For centuries western scholars wrote in Latin. To not know Latin was to not be educated. Today’s business schools use a conceptual version of “Latin” namely, the language of modern economics, whose syntax includes basic values such as free agency, property, contracts and optimisation. It is an extremely powerful and useful language.
Michael Porter and Mark Kramer’s idea of creating shared value (CSV) succeeds in translating social concerns such as environmental sustainability, fairness and poverty-reduction into one of the subsets of this economic language, the field known as business strategy.
Porter and Kramer define “shared values” as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates”. Having posited this remarkable amalgam of economic and non-economic values, the authors offer strategic advice about how to achieve it: through re-conceiving products and markets, redefining productivity in the value chain and enabling local cluster development. They take a bold step forward by encouraging what might be called “enlightened” strategic thinking, an approach that will be especially welcome to business school students predisposed to integrate social values with business success. It is little wonder their Harvard Business Review “shared values” article is fast becoming a staple in business schools.
Unfortunately, some aspects of sustainability, fairness and poverty-reduction are lost in translation. Equally as important as what Porter and Kramer can say with the CSV concept is what they cannot say.
To be sure, the economic “Latin” of modern business schools has improved the teaching of strategy, marketing, accounting and finance. It has spawned countless derivative theories, including Porter’s well-known strategic theory of “Five Forces” and now his “Shared Values” model. This language is crucial for understanding and achieving what business should emphasise: efficiency. If markets and the modern for-profit corporation are good for anything, then they are good for making quality products and services at attractive prices. Markets and private companies efficiently co-ordinate actions of individual people in ways that enhance aggregate economic value for all of us. And as Adam Smith, the moral philosopher showed, no system does it better.
But speciality tools often fail at other speciality jobs: “If the only thing one has is a hammer, then everything starts to look like a nail”. Not every social value problem in business can be solved using the refined, narrowly aimed language of agency theory, transaction costs, optimisation, property and contracts. Sometimes hammers only help to patch over a problem.
Consider the basics of CSV. CSV, we are told, is about simultaneously advancing company competitiveness and social welfare. But immediately we want to know about the adverb, “simultaneously”. When both social and company values cannot be achieved simultaneously, then how should one weigh and balance the two? Here Porter and Kramer are forced to revert to the instrumental logic of their underlying conceptual language, one in which social values must be subordinated to competitive ends. As they write, “CSV … is about solving societal problems in order to create economic value, not about blending or balancing”.
But assigning strategic weight to company value and interpreting social value merely as a means to company value, misses something crucial about values. For many values there can be no balancing, weighing, or calculating about ends. A company should tell the truth to investors, refuse to discriminate on the basis of race or gender and refrain from dumping cancer-causing chemicals in public waters, even when doing so fails to enhance its competitive posture. It should do so even when the regulatory apparatus in a developing country is inadequate to regulate pollution; and it should do so even in a developed country when industry insider knowledge exceeds regulatory reach, as when bankers know their complex toxic mortgage derivatives are opaque to regulators. The logic of the language of morals is often not about optimisation, but commitment. It often requires a “deontic” logic of principles rather than a “consequential” logic of means and ends. Students in business schools who will later confront such issues are ill-served when told to frame them in terms of social value as a means to company value.
In the big picture, business school professors, including Prof Porter, should remember to ask their students a simple question. It is not, “What is the company about?” Or, “What is competitive advantage about?”, or even “What is regulation about?” It is, “What is business about?” Properly understood, business is a form of co-operative activity for the purpose of efficiently achieving mutual and collective value. And, regrettably, when answering this question, more than one language must be spoken.
The author is professor of legal studies and business ethics at the Wharton School at the University of Pennsylvania