21/04/2011 - 00:00

Shared value the next big thing in business

21/04/2011 - 00:00

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It may be an inconvenient truth, but companies must take the lead in bringing business and society back together.

WHAT does the term ‘social business’ really mean, because they are not two words that are typically conjoined?

Well, simply, social businesses trade for the purpose of creating social value – whether it is to serve members better, to generate community benefit, or to trade more ethically and environmentally.

Social businesses share prosperity with all of their stakeholders – members, customers, employees and the community. They make profit (or a surplus) in the service of their goals.

They are typically forged in local communities to address a community need, fight a fight or to right a wrong – so they have ‘collaboration’ in their DNA.

My favourite description is that social business forms are a good way of doing business and a business-like way of doing good.

So with that definition, I would like to pose a question to the group if I may.

With the rise and rise of corporate social responsibility, corporate philanthropy, triple bottom line reporting, ethics, diversity, social entrepreneurs ... please tell me exactly, how does your organisation justify its existence in society?

It is a direct and uncompromising question that is hard to shirk.

Arguably, the pure capitalist system is under siege. In recent years business (and especially big business) increasingly has been viewed as a major contributor to many social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.

A big part of the problem lies with companies themselves, which arguably remain trapped in an outdated approach to value creation.

The presumed trade-offs between economic efficiency and social progress have been institutionalised in many years of policy choices.

An inconvenient truth is likely to be that companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model or the rediscovery of older models are emerging.

Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a ‘social responsibility’ mindset in which societal issues are at the periphery, not the core.

The idea of shared value was initially explored in a December 2006 Harvard Business Review article, ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility’.

The ‘big idea’ contained here is that the solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges.

Businesses must reconnect company success with social progress.

The article argues that shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success.

It is not on the margin of what companies do but at the centre.

The article’s authors believe this can give rise to the next major transformation of business thinking.

I would argue that social business forms, such as mutuals, cooperatives, community owned enterprises etc have been doing exactly that for centuries – pursuing profits for purpose.

CSV-CSR

Creating shared value differs from corporate social responsibility.

CSV should supersede corporate social responsibility in guiding the investments of companies in their communities. CSR programs focus mostly on reputation and have only a limited connection to the business, making them hard to justify and maintain over the long run.

In contrast, CSV is integral to a company’s profitability and competitive position. It leverages the unique resources and expertise of the company to create economic value by creating social value.

Once again, social business forms show how market efficiencies can be harnessed for social good, not just to reward capital.

To meet the many challenges facing society, the world needs businesses that can deliver on the bottom line, and also on social outcomes, job security, environmental sustainability, and community empowerment – only social forms of business deliver on all of these fronts.

The fourth sector

Many of you would have heard that economies may be considered to have three sectors:

• the business private sector, which is privately owned and profit motivated;

• the public sector, which is owned by government on behalf of the people; and

• the social economy, which embraces a wide range of community, voluntary and not-for-profit activities.

Well, consistent with the research of some of the world’s leading academics that I have just shared with you, there is an emerging new order some are calling the ‘fourth sector’.

The defining characteristic of all fourth sector organisations is that they integrate social and environmental aims with business approaches and are starting to be referred to as ‘social businesses’ or ‘for benefit’ corporations.

A fully realised social business or ‘for benefit’ could have the following core attributes.

• Social purpose. A core commitment to social purpose embedded in its organisational structure.

• Business method. Conducts any lawful business activity that is consistent with its social purpose and stakeholder responsibilities.

• Inclusive ownership. Equitably distributes ownership rights among its stakeholders in accordance with their contributions.

• Stakeholder governance. Shares information and control among stakeholder constituencies as they develop.

• Fair compensation. Fairly compensates employees and other stakeholders in proportion to their contributions.

• Reasonable returns. Rewards investors subject to reasonable limitations that protect the ability of the organisation to achieve its mission.

• Social and environmental responsibility. Committed to continuously improving its social and environmental performance throughout its stakeholder network.

• Transparency. Committed to full and accurate assessment and reporting of its social, environmental, and financial performance and impact.

• Protected assets. Can merge with and acquire any organisation as long as the resulting entity is also a social purpose entity.

This ‘fourth sector’ contains social businesses or for-benefit corporations that represent a new (or reborn) paradigm in organisational design.

At all levels, they aim to link two concepts that are held as a false dichotomy in other pure capitalist for-profit models – private interest and public benefit.

Social businesses seek to maximise benefits to all stakeholders, and because of their architecture, they can embody some of the best attributes of other organisational forms.

They strive to be transparent, accountable, effective, efficient, democratic, inclusive, open, and cooperative.

I am not sure about you, but the way I see this is that – at one end of the spectrum – the non-profits are being asked to deliver their social outcomes but be accountable in a more business-like way to investors/donors; and at the other end is the private sector, which is being asked to deliver to investors but be accountable for social outcomes to society.

The blurring of the boundary between successful for-profits and non-profits is one of the strong signs that creating shared value is possible.

• Trent Bartlett is CEO of Capricorn Society and chairman of Social Business Australia. This is an edited extract from a recent speech.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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