Having spent the last week in conferences – one at GIBS on strategic communications and reputation and then the inaugural Africa Shared Value Summit – it has stuck me once again how crucially important the value a company adds to society is to the overall reputation and success of that business. Indeed to the future success of society.
(5 min read)
The latest Reputation Institute Annual Report shows that over 40% of a company’s reputation is made up of its ‘social’ drivers (Citizenship, Governance, Workplace). What is even more telling is that these social drivers are the most sensitive aspect of reputation. Any missteps in this sphere will cause disproportionately bigger reputational – and bottom line! – damage than for example a product recall might. Other research of theirs shows that investors routinely cite reputational risk as one of the top three risks facing any organisation and that all stakeholders agree that reputational risks are more difficult to manage than any other risk category.
Just in case you don’t believe working on your reputation matters, here are a couple more stats to wake you up:
- Researchers from Oxford’s SAID Business School and the Stern School of Business at NYU have proven that companies with high social performance have the highest financial performance.
- A recent paper by Dr Charles Fombrun, one of the global leading reputation academics, shows that on average, a 1-point change in public perceptions is worth 2.6% of a company’s market value.
- Research by Harvard academics shows that companies with a poor reputation have to pay 10% more to attract talent and that’s if they even agree to join! Nearly half sample would not even consider taking the job.
So it clearly makes business sense to build and manage your reputation, but what is the best way to do it?
Firstly, your corporate reputation is far too important to delegate to a junior. It must be championed by the CEO and it must be included in your risk management and disaster recovery processes. But more importantly it has to be central to the business strategy. It’s not a just another CSI project!
This is where the concept of Shared Value comes into play.
Dear old Michael Porter first wrote about Shared Value back in 2011 and the Harvard Business Review “How to Fix Capitalism” is worth some verbatim quotes. If you’ve got time go and read the whole article here.
The capitalist system is under siege. In recent years business has been criticized as a major cause of social, environmental, and economic problems. Companies are widely thought to be prospering at the expense of their communities. Trust in business has fallen to new lows, leading government officials to set policies that undermine competitiveness and sap economic growth. Business is caught in a vicious circle.
A big part of the problem lies with companies themselves, which remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success.
Government and civil society have often exacerbated the problem by attempting to address social weaknesses at the expense of business. The presumed trade-offs between economic efficiency and social progress have been institutionalized in decades of policy choices.
Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.
The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center.
The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again.
Six years later and I think the capitalist system is even more under siege and this is perhaps why the shared value approach is now being taken more seriously by corporates around the world.
Life as we know it is shifting leaving millions around the world feeling insecure and as history has taught us, this is never a good sign!
Edelman’s latest annual Trust Barometer highlights all the warning signs. Their top five insights are:
- Trust in crisis
- Globally, trust in the institutions of business, media, government and NGOs dropped three points in 2017. Media is at all-time lows, government trust continues to erode, and two-thirds of surveyed countries are now “distrusters,” with under 50% trust.
- Trust inequality grows
- Globally, there is now a 15-point gap between the trust held by the informed public and that held by the mass population—a three-point increase in the last year.
- A broken system
- Globally, 53% believe that the system is not working for them—it’s unfair, doesn’t give them hope for the future and leaders won’t ﬁx problems. 32% are uncertain, and only 15% agree the system is working.
- Concerns and fears
- Leading the list of societal concerns and fears that are commonly associated with populist actions are corruption (69% concerned; 40% fearful); globalization (62% concerned; 27% fearful); eroding social values (56% concerned; 25% fearful); immigration (55% concerned; 28% fearful); and the pace of innovation (51% concerned; 22% fearful.
- Failing system + fears = action
- Ten of the 28 surveyed countries combine an above-average lack of belief that the system is working with multiple societal fears—the same hotspots of recent populist actions: France, Italy, Mexico, South Africa, Spain, Brazil, Colombia, the UK, Australia and the US.
So now what?
So in this perfect storm that we find ourselves in we can not wait for governments to fix our broken societies… it’s not going to happen. It’s time for companies to put on their big girl panties and re-engineer themselves into properly sustainable businesses. This does not mean more money for the CSI department. It means finding a social issue that it can solve and making that its sole purpose and raison d’être.
Without it reputations will decline, shareholder value will erode, jobs will be lost, inequality will rise, all the things that are broken in our world will get worse and I for one don’t really fancy living in a world like that.
Finding your purpose #Aum
Finding that purpose should not be that difficult, but what will require effort and dedication is rolling it out throughout the organisation and changing corporate cultures along the way. The way we structure our business will have to change. The way we communicate will have to change. The way we incentivise our staff will have to change. The way we report will have to change.
We will have to change. And as we know, humans generally don’t like change but luckily for us we have a whole new breed of humans – The Millennials – taking over the world.
So maybe there is hope after all!