Just a thought…

Unilever’s goodwill (or brand value) was valued 12.6 billion euro in 2009, up with about 900 million from 2008.

Let’s say we, you and me as Unilever execs, create a major sustainable smallholder inclusion program, that provides underprivileged farmers with access to a modern buyer like Unilever (say fully Rainforest Alliance standards compliant). We do this because our sustainability policy (The Sustainable Living Plan) will contribute to 200 million euro of our 900 million in goodwill growth due to strengthening of the overall sustainability and reputation of our company (metrics anyone ??).

Now say we want to provide farmers with a substantial incentive to stick to our sustainability policy, and improve each year, thereby maintaining the value and growing it. Corporate as we are, we decide to share 30% of this 200 million with our farmers in the form of derivatives of our company value to provide the incentive. That would create an amount of 60 million euro in equity to be distributed. This equity creates an average dividend yield of 2.5%, producing 1.5 million euro cash in hand for farmers per year.

Now look at this from the perspective of the supplying smallholder farmer who makes an income of about 300 euro a year. Materiality of the incentive could imply increasing the farmers’ current income with 25% (75 euro). Our dividend yield would thus allow us to create a substantial income impact, increasing by 20.000 farmers each year based on dividend alone (farmers also own the equity). And we are just one of the publicly listed food companies they supply to!

So what if? What if we could create such a value distribution mechanism?

– We would provide an entrepreneurial incentive to farmers for sustainability performance that corrects a current major design flaw

– This sustainability performance would look good on our track records and would make our pay checks shine

– Our competitors might be interested in copying our behavior

– We would share the risk with farmers in the endeavor: no performance, no value creation, no value sharing

– We would could publish an article in the Harvard Business Review on what Creating Shared Value actually means

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[ed. 08-10-2012] This post triggered some discussion, which was well worth a follow-up post. Check it out here under “What if” continued