Rebecca Henderson – Reimagining Capitalism in a World on Fire
In this episode of Ag Future we revisit a conversation that Dr. Mark Lyons, president and CEO of Alltech, had with Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, as a part of the Alltech ONE Ideas Conference. Rebecca explores how to reimagine capitalism so that it is not only an engine of prosperity but also a system that is in harmony with environmental realities, the fight for social justice and the demands of truly democratic institutions. For more information and to register for ONE 2021, visit one.alltech.com.
Dr. Lyons: Hello. My name is Dr. Mark Lyons and I'm the president and CEO of Alltech. Welcome to the ONE Virtual Experience. You're joining more than 24,000 changemakers from 118 countries for an exploration of ideas that could transform our businesses, our lives, and the future of our planet. The name ONE comes from our belief that just one idea, one person, can change everything. In this edition, we'll be exploring the ideas, the ideas of four business thinkers and best-selling authors, beginning with Rebecca Henderson. I believe you'll find this conversation both challenging and fascinating.
She says the world is on fire and climate change is to blame. Is it possible that capitalism is the solution to our sustainability crisis? An economist, scholar, and professor at Harvard University, Rebecca believes that we need to bring business back into balance with the planet. Her latest book, Reimagining Capitalism in a World on Fire, sees business as central to providing solutions and hope to a planet in peril. A leading authority in organizational and strategic change for more than 30 years, today, her work focuses on purpose-driven capitalism and the role that business leaders can play in reimagining our current system. Rebecca Henderson, thank you so much for being with us.
Rebecca: Mark, it's my pleasure. Please do call me Rebecca. Thank you for having me here.
Dr. Lyons: Okay. We'll remember that from here on out. Well, within Alltech, we believe that climate change is not only a responsibility for companies to tackle, but it's also a tremendous opportunity. For me, this really started as a young child and carried through into university and then into my career. For you, it also seems that it was something that began and has an origin, as you've described in the book, in your early life but accelerated through conversations you had with your brother. Perhaps you could share with us a personal perspective of how this new mission began for you.
Rebecca: Sure. As you suggest, I've always been engaged with what we might call nature. I am an out-and-out tree lover. I spent a large fraction of my adolescence lying on the great lower limb of a massive copper beech, looking up at the sky through its branches, and just reveling in feeling safe, connected, and wonderfully happy. Trees for me have always been about the future and about the past, these hundred-year-old beings that have just endured for so many millions of years. For most of my professional career though, I didn't really put the trees in my office as it were. I became a professor at MIT and a specialist in technology, strategy, and organizational change. I was the Eastman Kodak Professor of Management and that's what I did. Coincidentally, I've worked with very large firms like Kodak or Nokia who were facing major shifts in their industry, trying to help them become more innovative and more responsive and more productive.
My love of trees, which became a passion for hiking, camping, and kayaking, was really something apart, not something I really connected to my work at all. That changed about 15 years ago when I happen to see Vice President Gore's movie, An Inconvenient Truth. My brother had been sending me scientific papers about climate change -- he's a freelance environmental journalist -- so I sort of knew the basic facts, but when I saw Gore's movie, I was like, oh my God. For some reason, that movie really grabbed me, made me really realize the urgency. My first thought was I should just quit. I thought, well, here I am oiling the wheels of corporate capitalism. What has that got to do with heading off this existential threat? Of course, one of the things I thought about was the threat to the trees because climate change is killing the forests of the world.
I thought, well, what can I do? I went to my friends who work in activist organizations and for NGOs and I said I want to do something. What should I do? How can I make a difference? They said, "You should stay at MIT and teach business. That business has an enormously important role to play in heading off the threat of climate change and you're in the right place at the right time," so I essentially completely reoriented my career. I started teaching a course in sustainability in business. It was the first course at MIT on that topic. And then ten years ago, I moved to Harvard to help found the Business & Environment Initiative at HBS.
I started teaching a course called Reimagining Capitalism: Business and the Big Problems, which was essentially how can business help, what can business do. If solving climate change requires transforming, let's see. Power generation, power distribution, transportation, all of agriculture, infrastructure, what can businesses do? Then even beyond that, given that we need a systemic change, I think, to address this kind of major problem, what role can businesses play in that? That's been what I've been eating and drinking for the last 15 years. It's been fabulous. I've learned a lot, met so many amazing people. I feel incredibly grateful.
Dr. Lyons: That's fantastic. It does seem like a wonderful way to take that expertise, that knowledge around innovation, around business and development of business, and move into a very much directional place that's much more purposeful. You feel that businesses can play this important, significant role in society, solving major issues such as climate change. I think it's also something that we believe in. We've launched a program last year called Working Together for Planet of Plenty and it's really much more around collaboration, not just our own company, but really working across the globe as an agri-food industry.
Companies, I think we all struggle with how do we move forward with these types of initiatives. Maybe you could give us a sense of some of the elements that hold us back from change or maybe examples of companies who have been able to make these changes and how they went about that.
Rebecca: Let me start with an example of someone who was really able to drive change and then we can back into why that's so hard in general or why it's often so hard. My favorite example at the moment -- because there are so many -- is of my friend, Erik Osmundsen, who left a cushy job in private equity to become the CEO of a garbage company. This was a slightly unusual career move, but Erik had decided he really wanted to make a difference. He thought that the waste business really gave him an opportunity to begin to shift things on a global scale.
Historically, waste, as I'm sure you know, has been a lot about just sticking garbage in holes in the ground and covering over those holes. But what Erik saw, and this is ten years ago now, was that waste could be a major source of raw materials. That if we could really move to a circular economy in which nearly everything was reused, that would not only reduce global emissions of greenhouse gases by millions of tons, which it would, but also help address the problem of mining and digging out primary materials because if you can pull the copper and the steel from a car rather than having to dig it out of the ground, that's a much lower environmental footprint.
So he went into the business with this kind of rosy-eyed, "I'm going to save the world. Hey, this is cool" kind of manifestation and I think that's characteristic of many of the people I know in this area. They really have a passion to make a difference. Then he started riding along with the garbage trucks and he found that the industry was massively corrupt. A lot of garbage was being disposed of illegally. People are even throwing toxic chemicals into the fields of Oslo. The regulations were poorly enforced and the fines for violation were tiny. He thought of quitting because how do you turn around a business that's so thoroughly corrupt?
He decided to go public. As soon as he did that, a number of interesting things happened. The first was that most of his senior team thought he was crazy. Here was Erik going on television and saying the waste industry in Norway is corrupt. "I'm going to turn it around. I'm going to charge the prices that are necessary to run a clean business." The people in his firm were like, "Erik, calm down. Get another cup of coffee." Half of his senior team quit, so did many of his customers.
This is the amazing thing that I've seen happen in firm after firm. The people that were left said, "We really like this. We want to be part of something that's larger than ourselves" and they started innovating like crazy. It turned out there were all kinds of legal ways to cut costs and that recycling was not a fantastic business. Erik will never be a hugely rich man, but a good business. In fact, when you put it out there, customers are willing to pay a little bit more.
He also was able to persuade several of his competitors to join him. We'll come back to this question of partnerships, but of course, if more firms in the industry agree to do the right thing, everything gets easier because you don't have bottom feeders pushing prices and practices to the bottom. His firm is now one of the largest and most successful recycling companies in Scandinavia.
What I like about this story is for me, it has many of the elements. It's got the heroic leader, but Erik would be the first to tell you it wasn't about him. It was about the team. It was about the fact that everyone in the organization got so excited about the mission he was laying out. He found that as a garbage company, he could hire almost anyone he wanted. He became one of the most desirable firms to work for in Scandinavia and they got fantastic people. It's about innovation and using innovation to build a business model that transforms the industry and puts the company in a very strong position.
Once you started to really invest in recycling, it turned out that there was a very significant economy of scale both in recycling the waste itself and in attracting customers in becoming a supplier of raw material, in learning how to operate that business. That gave his company, Norsk Gjenvinning, a significant competitive advantage, so translating that passionate engagement into a competitive advantage. And last but not least, that wasn't enough. He had to bring his competitors with him. He had to bring the regulators with him. So it's about transforming the whole ecosystem if we're really going to build a circular economy. I love that story because Erik is amazing. And as I say, he will be the first person to say, "Rebecca, I'm not the hero. It was the people on the ground. Everybody should be doing this." I think the exciting thing is so many people are.
Dr. Lyons: You do need, it seems like, that person at the top completely convicted and committed, but also somebody with confidence, I think, to say this is the mission we're on. It's amazing to hear there are other benefits to the talent that you're able to attract. The thing that really strikes me is that collaborative aspect and bringing your competitors in. I wonder if you could help -- because that's something that I think we all maybe feel within our own organization we could speak with our colleagues, particularly this year, build up that momentum to move forward with a purposeful mission, but how do we share that with others outside of our organization?
Rebecca: Two things seem to be important. The first is having that burning desire to really make change. That, I think, is the fire that gives both individuals and firms the vision to see that things could change and the courage to push in that direction. The other -- and this is just the same as inside every individual organization -- is you have to have a business case. There has to be a business case. Merely jumping up and down and giving speeches is not going to get us anywhere. I ran the Strategy Group at MIT. I've 25 years corporate boards experience. There's got to be a business case.
The good news, I think, is that as we get more and more firms committed to cleaning up their own operations to thinking more deeply about their own employees and their own workforce, it's becoming clear to many firms that many of these problems, you can't solve on your own. The experience Erik had, which is, wait, if half my competitors are still acting illegally and throwing the stuff away and charging artificially low prices, that's super hard to compete with, so it has to be a cooperative action. So what is the business case? It differs industry by industry.
If we take for example, the case of Unilever that was a pioneer in sustainable palm oil, that was adding 18% to 20% to the cost of one of their largest commodity purchases and they couldn't afford to do it alone. They just could not. So what was the business case? The business case is if we continue to use conventionally grown palm oil, our brands will continue to be vulnerable. So Unilever was being targeted by Greenpeace, people dressed in gorilla suits on the headquarters. Nestle was being targeted. There was a shocking ad that was put out by one of the NGOs showing a man biting into a KitKat and instead of having the candy in his mouth, he had two bloody orangutan fingers. No one likes that kind of publicity. It's just not good, so there was protecting the brand. But there was also, I think, protecting the long-term viability of the supply chain.
These are both collective problems. Now, in that case, Unilever was able to work with other consumer goods companies and persuade 67% of the world's traded palm oil to commit to sustainability, which was an incredible step forward. You saw similar dynamics, as I know you know, in beef and soy in Brazil, but it's having a clear business case as well as that passion. Let me tell you just one story about a meeting I facilitated amongst chief sustainability officers across a wide range of firms. We were talking about collaboration and it was very nitty-gritty. What is the business model? How do we audit this? How do we move it forward? Then there was a moment in the meeting where one of the participants said, "But let's remember why we're doing this. We have to stop global warming. We have to save the world." It was that wonderful moving back and forth from really being emotionally and individually committed to making this work with doing the hard work of putting the agreement in place and making sure the i's are dotted and the t's are crossed, it's that combination which it seems to me as essential. Of course, it's why I love being an academic. It's easy for me to say. Doing it is really hard, but I think we're seeing more and more examples of people doing this on the ground and doing it very successfully.
Dr. Lyons: Well, I think one of the interesting things of your role is that you're able to interact with these big corporations, but also small startups. I was wondering, as we reimagine capitalism, entrepreneurialism whether it's within large organizations or it is small startups is going to play a key role, for those two groups, is there any message you might have for those incumbents, but also maybe for those plucky startups that are looking to disrupt?
Rebecca: Oh, I'm a huge fan of the startups. Twenty years studying innovation in large firms taught me that startups cause change. Nothing moves a large organization like a small firm introducing something new and showing there's a different way. So if I think about what's really going to move us forward, I'd put my money on the entrepreneurs in so many ways. What would I say? I'm not sure what I would say that doesn't sound like a cliché. Good luck. This is the way forward. You have no idea how important you are. There will be setbacks, but you will overcome them. We're in a moment, I think, of immense dislocation and transformation. People are starting to become so much more aware of the risks we're running in in taking the planet for granted, and the stability of the atmosphere and the stability of the climate for granted.
I think there are all kinds of openings. So I think the other thing I would say is you are at the leading edge of change. You are surfing a massive structural transformation, which I think is going to take us to an entirely clean economy in the next 20 to 30 years, so be of good cheer.
Dr. Lyons: That's a great message to have. Through this year, I think so many of us, we normally would be traveling around the world and perhaps connecting with friends, with customers in so many different ways. This year for me has been a good bit different, but it has given us the opportunity to probably talk to more people than ever. We're speaking to our colleagues, our customers all around the world, and I would say three major themes have come out. I just wanted to ask you if these are themes that you also have seen or if you're seeing something different. These are three that we felt already existed, but have been accelerating.
The first one was trust. We've seen a real need particularly in such a fragmented chain such as agri-food for trust. The second has been health. Of course, we're all concerned about our personal health, our family's health through this year, and we're probably more aware of good and bad health. The last, of course, is climate change. This was something that our industry was cognizant of, but we've really seen accelerated an incredible level. We've seen, of course, legislation coming through in Europe with the Green Deal. I just was wondering if you had any thoughts on those three themes or maybe you're seeing something else that has been accelerating through 2020.
Rebecca: Mark, I wish we were somewhere where we could slip out for a drink afterwards and you could tell me more of what you're hearing. Trust, health, and climate, do I hear those? Yes, I do.
The one that I also hear that you haven't mentioned is inclusion. I think there's a really heightened awareness of how many people feel excluded from the economic mainstream and how it is overwhelmingly communities of color that are suffering from COVID, that have the jobs that aren't paying or that are being laid off. That's the fourth theme, I would add.
I think health is not surprising. Climate is, I hope, not surprising and I'm so excited to hear that you're hearing that widely. Trust is super, super interesting. My scholarly research is all about trust. Economists call it building relational contracts, which means that you have relationships both within the firm and between firms that are contracts in the sense that I'm saying I'll do this if you do that, but they're relational. They can't be enforced in court. It's basically about trust. My research and that of a bunch of people working in this space suggests that high levels of trust are really closely correlated with abilities to innovate because it's much easier to take risks and try new things if you trust your counterparty. It's associated with agility so you can react to shocks. You don't have to go back to the letter of the contract, but instead can say, well, let's both do the right thing.
It's correlated with distributed power. There's been this research in the business schools forever and ever that suggests if you can give more power to people on the ground and they have a strong sense of strategic direction that the firm will be more resilient and more responsive and more innovative. I think COVID has really -- I know several managers who said, "Oh my God, everyone was suddenly at home and I had to trust them. I couldn't control them in the same way." But what trust does is really empower people through the organization and in the supply chain. That gives you the ability to do so many more things than if you're always watching the quarterly number, looking over your shoulder, doing what's been done before. I'm so excited that that should be the first thing you said. That's what people raised. They raised trust.
Just to get a little bit meta for 30 seconds, we've sort of been running our whole society -- major generalization here -- as if all that mattered was us and right now and getting more stuff. I think one of the things this year that's really raised for a lot of people is it's about the longer term. It's about the community. It's about connection. The folks at McKinsey are running around, talking about how CEOs are switching from just doing to also doing and being. Are you being, Mark? Does that ring any bells with you? Are you seeing that switch, that there's more interest in slowing down, empathic connection, and thinking about the broader picture?
Dr. Lyons: Absolutely. I think that's a huge theme and something that I think through this year, those individuals, those companies who have been able to show that empathy and really understand the situation that their colleagues were dealing with, perhaps that their customers or their suppliers were dealing with, I think that's going to be something. We have been forced sometimes to show more of who we are as individuals and I think that's actually been a great maybe silver lining. There've been a few potentially silver linings of this year, and maybe that is one.
I think to build on that, we've talked about trust as a new currency. We've thought about that in the sense that this is something that really is going to be a major element. But when we look at government, we can see that there's been a loss of trust pretty much globally. At least it seems in the West, as we call it, a loss of trust in government. You talk about this relationship between government, the public and private sector being so important, but how can companies balance in that situation? If you have poor governance, how can you move ahead with some of these types of initiatives as a private sector company?
Rebecca: I'm seeing a lot of firms work that issue locally in particular regions.
For example, I'm familiar with a group of business people in Orange County, California where they've come to the realization that their local educational system is really failing them. Their talent pipeline has been crippled because the local community colleges and universities just aren't providing the kinds of skills and pathways that local people need in order to join these kinds of firms. And so they're starting at the bottom, working with individuals at the community colleges, at the universities. What do you need? What can you do? How can we help?
I'm seeing some business people who are very concerned about heightened levels of inequality in the regions where they live, where there might be populations that are almost excluded from the economic mainstream without transportation systems, with inadequate health care or with inadequate educational systems, working as a group -- again, this is all collaborative, working as a group with the mayor or the governor, trying to work on improving the health of the entire region. Again, the business case there is the businesses want great people and they want to be able to hire diversely and broadly and be located in strong places, and they're really working one-on-one with mayors. What is missing? How can we help? In Columbus, the business community helps spearhead public referendum, for example, to increase funding to schools, so directly trying to improve local capacity on the ground by being an ally to the government in that kind of effort.
I'm seeing these kinds of local efforts. Some of the big IT companies, for example, where they have facilities located in developing nations or some of the big apparel companies where they have factories in places where the local labor laws are not well enforced are working with local governments to fund labor inspection and to train labor inspectors. This is very nitty-gritty. This is like, how can we do better right here, right now? The advantage of that, of course, is that it's very concrete. You're not trying to boil the ocean. It's of course tricky and difficult. Governments are often very suspicious of companies. So back to your point on trust, you really have to show that you're a good partner to work with.
On the more macro level, I think there's an increasing recognition that a healthy democracy is fundamental to a healthy society. I was surprised and heartened by how many firms step forward here in the US to speak out in favor of election integrity and voter participation and having everyone vote or as many people who wanted to vote could. I think that's an example of how business can play a small role in the larger political context in a very positive way. We can also chat about efforts to try and rein in corruption. Any single firm often feels that perhaps they have to participate in cultures of corruption, but if an industry as a whole says, "Look, we're not doing this," again, that's a way to try and improve trust in government and government capacity.
Dr. Lyons: Yeah. I like what you say that corruption thrives in darkness and that when we can work in a collaborative way, that really helps to root out those types of things. I might go back though to your theme of inclusion. I think that that is a lovely fourth. In Alltech, we tend to stick to threes, but I think this one definitely should be included. To think a little bit about some of the challenges that we've had through this year, it's obviously been the challenge of COVID, but the social justice movements, I think you've caught a lot of companies a little bit off guard. Sometimes organizations maybe don't have the demographics, don't have the ear to the ground to be able to speak to those points, and particularly, sometimes executives feel a bit out of depth speaking about these topics.
I wonder, from the experiences you've had this year talking to different companies, if you might have any advice in how companies should think about these things and bring about that aspect of change within their organizations as well.
Rebecca: I'm happy to respond, but I need a health warning on this part of the talk. Diversity and inclusion is not my special area and there are some amazing people working in this space who have thought deeply about this. Mark, I'll give you my impressions because as you say, a lot of executives are thinking about these issues and I have some sense of what seems to be working, but I'm no expert. What seems to be working? Genuinely acknowledging that there's an issue. Sometimes that starts with looking at the data and being very clear about the data.
I know a couple of CEOs who've actually apologized. When they sat down and they looked at gender diversity in the firm or their employment of people of color that they were shocked. This is bound up, of course, with the issue of inequality. Many CEOs didn't really know and some still don't how many people in their firms are working at minimum wage or below a living wage. That's a really important piece of information if you're going to be serious about improving the well-being of your workforce that you really want to have a handle on. So acknowledging there really is a problem, putting some numbers on it, being very concrete about what you're going to do. This doesn't mean forcing everyone through diversity training. All the research suggests that's a bad idea. Making diversity training available so that people who want to can learn more about what's this about, how can I make sure I'm an ally of people of color, how do I think about changing what I do.
I think those of us who are white and privileged -- and that would certainly be me -- I know I've had to do a lot of learning about how am I subtly racist and how do I take my privilege for granted. When I walk into a room with my plummy accent and my reasonable clothes, I just take for granted that people respond well and say nice things to me. I've just taken that for granted all these years. So just beginning to try and come to grips with this. I would put myself at two on a ten-point scale, how comfortable I feel around these issues, but I think acknowledging that we don't know and really talking to our employees about what's happening. I've heard some wonderful stories. I'm sure you have, too. One was about a chief technology officer of a major technology company based in the UK and he was talking to his CEO. He said to the CEO, "You know, I go and visit my mother every Sunday. I drive across town in my Mercedes and I have to wear a suit." The CEO said, "Why do you have to wear a suit to drive across town to see your mother on a Sunday?" The CTO said, "Because I'm black. The police would stop me otherwise." The CEO is just totally floored. He is the chief technology officer of this incredibly successful company, very accomplished individual.
So listening, listening, listening, listening, and then making concrete commitments, working with local colleges, strengthening the pipeline, committing to having more people on a wider -- when you search, making sure that the pool you look at is gender-diverse, is racially and ethnically diverse. It's not just one woman and one person of color, but you're really searching. You're going the extra mile, and then supporting people once they're in position. We know a lot more now about informal mentoring networks, about how we tend to work with people who look like us. It's so much easier to give a little bit of inside tip to how to get around here to people that look like you. It's just sheer coincidence that when I ran the Strategy Group at MIT, I hired a British woman. We like people who look like us. She's totally fabulous, by the way. But it's becoming aware of that bias and taking active steps to overcome it and measuring your progress. Sorry, that was a long answer, but it's such a complicated question and I know there's much more to be said.
Dr. Lyons: But it's a very powerful, very, very timely topic, and something that I think we all need to be thinking about. I reflect on maybe the rise of empathy as something that we should be thinking about for 2020 and being much better listeners and thinking about some of these things. I think that was incredibly useful and I think it'll be very, very beneficial to our team.
I might just with this next question actually congratulate you. You've taken a course. You've taken an idea. You took a bold step. You had 28 students, I believe, the first year in your course. Now, you have over 300 in that course. Obviously, it might be partially the professor, but also the topic that has really grabbed a lot of these students. I wonder if you could share with us what have you seen through the transition way that those students are thinking today because of course, these are going to be the leaders of so many businesses of tomorrow. But also, some of them have already, of course, joined the workforce. Have you seen any of those leaders step out and have an impact in their organizations or maybe it's too early to tell?
Rebecca: First, the students have changed enormously. Thirty years ago when I taught, it's all about making money and being innovative. That's what we focused on and that's what the students wanted to focus on. When I first started teaching Reimagining Capitalism, there were 28 students. Now, there are over 300 and the dean has asked me to take many of the ideas from that course into the required first year course on leadership and governance.
Students are passionate about these issues. I have had the great pleasure of working with so many students who said to me, "Look, I want my life to count for something. I want to make a difference in the world. Where should I work? How should I think about this?" I always tell them, "You already know that. What is your heart telling you? You're super smart. You've done the research. You should go where you feel you ought to go." But there's an openness and a deep awareness to the role of business in the larger world that is quite different than it was not just 30 years ago, but ten years ago or five years ago.
Have I had students who have already done amazing things? Yes. Yes, I have. Two students of color, well, two black students who started a venture capital firm investing in black-owned businesses. Everyone said they were crazy. They were told, "Oh, it's a great idea, but you're crazy." They went ahead and did it anyway. As I'm sure you know, historically, it's been super hard to raise money if you're not white and not male. That's been hugely successful. A couple of other students who have helped start a business that invest just in women-owned businesses, a reasoning that all the data suggests that women entrepreneurs are disproportionately more successful, so let's give them some more money. They've done really well.
I have a lot of students in renewable energy who are instrumental in pushing forward the wind and solar revolutions. It's really exciting to hear from people on the ground as to the difference they're making in real time. And even more so to hear from other students who say, "Okay, I've paid my dues. Now, I want to make a difference. Now, I'm moving into this field" and I'm seeing that a lot, too.
Dr. Lyons: Yeah, that's great to hear, very heartening. When we were doing some research, reading the book, looking at the website, on the website, you highlight three reasons for writing the book. You talk about the urgency of climate change. You talk about inequality, but you also touched on one called -- you're thinking about vilified institutions. I think as being a science-driven company, a company that really puts a lot of focus and importance on experts, I think the way that institutions and the way that a lot of science is being looked at is something that we are concerned about.
Agriculture and agri-food is a sector, of course, that's providing food for our global planet, global population. In many regards, we believe if done properly, it can overcome a lot of the health challenges of the world. But it's also a sector that's under threat. This year has really broadened our sense of sustainability, not just sustainability in terms of the environment, but also a lot of the livelihoods of those who are producing our food.
I think one of the things that we've been struggling with is we know as a sector, we can continue to improve. If you look back 30 to 40 years ago, the improvements that have been made in terms of efficiency of food production are pretty staggering. But at the same time, by and large, for a lot of people, when they think about where their food comes from, they're somewhat unaware and they probably have a slightly more negative view. Certainly as a sector, many of the agriculturalists feel somewhat vilified. So that word, when I saw it, it kind of jumped out at me.
I wonder. How does the sector approach this and how can we participate in the conversations that are taking place whether it's regulations being made or conversations with consumers, and be part of those as equals, and also with credibility?
Rebecca: Wow. One concrete example that comes to mind is that of genetically modified food. My understanding of the science is that there is no evidence that genetically modified food poses any threat to human health, and yet there are many millions of people who won't touch genetically modified food at a moment when, as I understand it again, we're going to need to genetically modify our food if we're going to feed eight to nine billion people, so that would be a very concrete example.
This is a super tough question. Working with students, I'm very aware of how easily a company can get vilified. I think there's no shortcut to rebuilding that conversation and rebuilding the relationship, being as absolutely as transparent as you can, being consistent. I think what really bothers the younger generation is the perception of cynicism, the perception that they're being spun. Here's the lovely, fancy CSR report with puppies and kittens and fields of waving grain. And over here is the dead zone in the Gulf of Mexico and the overuse of fertilizer and the running down of topsoil, the extraction of fossil water, and then fill in whatever vilification you want to include here, so being really clear and really transparent about what you're doing.
The other is being clear about the plans for change. What better antidote can there be than showing we're using so much less fertilizer, so much less water? We are really trying to increase the nutritional content that's in the food supply and make nutritional foods available at a reasonable price. It's convincing stories in depth. In my book, I talk about Lipton's move to sustainable tea, and Michiel Leijnse, who was hired as the brand manager for sustainable tea. This was a product that was about the least sexy product you can imagine. This is teabag tea, essentially a commodity, huge pressure on price. Michiel came up with the idea that we should make tea sustainable. Everyone was like, "Are you crazy? No one's willing to pay more for teabag tea. And we'd have to train 50,000 to 100,000 small holders and somehow communicate what we've done in a way that didn't suggest that we'd made the tea taste worse. What are you thinking?"
It took him nearly six months to persuade his superiors that this was worth trying and a lot of work on the ground to make it happen and a lot of follow-through, but they did. They made Lipton tea -- I believe it's now almost entirely sustainable. That doesn't mean it's perfect, but that came with real improvements in livelihoods of the tea workers who were among some of the most disadvantaged workers in the world, with much less use of pesticides and fertilizer, with reduced emissions, and with increase in market share. Indeed, in some ways, you can say that Michiel took the whole industry. I think that was just consistency, consistency. They said they would do it and they did it. They hired the outside auditor and they measured what they were doing. They were able to communicate that in a way that stuck, but that takes long-term focus. It's not something you can do in a few months and just say, okay, now it's done.
Dr. Lyons: Yeah. It takes a long vision and commitment to that vision. We see this appetite, I think, amongst a lot of stakeholders in the food chain for greater sustainability, greater transparency, but it always comes back to this idea of who pays. When we speak to our customers and our customers' customers, ultimately this gets to the farm gate. Those farmers are often the people who are left with the bill. So one of the things that we're a big proponent on is how do we make sure that some of that premium, if it's market share or if it's a premium price, makes it back to the farm gate.
Maybe you might have some other examples from other industries of how we can create that shared value or create benefits throughout the chain so that we are incentivizing and not disincentivizing often bad practices or not as progressive practices throughout the chains.
Rebecca: Let me put in a word for regulation at this stage. I'm deeply sympathetic. Getting consumers to pay more for sustainable product is really hard. The only places where it seems to happen reliably are high-end, luxury goods, think Tesla, and certain demographics. Think pointy-headed, middle-aged women from the East Coast. People like me will pay more for sustainable food, but most people, they say they will, but in practice, they won't. So what do we know about that? We do know that people will switch brands. If you can persuade them that this is as good a product with the same benefit at the same cost that they will pay more.
At Unilever, for example, they're seeing their purpose-driven brands grow 40% faster than their more conventional brands, so you can see market share gain. And in principle, you could propagate that back down the chain. But the most reliable thing to do is to put in some kind of regulation or tax that ensures that everybody has to pay more and that that can be shared on the ground. I'm thinking, for example, here about -- and you asked for examples from other sectors. Well, let's take solar and wind. This is a classic example.
Fossil fuel-generated electricity is cheap, but it is dirty. The estimate suggests that $10 worth of coal-fired power causes about $26 worth of damage to human health and damage to long-term climate. So it looks like it's cheap, but actually, it's really expensive. In those places where governments have been able to put a tax on climate emissions so that if you're selling a product that causes climate change, you have to pay a little bit of a tax, and then either send that tax back to consumers or back into the economy in other ways, you see that benefiting the people who are doing the right thing. So if you have to pay a real price for fossil fuels then solar and wind look pretty cheap. Some jurisdictions, half the world, they're already cheaper than fossil fuels, but if you get the price right, they look cheaper everywhere. We're seeing that happen without long-term harm to the economy, and of course, with the long-term benefit of addressing climate change.
I think regulations that enforce doing the right thing are hugely helpful. In thinking about Walmart that is very concerned about education for people who have never gone to college, who have just graduated high school and is very concerned because the statistics suggest if you really don't have any more education that the rest of your life is going to be super, super hard. So Walmart would like to invest more in training and is investing more in training, but everything is easier if you have a government that's investing more in training and is supporting people in going on to a secondary education that fits their needs. I'm a big fan of government regulation to address these kinds of issues. I know that's going to be unpopular with many people listening, but historically, it's super effective. If you can get well-designed legislation, that means that everyone is on the same playing field and the playing field is level. That's super helpful in persuading people to do the right thing.
Dr. Lyons: Yeah. I think it depends. If we can get everybody in the room, we can have it well thought through and I think we can do some interesting things. It's been interesting. In our sector, there has been a connection with energy. We've seen some places where there's been an incentive to convert often animal waste to energy in a very efficient way, and that is potentially another income stream for farmers and for producers, which creates the right incentives. I think that's always one of the big questions we have. Which is working better, the carrot or the stick, or is it a balance of the two?
Rebecca: You nearly always need both, right?
Dr. Lyons: Certainly. I think that is going to be the way. In your book, Accelerating Energy Innovation, you talked a little bit about agriculture. You talked about how in the 19th Century, there was this entrepreneurial innovation and there was also government investment in R&D. How have you seen that part of government involvement in the private sector play out, being able to look at research and development and incentivize some innovation through that?
Rebecca: A few years ago, I wrote a book called Accelerating Innovation in Energy: Lessons from Other Sectors. I pulled together a whole group of my fellow economists who study innovation and I said, okay, what do we know about what's really driven innovation? Because there's no way we're going to fix climate change without a massive wave of innovation in many, many industries. There were, I think, ten of us and there's a chapter on biotech and a chapter on chemistry. There's a chapter on agriculture, hugely innovative in the 19th Century; a chapter on the internet, the invention of the computer, what really drove innovation.
After we'd written all those chapters and came together and we're trying to draw some conclusions, three things jumped out. The first was the importance of enabling entrepreneurship because it's when you get lots of new firms in an industry that that seems to be really helpful in driving innovation. The second is having strong demand. In many of these industries, it was very interesting. The government acted as the first customer. Really in computers, which are the most well-known example, the first 20 or so computers were bought by the Department of Defense. They were mind-blowingly expensive, but every computer became cheaper. So it was DOD's support that really enabled computing to begin to reach a price at which anyone could afford it, or at least initially, the big firms could afford it. So providing demand, and that's why putting some kind of price on fossil fuels and making fossil fuels expensive and thus generating demand for renewable energies, or for cows, for example, that emit less methane either because their food has been supplemented or they're eating something different, that kind of demand signal really drives innovation.
The third is support for fundamental R&D. Individual firms don't have a business case for investing in long-term research, in fundamental breakthroughs, in physics, in biology. Those really have to be funded by the public because their benefits are going to be so widespread, but they are enormous. I once wrote a paper in my early life when I just studied innovation, trying to estimate the rate of return to government spending on R&D. I'm going to be a little bit off with this, but the number I came up with, I think, was an 18% rate of return plus or minus 20%. It's government-funded R&D that gave us the pharmaceutical industry, that gave us modern agriculture, that gave us modern chemicals, that gave us the computing industry. It's absolutely fundamental pursuit of science and truth.
It sounds so basic, but as we think about what made the US such an economic powerhouse, one element of that was the universities and the fundamental spending in science that the US government started right after World War II. I'm not sure what I can say that would be stronger, but if we are going to get through this transition -- and I'm sure we will -- more spending on fundamental research can only be helpful. Let's take a concrete example. I think in the long-term, it's fairly clear that if we're going to address climate change, we have to reduce meat consumption. Well, we can't tell people to eat soybean burgers forever even if they taste very good. So one of the most promising means to replace beef is with cell-grown meat, which is biologically identical to beef. That's a fantastic opportunity. It requires a lot of breakthrough science. I'm sure you know more than I do of all the opportunities and the way in which fundamental advances in biology and chemistry would really make a difference to the agricultural system, and my guess, the rate of return, the social rate of return would be off the scale.
Dr. Lyons: Actually, I think it's interesting that you bring that up because it's a bit like your startups. Certainly, the cell-based meat sector is a startup that is obviously being noticed by the rest of the sector. That actually brings about change within the primary sector. I think that there's a huge amount of work both showing improvements in terms of reducing the environmental impact of meat, milk, and egg production, but also, I think looking through that data and saying this is the true impact. I think sometimes those startups can have an outsized impact not just in terms of their primary production in the market share that those products have, but also the impact on the broader sector.
This book, certainly you work with boardrooms, with CEOs, with tremendously talented Harvard future MBAs. But I think that you've also reflected on the impact, maybe not for executives, but really something that I think is so universal here, that climate change is going to be something that needs the impact of so many people. What was the impact that you wanted this book to have, and maybe beyond the book, what you want to do perhaps for the rest of your career?
Rebecca: Initially, I just hoped a few people would read it and think it was decent. That was my hope. I wrote it because several of my students asked me to. They said, "You know, Rebecca, this course is pretty interesting and I'd love to be able to talk about it to my friends."
"I'd love to be able to explain to them how business could make a difference, how individual acts by all of us could really add up to wide scale change." That's really my hope for the book. There are so many thousands of amazing people out there already driving change. My guess is several of them are listening to us right now. Sometimes it can be kind of lonely and there's a temptation to despair. This is a really difficult moment and there are lots of ways in which things could go wrong.
I wanted to write a book that reminded people that we have the technology and the resources. We can definitely technologically solve the problem of climate change and feed everyone on the planet. We can certainly do that. This is a political, cultural, and organizational problem, and here's how you could solve it. The book is, I hope, to generate hope. Here is how action by individual firms can add up to really changing things that scale. Yes, I wrote it for CEOs, but a lot of CEOs are busy and stuck in their ways. I guess I wrote it mostly for people on the ground really trying to do this, talking to their friends, working at their individual divisions and at their jobs. Could we do this differently? Why not? That's my hope. So if it reaches people and makes them hopeful and encourages them to keep doing what they're doing then mission accomplished as far as I'm concerned.
Dr. Lyons: Well, I think you're a long way there for sure. Certainly, I have a group of readers within Alltech that enjoyed the book. Might I just ask you one last question, and one that we like to ask all of those who have been on the platform since May all the way through now into December. What makes you optimistic for the future?
Rebecca: I'm not optimistic and I'm not saying I'm sure things will go fine. I am not. It's not clear they will. I am hopeful. As I said, we have the technology and the resources to address climate change, and give everyone on the planet a decent job, food security, and a place to live. We can afford that. I'm hopeful because humans are really smart. I think we're too smart to let the planet go down in flames. At root, we care about each other. Yes, we're business people, but we're also parents and friends and children.
I think you might have seen in my book that wonderful cartoon by Tom Toro where there's a group of ragged children sitting around a fire with the ruins of civilization in the background, and there's a businessman in a ragged suit sitting there. He says, "Well, yes, we did destroy the planet, but for a beautiful moment in time, we created a lot of shareholder value." Anyone I show that to laughs uneasily. That's why I'm hopeful because we know that we're in this crazy place where we have to change what we're doing and that we must do it. So if that makes me optimistic, that's what makes me optimistic.
Dr. Lyons: Yeah. I think we'll accept that as optimism. Rebecca, thank you so much for being with us on the ONE Virtual Experience. I've really enjoyed it and I know our viewers will as well.
Rebecca: Mark, thank you very much. I'm very honored and it was a pleasure to talk. Thank you.