In Benefits Barometer 2017: Changing world of work, we introduced the notion of systems entrepreneurship. Systems entrepreneurship is about fundamentally changing how multiple stakeholders act to solve a large social challenge in such a way that a critical mass of people affected by that challenge benefit substantially. This year, having fully understood the structural constraints and barriers to individual well-being, we consider the role that multiple stakeholders can play in solving challenges at the scale required for meaningful change to occur.
Larry Fink, the Chairman and CEO of BlackRock, a multinational investment management firm with over six trillion dollars in assets under management, wrote an insightful letter to shareholders in the firm’s 2017 annual report. In the report, Fink cautions against the euphoric sentiment surrounding what he terms the ‘remarkable performance of markets’ in the creation of well-being:
A lot of people made a lot of money. But much more importantly: a lot of people didn’t. And that’s not because they weren’t savvy enough to invest in the ‘right things’ — it’s because they were not invested at all […] savers are struggling with low interest rates as well as obstacles to better investing behaviors. A culture of short-term focus in markets and the media – an obsession with second-by-second movements and prices – drives fear and discourages smart investing. Talking heads may sweat with excitement at each record market close, but one day or even one year of growth doesn’t build a future. And so even as equity indices tick higher, too many individuals aren’t enjoying the benefits. And that disconnect is driving significant anger, frustration and fear around the world.1
Fink goes further to suggest that one of the roles his organisation can play in turning the above scenario on its head is to ‘help more and more people experience well-being through the creation of wealth’. This, Fink proposes, involves promoting a system that helps more people participate in financial markets to build more secure futures.2 This is one role that the financial services sector, in particular, can play to ensure that more and more people are able to secure their financial futures while aspirationally taking the risks necessary to build intergenerational wealth, and pass that wealth on.
From a financial services perspective, this is what can (and ought) to underpin an approach to social mobility and well-being. Financial services players, alongside regulators, policymakers and their clients, can deploy their existing expertise in investing, markets and technology with greater understanding and empathy with their client and end-users’ needs, and develop responsive solutions.
At a basic level, this requires a recognition that clients have different backgrounds, levels of wealth, time horizons, life goals and aspirations. For the industry, it requires acknowledging and embracing technological change, albeit disruptive, to create client-centric solutions that facilitate financial inclusion and social mobility. The rise of on-demand insurance, insurtech solutions, mobile remittances and tech-enabled savings and investment intermediaries indicates that, in order to be responsive, service models will require greater collaboration between financial services companies, technology intermediaries, clients, policymakers and regulators
Financial services players, alongside regulators, policymakers and their clients, can deploy their existing expertise in investing, markets and technology with greater understanding and empathy with their client and end-users’ needs, and develop responsive solutions.
We now respond by asking:
A policy and implementation failure in South Africa is a lack of effective integration of all the issues that government is trying to promote through incentives to employers. These include:
A policy and implementation failure in South Africa is a lack of effective integration of all the issues that government is trying to promote through incentives to employers.
A core part of this Benefits Barometer argues that these policy initiatives are failing in the workplace because:
This requires multiple engagements premised on deliberative and multilevel collaborations between a varied group of stakeholders, including:
Industrial relations becomes an important area in which to pursue multistakeholder relationships. Many of these currently exist in sectors characterised by strong unions and large businesses, but where change is needed most is in medium-sized businesses or with casual and atypical workers without access to forums like the National Economic Development and Labour Council (NEDLAC) and bargaining councils.
In previous editions of Benefits Barometer we’ve shown that people in South Africa use a combination of formal and informal solutions in pursuit of their financial well-being. There is an array of informal multistakeholder approaches to well-being: funeral societies, ratepayers’ associations, civic associations, stokvels, mutual banks, and so on. All these institutions are testimony to the important fact that big is not always optimal. There are opportunities to harness existing social ties to local solutions to problems which, although widespread, may have local and context-specific applications.
In other areas, a similar change in mindset is needed. One such example is industrial relations. Because of its divided past, South Africa has often been the site of fraught relations between employers and employees. In some cases, these tensions bubble over into violent fatalities, as we saw in the 2012 Marikana massacre. Viewed in this light, industrial relations becomes an important area in which to pursue multistakeholder relationships. Many of these currently exist in sectors characterised by strong unions and large businesses, but where change is needed most is in medium-sized businesses or with casual and atypical workers without access to forums like the National Economic Development and Labour Council (NEDLAC) and bargaining councils. Two important facts underscore this: more than two-thirds of workers are not unionised, and much of our future job creation (almost 90%) is expected to come from small and medium-sized businesses.3 Moreover, greater collaboration is required between and within businesses of all sizes to open up key value chains to smaller players and ensure that large corporations encourage enterprise and supplier development.
One of the approaches to multistakeholder collaboration receiving acknowledgement and recognition of late is the concept of shared value, developed by Michael Porter and Mark Kramer. The shared value approach is loosely defined as an approach to generating economic value in a way that also produces value for society by addressing society-wide challenges. As Kramer and Porter state, ‘a shared value approach reconnects company success with social progress’.4
Greater collaboration is required between and within businesses of all sizes to open up key value chains to smaller players and ensure that large corporations encourage enterprise and supplier development.
One of the ways stakeholders can collaborate is through the development of social impact bonds, sometimes referred to as development impact bonds (DIBs). They are one of the most widely recognised approaches to impact investment. The bonds are contracts between the public sector and civil society (most notably philanthropic investors). In the contract, the initiating party states how it aims to deliver improved social outcomes alongside financial returns for investors beyond a predetermined hurdle rate. Below we describe an example of the Mozambique Malaria Performance Bond (MMPB), a partnership between Anglo American, Nando’s and Dalberg Capital. This is how it works.
By raising between $500 million and $700 million in capital from corporations, donors, government and investors, the MMPB plans to fund 12 years of malaria interventions, reaching eight million people in Mozambique. These interventions include prevention and treatment, bed nets, awareness campaigns and environmental health initiatives.
The DIB approach is an outcomes-based financing approach that is very different from other aid or corporate social investment (CSI) approaches. Through the MMPB, investors provide the capital up front throughout the 12-year time horizon, receiving bond repayments from corporates, donors and governments if the programme performs according to the goals set. The bond repayments are based on social outcomes – in this case, the reduced incidence of malaria or malaria-related deaths.
Corporates have a vested interest in providing some of the outcome-based repayments, as they can realise cost savings and productivity gains from the social outcome. If the programme doesn’t meet its goals, it can be ended, and investors would receive a portion of their original sum invested, or whatever was agreed at the start of the project.
This is just one example of how different stakeholders can come together to resolve a commonly shared challenge. It stands to reason that multistakeholder collaboration would work best when there is a common interest, and stakeholders clearly understand there will be initial risks, shouldered by one or more parties, and temporary winners and losers. More importantly, the time horizon for solving some of the issues (in this case, 12 years) is rather long, and such examples of impact investment often require ‘patient capital’ with a long-term investment horizon.
Kramer and Porter suggest three ways in which companies, alongside other stakeholders can achieve shared value:
Multistakeholder collaboration is not just about regulatory compliance; it’s an awareness that collaborative decisionmaking is important for inclusive outcomes. This is a conversation which has contemporary relevance in South Africa.
What, then, are the incentives and rationale for collaboration? Put simply, they are a combination of reporting requirements for Broad-Based Black Economic Empowerment (B-BBEE) purposes, and for integrated reporting systems which are becoming increasingly important for companies and investors alike. But ticking boxes is hardly a solution. Beyond some of the examples mentioned, multistakeholder collaboration is not just about regulatory compliance; it’s an awareness that collaborative decision-making is important for inclusive outcomes. This is a conversation which has contemporary relevance in South Africa, where many public sector unions have called for worker representation in the Government Employee Pension Fund (GEPF) and its fund manager, the Public Investment Corporation (PIC), which is the largest fund manager on the continent. Thomas Piketty, delivering the Nelson Mandela Annual Lecture in 2015, said this is a debate with global relevance, not least of all in his own native France:
In my country, in France, for a long time, employers and business people were completely against it; well, they are still against it, but the difference is that two years ago there was a law that there was going to be one employee representative out of 12 board members […]. In the end, maybe it’s a way to involve workers in the strategy of the company, so instead of just fighting you can have effective discussion about the strategy of the company, and sometimes this can also be a way to promote a more long-run strategy than short-term maximisation of profits.5
This approach will ensure two related outcomes which make multistakeholder collaboration important: Firstly, it will ensure that firms take multiple stakeholder perspectives into account in their decision-making matrix. Secondly, given the changes in the future of work, collaborative engagement is required to align the pace of structural change with reskilling initiatives, and ensure a just transition from old to new models.
In sections that follow, we discuss what such collaborations ought to look like and provide a roadmap for stakeholder action.
In securing the future of members and allowing them to take the risks necessary to build intergenerational wealth and facilitate upward social mobility and well-being, the role of innovative and disruptive technologies cannot be understated.
1 Fink, L. 2018. Chairman’s Letter to Shareholders from BlackRock’s 2017 Annual Report (online).
2 Fink (2018).
3 Steyn, L. 2014. The downward spiral of South Africa’s unions. Mail & Guardian, 14 November 2014 (online).
4 Porter, M & Kramer, M. 2011. Creating Shared Value, Harvard Business Review, January-February 2011 (online).
5 Piketty, T. 2015. 13th Nelson Mandela Annual Lecture, Johannesburg, 3 October 2015. Transcript from the Nelson Mandel Foundation (online).