From CSR to CSV: Creating economic value by meeting fundamental societal needs

Creating Shared Value

The conventional understanding of Corporate Social Responsibility (CSR) as being merely a philanthropic contribution by corporations is being criticised and regarded as inadequate by key opinion leaders.   I have come across a great number of articles and blog posts that look at how the idea of CSR has changed over the years and is deemed irrelevant today.  For instance, in The Wall Street Journal, Professor Aneel Karnani posits that “the idea that companies have a duty to address social problems is not just flawed but it also makes it more likely that we’ll ignore the real solutions to these problems.” Similarly in The Guardian, Michael Edwards points out that “corporate philanthropy deflects attention away from the need to change core business practices.”

A few months ago, Wayne Visser, Founder and Director of the think-tank CSR International has blogged about the failure of Corporate Social Responsibility to have a positive impact on society and the planet, and the need for a new approach – CSR 2.0, where CSR stands for Corporate Sustainability and Responsibility.  This time, I would like to bring forward Michael Porter, one of the most influential business thinkers, and co-author Mark Kramer’s big idea of ‘Creating Shared Value.’

Porter himself suggests that CSR is the product of escalating tensions between business and society, and has served as a logical intermediate step to create a truce between the two, but not as the ultimate solution.  He condemns businesses for creating profit at the expense of the community and as a result, political leaders have been unable to pursue business-friendly policies.  Indeed, the impulse has been to regulate, control and impose taxes on businesses.   He therefore calls for a rethink of the relationship between business and society and the benefits that the capitalist system has on meeting societal needs and improving people’s lives.

Convinced that on a deep level, business and society are mutually dependent on each other, he argues for profit and societal needs to be reconciled by creating shared value (CSV).  This involves creating economic value in a way that simultaneously creates value for society by focusing on its needs and addressing its challenges.  Whilst CSR programmes are often externally determined and focus merely on reputational issues, they are hardly connected to the business.  On the other hand, CSV forms an integral part of a company’s profitability and competitive advantage, and should therefore guide the investments decisions of companies.  CSV is a powerful way of creating economic value for the firm and requires a company to identify core areas in which shareholders and society’s interests coincide, and invest their resources in those areas to maximise value creation.  There is also the need for governments to learn to regulate businesses in ways that stimulate shared value rather than impede it.

The concept of CSV recognises that businesses depend on a healthy and vibrant society to flourish and that society needs successful businesses to prosper.  It also acknowledges that failing to address social and environmental issues can incur additional costs for firms and that on the contrary; tackling these can reduce some of their costs through innovations in technology, operating methods and management systems.  As a result, by moving from CSR to CSV, businesses will be generating profit that comes from meeting societal needs, and regain legitimacy whilst restructuring capitalism and its impact on society.

Porter talks more about creating shared value in his interviews with the BBC and the Harvard Business Review.

By Jessica Wettstein

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