Doing Good Differently: Changing The Way We Do CSR By Creating Shared Value

amanda.chua@leaderonomics.com

Recently, I was challenged to change the way I view charity. Dan Pallotta’s TED2013 video on “The way we think about charity is dead wrong” can take credit for this.

“Three hundred and fifty employees lost their jobs because they were labelled as overheads; this is what happens when we confuse morality with frugality,” says Pallotta who founded the AIDS Rides.

AIDS Rides is a series of long-distance fundraising cycling journeys for HIV/AIDS research and breast cancer three-day walks which netted millions but later shattered after a spate of bad press criticising the management of the organisation.

The real issue lies within the fact that everything we have been taught to think about charity should be rethought. In particular, the single yardstick generally used to measure the worthiness of a charity – how much money goes directly towards the people it seeks to help and how much is used to cover overheads– is dangerously limiting.

Ergo, the ‘best’ charities are those with the lowest overheads. However, the reality is that social impact can never be quantified through a simple input-output calculation. Our own perspective on giving and the non-profit sector are worryingly undermining the causes we love, when this focus may actually impede charities from making a real impact.

The Misconception

Typically, the world applauds companies that give generously to philanthropic initiatives and we idolise the social entrepreneurs who set out to address our world’s most pressing issues. Yet people raise their eyebrows at the mention of a corporate behemoth that seeks profit while doing good.

These efforts immediately become bright red flags for scepticism: Can a consumer goods MNC really teach us how to reduce waste? How can a company that has historically sourced cocoa at the hands of child labour transform into a leader in developing rural farming communities? Does anybody really trust the fast food chain’s “healthy options menu”?

The debate about business and social responsibility is really a false dichotomy. It assumes an either/or position that doesn’t exist. Business can be both profitable and socially responsible. The old, worn-out false argument is that the only purpose of a business is to create value for its shareholders, and that profit maximisation and social responsibility are mutually exclusive. They aren’t.

What is Shared Value?

Michael Porter, famed Harvard business strategist, surmised that profitable business is the only infinite means for creating societal value, and the most powerful force for addressing the most critical challenges we face.

Porter has coined the term “shared value” to define a concept by which companies become more competitive while simultaneously alleviating social problems in communities where they operate.

“Shared value is about tackling societal problems with a capitalist business model. When we can get the activity into the capitalism bucket, we create magic because we can scale!” he says.

Creating Shared Value

In the past, corporate investment in community and environmental initiatives were often seen as “obligations” or simply philanthropy: added costs that had to be borne to minimise operational risks and protect reputation. Creating Shared Value redefines many of these obligations as opportunities to strengthen the business long-term – adding value for both shareholders and stakeholders.

Creating Shared Value begins with the understanding that for our business to prosper over the long-term, the communities we serve must also prosper. Contrary to traditional thinking, businesses can create competitive advantage and shareholder value through actions that substantially address a social or environmental challenge.

Shared Value as a Differentiation

Historically, companies interacted with society through philanthropy. What started as simple donations to good causes evolved to strategic investment of a business’s greater resources and core competencies to address social or environmental issues – what many call CSR. Porter describes corporate philanthropy and CSR as fundamental building blocks for shared value but “shared value is different because it has the magical property of scalability”.

The greatest distinction between shared value and CSR is that shared value is not on the margin of what companies do, but at the centre. It is important to understand these distinctions, because doing so enables us to consider more intelligently the ways businesses can create value for society.

It’s also important to recognise that shared value should not be adopted in the place of CSR, but as a complement. Take the example of Nestlé, the corporate pioneer of the shared value revolution which now invests 80% of its resources towards creating shared value, but without taking away from the historic 20% invested in CSR programmes.

Shining examples

How does this look in practice? It starts with reimagining a needs-based mission statement. Consider Nestlé’s evolution from a F&B to a nutrition and wellness company. We’ve all watched Nike victoriously transcend the apparel and footwear industry to become the face of individual empowerment over personal health and wellness.

Another impressive example is GE’s highly-profitable efforts at addressing environmental issues and challenges in healthcare. Ecomagination and Healthymagination have each generated new products and revenue streams while engaging stakeholders and bolstering capacity for cutting-edge innovation.

But shared value isn’t just about pursuing new business opportunities. It is about partnership collaborations across sectors to tackle local issues. Cisco offers a great example of the potential for shared value in rallying cross-sector approaches to tackling social challenges like education and job placement for underserved populations.

Through its Networking Academy, Cisco partners with schools, government agencies, non-profit, and other organisations in regions from Brazil to South Africa, leveraging its cloud technology expertise towards providing education and career readiness for students considering high-demand IT careers.

That’s not all. Cisco works with Futures Inc, a talent management software company, to facilitate job opportunities for underserved students and army veterans and through their programme. Fifty per cent of them received a job offer within 48 hours.

Shared Value for Businesses

Like the examples above, companies should be in the forefront in bringing business and society back together. 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 solution lies in the principle of shared value. Businesses must reconnect company success and economic value with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. We believe that it can give rise to the next major transformation of business thinking.

However, our recognition of the transformative power of shared value is still in its genesis. Realising it will require leaders and managers to develop new skills and knowledge – such as a deeper appreciation of societal needs, a greater understanding of the true bases of company productivity, and the ability to collaborate across profit/non-profit boundaries.

Being Generous with Dreams

The change has to start from somewhere and as Pallotta best sums it, “It is time to change the way we think about changing the world.” Having a tunnel vision of being fixated on costs spent on charity distracts us from what the real cause of changing the world is all about.

Our generation does not want to know how spendthrift we are on social causes but instead, how generous we are in creating impact “doing good”. It has to first start off with the paradigm shift in the way we think and how we approach “social responsibility”.

So, instead of asking the next non-profit its investment cost, let us ask about the scale of their dreams, the resources they need and how we can partner to realise them. By having that kind of generosity of thought and not forcing organisations to lower their horizons for keeping their overheads low, then we can talk about scale and potential for real change.

Partnership collaborations with non-profits to tackle social issues is the first step. With companies stepping in to lend strength and create shared value, then the non-profits can play a bigger role in making an impact for all who are in great need of it. We can then say that we took part in growing the capacity of changing the world and reinvented the way in changing things.