Creating shared value:
Revolution or clever con?
Blog by Wayne Visser
The Corporate Social Responsibility (CSR) movement has not delivered a system change. Creating shared value (CSV) can change this as it has challenged the narrow definition of corporate purpose to go beyond profit maximization.
‘The capitalist system is under siege. In recent years business has increasingly been viewed as a major cause of social, environmental, and economic problems.’ This was the statement made by Harvard professor Michael Porter and management consultant Mark Kramer in Harvard Business Review in 2011. The solution they propose is ‘creating shared value’ or CSV, which they are at pains to point out ‘is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success.’ At its heart, they say, CSV is the way in which ‘businesses must reconnect company success with social progress.’
Porter and Kramer observe that ‘companies are widely perceived to be prospering at the expense of the broader community. Worse still, the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures.’ Hence, for them, CSR is something of a red herring, which they describe as a ‘mind-set in which societal issues are at the periphery, not the core’ and ‘a reaction to external pressure—[which has] emerged largely to improve firms’ reputations.’
However, the question is whether CSR and CSV are really different? In fact, is CSV even a new concept, or just old wine in new wineskins? Porter and Kramer also argue that CSV is more preferable than fair trade. Is that true? In this brief article, I want to tackle some of these questions, as well as reflect on the true value of CSV and the future of CSR.
The first thing to place on record is that CSV reflects an evolution in Porter and Kramer’s own thinking. After a career spent focussing on economic competitiveness devoid of any consideration of social impacts, Porter teamed up with Kramer in 2002 to write about ‘the competitive advantage of corporate philanthropy’, which they then reframed in 2006 as ‘strategic CSR’. Hence, CSV is their third foray into the field of social responsibility – which rather ironically and explicitly disparages the previous two.
The second point is that CSV is nothing new. At the very least, we can say that it strongly echoes the work of C.K. Prahalad and Stuart Hart on serving markets at the ‘bottom of the pyramid’ (BOP), which dates back to 2002, as well as the idea of supporting ‘inclusive business’ – something into which the International Finance Corporation (IFC) has channelled $7 billion in over 80 countries since 2005. It is somewhat disingenuous and poor academic form that these foundational concepts were not even acknowledged by Porter and Kramer.
The third aspect of CSV that I take issue with is the way in which the duo characterise corporate social responsibility. I agree that some companies are still practising an immature form of CSR – which I have called CSR 1.0 – that is defensive and risk-based, philanthropic-oriented or PR-driven. However, numerous companies have moved on to a fourth stage – strategic CSR, as exemplified by the ISO 26000 standard – and some have even gone beyond that, to what I call transformative CSR, or CSR 2.0.
Not content to discredit social responsibility alone, Porter and Kramer also launch an attack on the fair trade movement, which they say ‘is mostly about redistribution rather than expanding the overall amount of value created.’ By contrast, CSV ‘focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability. This leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them.’ The fact that these aspects are integral to the work that the Fairtrade Foundation seems to have been conveniently overlooked.
Having said all that, if my short critical tirade has given the impression that I am against CSV, allow me to set the record straight: I am a CSV fan, and here are the reasons why: I believe it has injected a new energy into the CSR movement. It has cleverly changed the language of social responsibility into the language of value creation, which business leaders can better understand and it has challenged the narrow definition of corporate purpose to go beyond profit maximization. What is more, it has rightly advocated a better alignment between a company’s core strategy and the social problems that it can have an impact on.
At the end of the day, I am less concerned about the labels we use – be it CSR, BOP, corporate citizenship, sustainability or CSV – and more interested in whether the concept and practice are holistic and transformative. This means business has to embrace what I call the four DNA elements of responsibility: value creation, good governance, societal contribution and environmental integrity. It also means applying creativity, scalability, responsiveness, glocality and circularity to the business solutions to society’s needs. Lastly, it means calling for a transformation of capitalism – which I am pleased to see Porter and Kramer agree with. For a more resilient capitalism to emerge, I believe all future economic and business activity will need to be guided by five criteria:
- Responsible investment – ensuring that money is channelled towards productive and sustainable investments, as the Co-operative and Triodos banks have done, and not into speculative trading in the casino eco
- Long-termism – understanding that real wealth is created by adopting a long-term perspective, including the needs of future generations, as Generation Investment and Warren Buffet’s Berkshire Hathaway showcase;
- Transparent disclosure – embracing transparency in revenues, in line with the International Integrated Reporting Council, Carbon Disclosure Project and Extractive Industries Transparency Initiative (EITI);
- Full cost accounting – internalising social and environmental costs (externalities), either through taxes (such as those on carbon and pollution) and social and environmental profit & loss accounts (such as Puma’s); and last, but not least …
- Inclusive development – serving the ‘bottom four billion’ markets, as demonstrated by the BOP 2.0 Protocol, and enacting Porter and Kramer’s concept of creating shared value.
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Related websites
[button size=”small” color=”blue” style=”tick” new_window=”false” link=”http://www.waynevisser.com/books/the-quest-for-sustainable-business”]Link[/button] The Quest for Sustainable Business (book)
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Cite this blog
Visser, W. (2013) Creating shared value: Revolution or clever con? Wayne Visser Blog Series, 17 June 2013.
I like the fact that we are beginning to see and agree on where the terminologies (they are so many and sometimes so confusing!) intersect and where they can strengthen, energize and sharpen the shared vision of those working in the field of CSR, CSV, Sustainability etc. For those of us in Nigeria where the misdemeanors (or negligence if you like) of companies, governments and all those in between have untold impact in terms of loss of livelihoods, deepening poverty and lack so grievous that it causes your skin to crawl – what we need are practical, simple, inclusive strategies that pool together or embrace all the commitment and political will that we can muster from every quarter. We need solutions that can provide some respite as we work towards the transformation and change that we are in such dire need of. Terminologies work very well when you’re sure that while you’re crafting them in your comfortable office, the electricity supply won’t suddenly go off and a surge of power so enormous blows up your expensive and imported laptop.
Yes, we need transformative strategies but again, we need even the small incremental stuff, the type that can bring some quick relief too. We need all of these working simultaneously as we work towards the bigger change.
Two or three years ago, I conducted a focus group discussion with young people in a community in Nigeria’s Niger Delta who since they were born had never lived in a home with electricity. Yes, a few people in the community could afford generators but what good is that to these young people? I recall one of the girls saying that sometimes, she would just hang out in the toilet because she had no access to sanitary towels or substitutes! Many of them were not attending school because the cash was not just available for this. Some had dropped out of school to support the aspirations of younger siblings.
What really scared me was the palpable hostility they displayed towards parents, guardians, and those in authority generally, whom they felt had betrayed them. There was so much hopelessness, pain and despair; it was scary and for the first time I understood the making of a Niger Delta militant.
In the creeks, school-age children who are privileged to attend school would need to row for miles in a small canoe to get to a school. (and you can read about my experience in my blog (ishshah: A Day in the Nembe Creeks http://womandigest.blogspot.com/2012/09/a-day-in-nembe-creeks.html?spref=tw) I recall a story about a child, maybe 9-10 years whose canoe capsized. I was told that this happens all the time. The description was so graphic, so comic and yet so painful. I was told how he rowed to safety with one arm, the other holding aloft his cherished school bag and books.
Back to the issue of terminologies: I really was fascinated by the whole concept of CSV when I first came across it and we wrote extensively about CSV in the Nigeria Social Enterprise Report 2012. It makes a whole lot of sense to me because it embeds and emphasizes ‘shared value’. It provides a much-needed foundation for the arguments we have been putting forth to Nigerian firms in the last 7 years. If everyone, companies, SMEs, governments and all those in between embraced CSV, the situation would be quite different. More importantly, it allowed us to demonstrate and support in more concrete terms arguments about the benefits of CSR to companies and their stakeholders. Making a business case is very hard here where after paying their taxes, companies must also generate power 24 hours a day to keep production machinery working optimally. I am also a strong fan of CSR 2.0 and I am all for transformation and have discussed this at length during our training sessions and in our annual reports over the years.
But if Procter and Gamble, for instance, decides to provide a supply of its Always brand of sanitary towels to all the girls in public schools or girls schools in the Niger Delta free of charge for five years, that would be great (so that the young girl I spoke about would not have to miss school for a number of days every month) while they are working towards establishing a production plant that uses renewable energy and recycled materials where many of the top management are women trained by P&G and drawn from the host community.
Thanks Wayne — we are indeed partners in this effort. It would be fun to do a piece on CSR 2.0 vs CSV — letr me think about that for a bit. And you are right that Stu Hart’s mutual benefit is very much about shared value in the BOP context. Kash Rangin has also written to similar effect in HBR about the need for real community benefit in order for BOP strategies to work.
I hope you’ll participate in the shared value community we are building at http://www.sharedvalue.org.
Mark, thanks for your very thoughtful – and thought-provoking – reply.
Perhaps the point is that CSV is a reflection of changing thinking which is more widespread. Isee both the CSR and fairtrade movements evolving in the direction of CSV, which can only be a good thing. I am also pleased that you acknowledge the intellectual debt to the likes of Prahalad, Hart and Elkington. Certainly my conversations with Stu suggest an interpretation of BOP model much closer to CSV than perhaps you have appreciated.
The issue of true cost accounting and Puma’s environmental P&L is an interesting one to unpack. As you probably know, the true pioneers in this were the likes of BT, Ontario Hydro and Baxter International back in the 1990s. And since their “shadow pricing” did little or nothing to change market pricing and valuation, you are justified in your reservations. I am sure we agree that pricing and internalizing externalities is critical. The only question is how best to embed this in the real economy.
Your comments add insights to a debate about effective approaches to the crisis in capitalism, which is vital. I wish you all the best in your work with Porter and others in taking CSV forward. We are all “watching this space” and adding our little contributions where we can. Do let me know if you ever want to do a joint piece looking at how CSR 2.0 and CSV complement and reinforce one another.
Wayne Visser
It was a pleasant surprise to discover that Visser comes out resoundingly on our side, despite his title and some strong reservations. Some of those reservations I acknowledge, others I’d like to correct. I also agree with four of Visser’s five criteria for resilient capitalism, but take exception to one of them.
First, the reservations. Visser is entirely correct in suggesting that Porter’s and my thinking has evolved over the years, but he is wrong to suggest that CSV disparages our earlier ideas. We consider philanthropy and strategic CSR to be part of the portfolio of tools companies have to address social issues, each of which has unique strengths, and all of which can be used in mutually reinforcing ways. CSV does not replace CSR or corporate giving, although it does place them in a new context that is more central to the success of business.
Second, it is true that CSV overlaps substantially with bottom-of-the-pyramid and inclusive business thinking. It also overlaps with CSR and sustainability. But it is a broader umbrella that unites a wider range of business and social benefits with a different rationale. Selling soap in poor Indian villages is bottom of the pyramid; creating a new market for solar-electric roofing shingles in the US is not. Conserving energy is sustainability, but inventing a portable low-cost battery-operated electrocardiogram machine is not. Still, I admit that we should have acknowledged C.K. Prahalad, Stu Hart, John Elkington, and many other thought leaders whose work overlaps and inspired ours. HBR’s strict editing and footnote ban made that hard to do, but we probably should have insisted.
I also want to be clear that we think the fair trade movement is a very good thing, and we recognize that some of the extra payment is recycled into community building and helping farmers improve their yields, but it is not focused on creating new economic value through increased productivity to the same degree. Here too, we could have been more precise.
Finally, it is true that what we characterize as CSR is the old-fashioned CSR 1.0 in Visser’s terms, and there are many more enlightened practitioners of CSR out there today — though I would argue they are still the exception more than the rule. The fact is the term “CSR” covers a very broad spectrum. And it is true that the most advanced end of that spectrum sometimes looks like CSV. But despite the overlap, I was glad to see that Visser nevertheless recognizes and applauds the new energy and perspective that CSV has brought onto the global stage.
As for Visser’s five criteria for the new incarnation of capitalism that we both would dearly love to see, I wholeheartedly agree with all but “full cost accounting.” The problem with Puma’s approach is that it tries to build fictional values into financial reporting. Only markets and governments can set a price on externalities such as carbon emissions or the use of natural resources. When companies substitute notional values, the investment community stops taking them seriously. Shared value is about the true economic value to be found in solving social problems in the world as it is today, not the idealized value in a better world we might prefer to live in.
The downside is that there are still many social and environmental issues that do not yet carry a true economic cost. The upside, however, is that many such issues do carry real costs that have been overlooked for decades. And when companies focus on real costs and real profits, they commit resources and act with an energy that fictitious values will never generate. CSV doesn’t solve all the societal problems we face, but for a large number of problems it unleashes a new and more powerful form of corporate engagement that can bring about a better world. Something that Visser, Porter, and I all believe is in the best interests of both business and society.
Mark R. Kramer