Resilience Reimagined | A critical conversation from the Shared Value Initiative

The latest webinar from the Shared Value Initiative looking at reforming capitalism based on Rebecca Henderson’s book was timely and relevant. The conversation focused on the role companies can play in creating an equitable and just society against the backdrop of the profound change the world is experiencing.

Rebecca Henderson outlined some of the major problems we face, that capitalism hasn’t engaged with adequately: the climate crisis, social and financial inequality (25 hedge fund managers make as much as all the kindergarten teachers in the US combined) and systematic oppression and exclusion. In her book she provides the following model for how companies can begin to respond:

The three legs of a prosperous society

Henderson describes a prosperous society as a stool with three legs: the free market; a democratically-elected, capable and accountable government; and a strong and inclusive civil society. The problems we face are a result of the breakdown in the balance of these three legs; and the solution lies in re-addressing this balance: 

1. Rethinking the purpose of business, starting with Shared Value – this creates a catalyst for change and reformation of capitalism.
2. Company collaboration – firms coming together to pressure governments to deal with social and environmental issues. For example, companies reviewing where they situate factories or facilities based on the actions city governments take on environmental / inclusivity policies – using the power of business to transform society. 
3. Rewiring finance – beyond just optically supporting ESG, investors must give purpose-driven firms the support they need to make positive changes.
4. Rebuilding democracy - business thrives when society thrives; yet more than 56% of people globally say capitalism is not working for them. Reform is required for the system to serve everyone. 

The hierarchy of human value

Angela Blackwell commented on the current protests around George Floyd’s death and the wider issues of racism and oppression, noting they bring together multiple goals – justice for Floyd’s death; reform of the police and criminal justice system; and the broad transformation of systems entrenching racism and inequality. There is a powerful opportunity to integrate the response to these issues into the recovery plans being built around Covid-19. Business has a moment in time to address these issues – and it dare not fail – because when society is in peril, so is business. 

Blackwell explained that the current context is underpinned by a narrative of hierarchy of human value. It’s at the root of why systems keep producing unequal outcomes – because there is an entrenched belief that only some in the education system will rise and excel; that only some in the justice system will be treated fairly, and so on. Systems will not change until the hierarchy of human value is changed – and this cannot be done company by company. It has to take place at a systemic level. Blackwell argued that given corporations’ outsized influence in society – they have replaced civilians’ ability to move government to act on the behalf of people – they have an outsized responsibility to step into this moment and create a new kind of society. She commented that in addition to implementing good business practices themselves, companies need to step into the public policy realm, and advocate for the change needed. The policy agenda doesn’t need to be created but we need new people to demand it.

Facilitating economic vitality 

Henderson added that it’s not enough for individual firms to do well and be lighthouses – there is a need for widespread and collaborative systemic change. She pointed to the role of employees and customers in bringing about this level of change – for example demanding a living wage. In terms of addressing structural racism and ushering in change, Blackwell pointed to the resources within one’s own company – the people who experience and understand it best - people of colour. Tap into those resources. Part of the role of being an employer today is to give a jumpstart to economic mobility – employ people full time and make sure they have opportunities for advancement; create an environment of cultural belonging; and ensure there is provision for paid sick leave, family leave and childcare. All these steps help build an inclusive middle class and brings about economic vitality. 

The role of metrics

Henderson touched on the important role of social metrics to report on companies’ positive impact on society. The current move to ESG is promising in this regard although many of these metrics are not well developed yet, particularly the ‘S’ metrics. However, in the 1930’s financial accounting wasn’t very comprehensive either – Henderson gives the example of P&G’s financial report having only two numbers – sales and profits – and the rest needed to be applied for in person at its head office. So we are at the beginning stages of developing new non-financial metrics and there are a number of good initiatives in this regard (Sustainability Accounting Standards Board, Impact-Weighted Accounts). Kramer elaborated on the example of energy company Enel, who have been transitioning to renewable power – and been vocal on this from an SDG perspective. However, renewable energy has also been significantly more profitable for the company than fossil fuel generation, yet this is rarely mentioned to investors because the move to renewables is seen as a sustainability issue, not a financial one. There is still a disconnect in this regard.  

Covid-19 is highlighting our inter-connectedness 

Kramer spoke to the concept of shared value and shared prosperity, with the latter being an outflow of the former – when businesses succeed their employees and customers succeed and inversely, if businesses don’t pay attention to the wellbeing of one stakeholder group, all the other stakeholder groups suffer – including shareholders. If companies don’t treat their employees properly, they are reducing their return and undercutting their resilience as a firm. Covid-19 is showing us more than ever that we are inextricably linked and without a healthy society, there is no healthy business.

Henderson concluded by highlighting that the nature of our problems (climate change, social inequality) and solutions as a business community, are global: creating shared value where we are; looking for collaboration in regions and industries to make doing the right thing pre-competitive; working with the investment community to make it clear what good business looks like; and being a strong partner for a democratic government to build a balanced society that has all the power of capitalism but all the strength of an inclusive society.