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The New Value Prop
Joel Makower, 19 Mar 06

Forget the "triple bottom line." Get ready for the "blended value proposition."

Before you glaze over about yet another sustainability-minded catchphrase, consider that this brave new term is being bandied about in the nation's top business schools -- or, at least, those with sustainability programs. It's been a featured topic in mainstream business and investing publications, and has been uttered by the venerable John Elkington, who coined "triple bottom line" in the first place.

The BVP concept is embedded in the growing world of social enterprise and social entrepreneurs -- the moniker given to nonprofit businesses that David Bornstein, author of How To Change the World, describes as entrepreneurs with the "determination, savvy, and ethical fiber to advance an idea for social change in society on a large scale." The notion of social enterprise, which has gained traction in the U.K., also is being seen by China's government as a means of meeting the needs of its communities and providing training, employment, education, and other benefits to its citizens.

But how to measure those benefits?

The BVP offers a means of quantifying the social value companies and nonprofits create along side the traditional financial stuff. Jed Emerson, the father of BVP, explains that in the past we have limited our perception of business profitability because we focus solely on economic gain and have financial systems to track that. He says, "We've lost sight of the reason we create companies and make investments: to make our lives better -- the manifestation of the human drive toward value."

As Emerson puts is:

Value is what gets created when investors invest and organizations act to pursue their mission. Traditionally, we have thought of value as being either economic (and created by for-profit companies) or social (and created by nonprofit or non-governmental organizations). What the Blended Value Proposition states is that all organizations, whether for-profit or not, create value that consists of economic, social, and environmental value components -- and that investors (whether market-rate, charitable, or some mix of the two) simultaneously generate all three forms of value through providing capital to organizations.

How, exactly, does this relate to daily business? For starters, it flies in the face of the triple bottom line. Rather than measure a company's value (or lack thereof) in separate economic, environmental, and social "bottom lines," Emerson proposes a single, "blended" calculation.

Emerson -- who started his career as a social worker before working for a foundation set up by George Roberts, a partner in the leveraged buyout firm KKR, who was interested in using a market approach to helping the homeless -- began collecting data and crunching numbers to understand why some nonprofits were far more effective than others. Doing this required developing methodologies for SROI, or social return on investment.

That methodology became the basis for helping large foundations invest their endowments in companies that weren't perceived to be undermining the social problems the foundations were trying to solve. It was only a matter of time before the BVP migrated to assessing overall corporate value.

The idea of creating a single metric to judge companies' value to society is not farfetched. Indeed, it is gaining credence not only in the socially responsible investing community but also among some enlightened corporate leaders, who understand how the BVP can articulate a company's broader shareholder value. That, in turn, could reduce the pressure for blockbuster quarterly returns, and all the social and environmental problems that result when companies think only in the short term.

Of course, having a nifty methodology is one thing; getting it accepted and put to use by the incumbent players is quite another. The business world's generally accepted accounting principles -- not to mention government regulations for corporate financial reporting -- can take decades to change, assuming there is even widespread support for doing so. Emerson would be the first to admit this isn't likely to happen soon.

But there's something compelling about BVP that could help it gain currency. Unlike socially responsible investing, with is laden with "good" and "bad" companies, BVP does not strive to be so virtuous. It acknowledges, for example, that there's value in creating economic wealth, so long as it is balanced with creating other forms of value. That idea alone could blunt the skeptics.

BVP has a long and arduous path ahead, but don't count it out quite yet. Those frustrated with the slow growth of "triple bottom line" thinking in the corporate world would be wise to tune in to the BVP conversation taking shape. It's bound to be instructive -- no matter where it all ends up.

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Comments

Isn't this a very Anglosaxon view of what "value" means? First off, this reeks of strategies to erode the State. 'Social enterprises' (a contradictio in terminis) should not exist. Companies should only do what they're designed to do, that is to make money by all means for a few petty egoists. Companies do not have the role to build schools. That's the task of States.

Blending these two radically different finalities is dangerous and disastrous.

This thoroughly Anglosaxon line of thinking which results in ludicrous concepts like 'SROI', 'social corporate responsability', etc, creates only one 'value', and that is the idea that the State is irrelevant and that it must be privatized. That's what it comes down to.

Any discourse on business that uses the words 'social' or 'environmental' or 'value' as a prefix should be considered irrational and flawed, because business is fundamentally anti-social, anti-environmental and anti-value (the only 'value' it should create is profit).

Business is not anti-social just because many people do not like businesses; business is anti-social in a systemic way. Capitalism cannot thrive in a social environment, it is fundamentally based on destroying the social, so that 'labor' can be freed and used at will. These basics remain. This is nothing new. This will never change.

Thank God the era when it was acceptable that conceptual lines were blurred ('postmodernism') is over. We're back to the era of Grand Stories and real politics. This means that the talk about socially responsible companies and investments is being exposed more and more. I think it's a good development.


For those who want to sense the new post-post-modernist era, have a look at Chantal Mouffe's latest book, On the Political. As you may know, Mouffe (& Laclau) was one of the symbols of post-modernist political and economic theory; like many, she's now firmly advocating the return to politics and ideology.

I am against the irrational blurring of concepts inherent in the notions of "blended value proposition", "social enterprise", "corporate social responsability". I am against it, and I hope to fight it.


Posted by: Lorenzo on 20 Mar 06

Capitalism and social environments are not mutually exclusive. You lose the entire argument if you base it off that premise. Many successful capitalists have and do thrive without the need to maximize profits. Sure, they have to turn a profit but that is far different from maximizing profits (which you seem to imply is an absolute necessity in every case). Capitalism works and it works fantastically but there is plenty of room for improvement.

Social enterprises do exist in the form of NGO's and not for profits. You reek of no corporate responsibility for any firm: to hell with pensions, they shouldn't be responsible for funding their employees retirement, that's the job of the state! Or at least that's the feeling I get from reading your comments. You can't separate business from social, it is an inherently social activity.

Furthermore, every citizen, firms or individuals, has a role in building schools, they're called taxes. It's a shame that so many corporations get to duck them.

Like it or not, the environment does have value and it is value that business has to account for whether they are forced to via consumer demand or via government intervention. It simply is unavoidable and will only grow more so as the century moves on. The businesses that do account for it will be more durable and profitable than those that do not. You can already see things changing.

I've been studying this exact topic at Columbia University and nowhere is anyone advocating the destruction of government and that business should take its place. That would be disastrous. I don't even believe that businesses should have to do these things, but the businesses that don't will have a hard time competing with the businesses that do.

The economist Ariel Rubinstein, pioneer of sequential bargaining, wrote a paper recently on exactly this subject of profit maximization and social responsibility: A Skeptic Comment on the Studies of Economics, Economic Journal, 116 (2006). I highly recommend it.



Posted by: DD on 20 Mar 06

*social responsibility not corporate in the second section.


Posted by: DD on 20 Mar 06

A good article covering the logic against the privatisation of value:

Government 'must meet water need'

Governments, not private firms, must take responsibility for getting water to their people, a new report argues.
http://news.bbc.co.uk/2/hi/science/nature/4830884.stm


Posted by: Lorenzo on 22 Mar 06



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