Do companies in Africa care about their social impact?

Africa’s digital economy is the new frontier for domestic and foreign businesspeople. This frontier offers cautious hope of creating more than just economic gain – if entrepreneurs, innovators and policymakers can look beyond lining their pockets.

What is the primary purpose of the business? In practice, the answer – also called shareholder theory – is the model championed by Milton Friedman, the American economist and Nobel laureate. In short, Friedman taught that the overarching goal of business leaders was to maximize economic value for business owners. This tunnel vision of corporate leadership has helped create sprawling business empires, but it has also inspired reckless profits.

“A big part of the problem,” write professors Michael Porter and Mark Kramer for Harvard Business Review (HBR), is that companies “continue to view value creation narrowly, optimizing short-term financial performance in a bubble. “.

“How else could companies ignore the well-being of their customers, the depletion of natural resources vital to their business, the viability of major suppliers, or the economic distress of the communities in which they produce and sell? Otherwise, how could companies think that simply moving operations to places where wages are increasingly lower was a sustainable “solution” to competitive challenges? ask the authors.

This kind of critique of ownership theory has become popular in recent years and has led to alternative proposals like stakeholder capitalism, popular with the Davos-going crowd. But dealing with the various competing interests of shareholder capitalism can be confusing – the reason it was replaced by shareholder capitalism in the first place.

A better proposition, business thinkers like Steve Denning, a former World Bank executive and author of Reinventing capitalism in the digital age, is not shareholder capitalism, state capitalism or stakeholder capitalism, but in the creation of shared value. He calls this “customer capitalism”.

According to Professor Porter and his HBR co-author Professor Kramer, shared value “is about expanding the total pool of economic and social value.” As opposed to “sharing” the value already created by companies — a redistribution approach.

Thus, instead of redistribution, “The creation of shared value is distinguished from philanthropy and corporate social responsibility in that it emphasizes collective well-being as a source of innovation that can lead to a greater profitability and competitive advantage. Instead of asking companies to compensate for the damage they cause or to redistribute the profits made at the expense of society, the objective is to earn these profits by benefiting society,” explained Tieke Barnard, CEO of SVAI.

Shared value in practice

While shared value tends to be swallowed up in corporate buzzwords, there are already concrete examples of this principle in practice.

Olam International, headquartered in Singapore, is a leading food and beverage company with operations spanning 60 countries around the world. Previously, the company simply shipped raw agricultural products from Africa to Asia for processing. It was a business model that worked, but especially for Olam.

After simply sourcing cashews from Nigeria, for example, the company began to seek deeper connections to the local ecosystems that provided its raw inputs by opening local processing plants, including smallholder farmers. in their supply chain and training workers in Tanzania, Mozambique, Nigeria and Côte d’Ivoire. For Olam, locally integrated supply chains have helped it reduce processing and shipping costs by up to 25%, not to mention drastically reduce carbon emissions. Olam has also “established special relationships with local farmers. And it has provided direct employment to 17,000 people – 95% of whom are women – and indirect employment to an equal number of people, in rural areas where jobs were otherwise unavailable,” write Professors Kramer and Carry.

In Ghana, Olam financed modern bakery equipment imported from South Africa for local bakers. This allowed the bakers to increase their sales and in turn buy more flour from Olam.

Today, Olam Farms is one of Nigeria’s largest agribusinesses. In 2021, he set up a 10-year, $750,000 facility to establish community-based seed enterprises to help Nigerian farmers increase their wheat production.

Olam still sources from Africa and processes it outside the continent, but it has demonstrated that with a slight course correction, the value it creates from its agricultural activity can be distributed more equitably without directly redistributing the profits.

Shared value is not really a new concept. One of the oldest and clearest examples of this principle is the Ford Motor Company under the leadership of its founder, Henry Ford. Here is a brief excerpt from a 1937 letter from a reader to a columnist to The New York HeraldTribune.

“…under the superior administration and supervision of Mr. Ford, these many subordinate persons can create, in conjunction with him, more service, value and satisfactions for the public and for themselves than in any other employment or profession . This is what holds his organization together – the superior creation of wealth and service under his administration and supervision. It is what socializes his enterprise, keeps it on a basis of voluntary and mutual service, with ascending values, as between all persons or interests cooperating and serving one another.

The social function of Mr. Henry Ford – FEE.org

Needless to say, Henry Ford’s methods were not well received by most of his time. However, today we give his methods credit for helping to transform cars from an elite commodity into a commons commodity.

Do companies in Africa care about their social impact?

“Instead of asking companies to compensate for the damage they cause or to redistribute the profits made at the expense of society, the objective is to earn these profits by benefiting society”

Africa has been at the extractive end of value creation for a significant part of its modern history. As business thinking reform gains momentum globally, it is important to consider how this is reflected in the way business is done in Africa.

At the Africa Shared Value Leadership Summit (ASVL) which took place during the first African edition of the Mobile World Congress held in Kigali last October, guests discussed questions around the practical application principles of shared value, in particular for planning climate solutions, digital inclusion, connectivity and supporting inter-African trade with digital innovation.

Events like this tend to have brilliant speakers and enthusiastic audiences. The ASVL was no exception. But getting people talking about creating shared value – in Africa no less – is easier said than done.

If you ask any businessman who’s nimble enough with the language of public relations, you’ll be sure to get press-worthy quotes on responsible value creation. The question, however, is; why are these commitments not translated into action? The abundance of shoddy or outright fake products, inattentive customer service, and extractive pricing seem to tell a different story.

At the heart of events like the ASVL is the recognition that doing business in Africa is overdue for change. But it is the companies themselves that must lead this change. “The link between social progress and business success is increasingly clear, and businesses must team up with governments, NGOs and even competitors, to reap the full economic benefits of creating shared value as a than collective,” says Barnard.

The last thing corporate social responsibility should be is an opportunity for companies to brag about their good deeds. But much of the CSR talk sounds exactly like this: an employee or company saying, “Look! We’re not that bad!

The creation of shared value is closer to the opposite. It’s an argument that shared economic value – not concentrated at the top – is the only way to create meaningful and sustainable businesses. He proposes that the old way of doing business will not last.

Through the ASVL summit, a challenge to do business in a different way was presented. As economic headwinds grow stronger and social divides deepen, the companies that have graced Kigali’s boardrooms and spoken eloquently will be tested. And time, as always, will tell.

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