No, corporate responsibility is not dead
Reports of the death of corporate responsibility have been greatly exaggerated, but it is time to better think through the value generated by sustainability.
Late last year, an engrossing debate took place at the British Library in London. The subject: Is Corporate Social Responsibility dead?
The two principal debaters were John Elkington (founder of SustainAbiility, Volans and originator of Triple Bottom Line Accounting) and Mark Kramer (chairman and co-founder, with Harvard Business School Professor Michael Porter, of FSG Social Impact Advisors).
The debate question had been prompted by statements by Porter that "CSR is dead" and needs to be replaced by what Porter and Kramer call "Creating Shared Value," or CSV. Porter and Kramer’s version of CSV, as defined in their widely read 2011 Harvard Business Review article, is the adoption of a social objective as a business opportunity that is then solved in a way that improves a company’s competitiveness and profitability.
As it turned out, Mark Twain’s declaration that "the reports of my death have been greatly exaggerated" could well have been applied to the statement that CSR is dead.
There was general agreement among the two debaters and the audience that CSR is not dead, and moderator Mathew Taylor, chief executive of the U.K.’s RSA, recast the question to be, "Is CSV enough as a business approach?"
While Porter and Kramer’s definition of CSV generally has received a positive reception, it also has been criticized by some, including Elkington, as limited to dealing only with win-win situations. It has come under fire by Andrew Crane and others as a way for companies to cherry-pick easy situations where both the firm and society benefit, while not dealing with the thorny problems which often occur where social and environmental goals conflict with profitability.
Mark Twain’s declaration that "the reports of my death have been greatly exaggerated" could well have been applied to the statement that CSR is dead.
Examples of this include the dilemma of buying cheap energy for economic development vs. cleaner-but-more-expensive energy (in China and India); paying for adequate chemical waste treatment vs. dumping (Dupont in West Virginia); and bringing working conditions up to international standards vs. expanding the number of jobs (Bangladesh textile factories).
"Porter’s Shared Value is a good as far as it goes, but we are beyond that now," Unilever CEO and global sustainability leader Paul Polman has said.
After listening to the debate, the packed audience of sustainability experts went from a neutral position to a "No" vote by a margin of 75 percent to 25 percent: that CSR is not dead, and that CSV is not adequate as a business approach to society.
Elkington ended the session with the question of how you combine all these things (CSR, sustainability, CSV, corporate citizenship, etc.) into a better, stronger proposition from business.
A transition to Total Shared Value
In answer to Elkington’s question (and responding to audience calls for a marriage of CSR and CSV), I suggest that the strongest and most vital elements from CSR, sustainability and Creating Shared Value, can be combined into an overall proposition which can be called "Total Shared Value."
The first element of Total Shared Value (and the foundation of CSR) is compliance with standards of responsible business behavior including laws, regulations, ethical codes and internal business principles and policies.
For example, corruption is one of the main forces holding back social and economic development in many parts of the world, and elimination of bribery would have enormous value creation impact in of itself. Also, as we see from the recent Volkswagen case, when attempts to cheat on compliance are uncovered, it has a disastrous effect on shareholder value.
The second element is environmental sustainability — the inter-generational aspect of running a business in a way today that preserves our planet and its natural capital for future generations. While it has been pointed out that there are profits and savings to be made in attacking environmental problems, it is also often more costly to operate a business in a completely sustainable way than not. As was made clear at COP21 in Paris, trillions of dollars are at stake in reducing our carbon emissions.
The third element is value creation. The Creating Shared Value approach, as defined here, goes well beyond solving an individual social problem and is a general way of doing business aimed at creating value for all the key stakeholders important for the success of a business — customers, consumers, shareholders, employees, suppliers, distributors, business partners and national economies — regardless whether a social problem exists.
From a business point of view, the prime overall benefit is the creation of strong trust in a company and its management — the basis of all business transactions and vital when crises arise.
Companies that have developed such trust over the long term (such as Johnson & Johnson, GE, as well as Unilever and Nestlé) have been able to generate enduring success while creating better external business conditions, greater
internal efficiencies, strong brands and innovative products that serve the needs of their customers. It is just good long-term business thinking.
From a societal benefit perspective, companies that create value through compliance, sustainability and key stakeholder engagement have a broad-scale and positive impact on living standards, health and environmental conditions.
This requires that all employees in all functions across a company have as their objective creating long term value for the multiple key stakeholders of the company, not just aiming to solve an individual social problem that can improve competitiveness.
As Marie Antoinette once said, "There is nothing new except what has been forgotten."
This combined approach was in fact present in the original formulation of Creating Shared Value as published and launched by Nestlé, SA in 2009.
It was stated that value creation could not be claimed unless sustainability and compliance standards also were met. While three areas of focus were chosen key to Nestlé’s business strategy (water, nutrition, rural development) it is a way of doing business by the entire corporation for all its stakeholders.
Today, I call this combination of corporate responsibility, environmental sustainability and value creation the Total Shared Value Proposition because the integration of all three elements are necessary in order to truly create value.
I believe this broader definition of shared value is necessary to expand it from the corporate citizenship realm into fundamental corporate strategy and business thinking for companies, both big and small.
I also hope that this more inclusive approach to Creating Shared Value will end debates about the death of CSR and will expand the application of Creating Shared Value across all parts of individual companies and deeply imbed it in corporate culture and the minds of all employees.
For capitalism as a whole, respect for business is at an all-time low, and improving it requires adoption of all three aspects of Total Shared Value.