Beyond “shared value” approaches for corporate social responsibility
For decades, we have mythologized Milton Friedman’s 1970 dictate that corporations have a primary responsibility to deliver financial returns to their shareholders. But, the winds are shifting.
Former Unilever CEO Paul Polman is calling for “heroic chief executive officers” to achieve sustainable development goals such as more inclusive business practices and reduced carbon use. Larry Fink, the CEO of Blackrock, an investment firm that manages over $1 trillion in assets wrote in his own Letter to CEOs: “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
There are almost too many reasons for urgency. Whether it is the risk of disruptions due to climate change; the Millennials who won’t work for companies that are only focused on the bottom line; workers using social media to fight sexual harassment and discriminatory work conditions; consumers boycotting products that don’t meet ethical standards; greater inequality is leading to political instability…Companies increasingly need to address the full set of stakeholders who surround them: all 360 degrees.
As I contend in The 360º Corporation: From Stakeholder Trade-offs to Transformation, the big problem is that meeting these stakeholder demands often requires action that could compromise profits. Improving worker conditions, investing in environmental advances, addressing the impacts of consumerism, creating talent pipelines for marginalized communities, or stopping polluting activities, are all costly. Costly in terms of cash, time and organizational disruption. Yet, just because they are costly doesn’t give organizations an excuse to go slow. In fact, the urgency for action in addressing these trade-offs could not be greater than it is today.
Heroic CEOs are definitely part of the solution. It is going to take bravery and persistence to make change. But, it’s going to take a lot more than that. The CEO can create the will for transformation, but not necessarily the skill. That is, even when people are passionate about addressing climate change, gender inequality, or supply chain work conditions, they may not know how to get it done within the context of their own organizations.
So, how do you do it? What does it take to take your stakeholders seriously? In The 360º Corporation: From Stakeholder Trade-offs to Transformation, I argue that most companies today are stuck in a conversation about “shared value” in which what’s good for the stakeholder is somehow also good for the bottom line. It’s a win-win. You install LED lights and you save on energy costs. You put in sexual harassment protections and you reduce employee turnover. You deliver more leftover food to foodbanks and you reduce costs of sending waste to landfills. A whole swath of research has found that corporate social responsibility writ large can contribute to the bottom line, at least under certain conditions.
But, there are a few challenges with the shared value approach. First, those changes aren’t actually cost free; there are trade-offs. Capital investments are required to install LED lights. Organizational change and training costs are required to reduce sexual harassment. Additional work is required to ready food for foodbanks rather than the trash bin. Second, the shared value mindset often means that the first win (profits) always wins over the second (social benefits). If you can’t find a way to make the business case, you don’t do it.
A whole swath of research has found that corporate social responsibility writ large can contribute to the bottom line, at least under certain conditions.
Instead, The 360º Corporation: From Stakeholder Trade-offs to Transformation shows how leaders can build organizational capacity to be bolder. The trade-offs don’t have to be roadblocks, they can be sources of inspiration for transformation. A first step is to actually understand what those trade-offs are. Most companies may not have considered the ways that their business models are built on trade-offs (e.g., low prices means low wages for workers). Understanding the trade-offs can help a company move beyond shared value, to seek innovative solutions – new technologies, new processes, new ways of doing business – that enable them to innovate around trade-offs. The good news: collaborating with different stakeholders can actually be a source of innovative ideas. And even when innovative solutions are not apparent, companies can hold the trade-offs in tension, uncovering potential future solutions by running experiments, partnering with other organizations, making long-term research investments with uncertain payoffs and involving stakeholders in problem solving.
Those heroic CEOs for the 21st Century are going to require a new set of skills, ones that are more collaborative, more focused on inquiry, more about humility, more about thriving within paradoxes, more about conversation. These characteristics become even more important when we consider the new imperative to lead companies not just to achieve shareholder objectives but to address all of the stakeholders that encircle the organization.
The 360° Corporation takes the interests and needs of these different stakeholders seriously. It is an organization that engages in 4 modes of action: knowing trade-offs, rethinking trade-offs, innovating around trade-offs and thriving within trade-offs. It doesn’t let anyone off the hook, not stakeholders, not companies. And, therein lies the possibilities for a new economy. There aren’t easy answers. But, the journey must start now.
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