Shared Value: A New Model for Mexico

Over the last twenty years, the relationship between business and society has drastically changed. Society now expects companies to play a greater role in solving problems such as inequality, extreme poverty, human rights and climate change. Given this new scenario, 21st-century entrepreneurs must act if they want to help communities and themselves by becoming part of the solution. The question is: How?

There's no straight answer, but there is a lot of controversy around that question. For example, companies that have agreed to be ranked using ESG (Environment, Social & Governance) criteria are investing a lot of resources to rank higher and thereby attract global investment institutions that tie their investments in part to the quantity and quality of resources that companies devote to addressing social, environmental and governance issues.

One of those companies is BlackRock, which has $7 trillion dollars in assets under management. Its founder and current CEO, Larry Fink, has stated in several platforms that companies must have a social purpose. His ideas are in complete harmony with the vision of the companies that make up the renowned Business Roundtable, an association advocating that corporations should not only work for their shareholders but for all the stakeholders that contribute to value creation, such as the communities in which they operate, promoting a new, fairer and more sustainable capitalism.

While this sounds like a brilliant scenario, it has not been received with the same enthusiasm by everyone. For example, the U.S. Council of Institutional Investors, which includes thousands of pension fund managers who collectively manage over $4 trillion dollars, has expressed its disagreement with this idea. They argue that, for them, the most important thing has and will always be to satisfy their shareholders' profit expectations. Moreover, they believe that straying from that goal would imply not fulfilling the fiduciary duty they have to their clients.

Skeptical voices are also heard within the academic world, like Michael Porter, who has advised hundreds of companies around the world on competitive strategy. According to this Harvard professor, well-intentioned actions such as those of BlackRock, the UN principles on socially responsible investments, and their corresponding system of ESG rankings, are not the best way for companies to contribute to solving the severe problems and challenges facing communities around the world. Porter's solution is for companies to integrate the concept of “shared value” into their strategies, that is, the idea that companies should work to create value in the economic and social spheres.

As far as he is concerned, the value proposition must be designed taking into account both social and economic needs. This is accomplished by innovating in new products that meet the needs of the poor, improving productivity in the value chain by incorporating underprivileged suppliers through training and mentoring programs, or by improving the environment in which businesses operate, investing in infrastructure,  training and other factors that contribute to the competitiveness of any industry. According to Porter, all of this should not be achieved at the expense of companies’ profits and return on investment. In his numerous articles on this subject, Porter cites many examples of companies that have successfully implemented this model.

I believe that, in a country such as Mexico, the best course of action is the one recommended by Porter. The reason behind this is that Mexico belongs to the group of countries in which money, talent, entrepreneurship and innovation are scarce in the face of necessity which is vast and diverse. In this scenario, the market and private sector players can respond to the challenges facing the country with the necessary speed and scale without compromising the profitability of the business or the viability of the market system itself.

In Mexico, there are some successful examples of increasing income levels of small businesses by providing them with work, growth opportunities, technical assistance and access to credit. This reflects what Porter considers to be the creation of “shared value” through improvements in the value chain. Such is the case of the Margarita project, established by Danone, which incorporates small milk producers in Jalisco into its value chain by offering them the opportunity to sell the milk they produce to Danone (and other companies such as Bimbo) while providing them with technical assistance to do so efficiently and sustainably. This project was launched in 2010 and now has the support of the Inter-American Development Bank and its innovation laboratory, which will provide loans and technical assistance for more than 900 small milk producers.