Corporate shared value – what is it?
The idea of Corporate Shared Value was first introduced in the article 'Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility' in the Harvard Business Review in 2007. The article’s authors, Michael Porter and Mark Kramer, outline the concept of a sustainable business acting as a responsible corporate citizen, thereby creating social and economic progress. Examples of how businesses can create corporate value are:
1) Creating products and services that target a social need, for example an ageing population or youth unemployment:
We have been in discussion with social incubators on how neurological training programmes for senior citizens could help slow down the progress of dementia, as part of our public policy engagement. Traditionally, some companies have purchased products like these through their foundations and donated them to those in need. This was Corporate Social Responsibility (CSR) 1.0. The 21st century’s version, CSR 2.0, sees increasing synergy between global companies and fast-moving impact-driven enterprises. Therapeutic products provided by companies that address aging, for example, now complement the drugs offered by pharmaceutical companies. Large companies create shared value by allowing mission-driven social enterprises to leverage their distribution platform, thus amplifying their social impact. By integrating CSR into the business offering, to a certain extent, this business model is not dissimilar to how environmental, social and governance factors are integrated into investment decision-making and the portfolio construction process.
Another example is a high end macaroon business that was established to provide culinary training to disadvantaged youths in the UK. The founder recognised that training a chef who could make art-like food may take years but that training someone to produce high quality macaroons requires significantly less time. The business’ high margins allow the enterprise to provide comprehensive training to those in need and the business model can be replicated throughout local communities in different parts of the country. The company is already working with large food retailers on distribution through their sales stores network. Learning from the business and logistics experiences of large retailers will be crucial in creating value.
2) Improving transparency in supply chains:
Amnesty International recently published a report on child labour and human rights risks in the electronics supply chain. Many of the largest technology companies find the tracing of their entire supply chain from the sourcing of materials to manufacturing extremely challenging. Interestingly, however, companies such as retailer Patagonia made an early commitment to provide complete transparency of its supply chain. It was one of the first companies to calculate carbon emissions at each stage of its production and distribution process and publish those on its website. This has inspired others to follow this example by committing to fair labour practices and working conditions, community development and other sustainable practices. However, other clothing retailers can still learn from this best practice in transparency, as confirmed in an engagement meeting I recently had with a former supplier of a luxurious global brand. The discussion gave us insights into the implementation and enforcement of supplier standards.
3) Building strong communities through human capital management and diversity:
The social value that companies create is amplified by two notable trends. First, policy shifts are taking place at unprecedented speed. The US Department of Labour, for example, recently permitted pension funds to factor human rights, governance and environmental protection into their investment decisions, while the introduction of the UK Modern Slavery Act mandates companies to better manage their supply chains. Secondly, event-driven momentum is no longer linear – it is exponential due to the proliferation of mobile technology and social media. Based on the premise of an increasingly active society and its expectations of how business should behave, we believe that the building of strong communities is a key to business success. Companies increasingly reach out to previously untapped talent from various social and economic backgrounds to improve their access to talent. The use of technology is an integral part of this process.
At the Bloomberg Good Business conference Hermes Investment Management sponsored in November 2015, much of the discussion focused on social innovation and how impact-driven businesses can drive human progress and development. We look forward to this dialogue which creates shared value for companies and investors.
I will be speaking about how to help social entrepreneurs go mainstream at one of the biggest social innovation events in the UK, Big Social 2016, on 25 February 2016.