Environmental Ethics: Bernie Madoff’s Pyramid Scheme Is an Important Lesson

Mention “unethical business practices” and no doubt Bernie Madoff comes to mind, who bilked investors of $18 billion in a pyramid scheme prosecutors called the largest fraud in US history. But perhaps we should also consider the Fukushima Daiichi nuclear crisis from an ethical standpoint. An independent fact-finding commission convened by the Japanese government called the 2011 meltdowns “a preventable disaster” that involved “government-industry collusion.” This suggests that the worst nuclear disaster since Chernobyl was sadly also an ethical failure.

It’s easy to see how these incidents connect environmental ethics to business practices, and are a lesson for all corporations right now. And in fact, environmental ethical concerns held the top spot on the agenda at this month’s meeting of UNESCO’s World Commission on the Ethics of Scientific Knowledge and Technology (COMEST) in Paris, where topics included global imperatives to head off climate change and conserve water. So the commission is sending the message that we need to expect more from businesses when it comes to protecting the environment.

This helps us see a parallel between fiscal fraud and environmental transgressions. No one doubts that Bernie Madoff’s book-cooking was unethical, but conducting business in a way that degrades the environment is its own kind of pyramid scheme, built on the risky delusion that we have unlimited resources, and waste and pollution costs can be kept off the books indefinitely.

Fortunately, the ethical trend line is positive — especially in education. Business schools have begun expanding their ethics curricula beyond financial malfeasance to incorporate environmental issues, according to research by the Aspen Institute, whose biannual “Beyond Gray Pinstripes” report ranks MBA programs according to how well they integrate social and environmental issues. And the good news is that the number of schools requiring students to take a business ethics course has increased from 34 percent in 2001 to 79 percent in 2011.

America’s top business programs were among the first to make the shift, including Harvard Business School (HBS) where “Leadership and Corporate Accountability” is a required course. But those lessons don’t always transfer from the classroom to the boardroom, according to Lynn Paine, a HBS professor and co-founder of the School’s Leadership and Corporate Accountability Group.

“If you’re thinking about your quarterly financial performance target, it can be challenging to also be focused on reducing your water footprint or meeting your greenhouse gas emissions targets,” Paine told me. Yet environmental challenges — like supply chains — are global in nature, which makes them inherently difficult for government entities to influence, even through multi-national entities and treaties. The worldwide nature of many corporations, on the other hand, gives them inherent and enormous power ­– and responsibility.

For example, when Nike, Adidas and Puma all commit, as they did just this past year, to eliminating all discharges of hazardous chemicals throughout their supply chains by 2020, the effects race around the globe before lumbering multi-national regulatory bodies can put on their shoes.

But ultimately, “the challenge for creative leaders is figuring out how to make it pay to do these things,” Paine said. “You have to create a model that makes economic as well as environmental sense. Ideally, you spark a positive type of competition where people are in a race to the top rather than a race to the bottom.”

With the world’s most prominent NGOs and business schools taking note of these issues, many are clearly hoping that this evolving generation of corporate executives will demonstrate their environmental stewardship by example — not just to protect their supply chains, or because public outrage and pressure force a shift in strategies or tactics. Plainly and simply put, it is the right thing to do.

When it comes to packaging, there are many lessons about the environment to embrace and confront in our personal race to the top. We are faced with new ones daily that need to be addressed. But one of the most persistent issues we battle is an ironic and common misconception: many consumers assume that less packaging or no packaging is always the best answer for the environment. That may be true of most products, but there are reasons food packaging is different, as a recent blog in the Harvard Business Review points out.

Packaging actually protects the environment and conserves resources, when you consider that “globally, about a third of the food produced for human consumption goes to waste — which means that the water, land use, energy and financial resources that went into producing it are also squandered,” notes author Kristin Heist. Yet “the energy that goes into packaging makes up just 10 percent of the total energy that goes into producing, transporting, storing and preparing food. When packaging prevents food waste even a little, it can have a major positive impact on the environment.”

Or, one-fifth of all beef produced ends up as waste. Beef store-wrapped in butcher paper has a one-to-three day shelf life, while beef sealed in plastic at the processing plant has a shelf life of up to 21 days, notes Heist.

Similarly, 2 percent of all milk goes bad on U.S. supermarket shelves before it’s purchased, according to the blog post. But milk in aseptic cartons, which is how milk is commonly sold in Europe and Asia, will last up to six months unrefrigerated.

Going beyond the limited reach of laws and regulations to preserve our environment for coming generations will require ethical business leaders who are willing to get out in front to become part of the solution, and listen to those informed and active consumers. Sustainability is the opposite of a pyramid scheme: it is listening and collaborating to find solutions, and laying a true foundation we can build on for the future.