Is it possible to grow profits and do good at the same time?
Two years after Fortune Magazine launched its Change the World List a little known company featured at number 13. This small but growing Australian regional bank looked out of place because it was surrounded by global giants like Apple, Walmart, Toyota and Unilever. In terms of size it ranks about 75th on the Australian Stock Exchange. It’s name is Bendigo and Adelaide Bank. Why is it there? What did it do to earn 13th place on this global list?
Topping the list in that same year was JP Morgan Chase & Co. Large banks aren’t usually front of mind when we’re asked to name the best social contributors, so what did it do to gain this accolade? On the other side of the world a Danish bioscience company called Chr Hansen is crowned the world’s most sustainable company. How does sustainability add to its bottom line?
These and other leading companies are finding ways to link profitable business with social purpose. Instead of seeing societal challenges as risks to manage, they embrace them as sources of innovation, pushing their thinking beyond the boundaries that we’re accustomed to.
Philanthropy and CSR don’t work at scale
There’s long been philanthropic support and corporate social responsibility programs in place – but have they made a difference? They have in some areas but, in the main, they exist to create positive perceptions of businesses and have insufficient resources behind them to solve the underlying problems. They are more about preserving corporate brands and reputations, and protecting their licence to operate in communities. It’s more exciting to observe how leading companies are adding a new layer to their management skill set and devising more inclusive and intelligent ways of making and sustaining their profits.
Why is this important? In most developed countries the corporate sector is many times larger than the government and not-for-profit sectors. The potential is tantalising: to find a commercially sound way of utilising private sector resources to solve our pressing challenges. Given the persistent press about corporate greed and wrongdoing it may sound like an impossible task, but it’s not. The question is this: what principles and methods are these leading companies using, how can we codify that process and how can we replicate it many times over?
Are you really making a difference?
When you work for a business, making a difference is hard work. You might volunteer or donate to social and environmental causes either through workplace programs or in your own time – although finding enough time outside of work can be challenging.
You may feel good about what you do but can’t help thinking that it still seems small scale or token compared to the magnitude of the issues on this planet that need addressing. You may feel frustrated or conflicted because there are things going on in your business that are causing harm to someone or something – growth targets and cost cutting goals can put pressure on even the best people to do things that are less than perfect. Calling out those practices out can be a career limiting move and, anyway, it’s hard changing entrenched behaviours without total buy-in and commitment from the top.
Who can make a difference?
The strategies I’m talking about aren’t limited to an organisational elite. They can be pursued by board members looking for something more; CEOs looking to get an edge or create an enduring legacy; company strategists looking for new ideas; managers and leaders who are seeking a greater purpose from their work in a way that is congruent with profit growth; heads of people and culture worried about employee engagement; or millennials looking for a company that is authentic and powerful in its commitment to making a difference.
My journey from despair to elation
Before discovering the principles that I’m alluding to, I was working in a corporate role and aiming to earn big money so I could get rich, retire early and then make a difference by giving back. On one hand it was a noble pursuit and, on the other, a little dispiriting to think that I may have to wait many years to give back and, even then, hope that I would be rich enough to do it.
The only other option would have been to get a job with a not-for-profit organisation and do more purposeful work … which would also mean a big reduction in salary and bonus potential. That wasn’t something Karen and I were prepared to do when saddled with a mortgage and raising two young children. It’s the sort of dilemma you or people you know may be facing. You may be resigned to the fact that your ability to change the world single-handedly will elude you for the foreseeable future.
Worse still, the set of values you live by at home might be different to those you are forced to adopt during work hours. Ouch!
It wasn’t until I’d transitioned out of my corporate career and set up my own business that it became clear that we can actually make a much bigger difference through our work compared to what we do outside of it. If you are feeling a bit jaded from your job or career, how would it be if you could help find new sources of profitability that also contributed to large scale, positive social change?
Am I telling you what you already know?
It is achievable, and I find that people need the know-how to get started. In fact, you may already be applying the principles that we’re talking about, and this will give you comfort that you’re not on your own – that there is a formal management language to describe your mindset and methods.
If you work for a small to medium sized business the same principles and techniques will work for you too, with the added bonus that you can act with more speed and autonomy to put your ideas into action.
Where do nonprofits and government fit in?
If you work for a not-for-profit organisation the same principles will equip you with new ways of engaging businesses in deeper and more strategic conversations so that you can better access their resources. And if you have influence over government policy or processes you’ll learn how you can play an enabling role so that companies and not-for-profits do more of the heavy lifting for you.
Harnessing private sector resources is the aim, and the only way to get real traction – to access those resources at scale – is to connect the outcomes you’re seeking with corporate profitability. There are many companies out there who may be willing to help – you’ve just got to work out who they are, how to approach them and know how to develop solutions together.
A quantum shift is needed
We’ve already tried philanthropy, CSR programs, ethical investing, new investment reporting formats, environmental social and governance (ESG) analysis, impact investing, social enterprise, cooperatives and mutuals, B-Corps and collective impact. All of these conventional approaches are useful and shouldn’t be ignored, however they are playing at the edges.
There’s a singular concept that brings business back to what it is designed to do: serving the genuine needs of customers and the communities they operate in.
If you can play a part in implementing these principles you’ll gain greater satisfaction from your job and you’ll be doing it all on work time! It’s an approach that seamlessly combines social good with commercial smarts, one that sees purpose and profitability reinforcing each other. I can’t think of when there’s been a greater need, nor a better time, to make these principles and techniques more accessible.
Is capitalism broken or are we using it badly?
Critics of capitalism often proclaim that business should do good without providing alternatives that are realistic and achievable. The approach I’m taking about is practical, workable and scalable.
It’s why consumer brands like Nestlé have become more focused on their social purpose; why several real estate agents helped reduce tenancy evictions in their area; it’s why a medical products company invested billions of dollars in safer injection systems and why leading insurers are proactively investing in preventative health, reducing car accident black-spots and working with governments to mitigate natural disaster impacts.
The same principles have helped long term unemployed and disadvantaged people gain access to entry-level roles in hospitality, construction and other blue collar industries. They’ve underpinned the rise of a low alcohol beer brand, the engagement of senior citizens in parcel delivery challenges and drastically reduced input costs for a farm operator. That’s just a sample, there are many more applications.
This is about creating shared value
The common theme to all of the examples I’ve touched on above is that they are creating “shared value”, which means there’s a business benefit as well as a positive contribution to a societal challenge. Unlike the other methods we’ve tried, this one works at scale. It’s using the power of capitalism to help solve social challenges instead of exacerbating them.
However, a shift in thinking is needed to create these types of solutions. When a social or environmental initiative adds value to a company’s bottom line – the company is far more likely to keep supporting it, whereas its philanthropic and corporate social responsibility programs are more prone to falling away at a future point in time. And instead of the investment being limited to a relatively small CSR budget or portion of foundation assets, the company is bringing a far wider array of business-as-usual resources to the table.
What does it look like in practice?
Bendigo and Adelaide Bank
The banking landscape in Australia includes four large banks that rank first, fourth, fifth and sixth on the stock exchange in terms of size, accounting for nearly a quarter of the value of our top 100 companies. Their size and scale make it hard for smaller banks to compete and capture market share.
In the late 1990s – and before Bendigo Bank merged with Adelaide Bank – the four large Australian banks were retreating from rural, regional and suburban areas where their branches were underperforming or unprofitable. As a result, people who lived in these areas would have to drive some distance to access banking services, which also meant they’d be doing more of their shopping and spending away from their home town, so smaller towns were feeling the pinch of declining trade.
Bendigo Bank saw this as an opportunity. However there was no point opening up standard bank branches in places where they weren’t viable. Instead they devised an innovative way of directly partnering with local communities to bring a physical branch presence back to town. How did they do it?
Innovation and impact
It launched its community banking model, where a direct partnership is formed with more than 100 local community members who raise capital and become shareholders in an entity that’s a joint venture with the bank. There’s a lot more detail to this case study, but I’ll cut to the chase in tis article: by viewing a social need as a potential source of innovation the bank has:
- Established more than 300 branches, employed 1,500 staff and drawn upon the expertise and connections of more than 2,000 local directors.
- Reinvested more than $200 million back into the community by way of grants.
- Generated $34 billion of balance sheet assets.
- Achieved higher than average customer growth rates; and
- Acquired more than one million new customers under the Bendigo Bank brand name.
The bank’s philosophy is to feed into prosperity and not off of it. It has helped them grow to become the fifth largest retail bank in Australia and is a great example of connecting profit growth with social outcomes
Learning how to connect profit with purpose
If this concept sounds exciting then you might want to read more about this new lens for corporate innovation. Well, I’ve just finalised the manuscript of my book that takes you through shared value principles step by step, including many more examples, classifying the different strategy types and outlining a process you can use to find your own opportunities.
The book is called Connecting Profit With Purpose: How to Create a World-changing Business and will be released no later that May 2020. You can download the Introduction and Chapter 1 right now.
+ + + +