How do firms create social value?
In his 2020 book, Grow the pie: How great companies deliver both purpose and profit, Alex Edmans, a professor of finance and academic director of the Centre for Corporate Governance at London Business School, asserts a company’s primary objective should be “social value rather than profits.” Incidentally, firms that adopt this approach end up being more profitable over time than firms with a sole profit objective (Edmans, 2020).
However, SVC is not corporate social responsibility (CSR). Nor is it philanthropy. Fundamentally, it starts with a firm asking itself “how is the world a better place by your company being here?” (Edmans, 2020). As firms control a lot of human and financial resources, they are very well-placed to create value for society. Edmans (2020) terms this positive sum approach to business as “pieconomics”. This is an approach to business in which creating value for society is the primary goal, with profits an inevitable consequence.
How is SVC different from CSR, though? “CSR typically refers to activities that are siloed in a CSR department, often to offset the harm created by a company’s core business (Edmans, 2020).” Instead, SVC is integrated into the core business with the primary objective of serving society. Still, CSR could also be used to create social value.
A better distinction is shown in the featured tabular representation of business and society models. Most CSR activities qualify as corporate philanthropy, where activities tend to be special projects, whereas SVC is more aligned with social responsibility and thus embedded in the day-to-day business of the firm.
According to Edmans (2020), social value creation is guided by the three principles of multiplication, comparative advantage and materiality. The firm’s spend on a stakeholder should create a surplus benefit to the stakeholder (multiplication). The firm should be the one best able to add value than others for the particular activity (comparative advantage). And the beneficiaries of this activity should be material to the firm’s business (materiality).
Edmans (2020) cites a few examples to illustrate how the principles work. Coca-Cola’s Last Mile intiative leverages its comparative advantage in last mile distribution and cold storage logistics to transport medicines across Africa, for instance. Another example is Singaporean-headquarted agribusiness Olam, which grows various crops across the continent. Olam’s ‘Growing Responsibly’ philosophy helps to ensure conservation and regeneration in its operations and the natural resources it exploits.
Similarly, owing to its huge water consumption and the tandem effects on the environment, Coca-Cola invests in various safe drinking water projects across Africa. And simply in the pursuit of excellence, Vodafone’s M-Pesa mobile money service in Kenya is transforming many lives.
References and figures are available in the original article viz. https://rafiqraji.com/2021/03/21/social-value-creation-african-firms-the-sdgs/