If you studied economics in the 70s and 80s you would have been introduced to the teachings of Professor Milton Friedman. Friedman was a great yet controversial economist who came up with some contentious ideas. One of his most infamous assertions was that a company has no social responsibility to the public or society.
According to Friedman’s stockholder theory, a company’s sole concern is to increase profits for itself and for its shareholders. For many years, that single-minded and relentless pursuit of profits drove self-centered corporate behaviour. Many firms gave scant attention to their employees, customers, the community and the environment.
Over time, an increasing number of businesses started to realise they had a role to play in eliminating discrimination, avoiding pollution, helping the community and making life better for their workers. Firms felt obligated to give something back to those who made their success possible and this became known as Corporate Social Responsibility (CSR).
Over recent decades, CSR has gained widespread acceptance in the corporate world. Nowadays, CSR is used to describe the way through which a business takes into account the financial, environmental and social impacts of the decisions and actions it takes (the so called triple-bottom-line approach to business).
While CSR has become well recognised, new concepts of social responsibility - such as the need to create “shared value” - are gaining legitimacy. The term “shared value” was coined by Harvard Professor, Michael Porter, and describes a new form of capitalism which brings business and society closer together.
Porter argues that businesses - not governments - are best placed to solve social problems, which is why shared value has become the new CSR for business. Companies are now expected to bring a value to the world, beyond just providing a good product or service. The new equation for business is: economic value + societal value = shared value.
Economic value can take the form of increased financial returns, better brand equity, greater market share and more loyal employees. Social value, on the other hand, can manifest itself in improved health, better education, safer communities and a cleaner environment. Through shared value, businesses can prosper while simultaneously alleviating social problems.
An example of shared value in action is the Adidas Group. As outlined in Forbes Magazine, Adidas has partnered with Nobel Laureate, Muhammad Yunus’s micro-finance organisation, Grameen Bank, to manufacture a low-cost shoe for the poor in Bangladesh. The shoes are cheap and affordable for the poor and have the added bonus of protecting them from diseases.
In the financial services sector, the principles of shared value can be found in what is called values-based banking and a good example is New Resource Bank. Based in San Francisco, the bank works with businesses, non-profit organisations and individuals to produce environmental, social and financial returns.
The bank is dedicated to advancing sustainability and lends and invests where it will make the greatest positive impact. As a “conscious capitalist”, the bank’s CEO does not view money through the prism of its classic definition - a store of value and a medium of exchange. Rather, he sees money as “a store of your values and an agent of change”.
Conscious capitalism is a natural fit with credit unions. As not-for-profit financial co-operatives, credit unions are not focussed on the pursuit of profits, but seek a higher purpose by putting people before profits. We’ve always done what’s right – the rest of the business world is just trying to catch up with us!
Paul J. Thomas
Posted Monday, July 21, 2014 0 Comments Make a comment