Niels Christiansen is an independent writer, speaker, and corporate advisor who invented the term Creating Shared Value (CSV) as a fundamental principal of business management. Working with Nestle Chairman and CEO Peter Brabeck-Letmathe, he was the architect for the practical implementation of CSV for the 330,000 Nestle employees. GlobeScan CEO Chris Coulter recently interviewed Niels to gain insight on the value he puts on stakeholder intelligence to help build recognized leadership in an uncertain world.
Published 1 October 2014
I started in public affairs in the early 1980s, and back then companies were just starting to come to terms with how to engage with society, in ways that were constructive to people and the environment. The 80s was really a time of infancy for the corporate affairs space, and companies did not staff or resource to any significant degree.
Over time, CEOs began to realize that public affairs is a sensitive area that is indeed quite strategic, and that it needed to be staffed by thoughtful people in order to help the company engage and work with society, manage a range of risks, and help orient the company towards being beneficial to society.
This transition has been a slow evolution. It has really only been in the last decade where you see substantial discussion and references to things like corporate social responsibility within board rooms and on mainstream business pages. As a result of more people within more companies focusing on the social role of companies, collectively we have created a range of more sophisticated approaches to understand how a company can play a positive role in society.
At Nestlé I had been thinking about the importance and challenges of companies engaging and working with society for a long time. Many of the ways that companies were dealing with their relationship with society was through individual projects or initiatives to demonstrate they were doing some good.
Nestlé was allergic to this sort of approach – being a Swiss company they didn’t like to pat themselves on the back or create window dressing. It was always felt that the biggest impact the company could make was directly through their business rather than as an add-on initiative. And this view went back a long time to initiatives such as supporting farmers in the company’s supply chain in the 1920s, enabling them to be more productive and successful.
As I thought about the primary direction that Nestlé should take in this area, I went back into the history of the company to review its approach to society and looked to the company’s business principles, which were published in 1998. The first business principle was that the company and all its employees have an objective to create long-term value for customers, employees, shareholders, business partners and for the national economies where the company operates.
It was fundamentally a statement for creating a sustainable business. In 2005 it hit me that creating shared value was an appropriate framework.
It was received very well. Nestlé management, especially in developing economies, has always felt their role was to make a contribution to the national economy and society through things like training farmers and factory works, and to be a reliable business partner.
And the exposure to and importance of developing markets were critical to the concept. Nestlé began exporting its products globally in the 1860s and then in the 1920s it began to establish manufacturing operations in Brazil and Mexico, and then around the world. The company took a lot of calculated risks in these developing markets where there wasn’t adequate supply of business materials. The company took Swiss agriculture technology to these emerging economies and started training farmers to be more productive and to produce high quality materials, and in the process helped them to escape from poverty.
This is why the idea of Creating Shared Value made so much sense to the managers in those parts of the world especially.
I think we have been able to make its meaning more explicit. It is really a fundamental way of doing business that gets expressed in all areas of a company – in its production and marketing, in its operations, in its workplace standards and programs, in its financing and investments, etc. It is now clear how the concept can be embedded into core elements of a range of business functions.
At the same time, there has been a trend to going back to smaller, one-off initiatives, rather than a more holistic integration of shared value into everything a company does. In many places, shared value has been trapped in CSR teams and not embedded into corporate strategy. The uptake of the creating shared value concept has been uneven.
While it is certainly good to have CSR teams doing important work via individual initiatives, it is really leveraging the business model where the greatest progress is found. You need to instill this into the whole business – ensuring that everyone in the company is approaching their job with this in mind and translating this into specific ways depending on the function. Creating Share Value should be recognized as a fundamental business principal rather than a competitive advantage to address a specific issue.
There are a number of steps a company needs to take. First of all, it really starts with the Board of Directors and Chairman/CEO level. You need to make a public commitment for long term value for shareholders and stakeholders. It is fundamentally a rejection of a short-term, narrow approach to business.
Second, it takes compensation systems that reward not only short term results but long term value creation. Many companies still reward management more on the basis of today’s stock price or this year’s profits than on long term value creation for shareholders. That needs to change in a substantial way at the highest levels.
Third, companies need to implement shared value through corporate social responsibility. There are many non-quantifiable success factors for business today – for example, human rights, environmental sustainability, anti-corruption, transparent business processes – where value is created or destroyed as much as any new products. It is important to think of corporate social responsibility as a driver of real value for the business. And this requires tough business decisions to ensure value is protected and created, often including significant capital expenditures over the long run and a well thought out business plan. These actions don’t necessarily lead to short term profit.
All of this is not easy by any means. It takes a lot of courage and strength to look to the long term. The important thing is that creating shared value has to be adopted as a fundamental business principle that affects all employees in all parts of the company. That is how you get big impact.
For long term shared value to be effective it needs to be a part of the core business culture of the company. For some companies, such as Johnson & Johnson, Unilever, Nestlé and others, it is already part of their corporate cultures. For other companies, it requires a cultural shift and a commitment to long term value creation rather than simply short term.
A key factor in making this shift happen is engagement with the Board of Directors. Directors are responsible for setting long term objectives for the company so shared value aligns nicely with their focus. Enlightened Boards understand that a number of their key investors, especially pension funds, have a need for balanced, and reliable return in the both the short and long terms. It is very difficult for public affairs professionals to make traction internally on the CSR agenda without top Board and management buy-in.
As public affairs professionals, we need to build support for protecting and enhancing reputation and make the connection to long term success. Given that reputation is created through the firm’s actions over the long term, it is another lens through which to help the company see the value of long term planning. In fact, companies that follow shared value principles have demonstrated strong reputation over the long term.
Another way to nudge companies toward long term orientation is by doing away with quarterly results. In fact, governments have a role here to facilitate long term business focus by reviewing financial reporting.
One final thing we need to think about is how we can engage students in business schools. We need to help the new generation of business leaders see the value of long term thinking and our business schools need to get much better at training in this area.