Business should care, for everyone's good

For the past several decades, economic growth and globalization have lifted a tremendous number of people out of poverty. But the cold hard fact is that most dividends of growth were obtained by a small number of people. There are still over a billion people struggling to survive on less than a dollar a day.

In a recent lecture, Robert Kaplan, professor at the Harvard Business School and co-developer of the balanced scorecard, shared some of his insights about approaches to inclusive growth, which could shed some light on strategies for tackling poverty and inequality.

The lecture is one of Three Talk, a speaker series given at Three on the Bund.

“Growth is the best anti-poverty program,” Kaplan said. He stressed the necessity of implementing strategies for inclusive growth — the growth pattern that benefits all stakeholders in the society.

Milton Friedman, the Nobel Prize winning economist, argued in his “Capitalism and Freedom” that a company should have no “social responsibility” to the public or society because its only concern is to increase profits for itself.

Kaplan thinks differently. He believes solutions to socioeconomic problems we face today cannot be tackled by governments alone. Companies have to be part of solutions as well. More importantly, companies should break down barriers and partner with entities from other sectors to form new ecosystems.

Solution providers

Nowadays companies that want to sustain their survival should continue to prove that they are providers of solutions, Kaplan noted. “Instead of just neutralizing the negative impacts they brought about, they should be proactive to create positive impacts that serves the people at the bottom of the pyramid,” said Kaplan.

Admittedly, there’s no shortage of corporate social responsibility (CSR) programs and public private partnership programs. Investing in infrastructure, environmental protection and training programs are all evidence of companies’ efforts to improve livelihood of local communities.

However, according to Kaplan, such programs only have a limited impact. The problems, as he pointed out, are that many CSR initiatives only focus on targeted local solutions, such as selecting a local distributor, or building a warehouse or a training center. They hardly scale up and make a transformational change to local conditions. Furthermore, companies’ leaders, located in headquarters far away, are often unfamiliar with local circumstances and unable to spot the business opportunities in the region.

Companies need to search for profitable projects and create ecosystems that are both capable of generating profits and bringing more people into the formal economy, Kaplan said.

Kaplan also indicated that it’s unlikely for a company to establish a transformational ecosystem on its own. It will need help from the “catalyst.”

Just like substances that prompt chemical reactions, Kaplan refers to external organizations, such as NGOs, consulting firms and economic aid groups, as catalysts. They have knowledge of local communities and the capability to identify a transformational opportunity. They are the intermediaries that bridge gaps between multiple stakeholders and can take the lead in building a new ecosystem.

“External organizations are like symphony conductors. They coordinate different market players so as to deliver a perfect ensemble,” said Kaplan.

Even after an ecosystem is built, it’s uneasy to keep strategic alliances from falling apart over time. In this regard, Kaplan suggested the ecosystem creation needs to include a measurement and governance system, which involves a shared balanced scorecard for all members of the ecosystem. It helps align participants from different sectors around the strategy and provide accountability.

A shared scorecard could enhance mutual understanding. An NGO must understand that a company will only keep a project running if there’s sustainable profits. And a company must understand local citizens’ need for improved economic and social benefits, Kaplan said.

He admitted such inclusive-growth approaches are still at an early stage, but they have already been put into practice and led to several successful projects. He hoped to promote these ideas in western China and encouraged companies to think out of box and create new ecosystems for impoverished regions.