17 September 2015

Dual Mandate Business: What Does Gulf Food Security Have In Common With Sydney’s Urban Future?

By Associate Lecturer Michael Katz

CSR is about businesses performing in a way that appears to further some social good that goes beyond the financial interests of the firm and relevant legal requirements. However, moving beyond CSR, which is seen as peripheral and more messaging than reality, the concept of dual mandate is an important development.

Dual mandate sits within the spectrum of ‘shared value’, but with the important distinction of meeting a minimum mandated deliverable on both financial and social measures. This middle ground between corporate CSR initiatives and smaller social business initiatives has important implications for business in the ability to engage a diverse set of stakeholders.

A Significant Break Through
It was a journey for me to arrive at this middle ground, having started my career within a private sector hedge fund with no social value, swinging the pendulum all the way across to a social business with limited financial potential, I arrived at dual mandate via a pit stop in the Gulf. There, I was engaged as a consultant to write a food security investment strategy that would secure the country’s access to food for the next 50 years, a bold plan given they domestically produce next to nothing.

The challenge was to meet the minimum financial return expectations that the investment agency is mandated to target, while simultaneously mandating minimum food security outcomes expected from the strategy. The subsequent approach that we developed is focused on developing long term relationships based on trade and co-investment, moving toward a model of co-creation of new value as opposed to a transfer of existing value. This is achieved through a number of investment methods, including joint ventures, long term offtake agreements and knowledge transfer.

Back At the Ranch
This project and the associated development of the dual mandate model has led me to work on three major initiatives back in Australia:

Working with local government, investors and food producers to better understand how the global movement of sovereign food security offers more than an opportunity to sell the farm - it provides an opportunity to build deep trade-based and co-investment relationships that transcend the single financial dimension. This is an exciting prospect for Australian producers, who don’t want to miss out on the flow of capital entering Australia, but also want to remain in the game. Additionally, the balance sheet underpinning the investor nations, combined with their appetite for investments across the supply chain, put large scale infrastructure opportunities on the table for regional governments.

The dual mandate concept equally applies to developers in Sydney’s housing market. Property development firms are beginning to recognise that Sydney’s urban growth should meet both investors’ financial expectations (or it won’t be funded) and the government’s vision for social value (or it won’t be approved).

The latter can be measured through ‘equitable access’- i.e. access to housing at affordable levels as well as key services, employment, social activities etc. This requires taking a holistic view of a development site rather a narrow individualistic perspective. This can take the form of community consultation, forming land owner groups to design a regional vision, and of course mandating social outcome targets. The result is a win-win situation, being that approvals become easier for developers, while also greatly benefiting the wider community.

At the University of Sydney Business School, we are working to engage students with dual mandated businesses spanning Broken Hill, Redfern and all the way to India. The common thread for these businesses is that they are all concerned with both making a profit and a material social impact. Through this we have identified five key stages of implementing the dual mandate:

  • Social Value Dimension: conceptualising, measuring and pursuing social value
  • Trade-off: understanding trade-offs between financial & social value dimensions
  • Maximising Value: on both dimensions, and achieving an acceptable outcome on both
  • Implementation: engaging all required resources to execute the strategy
  • Communication: ensuring all stakeholders understand the strategy and benefits 

What does this mean for you?
It’s important to note that not all businesses have the capacity to achieve material impacts on both financial and social mandates. However, I firmly believe that the current generation of graduates, and therefore the next generation of leaders, will be increasingly looking toward dual mandate business as the Holy Grail. I believe that to truly move towards the expectations of the next generation, we need to recognise the limitations of the current social initiatives: moving beyond the messaging of CSR; the limited financial and operational scalability in small social enterprises; and the opaque nature of ‘shared value’ strategies.

Instead, we need to be identifying genuine economic opportunities through the lens of a social problem, and understanding the mechanisms, such as co-investment in global food markets and collaboration in urban development, through which dual mandated business can be achieved. Getting this right will be a critical characteristic in attracting talent and capital, and achieving sustainable profits.

Michael Katz is an Associate Lecturer at the University of Sydney Business School, and unit coordinator for the Community Placement Program. His research, teaching and private sector focus is on the area of business and investment where profit and social outcomes intersect. Michael has more than 10 years experience in private sector finance and investments across venture capital, funds management and property transactions. He is currently engaged as Director and principal investor in a real estate urban activation business; a Director in a refugee-focused venture capital business; and is writing a food security investment strategy for a major sovereign wealth fund.

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