The Greater Good - Social responsibility has a part to play in innovation

by Peter Merrill

I was in my second year of obtaining my chemical engineering degree at Birmingham University in England, and we were listening to a lecture on mass transfer. The professor, who I can recall to this day, stood at the front of the lecture theater and told us he would explain an example of an elegant and innovative solution to a mass-transfer problem.

The professor described how a sulfuric acid plant in the southern United States was experiencing a serious problem in the community. Sulfur trioxide fumes were exiting from the plant’s stack and combining with atmospheric moisture to form a white sulfuric acid fog. The people in the community were choking on the fumes, and puddles of water on the street were acidic and rotting people’s shoes.

The general manager of the plant tasked two engineers to produce alternative solutions to the problem. After a week, the engineers met with the general manager and offered two options:

  1. Scrub the fumes in an alkaline solution to produce an ammonium sulfate solution, which would then be evaporated and sold as fertilizer.
  2. Install a super heater in the stack so the higher temperature of the exit fumes would prevent the fumes from condensing. The fumes would then climb to the upper atmosphere as a result of the temperature and be carried downwind to a community that would be unaware of their source.

The professor looked at us and said triumphantly of the second option, "That, gentlemen, is an example of an elegant and innovative solution." Had any of us stuck to that line of thinking, the world would be paying for a generation of leaders in the chemical industry that completely lacks morality and has been educated to think in a socially irresponsible manner.

Pros and cons

Innovation can provide solutions to many social problems, but it can also be the cause of those problems. The financial sector is a good example of an area in which both sides of the social responsibility coin are evident.

The subprime mortgage problem is an example of a highly innovative financial product that was perfectly legal but caused enormous social damage. Many people point to the removal of financial regulations in the 1980s and 1990s as having allowed the subprime situation to happen.

On the other hand, one of the most radical business-model innovations in the financial sector is one we have seen in India that involves setting up a completely new service structure, reducing access barriers for women.

The Mann Deshi Mahila Sahakari Bank is a unique cooperative bank run by and for women. A unique aspect of this fully computerized bank is that it offers weekly and fortnightly credit and savings schemes to its customers, most of whom are daily or weekly wage earners. Unlike any other bank, it also provides daily loans for buying vegetables or fruits.

There are many other companies around the world that are innovative while developing a socially responsible outlook. I recall conducting a workshop in Mexico that focused on the ISO 26000 social responsibility standard. The workshop was attended by people from a variety of South American countries, too, including Columbia, Guatemala and Nicaragua.

All of these countries have received negative press, and yet the social responsibility and innovation of the organizations in these countries was remarkable. They provided healthcare, day care and even mortgage services for their employees. This is an example of how innovation is driven by need. The governments of these countries did not meet the needs of the population, so the organizations did.

The core problem is how to control the innovator who is driven by immediate personal greed and allow freedom to the innovator who is driven by user benefit. Innovators take risks and often talk about assessing risk to the organization. But what about risk to the user? How can this be addressed?

Risk and regulation

Risk management for the customer traditionally comes in the form of regulation. Nations employ regulators for industry just as they employ police forces to manage crime. National and international regulators protect us from the downside of risks. Sadly, many of our regulators are slow and lethargic. That’s why risk management must be combined with speed and agility when responding to a rapidly changing world.

This takes me back to thinking about ISO 26000 and its issuing body, the International Organization for Standardization (ISO). Regulators and ISO have much in common. Regulators generally provide mandatory rules, whereas ISO provides voluntary rules or standards. But ISO standards are often produced too slowly, and our regulators are reactive rather than proactive.

A vital lesson we must learn from the financial meltdown is to introduce speed and agility to the world of standards and regulation. They both need to move quickly and produce documents that can be used with ease. 

Standards such as ISO 26000 provide a flexible framework while at the same time allowing the freedom the innovator needs. It is essentially a case of starting from a set of principles that have the needs of the end user front and center, while at the same time not exposing the user to adverse risk.

The innovators who developed the subprime mortgage products were either liars or fools. The promise that house prices would never fall was entirely false, and there was overwhelming historical evidence to show this. A socially responsible innovator in that world would have been driven by customer need and not personal greed.

ISO 26000 outlines several principles that would have helped prevent the subprime mortgage problem, including ethical behavior, honesty and a concern for people. The principles also include a respect for stakeholders’ interests; one of those stakeholders is the consumer.

Standard solution

At its core, ISO 26000 addresses fair operating practices and explains how an organization should use its relationships to promote positive outcomes for others. It goes on to say that consumers should be able to make informed choices.

In particular, the standard refers to United Nation guidelines on consumer protection, which include protection of the consumer from health and safety hazards, as well as the protection of the consumer’s economic interests. This provides an excellent foundation for protecting people from unscrupulous innovators and makes me wish ISO 26000 were an auditable standard.

For now, the solution is regulation. But prevention is better than a mere cure. The long-term solution is to educate people in socially responsible behavior through our education system. There will always be clever criminals, but the fewer there are, the easier it will become to police new innovations.