Gina Anderson | CSI Blog

2012 looks to be a defining year for the not-for-profit, social enterprise and philanthropic sector and Gina Anderson outlines why she is looking forward to the next 12 months.

I think it will be a defining year for the sector. I gave my forecast for the next 12 months some consideration over the break.

First: social policy and regulation reform. Slow, grinding and often – but so critical for systemic change. This has been at the forefront of the agenda for the past year and as a result, three big issues will have significant social impact in 2012:

1.    The introduction of National Disability Insurance Scheme (NDIS)

Most Australians assume that if people are born with a disability or acquire one later in life, that some system, somewhere, will take care of them. Nothing could be further from the truth. And, as the population ages, the number of people with a disability will increase. At the same time, the number of unpaid carers – family members and friends – willing and able to provide support will decrease.

The NDIS represents an urgent and fundamental reform to the way disability services are funded and delivered. It is a social reform on the scale of the introduction of Medicare and compulsory superannuation – two safety nets now taken for granted by every Australian.  Prime Minister Gillard has now identified the NDIS as a key Federal Government reform.  Visit the Every Australian Counts website for more information.

 2.  The establishment of a new independent statutory agency: the Australian Charities and Not-for-Profits Commission

The Australian Charities and Not-for-Profits Commission (ACNC) will commence operations from 1 July 2012 and will initially be responsible for determining the legal status of groups seeking charitable, public benevolent institution, and other NFP benefits on behalf of all Commonwealth agencies.

The ACNC will also implement a ‘report-once use-often’ reporting framework for charities. It will provide education and support to the sector on technical matters, and establish a public information portal by 1 July 2013.

3.    The introduction of the Pokies legislation.

‘The Federal Government has proposed gambling reforms which include “pre-commitment” technology that will require pokies players to have a card registered to their name and pre-programmed to prevent them losing more than a set amount in a 24-hour period.’

Other trends

Coupled with policy reform, the rise of engaged philanthropists such as Gates and Buffet and their interest in social investment are changing way we all think about social sector.  Established trends such as the move in expectation and measurement of not-for-profit practice from outputs to outcomes, and the realisation that we need multiple sector partnerships to solve our intractable issues, are being accompanied and supported by other trends. These are:

1.    Crowd funding or Micro-Philanthropy

As conventional fundraising struggles, increasingly charities and social enterprises will look to crowd-funding or micro-philanthropy (using the internet to solicit pledges of small amounts of money from individuals) to source money. This is often referred to as the “Obama effect” referring to the US President Barak Obama’s use of the internet to source small donations to fund his electoral campaign.

Importantly donors see their contribution as a ‘social investment’ rather than a donation and as most of these donations are small, the donors do not seek a tax deduction.  In this way donors at all levels are able to invest in social innovation – funding new ideas and processes that move or cause or organisation to greater sustainability, durability, impact, and scale.

2.    Blended capital

The use of blended capital will grow as social enterprises and charities seek finance and capital from outside the not-for-profit sector.  While many will continue to make grants or donations, others will use their capital for impact investing rather than giving a grant.

There will be loans and guarantees to non-profits and gradually, we will see the use of debt and equity instruments.  While others will directly invest in social enterprises seeking a ‘blended return’ on their investments – a financial return on their investments that may not be as high as other possible returns but will better align their investments and their social aims.

3.    Intermediaries

To support this new world of social investment we will see the growth of intermediary organisations and products for different ‘social investors’.

Social finance intermediaries play a crucial role in bringing together the key sources of capital with social businesses and there is a crying need to develop such intermediaries in Australia.

It is exciting time to be working in the not-for-profit sector and I look forward to 2012 with great enthusiasm.

Gina Anderson is the Philanthropy Fellow at the Centre for Social Impact (CSI) at UNSW. This blog first appeared on the CSI blog.

Roger Simnett & Sarah Adams | Centre for Social Impact Blog

The Centre for Social Impact’s recent roundtable was a great opportunity to examine the confluence of two journeys: that of Integrated Reporting (and the IIRC), and Shared Value (Porter and Kramer 2011). At first glance, these initiatives are quite different: Shared Value refers to a management approach to improve business decision-making, and build economic value (see Phil Preston’s blog ’Why ‘shared value’ is good business’), while Integrated Reporting is a new approach to reporting and communicating strategy and performance (see Peter Shergold’s blog ’Shared Value Business: the Case of Stockland’). However, reflecting on the discussion at the roundtable brought to light some key points where these two journeys intersect.

A New Role for Business

A key connection between the concepts is they both reflect a desire to move beyond businesses prioritising short-term financial performance, and to reorient the efforts of a business toward long-term success and sustainability. This has been driven – at least in part – by the very widely articulated social and economic consequences of the ‘short-termism’ in financial institutions that triggered global economic crisis.

Alongside this there is an implicit recognition that any organisation or firm is an actor that interacts with a complex social and environmental setting. The Shared Value thesis suggests that that cognizance of, and investment in, an organisation’s social and environmental context can create opportunities for augmenting economic value. That is, social, environmental, economic and other sources of value are interrelated and not necessarily mutually exclusive (which is a common argument among corporate responsibility critics). These underpinnings are also reflected in the capitals approach of Integrated Reporting, where organisations are encouraged to ‘make visible’ their use and dependence on many sources of capital (financial, manufactured, human, intellectual, natural and social) and how these are used to create value.

The Trend of Embedding

More broadly, both Shared Value and Integrated Reporting reflect the trend of progressive businesses taking a more strategic approach to sustainability by seeking to embed sustainability into core business practice. Both approaches suggest that breaking down the ‘silos’ of current practice -the corporate responsibility reports vs. annual reports, and the corporate responsibility departments vs. ‘the rest’ of the business – can provide material benefits to organisations. Integrated Reporting is defined by “demonstrating the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates”, and recent evidence shows that the main driver of integrated reporting among the world’s largest companies was “seeking to integrate corporate responsibility into core business”. An example of an organisation pursuing shared value, Stockland (as profiled by Peter on this blog) integrates environmental and community benefits into central business activities and to sustain long-term value.

Looking Out and In

Another key similarity between shared value and integrated reporting is leveraging internal and external factors to the organisation. Two of the ways suggested by Porter and Kramer to create shared value include ‘reconceiving products and markets’, and ‘building clusters’ which both necessitate engagement with an organisation’s context, including deeper connections with stakeholders. These indicate that Shared Value revolves around the idea that sensible and productive decision making within an organisation can be made by positively engaging external resources and organisations. On its own journey, a company producing an integrated report will produce an external communication tool (integrated report) which will be responsive and inclusive to stakeholders, but a crucial additional outcome will be improved internal decision-making and information.

Distinctions

While the two concepts do resonate with each other, their journeys have seen some key distinctions. A key driver of integrated reporting has been the escalating compliance burden of reporting for many organisations. Seeking to cut the clutter of annual reports is a key driver of the initiative for both report producers and its readers.

Another important distinction is the challenges faced in implementation. Integrated Reporting is a holistic and long-term commitment for organisations; for most organisations the production of an integrated report will require extensive preparation and thus a considerable time frame. Integrated Reporting must also accommodate the plethora of laws and standards across the global that relate to reporting compliance and communication. The hurdles are high. In contrast to this, shared value is a more agile management approach, which can be undertaken on many levels: from a product, to program and up to an organisational level.

Despite these distinctions, there are points of confluence for Integrated Reporting and Shared Value. With great momentum, practitioner and academic interest behind these ideas, it will be instructive to consider how these two approaches learn from, and contribute to each other. What do you think? Is there any value in looking at these two concepts together?

Roger Simnett is a professor in accounting at the Australian School of Business.

Sarah Adams is the NAB Research Fellow at the Centre for Social Impact.

This article first appeared on the CSI blog.

Peter Shergold | CSI blog

It was in May 1968 that Robert Kennedy, with characteristically brilliant oratory, identified the abject failure of governments to measure the quality of life afforded their people.  The traditional statistic – per capita Gross Domestic Product (GDP) – “does not allow for the health of our children, the quality of their education, or the joy of their play;  it does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials …  It measures everything, in short, except that which makes life worthwhile.”  Listen to the speech on YouTube:  it will raise the hairs on the back of your neck.

Two generations on, governments are struggling to address Kennedy’s challenge.  As not-for-profits increasingly seek to measure social returns on investment, and companies to give quantitative dimension to societal as well as financial value, give a thought to the world’s statisticians.  Frustrated with the shortfalls of GDP as an indicator of wellbeing, they are struggling to find alternative means to measure progress in the quality of people’s lives.

It’s not a moment too soon.  Democracy is under challenge.  Levels of trust in politicians are worryingly low.  Less remarked upon is the lack of public confidence in official statistics.  In France and the UK, for instance, only one-third of citizens believe official figures.

Not surprisingly there is a renewed sense of urgency amongst government statisticians.  In May this year the OECD, as part of its 50^th anniversary celebrations, launched the Better Life Index.  It builds on a French initiative, the Commission on the Measurement of Economic Performance and Social Progress, led by renowned American economist Joseph Stiglitz, which reported in 2010.    The Commission concluded that for many purposes there were better economic statistics than a measure of production, GDP:  levels of real household income, for example, or the extent of income inequality.  It is not that GDP is a wrong measure but that it is often inappropriate as a measure what people care about.  In many instances data on social or environmental wellbeing is more relevant.

The Better Life Index seeks to respond to the Commission’s challenge.  It measures 11 dimensions, with 1-3 indicators in each:  housing, income, jobs, education, the environment, governance, health, life satisfaction, safety and work-life balance.  It’s proposed to add more criteria in the future.

The challenge, of course, is how to address the relative importance of such indices of well-being.  The OECD deftly sidesteps the problem by making the index interactive.  Each visitor can weight the variables on-line as they want and share their views with others via Twitter or Facebook.  This is statistics in the age of social media.

It’s made difficult to work out which of the OECD’s 34 member states scores best.  You have to measure the height of flowers and the size of their petals!  I know you don’t believe me but take a look.  Weighing all variables equally on the horticultural scale Australia, I think, is placed second, just behind Canada and just ahead of Sweden in the Better Life garden fertility stakes!  Some 75% of Australians are satisfied with their lives compared to just 59% for the OECD as a whole.

As a nation we rate particularly well on the Community dimension.  Around 95% of Australian respondents believe that they know someone they could rely on in a time of need.  Interestingly 65% report that they have helped a stranger in the last month, compared to an OECD average of only 47%.

The United Nations is also actively seeking to move beyond traditional measures of national wealth. The UN Development Program argues that “an excessive obsession with the creation of material wealth can obscure the ultimate objective of enriching human lives”.  Seeking to redress that defect it has recently issued its 2011 Human Development Report.

Frankly it doesn’t pack the enjoyment of the Better Life Index, requiring its users to possess some understanding of income logarithms and geometric means.  The data, which graph trends back to 1980, is probably more compelling.  It creates a composite index of human development by measuring 3 dimensions (health, education and living standards) against 4 indicators (life expectancy at birth, years of schooling, expected years of schooling and gross national income per capita).

Now I know that your ethical self will recognise the dangers of putting such data into league tables.  But I also know that your inquisitive self wants to know how Australia performs.  The answer is that of 269 countries (47 developed nations) we rank 2^nd after Norway, performing slightly better than the Netherlands, the US, New Zealand and Canada.  In short, the more comprehensive statistical metrics suggest that Australia provides a better quality of life than measures of GDP indicate.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI blog.

Peter Shergold | CSI Blog

At the end of August I attended a forum organised and hosted by the Business Council of Australia (BCA) on ‘The Sustainability Challenge’.

The invited guest was Bjorn Stigson, President of the World Business Council for Sustainability Development.   His presentation was relatively downbeat, reflecting how difficult it is proving to make significant progress on global issues such as climate change in a ‘nobody-in-charge’ world.

Part of the problem, as BCA’s CEO Jennifer Westacott emphasised, is that a sustainability agenda is too often portrayed as at odds with an economic growth agenda.  “Indeed”, she argued, “the sustainability agenda is the natural home of business and it should never have been captured as part of some extreme political or ideological agenda.”  For business, environmental good practice remains “fundamental to the social licence to operate”.  Yet the present debate on emissions reduction “seeks to paint big business as the culprits” rather than a partner for sustainable development.

How does one overcome that perceptual categorisation?   How can one portray business as part of the solution rather than simply castigating it as the cause of the problem?  Those were the implicit questions in my recent blog on the causes of the anger that have characterised the Occupying Wall Street protests.  One answer, I suggested, drawing heavily on the recent work of Michael Porter and Mark Kramer, was for companies to articulate their ‘shared’ economic and societal value.

Perhaps it is not surprising, then, that for me the highlight of the BCA forum was the presentation by Matthew Quinn, Managing Director of Stockland.  He argued eloquently the business case for sustainability but in a highly distinctive manner.  I am happy to be corrected but to my knowledge his speech represented the first time the corporate ambitions of an Australian company had been presented as “creating shared value for all stakeholders” (Matthew’s emphasis).  It was not a desultory genuflection to the latest business school semantics.  The speech, from beginning to end, was permeated by the concept.

Stockland, of course, is known for its development and management of residential, retirement living and commercial property assets.  It builds homes, retirement villages and shopping centres.  Profits are important.  They fund future projects and provide a return to public investors.

Stockland, as a good corporate citizen, could have continued to present its accountability in terms of separate ‘sustainability’ and/or ‘corporate responsibility’ reports.  What Matthew’s presentation recognised, however, is that environmental and community benefits are not additional to Stockland’s business model – they are central to it.

Shared economic and societal value begins by understanding that what Stockland is building are not properties but communities.  Residential development is not simply a financial transaction based on subdivisions.  It’s about creating places where people want to live.  Social value (the provision of local schools, childcare and health, retirement and shopping facilities) and environmental value (planning for open space, parkland, water recycling and low energy houses) are not costly ‘add-ons’ to the business.  They represent the lifestyle which is being purchased.  Societal benefits contribute to economic return.

Similarly, shopping centres can be made more valuable to the extent that they are designed and managed as community hubs.  Commercial property, not just residential, can bring greater economic returns through the creation of societal value – making malls a pleasant and safe venue to meet and talk not just a place to park and shop.

What Stockland is effectively doing is rearticulating in contemporary language the vision of its founder Ervin Graf.  Graf, sixty years ago, argued that the purpose of his business was “to not merely achieve growth and profits but to make a worthwhile contribution to the development of our cities and great country”.

Matthew Quinn’s presentation recognised that these two goals are integrated within a single strategic enterprise.  Profits (economic return) and community development (societal return) are the business’ shared values.  In the long-term they leverage off each other.

Stockland is not defining its community activities as ‘giving back’ to society.  Its ethos is driven by social investment not charitable endeavour.  The initiatives are the business:  it is the nature of the business itself, properly framed and implemented, which creates beneficial social and environmental impact.

Shared value cannot be just a well-intentioned statement of faith.  The challenge now is for Stockland to demonstrate, through robust liveability metrics, that the property developer’s investment in community provides superior financial outcomes and improved shareholder returns over the long-term – higher sales, greater occupancy and faster speed to market.

If so, as Mathew Quinn concluded, shared value “is a win-win.  It is a better way”.   In my next blog I’ll talk about another iconic Australian company which has the potential to present its activities as ‘shared value’.  I’d be delighted to have other instances drawn to my attention.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI Blog 28 October 2011.

Cheryl Kernot| CSI Blog

The applicability of the model of Social Impact Bonds[i] (Social Benefit Bonds in NSW) is shown in their adoption in the UK by three separate entities: a Council, a charity and a social enterprise. All offer innovative possibilities for Australia.

At local government level, a Social Impact Bond (SIB) to tackle obesity is being planned by Leicestershire County Council. The focus on obesity emerged from discussions between the council and the voluntary sector. The Council (along with three others) is already involved in a national £40m social impact bond pilot project to use bonds for charities that work with problem families. The Council hopes to raise £1 million for the obesity bond project and will allocate £400,000 of its own funds.

The Council identified a need to increase the number of voluntary sector suppliers in the market and also wanted to trial a payment-by-results mechanism. The Council has Conservative Party leadership and SIBS are seen as part of the Big Society agenda.

The disability charity Scope has launched a £20m bond program, the first by a major operational charity. The money will be used to finance the growth of Scope’s fundraising program and network of charity shops. Under recent Charity Commission guidance it is acceptable for charities to make this kind of investment.

The bond will be targeted at investors who need to make a return on their money but are also keen to achieve a social good; it will be launched in several tranches, including one this year which is likely to be about £2m.

The first investment in the bond has been agreed “in principle” with the Big Society Finance Fund, a fund set up by National Endowment for Science, Technology and the Arts to trial products that might grow the social investment market.

Scope has not yet decided the time period the bond will cover or the interest rate it will pay but it is envisaged that the rate paid would be lower than that for a traditional first-time issuer. The bonds would be listed on the Euro MTF market in Luxembourg, a recognised stock exchange meaning that they can be traded freely.

And the third example is a social enterprise Community Interest Company[ii] which plans a £1.6m bond scheme to help ex-offenders. The CIC, Bristol Together, wants upfront investment from the bonds to help it expand its construction training scheme for former prison inmates where it employs ex-offenders on building projects to develop skills before it helps them find further employment.

Money raised from the bond will be used to buy properties in Bristol that ex-offenders can renovate before those buildings are sold, bringing in further cash to buy more buildings and employ more ex-offenders.

Bristol Together worked with Triodos Bank[iii] to develop their model: a bond issue worth £1.6m over the next year, with the first £600,000 issue of five-year bonds, paying 3 per cent interest a year. This has been bought by the Esmée Fairbairn Foundation and one private individual.  (A future model for Australian banks and foundations?)

One important feature of the social investment landscape in the UK is the existence for many years of community investment tax relief. SIBs sold to private individuals will qualify, allowing investors to reduce their tax bills by 5 per cent a year.

In Australia, in a pioneering initiative begun by the Keneally government, the current NSW Government intends to establish two pilot Social Benefit Bonds in the areas of out-of-home-care and recidivism. An indigenous impact bond has also been proposed by Ecotrust.

Many commentators in the UK believe SIBs will be a big market/new asset class relatively quickly.[iv]

Peter Shergold | CSI Blog

Daniel Altman was in Australia recently as a guest of the Sydney Writer’s Festival.  He’s Director of Thought Leadership at Dalberg Global Development Advisors (a far more exciting career description than General Manager!).  I was fortunate to attend a provocative breakfast session he presented based around his book, Outrageous Fortunes:  The Twelve Surprising Themes That Will Shape The Global Economy.

I was also able to interview him for last week’s Social Business program about a paper he and his colleague, Jonathan Berman, have recently published.  Their argument is that schemes such as corporate social responsibility, creating shared value or triple bottom line reporting are unnecessary.  At best they are inefficient workarounds.  Business should get back to focussing on profit which will, over time, deliver social benefits more effectively.

It’s not surprising that this viewpoint is generating waves of angst in the blogosphere.  The financial journalist, Felix Salmon, in a recent response called the thesis “profoundly silly” and Altman “a complete laughing stock”.  Other commentators, although employing less extravagant language, tend to agree.

So let’s be clear about what Altman is not saying.  He is not returning to the position, associated with the great economist Milton Friedman, that by creating employment and producing goods and services in a competitive market, employers fully met their moral obligations and that no more should be required of them.

Altman, by contrast, believes in the value of the beneficial outcomes often associated with CSR.  His position, at its heart, is this:  if corporations focus only on profit they will generate social benefits more efficiently and sustainably than through the embrace of separate programs.

In other words, management – if it is economically rational – will recognise the monetary value that corporate reputation, employee loyalty, job satisfaction and positive government relations have on the single bottom line.  Such factors enhance shareholder value.  There is no need to embrace (and report upon) well-meaning but often ill-considered corporate citizenship initiatives.   A focus exclusively on profit will naturally inculcate behaviours that are socially and environmentally responsible.

In a nutshell, Altman believes that doing good really is good for business.  To develop distinctive programs is inefficient.  Indeed, by hiding the contribution of economic contribution of social responsibility to profit, CSR interventions may be more likely to be cut back or discarded at times of economic downturn.

I think that Altman’s provocation does us a service.  Too often CSR or corporate citizenship has been treated as a public relations exercise, separate from the strategic core of a business.  It is better to devote attention to the business of the business.

Yet I remain unpersuaded by his central thesis, for two reasons.  The first, which goes to the essence of the Altman/Berman arguments, is time horizon.  As Altman argues convincingly, it takes a long-term perspective to fully appreciate and value the goodwill that derives from corporate responsibility and accountability.

The reality, as was made manifest in the causes of the global financial crisis, is that whilst management leadership and directors should be driven by long-term corporate sustainability, there is a strong tendency for remuneration and dividend structures to reflect short-term profitability.   Positive and normative economics are being confused.  In the immediate future managers and shareholders can often be better off: in the long-term we are all dead.

The advantage of a company articulating a program which emphasises both social and financial returns is that it can act as a valuable counterbalance to narrow thinking driven by immediate considerations.  It can help frame risk appetite for the long-term.

As an economist I believe it is probable that companies will tend to maximise their benefits to society when they concentrate their resources on achieving sustained profitability.  As an economic historian, however, I discern from the recent past that such time horizons are unlikely to motivate business behaviours naturally.  Right now, in my view, there is advantage for companies in articulating and promoting shared or blended value.  It is a way of ensuring that they look to a more distant future.   Think of CSR or shared value as a way of reporting on profitability (and corporate survivability) over the next generation.

And the second reason why I part company with Daniel Altman?  That will be the subject of my next blog.  In the meantime, I urge you to read “The Single Bottom Line” for yourself.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW.  This blog post first appeared on the CSI Blog.

Peter Shergold

The American media, somewhat belatedly, is now asking the question:  how big can the ‘Occupying Wall Street’ campaign become?  What began as a relatively small group of protestors in New York’s Lower Manhattan a month ago has now spread to around 150 cities in the US.  As unionists, environmentalists and students join the so-called ‘leaderless movement’, the broad-based anti-corporatist sentiment that has fuelled the agitation seems to be growing.  Numbers are swelling.  Media interest is increasing.  Politicians are positioning.

Amped Status, which claims responsibility for the birth of the ‘99% Movement’ which prompted the “ground-up grassroots decentralised movement”, sees the protest’s origins in the growing inequalities of wealth and power perpetuated by the “neo-liberal economic domination” of corporate America.

I’m not persuaded that all of the protestors, let alone their many sympathisers, would recognise such an ideological presentation of their beliefs.  Nor is it clear that the increasing range of grievances being brought to the protests can sustain collective cohesion amongst the disparate groups involved in “direct and transparent participatory democracy”.  The future of the protests is uncertain.  The increased organisation of spontaneity may either undermine the movement’s appeal or else – less likely I think – mould it into a more enduring form of political protest.

What is certain is that the concerns that underlie the street occupations are real.  The diversity of opinions, and the lack of political sophistication with which they are often expressed, should not lull observers into the complacent belief that the protest is just the latest day out for the usual ‘anti-globalisation’ suspects.

Something serious is going on.  It was the Harvard Business Review, no less, that earlier this year published an article premised on the prescient view that the “capitalist system is under siege”.  The article, by Michael Porter and Mark Kramer on “Creating Shared Value”, pointed to the fact that companies are “widely perceived to be prospering at the expense of the broader community”, that the legitimacy of corporate activity is falling and that trust in business is now much diminished.

A couple of years ago, at the height of the GFC, I reflected on what impact the severe economic downturn might have on corporate social responsibility (CSR).  I argued that the fundamental causes of the financial crisis – the unconstrained pursuit of high-risk short-term profits – represented the antithesis of the ethical values of corporate citizenship which community and environmental programs were intended to exhibit.

My concern in 2009 was (and remains) that CSR and corporate sustainability are too often located at the periphery of business strategy.  They are embraced as a matter of good corporate relations which can bring the economic benefits of reputational integrity.  Unlike those sleeping on Wall Street, I am persuaded that the community and environmental initiatives of companies really are of significant social benefit.  Their influence is weakened, however, to the extent that they are pursued and reported upon as if they are a peripheral ‘bolt-on’ to core business activities.

This structural weakness helps feed the angry cynicism of the Occupy Wall Street movement.  Corporate responsibility and sustainability are portrayed by protest leaders as little more than a low-cost sop to ‘the 99%’:  a ‘launch, lunch and logo’ designed to present brand identity in a favourable light and a self-serving ploy to ‘greenwash’ products for unwary consumers.  It seems to the protestors that business leaders lack any genuine concern or empathy for society at large.  At best CSR is perceived as a strategy to win political support on Capitol Hill.

The challenge for those of us who believe in market economics is how to restore business legitimacy.   The ‘licence to operate’ needs to be rearticulated.  Business must be able to exhibit its societal value, not to trade-off against the social and environmental costs of economic success but as integral to the supply-chain by which goods and services are produced.  ‘Giving back’ is no longer sufficient.  Charity won’t save capitalism.

This is the provocative thesis that lies at the heart of the arguments propounded by Porter and Kramer.  Companies, they propound, need to demonstrate that, through their policies and practices, they simultaneously advance both economic and societal value.  They need to recognise that they create ‘shared value’ through their business.

Of course companies must return economic value or their financial viability is at risk.  Yet they also need to focus on the societal value they can create through the investors they attract, the suppliers from whom they buy, the employees who work for them and the consumers to whom they sell.  Sustaining a financial return to shareholders requires businesses to take account of their impact on multiple stakeholders.

Crucially, companies need to build into their strategic planning an explicit awareness that long-term economic returns can be accrued through the pursuit of societal value.  Improving value in one area gives rise to opportunity in the other.  The future of capitalism, according to Porter and Kramer, lies in corporations creating a “virtuous cycle of shared value”.

Business needs to get serious about establishing trust in business itself.  Corporate philanthropy alone won’t win the hearts and minds of the public.  Companies need to show, right along the value chain, how societal needs are being embodied in their products, benefits being achieved and harms mitigated.  They need to recognise that they pursue societal impacts because, in a competitive market, they are integral to sustaining long-term project profitability.  Creating shared value is a matter of corporate self-interest.

None of this is likely to persuade those engaged in the Wall Street sit-ins to go home and embrace capitalism.  Their anger will take longer to assuage.   Nor will the virtues of shared value convince those business and political leaders who continue to argue, channelling Milton Friedman, that the only responsibility of business in a capitalist society is to make a profit on their investment of private capital.

The battle for hearts and minds needs to be fought.  An increasing number of hard-nosed multinational companies – such a Google, IBM, Intel, Johnson and Johnson, Unilever and Wal-Mart – have begun to embark on important shared value initiatives.  Indeed in a recent edition of Social Business, I interviewed Peter Kelly, Director of Corporate and External Relations at Nestlé  on the way in which the company was embracing the new approach.  From the support they offer to their agricultural producers in the developing world to the care with which they market their products, Nestlé has become a market leader.

What about Australia?  Do we have companies that are starting to present their business in terms of the shared economic and societal value they are creating?  The answer, I’m pleased to say, is in the affirmative.  Over the next few weeks I’ll blog about a few of our own ‘shared value’ companies.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW.  This blog post first appeared on the CSI Blog.

The blog of Knowledge@Australian School of Business, the online business journal of the Australian School of Business at the University of New South Wales. Knowledge@Australian School of Business covers research in Finance, Strategic Management, Marketing, Leadership, Social Impact, Population Ageing and eight other knowledge research categories.