Members of this community might not need convincing that shared value is an effective way to solve social problems. However, there is still debate over whether Michael E. Porter and Mark Kramer’s approach is really the best course of action. Andrew Crane (York University), Guido Palazzo (University of Lausanne), Laura J. Spence (University of London), and Dirk Matten (York University) recently published an article in the Winter 2014 edition of the California Management Review, titled “Contesting the Value of ‘Creating Shared Value’.” Discussion about the article has been making the rounds in the CSR and shared value communities, including a good summary on Andrew Crane and Dirk Matten’s blog which sets out the authors’ four main problems with the approach.
As the Shared Value Initiative, we’d like to provide some context for the critique by way of a reply by Porter and Kramer which was published with the article. We invite you to read the article or the blog post summary and then consider the response below. What’s your take on the support and criticisms in the article? Please post your feedback in the comments below.
Michael E. Porter and Mark Kramer respond:
“Andrew Crane’s critique of Creating Shared Value acknowledges the wide and positive reception our article has received, but at the same time contends that we have said nothing new. This is puzzling, especially given the substantial changes in behavior in corporations around the world, both large and small, that have come as a direct result of the article. Clearly something about this article has moved companies to embrace the idea and act in ways that previous literature has not.
We think the reason our article has drawn so much attention is that it provides an overall, strategic view of how to think about the role of the corporation in society, which both incorporates and extends past scholarship on corporate philanthropy, CSR, and sustainability but also distinguishes CSV as a distinct, powerful, and transformational model that is embedded in the core purpose of the corporation. We ground the opportunity for CSV in new learning about the effect of externalities on the firm, including our own work on the environment, urban poverty, global health and other social issues dating back 20 years. We also operationalize and make concrete CSV with a three level framework that illustrates its potential to drive innovation and opportunity in many aspects of the firm’s product, value chain, and business environment.
There are numerous other writers who made important contributions to the body of thinking in this broad area, such as Jed Emerson’s blended value, Stuart Hart’s mutual benefit, C.K. Prahalad and Hart’s bottom of the pyramid, John Elkington’s work along with Andrew Savitz and Karl Weber’s work on sustainability and the triple bottom line, David Schwerin’s and John Mackey’s work on conscious capitalism, and many, many others. We acknowledge these streams of work in our seminars and teaching—the HBR format does not permit footnotes and is not the place for a literature review.
But related work does not mean that the concepts are the same. Jed Emerson emphasizes the need to blend the social, environmental and economic value created by both for-profit and nonprofit enterprises, so that enterprises and capital markets can maximize the sum of all forms of value created. CSV, however, is about solving societal problems in order to create economic value, not about blending or balancing different types of value. Stuart Hart’s framework for sustainable value creation includes pollution prevention, clean tech, bottom of the pyramid, and product stewardship, all of which overlap but are not the same as the levels of CSV. Prahalad and Hart’s path-breaking work on selling to the bottom of the pyramid can also be an aspect of CSV, however, as Hart and Kash Rangan have separately written, BOP products and services only create sustainable value when they benefit the communities they serve, and not all BOP initiatives do so. A similar point about the overlap with CSV can be made about sustainability, which has been defined in many ways ranging from a focus on environmental improvements that reduce costs or improve products and create shared value, to a broad call for the protection of future generations through systemic changes that would distort capitalism and undermine competitiveness.
Mr. Crane is mistaken when he claims we believe that corporations always follow the law and behave ethically. The quotation from our article he selects, that “creating shared value presumes compliance with the law and ethical standards, as well as mitigating and harm caused by the business, but goes far beyond that,” is misunderstood. We actually say that legal compliance and a narrow sense of social responsibility are prerequisites to creating shared value, but the concept of shared value takes company behavior much further.
Finally, Mr. Crane utterly misses our point when he objects to our “corporate-centric focus” on “creating economic benefits for the firm and its owners” consistent with “corporate self-interest” and “old strategy models.” Mr. Crane seems to advocate addressing “systemic problems of injustice [with] broader solutions embedded in democratically organized multi-stakeholder processes.” Such a vision may be appealing to many, but it is not reality. The reason that creating shared value has gained so much traction and led to real change is exactly because it aligns social progress with corporate self-interest in a concrete and highly tangible way, including with those “old strategy models” that capture the reality of competition and prevailing corporate practice.
It is precisely the wishful thinking of writers like Mr. Crane that has led so many corporate responsibility and sustainability arguments to fall on deaf corporate ears, by insisting that profit-seeing enterprises need to abandon their core purpose for the sake of the greater good. Such a perspective merely drives further the wedge between society and business, to the detriment of both. As we state in the article, business cannot cure all of society’s ills—and as Mr. Crane points out, not all businesses are good for society nor would the pursuit of shared value eliminate all injustice. But using the profit motive and the tools of corporate strategy to address societal problems, a practice that is growing rapidly in part motivated by the shared value concept, can contribute greatly both to the redemption of business and to a better world.”
Porter, Michael E., and Mark R. Kramer. “Contesting the Value of ‘Creating Shared Value.’” California Management Review, Vol. 56, No. 2, pp. 130–153.
You can purchase and read the full article on JSTOR: http://www.jstor.org/discover/10.1525/cmr.2014.56.2.130