Soapbox

April 20, 2014 11:30 pm

Premise of ‘creating shared value’ risks misleading MBA students

Anyone with even a passing interest in corporate social responsibility cannot have failed to notice the buzz that has built up around the idea of creating shared value (CSV). Over the last couple of years, CSV has become the big new idea in CSR circles, gaining major traction in the boardroom and the business school alike.

There is good reason for this. CSV offers the seductive promise that company success can be aligned with social progress – and that business can be re-legitimised in the process. Also, one of its main proponents is Michael Porter, one of the world’s foremost strategy gurus, whose work has been a mainstay of business education for decades. It is a winning combination. Unfortunately however, despite all its attractions, CSV risks misleading today’s business students about the reality of the societal challenges facing business.

Beale cartoon

The ideas behind CSV, as set out in the award-winning Harvard Business Review article Porter co-authored with Mark Kramer, are simple. CSV asserts that executives should address social issues where they can simultaneously create economic value for the company along with new value for stakeholders. Hence the label “shared value”. The idea is to stop executives focusing so much on distributing value among stakeholders and more on creating new value for everyone. A typical example would be helping rural farmers improve their yields so that they can become more productive rather than simply paying them higher prices to improve their incomes.

So far, so uncontroversial, or at least it would seem. But behind these simple assertions are a number of troubling assumptions that many in the social responsibility field are distinctly uncomfortable with. In a recent article in the California Management Review, I explored these problems with my co-authors Guido Palazzo, Laura Spence and Dirk Matten. We identified three critical issues.

First, there is the question of what happens to the numerous social problems that inevitably involve trade-offs between social and economic goals? A good example is the long-running tension between lower labour costs and better working conditions in developing countries. Porter and Kramer suggest that we need to simply “move beyond” such trade-offs. While this might sound attractive, trade-offs cannot simply be ignored and they do not go away because we do not do not like them. Managing trade-offs is one of the key tasks of managers, but CSV simply urges managers to avoid them and focus on the easy win-wins. Appealing yes, but a responsible approach to educating the next generation of managers? Hardly.

Second, there is the question of compliance with legal and ethical norms. CSV proponents want to sideline these too. Sure, in Porter and Kramer’s words, “CSV presumes compliance with the law and ethical standards” but this is the one and only sentence about respecting law and ethics in an entire article predicated on enabling businesses to “earn the respect of society again”. If your aim is to engage senior executives, focusing mainly on opportunities rather than the less sexy business of compliance can make sense. But failures to meet basic rules and norms are at the very heart of the current legitimacy crisis of business. Just look at the finance industry. Or extractives. Or pretty much any industry that has failed to keep up with societal expectations. Again, CSV is in danger of simply whitewashing the very problems it is seeking to solve.

Finally, take a look at the role of the corporation promoted by CSV. As far as Porter and Kramer are concerned the solution to the crisis in capitalism is a reinvigoration of corporate self-interest, albeit with an attempt to focus self-interest on doing good. In this sense, they are doing little more than restating the need for a business case for social responsibility. Fine, the business case has an important role to play in generating buy-in to social initiatives. We have known this for decades.

The real problem comes, however, when the business case, or shared value, or whatever you want to call it, is the only lens that companies are looking at society through. Most of the big social problems of today, such as poverty, climate change and resource depletion require collective solutions across business, government and civil society. And collective solutions require collaborative mindsets where the interests of other players are not simply reduced to a corporate cost-benefit calculation. Businesses have to learn to work together not against each other in solving social problems. CSV, on the other hand, is all about using social problems to gain competitive advantage so that you and your clients prosper while everyone else is left to fight for themselves.

CSV has been successful because it promises to tick all the right boxes for executives – make more money, check; restore trust, check; solve social problems, check. It is little wonder that it has also had such a warm reception in business education. To the extent that it has made it easier for everyone to talk openly about the need to engage business in social betterment, that is a good thing. But it peddles such a narrow view that if it succeeds in Porter and Kramer’s goal to be “the next evolution in capitalism” we may just end up evolving backwards rather than forwards.

The author is professor of business ethics and director, Centre of Excellence in Responsible Business, Schulich School of Business, York University, Toronto.

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