Introduction
Businesses form and transform social conditions. Like all other institutions, corporations are both drivers and results of the environment in which they operate. Therefore, leaders are highly instrumental not only in making markets, but in doing so also building societies. In modern times, such value creation for society has had an indispensable impact, improving the quality of life on our planet in many respects. It has clearly been a success story, even though not all contributions are necessarily positive. In any case, business activities require societal acceptance, which is not a given. In fact, we now enter an era in which top executives are under pressure to defend or revise the notion of value creation itself to remain in sync with customersâ needs, citizensâ expectations, and societal changes at large. We return to Peter Druckerâs reminder that âfree enterprise cannot be justified as being good for business. It can be justified only as being good for societyâ (1973, 41).
Only recently, BlackRock CEO Larry Fink echoed this statement in his annual letter to CEOs of public companies. His call is quite powerful, considering that BlackRock manages more than $6 trillion in investment around the world. Fink argued: âTo prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to societyâ (Fink, 2018).
Take NestlĂ©, the Switzerland-based giant in nutrition, health and wellness. For decades, this corporation has pursued an approach of simultaneously addressing societal challenges and generating profits - the so-called shared value approach (Porter & Kramer, 2011). However, our research shows time and again that in the Swiss populationâs judgement, this corporation still ranks low in terms of its public value, i.e. in its contribution to the common good (wwwÂ.geÂmeiÂnwoÂhl.Âch). Although it is a multinational firm operating in diverse cultures, not to be respected in their home country, is embarrassing. Whatâs wrong here? As complex as it may be, it boils down to one basic factor: NestlĂ© has not succeeded in touching peopleâs hearts and minds in a positive way.
NestlĂ© is a case in point, but it represents many companies who are realizing that their actual âgoodâ behaviour does not automatically translate into societal acceptance and a renewed license to operate. To be clear, we are not suggesting that the public simply âdoes not get itâ or that citizens are not interested in properly grasping the business facts. A far more complex bundle of causes is at work.
Obviously, a further, bigger step than just doing good is required to cross the divide between what companies do and what society at large recognizes as truly valuable. The public value concept attempts to bridge this divide: Public value reflects a contribution to the common good as experienced by society. In our era of transparency, any business behavior and any traditional âvalueâ must be challenged to check whether it reflects such a contribution. This goes far beyond political marketing, reputation or brand management. It is about a deeper why, which is positively linked to the functioning and betterment of society.
For many leaders, thinking in public value terms comes naturally; for others, seeing themselves as creating or destroying public value requires considerably more effort. In the following section, the notion of public value1 will be introduced and outlined. It is meant as an invitation to reflect further on fundamental questions about means and ends in corporate life that do not have easy answers. In the process, readers should remain prepared to develop a positive mindset on leading for public value.
Taking society seriously
Former NestlĂ© CEO Paul Bulcke (2014) clearly addressed the new challenge, saying that those who fail to create public value âwill end up alienating themselves from society, and that is a risk we should not take. Itâs important not to forget that it is society that grants us the permission to be in business and allows us to succeedâ (own translation).
Managing a corporationâs public value is a big challenge, since it is not simply delivered but needs to be perceived in order to be realized. Actually, the noun value disguises that value comes into being only as a result of relationship. Therefore, the only viable solution to assuring public value development is credible dialogue, and discerning short-term public opinion as well as long-term value change. Since profit per se has become a contested idea, Pandoraâs box has been opened. Consider the ripples following former General Electric CEO Jack Welchâs statement that pursuing shareholder value as a strategy was âthe dumbest idea in the worldâ (2009). The idea of shareholder value now requires much broader justification that is deeply grounded in society.
We have to acknowledge that in a world of distributed power, volatility, co-creation and disruptive changes there can be no single, uncontested management paradigm. More than ever, value is in the eye of the beholder as a web of meaning, purpose and emotion. Paradoxical as it may sound, in a world of hard-nosed material conflict, more than ever we need to come to terms with soft issues. Thereby, we might even need to move from a chief executive officer to a chief experience officer, who is primarily concerned with managing value as a matter of interpretation and sense making. In other words, real value is what the beholder considers to be truly valuable. We are reminded that the world we live in is one of perceived reality.
We need to accept in a fundamentally new way that the rise of subjectivity is not a temporary phenomenon, but a profound top management challenge. The reason is simple: The more complex business activities in a global marketplace become, the less you can fight complexity with complexity. The contrary is true, namely that the less customers, citizens and politicians understand value chains and economic facts, the more they need to simplify their perceptions and rely on their emotional responses. As natural response, humans feel positive about something if there is a direct personal gain or a positive impact on the community or society they live in. This is what public value refers to. It is a measure for assessing how, in a bigger picture, value is created to the benefit of society. It points to an organizationâs contributions to both social stability and progress as perceived by the people. Although this perception should be fact-driven, it is primarily a matter of attitude. âFactsâ need to be interpreted and made sense of based on concrete experience.
In its original definition, public value creation âis situated in relationships between the individual and âsocietyâ, founded in individuals, constituted by subjective evaluations against basic needs, activated by and realized in emotional-motivational states, and produced and reproduced in experience-intense practicesâ (Meynhardt
It is not only at the level of corporate action but also at the products and services level where we see this challenge of creating a sense of belonging, identity, and of avoiding social conflict. Take a seemingly simple example. The pervasive WhatsApp messenger service has provided people with a most convenient communication platform. Adults and youngsters alike often send more than a hundred messages a day. Its global success story is one of superior functionality, comfort and ease in low-cost communication. At the same time, WhatsApp provides a social infrastructure with its own set of rules and codes of conduct. The most important qualifier here is whether to be in or out. Even primary school children have set up class communities, which have an in-group and an out-group. As with any developing trend, the social pressure on parents to allow their children to join â socially, educationally and in considering their monthly internet budget â can become significant. Besides the question whether or not to join such a community, a number of possible side effects such as constant availability, chain letters or mobbing, need to be taken into account. WhatsApp enables new forms of social interaction, creates new âpublicsâ with their own behavioural rules. This illustrates how technology can drive social relationships. Here, value creation is not limited to individual customer value or shareholder value, but gains a public dimension. Appealing to customersâ choices, market forces or regulation procedures would provide too easy an explanation for how WhatsApp has changed communication and societal structure. Importantly, we have to acknowledge the role businesses play in the making of society. The WhatsApp example points to a fundamental mechanism available to businesses in creating or destroying public value, often even unknowingly.
The quest to open Pandoraâs Box
The notion of public value foregrounds the societal dimension of value creation. Other attempts at focusing on societal values, such as in responses to the sustainability challenge, corporate social responsibility, and shared value point in the same direction. Although we acknowledge the merit of the latter kinds of ideas, they can only serve as door openers â but not more than that! Further, they could soon be outdated if other critical issues come knocking at the door, as history has shown often happens.
For instance, who would have predicted 20 years ago how digitization would enter our lives and profoundly change our daily infrastructures? Customers are currently more informed than ever. And even though there is mixed evidence on the ethical customer, there is a clear power shift towards the customer as having significant influence on a corporationâs public value via the social media.
As companies need to stay agile in turbulent times, we need to confront the complexity of the much-cited notion of value. It is not enough for top management to discuss whether sustainability programs should be better managed or corporate social responsibility (CSR) should be better integrated into business strategies. The larger task at hand is one of coming to terms with current business realities, to manage public value, i.e. value in a much broader sense (Meynhardt & Gomez, 2016). The appeal of public value stems from its plurality of perspectives, since it also helps us address the widening gap between the âfacts of business lifeâ and the public perception of what the economy is good for.
A classic example of this, is the launch of New Coke in 1985 when Coca-Cola changed its tried and trusted formula. The company experienced a disaster even after marketing attempted to re-energise the brand. Customers and the wider public complained, so that the new product was eventually withdrawn. It was not because the product did not taste good; nor was it because of pricing or placement. In fact, market research in the laboratory revealed broad acceptance. A couple of months after release, at the height of criticism, the Cuban leader Fidel Castro who had been a long-time Coke drinker, in an ironic comment interpreted the change as a âsign of American capitalist decadenceâ. The rest is history: Coca-Cola went back to the âreal thingâ, and they exceeded all previous sales. One plausible explanation for the 1985 disaster is that the company did not anticipate the strong emotional attachment to its product, based also on cultural sentiments, like the American way of life and liberty. In 2014, Coca-Cola again offended certain societal groups when its Super Bowl commercial using âAmerica the Beautifulâ as theme song provoked angry protest. This time, Coca-Cola had explicit good intentions of relating its product to the societal value of diversity in the many US identities. Even if âonlyâ a specific section in the political spectrum reacted negatively, it led to heated public debate.
Stories such as this one, demonstrate a new quality symptomatic of how businesses not only touch on and exploit societal norms, but also actively shape society in ways that make businesses more vulnerable than ever to public debate and media coverage. The interaction of media, politics, customers, citizens, NGOs and so on, provides a melting pot in which public opinion is constructed. Of course, such negative press (âshit-stormsâ) always comes to an end. However, the fundamental challenge of finding customersâ âsweet spotsâ without being drawn into moral or political conflict, remains and, if achieved, is likely to last longer. The Coke examples indicate the tricky relationship between customer value and public value in an ecosystem of co-creation (Meynhardt, Chandler & Strathoff, 2016). Obviously, there is no sustained customer value without public value, but without the former, the latter would not be attractive for business.
The scale and scope of (geo)political conflict, technological progress and cultural conflict requires that capitalism in its different shapes around the globe will learn a new set of skills. Like it or not, in responding to financial crises, political upheavals or simply the brutal transparency in the internet world, corporations cannot bypass societal expectations and argue that profit per se is social. Ignoring social expectations can be valid in some places, but not in others. Society is no longer a...
