Corporate social responsibility (CSR) and corporate philanthropy (CP) used to be managed separately from the business. They consisted largely of cash contributions that companies viewed, at best, as an effort to give back to the communities in which they operated and their employees lived. At worst, they were seen as a subtle form as extortion that companies had to pay to appease and demonstrate their “commitments” to their communities.
This is changing. A growing number of companies now recognize that:
- CSR and CP initiatives can deliver big business benefits to their organizations; and that
- They can often deliver much greater value to society by contributing technology and expertise than they can by contributing just money.
Many companies, for example, now recognize that reputations for social responsibility can burnish the company’s brand, attract new customers, aid in recruiting employees and improve employee commitment to the organization. Some even claim that their CSR and CP activities have increased their share prices by attracting incremental new investments from the growing number of Social Investment Funds.
This, however, is only the tip of a value proposition that can go much deeper—a value proposition that can directly help the corporation enter new markets, improve economies in existing markets and create totally new business opportunities. In fact, Michael Porter and Mark Kramer, in their January 2011 Harvard Business Review article, argue that companies must recast narrowly defined CSR and CP programs around a proposition for creating shared value—an approach designed to deliver as much value to the company as to society. They insist that a structured approach to Shared Value Creation (the latest non-intuitive buzzword for efforts intended to deliver both business and societal value) can, for example, yield:
- Big cost savings, as in the $250 million savings (a $2.71 return on every dollar it spent on these programs from 2002 through 2008) that Johnson & Johnson attributed to its employee wellness programs (not to speak of demonstrated improvements in employee attendance and productivity);
- Big revenue gains, as in the $18 billion that General Electric derived from the sale of Ecomagination products in 2009, a category of offerings that is expected to grow at twice the rate of total company revenues over the next five years (an issue that I will discussed in my February 20th blog on GE’s Smart Grid strategy); and
- Big improvements to employee leadership development and retention, as with IBM’s Corporate Service Corps (as I examined in my January 23 blog and accompanying report), which deploys teams of high-potential employees on 30-day projects to help emerging countries address some of their most pressing societal needs.
Porter and Kramer, in fact, go further, much further. Not only do they view Shared Value Creation as the next evolution of CSR and CP, they also view it as the next evolution of capitalism—a more sophisticated form of capitalism that “arises not out of charity but of a deeper understanding of competition and economic value creation.” It is a form of “self-interested behavior” that creates economic value to the company, by the very process of creating societal value. A form of behavior that will also help mend badly frayed corporate and capitalist reputations and facilitate a more productive relationship between business and governments.
This “Harvard School” view of Shared Value Creation appears diametrically opposed to the “Chicago School” view in which Milton Friedman famously equated the spending of shareholders’ money for any purpose other than to advance the interests of the business as a form of “theft.”
Perhaps, however, these views are not as philosophically opposed as they may appear. After all, even Friedman was not opposed to all corporate giving. He admitted that corporate philanthropy could be justified if it served a business objective, such as increasing customer loyalty, improving employee teamwork and motivation or strengthening the marketing of a company’s brand.
But whichever side of the supposed philosophical divide on which one may fall, the issue is becoming increasingly moot. A rapidly growing number of very large, and very influential corporations (including virtually all of the largest technology companies) have instituted large CSR and CP programs and most have conceived and are managing these programs in way that is intended to create shared value. And this does not include the hundreds of small companies that have built their entire business models around addressing societal needs or the growing number of social entrepreneurs who are creating hybrid organizations that blur the line between for-profit and non-profit organizations.
In other words, regardless of whether you consider social value creation to be a new generation of capitalism, or just a new generation of corporate social responsibility, one thing is clear. More and more companies—and especially technology companies—are becoming convinced that they can, do quote another well-known economic philosopher, Benjamin Franklin, “do well by doing good.”