This blog post is part of the HBR Online Forum The CEO’s Role in Fixing the System.“No Bulls, No Bears. Only Pigs.” This defining slogan of the Occupy Wall Street movement, engulfing nearly 1,000 cities of the world at last count, speaks volumes of the universal disgust of civil society towards corporate greed. The global financial crisis that continues to send shock waves across the world unfortunately represents the ugly face of capitalism today. The failure of free-market economic models in creating social equity, thereby perpetuating islands of affluence amidst a sea of deprivation, is the root cause of the growing public anger on the global corporate community.
The rules of the game have changed once again. It is in the enlightened self-interest of business to forge economic growth models that create larger societal value than shareholder value alone. The clarion call is out for “humane and inclusive” capitalism. And business has a very large role to play in ushering in a new economic model that delivers larger social equity through innovation and commitment to sustainable business practices. The experiences of my company, ITC, bears out that innovative corporate strategies can deliver large-scale social good whilst enhancing stakeholder value for the long run.
About 15 years ago, ITC decided to redefine its vision to make societal value creation the primary purpose of its business as opposed to creating shareholder value alone. Looking ahead into the future, the company recognised that the major threats to its long-term sustainability — and therefore to its goal of sustained value creation for all stakeholders — would emerge from two major directions: the consequences of widespread poverty in its home country, India, and the scarce natural resources of the nation to fuel growth into the future.
ITC decided to measure its own performance in terms of its contribution to creating economic, environmental, and social capital through innovations that would be embedded in its business strategy. The primary purpose of this “triple bottom line” strategy was to look at innovative business models that would deliver high quality growth whilst simultaneously ensuring the creation of sustainable livelihoods (to fight poverty) and fresh natural capital (to combat scarcity of resources).
This overarching vision to contribute to a larger national purpose has today enabled ITC to become an exemplar in sustainable business practices: ITC has been “water positive” for nine years (it has created twice as much freshwater potential than its consumption); “carbon positive” for six years, (it sequesters twice as much carbon than its emissions; and “solid-waste-recycling positive” for four years (it recycles all its wastes from its industrial operations).
In addition, these innovative business models have led to the creation of sustainable livelihood opportunities for over 5 million people from among the most vulnerable sections of Indian society. The company’s market capitalisation has grown 28-fold in the last 15 years to $33 billion. Total shareholder returns, measured in terms of increase in market capitalisation and dividends, have grown at a compound rate of 25.6% per annum during this period.
ITC’s globally acknowledged e-Choupal initiative, which was described in an HBR article, is one such business innovation. It has empowered and improved the lives of of 4 million farmers in 40,000 villages. Meanwhile, ITC’s Social and Farm Forestry innovation has created 52 million person days of employment, greened 116,000 hectares (10 times the size of Paris) while producing raw material for ITC’s paper and paperboard business. And initiatives such as our watershed projects and animal husbandry programs have enriched large tracts of land for rural communities.
These innovative business models and their positive impacts on our business suggest a way forward in ushering in a new dimension of humane capitalism.
For us, the lessons have been the following:
- It is critical to define a larger overarching societal purpose of the organisation beyond creating shareholder value, and it is even more critical to walk the talk. Society no longer tolerates hollow promises.
- It is important for the CEO to inspire and align employees to a set of defined values that encompass, for example, principles of trusteeship and ethical conduct, and to have a zero-tolerance policy on willful violations that lead to a loss of corporate reputation.
- Business leaders should encourage and reward innovation within their companies that spurs business models that not only deliver economic value but larger societal value as well. (ITC’s e-Choupals became a reality as the leadership displayed faith and encouraged the innovation through larger investments and commitment despite the model being untested.)
- The company should try to do social good not just by philanthropy but by forming partnerships with the national and regional governments and local communities that “co-create” local community assets.
- Companies should involve the consumer in supporting sustainable business practices by creating unique value propositions that enrich the consumer experience. The fact that a portion of the proceeds from the sales of ITC’s school notebooks and stationery were contributed to rural education helped make them a market leader.
To co-create value for society with stakeholders, companies have to custom-design innovations to take into account the specific context of Individual businesses. But there will be a common thread that runs through all: The recognition that societal value creation — and not shareholder value creation alone — holds the key to the long-term sustainability of business.
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