In an increasingly complex world, corporations need to change the way they do business by changing the way they address social problems, a new report says.
To compete in the global marketplace, it says, companies must develop integrated strategies to cope with big changes, including the growing shift in economic activity to Asia, rising stress on natural resources, social problems that are becoming more complex and widespread, and rising expectations that companies play a big role in addressing social issues.
Companies can prepare themselves to make greatest impact on social problems and their own bottom line through a strategy known as "sustainable value creation," says the report, prepared by the Committee Encouraging Corporate Philanthropy, based on research by McKinsey & Company.
That strategy consists of a "self-reinforcing state of trustworthy, pro-social corporate behavior that simultaneously delivers bottom-line results and community benefits," says the report, Shaping the Future: Solving Social Problems through Business Strategy.
"To bring about sustainable value creation in their firms," it says, "companies must challenge the tacit assumptions that underpin the functioning of their value chains, seeking to understand where social issues impede progress, and then work to engage others in ameliorating those issues for the good of business and society alike," the report says.
"Corporate involvement is required whenever the cost of inaction exceeds the cost of action," it says.
Companies should take a hard look at social issues on which they "lead and engage," the report says, and make sure those issues are "integral to the achievement of larger business goals."
A key question, it says, is whether working to address a particular social issue also will "help my firm creative a tangible competitive advantage."
Companies should pick social issues "that drive growth or reduce costs, all while demonstrably helping local communities and broader societies address their own development priorities," the report says.
The report suggests that people who mistrust business likely will criticize the proposed strategy of sustainable value creation as "corporate greed in sheep's clothing."
While the level of trust in business "is not wholly within the control of companies, the report says, the "integrity with which companies execute their strategies for sustainable value creation is of the utmost importance in earning public confidence."
Corporate and CEOs and thought leaders interviewed for the research that led to the report believe that "shaping the future through sustainable value creation is a mandate," the report says.
And developing those strategies demands new ways of business thinking, it says.
Leadership toward sustainable value creation "requires stepping outside typical business planning cycles and acknowledging the need for (and growth possibilities inherent in) new ways of thinking," it says. "It also entails embarking on new forms of collaboration."
Margaret Coady, director of the Committee Encouraging Corporate Philanthropy, says in a statement that, by moving beyond their traditional levels and models of corporate community involvement, "the zero-sum tension faced by corporate executives of increasing shareholder returns and doing the right thing for society can be dissolved."