Legitimizing “Shared Value”

First, in the wake of the global financial crisis, former GE CEO and shareholder value advocate Jack Welch tells the Financial Times,

"On the face of it, shareholder value is the dumbest idea in the world."

Now comes corporate management guru Michael Porter (with colleague Mark Kramer), announcing "the next major transformation of business thinking" in the current issue of Harvard Business Review. This new way of thinking is called "shared value," which "involves creating economic value in a way that also creates value for society by addressing its needs and challenges."

Thus we see edging slowly into the business school mainstream the ideas that many in the corporate communications community have been advocating for some time: That in order to be truly successful, companies must take a broad stakeholder view.

The Page Society's Trust Report, for example, urges companies to build trust by "enhancing the core contribution that the firm makes to society." Porter makes a similar point:

"Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again."

In the latest Trust Barometer, Edelman finds that 80% of opinion elites agree that "companies need to create shareholder value in a way that benefits society even if that causes a reduction in shareholder value." Porter argues that such a sacrifice may not be necessary:

"Addressing societal harms and constraints does not necessarily raise costs for firms, because they can innovate through using new technologies, operating methods, and management approaches--and as a result, increase their productivity and expand their markets."

IBM and GE are two companies that seem to understand that a commitment to create social value can enhance shareholder value. "Smarter Planet" and "Ecomagination," in each case driven by the head of communications and marketing, are not brand or reputation campaigns, but rather business strategies with rigorous metrics that are demonstrating economic benefits to the shareholder.

Jack Welch wasn't really abandoning shareholder value when he called it "the dumbest idea in the world." His next sentence was this:

"Shareholder value is a result, not a strategy."

What he was actually condemning was the short-termism that neglects long-term value creation.

Gradually, a realization is dawning that this value must encompass not just customer and shareholder value, but social value, as well. As Porter says,

"Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success."

Roger Bolton
SVP, Communications, Aetna (Retd.)
Senior Counselor, RBC Strategic Consulting