Can shared value help solve our wicked problems?

By Tom Burton

Monday April 11, 2016

When Carnival’s cruise ships arrive in the remote eastern Papua New Guinea port of Alotau they dock at a destination developed as part of a sophisticated collaborative play between the island leaders, the PNG government and Carnival.

In years gone past the traditional approach of cruise ship operators was to dock and shop, giving locals a short cash hit, but not a lot else, until the next ship arrived. But as Carnival Australia executive chair Ann Sherry told a Canberra conference on shared value last week, the company several years ago made a profound change to how it operates.

“For the places we go we want the people who live there to want us to come because they saw so much value in the tourists coming they would open their doors to them,” Sherry said.

This has meant Carnival has become intimately involved with the development of these small island ports as attractive tourism destinations. Sherry says this sort of activity is a big step up from the traditional corporate social responsibility model and requires a sophisticated and sustained engagement with local communities.

“With shared value the company uses these resources to also solve a broader problem or create an opportunity.”

Sherry, a former head of the Office of Status of Women, was frank about the risks of this more overt engagement — nearly half the Ministry of Vanuatu had been caught up in a corruption scandal last year. The Vanuatu government is a major partner of Carnival. Not a good look, as Sherry observed, for a United States listed company. Sherry says the company is still learning, but now has a team that moves from port to port as the next destination is developed, using the learnings from the previous port. The company has opened 50 ports over the last five years.

The conference Sherry spoke at was hosted by global development group Palladium and was looking at how shared value can be applied in Australia. Shared value is public/private collaboration around aligned goals to achieve a sustainable social result. In a world where billions have been thrown at wicked problems — with too often, not a lot to show — the shared value movement seeks to apply a very different approach.

Shared value uses business methodology and incentives to solve a social problem. Crudely put, it is meeting community needs with profit. But that misses a key shift in how these arrangements are now being deployed. Typically, corporates have a business for profit and apply resources accordingly. With shared value the company uses these resources to also solve a broader problem or create an opportunity.

Some call it corporate social responsibility 2.0 and as a movement it is sweeping the developed world as business, NGOs and governments come to a realisation that the solution to many of the world’s difficult problems needs the intelligence and resources of all to solve.

The intellectual fathers of shared value — Professor Michael Porter and his colleague Mark Kramer — argue that while the idea of making profit from people’s misery might be seen as taking money from those in most need, it is profit that lets us solve these problems. Kramer comes from the triple bottom line world and is in the country this week for a Melbourne conference. Their 2011 Harvard Business Review article — “Creating shared value” — was seminal.

At a time where government budgets are maxed out, strategically it offers a model that leverages the public’s investment to establish a broader commitment, a commitment by players with real skin in the game, and if well done a commitment with communities empowered to want to solve the problem.

In Carnival’s case their desire for a great tourism experience aligns strongly with the Department of Foreign Affairs and Trade’s development goals (and with the more free-wheeling New Zealand counterpart, the Ministry of Foreign Affairs and Trade) and the local communities’ development goals. This is where products are co-designed for everyone’s benefit.

Rethinking supply chains

The leverage government can bring does not have to come from pure taxpayer dollars. On the NSW central coast, the Darkinjung Local Aboriginal Land Council is negotiating with Lend Lease a partnership to be part of the building of a new hospital. As the CEO of Darkinjung, Sean Gordon, observes, we have almost built a major freeway from Sydney to Brisbane — through some of the most active indigenous communities in the country — and barely a cent went to developing indigenous construction capability. The partnership with Lend Lease aims to build some of that long-term skills and business capability.

Darkinjung is one of eight communities that are part of Noel Pearson’s Empowered Communities group, using a model for community development that Gordon says is revolutionising indigenous development. At the heart of the concept is communities operating as a unified group, rather than a separate set of interests around, say, education, health and employment. By acting as whole, Gordon says this enables a community’s value to be brought to the negotiating table.

The leverage in this case are the new indigenous procurement rules then-prime minister Tony Abbott championed to require agencies to ensure indigenous participation in Commonwealth supply contracts. Clever strategic funding of the vehicle Supply Nation, that links capable indigenous businesses with corporate and government, is the glue that makes it happen.

Rethinking how supply chains can be used to build sustainable, long-run advantage for both suppliers and corporate buyers is one of the keys to shared value. In Peru, Palladium has worked with major chocolate brands to source cocoa from communities that previously were dependent on cocaine manufacture for their livelihood.

“Social impact investing is a nascent world, but with a lot of potential to deliver quite big responses to pervasive social issues.” 

Environment is an area where shared value can really help often adversarial parties. John Tanzer was executive director of the Great Barrier Reef Marine Park for 10 years when the park’s highly protected zone was increased sixfold. He now works out of Geneva with the global environment NGO, WWF. Tanzer told the Palladium discussion of the example of trying to protect the coral reefs of Madagascar. The reef is challenged because locals derive their livelihoods from the natural resource. John says rules banning access deny the locals a living and won’t work. But creating an alternative food source and economy requires far more than even a well-developed agency like WWF can bring to the game.

Environment is a relatively advanced part of the public sphere and is already comfortable around the ideas of outcomes and measured results, both essential if shared value is to have long-term merit. Outcome focused policy is still relatively new at the federal level, with much program management still measured around traditional inputs and outputs. The Commission of Audit in 2014 was scathing about the lack of really hard performance metrics.

Sherry argues that once these joint objectives are settled, the rest is much easier to then build a framework of projects and programs around.

The funding side of things is where it gets more interesting. Social impact investing is a nascent world, but with a lot of potential to deliver quite big responses to pervasive social issues. The Commonwealth Bank has been playing in this space, looking for ways to scale private investment into public problems. Bonds which pay a solid return to remedy an expensive social problem are being used around a diverse set of areas including recidivism, public health, social housing and even population control.

CBA’s instinct is there are a lot of retail investors who would willingly invest in social projects. Rosemary Addis agrees. She has worked in Canberra at the former Employment and Workplace Relations Department where led a social innovation lab. She has founded Impact Investing Australia and chairs the Australian Advisory Board on Impact Investing. She is seeking to build a vehicle to help scale impact investing. Currently the projects are very boutique, but by creating a platform Addis hope to build scale. This has wide potential.

For instance, a large problem in Australia is the shortage of affordable rental stock. The jump between social housing and the private rental or purchase market is much too big for many; attempts to build a structure to enable investing at scale into this area has to date failed. Think the Defence Housing Australia model — where private investors lease houses back to DHA, and scale that into the private world.

Working within an ecosystem

This is an excellent example of government working with an ecosystem. At its most sophisticated, government is in an excellent position to help build an ecosystem of funding through its ability to seed fund and broker the right regulatory environment.

That ecosystem can be, for example, dairy farmers in regional areas. Nestle is looking to build its relationship with these regions which supply its factories. Nestle is a world leader in the SV space and has an impressive group of examples where it has worked with suppliers in developing nations to change the underlying traditional relationships.

Communication and real engagement is a critical piece to this type of often bespoke arrangements. It is a point Gordon makes strongly. It is surprising how thin and immature the discussions between the larger corporate sector, the sophisticated NGO world and the bigger governments are. Katherine Teh-White talked of the concept of social licence, how to build trust into these discussions so that all parties feel comfortable on the expedition.

The Canberra audience was a serious APS audience with senior agency executives. Everyone agreed these shared value arrangements are exciting, but in the main they are still considered pilots and interesting innovation plays. And while it is relatively easy to agree with the strategy, the actual execution has to be done in a rule-bound procurement and probity environment that most in the innovation space really struggle with.

“Public servants have a strong suspicion of people looking to make money out of a typical government function … officials can find many ways to delay.”

When governments don’t trust their own capabilities or the operating environment, they tend to wrap multiple layers of process around it and it takes a particularly committed leader to get the system to respond in a way that works and is timely.

DFAT has tried to be a leader in this space, looking for different ways to work with providers to leverage its $4 billion-a-year aid budget, an area dominated by three players: Palladium, Coffey and Cardno. DFAT’s Business Partnership Platform is the model for driving better private sector engagement and opening up the department to new approaches and initiatives from outside. Rebecca Bryant point guards DFAT’s large public/private relationship and knows only too well the reality of getting buy-in to more innovative arrangements.

A practical problem is how close government can be to corporates seeking to work with them. Sherry argues government engages in one-on-one relationships and that agencies need to be more willing to embrace the lead corporates if it is to tap the innovation, insights and resources of the non-government sector. Sherry argues trust becomes a critical piece and having a much more transparent system is vital.

How that trust is delivered may have to be rethought. Gordon is an advocate for an Aboriginal productivity commission set up by the community to check and audit performance. That is a role government traditionally reserves for itself, but Gordon argues it has to be rooted in the community, otherwise there is no ultimate accountability.

The whole idea of a profit-driven model is one many in government still struggle with. This is partly because the models are still immature — designing bespoke financial arrangements are not in your typical public servant CV. Public servants have a strong — and sometimes well-founded — suspicion of people looking to make money out of a typical government function. When their program is likely to be made redundant as a result of a shared value arrangement, officials can find many ways to delay.

Palladium’s ANZ & Pacific director, Cassian Drew, notes there is also a domestic/international bifurcation. The use of private development agents such as Palladium to deliver socio-economic change in the international arena highlights the willingness and potential of government to engage partners to deliver outcomes. However, within Australia many departments still drive interventions directly in their own projects and resources.

Rosemary Addis says the pathway forward is not a big demand for all to jump on board, but rather to use the systems available to government now to build confidence and capability. Expressions of interest, issue papers and the large number of social tools now available offer practical ways for government to frame the problem (widely) and to let the provider market work up solutions.

Sometimes this engagement can be simple. The NSW Department of Family and Community Services set up a simple blog to track its innovative Child Story engagement and procurement process.

For the relatively traditional government social sector, this is a big step — and not surprising. As was noted at the conference, public/private partnerships as a funding device have been developed over 30 years in the infrastructure space. PPPs now look very different to the simple type of deal that saw Sydney’s harbour tunnel built by Transfield (for a very cheap $0.5 billion) in the early 1990s. Drew says while the impact bond mechanisms are evolving, it will take time for similar financial models in the social space to mature.

The nature of the engagement and value is also changing. Sherry told the conference Carnival have launched a whole new brand called Fathom, focused on so called impact travel. Next week over 4000 paying passengers leave on the first Fathom ship from Miami to the Dominican Republic. The boat is also carrying a group of NGOs who will work with the passengers on a series of projects in the Dominican Republic. Sherry sees this as a natural extension of the work they have done around the South Pacific and which the company has applied around the region as it has opened 50 new poets over the last five years.

This is a reminder these public engagements are getting more sophisticated and creative, opening large opportunities for government to tap a much wider diaspora of resources and skills.

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