Global Sustainability

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A reflection on a Global Sustainability class in Costa Rica

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Global Sustainability INTL 612
Carle Aidian Perry
Reflection

Global Sustainability Reflection

Adam Smith, the author of The Wealth of Nations in the 18th century
and often viewed as the father of modern capitalism has had a very heavy
influence on many modern day economists as well as myself. Smith’s three
main underlying concepts were (1) the “invisible hand,”(2) that individuals
pursuing their own best self-interest would result in the greatest overall good
to society, and (3) that levels and kinds of goods and services in the market
should be determined by the free market alone. It is the second of his three
principles that is most relevant to this reflection. From this principle, the
following concept was derived: the main responsibility of a firm is to create
wealth for its shareholders. In line with Smith’s thinking and further
supporting it was Milton Friedman, a modern day disciple of Adam Smith. He
was famously quoted saying, “There is one and only one social responsibility
of business — to use its resources and engage in activities designed to
increase its profits.”
Having been exposed to these schools of thought, I have often referred
to, with some conviction, these two gentlemen and their teachings when
posed with the question, “what is the purpose of the firm?” However, my
perception has been altered. Though I still believe that it is necessary to
create profits, I understand that in 2015 and looking further into the future,
business must be approached differently; the traditional capitalist system is
under siege in favor for more sustainable long-term benefits.
In recent years, business has increasingly been viewed as a major
cause of social, environmental, and economic problems. Companies are
widely perceived to be prospering at the expense of the broader community.
A big part of the problem lies with companies themselves, which remain
trapped in an outdated approach to value creation that emerged over the

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past few decades. They continue to view value creation narrowly, optimizing
short-term financial performance in a bubble while missing the most
important customer needs and ignoring the broader influences that
determine their longer-term success. (Porter, 2011)
As such, the pursuit of shared value represents the next big revolution
in the way business should be conducted. The legitimate concerns of
translating economic growth into benefits that trickle down to the rest of
society will become a defining characteristic of economic operations in this
post-crisis era. Therefore, these will have to be incorporated into strategies,
operations, business management and public policies.
There are misconceptions that shroud the business world and its
policies and practices when it comes to defining shared value and the
appropriate corporate social responsibility (CSR) of the firm . For most of the
firms, this starts with externalities and the pressure put on them by the
government and social organizations and ends with an array of disjointed
and incoherent activities which fills up their annual CSR report and acts as a
cure to relieve the pressure and build the reputation of a caring organization.
This is nothing but a feel-good exercise (otherwise known as green washing)
as it not only fails to improve the economic or social conditions of the
community in which the companies operate but also fails to enhance their
competitive position in the market that they cater to.
Moving forward, gone are the days when businesses could see
themselves as totally unrelated and unconcerned with the needs,
requirements and problems surrounding the community that they serve.
Today, companies should quickly identify and notice that social needs and
business gains are codependent. This is the core of the idea of Shared Value,
a concept that means to conduct business in such a way as to enhance
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profitability and at the same time improve the economic and social condition
of the community in which they operate.
Contrary to my long held belief that social concerns and responsibility
are an impediment to the profit margins of the company and are nothing but
a necessary hole in the pocket for the sake of their business, they act as an
opportunity for the businesses to reap benefits while being socially relevant
and responsible. While in Central America, we came across several examples
to support this view. For example, a number of companies like NESTLE,
FIFCO, Posada Amazonas, and ECAMI have modeled their businesses in such
a way that benefit the society as well as generate dividends for their
shareholders in values far greater than before. Another example of such a
company closer to home is First Green Bank.
These societal benefits are not superficial or considered green
washing; they go far beyond the concept of redistribution where companies
only share a part of their business profit with their suppliers and
communities in which they operate. This is about collaboration and cocreation of value. NESTLE, for example, provides financing, shares
technology and helps its suppliers in production of coffee which ensures that
it will have an uninterrupted supply of quality coffee for its Nespresso brand .
This translates to increased profits and offsets the costs incurred in helping
its suppliers, who are also more prosperous because their produce has
increased in quality and quantity and in turn their income is boosted from its
sale.
Many other companies are realizing very quickly, as they should, that
they depend on societal resources, infrastructure and people to ensure the
sustainability and profitability of their businesses. Companies must recognize
the social problem related to their line of business and address it in such a
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way that increases their gains and makes a positive impact in society. For
example, ECAMI, a renewable energy business, has invested a lot of money
in rural areas of Nicaragua to grant access to electricity. This serves two
purposes. It first improves health conditions by providing health centers with
electricity and enabling the pumping of clean water. Secondly, learning
conditions improve as children have light to study at night. A residual benefit
of the program is that it provides healthy and educated individuals who are
able to be a productive asset to companies when recruited. Similarly, Posada
Amazonas, an ecotourism lodge, started an initiative that provides
unemployed local individuals with a basic level of education through training
on the job.
Companies must identify value chain activities like procurement ,
distribution and production where they can create shared value. There must
also be an effort to Initiate working conditions that allow for the use of
renewable resources like solar energy. These strategies should no longer be
considered a burden or forced into action by external pressure, but
considered necessary exercises to reduce cost and increase efficiency .
Companies must realize that creating shared value is not simply philanthropy
but is in their own self-interest. If this becomes the norm through the private
sector, then the government could be pressured to implement coherent
policies that are supportive of these businesses and not restrictive or
imposing.
This reflection started with the discussion of an 18th century concept,
held in high esteem by a young MBA student. However, this concept, while
still valid, may no longer be completely relevant due to current social,
economic and environmental trends and a shift in values. Smith and
Friedman can be forgiven because of the era in which they lived. For the

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concept of shared value to become the norm today, it must begin on an
individual level and planted as a seed to grow through young MBAs such as
myself. If companies want to have a sustainable and profitable business in
the long run, the concept of shared value must be adopted.

References
Porter, Micheal E., and Mark R. Kramer. "Creating Shared Value." Harvard
Business Review. 01 Jan. 2011. Web. 02 Feb. 2015.
<https://hbr.org/2011/01/the-big-idea-creating-shared-value>.

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