A practitioner's reflections on the problems of shared value

After our article on shared value came out in the California Management Review, and we published our last blog piece summarizing our critique, we've had a lot of response from various academics and practitioners in the corporate responsibility field. In fact, we've probably had more emails, comments and calls on this one article than we've had on anything else we've ever published. It has clearly struck a nerve. In the main, these responses have been very positive, suggesting that a lot of people have just been waiting for an article like this to come out. Here's just a smattering of some of the responses we've received (you can also read the comments to our blog post for more):

"This is a long over due excellent and comprehensive critique on the overly optimistic and shallow CSV framework that doesn't really address the real trade offs required to get to sustainable development."

"Good on you for re-framing this topic in a manner that more fully reflects the spirit of corporate social responsibility."

"It is some of the most enjoyable reading I have done in a very long time."

"Just read you CMR paper on CSV - well done. It is about time that someone took this idea apart."

Of course, many commentators, even whilst being supportive of our critique, have also pointed out some of the pragmatic benefits of Porter and Kramer's approach, like this one:

"I can see how the win-win wonderland (in Mintzberg's words) could be a diversion, but I wonder how it might crack existing inertias, and/or if any positive momentum could be leveraged for fashioning a more complete framework."

Such considerations of the lifeworld of business is a theme that is addressed in the discussion we have with Porter and Kramer at the end of our article, but is not something that we fully elaborate on. With this in mind, we thought it worthwhile to post here one of the more thoughtful and extended responses we received from a corporate responsibility practitioner. This is from Rory Sullivan, a veteran of the responsible investment community, now working as an independent advisor as well as being a Senior Research Fellow at the University of Leeds. He explores some of our points with regard to how CSR and CSV might be seen from a practitioner perspective. We thought they deserved reproducing here as they help to frame an important element of the debate in a constructive way:

"A proper analysis of the concept and value of ‘Creating Shared Value’ has been needed for some time, and your article does an excellent job of setting out the strengths and weaknesses of CSV. I was disappointed that Porter and Kramer failed to engage with the substantive points that you raised; their bludgeon of a response seemed at odds with the nuanced and careful arguments you presented in your article. While I support the broad lines of argument and analysis in your article, I would like to offer some reflections from a practitioner’s perspective:

• Your discussion of “CSR as a Straw Man” is fair in its treatment of the academic literature (which has argued that CSR should be a corporate strategic priority). However, CSR in practice is quite different. In far too many companies, CSR continues to have limited business relevance (in terms of its influence on strategy or capital allocation) and remains far closer to philanthropy than the theoretical literature suggests (or would like).
• On the originality of CSV: Your review of the literature ignored the many important practitioner contributions (e.g. by John Elkington, Stuart Hart, CK Prahalad) which have influenced CSR in practice. I suspect that many practitioners see CSV as a glossy reformulation of ideas such as the triple bottom line, rather than as a new framing of the debates around the role of business in society.
• On the evidence for CSV: One of the key challenges faced by companies in practice is that ideas that work at a local level and at a small scale, may or may not work [in fact, they often don’t] when they are scaled up to the corporate level or when other companies try to replicate the experience. There are various reasons – the generalizability of approaches, the transaction costs, etc of moving to scale, the problems of taking projects and processes from one corporate culture and trying to implement them in another.
• I’m not convinced by your argument that CSV is based on a shallow conception of the corporation in society. My (personal) reading of the Porter and Kramer article was that it was best understood as an analysis of the corporation in society, where the corporation is taken as the central unit of analysis (perhaps akin to every western individual being at the centre of their own personal narrative). In that frame of reference (which, I accept may not be what they had in mind), the concept of CSV could be interpreted as simply an argument that there are things that companies can do to make them a little more useful to (or a little less harmful) to society."

Plenty of food for thought there. Any more practitioners out there want to throw their two cents in?

Photo by Ross. Reproduced under Creative Commons licence

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.

Top 10 Corporate Responsibility Stories of 2011

It's that time of year again when we consider the big news events around corporate responsibility during the past twelve months. It has undoubtedly been a significant year, with some stories potentially having a huge impact on future corporate responsibility practice or government policy. Nuclear accidents, protests galore, high level corruption - there's been a lot of ugliness again this year. But sometimes you've got to go down before you can go up. Let's hope 2011 will be looked back on as the year that business finally woke up to the new realities of corporate responsibility.

1. Fukushima nuclear disaster
As with the BP oil leak in 2010, no corporate responsibility story dominated the media in the same way that Fukushima did. And for good reason. The world's second worst nuclear disaster (after Chernobyl) slammed home just how risky the nuclear industry could be. Tokyo Electric Power (TEPCO), the company operating the plant, has had to shoulder a lot of the blame for its shoddy risk management, poor planning and siting, falsified safety records, governance procedures, and lots more besides. Its now mired in debt, awaiting either nationalization or a government bail-out. Japanese regulators meanwhile failed in providing adequate oversight, in large part due to overly cosy relations with the energy industry. Not surprising then that Fukushima also had huge impacts more broadly, most notably in a massive swing away from nuclear in the clean energy debate. Germany for one has made a 180 degree switch away from nuclear. Really this was the mother of all corporate responsibility disasters in 2011.

2. The 'Occupy' movement
Starting with Los Indignados in Spain, gradually hitting the headlines with Occupy Wall Street, and then turning into a global phenomenon, the Occupy Movement thrust social equity and democracy into the corporate responsibility debate like never before. We've had anti-capitalism protests before, but the Occupy Movement took a much more focused aim at the titans of the financial sector, and kept an unlikely conversation going for months. The challenges the unruly movement posed for business may not always have been crystal clear, but they've struck such a chord with the general public, and even among senior business leaders, that they can't just be ignored. Demands for tax justice, banking regulation, and more controls on corporate political influence have all received a fillip by the movement. Who know's? Maybe in time, the legacy of Occupy for corporate responsibilty may even surpass that of Fukushima.

3. News International phone hacking scandal
Few corporate responsibility stories can claim the scalp of an entire business, but the closing of the UK newspaper the News of the World, and the arrest of its editor, Rebekah Brooks, in July of 2011 showed just how significant the phone hacking story surrounding News International had become. When the story also took the scalp of the UK's most senior police officer, and landed veteran media mogul Rupert Murdoch in a Parliamentary inquiry, the reverberations were felt near and far. We like our journalists to pursue truth. But when they cross the line and illegally tap the private phones of bereaved families, it's clearly time for a clean up in the media. On the bright side, the story was broken, and vigorously investigated over several years, by the Guardian newspaper. So while we may not trust journalists all that much any more (if we ever did), the story also demonstrated the importance of a strong and independent media as a corporate responsibility watchdog.

4. FIFA's corruption own-goal
2011 was a bad year for integrity in sport. The Pakistani cricket betting scandal, the Sumo wrestling bout-fixing revelations, the Penn State University football coaching sex abuse case, the continued flow of scandals convulsing the Chinese Football Association and the Turkish Football Federation - few sports or countries have managed to come out looking clean. But rising above them all has been the FIFA corruption story, which more than any other sporting corruption story of 2011, demonstrated not just how deeply ingrained corruption is in sport but even how much it is embedded in sporting management and administration. The scandal has been rumbling on at least since 2010 when allegations about bought votes in the 2018 and 2022 World Cup hosting competition started pouring in. After bribery allegations, resignations, and an unopposed re-election of beleaguered FIFA chair Sepp Blatter, the organization finally looked to be getting itself back on track with an internal inquiry and a life-ban for the President of the Asian Football Confederation. But FIFA's proposed roadmap for tackling its integrity problems fell far short of the root and branch surgery that was necessary, and the recent withdrawal of Transparency International from the reform process demonstrates that the FIFA leadership still don't understand the basic principles of ethics management. Students of corporate responsibility need no better case study of how to get it all so wrong.

5. Raj Rajaratnam's insider trading trial
No list of corporate responsibility stories is complete without a big fish being caught. In 2010 we saw the sacking of HP CEO Mark Hurd for expense claims fraud. This year, we had a two-for-price-of-one bonanza with the trial of former hedge fund boss Raj Rajaratnam giving us a guilty verdict, 11 years in jail and a $10m fine for insider trading .... plus the charging of his friend and former McKinsey head Rajat Gupta with securities fraud for passing on insider information to Rajaratnam. As the New York Times said: "it was the longest-ever prison sentence for insider trading, [and] a watershed moment in the government’s aggressive two-year campaign to root out the illegal exchange of confidential information on Wall Street."

6. UBS and the not so 'rogue' trader
Another big story of personal ethical failure was the revelation back in September that UBS trader Kweku Adoboli had managed to lose the company a staggering $2.3bn in authorized trading. With a loss that big, this one makes the list on scale alone. But the real story here was not so much the ethical failings of Adoboli himself (though that clearly was one of the issues at play here), but the failure of UBS to manage the problem before it got out of hand, and the inherent risk-taking at the heart of the financial services industry. In desperate need to repair its flagging reputation, UBS subsequently accepted the resignation of its CEO and installed a new leader with a mandate to move into less risky and less complex investment banking.

7. Twitter revolutions and Blackberry riots
You know when your reputation is in good shape when you get associated with progressive political revolutions like the Arab Spring. After a government telecom crackdown in Egypt, companies like Twitter and Google found themselves center stage in the flourishing revolution. Switch to the ever declining fortunes of Canadian tech pioneers RIM and their Blackberry device, and all you get is an association with mindless looting in London. But whichever way you cut it, 2011 will indelibly be marked as the year that tech companies realized that for better or worse, social protest - and government response to protest - was an inevitable part of their business. Message to CR department: write a policy.

8. Michael Porter's popularization of 'Creating Shared Value'
It was certainly not the most popular article among CSR commentators, but Porter and Kramer's piece in the January issue of the Harvard Business Review on 'Creating Shared Value' has probably done more to get corporate responsibility issues into the boardroom than anything else written this year. Sure, it's simplistic, derivative, and takes cheap shots at a version of CSR that most us don't even recognize. But it's also compelling, endearingly positive, and says a lot of things that most of us have been trying to say for years without anyone taking much notice. Plus it couldn't be more prescient with its "capitalism is under siege" motif. Oh, and Michael Porter said it. So it must be true. Take it from us, CSV is here to stay.

9. Facebook's privacy adventures
There was little doubt back in January that Facebook would probably be hitting a whole bunch of corporate responsibility snags during the year. Once you get so big and popular, it is inevitable that the critics will start sharpening their knives. Greenpeace pushed hard on the coal powered energy issue and eventually scored a well-earned success. But the big issue dogging Facebook in 2011 was privacy. The tech giant wasn't alone since privacy and security continued to afflict a number of companies especially with the shift to cloud computing. But Facebook's privacy battles stand out simply because they affect so many of us and therefore mark the front line of the personal privacy battles with tech companies and regulators. Remarkably, despite a surge of criticism the company initially managed to stave off too big a hit on its business during the year. But last month's settlement with US regulators saw Facebook accused of "unfair and deceptive practices" and resulted in the company facing an extraordinary obligation to submit to independent privacy audits for the next 20 years. And late in December the Irish data protection commissioner gave Facebook 6 months to comply with a raft of new privacy measures for all of its non US and Canadian users. As a result the company has started adopting a far more conciliatory tone with its critics but the road ahead will be marked by yet more battles as we gradually move to some kind of a post-privacy future.

10. The tar sands failed ethical makeover
The year started with the Canadian Environment Minister seeking to make the seemingly indefensible case that the tar sands were an ethical source of oil because they came from a democratic country that respected human rights. The argument was designed to influence US and European policy makers in the run up to critical energy decisions during 2011 such as the controversial Keystone XL Pipeline plan which was designed to bring oil sands crude directly into the US, and the European Commission's deliberations over whether to label tar sands oil as a "dirty fuel" due to its higher carbon intensity. So far the Canadian government and the oil sands producers have failed to win the argument with the Keystone decision being postponed by President Obama and the EC approving the dirty fuel label, which also then attracted further backing from a similar initiative in the State of California. Recently the story has spiraled into the more absurd territory of a banana boycott. The announcement by fruit company Chiquita to reduce their use of tar sands oil in its fleet sparked a concerted campaign by Ethicaloil.org to boycott Chiquita for discriminating against Canada's "ethical oil". You couldn't make this stuff up.

Looking at the two stories book-ending our top ten - the seriousness of a world of nuclear disaster and increasingly dirty sources of conventional energy (such as the tar sands and gas fracking) - not to mention the erosion of privacy, a crisis in capitalism and the never ending scourge of corruption that populate the middle order, it is clear that the corporate responsibility stakes have never been higher. Next year promises to be more of the same.

Photo by IAEA Imagebank. Reproduced under Creative Commons Licence