Clark Case Study Reflection

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CLARKE: TRANSFORMATION FOR ENVIRONMENTAL SUSTAINABILITY Chris Laszlo, Katey McCabe, Eric Ahearn and Indrajeet Ghatge wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 2012, Richard Ivey School of Business Foundation Version: 2014-02-07

It was a hot summer day in 2008, and Lyell Clarke, president of his eponymously named company, was seated at the head of a conference table, surrounded by his executive team. The room was buzzing with excitement. Clarke and his team were discussing their new product, Natular. Clarke was sure that Natular had the potential to change an entire industry. He pictured his company’s name splashed across the pages of the Wall Street Journal. In short, Natular could be big, but how big? The whiteboard to Clarke’s left was covered with rough sketches of the team’s ideas — everything from breaking into new environmental service markets to bicycle-driven product distribution. The message on everyone’s mind was to “go green,” and the excitement in the room was palpable. Certainly, environmentalism had been gaining popularity throughout the corporate world, but this meeting was exceptional for more than its environmental tilt. Clarke was a privately held company whose core business was manufacturing and distributing pesticides for the public health market. The meeting’s focus on environmental sustainability came on the heels of the company’s most exciting innovation to date: a naturally derived and highly effective larvicide called Natular. Today was Clarke’s annual strategy meeting, a gathering of the company’s leadership at a beachside resort. It was supposed to be a big year for Clarke. Natular was finally heading to market after eight years in development, and it would introduce a new mode of action to a long-standing arsenal of mosquito abatement products. In comparison to traditional chemicals, Natular was 15 times less toxic, yet just as effective, and had no known harmful impacts on the environment throughout its lifecycle from manufacturing to use. Lyell Clarke, a self-defined “deep down environmentalist,” had always committed personally to taking care of the environment.1 He recycled, monitored his own carbon footprint and looked forward to days spent enhancing the conservation practices at his family’s farm. Natular created an opportunity for Clarke to extend that environmental passion to his rapidly growing company. He knew that successfully integrating this new product would require a change of heart for his customers and

1 Clarke, “Sustainability Report: Introductory Comments, 2010, www.clarke.com/index.php?option=com_content&view=category&layout=blog&id=77&Itemid=59, accessed February 20, 2012.

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Page 2 9B12C012 employees, but how far could his company push its sustainability agenda without damaging the business or driving away customers? A pesticide, after all, was one of the least “green” things imaginable; and traditional organophosphate chemistries continued to be extremely effective, profitable and trusted by major clients. Could Clarke thrive even after it had removed its most successful legacy products from circulation? Truly going green would transform Clarke from a “tired old service and distribution company,” in the words of the domestic general manager, Joel Fruendt, to a company on the cutting edge of the industry2. The transformation would not just boost Clarke’s bottom line, it would have a positive effect on the entire sector and would create a legacy that Clarke would be proud to pass on to his children. By the end of the meeting, the executive team appeared to be in agreement: Clarke was ready for change. Yet behind closed doors, a sense of unease remained. Joe Drago, Clarke’s chief financial officer, wondered, “How do we balance our proven business record with an overwhelming, amorphous, newfound passion?” Natalie Valenti, Clarke’s facilities project manager, knew that Clarke was “not operating outside of the law, regulations, or standards, so it can be hard to justify change . . . especially if the output after the change is speculative.” Their doubts, and those of others, foreshadowed the upcoming resistance from employees and customers alike. The shift in mentality from a double bottom line (effective products, profits) to a triple bottom line (effective products, profits and societal benefit) would entail a lot of risk. Lyell Clarke would need his executive team to take the plunge with him. As they put the finishing touches on plans for the first-ever all-company meeting, where all of Clarke’s new initiatives would be unveiled, the whole team, clad in swim trunks, jumped into the hotel pool. It was a seminal moment, and an outward sign — at least on the surface — that Clarke had begun its transformation. Lyell Clarke’s personal commitment and group swims aside, a central question remained: How does a pesticide company become a sustainability leader, demonstrating environmental responsibility in everything it does, in a way that is both profitable and credible to its customers, employees and other stakeholders? As the Clarke family had been learning, the answer was “not easily,” but with the correct mixture of effective products, innovative marketing, leadership and managerial passion, a paradigm shift was not only possible but also inevitable — or so Lyell Clarke hoped. COMPANY PROFILE Clarke was first and foremost a family company dedicated to its legacy. Founded in 1946 as a summer job for John L. Clarke Jr., Clarke was now the largest mosquito abatement firm in the United States. Its primary goal was to provide a full suite of products (see Exhibit 1) for Mosquito Abatement Districts (MADs), individually administered, taxpayer-funded municipal regions, and state and federal government entities. Clarke’s mission grew from basic pesticide application to turnkey mosquito management systems, including necessary personnel, chemicals, public education and equipment. In addition to this core competency, Clarke could boast of a range of other products, including anti-malarial bed nets; a range of mosquito larvicides; and another sector dedicated to the maintenance and management of canals, ponds and lakes in residential areas. By most measures, Clarke’s history was similar to any other pesticide company. It sold the same traditional chemistries, provided the same services and competed for the same clients. Its future, however, challenged assumptions about the pesticide industry, and it intended to demonstrate that profitability and sustainability could go hand in hand in the unlikeliest of businesses. 2 Interview with Joel Fruendt, domestic general manager, conducted at company headquarters on October 21, 2010.

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Page 3 9B12C012 The family itself had a long and storied history in the mosquito world. In 1927, John L. Clarke Sr. wrote the legislation that established Illinois’ MADs. Twenty years later, he went on to help his son establish a mosquito-spraying business as a summer job. John Jr. continued to build his clientele summer after summer. After his collegiate graduation, the business became his full-time occupation. Soon after, John Jr. employed his engineering skills to create more efficient spraying equipment. He eventually developed a computer model capable of predicting mosquito flight, which both revolutionized a traditionally low- tech field and introduced a new level of performance. These innovations allowed Clarke’s equipment sector to quickly grow to match its long-established services sector. Each sector worked in concert to provide chemical and application expertise for various Midwestern municipalities and Illinois-area MADs. The company continued to cultivate a strong regional reputation for mosquito control. In 1995, John Jr.’s son, Dr. Lyell Clarke III, took over the company reins, fresh out of a graduate program in entomology at Iowa State University. At the early stages of Lyell Clarke’s leadership, the company’s strategic goals were to expand nationwide to serve the 500-plus MADs in the continental United States. Through the first decade, Clarke acquired 10 companies, adding waterway management to the existing mosquito abatement programs and investing in public education, research and development, and manufacturing sectors. Clarke’s rapid expansion more than surpassed its original goal of nationwide exposure. Within a decade, Clarke’s employee roster had grown by 92 per cent, from 84 to 162 full-time employees (see Exhibit 2), while its revenues had grown at an even faster pace, from $10 million3 in 1996 to nearly $100 million in 2010. The Clarke family of companies regrouped a number of entities (see Exhibit 3), including its three primary players: Clarke Environmental Mosquito Management, Inc., Clarke Mosquito Control Products, Inc. and Clarke Aquatic Services, Inc. As a result, Clarke had become the biggest player in the domestic mosquito abatement industry, illustrated by its presence in more than 43 countries worldwide. It stayed true to its tradition of turnkey MAD operations, offering a host of chemicals, service packages, equipment and educational support to suit a variety of situations. In 2010, more than 50 per cent of Clarke’s total revenues came from pesticide sales directly (i.e., not including services or equipment sales).4 Clarke’s second-largest business sector focused on full-service aquatics management packages for canals, drainage lakes, ponds and other small to mid-size bodies of still water. As a water management services provider, Clarke helped to deter erosion, control aquatic weed growth and encourage healthy underwater ecosystems. Further, Clarke had contributed services to every major U.S. natural disaster since 1999, arriving on site to spray flood areas to prevent disease-spreading mosquitoes from breeding. Later, Clarke embarked on a joint endeavor with a Swiss polymers company to create durable, low-cost and reusable anti-malarial bed nets. DuraNets were first released to market in 2008. DuraNets were washable, reusable units that lasted up to five times longer than the competition, with a per-unit price of $5, relatively lower than comparable products. DuraNets’ longevity and value had made them extremely attractive to nongovernmental organizations (NGOs) and off-shore institutions. Clarke itself raised funds for the distribution of these bed nets through co-operation with its own Clarke Cares Foundation5 and in partnership with the Carter Center. At its 2010 size, Clarke estimated that it had directly affected more than 330 million people with its insecticide products and waterway management service. Clarke had plans to expand its reach to 660 million people by 2014, a doubling in just four years. The vast majority of growth was expected to be in pesticide sales and distribution. This exceptional projected growth would come on the heels of significant 3 All currency is in U.S. dollars unless specified otherwise. 4 Interview with Karen Larson, director of registrations, October 21, 2010. 5 The Clarke Cares Foundation, which began in 2008, worked in collaboration with the Carter Center to provide DuraNets to vulnerable populations in sub-Saharan Africa. As of 2010, Clarke had donated or provided at cost more than 26,000 nets, valued at $140,000. Clarke’s goal was to fundraise and provide 50,000 additional nets to villages in Nigeria.

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Page 4 9B12C012 change that had begun in 2007, when Clarke had redefined its core values as innovation, community, and sustainability. This redirection had a two-fold purpose: to “further elevate [Clarke’s] position as an industry leader,” and to leave behind a positive legacy for future generations of Clarkes, and future generations of customers. The process, however, would require more than enthusiastic leadership; it would require buy-in from employees and customers for a number of initiatives related to the company’s sustainability journey. Would Lyell Clarke succeed in attracting the needed support from his management team and his clients? It was a question that he and others were anxious to see answered. THE INDUSTRY CONTEXT Before addressing the challenges that Clarke faced, it was important to understand the industry context in which the company operated. Clarke did not sell to the average consumer. Consumers would not find the Clarke brand on the shelves of local hardware stores, nor would they encounter Clarke salesmen soliciting at their front door. Rather, Clarke sold directly to government entities, including municipalities, MADs, health departments and counties. These agencies had been involved in mosquito control since the early 1900s and had historically been exposed to criticism from vocal environmental groups. For decades, these districts had justified the use of pesticides on the basis of dose-dependent toxicity. According to their beliefs, low dosages of pesticides posed equally low risks for environmental and public health. Any hint otherwise provided additional fodder for environmental activists. As a result of these frequent and frustrating battles, the majority of managers at these entities were cautious about the introduction of new products under the banner of environmental sustainability. The industry also needed to consider the stringent federal regulations for environmental chemicals, which required registration by the U.S. Environmental Protection Agency (EPA). While all of Clarke’s products were in compliance with current EPA regulations, recent years had seen a preferential shift toward cleaner, greener chemicals. Although “green chemicals” sounded like an oxymoron, the EPA had certain regulatory measures6 in place to incentivize “next-generation” products by offering a quicker entrance to market. Despite such a market preference, EPA registration was a relatively expensive and time- consuming process. EPA involvement, however, was vital to policing the industry. Mosquitoes were notoriously difficult to track and kill in their adult stage. Hence, mosquito abatement programs typically targeted the insects at the earlier larval stage of development, when immature mosquitoes were confined to the surface of still water. Naturally occurring ponds, decorative waterways, retention ponds and drainage areas were ripe for mosquito breeding and, thus, needed to be treated to prevent the spread of mosquito populations. Treatment also needed to include a rotation of various products, be effective in aquatic habitats and pose a minimal risk to surrounding groundwater.

6 Clarke’s Natular product falls under the EPA’s Conventional Reduced Risk Pesticide Program. This program expedites the federal approval process, and moves product to market more quickly. The designation can be used for marketing purposes, and receives expedited treatment from state regulatory agencies and through subsequent, required reauthorizations after its initial introduction. New York State also waives its reporting requirements (a significant expense for management districts), and other states may soon follow suit.

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Page 5 9B12C012 “MORE THAN A DEAD MOSQUITO” Clarke’s management team’s goal was to bring its underlying business model into the 21st century. Lyell Clarke and his team realized that if the company was to be “relevant to today’s changing world . . . it needed to be more than a dead mosquito.” To meet this goal, Clarke created four strategic themes: 1. Extend the Reach 2. Innovation 3. Sustainability 4. One Clarke Lyell Clarke and his team believed that to extend the company’s reach (and thus improve its own bottom line), innovation had to be prioritized. Although innovation had been on Clarke’s list of priorities for at least a decade,7 the sustainability spin was at least partly a response to Lyell Clarke’s own environmental tendencies and, in larger part, a response to the country’s growing interest in environmentalism. Sustainability made sense, but it would be a hard sell. After all, as Joe Drago noted, “Synthetic chemicals and gas-powered vehicles are at the very core of how [Clarke] makes money.” Clarke’s greatest roadblocks to sustainability were the products at the core of its business model. It was a massive risk and would require the company to rebrand itself from the ground up. Rebranding came in the form of “One Clarke.” It would become an overarching theme from management through seasonal employees, and it implied unity in the mission to transform the company. In Joe Drago’s words, One Clarke helped to “dissolve silos and create a culture of shared aspiration” that would bring “something new, a change, to the culture.” One Clarke was Lyell Clarke’s shorthand for the company- wide dedication required to take the significant risks associated with Clarke’s newer, greener goals. Innovation, however, was the most important of the four goals. Company growth, sustainable or otherwise, would not be possible without new products and services. As a small company, Clarke had been challenged by the capital and investment required for research and development. Although the company was limited financially in comparison to the chemical industry giants, Clarke often creatively collaborated with larger companies, bringing to the bargaining table both its established client base and its long-standing expertise as a small in-house research division. One of these relationships had been responsible for the newest addition to Clarke’s product line, Natular. NATULAR “Just as with Walt Disney where it all started with a mouse, Clarke’s sustainable vision started with a spiny sugar.” —Ben Goudie, west coast regional sales manager In the early 1990s, Dow AgroSciences (DAS) released Spinosad, a naturally occurring larvicide derived from rare bacteria. Its novel mode of action made Spinosad particularly useful on a rotational basis, but its unique features extended beyond its mode of action. Spinosad was also highly effective at low dosages, had minimal impact on beneficial insect species and provided quicker and more prolonged effect than other biological insecticide products.8 In 1999, Spinosad won the Presidential Green Chemistry Challenge Award, the nation’s foremost prize for industrial chemistry, which was awarded to a product that

7 Interview with Joe Drago, chief financial officer, October 21, 2010. 8 Dow AgroSciences.

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Page 6 9B12C012 “reduced impacts on human health and to the environment relative to competing technology.” It was also given the EPA’s “Reduced Risk” pesticide designation.9 In 2002, Clarke entered into a partnership with DAS to bring Spinosad into the mosquito abatement market. Spinosad was by then an established effective terrestrial pesticide, but had no existing formulations for aquatic habitats. Over the next eight years, Clarke’s chemists developed six formulations to tailor Natular for any number of aquatic habitats (see Exhibit 4). Various formulations made Natular appropriate for ponds, lakes, catch basins, retention ponds and even potable water containers — although this final formulation, NatularDT, was primarily marketed outside of the United States (see Exhibit 5). Efficacy proved exceptional (>95 per cent) for all formulations in all tested environments (see Exhibit 6). Natular was 15 times less toxic than the common organophosphate alternative; could be applied “at use rates 2 to 10 times lower than traditional synthetic chemistries”; and was safe to store, ship and handle. Unlike nearly every other larvicide that required full-body coverings, masks and gloves for application, the only application precaution indicated for Natular was protective eyewear. In 2010, Clarke was awarded Spinosad’s second Presidential Green Chemistry Challenge Award.10 Natular had also garnered attention within the organic farming community as one of the first naturally derived larvicides suitable for use in organic farming. This stringent certification process indicated that Natular was created from naturally derived non-synthetic materials and was suitable for use in organic crop and livestock operations. Two formulations had also been approved by the World Health Organization’s Pesticide Evaluation Scheme (WHOPES), and had been recommended for approval in all World Health Organization (WHO) member countries. The product also enjoyed preferential treatment among U.S. federal, state and local regulatory agencies.11 Lyell Clarke and his team expected Natular to be the blockbuster the company needed to secure its space at the top of the industry. George Balis, Clarke’s Midwest regional sales manager believed that Natular would be a “barn-burner,” with customers “pushing down the doors to get on board.” However, as Natular’s potential release date neared, two competitors threatened to overshadow Clarke’s breakthrough. The oldest competitor product, Altosid, had a track record of success, and its flexibility and low toxicity were on par with Natular. As a synthetic biochemical, it lacked the ability to be used in organic farming operation and ease of handling, but it had already been incorporated into many mosquito abatement programs as one of the first biological larvicides.12 ADAPCO also introduced a microbial larvicide, FourStar, which, similar to Natular, could be used in a variety of aquatic habitats and comprised primarily naturally derived ingredients. The manufacturer of FourStar chose not to seek Organic Materials Review Institute (OMRI) certification for use in organic farming, which allowed it to produce a similar product at a lower cost. FourStar was released quickly to the general customer base; it was in competition with Natular for market share due to its low price point.13 Natular’s success appeared to be limited by two factors: price and the bureaucratic nature of its target customers. Natular was priced approximately 18 per cent higher than comparable traditional products. The increased price was due, in part, to the costs and benefits of acceptance by the organic community —

9 U.S. Environmental Protection Agency, “The Presidential Green Chemistry Challenge,” www.epa.gov/gcc/pubs/pgcc/presgcc.html, accessed February 20, 2012. 10 www.Clarke.com, accessed February 20, 2012. 11 As a demonstrably “safer” technology, Natular enjoys preferential treatment under the Clean Water Act, which entails fewer reporting, monitoring and threshold requirements for annual permit applications. Natular has been certified by the independent Organic Materials Review Institute (OMRI), which is a trusted certification useful in defending product use in public forums. It also qualifies as a “conventional reduced risk pesticide” with the EPA, speeding its review process. 12 Natular Issue Paper. 13 Interview with Ben Goudie, regional sales manager-West and ADAPCO web accessed May 12, 2011.

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Page 7 9B12C012 a designation that Clarke felt would pay for itself in the future. The second limitation, the demand from customers, was significantly more difficult to control. Clarke’s sales staff dealt with the directors of MADs. Most MAD directors had little interest in “going green,” but placed priority on effectiveness and reliability. Stiff bureaucratic budgets also left little room for incorporation of Natular, especially while conventional products remained on the market. Those directors who had chosen Natular had generally done so at the urging of other municipal leaders; their constituencies felt that the environmental impact was worth an increased price. Similarly, a select few directors viewed Natular as a “feather in their cap,” worth the risk of trying a new product.14 For others, a poor attitude toward environmentally friendly products came after long careers of fighting environmentalists who had protested mosquito public health programs. The desire to steward this new product encouraged Lyell Clarke and his team to choose a slow-release process for Natular. In 2008, the product was first made available to a limited number of handpicked customers. With each season, additional customers were invited to add Natular to their programs. The slow approach seemed to work well: Dave Zazra, an Illinois-area MAD director was thrilled to add Natular at a time when older products were losing their effectiveness, and when his staff was eager to make the “smallest possible carbon footprint.” Natular’s methodical release to customers also allowed Clarke’s sales staff time to ensure the efficacy of the product and to perfect their marketing skills. In 2011, Clarke intended to release Natular on a nationwide basis. GROWING PAINS Clarke’s marketing team knew that Natular’s success was dependent on branding and marketing strategies. As with any complicated product, education for buyers and end users was an intrinsic part of the marketing plan. In advance of Natular’s launch, Clarke created the Eco-Tier Index (see Exhibit 7), a reference tool that illustrated the relative environmental impacts of each of Clarke’s full offering of products. Products were categorized as Conventional, Advanced or NextGen. The Eco-Tier Index was meant to emphasize Natular’s advantage over previous products and provide customers with perspective on Clarke’s numerous offerings. Surprisingly, however, the Eco-Tier Index turned out to be a controversial flashpoint in the months following its release. In the words of one salesman, the Eco-Tier Index “fell flat on its face” — at least initially. Many Mosquito Abatement Districts were significantly challenged by environmentalists and environmentally friendly products. For decades, MADs had defended their actions by reinforcing the message that the larvicides in use were safe at the extremely diluted levels characteristic of mosquito treatment. By ranking products and suggesting that traditional chemistries were “less than” Natular, the Eco-Tier Index dismissed this theory. It suggested that older products were less safe. Many customers saw the Eco-Tier Index as an attack on their industry; Clarke was no longer a friend, but a foe. This interpretation, however, was only one of many. More commonly, the Eco-Tier Index received initial push back from some customers but eventually became accepted. Although the Eco-Tier Index was meant to internally provide a framework to guide future product development, many employees believed the Eco-Tier Index was created only to highlight Natular. They doubted that Clarke had the ability to add future products to the NextGen category. Externally, it was perceived as an educational tool to help customers understand their options within Clarke’s product lineup.

14 Interview with George Balis, regional sales manager-Midwest, October 21, 2010.

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Page 8 9B12C012 Regional sales manager Ben Goudie saw the Eco-Tier Index as “a moot point,” a far cry from the “noble ideals that Clarke was trying to present.”15 Frank Clarke, Florida’s regional sales director, and Lyell’s brother, spun the Eco-Tier Index in a different light. He used the scale in an educational setting to point customers toward Clarke’s sustainability goals so that they could move their programs forward in a similar fashion. The Eco-Tier Index was an important early lesson for Clarke. It demonstrated that sustainability was not necessarily valued outside of the Clarke walls and that good intentions were simply not enough to accomplish its goals. The challenges elicited by the Eco-Tier Index reinforced the notion that Clarke needed to make systemic changes to all aspects of its business to ensure that customers saw sustainability as the only possible direction for the future. RISKS AND REWARDS While Natular was the cornerstone of Clarke’s new growth and focus, it was only one element of Clarke’s sustainability journey. Rather, Clarke’s sustainability initiatives had many levels of focus (see Exhibit 8). Each level had its own risks and potential rewards, but Lyell Clarke knew that the company needed to transform in every aspect to maintain customers’ respect while pushing the mosquito abatement industry into the 21st century. To this end, Clarke created seven specific goals16: 1. Reduce Clarke’s carbon footprint by 25per cent 2. Utilize 20 per cent of energy from renewable resources 3. Reduce waste stream by 50 per cent 4. Attain LEED (Leadership in Energy and Environmental Design) certification on all new buildings 5. Generate 25 per cent of revenues from “NextGen” products 6. Donate 2,080 employee hours to assist the communities in which we serve 7. Incorporate a cradle-to-cradle philosophy in all product and service development efforts Clarke embarked on a multi-year effort to migrate to cleaner technology. Within its first year as a newly focused sustainability company, it achieved a 15 per cent reduction in its carbon footprint (see Exhibit 9). Reductions came from a variety of sources. Some changes were easy, such as installing energy-efficient light bulbs, reducing paper usage and replacing paper cups with washable glassware. Other changes were more complex and creative. Clarke challenged itself with the question: How do we increase efficiency while reducing waste? Three unique projects surfaced that utilized the best of technology and of human power. The first project would become one of Clarke’s greatest successes in its sustainability journey to date. Past larvicide applications had been handled using right-hand drive 2500-series Chevy trucks. In 2009, an application process was developed utilizing bicycles. By the end of the season, 30 per cent of all catch basin treatments were conducted using bicycles, reducing the catch basin truck fleet to just six vehicles. In initial estimates, the bicycle pilot program cut costs by 12 per cent for catch basin’s spraying. By 2012, Clarke hoped to utilize bikes in 95 per cent of larvicide spraying applications, further slashing costs and reducing its carbon footprint.

15 Interview with Ben Goudie. 16 Interview with Julie Reiter, vice-president of Human Resources. Goals accurate as stated in mid-2011, May 26, 2011.

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Page 9 9B12C012 The second project, coined “Project Regeneration” was designed to improve application efficiency by the implementation of field computers. Crews were given handheld devices to direct field operations that utilized navigation, mapping, the Global Positioning System (GPS) and intelligent scheduling that reduced paper usage and miles driven by field crews. In the first year, the computers reduced miles-driven by field operations crews from 176,000 miles to 115,000 miles, saving the company $96,000. The third project swapped traditional gas-powered pesticide sprayers with electrical units. While these quiet spraying apparatuses were well accepted by employees, Clarke’s customers were initially hesitant. Many needed extra reassurance that the new, silent spraying processes were comparably safe and effective to their gas-guzzling counterparts. Other changes saw more resistance. Traditionally, Clarke’s product and service sales staff drove full-size Chevy pickups. The company paid for the trucks, which these full-time employees could also use as their personal vehicles. It was a major perk of the sales job and enabled many sales staff to do their jobs — transporting equipment and samples, and navigating in difficult terrain. Clarke replaced many of these capable trucks with compact Toyota Priuses and other fuel-efficient hybrid vehicles. For many employees, the Priuses were a poor substitute for their large, masculine trucks. Driving a truck was a part of the self-identities of many of the sales staff and had been part of the long-term Clarke culture. Ben Goudie called the trucks “sacred cows,” a job benefit that was held as near to the hearts of employees as health benefits or salary. Priuses could hardly compare. From a management standpoint, however, the new fleet of automobiles slashed fuel costs during frequent spikes in gas prices (see Exhibit 9). The conversion to more fuel-efficient vehicles resulted in savings of more than $50,000. Bicycles and hybrid vehicles were straightforward, cost-cutting changes. While they helped to bolster Clarke’s credibility as a voice for sustainability and helped the company to “walk the walk” in view of customers, these changes were simple. Launching NextGen products was the next step. Natular and future innovations would power Clarke’s growth and global reach. NextGen products would position Clarke to tackle new markets as they emerged, but Clarke would need to do more to change the culture of the business, and thus the tone of the industry. Management began by looking internally. The first step was to bring employees in line with Clarke’s sustainability mission. In the words of one employee, Clarke aimed to “ensure that the employees became sustainable in their own personal lives, and take the practices to heart.”17 Clarke launched the company’s internal electronic blog site that highlighted company-wide and individual efforts to reduce carbon footprints. Beginning in 2010, employees had the opportunity to attend educational seminars on Clarke and other sustainable businesses. To many employees, the initiatives helped them think twice about potentially wasteful decisions. Vice- President of Human Resources Julie Reiter said: “On a day-to-day basis, I find myself thinking before I act. . . . before I throw something in the garbage, before I send a file to the printer, before I pour a cup of coffee. Am I generating waste?” Clarke also encouraged its employees to take action within the community. Clarke aimed to donate 2,080 hours of company time to various community organizations. Despite the offer of a paycheck, many employees balked at the thought of giving Clarke credit for service they would choose to perform anyway.18 For some employees, these were welcome changes. For others, particularly those doubly impacted by Clarke’s new vehicle fleet, Clarke was overstepping its bounds. These new inconveniences,

17 Interview with Andrew Gentes, operations supervisor - Central Florida, October 21, 2010. 18 Interview with Ben Goudie.

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Page 10 9B12C012 combined with the company’s reorganization in the “One Clarke” era, resulted in some unexpected employee turnover when changes were made. Those who did not want to get on board with the new sustainability initiatives may have chosen to leave Clarke. For many within the organization, however, this transition helped to focus the company and hire new recruits who were better prepared for the challenges ahead. “CHANGING THE GAME” Perhaps Clarke’s most radical business decision was to retire one of its oldest products, Temephos, a highly effective and profitable organophosphate with a proven track record. Introduced in the 1960s, the compound was extremely toxic to mosquito larvae and had long been a trusted and reliable tool for the mosquito abatement industry. Beginning in 2010, Clarke would stop manufacturing this product. Due to Clarke’s significant market share, the decision would effectively remove Temephos from the American market by the end of 2015. “Clarke’s decision was based on where its resources were going to be spent in the immediate future and in its confidence that Clarke would lead the industry to adopt new and alternative products before financial or programmatic impacts were felt by Clarke and its consumers.”19 The end of Temephos would be the first step toward Clarke’s long-term goal of phasing out old chemistries and replacing them with new and sustainable Next Gen products. In this way, Clarke envisioned its products on an escalator — as older products vanished, newer ones appeared to fill the void. It was not going to be easy though. Just after Clarke announced its plan, it found itself in an “ill-favored position” among some industry centers of influence.20 Many customers failed to see Clarke’s genuine interest in sustainability because, due to the seasonal character of Clarke’s business, change was presented in short fragments of time. Big changes (such as phasing out an entire product line) took time.21 Others were simply uninterested. The Eco-Tier Index hinted at the market’s slow march toward change, and as Temephos was removed from the sales floor, Clarke would be at its most precarious position, between an older profitable chemistry and a new sustainable green chemistry. The question on everyone’s mind was “How can this change be accomplished without creating a profitability gap?” The answer remained to be seen. If Clarke were to be successful, it would have changed the game for mosquito abatement. CHALLENGES FOR THE FUTURE Karen Larson commented:

It is clear that Clarke derives its profitability from pesticides, the bulk of which presently do not meet Clarke’s own standards of “do no harm” or even “do less harm.” Clarke has a significant dependence on traditional chemistry to support its development of new solutions; a sour chaser to the sustainability Kool-Aid we all drank in 2009, and a difficult message to sustain.22

Clarke’s perceived environmentally unfriendly past was not easy to rectify with its current sustainability initiatives. Customers and employees alike needed to realize the sincerity of Clarke’s message and needed to be shown benefits beyond a greener planet. For example, Clarke needed to emphasize its success in 19 Interview with Karen Larson. 20 Ibid. 21 Interview with Kim Schulke, human resources manager, May 26, 2011. 22 Interview with Karen Larson.

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Page 11 9B12C012 cost cutting, improved public relations and the addition of complementary products to Clarke’s existing infrastructure. Clarke’s success would be tightly intertwined with the success of Natular, especially as the new product moved into wider distribution, and older products were removed from circulation. “Developing a culture centered on sustainability was difficult when the culture did not completely exist outside the walls of Clarke,”23 and thus required consistency and commitment of messaging through each of the employees to all of the customers. Could a clear and consistent message that educated employees and clients on profitable opportunities to embed sustainability in every aspect of Clarke’s business, allow it to be even more successful than it would have been had the company remained a traditional mosquito control company? Would this relatively small company be able to partner in research and development and in product development with much larger entities to change a whole industry? What else could Lyell Clarke do to make sustainability and profit a mutually reinforcing formula for success?

23 Interview with Natalie Valenti, facilities project coordinator, May 26, 2011.

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Exhibit 1

CLARKE’S TURNKEY MOSQUITO MANAGEMENT STRUCTURE

Source: Clarke, “Clarke Integrated Pest Management,” www.clarke.com/index.php?option=com_content&view=category&layout=blog&id=42&Itemid=121, accessed May 20, 2011.

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Exhibit 2

CLARKE EMPLOYEE GROWTH, 1998—2010

Source: Created from employee figures provided by Lyell Clarke, October 2010.

Exhibit 3

COMPANIES UNDER THE CLARKE ENVIRONMENTAL UMBRELLA

Source: Exhibit provided by Lyell Clarke.

CLARKE MOSQUITO CONTROL PRODUCTS, INC.

CLARKE ENVIRONMENTAL MOSQUITO MANAGEMENT, INC.

CLARKE ENGINEERING TECHNOLOGIES, INC.

CLARKE AQUATIC SERVICES, INC.

PACIFIC BIOLOGICS PTY, LTD.

CMCP MEXICO, S.A. DE C.V.

CMCP BRAZIL

CLARKE INTERNATIONAL, LLC

THE CLARKE GROUP

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Exhibit 4

NATULAR’S SIX FORMULATIONS

FORMULATION CARRIER AND APPEARANCE

APPLICATION RATE

BULK DENSITY

EC Single-brood liquid Liquid, dark, slightly cloudy appearance

1.3 — 2.8 fl oz/ac 9.68 lbs./gal

G Single-brood granule Granules made from corn cobs

3.5 — 9 lbs./ ac 33 lbs./cf

T30 Multiple-brood 30-day tablet

A dust-free tablet 1/100 sf 6 g/tablet

XRT Multiple-brood extended release table

A dust-free tablet 1/100 sf 40 g/tablet

XRG Multiple-brood extended release granule

Granules made from silica

5 — 20 lbs./ac 85 lbs./cf

DT (not available in US)

Multiple-brood tabled for containerized water

Bi-layer tablet 1/container 1.35 g/tablet

Note: fl oz = fluid ounce, ac = acre, lbs. = pounds, gal = gallon, cf = cubic foot, sf = square foot, g = grams Source: “Natular Resource Guide,” www.clarke.com, accessed May 20, 2011.

Exhibit 5

NATULAR IS SAFE FOR MAMMALS, FISH AND BIRDS

LC 50 indicates that half the lethal dose was administered for the indicated time period before death, NOEC indicates No Observed Effect Concentration, EC 50 indicated 50 per cent of the effective dose was administered prior to death, and LD 50 indicates 50 per cent of the lethal dose was administered over the indicated time period before death. All dosages are significantly higher than recommended doses. Environmental Toxicity

SPECIES TIMEFRAME DOSE RATE Bluegill Sunfish 96-hour LC 50 5.9 mg/L Rainbow Trout 96-hour LC 50 30 mg/L Sheepshead Minnow 96-hour LC 50 7.9 mg/L Common Carp 96-hour LC 50 5.0 mg/L Water Flea 48-hour LC 50 1.5 — 14.0 mg/L Grass Shrimp 48-hour LC 50 >9.7 mg/L Midge 25-day NOEC .002 mg/L Bobwhite Quail Acute LD 50 >2000 mg/L Mallard Duck Acute LD 50 >2000 mg/L Microorganisms No effect at 100 mg/L

Source: Natular Resource Guide. Clarke.com, accessed May 20, 2011. Legend for Exhibit 5 created by the casewriters. Note: mg = milligram. L = Litre.

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Exhibit 6

NATULAR FORMULATION-SPECIFIC EFFICACY

Note: fl oz. = fluid ounce, ac = acre, lbs. = pounds, gal = gallon, cf = cubic foot, sf = square foot, g = grams Source: Natular resource guide, www.clarke.com, accessed May 20, 2011.

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Exhibit 7

CLARKE’S ECO-TIER INDEX

Source: www.clarke.com, accessed May 20, 2011.

Exhibit 8

CLARKE’S SIX LEVELS OF STRATEGIC FOCUS

Source: The Sustainable Company, by Chris Laszlo. Copyright © 2003 Chris Laszlo. Reproduced with permission of Island Press, Washington D.C.

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Exhibit 9

CLARKE’S CARBON FOOTPRINT REDUCTIONS, 2008—2009

2008 2009 Percentage reduction Transportation fuel (gallons) 2,083 1,748 16 Electricity (kWh) 800 709 12 Onsite fuel (gallons) 282 237 16 CO2 (metric tons) 3,176 2,705 15

Note: kWh = kilowatt hours, CO2 = carbon dioxide Source: Clarke’s 2009 - 2010 Sustainability Report, page 22.

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