Share Value or Shared Values?

September 29, 2011
Corporate Citizenship Center

It is hard to believe that by adding or dropping an “s” in the word value that the whole meaning changes.  The business world is abuzz with the proposal by Michael Porter and Mark Kramer that business “redefine capitalism” by producing products and services that are good for profits and for people and the planet.  The idea is not theirs alone — Jed Emerson called it “blended value” several years prior and we spoke of it in the “socio-commercial” business models of GE, Unilever, IBM, and other firms in our book Beyond Good Company

But the term “shared value” has received the imprimatur of the Harvard Business Review, so let’s stick with it.

First off, two cheers for Porter, Kramer, and HBR for elevating the importance and visibility of this idea.  For the past thirty years, business has focused on extracting value by cost-cutting, downsizing, outsourcing, business process reengineering, and the like.  A turn to shared value opens up new avenues for value creation.  At once it joins a company’s interest in creating new markets at the base-of-the-pyramid with expanding its offerings for green and ethical (or socially responsible) consumers.    When these threads are joined into business models, it can unleash employees’ energy and turbo-charge innovation in a company.  And, it can also create real value for society.

That said, however, shared value hardly redefines capitalism.  Peter Drucker long ago recognized that “Every single social and global issue of our day is a business opportunity in disguise.”  The concept of shared value still leaves business in the economic driver’s seat—sourcing, making, distributing, and selling goods and services with the primary intent to maximize its profits.  Could it be otherwise?  Should it?  That’s where considerations of shared values enter in.

What’s Wrong with Profit-Making?

There is an interesting saying in Eastern Europe that “the problem with communism is communism, but the problem with capitalism is capitalists.”  The U.S. style of doing business for the past three decades has generated considerable mistrust among employees, consumers, and the society overall.  Unabashed self-interest and unbridled greed by our leading capitalists (executives and investment houses alike) have swollen CEOs’ and bankers’ bonuses and left us with a daunting gap between the well-off and average earner in the U.S. (and growing numbers of poor).  The contrast between cash rich companies and widespread unemployment has created a crisis of legitimacy for the private sector today.

Now shared value may put a “human face” on corporate profiteering by trickling down more resources to the “have nots” while further enriching the rich.  But it doesn’t do very much to reconnect business to society, reduce mistrust, or redress the rich-poor gap as such.  The corporation remains at the center of this Copernican universe, and the other planets and stars merely align around its gravitational profit-maximizing pull.

Meanwhile, in this framing, global warming, declining school-and-student performance, a health care crisis, and just about every other environmental and social issue facing the nation (and world) are considered through the profit-making calculus, not as a matter of corporate or shared responsibility. 

Can Shared Values Provide a New Model?

Adding the “s,” and bringing shared values into the mix turns attentions not only to creating value for business and society , but also to engaging stakeholders—investors, employees, and consumers, community interests as well as government and nongovernmental organizations–in the business of business.  A framework of shared values requires that corporate aspirations for profits and efficiency be considered alongside social progress and equity.  

Sound like socialism?  Not the sort that used to be found in Eastern Europe or in China today and not the fraternal variety practiced by owners in the National Football League.  We think that shared values lead to social capitalism which shifts the center of gravity from self-interest to collective-interest and from profit maximization to its optimization in light of other valued social and public goods.

Here all three sectors—business, government, and civil society—assume a shared responsibility not only for broad-based wealth creation, but also for the natural environment, education, health care, and other such matters.  The relative strength of each sector’s respective responsibilities, and resources invested by them, is not beyond a threshold legislated or mandated in social capitalism.  Instead it is negotiated by the actors and interests involved.

Social Capitalism

Shared values, not shared value, would truly redefine capitalism in the U.S.  Corporate social responsibility, which has been the traditional vehicle for negotiating and communicating the role of business in society, doesn’t really empower stakeholders or put business fully into partnership with them in running a firm.  It can reduce friction and produce useful results, but it is not robust enough for the requirements of social capitalism. 

Shared value is a utilitarian model that brings CSR into the mainstream of the business where it can be taken seriously and deliver serious value for business and for society.  But it doesn’t point the way to an agreed upon social contract between business, government, and civil society or bind them to joint responsibility.

Social capitalism, by comparison, moves business (and its stakeholders) into Einstein’s world where a “field” is shaped by the mass and energy of its components.  Shared values, in this universe, create a field where all sectors understand and appreciate the essential and necessary contributions of other parties, negotiate roles and responsibilities, and work with each other in partnership.  This takes business out of the center of the universe and produces a solar system of interdependent and interacting sectors where cooperation is the mode of working and social harmony and sustainability are the measures of success.

Co-Creating Value

Can a generation of business people steeped in discounted present value analyses and bound to quarterly earnings make long term investments in base of the pyramid markets or extend economic largesse to sectors not directly reflected in P&L statements?  Can bankers and CEOs work alongside social investors and community leaders?

Shared value gives them a “business case” for doing so.  But shared values bring society directly into the lifeblood of business.

Consider, by way of illustration, how a commitment to Porter and Kramer’s principles of shared value led Nestlé to assist small villages providing cocoa and coffee for its products, to work on water shortages and purity around the world, and to improve the nutritional profile of many of its foods and beverages.  This is a laudable example of business doing good and doing well. 

Contrast this with the story of Unilever.  In late 2010, Unilever unveiled its Sustainable Living Plan whereby it intends to improve the health of 1 billion people, buy 100% of its agricultural raw materials from sustainable sources, and reduce the environmental impact of everything it sells by one-half, while doubling its revenues.  To achieve these aims, the company will have to reach out to its consumers and activate them.  For instance, to reduce energy use associated with its soaps by half, consumers would have to cut their shower time by one minute.  Accordingly, Unilever announced a “Turn off the tap” campaign for the U.S. 

That seems to us to be a shared values proposition and one that, when scaled and multiplied, engages everybody in co-creating business for the future.