Creating Shared Value in South Africa
Written by Tim Hughes, Director of Corporate Affairs Warwick
Capitalism is the worst form of economy, except for all the others. This may have been how Sir Winston Churchill would have captured the myriad challenges facing most social market economies, including that of South Africa. The dilemma we face is that, while capitalism is being scrutinised, blamed and criticised more robustly than at any time since the global financial crisis, the alternative models: socialism, communism, full-blown nationalism or a purely libertarian economic system, all seem to work less well.
While resurgent communists seek full-blown state ownership of the economy, socialists hanker after some never-has-been idyllic, egalitarian worker-led economy and those on the right of the spectrum seem equally committed to defying Einstein by turning back time, to an exclusive and mythical land of milk and honey, perhaps the real challenge lies in making capitalism more beneficial for more people in our country. But in order to even begin to achieve this, we may have to reconsider our conventional models and understanding of the roles and indeed rules of business generally and companies more specifically.
Corporate social responsibility under capitalism can be traced at least to the early 17th century with the Quakers’ refusal to accept slavery as a form of human capital. Since then, CSR has developed its own codes, its own practices, its own metrics and indeed its own politics! Yet the fundamental conceptual problem with CSR lies in the fact that it is not intrinsic to business, but rather is often an additional or external activity, not fundamentally linked to the business that funds it. This externalisation of CSR means that companies’ commitment to and relationship with CSR is contingent and often dependent on a host of factors, central to which is company profit. The convention of setting CSR spend at 1% of profit may seem at once generous or miserly, but whatever one’s viewpoint, CSR spend equates to the margin of company profit. This may read as axiomatic and obvious, but such thinking is old thinking and arguably less-effective than the new thinking captured in the concept of creating shared value (CSV). CSV seeks to link economic progress with social development. Within the CSV paradigm, there is no trade-off between business competitiveness, growth, and profits, while doing so in a manner that adds value to suppliers, communities and indeed the broader environment.
CSV is not charity, nor is it a social responsibility of companies, rather it is a better way of doing business that ensures that the value chain generates more benefits for all those involved. CSV is not about giving away money, or diverting profits, or giving to charitable causes, but is rather a way of business becoming more aware of how to do business in a way that is sustainable and that ensures the pool of wealth is broadened and deepened. So how can CSV be achieved?
Three core pillars lie at the foundation of CSV. The first pillar requires a re-think of a company’s products and markets and to focus more on meeting social and societal needs. For example, in the food sector, while historically the marketing thrust of processed food has bene on flavour, taste, size and visual appeal, this has led manufactures into a ‘self-made’ cul-de-sac of blame for obesity, hypertension and other non-communicable diseases. A greater focus on, research into and marketing of tasty and nutritious products leading to healthier customers consuming good food for longer makes economic, business and social sense. Thereby shared value is created. The second area requiring rethinking is that of value chains. This means not only investing in more energy-efficient and environmentally sound procurement practices, but importantly, investing in communities involved in the value chain, such as small scale farmers, SMMEs and communities integral to the value chain. Ethically sourced coffee is one such example of CSV. The third pillar is linked to the second and that is for businesses to cluster their operations in such a way as to train, attract and retain skills and suppliers in their local economic environment. This clustering of the value chain within local economic communities can generate greater sustainability, local economic development, security, loyalty and enhance the overall quality of company and product, which, in turn, leads to sustainable company value.
It’s time we took a good look at creating more shared value in South Africa.
Tim Hughes is Director of Corporate Affairs at Warwick