Kaupapa, accountability, and value
A year ago, we asked:
How do organisations communicate their kaupapa or purpose, how do they demonstrate their accountability, and in what ways do they measure value?
A year on, the wider world has been impacted by the COVID-19 pandemic and various containment measures both at home and abroad. The operations of many organisations have changed considerably, as the needs of their employees, customers and clients, investors, and global markets have also changed.
However, much has remained the same – the interrelationships between social, cultural, economic, and natural capital are still intrinsically linked to what we value, beyond balance sheets. Organisations of different types are still looking at how value can be more explicitly understood and reflected in their activities and reporting.
No doubt, these explorations will continue, either prompted by legislation and regulation, by investor demands for disclosure, by customers and clients through social licence to operate, or by owners and leaders changing the cultures of their organisations.
Our goal was to open up a kōrero about what purpose, accountability, and value meant to different types of organisations, and to understand how they are related. We invited thought leaders to contribute to the kōrero through podcasts, webinars, and website articles, which hundreds of people have listened to, watched, and read.
Through these contributions, we’ve explored what makes an organisation kaupapa-led, what purpose looks like in tech start-ups, and the kaupapa of koha economics. We’ve considered how leaders build trust with employees and communities, and how they then demonstrate accountability to their stakeholders. And we’ve looked at what it means to be values-driven, and wondered whether there’s a difference between value and values.
As we wrap up our pro bono, we offer our immense gratitude to our thought leaders, who offered their time and wisdom:
- Louise Aitken
- Daniel Bar
- Manu Caddie
- Jo Cribb
- Jane Diplock
- Craig Fisher
- Kate Frykberg
- Nicola Gaston
- Justin Hodgkiss
- Traci Houpapa
- Tim Jones
- Billy Matheson
- Jason Mika
- Maria Ngawati
- Mark Pascal
- Anjum Rahman
- Ronji Tanielu.
We look forward to continuing the kōrero on value through the mahi we do every day for iwi, non-profits, small businesses, membership associations, and local, regional, and central government.
Profit - is it bad?
Profit came into the kōrero on kaupapa and warranted a deeper look.
Interest in social enterprise, impact enterprise, and the triple or quadruple bottom line has gained in prominence in recent years, with good reason. This increased interest has brought with it questions about:
Is profit a dirty word?
These discussions have stimulated moves for companies to consider broader interests than shareholder returns, and to look at their business models and consider what goes into making a profit. In some spheres, profit is almost seen as unethical, and the term prosperity is used instead.
But profit is an enabler of activities and outcomes – it ultimately signifies the amount customers, clients, and users of services have given for the value they have received over and above the expenses incurred by that business. Profit is the reward customers give businesses when they choose them over their competitors, and is a form of exchange.
A primary way to make a profit is for you to make someone else’s life better – according to them.
In general, people value money to such an extent as we value the ability to get useful applications of scarce resources. From this perspective, the price of any good represents the scarce resources we would need to give up in order to secure some good or service.
Businesses earn profits as an exchange where they are correct about both the price and the technical specifications of these goods or services. If they successfully conduct an exchange and earn a profit, the consumer has indicated they value the use of scarce resources proposed compared to the alternative uses of the scarce resources. By the standards of the consumer, they have used scarce resources in the best possible way known at that time. From this point of view, profit can be seen as a signal of decisions.
However, a business might get a product’s technical specifications right, but not price. Consumers might really like the product, but not the price. If businesses are wrong about the price consumers are willing to pay, they’re wrong in their assessment of how important their product is to a consumer. So, they will suffer a loss.
Therefore, profit is also a reward for those who have taken a risk under uncertainty.
This uncertain universe is what provides opportunities for entrepreneurs to act and bring things into existence which they believe people will want. And only if they get it correct do they earn a profit. Guessing wrong, and pushing a product onto consumers they do not want very obviously results in losses. A prominent example is Juicero.
Making a profit is contingent on bringing something into existence that is valued by people more highly than what they already have. In this way, profit is a coordination mechanism. More than just a coordination mechanism, profit also serves as a method to democratically choose businesses who people think should produce things. Very few businesses can go on very long producing things no one wants, for prices no one is willing to pay.
Profit is the excess (in terms of value) produced over what is consumed in the process of production. It is precisely like the actions of the ant in Aesop’s fable of the ant and the grasshopper. The ant works through the summer to store for the winter while the grasshopper parties. The grasshopper freezes to death come winter. In a very real sense, if we party all summer producing things no one wants and using scarce resources wastefully, we would freeze in winter.
Profits are essential to human flourishing.
Profit (the excess in value) is the pool of resources to be used in production in future (i.e. it is the capital). It creates valuable goods and services, real things that improve other people’s lives. This process can continue indefinitely (i.e. it is sustainable). Repeating this process over and over is how economic progress happens. It’s a sustainable and reliable way to increase human flourishing.
Profit is a signal, incentive, reward, and provision. What of businesses who aren’t explicitly seeking a profit (as measured by money)? They have chosen to measure the value they create for others by some other standard, and will be carefully assessing how their consumers value what they do. There are many ways to do this, they just require a conscious effort to do so.
Moreover, because profit is essential to the state of being a “going concern”, a business not serving consumers well (in the consumers view) will quickly find themselves not serving consumers at all. In this way, profit is the mechanism through which a market is a democracy, allowing us to choose who we want to be the producers of things we value.
Social licence to operate
The importance of social licence was raised in the webinar for accountability and trust. A term that originated in the mining industry, social licence is the level of support, approval, or acceptance of the activities of an organisation by stakeholders and communities. It sits alongside statutory licence (meeting legal and regulatory requirements), which is granted by formal authorities.
Based on social contract theory, the term may be recent and somewhat overused, but the understanding of reputation as a foundation for organisational success is not. Social licence is an “unwritten contract”; an indeterminate and informal confidence a society has in how an organisation operates. This confidence is fed by transparency, accountability, and trust.
Being indefinable and dynamic, social licence is gained and maintained as a key component of public reputation and goodwill. Effectively, social licence is reputation capital based on social responsibility.
Social licence takes time to build, but can be lost in an instant with one tweet, staff interaction, explosion, count of fraud, or other publicity nightmare. Communities, increasingly and rightfully, want a say in decisions that affect them, and expect reassurances of no or minimal harm. Stakeholders essentially grant social licence based on perceptions of reliability or predictability, and a breach of trust has high financial and opportunity costs for organisations.
Sometimes it is easier to see when social licence has been lost, rather than when it has been granted. We see the consequences in the court of public opinion through tanking share prices, goods stagnating on shelves, and apologies in media.
It’s often quicker and easier to lose trust than it is to build it back again, doing what you say you’re going to, one step at a time.
Cultivating trust requires understanding similarities and differences in power, values, worldviews, and lived experiences. Effective stakeholder and community engagement is crucial for building trust through participation and understanding. Being transparent and accountable for the outcomes and impacts of organisational activities is also vital.
Researchers have suggested that social licence has three levels of acceptance:
- Acceptance – The most basic threshold for legitimacy, stakeholders are willing to tolerate the organisation’s project or work moving forward
- Approval – Credibility has been established, there is positive approval as stakeholders support the organisation’s work and are resistant to ideas put forward by critics
- Identification – Full trust has been earned and communities see their future shared with the future of the organisation, consequently they are willing to fight for the organisation’s interests and take on some risk.
This model allows for nuance within the social licence metaphor. In a world of stakeholders, the metaphor is likely to continue to evolve, and with it the ways in which organisations build trust and demonstrate accountability.