0:00:00.372,0:00:02.347
I think we're all aware

0:00:02.347,0:00:05.243
that the world today is full of problems.

0:00:05.243,0:00:07.080
We've been hearing them

0:00:07.080,0:00:11.443
today and yesterday and every day for decades.

0:00:11.443,0:00:15.672
Serious problems, big problems, pressing problems.

0:00:15.672,0:00:18.843
Poor nutrition, access to water,

0:00:18.843,0:00:21.088
climate change, deforestation,

0:00:21.088,0:00:24.878
lack of skills, insecurity, not enough food,

0:00:24.878,0:00:27.608
not enough health care, pollution.

0:00:27.608,0:00:29.845
There's problem after problem,

0:00:29.845,0:00:32.013
and I think what really separates this time

0:00:32.013,0:00:35.440
from any time I can remember in my brief time

0:00:35.440,0:00:38.935
on earth is the awareness of these problems.

0:00:38.935,0:00:41.024
We're all very aware.

0:00:41.024,0:00:43.096
Why are we having so much trouble

0:00:43.096,0:00:45.360
dealing with these problems?

0:00:45.360,0:00:48.040
That's the question I've been struggling with,

0:00:48.040,0:00:52.569
coming from my very different perspective.

0:00:52.569,0:00:55.376
I'm not a social problem guy.

0:00:55.376,0:00:58.168
I'm a guy that works with business,

0:00:58.168,0:01:01.704
helps business make money.

0:01:01.704,0:01:04.008
God forbid.

0:01:04.008,0:01:07.792
So why are we having so much problems

0:01:07.792,0:01:10.336
with these social problems,

0:01:10.336,0:01:13.192
and really is there any role for business,

0:01:13.192,0:01:16.031
and if so, what is that role?

0:01:16.031,0:01:19.384
I think that in order to address the question,

0:01:19.384,0:01:21.912
we have to step back and think about

0:01:21.912,0:01:26.521
how we've understood and pondered

0:01:26.521,0:01:29.103
both the problems and the solutions

0:01:29.103,0:01:33.160
to these great social challenges that we face.

0:01:33.160,0:01:35.440
Now, I think many have seen business

0:01:35.440,0:01:38.976
as the problem, or at least one of the problems,

0:01:38.976,0:01:41.728
in many of the social challenges we face.

0:01:41.728,0:01:43.504
You know, think of the fast food industry,

0:01:43.504,0:01:45.648
the drug industry, the banking industry.

0:01:45.648,0:01:47.688
You know, this is a low point

0:01:47.688,0:01:50.279
in the respect for business.

0:01:50.279,0:01:52.360
Business is not seen as the solution.

0:01:52.360,0:01:54.854
It's seen as the problem now, for most people.

0:01:54.854,0:01:57.704
And rightly so, in many cases.

0:01:57.704,0:01:59.983
There's a lot of bad actors out there

0:01:59.983,0:02:02.160
that have done the wrong thing,

0:02:02.160,0:02:04.223
that actually have made the problem worse.

0:02:04.223,0:02:06.640
So this perspective is perhaps justified.

0:02:06.640,0:02:09.599
How have we tended to see the solutions

0:02:09.599,0:02:11.889
to these social problems,

0:02:11.889,0:02:15.512
these many issues that we face in society?

0:02:15.512,0:02:17.560
Well, we've tended to see the solutions

0:02:17.560,0:02:19.681
in terms of NGOs,

0:02:19.681,0:02:21.656
in terms of government,

0:02:21.656,0:02:24.424
in terms of philanthropy.

0:02:24.424,0:02:26.504
Indeed, the kind of unique organizational entity

0:02:26.504,0:02:30.384
of this age is this tremendous rise of NGOs

0:02:30.384,0:02:33.136
and social organizations.

0:02:33.136,0:02:35.960
This is a unique, new organizational form

0:02:35.960,0:02:38.040
that we've seen grown up.

0:02:38.040,0:02:40.560
Enormous innovation, enormous energy,

0:02:40.560,0:02:43.296
enormous talent now has been mobilized

0:02:43.296,0:02:45.785
through this structure

0:02:45.785,0:02:49.392
to try to deal with all of these challenges.

0:02:49.392,0:02:53.031
And many of us here are deeply involved in that.

0:02:53.031,0:02:56.296
You know, I'm a business school professor,

0:02:56.296,0:02:59.296
but I've actually founded, I think, now, four non-profits.

0:02:59.296,0:03:02.677
Whenever I got interested and became aware

0:03:02.677,0:03:05.768
of a societal problem, that was what I did,

0:03:05.768,0:03:08.040
form a non-profit.

0:03:08.040,0:03:10.848
That was the way we've thought about how to deal

0:03:10.848,0:03:12.904
with these issues.

0:03:12.904,0:03:16.040
Even a business school professor has thought about it that way.

0:03:16.040,0:03:18.405
But I think at this moment,

0:03:18.405,0:03:20.528
we've been at this for quite a while.

0:03:20.528,0:03:23.856
We've been aware of these problems for decades.

0:03:23.856,0:03:26.072
We have decades of experience

0:03:26.072,0:03:29.568
with our NGOs and with our government entities,

0:03:29.568,0:03:31.936
and there's an awkward reality.

0:03:31.936,0:03:33.986
The awkward reality is we're not making

0:03:33.986,0:03:36.000
fast enough progress.

0:03:36.000,0:03:38.057
We're not winning.

0:03:38.057,0:03:40.993
These problems still seem very daunting

0:03:40.993,0:03:43.023
and very intractable,

0:03:43.023,0:03:45.016
and any solutions we're achieving

0:03:45.016,0:03:47.001
are small solutions.

0:03:47.001,0:03:49.106
We're making incremental progress.

0:03:49.106,0:03:53.535
What's the fundamental problem we have

0:03:53.535,0:03:56.413
in dealing with these social problems?

0:03:56.413,0:04:00.023
If we cut all the complexity away,

0:04:00.023,0:04:04.148
we have the problem of scale.

0:04:04.148,0:04:06.182
We can't scale.

0:04:06.182,0:04:10.077
We can make progress. We can show benefits.

0:04:10.077,0:04:13.175
We can show results. We can make things better.

0:04:13.175,0:04:17.468
We're helping. We're doing better. We're doing good.

0:04:17.468,0:04:19.622
We can't scale.

0:04:19.622,0:04:24.542
We can't make large-scale impact on these problems.

0:04:24.542,0:04:26.653
Why is that?

0:04:26.653,0:04:30.212
Because we don't have the resources.

0:04:30.212,0:04:32.292
And that's really clear now.

0:04:32.292,0:04:34.928
And that's clearer now than it's been for decades.

0:04:34.928,0:04:37.085
There's simply not enough money

0:04:37.085,0:04:41.717
to deal with any of these problems at scale

0:04:41.717,0:04:44.827
using the current model.

0:04:44.827,0:04:46.989
There's not enough tax revenue,

0:04:46.989,0:04:51.189
there's not enough philanthropic donations

0:04:51.189,0:04:54.453
to deal with these problems the way we're dealing with them now.

0:04:54.453,0:04:58.372
We've got to confront that reality.

0:04:58.372,0:05:01.661
And the scarcity of resources

0:05:01.661,0:05:05.812
for dealing with these problems is only growing,

0:05:05.812,0:05:08.100
certainly in the advanced world today,

0:05:08.100,0:05:12.695
with all the fiscal problems we face.

0:05:12.695,0:05:16.463
So if it's fundamentally a resource problem,

0:05:16.463,0:05:21.004
you know, where are the resources in society?

0:05:21.004,0:05:25.002
How are those resources really created,

0:05:25.002,0:05:26.968
the resources we're going to need to deal

0:05:26.968,0:05:29.762
with all these societal challenges?

0:05:29.762,0:05:32.786
Well there, I think the answer is very clear:

0:05:32.786,0:05:35.078
they're in business.

0:05:35.078,0:05:40.714
All wealth is actually created by business.

0:05:40.714,0:05:44.978
Business creates wealth

0:05:44.978,0:05:50.747
when it meets needs at a profit.

0:05:50.747,0:05:53.075
That's how all wealth is created.

0:05:53.075,0:05:55.138
It's meeting needs at a profit

0:05:55.138,0:05:57.642
that leads to taxes

0:05:57.642,0:05:59.466
and that leads to incomes

0:05:59.466,0:06:01.578
and that leads to charitable donations.

0:06:01.578,0:06:03.907
That's where all the resources come from.

0:06:03.907,0:06:07.349
Only business can actually create resources.

0:06:07.349,0:06:09.411
Other institutions can utilize them

0:06:09.411,0:06:11.329
to do important work,

0:06:11.329,0:06:13.450
but only business can create them.

0:06:13.450,0:06:15.602
And business creates them

0:06:15.602,0:06:22.881
when it's able to meet a need at a profit.

0:06:22.881,0:06:26.433
The resources are overwhelmingly

0:06:26.433,0:06:28.769
generated by business.

0:06:28.769,0:06:33.625
The question then is, how do we tap into this?

0:06:33.625,0:06:36.097
How do we tap into this?

0:06:36.097,0:06:38.947
Business generates these resources

0:06:38.947,0:06:42.433
when it makes a profit.

0:06:42.433,0:06:46.099
That profit is that small difference

0:06:46.099,0:06:51.329
between the price and the cost it takes to produce

0:06:51.329,0:06:54.153
whatever solution business has created

0:06:54.153,0:06:57.746
to whatever problem they're trying to solve.

0:06:57.746,0:07:03.049
But that profit is the magic.

0:07:03.049,0:07:08.937
Why? Because that profit allows whatever solution

0:07:08.937,0:07:11.109
we've created

0:07:11.109,0:07:14.177
to be infinitely scalable.

0:07:14.177,0:07:17.009
Because if we can make a profit,

0:07:17.009,0:07:20.794
we can do it for 10, a hundred, a million,

0:07:20.794,0:07:24.163
a hundred million, a billion.

0:07:24.163,0:07:27.010
The solution becomes self-sustaining.

0:07:27.010,0:07:30.697
That's what business does

0:07:30.697,0:07:34.769
when it makes a profit.

0:07:34.769,0:07:37.799
Now what does this all have to do

0:07:37.799,0:07:40.513
with social problems?

0:07:40.513,0:07:44.457
Well, one line of thinking is, let's take this profit

0:07:44.457,0:07:49.929
and redeploy it into social problems.

0:07:49.929,0:07:52.035
Business should give more.

0:07:52.035,0:07:53.897
Business should be more responsible.

0:07:53.897,0:07:55.915
And that's been the path that we've been on

0:07:55.915,0:07:58.017
in business.

0:07:58.017,0:08:00.157
But again, this path that we've been on

0:08:00.157,0:08:02.297
is not getting us where we need to go.

0:08:02.297,0:08:07.153
Now, I started out as a strategy professor,

0:08:07.153,0:08:09.212
and I'm still a strategy professor.

0:08:09.212,0:08:10.941
I'm proud of that.

0:08:10.941,0:08:12.867
But I've also, over the years,

0:08:12.867,0:08:14.907
worked more and more on social issues.

0:08:14.907,0:08:17.042
I've worked on health care, the environment,

0:08:17.042,0:08:20.005
economic development, reducing poverty,

0:08:20.005,0:08:24.245
and as I worked more and more in the social field,

0:08:24.245,0:08:26.746
I started seeing something

0:08:26.746,0:08:29.080
that had a profound impact on me

0:08:29.080,0:08:33.279
and my whole life, in a way.

0:08:33.279,0:08:36.699
The conventional wisdom in economics

0:08:36.699,0:08:40.874
and the view in business has historically been

0:08:40.874,0:08:44.923
that actually, there's a tradeoff

0:08:44.923,0:08:49.963
between social performance and economic performance.

0:08:49.963,0:08:52.123
The conventional wisdom has been

0:08:52.123,0:08:54.931
that business actually makes a profit

0:08:54.931,0:08:57.054
by causing a social problem.

0:08:57.054,0:08:59.060
The classic example is pollution.

0:08:59.060,0:09:02.344
If business pollutes, it makes more money

0:09:02.344,0:09:05.232
than if it tried to reduce that pollution.

0:09:05.232,0:09:08.814
Reducing pollution is expensive,

0:09:08.814,0:09:12.191
therefore businesses don't want to do it.

0:09:12.191,0:09:16.919
It's profitable to have an unsafe working environment.

0:09:16.919,0:09:19.038
It's too expensive to have a safe working environment,

0:09:19.038,0:09:21.102
therefore business makes more money

0:09:21.102,0:09:23.142
if they don't have a safe working environment.

0:09:23.142,0:09:25.163
That's been the conventional wisdom.

0:09:25.163,0:09:29.019
A lot of companies have fallen into that conventional wisdom.

0:09:29.019,0:09:31.103
They resisted environmental improvement.

0:09:31.103,0:09:33.983
They resisted workplace improvement.

0:09:33.983,0:09:40.407
That thinking has led to, I think,

0:09:40.407,0:09:42.311
much of the behavior

0:09:42.311,0:09:44.292
that we have come to criticize in business,

0:09:44.292,0:09:46.335
that I come to criticize in business.

0:09:46.335,0:09:49.731
But the more deeply I got into all these social issues,

0:09:49.731,0:09:51.819
one after another,

0:09:51.819,0:09:54.803
and actually, the more I tried to address them

0:09:54.803,0:09:57.427
myself, personally, in a few cases,

0:09:57.427,0:10:00.171
through non-profits that I was involved with,

0:10:00.171,0:10:03.091
the more I found actually that the reality

0:10:03.091,0:10:05.643
is the opposite.

0:10:05.643,0:10:07.659
Business does not profit

0:10:07.659,0:10:09.515
from causing social problems,

0:10:09.515,0:10:12.965
actually not in any fundamental sense.

0:10:12.965,0:10:15.267
That's a very simplistic view.

0:10:15.267,0:10:18.251
The deeper we get into these issues,

0:10:18.251,0:10:20.281
the more we start to understand

0:10:20.281,0:10:22.243
that actually business profits

0:10:22.243,0:10:23.917
from solving from social problems.

0:10:23.917,0:10:26.152
That's where the real profit comes.

0:10:26.152,0:10:28.179
Let's take pollution.

0:10:28.179,0:10:30.763
We've learned today that actually

0:10:30.763,0:10:33.155
reducing pollution and emissions

0:10:33.155,0:10:37.002
is generating profit.

0:10:37.002,0:10:39.019
It saves money.

0:10:39.019,0:10:41.035
It makes the business more productive and efficient.

0:10:41.035,0:10:43.027
It doesn't waste resources.

0:10:43.027,0:10:45.059
Having a safer working environment actually,

0:10:45.059,0:10:47.017
and avoiding accidents,

0:10:47.017,0:10:48.959
it makes the business more profitable,

0:10:48.959,0:10:50.996
because it's a sign of good processes.

0:10:50.996,0:10:54.535
Accidents are expensive and costly.

0:10:54.535,0:10:57.647
Issue by issue by issue, we start to learn

0:10:57.647,0:10:59.967
that there's no trade-off

0:10:59.967,0:11:03.855
between social progress

0:11:03.855,0:11:06.810
and economic efficiency

0:11:06.810,0:11:09.287
in any fundamental sense.

0:11:09.287,0:11:11.247
Another issue is health.

0:11:11.247,0:11:13.215
I mean, what we've found is actually

0:11:13.215,0:11:15.251
health of employees is something

0:11:15.251,0:11:17.183
that business should treasure,

0:11:17.183,0:11:19.311
because that health allows those employees

0:11:19.311,0:11:21.135
to be more productive and come to work

0:11:21.135,0:11:23.079
and not be absent.

0:11:23.079,0:11:25.183
The deeper work, the new work, the new thinking

0:11:25.183,0:11:29.567
on the interface between business and social problems

0:11:29.567,0:11:32.623
is actually showing that there's a fundamental,

0:11:32.623,0:11:34.959
deep synergy,

0:11:34.959,0:11:38.671
particularly if you're not thinking in the very short run.

0:11:38.671,0:11:40.754
In the very short run, you can sometimes

0:11:40.754,0:11:42.855
fool yourself into thinking

0:11:42.855,0:11:45.015
that there's fundamentally opposing goals,

0:11:45.015,0:11:47.103
but in the long run, ultimately, we're learning

0:11:47.103,0:11:51.039
in field after field that this is simply not true.

0:11:51.039,0:11:54.204
So how could we tap into

0:11:54.204,0:11:57.071
the power of business

0:11:57.071,0:11:59.759
to address the fundamental problems

0:11:59.759,0:12:02.007
that we face?

0:12:02.007,0:12:05.407
Imagine if we could do that, because if we could do,

0:12:05.407,0:12:07.447
we could scale.

0:12:07.447,0:12:10.303
We could tap into this enormous resource pool

0:12:10.303,0:12:12.447
and this organizational capacity.

0:12:12.447,0:12:16.583
And guess what? That's happening now, finally,

0:12:16.583,0:12:21.104
partly because of people like you

0:12:21.104,0:12:23.959
who have raised these issues now

0:12:23.959,0:12:27.032
for year after year and decade after decade.

0:12:27.032,0:12:29.375
We see organizations like Dow Chemical

0:12:29.375,0:12:31.663
leading the revolution away from trans-fat

0:12:31.663,0:12:35.024
and saturated fat with innovative new products.

0:12:35.024,0:12:37.087
This is an example of Jain Irrigation.

0:12:37.087,0:12:39.175
This is a company that's brought drip irrigation technology

0:12:39.175,0:12:41.951
to thousands and millions of farmers,

0:12:41.951,0:12:45.071
reducing substantially the use of water.

0:12:45.071,0:12:48.154
We see companies like the Brazilian forestry company [??]

0:12:48.154,0:12:50.191
that's figured out how to avoid

0:12:50.191,0:12:52.087
tearing down old growth forest

0:12:52.087,0:12:54.231
and using eucalyptus and getting much more yield

0:12:54.231,0:12:56.375
per hectare of pulp

0:12:56.375,0:12:58.527
and making much more paper than you could make

0:12:58.527,0:13:00.698
by cutting down those old trees.

0:13:00.698,0:13:02.839
You see companies like Cisco that are training

0:13:02.839,0:13:06.534
so far four million people in I.T. skills

0:13:06.534,0:13:09.431
to actually, yes, be responsible,

0:13:09.431,0:13:11.631
but help expand the opportunity

0:13:11.631,0:13:14.135
to disseminate I.T. technology

0:13:14.135,0:13:16.175
and grow the whole business.

0:13:16.175,0:13:18.919
There's a fundamental opportunity for business today

0:13:18.919,0:13:24.129
to impact and address these social problems,

0:13:24.129,0:13:26.207
and this opportunity

0:13:26.207,0:13:28.167
is the largest business opportunity

0:13:28.167,0:13:31.051
we see in business.

0:13:31.051,0:13:34.208
And the question is, how can we get business

0:13:34.208,0:13:38.206
thinking to adapt this issue of shared value?

0:13:38.206,0:13:40.199
This is what I call shared value:

0:13:40.199,0:13:43.416
addressing a social issue with a business model.

0:13:43.416,0:13:45.570
That's shared value.

0:13:45.570,0:13:47.615
Shared value is capitalism,

0:13:47.615,0:13:49.961
but it's a higher kind of capitalism.

0:13:49.961,0:13:53.184
It's capitalism as it was ultimately meant to be,

0:13:53.184,0:13:55.304
meeting important needs,

0:13:55.304,0:13:59.219
not incrementally competing for

0:13:59.219,0:14:03.039
trivial differences in product attributes

0:14:03.039,0:14:05.023
and market share.

0:14:05.023,0:14:07.219
Shared value is when we can create social value

0:14:07.219,0:14:09.776
and economic value simultaneously.

0:14:09.776,0:14:12.547
It's finding those opportunities

0:14:12.547,0:14:14.643
that will unleash the greatest possibility we have

0:14:14.643,0:14:16.619
to actually address these social problems

0:14:16.619,0:14:18.605
because we can scale.

0:14:18.605,0:14:21.131
We can address shared value at multiple levels.

0:14:21.131,0:14:24.788
It's real. It's happening.

0:14:24.788,0:14:28.804
But in order to get this solution working,

0:14:28.804,0:14:31.347
we have to now change how business sees itself,

0:14:31.347,0:14:35.230
and this is thankfully underway.

0:14:35.230,0:14:38.491
Businesses got trapped into the conventional wisdom

0:14:38.491,0:14:40.708
that they shouldn't worry about social problems,

0:14:40.708,0:14:42.996
that this was sort of something on the side,

0:14:42.996,0:14:45.177
that somebody else was doing it.

0:14:45.177,0:14:47.692
We're now seeing companies

0:14:47.692,0:14:49.691
embrace this idea.

0:14:49.691,0:14:51.665
But we also have to recognize business

0:14:51.665,0:14:53.870
is not going to do this as effectively

0:14:53.870,0:14:56.438
as if we have NGOs and government

0:14:56.438,0:14:59.030
working in partnership with business.

0:14:59.030,0:15:01.954
The new NGOs that are really moving the needle

0:15:01.954,0:15:04.398
are the ones that have found these partnerships,

0:15:04.398,0:15:06.446
that have found these ways to collaborate.

0:15:06.446,0:15:08.534
The governments that are making the most progress

0:15:08.534,0:15:10.518
are the governments that have found ways

0:15:10.518,0:15:12.984
to enable shared value in business

0:15:12.984,0:15:16.520
rather than see government as the only player

0:15:16.520,0:15:19.934
that has to call the shots.

0:15:19.934,0:15:22.406
And government has many ways in which it could impact

0:15:22.406,0:15:24.614
the willingness and the ability of companies

0:15:24.614,0:15:26.714
to compete in this way.

0:15:26.714,0:15:29.663
I think if we can get business seeing itself differently,

0:15:29.663,0:15:32.206
and if we can get other seeing business differently,

0:15:32.206,0:15:34.196
we can change the world.

0:15:34.196,0:15:38.216
I know it. I'm seeing it.

0:15:38.216,0:15:40.166
I'm feeling it.

0:15:40.166,0:15:42.006
Young people, I think,

0:15:42.006,0:15:44.241
my Harvard Business School students, are getting it.

0:15:44.241,0:15:49.363
If we can break down this sort of divide,

0:15:49.363,0:15:51.543
this unease, this tension,

0:15:51.543,0:15:54.303
this sense that we're not

0:15:54.303,0:15:56.543
fundamentally collaborating here

0:15:56.543,0:15:58.893
in driving these social problems,

0:15:58.893,0:16:00.997
we can break this down,

0:16:00.997,0:16:02.997
and we finally, I think,

0:16:02.997,0:16:05.629
can have solutions.

0:16:05.629,0:16:08.429
Thank you.

0:16:08.429,0:16:11.151
(Applause)