Social vs. Financial: What You Need to Know About the Real Value of a Business
ClearSale for AlleyWatch: The fraud prevention business grows more valuable by the day. The steady stream of consumer data breaches and the exploitation of stolen data by organized criminals is part of why the global market value of the AI-supported data security industry will hit $17B to $18B by 2023. There’s a lot to be said for building a business that creates rising value for investors and shareholders—and that growth brings the opportunity to build other types of value as well.
At our company, we have a lot of internal discussions about building what Harvard Business School professor Rosabeth Moss Kanter calls “social or institutional logic,” by which businesses see themselves as important contributors to the broader society in which they operate. In her research on the world’s most admired companies, Kanter has found that “great companies work to make money, of course, but in their choices of how to do so, they think about building enduring institutions. They invest in the future while being aware of the need to build people and society.”
The rising importance of social logic in business
It would be easy in our rapidly growing industry to focus solely on building market value, finding a buyer, and moving on to a new startup project. However, because we aspire to be a great company, we strive to use the social logic demonstrated by enterprises that align long-term goals for improving people’s lives with their business goals. This logic expresses itself in various ways. Kanter’s examples include IBM’s support for remote work that helps keep talented women, international talent, and trailing spouses in the workforce; Procter & Gamble’s on-the-ground support for communities cleaning up after major floods; and PepsiCo’s grants to give more people worldwide access to safe drinking water.
With projects that reach beyond the basic financial scope of business, Kanter writes that companies can spark innovation and retain talent. “Articulating a purpose broader than making money can guide strategies and actions, open new sources for innovation, and help people express corporate and personal values in their everyday work.”
It’s not only multinational companies who are focused on building social value. Social logic is also starting to govern decision-making by major investors. Perhaps the highest profile recent example is BlackRock founder and CEO Laurence Fink. Fink oversees the largest investment firm in the world, with more than $6 trillion invested. In January, he sent a letter to the heads of the world’s biggest public companies letting them know that in order to thrive they “must not only deliver financial performance, but also show how [they make] a positive contribution to society.” Businesses which don’t, the letter said, will lose BlackRock’s support.
How can startups embrace social logic?
Click here to continue reading.