“We are a healthcare company that’s greatly impacted by lifestyle. So, how do we help people stay healthy?”
This statement, from Humana President and CEO Bruce Broussard, captures the sentiment of an increasing number of business leaders who are recognizing the importance of tackling societal challenges as a way to expand market share and increase profitability.
Broussard was one of the many corporate executives who recently gathered in New York City for the 2018 Shared Value Leadership Summit.
These business leaders traveled from around the world to meet in New York and discuss a topic that is increasingly on the minds of investors, executives, and government officials: How can businesses do more to leverage their assets and resources to address societal challenges at scale, while delivering strong returns for investors and shareholders?
As it turns out, the opportunities to advance these types of shared value strategies exist in every country, in every sector, and in every community.
Taking a closer look at Humana’s shared value efforts, Broussard discussed the importance of addressing social determinants of health through targeted community engagement by focusing on positively impacting lifestyle choices, which can be a significant driver of healthcare costs.
In San Antonio, Texas, where Humana has a large footprint and where diabetes is a significant problem largely due to a lack of access to healthy food options, Humana, as part of its Bold Goal initiative, partnered with a local grocery store chain to increase access to healthy food across the city. This win-win investment improved the overall health of community members, while positively impacting Humana members’ healthcare costs.
As a result of this initiative and other related shared value-focused strategies in targeted communities, Broussard highlighted that Humana has seen its stock price increase, as well as a significant increase in employee engagement scores and an improvement in enrollee ‘healthy day’ numbers. Clearly, Humana’s focus on improving social determinants of health from a shared value standpoint has provided a positive return on investment.
Also at the conference, Keun-Tae Park, CEO and president of CJ Logistics – part of the massive Korean conglomerate, CJ Group – discussed how his company developed a shared value strategy to address the challenge of providing effective delivery services to secluded communities and neighborhoods that are difficult to reach and navigate, as well as the societal challenges facing Korea due to an aging population facing economic hardship. CJ Logistics’ strategy harnessed the local knowledge and desire of the aging population to continue working part-time in order to create a neighborhood parcel delivery system. Older Koreans in secluded and remote communities are able to earn a little money to help in their retirement years, and CJ Logistics is able to more effectively deliver packages to hard-to-reach neighborhoods. A win-win for society and the company, and another example of shared value in action.
Those were just two of the stories shared by business leaders at the Shared Value Leadership Summit. Joining Humana and CJ Logistics in telling their shared value stories were executives from Walmart, Facebook, Abbott, IBM Watson Health, Nestlé, GlaxoSmithKline, Hilton Worldwide, The Redwoods Group, Skanska USA, and many others.
But it wasn’t just corporate executives who were highlighting the importance of embracing shared value to drive company growth and profitability; another important, and seemingly unlikely, stakeholder had a strong presence at the summit: the investor community.
Earlier this year, Larry Fink, CEO of the $6.3 trillion asset management company BlackRock, sent shockwaves through the corporate and investment world with his annual letter to CEOs. In that letter, Fink wrote:
“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
According to Business Insider, Fink’s letter, “sent a warning shot to CEOs across the world: start accounting for the societal impact of your companies, or risk disappointing the largest asset manager in the world.”
At the Shared Value Leadership Summit, Michael Porter, Harvard Business School professor and co-author of the original article “Creating Shared Value,” referred to Fink’s letter as the ‘shot heard around the world.’
Porter described how shared value provides an opportunity for businesses to create unique value propositions and distinguish themselves from their competitors by changing how they compete in the marketplace. For too long, businesses have been debilitated by a ‘trade-off’ mentality of costs associated with environmental clean-up, worker safety, and other ‘externalities.’ According to Porter, these externalities are not just bad for society, they directly increase costs on the business, as well.
By adopting a shared value mindsight, combined with conventional, market-based thinking and business strategy focused on addressing societal problems, companies can reduce their costs, positively impact society, and increase profitability. In other words, shared value drives profit growth.
Investors are increasingly recognizing this opportunity, and are moving more capital into shared value and purpose-driven businesses. Bain Capital’s Double Impact fund focuses on investments where they can utilize Bain’s “unique capabilities to help mission-driven companies scale and drive meaningful change.”
But Double Impact isn’t just a philanthropic venture of Bain Capital. As Deval Patrick, former Massachusetts governor and Double Impact’s managing director stated, Double Impact is “expected to get the same returns as Bain’s large-cap fund. We don’t trade return for impact.”
Similar views on social impact investing and shared value business strategies were expressed by Roger Ferguson, president and CEO of TIAA, as well as the CEOs of San Francisco-based venture capital firm, Obvious Ventures, and Italian-based private equity firm, 21 Partners. For these investors, shared value provides a unique opportunity to gain a competitive advantage and increase investment returns.
In the words of Ferguson, who manages over $1 trillion in assets at TIAA, “we see no degradation of return from socially-responsibly screened investments and conventional investments.”
Even Wall Street activist investors are embracing shared value. As CNBC reported:
“Wall Street’s activist investors, once known for pushing for extreme cost-cutting or just about anything that would boost the bottom line, are starting to use their money to promote a different kind of corporate action: social and environmental change. They are doing this, they say, not only as a matter of moral responsibility but for their original mission of generating better returns for their clients.”
As expectations continue to increase for companies to develop and implement shared value strategies that provide strong investment returns, business leaders find themselves in a position of having to think differently about their approach to strategy.
For decades, there has been a divide in thinking about business strategy; defined by a focus on making money on one hand, and a desire to do good on the other. According to Mark Kramer, co-Founder and managing director of shared value consulting firm, FSG, “We see that as a false choice that has blinded us to immense opportunity.”
At its core, shared value should be viewed through the conventional strategy development lens, and should be completely aligned with a company’s internal strategy. The shared value strategy development process should be driven by a sense of purpose and an intentional focus on addressing a real challenge facing society. But it doesn’t stop there.
To be a true shared value strategy, the value created from that sense of purpose and societal improvement should be captured by the company in the form of economic gain, resulting in better outcomes for local communities, individual companies, and society at large.
Just like the examples provided by Humana and CJ Logistics, companies benefit when they find meaningful ways to provide benefits to society that align with their core strategy.
We may be a few years away from shared value integration into business strategy on a large scale, but it’s clear that employees, customers, and even investors are increasingly expecting companies to play a larger role in society.
The increasing move toward shared value can best be summed up by Gary Cohen, executive vice president at medical technology company Becton Dickinson: “Advancing shared value is not like a bullet train. It’s more like a freight train; an unstoppable force that will keep driving forward.”