Aligning value with values

Theodore Roosevelt National Park
Theodore Roosevelt National Park. Photo by Eric Fredericks

As a Republican, a banker and an environmentalist, I can tell you that I have spotted the modern day grail – which may prove just as impossible to grasp: the necessity of maintaining multiple perspectives and appreciating their legitimacy.

It’s a tall order. Managing for it is difficult; identifying and investing in those companies that do is a critical market driver.

Twenty years ago, I was fond of lambasting my fellow Republicans on the environmental front. Occasionally, I still lapse into a lambast or two. In the intervening years, however, I had to face up to the futility of my furor.

Blame is simply not the currency for progress on the personal or political fronts. Beyond that, most of the men and women (some of whom I may have actually called troglodytes) were representing their constituents – their experiences and concerns.

When I finally turned from blaming the representatives to making inquiries of their constituents, I faced some painful realizations about the behaviour of my fellow American environmentalists. Many of the environmental wars of the past three decades in the United States were fought on the home turf of the Republican Party’s natural constituency – rural Americans – and these were not always fought fairly or wisely.

These communities view environmentalists not only as high-handed and anti-business, but also counter-productive for the environment itself. For the people in America’s heartland, who had traditionally done business on a handshake, the terms of a business case for “natural capital” should not lie outside the bounds of plain sense, and should include decency and fair play.

But environmentalists aren’t the only ones who lost their way. Many in banking have said those words – common sense, decency, fair play – and deceived themselves into thinking their meaning was easily achievable. In reality, we did not engage these values with the seriousness or sustained commitment that they deserve.

Part of the problem lies with our interpretation of the discipline of economics: There is no spreadsheet for values; no model that captures what they deliver. We can’t say for certain whether my idea of decency is the same as yours or if your plain sense would hogtie my self-interest. Fair play seemed best left to the regulators. In my world, “value” was not freighted with intangibles.

Bad times bring reflection – even to those of us trained to consider reflection a personal disorder.

We are beginning to understand that aligning value with values makes, in fact, for a very sound business case. Being smart enough to understand the return on decency requires a cultural shift that is just getting underway.

A formidable guide to the journey lies with Michael Porter, considered the father of the modern strategy field. Together with Mark Kramer, he recently wrote a major paper published in Harvard Business Review titled “The Big Idea, Creating Shared Value.”

In my view – but perhaps not theirs – this article advances some of Peter Drucker’s original thinking on corporate management from back in the 1940s. Drucker held that building a stable, coherent industrial society required that the major players – corporations and investors in those corporations – hold to standards of accountability higher than rational utility maximization, so easily captured by the irrationality of greed and excess.

Over the last few decades, these ideas gained some traction, but then languished in corporate departments of social responsibility, which were primarily defensive – protecting reputation, but not generating revenue.

In capital-constrained environments, defensive measures – those that protect a firm’s reputation, reduce operating costs over a long horizon, or improve employee well-being – are internally in competition with top-line, revenue-producing activities that can be clearly identified by clients and shareholders. What is visible, in other words, is preferred over what is invisible.

This is why sustainability or “impact” investors are vital drivers in the marketplace. They keep up pressure on corporations to place appropriate value on “defensive” measures. But we also need approaches that are revenue-producing, rather than just revenue-protecting, in order to fully integrate “values” into the capital markets. This is where Porter and Kramer come in.

In their essay, they move social responsibility from the periphery to the centre of business models. Here is how they put it: “Shared value is not social responsibility, philanthropy or even sustainability, but a new way to achieve economic success.”

Of their three prongs to achieving shared value, I want to look here at just one: redefining productivity in the value chain.

There are two keys to the Porter-Kramer model: First, companies which seek ways to strengthen their suppliers, rather than rely on increasingly marginalized ones, are actually improving their own efficiency and reducing costs, as well as ensuring a stable flow of necessary inputs; and second, companies that reconsider how they interact with the communities from which products are sourced create new markets and brand advantage.

Concern for the welfare of global rural communities – and that must include our own – translates down onto the ground and into natural capital. Rural communities have a stake in maintaining the health of the ecosystems upon which they depend; they have intimate knowledge of those systems; they are the only ones who can and will do the necessary work. They deserve respect.

Utopia is not our portion today or ever. We will not be free from toil and politics and error and intransigence going forward, but forward we must go with more of us on board than ever before. My best guess: Holding to plain sense, decency and fair play in the complete sphere of our economic and political activities is the only course that will bring us all home to prosperity.

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