In our last newsletter I shared inspirations from the recent Shared Value Leadership Summit. While I am a committed Shared Value practitioner and work with my clients to help them design their portfolio in ways that authentically build business and community value, Shared Value isn’t without its critics. As advocates of shared value, it is important for us to reverse the lens every so often and ask the tough questions in order to keep a critical and objective view.
I am pleased to share with you “Asking the Tough Questions About Shared Value,” a guest blog from Phil Preson, a fellow Shared Value Affiliate from Sydney, Australia. Australia is truly a leader in the Shared Value field and Phil has been actively involved both as a consultant and as the facilitator of the corporate-driven Shared Value Group at Hargraves Institute, an innovation powerhouse in Australia.
Asking Tough Questions About Shared Value
By Phil Preston, Phil Preston & Associates
If shared value strategies are to drive economic and social improvement, the practitioners championing them need to listen to fair critique and be willing to address any tough questions that arise.
Shared value describes a business strategy or practice that creates positive economic and social outcomes. It may by achieved via many means, including the launch of new products, developing new markets, implementing new business models, boosting supply chain, workforce or labour market productivity and initiatives that improve the environment for doing business in as a whole.
The real benefit of shared value, in my view, lies in influencing the methods and mindset of shareholders and investors in larger global companies because they are so thinly spread that they struggle to take on the role of accountable and responsible owners. Despite the fact that pension funds have long-term liabilities and shared value strategies lead to longer-term forms of value creation, the investment supply chain is deeply flawed and public companies are often encouraged to pursue a narrow agenda of shorter-term earnings growth at the expense of longer-term social and economic improvement. And then there are some companies just don’t get it – that adverse environmental and social consequences, or externalities, will impact on their future earnings prospects.
There have been many critiques of shared value and I have provided links to some of these commentary pieces at the end of this article. Indeed, within the practitioner community there are agreements and disagreements about aspects of shared value. I’ve pulled together a set of questions sourced from my own challenges, those espoused by industry commentators and from within members of the shared value community, with special thanks to Nicola Robins and Meghan Ennes for their assistance.
Q. Is shared value an attempt to legitimize bad business practices?
Sometimes yes. The term ‘shared value’ has become a shiny new toy for the corporate world and a lot of claims are being made that wouldn’t stand up to scrutiny. There is no formal control over the use of the term, which can lead to ‘brandwashing’. We also find instances of companies creating shared value who are reluctant, for various reasons, to name it as such.
Is it wrong to align company success with social progress? I guess that depends on how we define social progress and that is discussed in further points below.
The takeaway: constantly challenge companies to provide simple, relevant business and social metrics to back up their assertions.
Q. Does shared value involve social trade-offs?
There is seldom a clear delineation between what’s right and wrong in terms of social impact. Instead of black and white, we are dealing with fifty shades of grey. The interactions between companies, communities, citizens and governing bodies are infinitely complex and beauty is in the eye of the beholder, so to speak.
How do we weigh up the road infrastructure that a mining company builds in a developing country that, in theory, improves the level of trade, activity and prosperity for its people against the social impact on bypassed towns that formerly relied on passing trade?
When I hear about initiatives to improve the workforce in communities surrounding Canadian oil sands developments I first think about the bigger picture: why aren’t we talking about the economics, risks or impacts of oil versus renewable energy instead?
I’ve noticed that talk of Nestle’s bottled water strategy will divide a room – including a room full of shared value practitioners, so let’s call it. Is water a commodity for sale or a basic human right? Do we value a strategy aimed at switching consumers from soft drinks to water? Is such a strategy socially progressive? I don’t have easy answers to the questions posed. However, it’s better to be having the discussion than avoiding it.
Ben & Jerry’s, now owned by Unilever, is a celebrated brand for its social remit, and yet it is high in sugars and fat, which must be challenging for an ethical purist.
A coalition of companies, including Mars, is striving to provide assistance to smallholder farmers in Cote d’Ivoire to improve crop quality and yields. This is an industry that has child slavery issues hanging over it. Should we insist they exit their strategy altogether? I’m sure that if we demanded they invest in every social problem in the supply chain then their business plan wouldn’t stack up. Is no activity better than action that is considered non-perfect?
Can a tobacco company ever create shared value if public health costs and flow on productivity losses far outweigh any possible benefits?
The introduction of shared value thinking has ignited conversations and actions about corporate alignment and purpose. This is positive in trend terms, even if specific actions are debated. Large, legacy businesses are slow moving beasts; cut them some slack but, at the same time, hold them accountable for their approaches and the goals and milestones they set.
The takeaway: celebrate the successes and question poor practices. Companies need to clearly articulate their areas of social focus as well as their limitations to stakeholders.
Q. Is it acceptable to profit from social development?
This is a real sticking point because social progress and profitability are, historically, uncomfortable partners. What we find, though, is that many NGOs are enthusiastically participating in shared value dialogue because they believe that the charity and sustainability agenda alone will not be sufficient to bring the level of change required. Judith Rodin of the Rockefeller Foundation made remarks to this effect at the Shared Value Summit in 2013. At this year’s summit, 25% of attendees were from the NGO community.
Why is shared value attractive to them? Because it is expressed as a core business strategy rather than an add-on and, as such, can bring much greater resources, innovation and scale to the problem at hand. I doubt Cisco would have spent $350 million partnering with public institutions to provide online curricula, teacher training and professional development for instructors if it wasn’t seeking to improve labour market skills to support its own product growth agenda.
The takeaway: if we can accept that deriving profits from social initiatives or strategies gives business an incentive to sustain its investment and commitment to social impact, shared value provides a framework for doing so.
Q. Does shared value comply with legal and ethical standards?
Every company should comply with legal standards. Shared value shouldn’t be confused with compliance because it is primarily about innovation and increasing competitiveness.
The second part of the question isn’t so easy because there is no agreed and accepted rulebook on ethical standards.
Turning briefly to the investment industry: how do most ethical investment funds work? They screen out companies that breach the ethical standards prescribed by the investment manager. It is the application of an absolute rule.
With shared value, we are dealing more with relativities and seeking to link social impact with economic outcomes. As such, shared value does not advocate hard and fast ethical rules; instead, it encourages executives and managers to think through the longer-term implications of practices that challenge ethical norms.
The takeaway: working to a tight set of stringent ethical standards is challenging because very few companies in the world are likely to meet any given criteria. It becomes a question of how to influence change, and shared value is one of many approaches.
Q. Is shared value a new form of imperialism, giving Western companies legitimacy in high growth developing markets?
A. There’s no denying multinationals are moths to the developing market flame. Are they profiteering at the expense of local firms, or can we argue that, without them, there is less chance for prosperity and poverty reduction? Is there an assumption that they think they know what is best for others without a truly local frame of reference? Possibly.
Shared value is not an isolated business pursuit; it involves government, NGO and community engagement. At the recent summit we heard private equity investment specialist, Arif Naqvi, talk about the steps taken to improve the cost and reliability of electricity supply for a utility that his investment fund purchased in Pakistan. It was a case of effective business leadership with positive economic and social impacts. However, in the consumer goods sector, for example, the line is more likely to be blurred.
While we can frame this as an internal governance challenge for multinationals, a more subtle quality – having the ability to listen – is increasingly important in the face of complexity. A business model that works in one country doesn’t necessarily work in all others without a degree of understanding and adaptation.
The takeaway: we should question whether Western companies pursuing developing market strategies have the right level of internal governance and listening skills to deliver sustained outcomes for all involved.
Q. Should shared value strategies only be aimed at dire social needs?
No. While several headline examples of shared value strategies are addressing major health or poverty issues, there is a much wider opportunity set.
I can cite a motoring organisation that has an ageing membership base, and it sees opportunity in providing its members with services and tools to help them manage their transition into older age. Their members are (generally) not poor and we can appreciate that a better range of advisory services improves their ageing journey and potentially alleviates their call on publicly funded health services.
Insurance provider, Discovery Health, takes a keen interest in the health and wellbeing of its customers. Helping to minimize the occurrence or severity of accident, illness or injury drives better underwriting outcomes, allows it to engage consumers effectively and gives it scope to reduce premiums and compete ferociously in the market. Improving the affordability of insurance products is also a positive outcome for its target market.
The takeaway: Keep an open mind about what constitutes ‘social need’ and encourage companies to address dire needs when they are relevant to their competitiveness.
Q. Does every social initiative need to exhibit shared value?
Definitely not. Corporate philanthropy, community investment, sustainability goals, maintaining a license to operate and stakeholder management activities are all part of a broad portfolio that corporations need to manage. Some of them may become pathways into shared value strategies as insights are gained and relationships develop.
An industrial company I was recently dealing with was practicing corporate philanthropy and, through local community circumstance, an opportunity arose for employees to become engaged in social issues on their doorstep. As much as I’d like to be helping them frame it as a shared value project, it just isn’t practical for them right now. It is a beachhead for future development.
The takeaway: encourage companies to make conscious, sensible choices about their ‘portfolio’ of activities. As a practitioner, I see my purpose as helping them build out their portfolio in places that make sense.
Q. Will shared value solve all of our social problems and save the world?
No. Shared value provides an alternative lens for corporate innovation and competitiveness; one that aims to deal with social issues that are directly or indirectly impacting on financial performance. There will always be interventions required by government and NGOs for an array of issues and causes that shared value will not address.
However, shared value does provide a stronger connection between company resources and social issues, a link that has been somewhat missing in recent history.
The takeaway: The conditions are ripe for shared value strategies to have a significant impact on societal improvement, but it will not eliminate all social problems.
Q. Does shared value promote self-interest?
Yes it does. It is the connection with profitability that is the fundamental driver of shared value strategies. The strategies that companies pursue will operate at different levels: they may be company specific, or they may require collaboration on a regional, industry or market basis.
The Extractives Industry Transparency Initiative is an example of industry level collaboration to improve local governance for transparency and accountability. The corporate driver is to increase returns on funds invested in countries where governance is weak.
The takeaway: it is self-interest that drives corporate commitment to sustained investment in social outcomes. Shared value is just one mechanism and one that often relies on collaboration and joint outcomes.
Q. What questions need to be added to the list?
I’ve done my best to raise key questions and answer them in the context of my own interpretation of shared value. I challenge you to identify:
- What’s missing?
- What needs expanding on?
- How could we improve the level and quality of dialogue on this topic?
When I read critiques or tough questions posed by others about shared value, I sense that we are all on the same side and our skills are complementary – we just have different ways of framing and influencing change.