Eco-Idiots

Generally, I like BusinessWeek magazine. It has a lot of good information, and it provokes thought into many issues involving Business. But the magazine also makes the mistake of playing to the fad of the moment, in which case it sometimes forgets important rules of business, even logic, in order to press the story for popularity. That’s what happened in its most recent issue, with a cover story titled “Imagine a world in which socially responsible and eco-friendly practices actually boost a company’s bottom line. It’s closer than you think.” Yeah, that’s the title. It shows up that way on the cover, in the index, and it starts the article that way. The exact wording every time, although when you get to the actual article, it does include the header ”Beyond the Green Corporation”. Pete Engardio, who wrote the story, is very proud of his words.

Before I go further, I want to emphasize that I like the notion of ecological responsibility, especially a company which considers the needs of its community and works to be a good citizen. My complaint with the BusinessWeek article is the major premise of the story, that “eco-friendly” practices directly make a company more profitable. To be blunt, the story fails to make that case, and there are danger signs in the story for serious investors to count against this claim. Chiefly, the story presents ecological policies as if there was no downside or risk, a claim which is not only false, but which could adversely affect both business decisions based on misleading claims, and which could also lead investors to count ecological efforts as a form of fraud.

The first warning sign is dependence on the buzzword, “sustainability” – there’s no real consensus yet on what that word means, especially for specific companies and their goals and practices. Also, I note that companies like Innovest play fast and loose with their ratings of company performance, choosing not only to include subjective social markers but also to discount and ignore traditional warning signs in a company’s finances. The story, for example, makes much of Sony, ignoring its recent quality and customer satisfaction issues, simply because Sony has crafted an image for energy efficiency and pollutant control. An image, not documented fact, and the rejection of valid financial data and sector performance hardly makes the case for a credible evaluation. The same for Ford, which has long pursued “green” policies, some of which are now blamed for company mistakes which have dangerously damaged Ford’s competitiveness with other carmakers. Innovest issues ratings for estimated risk which seem to have nothing at all to do with genuine financial risk. That is misleading at best. Serious problems are explained away or put off to other causes, a behavior which reminds me a lot of Enron or Worldcom just before they went crash. That’s not to say that Ford or Sony are in the same shape, but deceptive stories which ignore problems in a company or attempt to promote indicators which do not accurately represent the company’s risk condition, should not be published as the cover story in a major business magazine.