-Angelo Mozilo, CEO of Countrywide Financial Corporation
February 4, 2003 speech to The Joint Center for
Housing Studies of Harvard University
I am pleased to make my first contribution to FSG’s Knowledge Exchange on a topic which is of great interest to SustainAbility, FSG and our respective networks – the percolating debate over the distinctions between “creating shared value” and other terms, including sustainability. FSG asked me to adapt a piece I wrote in April for SustainAbility’s blog (What’s New About Creating Shared Value?) which generated considerable reaction on our website and beyond. In writing this, I am cognizant that others have more thoughtfully contributed their perspectives, including our founder John Elkington for The Guardian (Don’t abandon CSR for creating shared value just yet).
Summary of “What’s New…?
To recap the main elements of my blog:
CSV isn’t anything new, but rather fresh terminology for a concept which many in the sustainability field have espoused for a long time (see The Economist’s critique which cites Jed Emerson’s concept of blended value and Stuart Hart’s “Capitalism at the Crossroads”). For these authors and others, regardless of the term used (e.g. sustainability, CSR, CSV), the underlying meaning is the same: companies thrive over the long term when they actively consider the environmental, social and economic contexts in which they operate and adapt accordingly.
Porter and Kramer attempt to distinguish CSV by highlighting its proactive emphasis on companies developing new products and markets that help solve social problems, such as GE developing ultrasound machines for use in rural African villages. Yet, we and others have long advocated the need to rethink products, markets and business models to address the world’s intractable social and environmental challenges (see an illustration of SustainAbility’s model of sustainable innovation on page 26 of The Social Intrapreneur).
This said, we welcome the authors’ intellectual heft behind the sustainability (or CSV) agenda, and think good can come from it, particularly if they get additional attention from senior executives.
We also welcome their call for focus – “the most fertile opportunities for creating shared value will be closely related to a company’s particular business...” Many companies today try to address a multitude of sustainability issues, which can distract them from investing in the areas in which they can most add business and societal value.
The Tempting yet Risky Simplicity of CSV
CSV is an appealing framework because of its apparent simplicity (“society wins when we win”), yet this may lure us into believing that companies won’t have to make value judgments in addressing thorny issues. As SustainAbility’s Board member Peter Zollinger pointed out, “the risk: we fool ourselves into believing that long-term business success and global sustainability outcomes are natural twins which we can both maximize without having to confront tough choices.” For example, there is certainly shared value in GE’s developing an ultrasound market in rural African villages. Yet, GE and other manufacturers have been held to account for the use of their products for selective sex abortions in India. It’s not easy to see the shared value for GE and others trying to solve this sad situation in India, yet their values compel them to engage and look for solutions.
CSV also cedes too much discretion to corporations in determining society’s end of the value equation. As the lead-in quote suggests, there were many mortgage bankers who believed they were creating shared value by pushing sub-prime loans. We see the same assertion of shared value in other sectors: biotechnology (food security and nutrition), fossil-based power generation (socio-economic development) and so forth.
CSV does not pose the critical question: is the company’s fundamental business model or activity in the best interest of the planet and society? “Modern” agricultural practices might hold advantages over fair trade in the short term, but what happens over the longer-term when these modern practices strip ecosystems of biodiversity or pollute water tables? A growing fast food company may contribute societal value via job creation, yet at what cost to human health? These are the sorts of difficult but vital questions that “sustainability” compels us to ask.
CSV: One Arrow in the Sustainability Quiver
We welcome CSV as another arrow in the sustainability quiver – a framework that nicely describes one way in which addressing societal needs creates business value. Yet we will keep that arrow alongside the others in our quiver – the “traditional” tools of the sustainability or CSR trade: stakeholder engagement, horizon scanning, issues management, communications, etc. And of course the most important tool from our perspective: the persistent questioning of whether a company’s business model adds value to society, the planet and the economy over the long term.
Michael Sadowski is the Vice President of SustainAbility. Based in New York, Michael leads SustainAbility’s work in the finance and consumer goods sectors and is a member of SustainAbility’s Management Team.