Shared Value: A Win-Win for Business and Society

In today's evolving economic landscape, the traditional notion of business solely focused on maximizing shareholder profits is being challenged. A more progressive and sustainable approach, known as Creating Shared Value (CSV), is gaining traction. CSV posits that businesses can and should create economic value in a way that also produces value for society by addressing its needs and challenges. This paradigm shift moves beyond viewing social responsibility as a mere cost or add-on, instead integrating it into the core strategy of a business. But does this approach truly benefit a business? The overwhelming evidence suggests a resounding yes. By strategically aligning profit with purpose, companies can unlock new avenues for growth, innovation, and long-term resilience.

Redefining Value: Beyond Shareholder Primacy

For decades, the dominant economic philosophy, heavily influenced by Milton Friedman's 1970 essay, championed 'shareholder primacy.' This meant that a company's primary, and often sole, objective was to increase its profits for its shareholders. Consequently, societal and environmental costs – often termed 'externalities' – were frequently disregarded or minimized. This narrow focus, while leading to short-term financial gains for some, has contributed to a multitude of complex global issues, often referred to as 'wicked problems.'

However, the limitations of this approach are becoming increasingly apparent. As Christopher Marquis notes in 'Better Business: How the B Corp Movement is Remaking Capitalism,' 'Under the banner of serving shareholders first, businesses have compartmentalized their liabilities.' This compartmentalization has led to a critical juncture where the interconnectedness of business, society, and the environment can no longer be ignored. The pursuit of profit at the expense of societal well-being is proving to be unsustainable.

Fifty years on from Friedman's assertion, a growing number of business leaders recognise a fundamental truth: true, long-term success lies in embracing interdependence. As Mariana Mazzucato, writing in the Harvard Business Review, states, 'We need to stop confusing value with price and instead recognise the collective efforts that go into value creation. The sharing of rewards must occur among all value creators: public institutions, private institutions, and civil society.' This is the essence of Shared Value – understanding that a company's success is inextricably linked to the health and prosperity of its stakeholders and the planet.

What is Shared Value?

Shared Value, as conceptualised by Michael Porter and Mark Kramer, is a business management strategy that involves creating economic value in a way that also creates value for society by addressing its needs and challenges. It's about identifying the intersection of business and societal needs and leveraging the company's capabilities to meet both. This is distinct from Corporate Social Responsibility (CSR), which often involves philanthropic activities or mitigating negative impacts. CSV, on the other hand, is about proactively creating positive impacts that are integral to the business model itself.

Who benefits from Shared Value? The beauty of this approach lies in its multi-faceted benefits. It benefits customers through improved products and services, communities through enhanced social and environmental conditions, employees through better working environments and opportunities, and, crucially, the business itself through enhanced reputation, innovation, customer loyalty, and ultimately, profitability. The 'sharing' aspect comes from the recognition that value creation is a collaborative effort, and the rewards should be distributed among all those who contribute to it.

The Eight Forms of Capital

To truly understand how an organisation can produce shared value, we must broaden our definition of 'value' beyond mere monetary exchange. The Regenerative Enterprise Institute highlights eight forms of capital or 'valuable resources' that organisations produce:

By considering these diverse forms of capital, organisations can identify numerous ways to create shared value that extend far beyond traditional profit motives, fostering a more holistic and sustainable approach to business.

Five Ways Companies Can Create Shared Value

Implementing Shared Value requires a strategic and intentional approach. Here are five proven methods that organisations can adopt:

1. Design for Impact

This involves integrating both design thinking and systems thinking into the core of business operations. It means prioritising the needs and experiences of all stakeholders, not just shareholders. The United Nations Sustainable Development Goals (SDGs) offer an excellent framework for this, providing a roadmap for how companies can embed social and environmental solutions into their business models. By aligning with the SDGs, organisations can inspire innovation in products, services, and partnerships that deliver social, environmental, and business value concurrently.

Certified B Corporations, for instance, are at the forefront of this movement. Their certification process rigorously assesses a company's impact on workers, community, customers, and the environment, encouraging a holistic approach to value creation. When setting goals for impact, the SMARTIE framework is invaluable:

• Strategic: Aligned with organisational priorities.
• Measurable: With clear standards for success.
• Ambitious: Pushing for significant progress.
• Realistic: Achievable with available resources.
• Time-bound: With defined deadlines.
• Inclusive: Involving marginalised communities in decision-making.
• Equitable: Addressing systemic injustice.

Tools like the SDG Action Manager can further assist organisations in tracking their progress towards these crucial goals.

2. Adopt Circular Production Models

The principles of the circular economy offer significant financial opportunities while simultaneously reducing waste and greenhouse gas emissions. This model contrasts sharply with the traditional 'take-make-dispose' linear model. Instead, it focuses on designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.

Examples of circularity in action include refurbishing and reselling old electronics instead of discarding them as e-waste, as seen with projects at Cisco. Companies like Rheaply have developed systems for organisations to track and share assets, promoting reuse. Cahoots Co, a children's clothing rental service, exemplifies circularity through its model of mending and reusing garments, extending their lifespan and reducing the need for new production.

The core goals of a circular economy are:

• Design out waste and pollution.
• Keep products and materials in use.
• Regenerate natural systems.

Achieving this requires a commitment to upcycling and recycling without downcycling, ensuring that materials retain their value. Organisations like the Ellen MacArthur Foundation and Looptworks are leading the charge in promoting these practices, emphasising thoughtful design and production for a regenerative future.

3. Provide Equitable Access to Data and Technology

In an increasingly digital world, ensuring equitable access to information and technology is paramount. A significant portion of the global population remains offline, facing barriers such as lack of connectivity or unaffordable devices. This data inequality exacerbates existing societal disparities.

Companies can create shared value by bridging this digital divide. During the COVID-19 pandemic, services like Zoom provided free access to their software for educational institutions, demonstrating how offering essential digital tools can build goodwill and support communities. Furthermore, robust data privacy practices, going beyond mere regulatory compliance, can build significant consumer trust. This includes strong cybersecurity measures and transparent policies for data sharing and selling.

A low-hanging fruit for many organisations is ensuring their digital products and services are accessible to people with disabilities. This not only fulfils legal obligations in many regions but also expands the customer base and demonstrates a commitment to inclusivity.

4. Use FATE for AI Development

Artificial Intelligence (AI) is rapidly becoming ubiquitous, integrated into countless aspects of our daily lives. However, its rapid proliferation brings significant ethical and sustainability challenges. Often, AI development prioritises utility and efficiency, overlooking potential unintended consequences and the impact on users. The 'black box' nature of many machine learning algorithms necessitates a focus on 'explainability' – understanding how AI makes decisions.

To mitigate adverse impacts, AI development should adopt the FATE model:

• Fair: AI systems must not discriminate or perpetuate existing biases.
• Accountable: Clear responsibility for AI actions and decisions must be established.
• Transparent: AI systems should be understandable, with clear explanations of decision-making processes.
• Ethical: AI use must address moral and societal impacts, including job displacement and human autonomy.

Integrating these principles into AI development is crucial for building trustworthy and beneficial AI. Transparency across the entire AI lifecycle, from development to deployment, is key. This approach, coupled with a strong emphasis on Corporate Digital Responsibility, ensures that technology serves humanity and the planet.

5. Put People and Planet First

Ultimately, building a future of inclusive, shared prosperity requires a fundamental shift in how businesses operate. The pendulum has swung from the narrow focus on shareholder value towards a more holistic consideration of all stakeholders – communities, workers, customers, and the environment. This is not merely a philanthropic gesture; it is a strategic imperative for long-term success.

Certified B Corporations have been pioneering this approach for years, demonstrating that business can be a force for good. The numerous examples of companies supporting employees, vulnerable populations, and communities during crises like the COVID-19 pandemic highlight the positive impact of prioritising people and the planet.

Organisations can begin this journey by utilising tools like the B Impact Assessment, a free resource that helps evaluate and improve their social and environmental performance.

Challenges and Opportunities

While the benefits of Creating Shared Value are clear, its implementation is not without challenges. As Ralph Thurm of Sustainable Brands points out, CSV 'aims at optimising within an existent frame of economic system boundaries. We won’t get to a sustainable or regenerative economy without also tackling those economic system boundaries to create new level playing fields in which industries can transform.' This highlights the need for systemic change alongside individual company efforts.

The World Economic Forum identifies the pursuit of both social and business value as a critical success factor for the 2020s. Moreover, applying the science of organisational change is essential. Change management acts as the connective tissue for embedding CSV principles. By effectively utilising tools like change management, systems thinking, design thinking, creative problem-solving, and thoughtful technology integration, organisations can navigate the complexities of this transition.

In conclusion, creating shared value is not just a buzzword; it is a fundamental rethinking of the purpose and practice of business. By aligning economic goals with societal and environmental well-being, companies can unlock new opportunities for innovation, build stronger relationships with stakeholders, and contribute to a more sustainable and equitable future. The businesses that embrace this paradigm shift will not only thrive but also lead the way in shaping a better world.

This article was originally co-authored by Tim Frick and JD Capuano and has been updated to reflect current trends and insights.