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Shared Value: A practical response to the global financial crisis.

February 28, 2012

Imagine, just for a moment, that Adam Smith strolled the few blocks from where he penned The Wealth of Nations to the future grounds of the London Stock Exchange.  Now travel through time, follow the rise and fall of empire and track the advent of modern capitalism to October 15, 2011. Standing in a crowd of discontent would he recognise the invisible hand at work?

We don’t need to support the Occupy Movement to understand the basis of its anxiety; it exists in our own societies, our own communities, and our own experiences.

Over the past two decades, the gap between the rich and the poor has widened in more than three quarters of OECD countries and in many emerging market economies (World Bank 2008). Of the 100 largest economies in the world, more than half are companies. The poorest 40% of the world’s population account for less than 10% of global income, while the richest 20% account for more than 70%.

The average citizen perceives a growing imbalance of power and influence. That imbalance is shaping society’s fundamental services and democratic discourse. It affects the very basis of our social fabric.

We need to redefine cross-sector relationships in our post-global financial crisis reality; but this is not a new, controversial, or indeed ‘revolutionary’ idea.  It is a nod to history and the collaborative potential of an engaged, interconnected and empathetic citizenry. Democratic societies have always operated at their full potential when relationships between government, business and community have been defined by trust, collaboration and mutual interest, rather than by division, tension, and vested interest.

The world’s largest companies now span the globe, employing workers and selling products into thousands of communities of people. The employee base of these companies is equal in size to the populations of small nations. Wal-Mart has 2.2 million employees which makes it larger than 41% of the world’s sovereign nations in terms of population. Most source raw materials and labour from markets to which they also sell products. Like governments, they spend significant amounts of money on the development of people while spending many millions of dollars more on influencing consumer behaviour. These ‘mega companies’ are also a key source of knowledge and innovation that change lives for the better, when ethically applied and developed.

With 2.2 million people on the payroll, there is tremendous capacity for Wal-Mart to sustainably create value for the company’s shareholders, employees and the communities in which they operate. In fact, all must be rewarded if the company is to grow and prosper.

That means the company must work in close partnership at many levels: with individuals, their communities, and their representative organisations (consumer advocates, industry organisations and unions). The challenge is to take a long term view to growth and therefore a long term view to supply and demand; to consider the company in all its aspects and all its impacts – economic, social and environmental – in every community and market.

Shared value facilitation brings partners to the table, applying a framework which has longer term time horizons while acknowledging immediate environmental and economic objectives. It ensures the voices of all stakeholders transmit into the strategy and planning process, thereby giving confidence to leaders that decisions are well informed.

Equity – of opinion and value definition – is at the foundation of discussions and leads to trust. Consideration of human motivations, and their expressions, places the individual at the centre of the discussion (not the periphery). And, as there is not a single community or workforce globally that does not see benefit in improvement, the potential for positive social change is great.

Effective collaboration is grounded in mutual interests, common goals and incentives.

Old models of engagement – short term grants, sponsorships or capital projects – are less likely to play a role. This is because they entrench the power imbalance and undermine the achievement of sustainable growth. Corporate social responsibility, however well intentioned, generally falls into this category.

The accessibility of people to communication technology globally has overcome the best efforts of military regimes and secretive companies to hide injustice, poor working conditions and undue influence. It always costs money, reputation, market share and, sometimes, lives. The damage takes time to repair again representing forgone growth.

As Apple has recently discovered, treating people with indignity and operating unaccountably is bad economics. Healthy and motivated employees produce more and willingly act as advocates for the company. By taking a shared value approach to establishing and managing its supply chain, the company would have been more likely to continue without disruption and be part of the positive social change China is achieving in many areas of its economy.

Discover more about the shared value framework here.