Business and society can and should function as a whole
Businesses can contribute meaningfully to the resolution of social issues through the creation of social value, while still generating financial returns
Businesses and society have a symbiotic relationship; businesses are the engine creating prosperity in society — they originate economic activity, resulting in profits, resulting in employment, resulting in salaries, resulting in taxes. Taxes are then applied to supporting the needs of the country and its people.
Healthy businesses need empowered consumers, and, therefore, they need a healthy society within which to function optimally. If the engine works efficiently, members of society can access necessities such as healthcare, education, housing and nutrition, as well as opportunities beyond basic needs.
Fulfilled members of society are far more likely to meet their potential lifetime productivity, which is important as they are the energy resource required to drive the engine of business. Each element within the cycle contributes to the greater whole and a breakdown in any one component has a domino effect on the functioning of the country. Businesses cannot operate sustainably at the expense of society; a mutually beneficial relationship needs to exist for our country to prosper.
There are growing societal challenges in our country of which unemployment is at the forefront. Research undertaken by Gallup shows that the ability to access a good job defines the relationship an individual has with their society and country, linking directly back to the health of the society in terms of social synergy, crime levels and economic productivity. Unemployment further impacts most conditions of health, well-being and social engagement.
The effects of unemployment are not limited to the poverty levels in a country, but, additionally, have far reaching consequences impacting other necessary building blocks of a robust society.
Unemployment is systemic and operates within a larger context. We are not dealing with a linear challenge where solving for one symptom will lead to curing the underlying disease, but rather we are addressing a matrix of interrelated components, each of which impacts directly on a myriad of other components in an unpredictable manner.
Societal impact needs to be both sustainable and more importantly, scalable to address the varied and multiple components necessary for a well- functioning society
By failing to diagnose the multiple contributors to the issue of unemployment, as an example, we are effectively trying to apply a plaster, where a major surgical intervention is required.
As a nation, we are becoming more aware of key contributors to unemployment, to be more specific, unemployability, most of which stem from structural poverty.
• The effects of limited access to early childhood education on the lifetime productivity of children who, as adults, need to independently earn an income and contribute to the economy.
• The impact of insufficient nutrition on the development of young children, thus affecting their cognitive and physical development.
• The impact of an unstable home environment on the emotional development of individuals at vulnerable ages.
• The effect that failure to stimulate entrepreneurial behaviours in children before the teenage years has on the levels of entrepreneurship in the country as a whole.
• The resultant effect of all the above factors combined on the future levels of economic activity and global competitiveness, which impacts directly on the availability of employment opportunities.
Understanding these challenges, what role can business play in this dilemma? Adrian Pierce Rogers said, “You cannot multiply wealth by dividing it.” This seems obvious, yet this is what we continue to try to do. There is an alternative where businesses can contribute to the creation of new, additional “shared value” for all parties, incorporating both the need to advance society as well as financial outcomes in their business operations. This can be achieved by applying critical thinking and innovative approaches to business models to generate both financial and societal value simultaneously.
Societal impact needs to be both sustainable and more importantly, scalable to address the varied and multiple components necessary for a well- functioning society. There is certainly a significant role to play for NGOs and non-profit entities within our economy, but the magnitude of the problem is too large to be solved by these organisations and the government alone. Businesses can contribute meaningfully to the resolution of social issues through the creation of social value, while still generating financial returns.
However, a shift in perspective is required: the deficit that mainstream commercial structures and investment thinking creates is that of either do good or make money. Michael Porter has contributed significantly to the notion that these concepts are not at opposite sides of a spectrum or mutually exclusive. In fact, businesses can operate optimally at the intersection between social returns and financial returns, by applying shared-value thinking.
Shared-value creation relates to business policies and practices that effectively enhance the competitiveness of a business, while simultaneously advancing the social and economic conditions in the communities within which it operates. It has the benefit of creating additional value for all parties in that profit that is generated through creating shared value allows society to advance and, in turn, businesses grow faster.
Instead of viewing company profitability and growth strategy separately to social and economic development — which is normally the case in a business with its CSI activities run separately — it is possible for a company to integrate the two and utilise the leverage to scale company growth and create social and economic value at the same time.
There is a new generation of social, for-profit entrepreneurs capturing these opportunities faster than mainstream businesses. How do we grow these businesses faster to meet the increasing needs of our country in terms of inclusivity, transformation and equality? Using an alternative financing approach can unlock significant latent value in social enterprises, currently constrained by limited availability of relevant funding.
Such businesses fall into the gap between philanthropy and commercial funding on a traditional funding continuum. Philanthropic funds are typically applied to NGOs, and commercial funding is required to generate acceptable commercial returns. There is no universal standard measurement unit to appropriately quantify social return on investment, which does have quantifiable value. Social value exists on the extreme left, and commercial returns on the right; we are entering a time when we need to solve the “in between”.
Viewing ‘social good’ as merely a philanthropic, transformation or compliance exercise that does not engage the power of the core business itself limits the impact that a shared value mindset could achieve
Traditional philanthropy does not need to be incongruent with commercial investment; blending these strategies, return expectations and financing instruments synergistically can serve to balance risk and reward, financial and social value. Measurement and monetisation of social value has come a long way and is ever-evolving. Understanding this brings us back to the clear link between business profitability and societal health.
The Vumela Enterprise Development Fund [managed by FNB], as an example, has combined enterprise and supplier development funds with jobs fund grant capital to create a sustainable, replicable funding model that fills a key gap in the small- and medium-sized enterprise (SME) funding landscape. Vumela generates social impact through job creation, and, additionally grows SMEs that have the potential to scale disruptive business models profitably in key sectors such as education and healthcare.
These businesses will ultimately serve the needs of society in a sustainable manner. Several early stage businesses have benefited from Vumela growth funding which has positioned them to attract mainstream capital or further investment injections. As opposed to managing its transformation strategy separately as a compliance function, FNB has incorporated it directly into its core business strategy, creating a differentiated funding offering, which is complementary to its core business and has scaleable social impact.
Collectively, businesses in SA can help solve issues of poverty, inclusivity and inequality at scale, by harnessing and directing their financial, human and intellectual resources in a manner that creates new markets, products and serves unmet or underserved needs. Viewing “social good” as merely a philanthropic, transformation or compliance exercise that does not engage the power of the core business itself limits the impact that a shared value mindset could achieve.
Funders engaging in applying pools of transformation and CSI funds in a more systemic and innovative manner, seeking blended returns over a longer term can catalyse social change with far-reaching effects across the key needs in our society.
• Lowe is head of SME development at FNB Business.