In January, Larry Fink, the chair and CEO of multi-trillion-dollar asset manager BlackRock, issued an ultimatum to corporate executives: if they want to receive investment from BlackRock, their businesses must have a social purpose.
Fink argued that a company’s decisions should benefit all the company’s stakeholders, including their employees, their customers and the communities in which they operate. Otherwise the company risks sacrificing “investments in employee development, innovation, and capital expenditures that are necessary for long-term growth.”
The letter generated a lot of surprise in the business community. For the past fifty years or so, most companies have separated their core financial objectives (their business pocket) from their philanthropic and charitable work (their social good pocket), driven by the belief that focusing on the latter would hinder financial performance. At Village Capital we call this “two-pocket thinking”.
Yet the notion that a business could — or rather, should — have a wider social benefit is not a new one. More than 250 years ago, Adam Smith discussed the role of holistic values in driving decisions, and economics, in The Theory of Moral Sentiments. 100 years ago, Henry Ford began paying his workers double the average factory wage, reducing staff turnover but also seeding the growth for the American middle class.
Over the past nearly ten years at Village Capital, we’ve been privileged to work with dozens of corporations at the forefront of “one-pocket thinking”, which is what we call our belief that core business value and social value can be integrated. These firms know that one-pocket thinking is good business: Companies that apply their values to their core businesses are able to increase their customer base, derisk their supply chain, strengthen their branding and minimize their environmental footprint. It’s also true in the aggregate: venture funds that intentionally integrate social impact with financial returns in emerging markets outperform.
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Still, one-pocket thinking doesn’t always come naturally, particularly in this era when investors and shareholders are obsessed with short-term gains — and making that transition can require venturing beyond the corporate comfort zone.
To do this, many companies are turning to entrepreneurs — whose innovative ideas, nimbleness and knowledge of local markets offer some of the most-ready solutions for the real-world challenges big business can face.
The entrepreneurs that took part in MetLife Foundation’s Middle East Financial Health Competition
MetLife Foundation, for example, is harnessing the power of venture capital and the skills of their employees to support entrepreneurs involved in financial inclusion and health across Europe and the Middle East. Microsoft has begun working with a large ecosystem of small and early-stage companies — from last-mile broadband firms to off-grid energy providers to retail distributors — to boost its product sales in emerging and frontier markets. Unilever, looking to expand bottom-of-the-pyramid sales in Bangladesh, worked with a Singaporean startup to increase awareness of good hygiene practices in rural communities.
At Village Capital, we’ve engaged with dozens of pioneering companies like these in conjunction with our core investment programs. BlackRock is one of them: they’re committed to supporting entrepreneurs improving financial health in markets where they operate, and we partnered with them in the US, India and Latin America to help them expand access to financial services. We’ve also worked with major financial institutions like PayPal, UBS, and Citi, and tech and communications firms like Autodesk and AT&T, on initiatives to integrate business and impact effectively.
Today, we’re building on what we’ve learned over the past nine years to expand our mission of democratizing entrepreneurship in new regions and sectors.
We’re launching VilCap Innovations, a new team that will help partners work with entrepreneurs to find solutions to real-world problems in new geographies and new industries that are outside of the mandate of the VilCap Investments fund. VilCap Innovations will help us grow our impact and more broadly accelerate the shift to one-pocket thinking.
VilCap Innovations will provide advice, research and hands-on guidance to organizations — whether large corporates, foundations or governments — who are aiming to expand social purpose in business. The goal is not only to help businesses do good, but to help them do well, by tapping into the transformative power of entrepreneurs and their ventures. For more on a few of our initial engagements, and to learn more about how to work with the VilCap Innovations team, click here.
Allie Burns is Managing Director at Village Capital. Rob Tashima is Director of VilCap Innovations. He was formerly Africa Managing Editor and Head of Research at Oxford Business Group and currently serves as an advisor to Asoko Insight. If you are interested in learning about about Vilcap Innovations’ services, please contact Rob Tashima at: rob.tashima@vilcap.com
