Shared value gives new options for socio-economic development

In Australia today there is a movement forming around shared value that is leading change in how businesses do business — with significant ramifications on both government and society. Is harnessing the resources of the private sector the answer to socio-economic development at an industrial scale?

Over the past fortnight three clear themes have emerged from a series of shared value forums held in Canberra, Melbourne and Sydney. What we are seeing in Australia is a collective movement of corporations rallying to address social challenges. The forum discussions on societal issues were led by businesses – but these were not about corporate social responsibility. Topics ranged from climate change to affordable housing, alternative funding for schools, indigenous health, and poverty.

Global shared value guru Mark Kramer addressed a Melbourne audience of 200 business, impact investors, NGO and government representatives last week, declaring that “there is no other country with the momentum around shared value than there is in Australia today”.

My observation is that we have now largely answered the question of how we can use the resources of the private sector for industrial scale socio-economic development. First, activities addressing social needs must be linked with economic success. Second, leadership is required to rewire business thinking. And third, partnerships are essential to drive effective structural change – across governments, sectoral value chains, investors, donors, NGOs and communities.

Reimagining ‘corporate social responsibility’

The first point is that to fix the relationship between business and society, and to link social development activity with the economic success of the private sector, corporations need to rethink their approach. The mind-set of doing good for society, needs to change from thinking about “spend” through CSR, to thinking about “investment” through shared value.

To facilitate this business sector shift, those in government and NGO roles can help by acknowledging that they are not the sole custodians of social reform. Rosemary Addis, chair of the Australian Advisory Board on Impact Investing, framed a key issue in Canberra that “while some people are uncomfortable with the idea of private sector capital being used to address social issues, we need to ask: what is the alternative?” Addis identified that there are not enough resources within the public, NGO and philanthropic sectors combined to address today’s complex societal issues. Her point, “the alternative is to say there aren’t enough resources, therefore however we shuffle the deckchairs, some people will have to miss out. We can and should do better than that – and we can utilise resources differently to incentivise innovation and better outcomes.”

Traditionally, job creation has been the central modality of development — without jobs there can be no economic path out of the current situation. Job opportunities can be transformed by the private sector, with only small cues from government. However, shared value now offers businesses additional tools to deploy; shifting a firm’s social engagement from CSR spend to one of investing. This investment is through strategies that address societal needs by reconceiving products and services, redefining the corporate value chain, and creating clusters and ecosystems around areas of the corporation’s geographic activity — such as production or distribution facilities.

In his book Connect, former BP chief executive Lord John Browne, describes that although staffed by committed and talented people, the typical CSR function is “not fit for purpose”. His view is that CSR is ineffective because it doesn’t link well to the economic engine of corporations or the big spending business units of production and marketing. The scale and complexity of this shift from spend to investment should not be underestimated. This leads to my second point on leadership.

Strong leadership is required for corporations to rewire and rethink how business is done, a point Peter Yates, chairman of Shared Value Project, reaffirmed at the Shared Value Forum in Melbourne. Also, Margaret Stuart, corporate affairs director for Nestle in Australia made the observation that corporations need to move beyond thinking “if business as usual isn’t broken, why shift the way of doing things? Such as how we recruit and from where.” Something Nestle has clearly overcome. However, with corporate executives under pressure to deliver short term results, few will commit to additional spend on non-profit generating activity.

In fact, it takes time and dedicated leadership at all levels within a business before the penny drops that what is required is not additional CSR spend, but utilisation of existing business activity in a socially valuable way. Also, corporations are not alone. There are broad coalitions of the willing often trying to address the same societal need, including funders — and business can tap into and benefit greatly from this. This leads to my third point on partnerships.

Mismatching capacities

The need for partnership has been made clear by participants in all three forums. For “backbone organisations” like us — described by Mark Kramer in his Melbourne address on Collective Impact — there is an optimistic outlook. The backbone’s brokerage role is key to facilitate the shared value approach across all the key players. This is notable throughout our experience building complex coalitions between governments, NGOs, private enterprises, investors and communities.

The broker needs to switch the narrative within each party from one of self-interest, to one of collective-interest. A common shared value language is required in order to advance from traditional unilateral negotiations (typically government to NGO) to multi-lateral outcomes delivered through engagement of private sector economic resources.

Katherine Teh-White, managing director of Futureye, a consulting firm that works to build social licence to operate for corporations, highlighted that “perspective” is a constraint to sustainable transformation through partnerships. “The view of one partner is different from another in the supply chain, and one human trait is that we overestimate our ability to understand the perspective of others.” Teh-White generated broad consensus when she identified the importance of establishing trust as a key element of successful partnerships.

Ann Sherry, executive chair of Carnival Australia, highlighted that the cadence of business, government and communities are often quite different, and that the size-scale mismatch was an issue to be resolved when big business works with small communities. This is a key role for the backbone organisation that brokers the partnership. She also highlighted the shift in nuance of Carnival’s thinking from “we are the ones coming with money and resources” to “what do we need to do to make the community want to open their doors to us?” Comparable shifts in thinking are also required in government, investors and NGOs.

For me, John Tanzer, global marine director for WWF, brought this issue to life as he recounted a realisation that without having the ability to address livelihoods in communities — the work of NGOs could be irrelevant in developing contexts where poverty is a major barrier to sustainability. Strong sentiment, but this clearly identified that coalitions are required across all sectors to bring a broad set of commercial and technical skills to bare on wicked social and environmental issues.

Community as partner

One constant in the partnership equation is the community, a point that Empowered Communities chair, Sean Gordon, makes well. Community needs to be engaged through a contiguous partner that shields against changes in personnel on both public and private sides, as well as volatility in the political sphere. Thinking about it, the ultimate success of many large-scale public private partnerships has been enabled by vehicles that isolate funding and decision making from external forces. Whether social transformation or infrastructure, the lessons from successful PPPs and international development programs are important in this regard.

It is also important to note that business are not alone in the shared value story. For some time now a range of people and organisations in Australia have been driving progressive change and have been looking beyond the traditional trade-offs between economic efficiency and social value creation. Momentum is building around the mobilisation of a wider range of resources to generate both economic and social value.

The shared value movement in Australia has been accelerated by the work of Peter Yates and the Shared Value Project as well as activity through corporate giants such as National Australia Bank, Commonwealth Bank, IAG, Suncorp, and Carnival Australia. But it does not stop here. The experience of the international development firms and DFAT’s progressive business partnership approach are also contributing to this. Some, such as Empowered Communities, are leveraging the international development method of public service integration and driving development through private sector engagement.

The forums held in Australia have each facilitated a progressive discussion on a new approach to socio-economic development in domestic and regional settings. They have also made it clear that the conversation has moved beyond the well-worn question “what is the role of government?” to questions of “how do we make this happen?” And, the potential is significant. As Australia’s largest private socio-economic development agent we are exploring shared value models for improving indigenous welfare, developing Northern Australia, building resilient and cohesive communities, reducing chronic health issues and long-term unemployment, as well as enabling innovation and growth in rural economies.

Linking social change with economic success, leading private sector organisations to rewire, and building coalitions through a partnership supported by a backbone organisation is a compelling approach to driving positive and collective impact through shared value. Too often governments and NGOs attempt to address societal issues in isolation, and a shift in thinking towards collaboration is required by all those with potential to contribute to social change.