During his day-long visit to Harvard Business School on December 11, former Vice President Al Gore’s overarching message was clear: business people need to change their perception of value.
The day started with a lively discussion in Professor Forest Reinhardt’s Business & Environment class. Gore and his business partner, David Blood, the former CEO of Goldman Sachs Asset Management, discussed their revolutionary firm, Generation Investment Management, challenging students’ perceptions of “externalities” and “sustainability” and their relationship to financial returns.
“What they’re doing is fascinating,” said Jackson Lehr, a student in the class. “If they can demonstrate that a superior understanding of externalities leads to superior shareholder returns, I imagine we’ll see big changes in business and investment practices.”
Generation Investment Management, located in London, currently employs 23 professionals and manages a concentrated portfolio of global equities. The firm’s investment model integrates hard-to-measure sustainability values-such as employee relations, ethics, and the environment-into equity analysis in a way that adds economic value rather than incurring a penalty. Gore’s objective is to encourage companies to look beyond short-term market pressures and focus more on creating long-term shareholder value. In fact, Generation does not calculate its profit on an investment until three years have passed.
After the intimate classroom discussion, wide-eyed, big grinning guests were entertained at a ritzy reception at the Dean’s house as they maneuvered their way toward Mr. Gore. Meanwhile, hundreds of students formed a line outside Burden Hall, promising a full house for Gore’s much anticipated address entitled “A Changing Business Climate” and sponsored by the HBS Leadership and Values Committee. After an hour of camera flashes, handshakes, and up-close conversations at the Dean’s House, it was time for the main event.
A little after 4:00 p.m., Gore gave his tongue-in-cheek opener, made famous by the movie “An Inconvenient Truth”: Hi, I’m Al Gore. I used to be the next President of the United States. From there, he proceeded to warm the audience with his sarcastic jokes about dearly missed White House luxuries, self-deprecating anecdotes, and, for those who noticed, big black cowboy boots.
But front and center was an important message he wanted to deliver-a message he delivers all over the world and to which he devotes much of his life. The crux of it: the stock market is “functionally insane,” as he called it, and what is needed is a new approach to measuring value.
He pointed out that over thirty years ago the average stock holding period was seven years while today the average mutual fund turns over its entire portfolio in less than eleven months. This speculation, or “chasing of the froth” as he refers to it, ignores the environment, communities, social welfare, and other important factors that have real value.
He went on to liken the market’s current perception of value to the portion of the electromagnetic spectrum that makes up visible light. He described it as “a very tiny slice” that does not provide a complete picture, but rather a very narrow perception of value.
According to Gore, today’s business people inherited an outdated toolkit-an accounting methodology-that is only interested in that which has a visible price tag. “If the only tool you have is a hammer, then every problem looks like a nail,” he said, quoting the famous psychologist Abraham Maslow.
His firm, Generation, essentially creates tools for the future. In their evaluation of the automobile industry, for example, Gore spoke of the remarkable accuracy with which his team predicted the current state of affairs for General Motors versus Toyota, thanks to the application of a unique measurement they call the “carbon intensity of profits.”
While Gore and his firm are clearly taking big steps toward a more sustainable future, the question on many students’ minds was: What can we do? When asked this during the Q&A session, Gore advocated “carbon neutrality” in which individuals offset their carbon emissions by retiring CO2 emission credits from a market such as the Chicago Climate Exchange. (In fact, such was done by HBS to make the entire event carbon neutral.) Also, in jest, he promoted his popular movie and book, “An Inconvenient Truth,” which offers a powerful look at Gore’s crusade to stop global warming as well as practical steps individuals can take.
Arguably, much more can be done by students and the broader HBS community, such as a push for more, proactive integration of sustainability issues into the school’s curriculum, particularly since “value” is arguably the most prevalent matter of discussion on campus. In addition, a show of leadership on these issues by newly-minted MBAs inside and outside of their new jobs can have a profound impact on the future of business.
If Gore’s message that civilization is “operating planet earth like a business in liquidation” is taken seriously, such efforts would seem necessary. Nevertheless, Mr. Gore certainly gave the HBS community something to think about.