Soapbox

April 24, 2014 11:00 am

The opposing perspectives on creating shared value

We may have to accept the ambiguity of this debate as both views have their own truths

Ever since Michael Porter and Mark Kramer published their article on “Creating Shared Value” (CSV), I felt that this was a major step, possibly even a breakthrough in redirecting the debate on the purpose of business; a debate that had been stuck between two incompatible positions of shareholder value and stakeholder value.

The concept of CSV created some fruitful common ground. However, after reading the recent article by Andrew Crane, Guido Palazzo, Laura Spence and Dirk Matten on “Contesting the Value of CSV” the same thing happened to me again. Their brilliant dissection of the limitations and shallowness of CSV made it very clear to me that CSV was not the answer to this fundamental debate. But what now? Both opposing perspectives could not be right, or could they?

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CSV presents an exciting answer to the widely shared diagnosis that companies were perceived as prospering at the expense of the broader community. If they wanted to regain their legitimacy they had to take the lead in bringing business and society back together. The capitalist system has been under siege, because a very narrow concept of capitalism prevented business from harnessing its full potential and going beyond simply trying to make profits to meeting society’s broader challenges. Porter and Kramer had argued that the purpose of the corporation had to be redefined as creating shared value - creating economic values in a way that also creates value for society by addressing its challenges and needs.

CSV would help companies to focus on the right kind of profits, profits that create social benefits rather than diminish them, which would then start a positive cycle of company and community prosperity which would reconnect business with society. This would also drive the next wave of innovation and productivity growth in the global economy, as markets are being defined increasingly not just by conventional economic needs but by societal needs. Finally, CSV was presented not as a redistribution approach, sharing value that has been already created by companies, but as an approach to expand the total pool of economic and social value.

This bold new approach promised to connect business and society in a more integrated and holistic way. This was and remains an exciting and timely message. But now CSV is being accused by Crane et al of ignoring the real tensions between economic and social goals and being based on a shallow conception of the corporation’s role in society. Instead of focusing on the inherent dilemmas and the inevitable trade-offs between economic and social value creation, they see CSV as an attempt to whitewash the problem of trade-offs and to disregard negative impacts of corporate activities. In focusing on win-win solutions and individual projects, CSV leads companies to concentrate on the easy wins, while leaving unresolved the deeper social issues to which they are connected.

Corporate cherry-picking and whitewashing, as suggested by CSV, is destined to lead to “islands of win-win projects in an ocean of unresolved environmental and social conflicts”. As Crane et al argue, the objective cannot be to create more opportunities for profit for corporations, but to contribute to solving pressing societal issues, which must include industry-wide solutions and multi-stakeholder initiatives. On a more fundamental level, Porter and Kramer are seeking to solve a system-level problem, the crisis of capitalism, with merely organisational-level changes. Ultimately they are seen as presenting yet another approach where society and its needs are seen as something the company can cater to successfully in traditional economic terms.

Where does this leave us with regard to the debate on the crisis of capitalism and the purpose of business? Crane et al have made it very clear, that corporate interests cannot and will not provide a sufficient basis for solving the pressing social issues we are facing, despite the promises made by Porter and Kramer. For this, there will need to be changes in the markets and their framework conditions. But CSV should help us to make some improvements in this direction.

I am afraid we may have to continue living with the ambiguity created by this debate on the value of CSV. The relevant question relates to the consequences of the concept of CSV in business practice. Does CSV lead to real improvements in business practice or does it simply help to refine the rhetoric? Does it lead more corporations to engage in social problems and do they come up with better solutions for society, not just for business itself? My answer is, probably yes. The CSV concept creates space for managers to define strategies and actions addressed at solving social issues. For example, it helps to recognise, define and assess the value in addressing resource shortages, alternative sources of energy, urban mobility, or issues of health or poverty. The CSV concept also helps to legitimise socially relevant strategies and actions in the face of narrow financial interests. It creates argumentative space to present and defend the value of such strategies, outside and inside the corporation, as developing solutions for social issues often need a wider perspective and a longer time horizon. And corporations pursuing CSV strategies will also probably be more open to and supportive of regulatory changes aimed at internalising external costs and making capitalism more responsive to social challenges, as corporations are directly facing the trade-offs between private costs and social benefits.

If we are honest, we have been living with the ambiguity created by the debate on the value of CSV for a long time. In lecturing to business people, we tend to stress the business case of sustainability and the corporate benefits of their social engagements, be it in the form of efficiency gains, reputational benefits or stronger market positions, because we know this relates to the world that they live in. In discussions with our academic peers, however, we freely discuss the limitations and shortcomings of such win-win approaches. We are fully aware of this inherent ambiguity and yet we realise that they both have their own truths.

The author is professor of sustainability management, University of St Gallen.

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