0:00:00.372,0:00:02.085 I think we're all aware 0:00:02.085,0:00:05.058 that the world today is full of problems. 0:00:05.058,0:00:07.153 We've been hearing them 0:00:07.153,0:00:11.443 today and yesterday and every day for decades. 0:00:11.443,0:00:15.487 Serious problems, big problems, pressing problems. 0:00:15.487,0:00:18.843 Poor nutrition, access to water, 0:00:18.843,0:00:21.880 climate change, deforestation, 0:00:21.880,0:00:25.124 lack of skills, insecurity, not enough food, 0:00:25.124,0:00:28.100 not enough healthcare, pollution. 0:00:28.100,0:00:29.845 There's problem after problem, 0:00:29.845,0:00:32.376 and I think what really separates this time 0:00:32.376,0:00:36.500 from any time I can remember in my brief time 0:00:36.500,0:00:38.935 on Earth is the awareness of these problems. 0:00:38.935,0:00:41.501 We're all very aware. 0:00:41.501,0:00:43.529 Why are we having so much trouble 0:00:43.529,0:00:45.360 dealing with these problems? 0:00:45.360,0:00:48.400 That's the question I've been struggling with, 0:00:48.400,0:00:52.569 coming from my very different perspective. 0:00:52.569,0:00:55.652 I'm not a social problem guy. 0:00:55.652,0:00:58.414 I'm a guy that works with business, 0:00:58.414,0:01:01.704 helps business make money. 0:01:01.704,0:01:04.938 God forbid. 0:01:04.938,0:01:07.992 So why are we having so many problems 0:01:07.992,0:01:11.135 with these social problems, 0:01:11.135,0:01:13.192 and really is there any role for business, 0:01:13.192,0:01:16.725 and if so, what is that role? 0:01:16.725,0:01:19.584 I think that in order to address that question, 0:01:19.584,0:01:23.450 we have to step back and think about 0:01:23.450,0:01:27.105 how we've understood and pondered 0:01:27.105,0:01:29.103 both the problems and the solutions 0:01:29.103,0:01:33.267 to these great social challenges that we face. 0:01:33.267,0:01:36.101 Now, I think many have seen business 0:01:36.101,0:01:38.976 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. 0:01:41.728,0:01:43.134 You know, think of the fast food industry, 0:01:43.134,0:01:45.109 the drug industry, the banking industry. 0:01:45.109,0:01:47.288 You know, this is a low point 0:01:47.288,0:01:50.279 in the respect for business. 0:01:50.279,0:01:51.989 Business is not seen as the solution. 0:01:51.989,0:01:55.730 It's seen as the problem now, for most people. 0:01:55.730,0:01:57.704 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, 0:02:02.160,0:02:03.961 that actually have made the problem worse. 0:02:03.961,0:02:07.424 So this perspective is perhaps justified. 0:02:07.424,0:02:10.014 How have we tended to see the solutions 0:02:10.014,0:02:12.350 to these social problems, 0:02:12.350,0:02:15.512 these many issues that we face in society? 0:02:15.512,0:02:17.144 Well, we've tended to see the solutions 0:02:17.144,0:02:19.296 in terms of NGOs, 0:02:19.296,0:02:21.302 in terms of government, 0:02:21.302,0:02:23.439 in terms of philanthropy. 0:02:23.439,0:02:25.873 Indeed, the kind of unique organizational entity 0:02:25.873,0:02:30.630 of this age is this tremendous rise of NGOs 0:02:30.630,0:02:33.136 and social organizations. 0:02:33.136,0:02:35.960 This is a unique, new organizational form 0:02:35.960,0:02:37.153 that we've seen grown up. 0:02:37.153,0:02:40.560 Enormous innovation, enormous energy, 0:02:40.560,0:02:43.295 enormous talent now has been mobilized 0:02:43.295,0:02:45.415 through this structure 0:02:45.415,0:02:50.268 to try to deal with all of these challenges. 0:02:50.268,0:02:54.525 And many of us here are deeply involved in that. 0:02:54.525,0:02:56.034 I'm a business school professor, 0:02:56.034,0:03:00.049 but I've actually founded, I think, now, four nonprofits. 0:03:00.049,0:03:02.938 Whenever I got interested and became aware 0:03:02.938,0:03:05.998 of a societal problem, that was what I did, 0:03:05.998,0:03:07.876 form a nonprofit. 0:03:07.876,0:03:10.939 That was the way we've thought about how to deal 0:03:10.939,0:03:11.948 with these issues. 0:03:11.948,0:03:16.400 Even a business school professor has thought about it that way. 0:03:16.400,0:03:18.235 But I think at this moment, 0:03:18.235,0:03:21.004 we've been at this for quite a while. 0:03:21.004,0:03:23.856 We've been aware of these problems for decades. 0:03:23.856,0:03:25.766 We have decades of experience 0:03:25.766,0:03:30.091 with our NGOs and with our government entities, 0:03:30.091,0:03:31.920 and there's an awkward reality. 0:03:31.920,0:03:33.862 The awkward reality is we're not making 0:03:33.862,0:03:36.446 fast enough progress. 0:03:36.446,0:03:39.170 We're not winning. 0:03:39.170,0:03:41.254 These problems still seem very daunting 0:03:41.254,0:03:42.460 and very intractable, 0:03:42.460,0:03:45.160 and any solutions we're achieving 0:03:45.160,0:03:47.100 are small solutions. 0:03:47.100,0:03:50.982 We're making incremental progress. 0:03:50.982,0:03:53.704 What's the fundamental problem we have 0:03:53.704,0:03:56.782 in dealing with these social problems? 0:03:56.782,0:04:00.814 If we cut all the complexity away, 0:04:00.814,0:04:04.193 we have the problem of scale. 0:04:04.193,0:04:07.304 We can't scale. 0:04:07.304,0:04:10.231 We can make progress. We can show benefits. 0:04:10.231,0:04:13.559 We can show results. We can make things better. 0:04:13.559,0:04:17.837 We're helping. We're doing better. We're doing good. 0:04:17.837,0:04:20.191 We can't scale. 0:04:20.191,0:04:25.157 We can't make a large-scale impact on these problems. 0:04:25.157,0:04:26.991 Why is that? 0:04:26.991,0:04:30.581 Because we don't have the resources. 0:04:30.581,0:04:32.292 And that's really clear now. 0:04:32.292,0:04:35.174 And that's clearer now than it's been for decades. 0:04:35.174,0:04:38.726 There's simply not enough money 0:04:38.726,0:04:42.117 to deal with any of these problems at scale 0:04:42.117,0:04:44.442 using the current model. 0:04:44.442,0:04:47.512 There's not enough tax revenue, 0:04:47.512,0:04:51.558 there's not enough philanthropic donations, 0:04:51.558,0:04:54.006 to deal with these problems the way we're dealing with them now. 0:04:54.006,0:04:59.171 We've got to confront that reality. 0:04:59.171,0:05:02.230 And the scarcity of resources 0:05:02.230,0:05:06.257 for dealing with these problems is only growing, 0:05:06.257,0:05:09.807 certainly in the advanced world today, 0:05:09.807,0:05:14.186 with all the fiscal problems we face. 0:05:14.186,0:05:18.431 So if it's fundamentally a resource problem, 0:05:18.431,0:05:22.476 where are the resources in society? 0:05:22.476,0:05:24.861 How are those resources really created, 0:05:24.861,0:05:26.568 the resources we're going to need to deal 0:05:26.568,0:05:30.208 with all these societal challenges? 0:05:30.208,0:05:33.324 Well there, I think the answer is very clear: 0:05:33.324,0:05:37.010 They're in business. 0:05:37.010,0:05:42.621 All wealth is actually created by business. 0:05:42.621,0:05:45.347 Business creates wealth 0:05:45.347,0:05:50.393 when it meets needs at a profit. 0:05:50.393,0:05:52.857 That's how all wealth is created. 0:05:52.857,0:05:55.230 It's meeting needs at a profit 0:05:55.230,0:05:57.642 that leads to taxes 0:05:57.642,0:05:59.311 and that leads to incomes 0:05:59.311,0:06:01.578 and that leads to charitable donations. 0:06:01.578,0:06:04.829 That's where all the resources come from. 0:06:04.829,0:06:07.287 Only business can actually create resources. 0:06:07.287,0:06:09.241 Other institutions can utilize them 0:06:09.241,0:06:10.466 to do important work, 0:06:10.466,0:06:13.650 but only business can create them. 0:06:13.650,0:06:15.171 And business creates them 0:06:15.171,0:06:23.049 when it's able to meet a need at a profit. 0:06:23.049,0:06:26.433 The resources are overwhelmingly 0:06:26.433,0:06:28.322 generated by business. 0:06:28.322,0:06:33.625 The question then is, how do we tap into this? 0:06:33.625,0:06:36.000 How do we tap into this? 0:06:36.000,0:06:38.947 Business generates those resources 0:06:38.947,0:06:43.616 when it makes a profit. 0:06:43.616,0:06:46.990 That profit is that small difference 0:06:46.990,0:06:51.836 between the price and the cost it takes to produce 0:06:51.836,0:06:54.153 whatever solution business has created 0:06:54.153,0:06:57.376 to whatever problem they're trying to solve. 0:06:57.376,0:07:04.136 But that profit is the magic. 0:07:04.136,0:07:08.890 Why? Because that profit allows whatever solution 0:07:08.890,0:07:11.109 we've created 0:07:11.109,0:07:15.299 to be infinitely scalable. 0:07:15.299,0:07:17.900 Because if we can make a profit, 0:07:17.900,0:07:21.424 we can do it for 10, 100, a million, 0:07:21.424,0:07:24.716 100 million, a billion. 0:07:24.716,0:07:29.436 The solution becomes self-sustaining. 0:07:29.436,0:07:32.035 That's what business does 0:07:32.035,0:07:35.645 when it makes a profit. 0:07:35.645,0:07:38.029 Now what does this all have to do 0:07:38.029,0:07:41.097 with social problems? 0:07:41.097,0:07:44.379 Well, one line of thinking is, let's take this profit 0:07:44.379,0:07:49.928 and redeploy it into social problems. 0:07:49.928,0:07:51.194 Business should give more. 0:07:51.194,0:07:52.618 Business should be more responsible. 0:07:52.618,0:07:55.068 And that's been the path that we've been on 0:07:55.068,0:07:57.754 in business. 0:07:57.754,0:07:59.618 But again, this path that we've been on 0:07:59.618,0:08:03.958 is not getting us where we need to go. 0:08:03.958,0:08:07.106 Now, I started out as a strategy professor, 0:08:07.106,0:08:08.612 and I'm still a strategy professor. 0:08:08.612,0:08:09.971 I'm proud of that. 0:08:09.971,0:08:11.497 But I've also, over the years, 0:08:11.497,0:08:14.153 worked more and more on social issues. 0:08:14.153,0:08:17.420 I've worked on healthcare, the environment, 0:08:17.420,0:08:20.992 economic development, reducing poverty, 0:08:20.992,0:08:25.337 and as I worked more and more in the social field, 0:08:25.337,0:08:26.899 I started seeing something 0:08:26.899,0:08:30.169 that had a profound impact on me 0:08:30.169,0:08:33.755 and my whole life, in a way. 0:08:33.755,0:08:37.544 The conventional wisdom in economics 0:08:37.544,0:08:41.412 and the view in business has historically been 0:08:41.412,0:08:45.369 that actually, there's a tradeoff 0:08:45.369,0:08:50.377 between social performance and economic performance. 0:08:50.377,0:08:51.861 The conventional wisdom has been 0:08:51.861,0:08:54.931 that business actually makes a profit 0:08:54.931,0:08:56.724 by causing a social problem. 0:08:56.724,0:08:58.906 The classic example is pollution. 0:08:58.906,0:09:01.682 If business pollutes, it makes more money 0:09:01.682,0:09:06.323 than if it tried to reduce that pollution. 0:09:06.323,0:09:08.214 Reducing pollution is expensive, 0:09:08.214,0:09:13.697 therefore businesses don't want to do it. 0:09:13.697,0:09:16.642 It's profitable to have an unsafe working environment. 0:09:16.642,0:09:19.380 It's too expensive to have a safe working environment, 0:09:19.380,0:09:20.686 therefore business makes more money 0:09:20.686,0:09:22.526 if they don't have a safe working environment. 0:09:22.526,0:09:26.023 That's been the conventional wisdom. 0:09:26.023,0:09:28.836 A lot of companies have fallen into that conventional wisdom. 0:09:28.836,0:09:31.379 They resisted environmental improvement. 0:09:31.379,0:09:36.813 They resisted workplace improvement. 0:09:36.813,0:09:40.359 That thinking has led to, I think, 0:09:40.359,0:09:41.879 much of the behavior 0:09:41.879,0:09:43.815 that we have come to criticize in business, 0:09:43.815,0:09:46.335 that I come to criticize in business. 0:09:46.335,0:09:49.868 But the more deeply I got into all these social issues, 0:09:49.868,0:09:52.880 one after another, 0:09:52.880,0:09:55.326 and actually, the more I tried to address them 0:09:55.326,0:09:57.442 myself, personally, in a few cases, 0:09:57.442,0:10:00.171 through nonprofits that I was involved with, 0:10:00.171,0:10:03.109 the more I found actually that the reality 0:10:03.109,0:10:05.643 is the opposite. 0:10:05.643,0:10:06.889 Business does not profit 0:10:06.889,0:10:08.591 from causing social problems, 0:10:08.591,0:10:12.965 actually not in any fundamental sense. 0:10:12.965,0:10:15.158 That's a very simplistic view. 0:10:15.158,0:10:17.866 The deeper we get into these issues, 0:10:17.866,0:10:19.711 the more we start to understand 0:10:19.711,0:10:21.612 that actually business profits 0:10:21.612,0:10:23.608 from solving from social problems. 0:10:23.608,0:10:26.152 That's where the real profit comes. 0:10:26.152,0:10:28.993 Let's take pollution. 0:10:28.993,0:10:31.209 We've learned today that actually 0:10:31.209,0:10:33.616 reducing pollution and emissions 0:10:33.616,0:10:37.122 is generating profit. 0:10:37.122,0:10:39.190 It saves money. 0:10:39.190,0:10:40.888 It makes the business more productive and efficient. 0:10:40.888,0:10:42.285 It doesn't waste resources. 0:10:42.285,0:10:44.928 Having a safer working environment actually, 0:10:44.928,0:10:46.416 and avoiding accidents, 0:10:46.416,0:10:47.788 it makes the business more profitable, 0:10:47.788,0:10:50.996 because it's a sign of good processes. 0:10:50.996,0:10:55.027 Accidents are expensive and costly. 0:10:55.027,0:10:57.631 Issue by issue by issue, we start to learn 0:10:57.631,0:11:00.597 that actually there's no trade-off 0:11:00.597,0:11:04.193 between social progress 0:11:04.193,0:11:07.194 and economic efficiency 0:11:07.194,0:11:09.287 in any fundamental sense. 0:11:09.287,0:11:10.646 Another issue is health. 0:11:10.646,0:11:13.215 I mean, what we've found is actually 0:11:13.215,0:11:15.097 health of employees is something 0:11:15.097,0:11:16.490 that business should treasure, 0:11:16.490,0:11:18.818 because that health allows those employees 0:11:18.818,0:11:20.227 to be more productive and come to work 0:11:20.227,0:11:22.543 and not be absent. 0:11:22.543,0:11:25.967 The deeper work, the new work, the new thinking 0:11:25.967,0:11:30.151 on the interface between business and social problems 0:11:30.151,0:11:33.069 is actually showing that there's a fundamental, 0:11:33.069,0:11:34.988 deep synergy, 0:11:34.988,0:11:38.916 particularly if you're not thinking in the very short run. 0:11:38.916,0:11:40.754 In the very short run, you can sometimes 0:11:40.754,0:11:42.855 fool yourself into thinking 0:11:42.855,0:11:45.150 that there's fundamentally opposing goals, 0:11:45.150,0:11:47.963 but in the long run, ultimately, we're learning 0:11:47.963,0:11:52.159 in field after field that this is simply not true. 0:11:52.159,0:11:55.449 So how could we tap into 0:11:55.449,0:11:58.171 the power of business 0:11:58.171,0:12:00.374 to address the fundamental problems 0:12:00.374,0:12:02.807 that we face? 0:12:02.807,0:12:05.407 Imagine if we could do that, because if we could do it, 0:12:05.407,0:12:07.447 we could scale. 0:12:07.447,0:12:09.856 We could tap into this enormous resource pool 0:12:09.856,0:12:12.754 and this organizational capacity. 0:12:12.754,0:12:18.244 And guess what? That's happening now, finally, 0:12:18.244,0:12:22.257 partly because of people like you 0:12:22.257,0:12:24.205 who have raised these issues now 0:12:24.205,0:12:27.320 for year after year and decade after decade. 0:12:27.320,0:12:29.728 We see organizations like Dow Chemical 0:12:29.728,0:12:31.646 leading the revolution away from trans fat 0:12:31.646,0:12:34.778 and saturated fat with innovative new products. 0:12:34.778,0:12:36.731 This is an example of Jain Irrigation. 0:12:36.731,0:12:39.282 This is a company that's brought drip irrigation technology 0:12:39.282,0:12:41.951 to thousands and millions of farmers, 0:12:41.951,0:12:45.002 reducing substantially the use of water. 0:12:45.002,0:12:48.323 We see companies like the Brazilian forestry company Fibria 0:12:48.323,0:12:49.806 that's figured out how to avoid 0:12:49.806,0:12:51.685 tearing down old growth forest 0:12:51.685,0:12:54.461 and using eucalyptus and getting much more yield 0:12:54.461,0:12:56.451 per hectare of pulp 0:12:56.451,0:12:58.419 and making much more paper than you could make 0:12:58.419,0:13:00.528 by cutting down those old trees. 0:13:00.528,0:13:03.408 You see companies like Cisco that are training 0:13:03.408,0:13:07.564 so far four million people in I.T. skills 0:13:07.564,0:13:09.507 to actually, yes, be responsible, 0:13:09.507,0:13:11.938 but help expand the opportunity 0:13:11.938,0:13:14.211 to disseminate I.T. technology 0:13:14.211,0:13:15.513 and grow the whole business. 0:13:15.513,0:13:20.134 There's a fundamental opportunity for business today 0:13:20.134,0:13:24.190 to impact and address these social problems, 0:13:24.190,0:13:25.514 and this opportunity 0:13:25.514,0:13:28.782 is the largest business opportunity 0:13:28.782,0:13:32.448 we see in business. 0:13:32.448,0:13:34.654 And the question is, how can we get business 0:13:34.654,0:13:38.082 thinking to adapt this issue of shared value? 0:13:38.082,0:13:39.891 This is what I call shared value: 0:13:39.891,0:13:43.646 addressing a social issue with a business model. 0:13:43.646,0:13:45.570 That's shared value. 0:13:45.570,0:13:47.399 Shared value is capitalism, 0:13:47.399,0:13:49.961 but it's a higher kind of capitalism. 0:13:49.961,0:13:53.321 It's capitalism as it was ultimately meant to be, 0:13:53.321,0:13:56.734 meeting important needs, 0:13:56.734,0:13:59.557 not incrementally competing for 0:13:59.557,0:14:02.820 trivial differences in product attributes 0:14:02.820,0:14:04.553 and market share. 0:14:04.553,0:14:06.772 Shared value is when we can create social value 0:14:06.772,0:14:09.375 and economic value simultaneously. 0:14:09.375,0:14:11.885 It's finding those opportunities 0:14:11.885,0:14:14.950 that will unleash the greatest possibility we have 0:14:14.950,0:14:16.941 to actually address these social problems 0:14:16.941,0:14:18.974 because we can scale. 0:14:18.974,0:14:22.530 We can address shared value at multiple levels. 0:14:22.530,0:14:25.695 It's real. It's happening. 0:14:25.695,0:14:28.588 But in order to get this solution working, 0:14:28.588,0:14:32.716 we have to now change how business sees itself, 0:14:32.716,0:14:35.230 and this is thankfully underway. 0:14:35.230,0:14:38.706 Businesses got trapped into the conventional wisdom 0:14:38.706,0:14:40.554 that they shouldn't worry about social problems, 0:14:40.554,0:14:42.596 that this was sort of something on the side, 0:14:42.596,0:14:45.177 that somebody else was doing it. 0:14:45.177,0:14:46.753 We're now seeing companies 0:14:46.753,0:14:49.229 embrace this idea. 0:14:49.229,0:14:51.418 But we also have to recognize business 0:14:51.418,0:14:54.162 is not going to do this as effectively 0:14:54.162,0:14:56.022 as if we have NGOs and government 0:14:56.022,0:14:59.053 working in partnership with business. 0:14:59.053,0:15:02.061 The new NGOs that are really moving the needle 0:15:02.061,0:15:04.244 are the ones that have found these partnerships, 0:15:04.244,0:15:06.061 that have found these ways to collaborate. 0:15:06.061,0:15:08.534 The governments that are making the most progress 0:15:08.534,0:15:10.148 are the governments that have found ways 0:15:10.148,0:15:13.799 to enable shared value in business 0:15:13.799,0:15:16.920 rather than see government as the only player 0:15:16.920,0:15:19.934 that has to call the shots. 0:15:19.934,0:15:22.406 And government has many ways in which it could impact 0:15:22.406,0:15:24.720 the willingness and the ability of companies 0:15:24.720,0:15:26.714 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 others seeing business differently, 0:15:32.206,0:15:35.011 we can change the world. 0:15:35.011,0:15:38.216 I know it. I'm seeing it. 0:15:38.216,0:15:40.166 I'm feeling it. 0:15:40.166,0:15:41.861 Young people, I think, 0:15:41.861,0:15:45.041 my Harvard Business School students, are getting it. 0:15:45.041,0:15:49.363 If we can break down this sort of divide, 0:15:49.363,0:15:52.373 this unease, this tension, 0:15:52.373,0:15:54.303 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)