Sustainable Profits: Managerial Failure Vs. Visionary Leadership

"Management is doing things right, leadership is doing the right things." -- Peter Drucker

Many investors and business leaders are aware of management guru Peter Drucker, but don't take some of his wise words and philosophy seriously enough. Our modern age has been plagued by the rise of far more short-term managers than long-term leaders. We've all been the poorer for it.

Sustainability advocacy organization Ceres held its annual conference in San Francisco last week, and it was full of thought-provoking presentations and conversations about sustainability and environmental, social, and governance (ESG) opportunities and challenges.

Skoll Foundation's President and CEO Sally Osberg referenced Drucker's quote above while chatting to Sprint (NYSE: S  ) CEO Dan Hesse about the wireless industry and its role in the future, particularly in sustainability.

Let's talk about managing vs. truly leading a company into the future. One thing I'm thinking is the way corporate managers tend to cut costs and the need for investors to rethink the definition of reducing costs and adding value.

Read between the (top and bottom) lines
Investors look for reducing costs and boosting profits, but, sadly, the most brutal means to that end enjoy the most positive reinforcement. Have you ever seen a stock soar because management announced mass layoffs? These types of events do reduce costs, maybe, but they include non-tangible value destroyers such as loss of intellectual capital, trampled employee morale, and deteriorating customer service and product quality.

True leadership supports workers, long-term strong business, and reducing costs by innovating, not slashing workforces that managements may have allowed to become too bloated or badly utilized in the first place. There is no more short-term action than bidding up a company's shares on a layoff initiative. That's trader pathology, and it encourages pathological short-term thinking by managements, too.

Strangely, a more positive cost-reduction strategy rarely excites investors at all, even though it's a far better way to boost efficiency, lower costs, and avoid damages and liabilities.

Green initiatives are increasingly proving to be money-saving or even money-making opportunities, as well as value drivers that are less immediately recognizable. Many major companies are recognizing the opportunities, whether investors are reading the writing on the wall or not.

Hacking away at waste
Dan Hesse's address to Ceres' audience touched on the company's industry-leading sustainability initiatives. These initiatives have generated kudos for Sprint; it ranks No. 3 in the U.S. on Newsweek's annual list of green companies, and Frost & Sullivan gave it the 2012 North American Award for Green Excellence for 2012.

This isn't just award-winning, feel-good fluff, though. Sprint's efforts feed positively into its business. Since 2007, Sprint has realized upward of $60 million in savings from eco-friendly initiatives. Having reduced its packaging size by 60%, more products fit on planes and trucks. A recent white paper spells out Sprint's work on packaging efficiency and waste reduction.

Take Sprint's unique eco-envelope, which allows customers to receive and remit their bills in one handy, reusable envelope. That smart envelope saved an estimated 700 tons of paper in just under a year.

Sprint's industry-leading mobile phone buyback program is also a win-win. Spring will take back handsets back from customers, including those from other carriers, and by paying those trading them in, it incentivizes consumers not to throw them into landfills. Sprint then refurbishes or remanufactures, so it can offer lower-cost phones to consumers as pre-owned, certified devices.

Positive practice makes perfect
Although Hesse did discuss lower bills attributed to cutting energy, water, and paper usage, he also pointed out sustainability's strong intangible assets that build over time. Such initiatives make employees feel good about working for Sprint. When recruiting on college campuses, young people get jazzed by the idea of working for a green company. It's a talent attractor.

Meanwhile, Sprint is not the only company that discusses the bottom-line benefits of sustainability, whether they're tangible or not.

One of Ceres' panels on water usage included Molson Coors' (NYSE: TAP  ) Michael Glade, who pointed out a factor investors might miss. The company's efforts to "demonstrate positive practice," as Glade put it, have improved its water usage. Better water, energy, and waste practices stacked up to $10 million in savings for the beer manufacturer since 2008, and will represent another $16 million in savings through 2012. That's another example of sustainability's bottom-line boosting capabilities that accompany the feel-good component.

"Demonstrating positive practice" was one of the themes at the conference. For example, Hesse also discussed the ability to influence the competition by leading the pack.

For example of moves by another industry player, several weeks ago, Verizon (NYSE: VZ  ) announced big plans of its own. It will invest $100 million in solar panels and fuel cells provided by SunPower (NASDAQ: SPWR  ) and ClearEdge Power, respectively. These will represent up to 70 million kilowatt hours of electricity, the equivalent of the power needed for 6,000 homes per year. Verizon also said it will cut its carbon emissions footprint by 50% by 2020. Its increasing initiatives are expected to significantly reduce fuel and energy costs, as well as green up its operations.

Look for leaders
More companies are evolving, going green, and investing in long-term initiatives that will cut costs, create value, and go easier on the planet and endangered resources. Hopefully, more investors will realize that short-term "solutions" like layoffs are, for the most part, resulting from bad decisions, if not complete managerial failures.

We're still in the first innings of the sustainability megatrend, and as more and more corporations embark on these initiatives, more and more will engage in "good competition," which is good for all of us. Competing to do the -- right -- things, instead of the damaging ones, would put our investments -- and our world -- in much better positions for the future.

Leaders indeed do the right thing, even if it's going to take a while. That takes vision and courage. Are your companies' managers up to the challenge? Your investment returns really could suffer if they aren't.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

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  • Report this Comment On May 16, 2013, at 9:04 AM, gskinner75006 wrote:

    Reducing waste, stream lining processes, etc... have always equaled profit in one form or another. It's just common sense management, but if calling it "Green" get's it done, and the college kids jazzed up about something other then holding their phone in their hand all day, then more power to it.

  • Report this Comment On May 16, 2013, at 2:24 PM, TMFLomax wrote:

    I love this, gskinner75006, and completely agree. These are not things that are contradictory, and they do represent profitable business. Thanks for posting!

    Alyce

  • Report this Comment On May 21, 2013, at 1:47 PM, SkepikI wrote:

    ^^ As long as its really waste reduction and efficiency micro-scoped by a serious and careful attention to detail and economics. Efficiency is its own reward. There is afoot way too much flash and not enough delivery, particularly in Solar, but Wind as well. The tip off is the relentless subsidies, tax and inducements to both industries. The real question will be when they will get off the drip. For Wind, ever dependent on the Production Tax Credit (PTC) and ever reluctant to give it up, the answer may be never. For Solar, with multiple manufacturers going out of business, and a dramatic declining cost curve, who knows? There may be hope in a decade or so, provided they get off the drip.

    FOR THEIR CUSTOMERS who invest or buy into those methods of supply dependent on both one time and continuing subsidy, the return on investment may be ok, or it might go poof when the purveyors go byebye and equipment no longer can be repaired let alone guaranteed. This happened to the wind business once before, and I evaluated many machines and sites in CA that were idle because they were no longer maintained. They were not maintained because the subsidies disappeared in the late 80s, and then the equipment suppliers and O&M suppliers disappeared followed by repair parts, followed by activity, followed by interest... well you get the picture.

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