Guest column: Arthur Mutambara
What is the role of society and the environment in business and the generation of economic value? Is concentrating on giving back or minimising the harm companies have on society and the environment the sustainable strategy?
While pursuing their business objectives, shouldn’t corporates focus on maximising the competitive and economic value derived from solving social problems and addressing environmental concerns including the surging climate change challenge? These are the issues I seek to attend to in this treatise.
You have heard the cynical view that the role of a corporation is to create value for the shareholder and its social responsibility is to create more money for the shareholder! The shareholder is supreme.
The doctrine is as pervasive as it is common cause. I beg to differ. We must go beyond the shareholder. We must think in terms of all the stakeholders – that is address the needs and aspirations of the entire business ecosystem – the corporate (business), society (community), and the physical environment (including climate change). I guess you have come across the phrase corporate social responsibility (CSR). I do not want to hear that phrase again. It is banned. It is so yesterday. CSR is now old-fashioned – a moribund and decadent doctrine of no value. This article seeks to bury CSR.
Do not tell me about your corporate social responsibility. Do not tell me about the fabulous school you have built as an apology for the profits you are making – that is unsustainable. Society and the environment deserve more than charity from you. How can you feel pity for them without disrespecting your future? Do not boast about that beautiful bridge you have built so that you can feel good about your business success. Your existence as an enterprise requires more than self-indulgence and short-term bliss. The corporate needs sustainability. We need a new philosophy.
We are challenging CSR because the basis of CSR is flawed – what does it say? It says there is a social or moral duty or a cost of doing business. We will construct a school; we will build a hospital because that is a social and moral duty we have; we will do it because it is a cost of doing business. As a business, we are going to embrace the social and economic empowerment of communities because it is a cost of doing business. No, that is the wrong approach and rationale! We are going to save and protect the environment because it is our moral duty to do so; we owe it to future generation. Really? No, that should not be the basis for corporate intervention!
Why do we assume that there is a trade-off between serving community (from which the corporate operates) needs and pursuing the business’s profit motive? Why do we assume that there is a trade-off between the financial success of a company and protection of the physical environment in which it operates? Why is climate change-proofing your business ventures a nice to have?
Fresh and innovative thinking posits that: No, no, no, these CSR assumptions are not correct. You can make more money because you are serving the community. You can make more money because you are protecting and enhancing the environment. Your business enterprise is more profitable and sustainable when serving the community and the environment are intrinsically and inextricably embedded in your corporate strategy. Solutions to social and environmental challenges must be incorporated right at the beginning, when the corporate vision, strategy and implementation plans are developed. They must not constitute a peripheral after-thought or a nice-to-have. Your corporate ambitions are more sustainable and profitable because you are addressing the needs of the community and embracing the green agenda.
Climate change-proofing your business vision, strategy and execution is about survival and sustainability. This means the modern CEO must now be a triathlete – chasing profits, resolving societal concerns and addressing the environmental agenda. All these creative formulations lay the foundation of the creation of shared value (CSV) – simultaneously and sustainably addressing the concerns of, and generating benefits for, business, the community and the physical environment. CSV seeks to integrate environmental and societal issues and challenges into economic value creation.
It is an entirely different mindset from the CSR framework. You are going to make more money as a company because you have embraced the social and economic empowerment of communities in which you operate. For example, ask yourself: “How can I make more money by effectively embracing the framework of economic empowerment of the majority?” And not: “How do I comply with government authorities or public policy? How do I make this regime happy? It is the cost of doing business. I will just do it and move on to more pertinent issues – running a successful entity and making a profit.’ These are the wrong questions and assertions. They are typical of a CSR mindset.
Why are you not being creative and asking: “How can I do all three – serve the community, protect the environment and make a profit?” This is what we call creating shared value. It means we should address the needs of society and environmental concerns and make a profit because we have done so. This is what we call all-stakeholder theory or all-inclusive ecosystem approach, as opposed to shareholder theory. CSR is about charity, while CSV is about economics – a sustainable business case strategy.
At all times, we must seek to simultaneously create value for every stakeholder involved: business, society, and the environment. That is CSV.
What are we saying under the CSV philosophy? The needs and challenges of society; and environmental and climate change considerations, not just conventional economic needs, define markets. Environmental and social ills can create internal costs for firms. For example, if you are a company like Barclays Bank, Econet, MTN or Zimplats; and in the environment where you operate there are no schools or hospitals; the people have no housing or toilets; and there is environmental degradation; you cannot say that all these problems are external to my operations.
You cannot say I will only concentrate on the bottom-line (corporate profits). In the long run, these external problems will affect the survival and sustainability of your business. In other words, they will determine your viability as an enterprise. We are pushing for what we call internalising the externalities. We seek to reinvent free-market economics and unleashing a wave of innovation and growth. That is CSV.
The existential purpose of the corporation must be to create shared value for the business, the community and the environment – all these dimensions affect company viability, sustainability and productivity. Environmental impact, supplier access, employee skills, water use – all these things must be attended to in a holistic manner. CSR is about: doing good because we are doing well. We are not interested in that. That is so yesterday! We want a new dictum: doing well by doing good. That is CSV payoff line. What is the value under CSV?
Economic, environmental and societal benefits relative to costs – that is new business case. How can we make sure that for both private and public enterprises, we are pursuing economic, societal and environmental benefits at relative cost? What are the enabling ethos and values under CSR? They are collective success, corporate citizenship, business viability, strategic philanthropy, sustainability, and strategic investment. What do we want? Joint company, community and environmentally friendly value creation. That is the CSV central organising philosophy.
Let us look at some examples.
The company, Johnson & Johnson, heavily invests in employee wellness. Their workers are well taken care of. They are protected. The employees’ health and well-being are of primary concern to the company. What does that lead to? They save US$250 million in healthcare costs because the workers do not take too many sick days. The employees are always healthy and productive. The company has done justice to its workers – its immediate community – and is making more money because of that intervention.
This is the CSV philosophy – the new language in town. What is the message? Yes, to profit, but not all business success is equal. Profits involving a social and environmental purpose represent a higher form of free-market economics. CSV creates a positive cycle of company, environment and community prosperity – a sustainable business ecosystem. We want climate change-proofed profits with a social purpose both in the private and public sectors. Is CSV a walk in the park? Of course not, it is a terribly difficult proposition – a disruptive but creative business model. That is precisely why we should pursue it. Nothing great ever came from soft ground.
Arthur Mutambara is a former Deputy Prime Minister of Zimbabwe