationships, and so on. Now it’s the business web, not the corporation, that creates the value so relationships become assets.

Is Silicon Valley an example of a web of knowledge workers that goes outside of any corporate boundaries?

Silicon Valley is more of a “cluster” — an economic region where different companies get synergy from each other. A true business web is an organization that delivers value for specific customers. There are different types of business webs. We studied 200 business webs and developed taxonomies to describe the different types. This is what’s replacing the vertically integrated corporation. Companies can now focus on what they do best. And they can partner to do the rest.

The same is true for governments. Governments have been doing everything having to do with citizenship. Well, now they can focus on what they do best and partners can do the rest. There are some things that only government can do; only government can force all citizens to do things even if not in their individual interest. It’s not in the interests of criminals to behave lawfully. The adoption and enforcement of laws in the criminal justice system is in the interest of society as a whole.

How can corporations in this new era teach and perpetuate these ethical and relationship values? How do you successfully create this kind of value-infused orientation throughout a far-flung, free-agent, electronically-connected enterprise? Acculturation takes time, for one thing.

We are searching for the best practices to do this. There are all kinds of specific actions that can be taken but the whole is always much bigger than the sum of the parts. Tony Comper at the Bank of Montreal has adopted a clear set of values and holds regular one- or two-day discussion meetings involving all managers. And on a day-to-day basis the values show up in his personal behavior. His staff tells me that it’s not unusual at all in a tricky situation for Tony to ask people “What’s the right thing to do here?” People hear him asking that all the time: “What’s the right thing to do?” Not “How do we get out of this mess?” or “What’s the expedient way?” or “What’s going to cost us the least?” but “What’s the right thing to do in this situation?”

It’s an attempt to create a whole culture, a structure, a system of rewards, a measurement system, a whole modus operandi where a certain kind of value system and set of behaviors are instilled in the “DNA” of the organization and as soon as you come in you are immersed in this. Hopefully when you leave you’ll take it with you.

How do you look at the demise of the dot-coms relative to the future of business webs? Didn’t the dot coms try the new business web approach — and fail?

Internet business success is not about creating web sites that get lots of eyeballs or are really sticky or are big portals. Many dot coms were doomed from the beginning because they were VC plays designed to create wealth for shareholders, not to create value for customers. That’s what was driving them. If you traveled along Highway 101 eighteen months ago there were all these billboards ads for dot-coms. Fifty-five thousand dollars a month for a garden dot-com billboard featuring a full garden growing on the billboard! But why would you be spending 55 thousand dollars a month on this strip of road off the heart of Silicon Valley if you’re after a global market? They weren’t advertising to the market and to customers. They were advertising to themselves and to VCs, analysts, and capital markets. They didn’t have valid value propositions or real business strategies.

Our perspective is that you create a value proposition for customers, something that would delight them. You disaggregate it into its elements and bring together a business plan to deliver it. Now, does that mean that all business webs will succeed? No. Cisco Systems, for example, created an awesome organization. They became the most valuable corporation in the world using this b-web thinking. But you still have to do the fundamentals. You still have to be able to forecast. In fairness to Cisco, in two quarters their marketplace dropped from a 70 percent growth rate to a minus 20 percent rate. Their forecasting indicated that something horrible was happening but they just couldn’t believe it so they built up inventory and got hurt a lot. So, build a business web — but make sure it is a high performance business web.

Let’s take another example, the dot-com grocery business. It seemed like there was a pretty good case for it and yet it seems that those who tried could never close the value proposition.

Some of them are quite successful. Tesco in the UK is a hugely profitable on-line grocery business. But they’ve done it right with a real simple environment for people to use. They exploit the existing distribution channel that they have at the physical store. That was a key error it seemed to me in the USA with WebVan, for example. Now if WebVan had another 500 million to throw at it, could it succeed? Probably. If it had different market timing, could it succeed? Maybe.

There are a whole bunch of things needed to build high performance business webs. It’s important to understand that the b-web is the generic vehicle for wealth creation in today’s economy, just as the vertically integrated corporation was the basic vehicle for wealth creation in the industrial economy. But simply creating a vertically integrated corporation didn’t guarantee you success in the marketplace; you had to be better than all your competitors. Similarly, the new vehicle for wealth creation is the business web, but this doesn’t mean that all business webs will be successful. Some will prosper and some will falter. So the Internet is not about dot-coms but about a new infrastructure that lowers transaction and partner costs … which enables the rise of the business web and the demise of the vertically-integrated corporation.

You’ve had a long-term interest in education reform. Are we adequately preparing students, young and old, for effective and wise participation in our global, high tech world?

We are witnessing a profound change in the nature of education and the role of educational institutions in society. We have a new ubiquitous medium of communications that is creating a new infrastructure for learning. Peter Drucker predicted in Forbes Magazine that American campuses will be relics in 30 years because they came from a historical period when learning happened at a certain physical location — and that’s now been obviated by networks. So learning can happen anywhere, that’s the first big change.

Second, while education traditionally happened for a certain period of your life, followed by a long period of work, today, when you graduate you’re not set for life, you’re set for 15 minutes. If you’re studying technical areas, half of what you learned in your first year is probably obsolete by the time you get to your fourth year. Lifelong learning is the new possibility and necessity.

Third, there is a new pedagogy. The old model was based on the lecture and what I call “broadcast learning.” I’m the teacher; I have knowledge. You’re a student; you’re an empty vessel. Get ready, here it comes. Your task is to take it into active working memory and, through practice and repetition, build deeper cognitive structures so that you can recall it to me when I test you. This whole model of learning is a problem. We can now have self-paced, student-focused, customized, highly-interactive learning environments where the role of the teacher is not as a transmitter of data but as someone who structures the learning experience.

Some are trying to create university education totally independent of any personal relationship between professor and student. Is that where we are headed?

There is an even more important role for humans in the new educational model and it is being implemented successfully in many places. At Virginia Tech, for example, there are no math lectures. Students learn statistics interactively on the computer but the prof is still very important in structuring that whole experience. And if you think about your greater teachers, they were great not because they were great transmitters of data but because they challenged and inspired you to think and to put things in context.

I would bet, however, that you probably still stand up in front of crowds of people and give lectures and presentations. So there is a place for that kind of thing. People do learn from it sometimes.

But audiences remember about 5 percent of what I say. If after a three-hour meeting they remember a couple of ideas and are really turned on by them at the end, I’m happy.

Postscript:

Global Investigation of the Blue Corporation Don Tapscott’s Digital 4Sight group has initiated a new partnership of large companies (with Hewlett Packard as the Executive Sponsor) to investigate how companies build relationship capital and enhance shareholder value through strong values and corporate behavior appropriate for the new volatile, global business environment.

The project, called “Leadership in the Networked Economy,” will examine issues such as measuring corporate performance, developing a Transparency Strategy, and Stakeholder Relationship Management as part of building and managing Relationship Capital. For more information: www.digital4sight.com

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