Creating shared value: The inseparability of business and society

“For us in business, I can see only one sure course to follow. Call it common sense, call it policy, call it anything you like. To my mind, industry must aim for, exist for and everlastingly operate for the good of the community. The community cannot ride one track and business another. The two are inseparable, interactive and interdependent.”
Cleo F. Craig, President, AT&T (1951-1956)

In 1970, Nobel laureate and economist Milton Friedman ignited a storm of controversy with his New York Times article, entitled “The Social Responsibility of Business is to Increase its Profits.” Citing his book Capitalism and Freedom, he called corporate social responsibility a “fundamentally subversive doctrine”. In a free society, he believed “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game …”

While I agree that business is about making an honest profit, the fact remains that business and society have always been deeply and dynamically interdependent. Companies are critical members of society – as the primary drivers of employment, investment and wealth. The decisions companies make and the actions they take reverberate throughout society. And by the same token, society has an impact on companies. At Ivey, this inter-dependency is the essence of what we call cross-enterprise leadership.

Cross-enterprise leaders, the ones who consistently gain positive financial, social and environmental results for their companies, acknowledge this. They see their companies as part of an “enterprise” – a rich, growing and continually evolving network of mutually beneficial relationships. And they value the role that their organizations can and should play in enriching that enterprise.

In our increasingly inter-connected world, where the forces of globalization and technological innovation are bringing massive change, I believe the linkages between business and society will grow stronger, tighter and even more vital to both corporate success and social prosperity. As Michael E. Porter and Mark R. Kramer believe, there is a “symbiotic relationship between social progress and competitive advancement.” This relationship “implies that both business decisions and social policies must follow the principle of shared value” (Harvard Business Review, December 2006).

To illustrate the power of creating shared value, Porter and Kramer cite Nestlé’s experience in India. About four decades ago, Nestlé began providing refrigeration units, veterinary care and business and agricultural training to dairy farmers in India’s Moga district. Because of these investments, Moga today has a significantly higher standard of living than other communities in its surrounding region. “Ninety percent of the homes have electricity, and most have telephones; all villages have primary schools and many have secondary schools.” In addition, “Moga has five times the number of doctors as neighbouring regions.”

Meanwhile, “the increasing purchasing power of local farmers has also greatly expanded the market for Nestlé’s products, further supporting the firm’s success.” Nestlé has made these same investments in Brazil, Thailand, and a dozen other countries, including China. In each case, as Nestlé has prospered, so has the community.

A major outcome of great businesses is an improvement in the quality of life and standard of living enjoyed by the people where businesses operate. Change will not happen without the economic driver of business.

Several Canadian companies have achieved similarly remarkable business results while creating social value according to the non-profit group, Canadian Business for Social Responsibility (Canadian Business and the Millennium Development Goals Research Report).

For example, in addressing the environmental impact of its textile manufacturing plant in Honduras, Montreal’s Gildan Activewear not only secured important business advantages, it also helped to improve both the health and prosperity of its employees and their communities. Through a comprehensive plan, Gildan cut the plant’s water use and effluent load in half and reduced the chemicals and dyes used in the manufacturing process by two-thirds. At the same time, the company installed a new wastewater treatment system that relies on natural bacteria to break down chemicals and particulate matter.

As a result, the water leaving the treatment system is actually cleaner than the water entering the factory. This treated water is now the main source used by two local communities, providing clean drinking water as well as irrigation for crop production, a mainstay of the local economy.

For its part, Gildan not only benefits from its stronger relationships with local communities, it has also gained significant cost savings and economies of scale. The company has since adopted this environmental model in its manufacturing plant in the Dominican Republic, thereby bringing clean water – and all of its inherent economic and health benefits – to another region in which it operates.

As these examples so vividly illustrate, any business has the power to transform society and in the process, to turn a profit. These are the issues, trends and best practices we are exploring at Ivey through our new Cross-Enterprise curricula and through the research and other programs under way at the Ivey Cross-Enterprise Leadership Centre for Building Sustainable Value.

In 2006, Ivey became the first Canadian business school to join the United Nations’ Global Compact. The Compact brings companies and schools together with UN agencies, labour, civil and other social interests in building a more sustainable, inclusive and prosperous global economy. More recently, Ivey also committed to adhere to the Principles for Responsible Management Education (PRME), unveiled by scholars and leading academic organizations at the UN Global Compact Leaders Summit in July 2007. These principles provide a framework for academic institutions to advance corporate social responsibility and to incorporate these values into curricula and research.

I have no doubt that the debate surrounding the role of business in society will continue for years to come. Is it fair to hold corporations to account for their contributions to society? Can companies advance social progress and make a profit at the same time? Should corporate social responsibility be an essential part of a company’s business strategy? I firmly believe so. Business and society are inseparable and interdependent. The best business leaders know this is true. And they act with vision, courage and passion to create real and lasting social value. These are the leaders we are educating at Ivey today.