How to Reinvent Capitalism via Creating Shared Value?

I had the good fortune of attending the Nestle’s Creating Shared Value (CSV) forum earlier this week. Nestle is very clear on what it intends to achieve – find ways and methods by which

businesses can play a role in the development of the communities and countries it operates in or in other words creating shared value – both for the business and for the society.

Nestle along with the Federation of Indian Chambers of Commerce and Industry (FICCI), brought together more than 450 government, civil society and business representatives to raise awareness in the concept of Creating Shared Value focusing on 3 key areas that are core to its business:

  • Nutrition
  • Water
  • Rural development

Nestle has long been an active player in the field of Corporate Social Responsibility (CSR) and given the mammoth size of the organization, it has a huge footprint on the world and especially after the controversies it had with its claims of formula milk being better than the breast milk, it becomes an imperative that a company like Nestle has some sort of CSR-ish programs going on in the ”sidelines” to neutralize any negatives that bad publicity brings. But when it took CSR to the next level of CSV, the company saw some real value being generated. After working with Michael Porter and Mark Kramer of Harvard University, Nestle formally adopted the concept of Creating Shared Value (CSV) in 2006.

Just the fact the society allows you to do business is the reason to act responsibly- Peter Brabeck-Letmathe, Chairman, Nestlé

In an article in the Harvard Business Review, Creating Shared Value: How to reinvent capitalism and unleash a wave of innovation and growth, the authors Porter and Kramer clearly outline how CSR is passe and how CSV can be embedded in the core business model.

The authors define the concept of shared value as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates”.

A number of companies like Coca Cola, Johnson & Johnson, Walmart, GE have already integrated this concept (going by various names) into their businesses and see it as an opportunity to impact all the 3 bottomlines of finanicial, social and environmental. This demonstrates that companies have taken the mantle upon themselves to solve the current challenges of our times – global warming and feeding the planet of 10 billion by 2050.

Many feel that business role is growing and the government role is diminishing. But as the extremely abled moderator Maria Cattaui, the former Secretary General of International Chamber of Commerce (ICC) and former MD of World Economic Forum said at the forum, “the governement’s role is changing…not necessarily diminshing”.Companies are not just doing this for bringing out cute and fancy GRI reports, but to actually create value in 3 distinct ways as Porter and Kramer suggest:

  • By reconceiving products and markets
  • By redefining productivity in the value chain
  • And by building cluster industry locally

Peter Brabeck-Letmathe, the Chairman of Nestle urged the smaller companies also to exercise CSV into their practices but not leave it at the whims of a CEO as they will change and the next CEO can undo all that is done. Peter said, “a CEO of a company has no right to do philanthropy with shareholders money. That’s why we have created CSV that puts it in the center of strategic business thinking that takes of in different direction…even small companies can do it and if SME’s embrace it, their impact in proportion will be much larger”. But clearly, large companies have to take the lead. For example, McDonalds, upon replacing the french fries to apples in happy meals doubled the apple consumption overnight - that’s the impact large businesses can make!

John Elkington, the founder of SustainAbility and Ex. Chairman of Volans cited an intersting statistic that 1100 companies of the world have 40% of the capital and we need to change that by re-inventing Gandhi’s thought of “businesses and governemtns acting as trustees of society”.

Read Nestle’s CSV 2011 Report

Coming back to Porter and Kramer, they feel that the most pressing challenge of CSV is the measurement – meauring business benefit from social programs and social impact of new businesses launched. They are working on it. Nestle is struggling with it. But a good starting point will eventually lead to sound measurement. They suggest a 4 step approach for any company to start on CSV journey:

  • Identity social causes to target
  • Make the business case
  • Track progress
  • Measure results and use insightsto unlock new value

The forum also included other extremely useful sessions on Nutrition, Water and Energy and Rural Development that deliberated on the growing challenges of double burden of nutrition – under and over nourshiment, water shortages and how the planet will run out of water much faster than oil and building the grass roots of Indian society, the rural populace. These are tough asks for a country like India that has equally divided segments of both rural and urban people. Again, Peter Brabeck showed his intense desire to change this situation, especially on the water front. He authors a Water Challenge Blog capturing the water trends around the world. Follow the link for short video of Peter speaking on water at the CSV forum:

The good part about Nestle is that it is not patenting CSV or keeping to itself. CSV is an open source knowledge platform and anyone can learn, adopt and improve on it. A day before the big event, Nestle invited key online opinion leaders (myself included) to take in the suggestions and learn from the bloggers, social media gurus and outside sustainability experts. Nestle, clearly is reaching out!

This article has been written by Pankaj Arora, a sustainability expert focused on working towards corporate sustainability and responsible practices in a more values based environment. This article was originally published at Linking Sustainability.

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Author: Pankaj Arora