Meeting society's needs while being profitable at the same time

In a recent article "Innovating for Shared Value", Pfizer, Bockstette and Stamp recently argued there are 5 reinforcing elements to create what Michael Porter calls "Shared Value", achieving the goal of meeting society's needs while being profitable at the same time.

In short they are:
1. Embed a Social Mission
2. Define the Social Need
3. Calculate Shared Value
4. Structure Inititiaves.
5. Co-Creation

These 5 steps reinforce each other and are critical in the creation of shared value. According to the authors, even if organizations differ in their strategies, technologies and in their particular paths, using the above five key elements is advisable. Besides the obvious advantage of creating shared value, other advantages include: stronger, more profitable and more social organizations.

For further detail, I recommend the excellent summary of Anneke Zwart of these Five Components to Create Shared Value in the shared value forum on 12manage.

Innovation Needed for Corporate Sustainability Success

Many companies have sustainability programs nowadays. But often with limited success, both for their sustainability targets and also for their financial performance. Investors can be really harsh towards companies taking nice initiatives, but fail to realize shareholder value with them. According to Robert G. Eccles and George Serafeim in their article "Innovating for a Sustainable Strategy" (HBR May 2013), companies need to address the interests of all stakeholders while creating a sustainable strategy. Such a strategy goes beyond just cutting emissions, reducing waste etc. and requires a strategic focus on the Environmental, Social and Governance (ESG) issues that are most relevant to creating shareholder value. In this way firms can boost both their ESG and financial performance at the same time. Eccles and Serafeim provide 4 steps for corporations to achieve this: 1. Identify the most critical ESG issues in your type of business. 2. Quantify the financial impact of ESG improvements (one can use the SASB Materiality Maps for this, which distinguishes 43 potential impact issues in 5 main categories: Environment, Social Capital, Human Capital, Business Model and Innovation, Leadership and Governance). 3. Undertake MAJOR innovation in products, processes and business models to achieve the improvements under 2. 4. Communicate with stakeholders about these innovations. For example by integrating ERG information in the annual report. Pitfalls to avoid are: - Short term-oriented incentive systems - Short-term investor pressure - Shortage of strategic ESG know-how - Failing to account in the proper way for environmental and social value in the capital budgeting process.

Study reveals CR importance growing in decision-making

After the accounting scandals, governments have introduced new legislation, new codes of conduct have been developed and corporate boards have been 're-balanced' to include more independent members.

The over-riding goal in every case has been to restore investor confidence. However, these changes have also brought with them the realisation that good governance is a key topic not only for shareholders but also for a much broader set of stakeholders, including customers, employees, suppliers and the wider community.

That in turn has made the term corporate responsibility (CR) much more familiar than ever before in boardrooms across the globe. The line is far from solid, but CR can be seen as the extension of governance beyond simple compliance to embrace broader social values.

A recent survey from the Economist Intelligence Unit, produced in cooperation with Oracle Corporation, reveals that more business executives and corporate investors are factoring corporate responsibility into their decision-making. Read on.

Prahalad and Corporate Responsibility

In his important new book: The Bottom of the Pyramid, management guru C.K. Prahalad recommends a private sector and market-based approach for fighting world poverty.
I wonder do we agree as Corporate Responsibility Forum that:

1. The poorest people should become an integral part of the work and of the core business of the Private Sector?
2. The Bottom of Pyramid markets cannot merely be regulated to the realm of CSR initiatives?

Bestselling Corporate Responsibility Books

Five maturity stages of CR

Simon Zadek provides a useful best practice five-stage maturity model of how organizations deal with CR (HBR Dec04 - 'The Path to CR')

1. Defensive: deny practices, outcomes or responsibilites ("It's not our job to fix that")
2. Compliance: adopt a policy-based compliance approach as a cost of doing business ("We'll do just as much as we have to")
3. Managerial: embed the societal issue into core management processes ("It's the business, stupid")
4. Strategic: integrate the societal issue into core business processes ("It gives us a competetive edge")
5. Civil: promote broad industry participation in CR ("We need to make sure everybody does it")

Oil Companies ranked on CSR

Independent investment research firm Innovest Strategic Value Advisors (www.innovestgroup.com) has released the latest of its sector-based assessments of how companies perform on CSR. The report ranks 33 companies in the oil and gas industry.

Companies that received the highest ranking include Norsk Hydro, BP, Suncor, and Royal Dutch/Shell.

Companies that received the lowest rankings include Yukos, PetroChina, Marathon, and Surgutneftegas.

The report discussed escalating climate change risk, access to resources, C. governance scandals and the shift towards new, lower impact products.

Innovest used its proprietary EcoValue 21 environmental rating methodology to assess the relative environmental performance, or "eco-efficiency," of the 13 companies. The rating is based on more than 60 different aspects of environmental risk, opportunity, and management, including positions on climate change, renewable energy, fuel cells, natural gas, emissions, and social management in international operations.

IR and CR

In an interesting though far from simple article, Will Barret (Research Fellow with the Centre for Applied Philosophy and Public Ethics at the University of Melbourne) explains that the notion of CR dominates business ethics, in education and in practice. The relationship between the moral R. of corporations and that of their individual and collective members is an ongoing philosophical issue, ultimately riding on theories of moral agency. Whether corporations possess moral agency or not, C. activity undeniably has morally significant effects. In the article Barret discusses moral R. and how it gives rise to accountability. He then outlines the connection between R. and moral agency, and associated theoretical difficulties. Barret finally gives 5 reasons why corporations can be accountable without necessarily being able to make rational decisions:

1. First, and perhaps a little facetiously, Barret recommends you look at some C. mission statements. They invariably mention the corporation's aims, commitments, and activities. They talk as if the corporation has the properties required for rational decision-making.
2. Second, we describe systems and processes as rational in cases where no individual or collective could have produced the outcome.
3. Third, allowing that only the members of corporations have the required capacity, C. accountability might emerge from individual capacity, without being reducible to it. The idea that corporations are accountable doesn't require a theory of C. agency, but rather a causal history.
4. Fourth, corporations satisfy whatever is required to meet the demands of legal accountability, so we already have a sense of C. accountability.
5. Fifth, and finally, a corporation can be morally accountable for some state of affairs without having the capacity for rational-decision making, as long as people who possess that capacity can meet the demands of accountability on behalf of the corporation. Those people may themselves not be morally responsible for the relevant state of affairs.

Read Barret's full argumentation

2004 best MBA paper in C. Citizenship

A paper entitled "Thinking Strategically About CR: The Merits and Limitations of the Value Creation Approach" by Bradley Cameron Smith (Rotman School of Management, The University of Toronto) has won an "Honorable Mention for the 2004 best MBA paper in C. Citizenship".
In this indeed interesting paper, Smith presents a number of innovative concepts that can be integrated into an assessment of a corporation’s CR strategy. Two of these models – Laszlo’s approach to value creation and the real options valuation technique merit further study, according to Smith.
Smith concludes that his analysis demonstrates that corporations are capable of framing the perceived threats of CR as potential opportunities to capture and create value. The downside is that this new approach faces some concerns.

1. Complex alternative valuation techniques, such as real options, must be used to better assess the total value of CR investments.
2. Creating organizational alignment is difficult and old cultures are unlikely to adapt until local managers believe the link between CR and business strategy.
3. Furthermore, it must be ensured that expectations of CR initiatives do not exceed capability to deliver on those initiatives, both internally and externally. Failure to do so may diminish credibility to stakeholders, hinder changes in the organizational culture, and damage the brand.

Read the paper

Combining CR with SCM and Brand Management

In the Harvard BR of June 2004, there is an interesting article by Elliot Schrage about coffeemaker Starbucks. Not only did Starbucks react to antiglobalization activists singling out Starbucks for having exploited third-world farmers: to protect its brand the company also began to actively cultivate and reward environmentally and socially responsible suppliers ("sustainable sourcing"). This is a preferred supplier program to attract and reward farmers committed to socially and environmentally responsible farming.