The Conscious Capitalism movement made a big splash last week in our small city. A half-day conference featuring a keynote by Trader Joe’s founder Doug Rauch attracted over 100 local business leaders. The appeal to make business decisions in the context of community needs is long overdue.
Those of us raised in a business culture characterized by a focus on bottom line results to the exclusion of all else are having our consciousness raised. We must retrofit a new way of doing business or face consistent societal pressure for government to further regulate business activities.
Most often, companies wishing to burnish their brand donate to charities and participate in highly visible community activities. The public relations benefit is undeniable but the activities are viewed as a cost of doing business.
Michael Porter, the Harvard Business School professor whose treatise on corporate strategy is a touchstone for nearly every global enterprise, first introduced the concept of “shared value” as an approach that will yield both better communities and a fatter bottom line in 2010.
Porter begins by pointing out what we already know: capitalism is under attack. If the business community takes the posture that all regulation is bad and continues the refrain that “regulation costs jobs”, we’ll make no progress as a society and we (the business community) will likely lose the battle we’ve chosen to wage.
So, what is shared value and how will its deployment both improve our communities and our companies’ bottom lines?
Porter suggests the old paradigm where business contributes to society by “making a profit, which supports employment, wages, purchases, investments, and taxes” must be reconsidered. Companies can create more sustainable economic value by creating social value.
Examples can be found in places one might least expect. Wal-Mart has reduced the packaging it uses inn order to reduce plastic waste and has rerouted its trucks to reduce fuel consumption, reducing the environmental impact of its packing and shipping operations, saving over $200 Million in the process.
The rapid growth of Nespresso outstripped their ability to purchase coffee of consistently high quality. Parent company Nestlé redesigned its procurement process. It worked directly with growers in small African farming communities, guaranteed bank loans, and improved farming practices with better fertilizers and less waste. Rethinking their supply chain, they established local facilities to measure the quality of coffee at the point of purchase. They were able to pay a higher price to the growers by eliminating the middleman. Net result: greater income and more sustainable farms for the growers, reduced environmental impact, and more profit for Nestlé.
Porter cites other examples from tech giant IBM developing artificial intelligence to reduce power usage to Wells Fargo introducing products that help consumers budget, manage credit, and pay down debt.
Shared value represents a cross-section of the interests of businesses and the communities they serve. It does not imply that businesses should be unregulated. Rather, it casts government in the role of setting goals and standards as opposed to forcing compliance with rules.
It also reminds business leaders that they must be leaders of their communities as well as their companies. Acting as prime mover in shared value initiatives, and engaging with government and non-profit organizations to achieve common goals are part of the 21st Century job description of every CEO.