Tuesday, March 4, 2014

Four big problems with "Creating Shared Value"

The idea of "Creating Shared Value" (CSV) popularized by Michael Porter and Mark Kramer in the Harvard Business Review has probably done more to get corporate responsibility issues into the boardroom than anything else written in the last few years. In many respects, that is a good thing. Or at least it is until you start to realize all the big problems that are hidden behind the big ideas of CSV.

We've just published (together with Guido Palazzo and Laura Spence) a comprehensive critique of CSV in the California Management Review. The published version features a response from Porter and Kramer and a counter response from us which we think makes for quite enlightening reading (you can also download a free, but slightly different, version of our article but without this dialogue over at SSRN).

Our article sets out four main problems with CSV:

1. It is unoriginal. 
Porter and Kramer simply don't acknowledge that there is little new about CSV. People have been writing about much the same thing for decades. And the corporate initiatives they rebrand as CSV are just attempts to relabel practices that were already going ahead prior to them publishing their article. It's just that some people call those practices "strategic CSR," "social innovation," or "stakeholder management."

2. It ignores the tensions between social and economic goals.
CSV is presented as "moving beyond trade-offs" between social and economic goals. But that is only because Porter and Kramer ignore any such trade-offs that might need to be made. Sure, there are some great opportunities where business success can be aligned with social progress. But there are also a whole host of social problems, especially those caused by business, where social and economic goals inevitably conflict. CSV prompts managers to simply ignore them.

3. It is naive about business compliance
In a move very much reminiscent of Milton Friedman's famous critique of CSR, CSV "presumes compliance with the law and ethical standards, as well as mitigating any harm caused by the business". Of course, this is where all those messy "trade-offs" are hiding. But as long as you can presume them away, then you don't have to deal with them. In fact there is only one sentence dedicated to social harms, ethical norms and legal compliance in their whole article. So, let's just ignore all the occasions when firms harm people or the environment. Let's ignore all all the times they fail to uphold some of the laws and ethical customs of the places in which they operate. Then we can talk about CSV. But let's not pretend that this is a useful strategy for corporate responsibility or still less a sane way to re-legitimize business, as they claim in their article. Just getting firms to respect the spirit of the law - say in paying their fair share of taxes or respecting international labour standards across the globe - would be a much better way of re-legitimizing business.

4. It is based on a shallow conception of the corporation's role in society
CSV is supposed to be about "reshaping capitalism" but in reality it is really just more of the same of all the stuff that has given capitalism such a bad name - a blind focus on individual corporate self-interest. It will help solve some social problems, and will make some firms, and some stakeholders better off … but who are they kidding that this is going to save capitalism? What we need is a perspective that acknowledges the systematic nature of many of the problems we face, and a willingness from firms to engage in collaborative responses with other stakeholders to solve the problems that need solving. Not just those that can be cherry-picked to make a fast buck.

The point is not that CSV contributes nothing to the debate on corporate responsibility - there are some very good reasons why it has met with so much success, as we discuss in the article. But in ignoring much of which is actually problematic in the field it gives a very unrealistic picture of the challenges ahead. Managers looking to combine social welfare with economic prosperity simply deserve more than the whitewash that CSV offers them.

11 comments:

  1. Love seeing this, guys! Thanks! We've identified one more major problem with the "shared value" approach - would love to chat soon. Will be in touch. Cheers!

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  2. Many thanks for this. Two points, if I may. Firstly, let us not forget Peter Drucker's exhortation that 'Managers must convert society's needs into opportunities for profitable business' when considering CSVs intellectual debt.

    Secondly, we need to be very careful not to use the concepts of 'firm' and 'corporation' as if they were interchangeable. The shareholder primacy drive within corporations, at least in the Anglo-American world, sits at the very heart of this issue.

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  3. Angela - look forward to hearing your addition!
    Chris - good point about Drucker - another unacknowledged source of inspiration for the "new" concept of CSV. And you're right about the importance of distinguishing between types of business, and indeed systems of governance. Some might argue that other systems in Asia, Scandinavia or continental Europe discovered a form of shared value long before P&K did.

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  4. It is very reassuring to find someone calling it as it is - and also knowing what they are talking about. Thank you for these excellent insights. I'm commenting as the chair of IHRM - the Institute of HR Maturity - and have already challenged FSG's worldview (even though I am still optimistic enough to believe it might be well-intentioned). For us, the over-arching goal is societal value - a very simple concept - what does society get out for what it puts in? We assess organizational maturity on that basis alone. If Friedman had said the only social responsibility of the corporation is societal value (based on our definition) his words would have contained more validity and legitimacy. His get out clause made him into an unwilling accomplice and apologist for the worst of capitalistic (or is that animalistic?) behaviour.

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  5. Meghan Ennes, Shared Value InitiativeMarch 6, 2014 at 12:08 PM

    Thanks, Andrew and Dirk, for your addition to the great shared value debate. As a representative of the Shared Value Initiative, I'd like to provide a little bit of context for these points. Via the link below you'll find that we've posted Porter and Kramer's reply to the critique (which was also published in CMR) to show their side of the story:

    "What's the Value of Shared Value?"
    http://sharedvalue.org/groups/shared-value-initiative-community/what%E2%80%99s-value-shared-value

    Thanks again,
    Meghan Ennes
    Shared Value Initiative

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  6. Paul - looks like we are on the same page. Those get-out clauses of Friedman and Porter/Kramer are typical economists' tricks - assume away all the difficult stuff and hope no one notices. As you say, they have serious repercussions though in terms of what people infer from them.

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  7. Meghan - happy to have Porter/Kramer's response linked from here - and glad that they (and you) are willing to engage in a discussion about this. As we say in our rebuttal to their response though, we don't think they convincingly addressed any of our criticisms!

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  8. Thanks to you and your coauthors for an interesting read. While I agree that CSV shares many similarities with previous frameworks, I have to disagree with your 4th point. I believe that CSV is indeed an acknowledgement that real solutions must be targeted at the whole system. I made a recent post (link below) about the shortsightedness of India's new CSR requirement specifically because it ignores CSV thinking. Great contribution to the debate.

    http://businessevolvedblog.com/2014/03/12/the-myopia-of-indias-csr-requirement-how-the-law-is-a-good-first-step-but-ultimately-misses-the-mark/

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  9. Your article about CSV is essentially right in all respects. But what it is shocking to me is that it took that long for someone to write a paper in this terms about Porter's and Kramer's paper. The first time I read that paper, shortly after its original publication, I saw it as a weak piece and adding nothing new. I allways thought that it was something the authors wanted to sale to their audience but of little value in the academic, and even practicioner front.

    I am a business professional and a part time professor, hence not a pure academic, so I simply opted to not use their paper in my clases.

    Thanks for the courage to come out.

    Carlos

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  10. I find your critic charged with ideological assumptions and impractical advice. Stating that "what we need is a perspective that acknowledges the systematic nature of many of the problems we face, and a willingness from firms to engage in collaborative responses with other stakeholders to solve the problems that need solving" assumes 1. that there is problem; 2. that the system is rigid and unable to change and adapt. Both these assumptions are at the very least debatable. Lastly, it is my argument that expecting business to change its nature to address governments failures is not a sustainable solution.

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  11. Thanks Andrew, Guido, Laura & Dirk

    This critical analysis was long overdue. And I really enjoyed the mini-dialogue with Porter & Kramer. It only served to highlight the differences between rigorous academic thinking (you) and generalised consultant rhetoric (Porter & Kramer).

    My own non-academic critique - CSV: Revolution or Clever Con? published in June 2013 - resonates with many of your sentiments (and Kramer also replied), although you added considerably to my quick analysis. I took issue with 4 things:

    1) CSV reflects an evolution in Porter and Kramer’s own thinking - as I put it, "CSV is their third foray into the field of social responsibility – which rather ironically and explicitly disparages the previous two."

    2) CSV is not new - like you I find their lack of acknowledgement "disingenuous and poor academic form". It is also not as holistic as it suggests. I place it under Value Creation in the 4-part DNA definition of CSR 2.0 that I use - it doesn't really deal with Good Governance, Societal Contribution or Environmental Integrity.

    3) CSR is portrayed as very immature - basically, what I call defensive, charitable & promotional CSR, whereas many companies already practice strategic CSR and some are moving to transformative CSR

    4) Fair trade is likewise badly caricatured - most of what they claim makes CSV different from fair trade is already practiced by the fair trade movement

    Kramer's response to my critique can be read in the Comments section of the article: http://www.waynevisser.com/blog/csv-revolution-or-clever-con

    As far as CSV's impact, from what I've seen in my interaction with corporates, the energy that CSV has injected into the CSR practitioner space is mostly to do with the language of "value" which resonates more with managers than "responsibility", since it appears to be all about opportunities than constraints - and conveniently ignores dilemmas, as you've pointed out.

    Having said that, those that are grappling daily with the dilemmas of social and environmental challenges have not been fooled by the new label. This is where I totally agree with your emphasis on new forms of governance. In fact, I've even started referring - rather clumsily, I admit - to CSR as "Collaborative Sustainability & Responsibility", since this more accurately characterises the approach and scope today.

    More to say, but another time ...

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