"The Virtue Matrix", Roger Martin, Nov. 21, 2002, 8:10 a.m.

Roger Martin, Dean, Rotman School of Management, University of Toronto, at "Strategy on the Edge: Charting the course in turbulent times", Strategic Leadership Forum, at the Design Exchange, Toronto, Nov. 21, 2002, 8:00 a.m.

These participant's notes were created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the IBM Advanced Business Institute ( http://www.ibm.com/abi).

Introduction by Terry Achison and Melinda Kretz, conference co-chairs

Roger Martin, joined 1998 at Rotman School as dean

• From rural Ontario, Harvard College, then Harvard Business School.
• Co-founder at Monitor Group.
• Non-academic in a academic world
• Takes a concepts, balancing tasks at hand with learning and creativity.
• Published many articles, Harvard Business Review

[Roger Martin]

Why it's great to be here.

Origins: Was giving a talk at the Planning Forum, in Atlanta.

• Got to the conference, and wanted to talk about a new thing: the Responsibility Virus.
• Doing something bad, because wasn't supposed to be the talk.
• Two editors from big publishing houses came up and said should talk about this.

Today, will talk about the Virtue Matrix.

Three motivations for writing the HBR article

1.  Need to cut through the fundamental point of confusion on corporate social responsibility.

• Corporations are bombarded to "be more responsible"
• Does this mean abandoning shareholder value?
• The answers aren't clear.
• At the Aspen Institute, meeting on Corporate Social Reponsibility with Peter Senge, ..., and three business school deans
• Even though everyone wanted to see more corporate social responsibility, they didn't know what it meant.
• Response:  Senior executives already have enough confusion, but then adding on corporate social responsibility without knowing what it is doesn't help.
• Also motivated by work by Michael Jensen.
• It's impossible to make decisions to maximize two separate things simultaneously.
• Thus, maximizing both shareholder value and maximizing social responsibility can't be done.
• Thus, the virtue matrix says -- it depends.
• It's intended to help people through what situation they're in.

Diagram upper left:  Strategic frontier

• Leader is motivated to take action.
• More social responsibility, plus benefit to the organization.
• Prudential Canada president, Ron visiting AIDS patients at Casey House.
• What could we do to help?
• Message:  Help us die with dignity.
• Developed viatical settlement.
• When death is certain, don't need to wait for death to pay benefits.
• Didn't ask the U.S. parent.
• Everyone else in the industry now follows.
• Prudential seen as a leader
• A strategic-motivated innovation great for the company, and great for the world, therefore widespread adoption.
• Another case:  Body Shop

Diagram upper right: Structural frontier:

• Corporate action won't motivate social responsibility.
• No one will follow.
• Malton Mills in Massachusetts didn't close, but they went bankrupt.
• No one else followed, because it didn't make economic sense.
• Depending on where you are in the fronter, need to make a decision.
• Only collective action by a number of companies will produce a result:  need companies to get together.
• e.g. elimination of greenhouse gasses, or else need regulation.

How do you know which box you're in?

• More of a continuum, depends on how many externalities created.
• All externalities:
• All the benefits will flow to someone else.
• e.g. reducing greenhouse gasses don't help the company.
• No externalities:
• A new substance that is patentable.

One of the risks of playing on the frontier (the wild west), it's hard to tell where the frontier is.

2.  Second motivation for writing the book.

• There are roles for everyone in social responsibility.
• Including consumers.
• e.g. P&G created environmentally-friendly package
• Thin-film liquid packaging.
• Buy first bottle, then refill it with thin-film packages.
• Huge investment.
• But consumers didn't buy them.
• Loss of huge investment.
• P&G would have seen this as being in the strategic frontier, but it was actually in the structural frontier.
• In Scandinavia, have brown toilet tissue, and disposable diapers.
• Bleaching is one of the most environmentally damaging parts of the pulp and paper industry.
• Unbleached products are more accepted.
• Workers can also play a role, but consumers are important.
• NGOs can bring higher awareness, influencing workers.
• They are too focused on one way of approaching problems:  lobbying governing.
• Exceptions:  World Wildlife Fund goes to consumers.
• Would argue that going to consumers directly is more important.
• Government:  regulating on the strategic frontier is the most unhelpful way, inflexible and rigid.
• e.g. In 1990, British Columbia had the lowest productivity, profits, etc.
• B.C. in the 1990s should have done the best of the provinces.
• Hard to do government regulation.

3. Sensible motivation for corporation social responsibility.

• Diagram bottom :  Civil foundation:  influence the civil nature of society.
• How do things get into the civil foundation?
• Things are often from the structural foundation (regulation), down.
• From strategic frontier, through norms and conventions -- e.g same sex benefits -- adoption of a succcesful program.
• Civil foundation is ensconsed in the society.
• e.g. charter of rights.
• At the top of the strategic frontier is things that no leader would think about.
• The movement of things from the frontier, tends to ratchet up the civil foundation over time.
• If we look at the civil foundation today from 100 years, difference is visible.
• Workplace safety, same-sex benefits, etc.
• Diagram doesn't confirm with reality, because the civil foundation is miles deep.
• This is something we should feel good about.
• Social development is about development of the civil foundation.
• It's very important, and worth fighting for:  will have a more civil society, and better for everyone
• Enron, Global Crossing, etc., are worth getting hot about.
• They chip away at the civil foundation.
• They're taking a shot at the bricks.
• The reaction to these is appropriate.
• It takes inspired leadership to ratchet up civil foundation.

Need to speak to globalization, and generally being optimistic.

• The difference between developing countries and Canada/U.S. is that we have deeper civil foundations.
• In most developing countries, little depth in civil foundations.
• Things deep in our foundation are often deep in developing countries' frontier.
• There's a mismatch between our foundation and their frontier.
• When there's a conflict between our virtue matrices, do we ratchet down, or do they ratchet up?
• If first world ratchets down, and lowers standards of behaviour, staying within their current civil foundations, it will result in an averaging down.
• Averaging down will cause more battles in globalization.
• Walls will go up.
• There is a non-trivial danger in this happening.
• If instead, the third world ratchets up, then we'll have a strong improvement in civil foundations.
• Who will make the difference?
• First world corporations.
• NGOs, workers and consumers can be helpful, but lots of responsibilities are in the hands of first world corporations.
• First world corporations need to play relentlessly in the frontiers when in the third-world countries.
• Can't play "when in Rome", either with the government or with other competitors.
• Optimistic, generally with first world corporations -- North American multinationals.
• They're disproportionately good.
• When P&G refuses to be in a country until they don't accept bribes, it's important.
• Also IBM, 3M, etc.

Summary of three motivations:

• Clarify
• Demonstrate many roles to be played.
• Provide a sensibly optimistic view of the past, and help leaders make a difference.

Questions

Are there examples of NGOs where they have been positive?

• A fan of the World Wildlife Foundation.
• Creating enough awareness in consumers that they will take action.
• UN, on the Global Compact
• A statement of the expectations of countries and companies dealing in the global frontier.
• If we all obey this set of guidelines, no one will be disadvantaged.
• Nature Conservancy tries to work with corporations.
• Saving wetlands
• Less keen on examples where the first direction to get a law made.
• Sometimes, it's right.
• e.g. Sierra Club, wish did less lobbying, and more towards consumers.

Why are multinationals better positioned to make a difference?

• Maybe shouldn't say this without more data.
• Observe more sense than North American companies will bring their standards with them.
• Scandinavians are most progressive locally, but "do in Rome" when they're international.
• Asian multinationals need to do more on workplace safety, and workers' rights.

Thanks by Caroline, SLF

Individual action can bring about change.

Working on a workshop to apply the virtue matrix.