Prioritizing the Public Stakeholder

Oct-19-2011 by
How Firms Will Innovate to Solve Climate Change
Professor Rebecca Henderson

Professor Rebecca Henderson

“Just as firms innovate in technology and innovate in business model, I think the great firms of the next five to ten years are also going to be innovating around governance regimes and around how they think about the role they play in our society.” – Professor Rebecca Henderson

Climate change presents the world with a uniquely challenging problem.  How can industry evolve to solve a problem which is inherently global in scope?  No longer can individuals make a direct linkage from the factory upstream to the polluted lake a few miles away.  It has become difficult to tie the actions of a single company to the long-term effect on its more traditional stakeholders–its employees, its shareholders, its customers, and the local community.  Instead, the effect may be felt halfway around the world.

This problem is what Professor Rebecca Henderson, recently given the prestigious title of University Professor, has spent her whole life trying to solve.   More generally, her research is focused on how companies and industries innovate.  However, as described by Henderson during an interview with The Harbus, her current focus in sustainability is just an extension of her previous research.  Henderson said, “I see the need to decarbonize the world’s energy system…as another great technical, political challenge facing a huge, very well developed industry.”

How can business “internalize” the negative externality that is caused by the release of green house gases, such as carbon dioxide, into the atmosphere?  How can corporations serve the public as they currently serve their more traditional stakeholders?  Step one according to Henderson is to give business more clarity on the issue of carbon through a price signal.  Henderson said, “As someone who’s worked with businesses all my life…my preferred solution to the risk of climate change is to have some sort of price signal around carbon.”

The effects of not providing such a price signal could be dire.  “I think that the risk of waiting and doing nothing and then having costly mandates that may or may not be well designed is very significant, and as a business person and as someone who’s obsessed with innovation, I say give business a price.”

According to Henderson, the role of government is critical in establishing this price signal and ensuring a transition from the current economy to the clean energy economy, to get through the intermediate stages which may not themselves be profitable.  Henderson points to the high tech industry as a comparative example, in which the Department of Defense was the first customer of the nascent technology and supported innovation until it could support itself.

If Professor Henderson had a green wish list, one of the first item would be broad-based support in the U.S. for carbon pricing, and she continues to be puzzled that Republicans, the champions of market mechanisms, are opposed to such legislation.  The next item would be to build nuclear power plants like they were going out of style.  However, Henderson acknowledges that the only way, though she definitely does not wish it, might be “a very serious escalation in the price of conventional energy,” which would have considerable effects on the global population

Catch the HBS Energy Symposium on October 22nd to hear much more on the future of energy and sustainability.

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