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Our Insights 5 Apr 2011

What’s “New” About Creating Shared Value?

By Michael Sadowski

I recently attended the announcement of CR Magazine’s “100 Best Corporate Citizens List” at the New York Stock Exchange, for which the closing keynote was Professor Michael Porter of Harvard Business School. Professor Porter provided an overview of his (and Mark Kramer’s) Creating Shared Value concept, which prompted me to read their recent Harvard Business Review article in earnest.

The Old in CSV

My initial reaction was similar to that of a number of other commentators have: that CSV is nothing new, but rather fresh terminology for a concept which many in the sustainability field have espoused for some time. As the Schumpeter column in The Economist pointed out, there is striking similarity between shared value and Jed Emerson’s concept of blended value, and overlap with what Stuart Hart put forth in “Capitalism at the Crossroads.” For these authors and others, regardless of the term used (e.g. sustainability, CSR, citizenship), the underlying meaning is the same: companies create business and societal value when they take a broader and longer-term view of their business activities.

I also took issue with several other implications, assertions and omissions. For example, Porter and Kramer seem to imply causality between corporations’ embrace of CSR and plummeting levels of trust in business. In reality, the current crisis in trust is about business practices that have clearly not had society in mind (to note one recently reported example, GE has taken a very aggressive approach” to minimizing its taxes).

Related to this, Porter and Kramer call for a shift from “values” to “value” (from a morals-driven to a business-driven approach). Yet I believe values need to remain in the conversation, and it’s important for stakeholders (e.g. NGOs, governments, the media) to hold companies to account on them. After all, many bankers thought (and still think) that synthetic derivatives served a social purpose (i.e. facilitating home ownership) which we now know, painfully, was wrong.

Lastly, Porter and Kramer are wholly dismissive of policy makers, echoing words that have long been the province of companies and trade associations seeking to quash even sensible reforms (“…public policies that undermine the productivity and competitiveness of business are self-defeating…”). Porter and Kramer do not address the fundamental challenge of establishing policies that will set us on a longer-term, sustainable path on food, health, energy, etc. yet will undoubtedly bring short-term pain to some industries. They also make no mention of how corporations spend significant sums lobbying against such policies.

The New in CSV

This all said, I believe Porter and Kramer make several crucial points for business.

First, they state that “the most fertile opportunities for creating shared value will be closely related to a company’s particular business…” Unfortunately, this is not generally the case with many companies today, because they try to address a multitude of sustainability issues all at once (to illustrate, pick a report this spring and see how many issues are covered in its materiality matrix). This is understandable as the sustainability agenda has been largely imposed on companies from the outside (by e.g. NGOs, governments) rather than driven from the inside and by what matters most to the business.

But, I pose this question to companies as they consider their approach to sustainability: Given what you do, what you’re good at and where you operate, what are the one or two issues through which you can add the greatest value to society and your company? I don’t underestimate the difficulty of answering this question, but doing so will force companies to think more strategically and make necessary tradeoffs.

Second, Porter and Kramer cite the need for companies to pay greater attention to developing local clusters – geographic concentrations of suppliers, partners, universities, etc. – as such clusters foster greater efficiency and collaboration. What I take away is that companies need to rethink their value chains, which have become spread out over ever-greater distances, and more compartmentalized. The current model has certainly delivered cost efficiencies, yet a more local and diverse model may prove more economical over time due to volatile energy prices, climactic events, political risk, etc. Recent events in Japan and the Middle East offer a preview of what may become the norm going forward.

In closing, it’s easy to complain that CSV is merely sustainability in a shiny new coat, and some specific criticisms are warranted. Yet, I believe its call for greater company focus and a rethink of value chains would serve both companies and society well. And, if we can get to a point where every company is channeling their investment according to what they do best, perhaps we will then achieve the dramatic acceleration we need to address the sustainability risks and opportunities that are no longer very far in the distance.

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