Today’s conventional wisdom has it that corporate success depends on creating ‘shared value’ – sharing with a wide range of stakeholders. And that business leaders must build value through addressing the social and environmental problems that intersect with their business.
Pressure is on for leaders to recruit diversely, create meaningful work, reduce environmental impact, improve corporate governance, and please investors in terms social responsibility and profits – not to mention prepare the company for the coming era of artificial intelligence.
In her new book, The 360o Corporation, Sarah Kaplan, Distinguished Professor at the University of Toronto’s Rotman School of Management, suggests that achieving perfect shared value is unrealistic and that the shared value mindset can get in the way of truly doing the right thing. She argues that companies should accept that varied stakeholder demands create the need for real performance trade-offs, but on the other hand that finding ways to innovate around these trade-offs can be a source of organizational resilience and transformation.
For business to maintain its legitimacy, given today’s attitudes towards its role in society, leaders need to place greater emphasis on social good. But this must be done honestly – insincere fixes, ‘greenwashing’ for sustainability or ‘pinkwashing’ for gender diversity, won’t do. Genuine social responsibility involves making trade-offs between stakeholder demands – a case of not making the perfect the enemy of the good.
Kaplan uses the 360o term in relation to the need to look at the stakeholders that surround the corporation from all directions. To consider how the perspectives of socially-conscious consumers, millennials, regulators and investors focused on ESG standards, et al, can be taken into account without compromising the bottom line.
She admits there are no easy answers. Although sometimes there are win-wins at other times companies just have to work around irreconcilable tensions. Crucially she says, by understanding the perspectives of different stakeholders, hard-pressed leaders can learn to tackle tensions created by trade-offs through creative thinking and innovation and often find new ways of doing business.
“Leaders must mobilize an organization’s innovative abilities to create the business case and cope with the unresolved tensions that arise when the needs of stakeholders compete,” says Kaplan. The starting point is to ask a number of penetrating questions and start a conversation to identify the trade-offs that may be necessary.
This discovery process is the first of four ‘modes of action’ Kaplan recommends to leaders. The second mode is about rethinking stakeholder dynamics to build a business case for say diversity or sustainability. Kaplan then offers some words of caution, explaining why it is a mistake to get too hung-up on the business case. “The more we say we need a business case to justify action the less likely we are to achieve our moon-shot goals.” So, although building the business case is a valuable route to deeper discovery and a way to inspire creative thinking, it can inhibit effective action.
Her third mode of action is about transforming trade-offs into innovation challenges and using stakeholders as a source of innovation, and finally in the fourth mode Kaplan shows how organizations can thrive even within intractable trade-offs.
The conventional rhetoric of ‘what’s good for society is good for business’ is too simplistic. In the real-world, establishing a socially responsible business model that doesn’t damage the bottom line is hard to achieve. Yet as shown by the several examples Kaplan quotes – from Nestlé to Wal-Mart – many companies are succeeding. This book provides a roadmap for others to join them.
‘The 360o Corporation: From Stakeholder Trade-Offs to Transformation,’ by Sarah Kaplan. Published by Stanford Business Books, September 2019, ISBN: 978-1-503607-972-2. Pre-order copies here.