Shared Value
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The diploma thesis by Liliane Mester explores the concept of 'creating shared value' (CSV), emphasizing its societal and economic significance for companies and communities. It highlights historical and contemporary examples, such as Johnson & Johnson and Nestlé, demonstrating how businesses can achieve long-term success through practices that benefit both shareholders and society. The document argues that transparency and accountability in social and environmental responsibilities will increasingly shape corporate strategies and public expectations.
Shared Value
- 1. «Creating Shared Value» Executive Summary of Diploma Thesis What is Shared Value thinking? What has unleashed the change of thinking? What kind of societal and economic importance does Shared Value thinking have in particular for the future rating of companies and for society in general? Diploma Thesis Liliane Mester, Zurich Coaching Professor Prof. Dr. Martin Hilb, Chairman of the Board Foundation St. Gallen and Managing Partner of the International Center for Corporate Governance from March 10, 2015 by Liliane Mester, Zurich Executive School of Management, Technology and Law (ES-HSG) University of St. Gallen «Continuing Education in Politics» 6th instance 2014
- 2. Creating Shared Value «We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens – support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must contain in good order the property we are privileged to use, protecting the environment and natural resources.» Robert Wood Johnson, 1932 – 1963 head and member of the Johnson & Johnson founding family «We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear.» George W. Merck, president and chairman 1925 – 1957 of Merck or MSD respectively The concept of «creating shared value» is primarily associated with the January 2011 article «Competitive Strategy – Creating Shared Value» in the Harvard Business Review by Michael E. Porter and Mark R. Kramer. This was a point in time when the con- cept of sustainability had long since been applied on a broader scale. In 1987, the UN Commission published the «Our Common Future Report», which was later named the «Brundtland Report» after Norwegian Prime Minister and former Secretary of the Environment, Gro Harlem Brundtland. The report defined a concept towards a long-term, sustainable and balanced development on a global scale into the year 2000 and beyond. The idea of creating shared value can probably be traced back to the beginnings of commercial trade, when it emerged among the prudent and, more importantly, far-sighted businesspeople of the time. Two more recent examples are quoted in this thesis: Robert Wood Johnson, 1932 to 1963, head and member of the founding family of Johnson & Johnson, formulated a credo, which is still known throughout the world. George W. Merck instituted a statement in 1950 as the guiding principle for the international R&D based manufacturer of pharmaceuticals Merck or MSD respectively still applied today. A more recent example is Whole Foods Market or Nestlé. This thesis specifically ad- dresses the internationally leading Swiss nutrition company. In 2007, Nestlé defined three «creating shared value» areas for its CSV report, which has been published regularly since 2008: Nutrition, water and rural development. The report is based on internal business principles as well as national and international norms with the goal of making the company’s business activities compatible with the environment,
- 3. Creating Shared Value «Several years ago, Whole Foods Market began to advocate compas- sionate treatment of animals and decided to no longer sell living lobsters in its stores. Wall Street laughed at this move. Whole Foods Market was ultimately rewarded by a loyal customer base and excellent employees. Accordingly, the company’s stock did well.» PhD Erhard Bruderer, former Professor of Management Building at the Carlson School of Management, University of Minnesota positive with regard to society and economically justifiable. In fact, following the strat- egy that the company applies worldwide, added value must be created for society as a whole in order to create long-term shared value for the shareholders. Nestlé defined the term «creating shared value» as early as the year 2000 and broached the issue in 2005 in Davos at the World Economic Forum. In connection with this work, John Bee, Public Affairs Communication Manager at Nestlé’s head office, holds that in the future the public will increasingly demand information about how companies approach social and environmental responsibilities. However, he states that customers will not be willing to pay more for such efforts. He further notes that customers assume that companies in the high-price segment today act responsibly in both the supply chain and in waste disposal practices. «Shared value»s is based upon the awareness that, alongside economic factors, so- cial and environmental factors must also be incorporated in a company’s thinking in order to recognize the added value that is created – whether this is through external conditions or intrinsic beliefs, which would have to be examined in a separate thesis. This approach connects the micro-economic level, i.e. a company’s traditional core financial parameters, with the macro-economic level. The progress achieved through a company’s primary activities is then evaluated. An isolated approach is replaced by an understanding that positions the company and its activities as part of a larger system, thus employing the interests of current and future investors to simultaneously ensure the company’s continuity. Parallel to this development, society has sharpened its awareness of and attention toward global companies as a result of evolving information technology. Today, there is a distinct demand for comprehensive information and transparency. As a result, storytelling in sustainability reporting is a thing of the past. The current approach involves fact-based information, indices and parameters that can be analyzed and compared. Toward this end, Nestlé has defined its own performance indicators for the three CSV areas nutrition, water and rural development and compares them with the Global Reporting Initiative (GRI), which are based on the UN Global Compact Principles.
- 4. Creating Shared Value Reporting will thus take on an even more important role in the future. EY, for in- stance, has been dealing with the topic of integrated reporting for a couple of years. Dr. Mark Veser, Senior Manager, Climate Change and Sustainability Services at EY, esti- mates that societal expectations for listed companies to provide documentation of their social engagement will increase. He represents this as a management reality, stating that the demands placed upon the form and mode of this transparency will continue to grow. He leaves the question open as to whether shared value is the correct approach. Reto Ringger, initiator of the Dow Jones Sustainability Index (DJSI) and founder of the SAM Group, connects shared-value thinking primarily with qualitative aspects. Envi- ronment, society and economy are the areas he defines relevant for a company‘s foot- print. Materiality, however, as he underlines, will be relevant in the future, referring to measurable, quantitative indicators that can be analyzed and compared. In any case, the body of thought and knowledge about the effects of a company‘s activities and its responsible approach to those effects is still a prerequisite for quali- tative and quantitative evaluation as well as systematization. An analogous statement is made in the New Corporate Governance, 2005 defined by Prof. em. Dr. oec. Martin Hilb, Managing Director of the Institute for Leadership and Human Resources Manage- ment at the University of St. Gallen and founder and Managing Partner of the Inter- national Center for Corporate Governance, stating that companies can only achieve long-term success if their activities realize shared value for shareholders, customers, employees and society. Companies that already see themselves as part of a larger system, value the effec- tiveness of their activities comprehensively and are able to navigate profitably on a macroeconomic level, have the chance to participate in shaping future developments – in dialogue with their stakeholders – as well as standards and reporting. Whether this will be an integrated part of their annual reports or not remains to be seen. One interesting feature is how the three companies examined in this thesis – Johnson & Johnson, IBM and Nestlé – steadily gained brand value between the years 2011 to 2013, even when sales were lower in some years. It can be inferred from this that a strong, long-term-oriented strategy that strives for higher benefit criteria is honored. © Liliane Mester, Zurich «Societal expectations for listed companies to provide documentation of their social engagement will increase.» Dr. Mark Veser, Senior Manager, Climate Change and Sustainability Services, EY Zürich «In the future, a company’s footprint will be important on the levels of environment, society and economy. The materiality of the information investigates the effectiveness of long-term strategies and how they affect the ability to compete.» Reto Ringger, Sustainability Pioneer and founder of the Globalance Bank, Zurich