A new discipline from Harvard Business School can help corporations work for the planet, its creators say. But John Elkington thinks they’ve missed some key truths about capitalism.
The second Shared Value Leadership Summit in Cambridge, Massachusetts, left me a little unsettled. At exactly the moment that world leaders were heading to Rio de Janeiro to assess progress on the global sustainability agenda, one of the world’s leading management gurus – Harvard Business School’s Michael Porter – seemed determined to elbow aside sustainability in pitching what he calls “shared value”.
That said, this new management discipline, is undeniably a key step forward in corporate strategy. Launched in 2011 in the Harvard Business Review, “shared value” is now gaining real traction. The idea is that, if business aligns its commercial and societal objectives, it can better evolve scalable solutions to key global challenges. And Porter has a history of environmental sensitivity, so I live in hope.
The central theme is indisputable: “Business and society have been pitted against each other for too long,” Porter and his co-author Mark Kramer, of non-profit consultancy Foundation Strategy Group (FSG) argue. “That is in part because economists have legitimised the idea that to provide societal benefits, companies must temper their economic success. In neoclassical thinking, a requirement for social improvement – such as safety or hiring the disabled – imposes a constraint on the corporation.”
The net result, Porter and Kramer insist, is that the strategies of many corporations “have largely excluded social and environmental considerations from their economic thinking”. They continue: “Corporate responsibility programmes – a reaction to external pressure – have emerged largely to improve firms’ reputations and are treated as a necessary expense. Anything more is seen by many as an irresponsible use of shareholders’ money.”
So far, so good. But if you appear to scoop sustainability up with corporate social responsibility and dump them in the “bucket of history”, as Marx attempted with capitalism, you risk antagonising those who have embraced the sustainability framing of the agenda because they see the systemic nature of the crises we increasingly face.
FSG is now signaling its intention to open the shared-value platform out for wider input, which is welcome, but here are three things Porter said that left me wondering whether fine-tuning may be needed.
First, he enthused that capitalism works like “magic”, conjuring value “out of nothing”. But anyone who knows anything about industrial capitalism understands that it typically converts natural capital that has evolved over millions of years into things that financial markets value. The Rockefeller Foundation was in the room, as one of the funders of FSG’s research. Where did John D Rockefeller make his money? Oil.
If shared value is to create real, long-term value, it needs to acknowledge that capitalism is not invariably a benign process. Indeed – as sustainability proponents have long argued – it can play a key role in destroying vital resources, reducing the planet’s biodiversity and destabilising the climate.
Second, FSG reduces corporate sustainability to resource efficiency. That may be what companies can currently measure, but recall that the original formulation focused on the idea of intergenerational equity. At a time when the world population is headed towards nine to 10 billion, our economic model is often dangerously myopic in systematically favouring a few forms of capital – financial, physical intellectual – over others, namely human, social and natural.
If you focus on the narrow commercial interest of particular companies, then it makes sense to encourage chief executives and others to cherry-pick their priority issues from a menu of options. But what if, unlike items on a restaurant menu, the challenges are all symptoms of systemic dysfunctions of modern-day capitalism? Might the shared value approach encourage incrementalism rather than the necessary transformative, systemic change?
Finally, Porter seemed to suggest that shared value offers a values-free way for leaders to select their strategic priorities. What he meant, I am told, was that this isn’t so much a shared-values agenda, as an infinitely better way to identify areas where commercial and societal value creation align. Still, declared or not, values are shot through all forms of capitalism, even if masked by market pricing signals.
This is something that PUMA chairman Jochen Zeitz is trying to address with the Environmental Profit & Loss methodology, seeking to place a market value on the environmental impacts of his company and supply chain. In 2010, PUMA calculates that the environmental costs imposed by its business activities were “worth” 145 million euros (US$182 million). Once you know the numbers, whether or not the market incentivises you to address them, it’s a matter of values as to whether you decide to take a free ride, or pay your bills.
UN secretary general Ban Ki-moon characterises sustainability as offering “what economists call a ‘triple bottom line’ – job-rich economic growth coupled with environmental protection and social inclusion.” Porter doesn’t much like the triple bottom line concept, which I coined in 1994, seeing it as an attempt to balance off different forms of value creation. But the declared intent was always to achieve what Jed Emerson some years ago dubbed “blended value”.
Perhaps the difference of opinion reflects the fact that Porter and Kramer’s consultancy, FSG, started out advising foundations on how to direct their philanthropy. Perhaps theirs is an “inside-out” world, where you take a given quantum of resources and use it to achieve the greatest possible impact.
The “outside-in” sustainability movement comes from a different starting point, a world in which our species is moving into the Anthropocene. This is a new reality in which our species has impacts on a geological scale and where the interests of future generations need to be brought back into the present – in ways that today’s capitalism systematically fails to do.
Unquestionably, shared value is an exciting, emerging management discipline. But these don’t always win universal acclaim. Among previous management disciplines to have a huge impact was Total Quality Management (TQM), which emphasises improvement of quality as measured by customer satisfaction. It led to criticism that certain forms of quality management could be used to design a “concrete submarine” as long as that was what the customer specified, even if the end result was that the submarine promptly sank with all hands.
We have to be very careful how our commercial specifications are set in the Anthropocene. In the end, however, properly addressed, sustainability could be the ultimate form of shared value.
John Elkington is executive chairman at Volans and non-executive director at SustainAbility. He blogs at www.johnelkington.com and tweets at @volansjohn.
This article is published here as part of Nuclear Enery and Developement Programme, which is supported by the Heinrich-Boell Foundation.
Homepage image by Phillie Casablanca