By Ross Douglas, Founder & CEO of Autonomy & the Urban Mobility Company
In this monthly column, I share what I’m reading and how it influences our decisions at Autonomy & the Urban Mobility Company.
Last week I read New York Times bestselling author Dan Heath’s latest book Upstream, which examines how to prevent problems before they happen. I wanted to know if “upstream thinking’” could help us reduce pandemics, riots and global warming.
The book takes its name from a rather stark parable. Two campers save a baby floating down the river, and then another and another, till one camper wades upriver and confronts the guy throwing the babies in. Heath lists three barriers to “upstream thinking”: “problem blindness”, “lack of ownership” and “tunneling”. The 300 interviews he conducted for the book make for colourful anecdotes of how companies, sports coaches, city authorities and ordinary individuals found the solution when they stopped focusing on the fix and travelled upstream to understand the source. It’s true what grandma said, prevention is better than cure.
Heath’s mission is to teach upstream thinking in the belief that decision-makers can do better in fixing today’s ‘downstream problems’. The hypothesis is obvious and simplistic, but that doesn’t stop Heath from hammering it home for 300+ pages.
I think we could save more babies, not by wading upstream, but by changing our risk-reward calculus. For a start, we need to incentivise long-term thinking. In the democratic west, politicians are elected for four years, which incentivises a focus on short term growth and job creation. CEOs are not much different. PWC pegs the average CEO term at five years and, according to the FT, the average age of global CEOs is 55 with 58 being the most common. Top executives tend to be motivated by share options that vest on their exit, which is usually on retirement.
What about companies that do take the long term view? Heath cites Interface, a carpet company founded by Ray Anderson in 1973, for its commitment to environmentalism. In 1994 Anderson read The Ecology of Commerce, a book that caused him to weep over the unintended environmental costs of his success. He transformed the business to align with environmental best practice, even though it ate into shareholder returns. As the founder, Anderson was not too concerned with shareholder pushback.
Unlike Interface, the European motor industry is led by hired guns, ambitious executives incentivised to compete against each other to deliver ever greater shareholder returns. In 1998 they did the unthinkable and lobbied for diesel subsidies, somehow convincing governments that diesel is green. Did they really believe diesel would reduce CO2 emissions in the long term, or were they just trying to sell bigger, more profitable vehicles in the short term? The diesel subsidy gave the European motor industry great returns for 20 years, making it the ‘right decision’ for management at the time. However the long term costs have been enormous. European auto makers are now years behind on EV technology and needing government subsidies and bailouts to compete with American and Chinese manufacturers – something unimaginable 20 years ago.
Heath has a short stab at how upstream thinking can be applied to global warming. He believes the prospects are “bleak” because the biggest polluters suffer the least. He details in length how the destruction of the ozone was stopped, using it as a case study for solving global warming. I’m not convinced. Dupont and others were able to switch from ozone depleting CFCs to ozone friendly HFCs at almost zero cost. Global warming is a far more complex problem and therefore a good test for Heath’s upstream hypothesis. Heath fails the test because the problem is not lack of upstream thinking, there’s plenty of it around, the problem is that powerful people are incentivised to ignore it.
What to do about powerful people who think upstream but still throw babies in the river? As Christopher Hitchens once opined, “Don’t speak truth to power, they already know the truth”. My cynical self was not surprised to read this article in the FT, exposing “atrocious governance”, which allowed top executives of big oil and gas companies to take multi-million dollar packages as their companies tanked.
Talk of ‘resetting’ capitalism and democracy is overly dramatic; but society should hold today’s leaders to account for tomorrow’s problems. Once we agree on that hypothesis, incentives will align accordingly: like, for example, stretching CEO share vesting over 20 years. We already know our downstream problems; all we need is the courage to incentivise change.
Check out some more reads found on Ross’ bookshelf:
What Ross is Reading: May 2020 (Upstream by Dan Heath)
What Ross is Reading: April 2020 (Frenemies by Ken Auletta)
What Ross is Reading: March 2020 ( The Uninhabitable Earth: A Story of the Future by David Wallace-Wells and Six Degrees: Our Future on a Hotter Planet by Mark Lynas)