Much more is needed to shift the dial
Speaking at the CEO Connect Roundtable, hosted by the Shared Value Africa Initiative (SVAI) on 4 June 2021, visionary and renowned strategist, Professor Mark Kramer, reflects on a decade of creating Shared Value and shares key insights gathered along the way.
If we are going to solve the world’s problems, it has to be with the leadership of business and it has to be with business approaching social problems as business opportunities – not as philanthropy and not as corporate social responsibility.
This was one of the key realisations, which helped to set the stage for creating shared value (CSV), a business concept first introduced in the ‘Harvard Business Review’ by Mark Kramer and Michael Porter in January 2011.
Shared value does not replace philanthropy and corporate social responsibility, according to visionary and renowned strategist, Professor Mark Kramer. “Shared value is about rethinking your strategy and business model in ways that align positive impact for society, with better economic performance for your company. Business has a social purpose and it needs to ensure the success and well-being of its stakeholders, if it is going to succeed.”
At the recent CEO Connect Roundtable, a pre-cursor to the annual Africa Shared Value Leadership Summit taking place from 8-9 November 2021, Professor Kramer reflected on a decade of creating Shared Value and shared key insights gathered along the way.
“Over the years, I have found increasingly more social issues, which really embody economic opportunities that I could never have anticipated. I have seen companies change and CEOs become inspired by this idea that they can do good and do well at the same time; that they can build a social mission into the core of their strategy. I have experienced the impact of that on employee engagement and morale. I have seen the resulting impetus that spur new innovations, new ways of doing business that leave one’s customers better off than they were before. I’ve seen companies begin to talk to their shareholders about their social impact, not just their quarterly earnings. I’ve seen them begin to integrate sustainability factors into their financial reports and actually begin to draw the connection to explain to their shareholders how investing in solving social problems is leading them to more profit. I have also seen shareholders and investors embrace the idea that they want to invest in companies that are doing good.”
REFLECTIONS ON 10 YEARS OF SHARED VALUE
- For organisations to bring about change and shift mindsets, it is crucial that the CEO understands shared value. Without that commitment it will be difficult and risky. Creating Shared Value requires innovation and if the CEO is not behind it, it’s not going to happen.
- At those companies that have been successful in creating shared value, it is not just the business that has a purpose. The CEOs all have a sense of purpose in their own lives and that is what has made them open to taking the risk to embrace shared value.
- The importance of collaboration should not be underestimated. This concerns both collaboration among companies to work together on solving issues that affect their entire industry or collaboration to level the playing field. It is also collaboration between companies and NGOs and with government.
- We cannot solve the world’s problems without government playing a more constructive role. Government needs to infringe on the freedom of business to make decisions. Government needs to make demands of business and impose certain obligations on business.
One visible change in the past decade, according to Professor Kramer, has been the unprecedented growth in ESG investing (investments that pays attention to environment, social and governance issues). He noted that there are now four times the number of ESG investment funds than was the case 10 years ago, with a massive 100 new ESG funds started in 2020 alone – a 30% increase over 2019. Additionally, an estimated US$51 billion of new money went into ESG funds last year, which represents 25% of all new funds invested in mutual funds in 2020. In 2014 that number was a mere one percent.
Of course, despite visible progress over the past decade, the challenges remain. For starters, ESG funds remain a grey area when it comes to impact measurement. The rating of companies on environmental, social and governance performance is very inconsistent and idiosyncratic, with the majority relying on companies’ self-reported and often unverified data.
Professor Kramer elaborated: “We haven’t yet found a way to ensure that investors’ money is actually going into companies that are creating shared value and making money by doing good. We have not yet changed the prevailing thinking. Many business leaders and managers still think that maximizing shareholder value, not worrying about other stakeholders, is their mission. They are not rethinking their business model in ways that create more positive impact.”
Similarly, the World Benchmarking Alliance (WBA), which was set up by the United Nations (UN) to track the progress of leading corporations toward the UN’s Sustainable Development Goals (SDGs), reports that only one of the 50 largest electric utilities in the world has committed to abandoning fossil fuel altogether. Likewise, only five of the 30 largest auto companies globally have made some targets or commitments to reduce the emissions of the vehicles they produce and only 12 of 350 food and agriculture companies around the world are on track to meet goals aligned with the Paris Agreement or the SDGs. Also, of the 200 companies that have a major impact on human rights worldwide, some 90% score less than a two on a scale of one to 10.
He summarised: “We have a long way to go. For all the hope, for all the momentum, for everyone who believe in shared value or practicing shared value, we have not yet moved the world nearly enough to answer the challenges. Collaboration among companies and between business, NGOs and government will be key. More specifically, unless government plays a powerful role in moving business towards creating shared value, we’re just not going to make enough progress.”
For Africa, on the other hand, the opportunity is ripe for the picking. Unlike the majority of multi-nationals, which are operating on decades old business models that does not fit today’s world, many of Africa’s young and inspired entrepreneurs have a deep sense of purpose about wanting to help their fellow citizens and their country.
Professor Kramer concluded: “I believe Africa can leapfrog other countries in creating shared value, because it is not tied to this long legacy of how business has been done for centuries. Africa has an opportunity for a fresh start; a chance to move faster and to show the world what a shared value continent can look like.”
Professor Mark Kramer is co-founder of the Shared Value Initiative, Senior Advisor at FSG, and senior lecturer at Harvard Business School.