The New Value Prop

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by: Joel Makower

Forget the "triple bottom line." Get ready for the "blended value proposition."

Before you glaze over about yet another sustainability-minded catchphrase, consider that this brave new term is being bandied about in the nation's top business schools — or, at least, those with sustainability programs.

It's been a featured topic in mainstream business and investing publications, and has been uttered by the venerable John Elkington, who coined "triple bottom line" in the first place.

The BVP concept is embedded in the growing world of social enterprise and social entrepreneurs — the moniker given to nonprofit businesses that David Bornstein, author of How to Change the World, describes as entrepreneurs with the "determination, savvy, and ethical fiber to advance an idea for social change in society on a large scale." The notion of social enterprise, which has gained traction in the U.K., also is being seen by China's government as a means of meeting the needs of its communities and providing training, employment, education, and other benefits to its citizens.

But how to measure those benefits?

The BVP offers a means of quantifying the social value companies and nonprofits create along side the traditional financial stuff. Jed Emerson, the father of BVP, explains that in the past we have limited our perception of business profitability because we focus solely on economic gain and have financial systems to track that. He says, "We've lost sight of the reason we create companies and make investments: to make our lives better — the manifestation of the human drive toward value."

As Emerson puts is:

Value is what gets created when investors invest and organizations act to pursue their mission. Traditionally, we have thought of value as being either economic (and created by for-profit companies) or social (and created by nonprofit or non-governmental organizations). What the Blended Value Proposition states is that all organizations, whether for-profit or not, create value that consists of economic, social, and environmental value components — and that investors (whether market-rate, charitable, or some mix of the two) simultaneously generate all three forms of value through providing capital to organizations.

How, exactly, does this relate to daily business? For starters, it flies in the face of the triple bottom line. Rather than measure a company's value (or lack thereof) in separate economic, environmental, and social "bottom lines," Emerson proposes a single, "blended" calculation.

Emerson — who started his career as a social worker before working for a foundation set up by George Roberts, a partner in the leveraged buyout firm KKR, who was interested in using a market approach to helping the homeless — began collecting data and crunching numbers to understand why some nonprofits were far more effective than others. Doing this required developing methodologies for SROI, or social return on investment.

That methodology became the basis for helping large foundations invest their endowments in companies that weren't perceived to be undermining the social problems the foundations were trying to solve. It was only a matter of time before the BVP migrated to assessing overall corporate value.

The idea of creating a single metric to judge companies' value to society is not farfetched. Indeed, it is gaining credence not only in the socially responsible investing community but also among some enlightened corporate leaders, who understand how the BVP can articulate a company's broader shareholder value. That, in turn, could reduce the pressure for blockbuster quarterly returns, and all the social and environmental problems that result when companies think only in the short term.

Of course, having a nifty methodology is one thing; getting it accepted and put to use by the incumbent players is quite another. The business world's generally accepted accounting principles — not to mention government regulations for corporate financial reporting — can take decades to change, assuming there is even widespread support for doing so. Emerson would be the first to admit this isn't likely to happen soon.

But there's something compelling about BVP that could help it gain currency. Unlike socially responsible investing, with is laden with "good" and "bad" companies, BVP does not strive to be so virtuous. It acknowledges, for example, that there's value in creating economic wealth, so long as it is balanced with creating other forms of value. That idea alone could blunt the skeptics.

BVP has a long and arduous path ahead, but don't count it out quite yet. Those frustrated with the slow growth of "triple bottom line" thinking in the corporate world would be wise to tune in to the BVP conversation taking shape. It's bound to be instructive — no matter where it all ends up.

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