The greatest asset of all

The old-school Milton Friedman idea that the social responsibility of business was to maximise profit is gone. But we have also moved on from the philanthropic and corporate social responsibility thinking about social impact as a separate consideration, to acknowledging Michael Porter’s shared value model – the primary role of business is to meet societal needs, at a profit.

“The most powerful way in which any business can impact societal issues is through the business itself,” Porter says. This can be through a business’ products or services and who they are sold to; redefining productivity in the value chain – procuring in ways that benefit suppliers, the community, and the business – or taking a proactive role in enhancing the environment in the communities where businesses operate.

After all, “business cannot succeed in a failing society”. Businesses cannot continue to grow if a community is collapsing around them.

Shared value is fundamentally about aligning the success of a business with the success of the community. As Porter says, “the greatest societal problems are usually also the biggest economic opportunities”. Investors can have a huge influence by deploying capital into businesses that demonstrate shared value.

“Shared value is a means to deliver on a business’ purpose, profitably,” he says. The theory is solid, but it can be challenging for a director and board to implement, particularly if you are governing businesses and industries challenged by their social impact. Some of the industries I have governed are confronted by their historic environmental or ethical footprint, which through the lens of climate change, is no longer acceptable. This just lifts the bar higher for us as directors.

We must navigate the business’ transformation and communicate the commitment to shared value and the journey the business is on to achieve a new purpose, aligned to current and future expectations of society and investors.

We need directors willing to assist with these challenging transformations. Transforming businesses with unacceptable environmental or ethical footprints is not easy, but with the right commitment to a better purpose, the challenge becomes an opportunity to shift to new and more appropriate products and services.

The oil and gas industry is an example of a sector transforming and embracing the opportunities green energy and other products present. But in many cases, it also requires collaborating with other industry participants to collectively contribute to shared value – solving society’s problems for the benefit of an industry as a whole.

No longer should issues like health and safety, environment, or even the labour market, be seen as “competitive advantage”. Businesses need to collaborate on these issues for the benefit of society, industries and individual businesses. Poaching talent will not solve the labour market’s capacity and capability needs of the future, but working together to grow our labour pool, our capacity and talent will benefit business, industry and society.

In chairing various people and remuneration committees, the concept of shared value is prevalent when thinking about people strategy. Our people are our greatest asset. They are not a cost, but an asset that needs to be invested in.

For too long, the focus has been on labour productivity, as if our people were machines. But our people are human – a finite resource we must look after and nurture. That has become even more evident in a post-Covid-19 world where mental wellbeing concerns and a reticence to return to the workplace are prevalent.

If we are to demonstrate shared value, businesses need to have a different lens on their people and support them with flexibility that recognises individuals’ different needs, depending on their role, gender, culture, ability etc, and what is possible in each business.

As a director and committee chair, asking the right questions of leadership and management to ensure a commitment to shared value is being considered and implemented is critical to discharging our governance duties.

Many companies are facing into this – understanding the unique challenges and needs of their workforce and looking at ways to support staff so they can retain them. This includes more flexible work rosters, work from home options if the nature of the business permits, additional leave (including carer’s leave for those supporting elderly in their whānau), access to EAP and other health and wellbeing services, insurance offerings and financial planning support.

Why? Because businesses recognise this as an investment in their people – to retain them (because the cost of turnover in a tight labour market is too great) and to ensure they are “well” and thriving at work. After all, people are a business’ greatest asset.

Many companies now also have a strong focus on their community and support staff to contribute to community initiatives and charities as a way for the business to align closer to community stakeholder expectations.

In turn, this assists the business to form better relationships within the community, particularly when they need support for business initiatives. Some companies do pro bono work, fundraise, or allow staff to work days for local community initiatives or charities. They may even just invite local community groups in to share with staff on how they can assist or contribute.

These are all small examples of ‘shared value’ at work in business. Directors need to be alert to assuring themselves that management is alive to the expectation today of ‘shared value’ and demonstrating this in their business decisions. 

About the author

Vanessa Stoddart is an independent director for Channel Infrastructure, OneFortyOne Holdings and a member of the Financial Markets Authority and Te Whatu Ora - Health New Zealand. She is often chair of board remuneration, people and health & safety committees.