Unit 2: Business in Society

Can Businesses Solve Social Problems? Creating Shared Value

Dr. Miles Weaver, Lecturer, Edinburgh Napier University

m.weaver@napier.ac.uk @DrMilesWeaver

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"Increasingly, the world around us looks as if we hated it.”

 

- Alan Watts

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… or more time at Portobello?

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Session Outline

Learning Objectives2.1 Discuss the role of business in society based on the different ‘responsibilities’ of

corporate social performance

2.2Examine the key catalysts for change in the development of ‘business sustainability’ and its influence on responsible business behaviour from different stakeholder perspectives

2.3 Describe the key “grand challenges” facing society today and tomorrow, and argue whether there is a role for business in addressing them

2.4 Explain the concept of ‘shared value’ (SV), clearly distinguishing SV from a traditional view of CSR

2.5Critically evaluate the strengths and weaknesses of SV as an academic concept and its potential to bring about business growth, and more resources into communities

By the end of this unit, students should be able to:-

ROLE OF BUSINESS IN SOCIETY

LO 2.1: Discuss the role of business in society based on the different ‘responsibilities’ of corporate social

performance 

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What is the role of business in society? See Ferrell et al., (2011, pg. 367 - 8)

1. “the business of business is business”– Ought to be little consideration beyond profit and

shareholder return

Or

2. Prospects for social responsibility and for business to play a critical and positive role in society

Constrained by:

Reality of the funds, time and ideas that business contributes to a host of charitable, social, and quasi-governmental platforms

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Conventional wisdom• “The social responsibility of business is to

increase its profits” (Friedman, 1970)– as long as it stays within the rules of the game

(no deception or fraud)– Business people are experts at making money not

social policy– Should be left to government & social service

agencies

• “Don’t worry about social issues, that this was sort of something on the side, that somebody else was doing it” (Porter, 2013)

Role of business in society: the emergence of ‘CSR’• Corporate responsibility

– Business and society depend on each other, and have mutual obligations

– Pressure groups and advocates help ensure that public expectations of business change

– Expectations vary between countries

• CSR: Create value by doing good through citizenship, philanthropy, sustainability (Porter, 2011)

Caroll (1999)

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Recap: Defining sustainability

• “meeting present needs without compromising the ability of future generations to meet their own needs”

(Sanders, 2012)

OrganisationInputs Outputs

All issues involved in resource consumption

All issues involved with pollutant emissions

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The ‘Responsible Business’ (RB) emerging agenda“Responsibilities of organisations to their actions are under intense scrutiny”

(Cannon, 2012, pg. 1)

The UN Global Compact (2000) makes this explicit:“Never before has there been a greater alignment between the objectives of the international community and those of the business world. Common goals, such as building markets, combating corruption, safeguarding the environment and ensuring social inclusion, have resulted in unprecedented partnerships and openness between business, governments, civil society, labour and the United Nations”.

CATALYSTS FOR CHANGE

LO 2.2 Examine the key catalysts for change in the development of ‘business sustainability’ and its influence on responsible business behaviour from different stakeholder perspectives 

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Catalysts for change

Under the spot light: influence of corporate actions and their potential impact on issues which extend beyond the traditional mind-set of the firm.

• New technologies• Developments in markets• New ideas• Rolling back of the state, particularly 70s – present

Cannon (2012)

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Traditional political context• Traditional expectations in relation to RB: pay taxes,

obey laws, provide economic opportunities (Boddy, 2011)

• Mañana: “let’s meet again?”

David Cameron promised to lead: “the greenest government ever”.David Cameron, (2009)

“If the federal government had been around when the creator was putting his hand to this state, Indiana wouldn't be here. It'd still be waiting for an environmental impact statement.”

Ronald Reagan, 40th President of the United States, (1981-89)

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Paris Climate agreement(Into force on 4 November 2016)

• The Paris Agreement builds upon the Convention and – for the first time – brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects, with enhanced support to assist developing countries to do so. As such, it charts a new course in the global climate effort.

• Central aim is to strengthen the global response to the threat of climate change by:-– keeping a global temperature rise this century well below 2 degrees

Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius

– to strengthen the ability of countries to deal with the impacts of climate change

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To reach these ambitious goals the following will be put in place:• Appropriate financial flows• New technology framework• Enhanced capacity building framework• Supporting action by developing countries and the most

vulnerable countries, in line with their own national objectives

• Provide for enhanced transparency of action and support through a more robust transparency framework

Further information on key aspects of the Agreement can be found here

Paris Climate agreement (II)(See UNFCCC, 2016)

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Donald Trump and climate change

The election of Mr. Trump has left many environmental campaigners fearful for the future. He’s called global warming a hoax and said he’d cancel the historic Paris Climate Agreement within 100 days of taking office.

13 NOV 2016, Channel 4 News

Q: What might the implications of a Trump Presidency be for the Paris Agreement & CC in general?

The business context …

Expectations from different stakeholders:

• Employee’s• Shareholder (financial and ethically centred)• Suppliers• Customers• Communities• Competitors• Environmental campaigners• Charities and causes

Name as many companies as you can in one minute that:

Name as many companies as you can in one minute that:

1) Have a weak perceived CR stance

2) Have a strong perceived CR stance

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• Robert Owen – campaigned against the employment of children in the mines and mills of the nineteenth-century Britain.

• From the start of the industrial revolution: some entrepreneurs acted philanthropically:

The “good”Long tradition of ethical behaviour

o Jeremiah Coleman (1830 – 1898, mustard) – charities; Salvation Army; YMCA

o George Cadbury (1839 – 1922, chocolate) – employee welfare; Bourneville village

o Joseph Rowntree (1836 – 1925, chocolate) – employee welfare; New Earswick village

o William Lever (1851 – 1925, soap) - employee welfare; Port Sunlight village

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People take note when things go wrong!

Most people are aware of corporate responsibility (or lack of) when there is a controversy about (say) food safety or the use of child labour (Boddy, 2011, pg. 136).

• Collapse of Enron (See Swartz and Watkins, 2002)• Arthur Anderson (See Toffler and Renegold, 2003)• Fred “the shred” Godwin at RBS (in 2008)• BP oil spill – poor safety record and/or recognising ‘climate change’ (in 2010)• Olympus accounting fraud (in 2011)• Libor rigging scandal: Barclays etc., manipulating interest rates (in 2012)• Horsemeat scandal: Findus etc., (in 2013)• Google, Amazon & Apple etc., evading corporation tax (in 2015 …)• Volkswagan’s emission crisis (in 2015)• Panama Papers (in 2016), Mossack Fonseca, hacking led to resignation of Icelandic Prime Minister Sigmundur Gunnlaugsson for not disclosing an interest in an offshore company that was a creditor to failed Icelandic banks

The “bad”Recently in the news …

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• Used short-term borrowing to fund high-risk investments. The investment failed, and the company almost collapsed.

• Outcome: UK government buys major stake. Fred Godwin, Chief Executive, retires with £800,000 annual pension.

The RBS financial scandal (2008)

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Scottish Business Pledge

ADDRESSING GRAND CHALLENGES

LO 2.3 Describe the key “grand challenges” facing society today and tomorrow, and argue whether there is a role for business in

addressing them

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New challenges in 21st century

• Royal Society & British Academy – discussed new opportunities/need for collaboration – set great challenge areas of food, energy, health– discussed inequality, population growth/ageing,

energy use, health, sustainability, carbon emissions

• UK government concerned about future challenges– highlighted response to Ebola epidemic as example

What are the “Grand Challenges” facing society today?UK, Scotland, you’re community, you?

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Some Grand Challenges: third sector perspective

Source: Weaver & Paxton (2016)

Embedding a Social Capital Approach

Funding cycles

Partnership Development

Environment/SocialSustainability

Resources and Resource Optimisation

Doing more with less

Monitoring and Reporting

Demand and Demand Failure

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… But is there a role for business in addressing these grand challenges?

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Example Grand Challenge (I): The riddle of the Clyde …

Sources: The Economist, BBC News Scotland, Glasgow Centre for Population Health

Slide sourced from: Weaver, M., Parkin, J., Paxton, S.,  Wimbles, K., (2015). A call to address grand challenges: a conversation between the OR community and the Voluntary Action Fund (Scotland). In Making An Impact. Glasgow, Scotland: 27th European Conference on Operational Research.

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Example Grand Challenge (II): Take a train journey in Glasgow …

Slide sourced from: Weaver et al., (2015)

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Example Grand Challenge: Inequality is bad for all …?

Slide sourced from: Weaver et al., (2015)

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Jane Wood, CEOScottish Business in the Community:

"No single agency or sector in Scottish political, economic or civic society has all the answers – it’s only through working together that we can effectively transform our collective future. We must collaborate with renewed energy and clarity of purpose to bring business benefit, social cohesion and environmental protection.”

“ This is a critical time for Scotland as we shape our nation’s future. There is an increased role for business in addressing social, environmental and economic issues, and this is fundamental to Scotland’s success. ”

See more at: http://www.bitc.org.uk/news-events/news/scottish-business-community-launches-call-action-responsible-businesses-scotland#sthash.qIuAFwaD.dpuf (Accessed: 11/01/16)

CREATING SHARED VALUE

LO 2.4 Explain the concept of ‘shared value’ (SV), clearly distinguishing SV from a traditional view of CSR

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“I think if we can get business seeing itself

differently, and if we can get others seeing business differently, we can change the

world” (Porter, 2013)

Michael Porter asks: “Is there a case for letting business solve societal problem?”

https://www.ted.com/talks/michael_porter_why_business_can_be_good_at_solving_social_problems/ (Accessed: 09/01/16)

#BSSD17“Is there a case for letting business solve societal problem?”

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Addressing grand challenges:the opportunity …

The question being addressed by our KTP with VAF (Weaver et al., 2015; 2016):

How can ‘we’ bring about more resources (people, skills and money) into communities?

But … Where is this resource pool? How can it be tapped?

What are the challenges and opportunities facing each sector?– Third sector (partnership with VAF – the focal firm)– Business– Government(s)– Public

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(Porter, TEDGlobal, 2013)

• In a Scottish context, the third sector attracts £4.9 billion in funding from various sources, using SCVO statistics 34% (£1,686m) comes in from the public sector (includes local, devolved and national governments) when only 1.5% (73m) comes from the private sector (Weaver, Crossan, Tan & Paxton, forthcoming).

• Median donation by FTSE 100 companies have trebled from £1m in 2007 to £3 million in 2012 (CAF Bank, 2014)

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Focus on more ‘responsible business’Porter and Kramer (2011) proposes the concept of shared value: addressing a social issue with a business model and argue:

“Capitalism is under siege ... Diminished trust in business is causing political leaders to set policies that sap economic growth .... Business is caught in a vicious circle ... The purpose of the corporation must be redefined around SHARED VALUE”

• “There's a fundamental opportunity for business today to impact and address these social problems, and this opportunity is the largest business opportunity we see in business” (Porter, 2013)

Three opportunities for companies to CSV (Porter and Kramer, 2013):1. By reconceiving products and markets2. By redefining productivity in the value chain3. By enabling local cluster development

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An emerging paradigm? (i)

• Recognition that business create resources (most of them); they do this when they can meet a need and make a profit (Porter, 2013)

• Business part of the solution – myth: business part of the ‘problem’?– NOT ALL societal problems can be solved

through shared value solutions (Porter, 2011)

• Growing consensus: “Doing well by doing good” – the ‘conscious’ capitalist? (more next week)

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An emerging paradigm? (ii)

• Business models are evolving:– Identify, decode, tap: opportunities for joint business & community value

creation (Porter, 2011)– Key Enablers: innovation, learning and partnerships (Lazlo, 2005;

Laszlo and Zhexembayeva, 2011; Zadek and Radovich, 2006; Porter, 2011)

– Shaped by ever changing customer perception and legal requirements (Banerjee, 2001); growing expectation of investors/funders (de facto standard positions/norms)

• Business are encouragingly integrating stakeholder views into business processes

• Drivers: civil society, transparency and connectivity (Hart, 2005; 2008)

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CSR Vs. Shared Value (Porter and Kramer, 2011)

CSR Shared Value

Value: doing good Value: economic and societal benefits relative to cost

Citizenship, philanthropy, sustainability Joint company and community value creation

Discretionary or in response to external pressure

Integral to competing

Separate from profit maximisation Integral to profit maximisation

Agenda is determined by external reporting and personal preferences

Agenda is company specific and internally generated

Impact limited by corporate footprint and CSR budget

Realigns the entire company budget

Creating shared value CSV enhances social and economic conditions in the community, which then simultaneously enhances the company’s competitiveness

= Businesses should reconnect business goals with societal goals, and go beyond CSR efforts (Porter and Kramer, 2011; Scagnelli and Cisi, 2014)

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(Porter and Kramer, 2013, pp. 8)

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The Strengths and Weaknesses of the Shared Value Concept (Crane et al., 2014)

“ what about … people”?

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Summary• Business plays a significant

role in society, this ‘role’ is hotly contested

• Porter puts forward a case for “letting” business solve societal “problems”. Accept business are part of the “solution”.

• Porter and Kramer argue that CSV can reinvent capitalism – and unleash a wave of innovation and growth

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Some final thoughts …• Opportunities exist when there is a match between business goals

and addressing societal challenges• Leverage point 1: doing good based on company discretion / external

pressure (CSR)• Leverage point 2: Joint value creation that is integral to profit

maximisation & competing (CSV)

• How to Scale? “well, no-one wants to be average”. – Raise the de facto standard in each industry– Understand the rules of engagement, including power dynamics (i.e.

anchor points, social capital)– Develop the next business model: co-creation, collaborative, increased

connectivity, supply chain perspective (including recognising most businesses are SMEs), unlocking the power of civil society, community-driven

… not necessary technology?

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Next week: Dr. Tan on: ‘conscious capitalism’

Reading listed in unit guide

“O would some power the gift to give us to see ourselves as others see us”

Robert Burns, Poem "To a Louse" - verse 8 Scottish National Poet (1759 - 1796)