The Role of Businesses in Regenerating Local Economies — Part 2
Catalyzing a Business Stakeholder Ecosystem to Drive Place-Sourced Economic Development
Article 2, Part 2
By Beatrice Ungard and Ben Haggard (with the Regenerative Economy Collaborative)
To get caught up, start at Part One.
Business as a Stakeholder System
A significant barrier to creating regenerative relationships among businesses and their places is the transactional perspective with which these relationships are generally viewed. Economists often think of the role of businesses in terms of jobs created, tax revenues generated, and overall contribution to GDP. Businesses think of communities as sources of labor, materials, and stable infrastructure.
Yet businesses can be so much more in the life of a community. They can be a source of pride, even contributing to a sense of shared identity. They can open doors of opportunity and human development for employees and provide outlets for creative expression. They can be co-investors in public infrastructure, and allies in promoting healthy democracies. The key is for businesses to shift from seeing themselves as closed systems, continually negotiating, competing, and transacting with other players in their environments, to open systems, embedded within and in reciprocal relationship to their environments. Pioneering regenerative thinker Bill Reed, one of the key shapers of the Playa Viva project, depicts this difference graphically.
Figure 1: Reciprocal versus Transactional Stakeholder Relationships
As this graphic suggests, transactions occur between specific players and are often guided by competing imperatives to extract the most value possible from the exchange. Reciprocity, on the other hand, describes exchanges that contribute to the overall healthy functioning of the system. In reciprocal exchange, many of the benefits are indirect, arising from the value of participating in a vibrant whole.
Carol Sanford, in her book The Responsible Business, introduces a very useful framework for seeing business as an open system and putting this insight into action. She calls it the stakeholders pentad. Her premise is that businesses occur at a nexus among five distinct types of investor, called stakeholders: customers, co-creators (e.g., employees, suppliers, partners), Earth, communities, and financial Investors. It’s the overlap and relationships among these stakeholders that create the reason for a business to exist and without which it wouldn’t be able to endure. Seeing things in this way allows one to reconfigure in the business owner’s mind the boundary of the business, so that it includes these stakeholders. This creates a very different frame of reference for what one needs to think about in designing and setting strategy for a business.
Figure 2: Business as the Expression of the Will of Stakeholders
In an earlier article, we proposed that, “In regenerative development, stakeholder engagement is intentionally relational and developmental.” This means that a regenerative business will nurture its stakeholder ecosystem by creating mutually beneficial relationships with all of its members. In addition, these relationships will be developmental, meaning that they will be designed to foster reciprocity by growing the capacity of stakeholders to contribute to the health and evolution of the system (or place) as a whole.
It is important to remember that stakeholders have a stake in both a business and the community in which they operate. Each stakeholder invests their own unique form of capital in a business in order to achieve a desired effect that matters to that stakeholder. Thus, each stakeholder is also a co-investor. They also expect a return on their investment, in a form that is relevant to them. Participation in the business and its activities is the way they hope to generate this return. This is a reasonable hope, because business is by nature the arena wherein these different forms of investment are brought together to produce new value.
A regenerative business seeks to engage in value-adding relationships with its stakeholders. Value-adding is a term of art within the context of regenerative thinking, referring to a kind of throughflow of value creation. A business becomes value-adding for stakeholders when it enables them to more successfully create value themselves. Put another way, a product becomes valuable in the eyes of its user if it enables them to better pursue their own value-generating purposes and aspirations.
To engage in value-adding relationships, a regenerative business begins by deeply considering what matters to stakeholders. By helping them increase their ability to affect the things they care about, a business provides them with the return that they are seeking. For example, in return for the investment of the capital of their time, effort, and creative energy, employees seek opportunities to grow themselves, learning how to take on increasingly challenging assignments that provide greater likelihoods of making meaningful impacts. Although this is frequently reflected in greater responsibility and correspondingly higher pay, the real return on investment comes from the satisfaction in being able to stretch out and manifest more of their inherent potential. In this example one can see that the right business approach can build both capabilities and will for co-creators, generating value not only for them but for the whole system.
The return on investment produced by such an approach is a form of wealth, although not necessarily financial wealth. It represents an increase in the original fund of capital, along with an increase in the ability to generate further wealth through reinvesting the return. In the case of the example of an employee, the increase has taken the form of human capital, and they have become able to manage increasingly complex or demanding initiatives. Obviously, this increase in human capital not only benefits individuals, it also benefits their families or other communities to which they belong. In this way, as the unique wealth of each stakeholder increases, the wealth of the whole business ecosystem also grows, fueling a healthy local economy.