This post originally appeared on the Guardian Sustainable Business blog.
By basing CSR on social issues at the core of their business, companies can create social benefits and financial returns.
In the 2011 Harvard Business Review article "Creating Shared Value," Michael Porter and Mark Kramer argued that "shared value is not about personal values." Indeed, we often hear people confusing the terms "shared value" and "shared values", mistakenly thinking that the concept advocates that corporations should let the values of stakeholders drive their strategies and actions.
In fact, in the context of shared value, the term "value" refers to creating worth – societal value in the form of progress on social issues, and economic value on a financial statement. However, while it is important to keep this distinction in mind, it is also true that shared values (in the sense of guiding principles) can be critical to companies' ability to create shared value.
Why is it important to differentiate shared value from shared values? By donating to charitable causes, companies provide resources to help strengthen communities and lend a hand in times of need. However, given the myriad of issues that could benefit from more resources, the choice of which causes to support with corporate philanthropy is often driven by personal values.
Much corporate giving today comes from employee gift-matching programmes, which are allocated based on the values of the employees and the related causes they support. Moreover, often CSR decisions are driven by the values of stakeholders (by asking "what do stakeholders care about?"). This is certainly one way to pick societal issues on which to engage, but not the path that shared value describes.
Shared value starts from a different premise. It argues that addressing societal issues can be directly and measurably in companies' own economic interests. In shared value, issues are addressed not based on personal values or the moral convictions of stakeholders. Rather, issues are identified through hard-headed analysis of how a company's strategy and operating context intersects with key societal needs.
Nevertheless, while values and moral convictions should not determine which societal issues companies address, shared values are fundamental to creating shared value for several reasons.
First, companies that identify and embrace a social purpose are more successful at creating shared value. Often this is done by redefining the business. For example, the Finnish company Kemira has redefined its business from industrial chemicals to water solutions; IBM has moved from offering IT services to managing the world's precious resources; and Eli Lilly and Company has shifted from developing medicines to improving the health of people in low and middle income countries.
Creating a new or reviving an age-old mission statement for a business on a piece of paper or a website is one thing. Rallying tens of thousands of employees around this new mission and bringing about a true mindset shift is another. When business operations are underpinned by a strong values system and decisions or actions are always considered in relation to the founder's values, this purpose shift and the recognition of societal issues to address can happen more easily as founders of companies typically set out to meet a societal need, not to meet quarterly earnings targets.
Second, a lack of consistent values across a company can undermine shared value creation. We've seen examples of companies such as Walmart creating tremendous shared value in one part of their business, only to face allegations of unethical standards in another. While shared value does not mean that all companies become solely dedicated to societal good overnight, one would hope that companies pursuing a shared value agenda are not causing undue harm at the same time. A strong corporate values system, which is espoused both widely and deeply in a company, can help ensure that shared value is not jeopardised by questionable practices elsewhere in the firm. For example, creating innovative banking products for underserved markets in one department, while rigging Libor in another.
Finally, we know that cross-sector partnerships are essential to developing and implementing shared value efforts. However, for such partnerships to be fruitful, companies, government agencies and not-for-profit organisations must share a common vision for how and why each party is at the table. For companies, that means recognising the primacy of a non-profit's mission or a government's duty to its citizens, rather than simply seeking a "halo" effect in the absence of meaningful social progress.
Similarly, governments and NGOs must acknowledge that social progress can drive a company's competitive advantage, and profitability is enabler of social impact. As Anne Mulcahy, chair of Save the Children, has said: "I knew that, if we could tap into more synergistic opportunities for corporates and non-profits, we could greatly enhance the sustainability of economic activity, and build its positive impact on communities in the most challenging parts of the world." If non-profit and public sector partners place companies solely in the "philanthropic cheque-writer" camp and judge corporate profits as somehow antithetical to social good, the collaboration will not lead to shared value for either side.
Shared values are not the same as shared value, and the two concepts should not be confused. However, articulating a social purpose at the corporate level, adhering to a set of common principles across business units, and agreeing a common vision for partnership across sectors can set the stage to create significant benefits for society and returns for companies. Those are values we should all share.