The Harvard Business Review article by Michael Porter and Mark Kramer, “Creating Shared Value: How to Reinvent Capitalism—and Unleash a Wave of Innovation and Growth” is a must read for all Chief Communication Officers.

Porter and Kramer suggest that companies are well equipped to handle a multitude of social problems, but that the best way to get them involved is to show them that there are profits to be made in doing so. The argument is that social issues as well as economics create markets and market opportunities, and that companies can both make profits and advance their reputations by finding and solving social problems. Social engagement becomes an investment with a return to the company, not a contribution. As a result, there is real motivation for the company to get involved and continue to find ways to solve social issues.

Companies need to recognize that there are penalties and costs for not finding business solutions to social problems, including loss of global competitiveness, lagging technology, greater waste, more regulation and possible erosion of the market or supply chain. For example, Coca-Cola and Pepsi cannot survive as businesses if they do not help to invest to solve the world’s shortage of water. The upside for them and others is the potential to develop new technologies, solve social problems, develop new markets, and build a strong, differentiated reputation that attracts top talent and capital. While at first glance shared values and stakeholder capitalism may seem the same as traditional corporate social responsibility (CSR) perspectives, they are, in fact, quite different. The traditional CSR approach espoused by the PR profession often suggests that companies should find ways to “do good” and build esteem. As a result, companies often invest in what they believe are CSR programs like the Boy Scouts or local sports teams, that are actually philanthropic endeavors. Social values and stakeholder capitalism argue that companies will act in their own self-interest. They will get involved in CSR most fervently if there is route to profitability and competitive differentiation. Instead of using CSR as an “apology” for capitalism, shared values celebrates profitability as a means of working in tandem with local, national and international groups and governments to solve important social issues. As a result, it is more sustainable longer-term since companies recognize the value of social involvement.

While I understand the distain of many that companies would need a profit motivation to be socially responsible, we need to be realists and recognize that countless business people in the past 30-years have been educated in and still “religiously” follow the teachings of the economist Milton Friedman. Friedman said that the only responsibility of business was to make money for shareholders (period), and that any corporate investment in social programs was a misuse of shareholder money. Since that time, many executives have come to believe that it is  the government’s responsibility alone to tackle social issues. In fact, I blogged on this site a few months ago about the shortsightedness of such thinking that resurfaced this past year in the Dalberg report that claimed that companies do best for society when they make profits and then pay their taxes to governments that can then take care of social problems. CSR was characterized as being a “soft diversion” from profitability.

Good examples of shared-values thinking can be found in J&J’s “Campaign for Nursing’s Future”GE’s “ecoimagination” program; and IBM’s “solutions for a smarter planet”. These programs all are self-serving. They involve the company identifying an important social issue that it could help solve by leveraging its particular expertise. Each company hopes to be able to either make money or build mutual value with a key stakeholder.

While the concept seems new, many will recall that Apple gave computers to schools some 20-years ago. The donations not only met the needs of schools that could not afford the new technology, but also helped build a new, loyal generation of Apple customers.

As one can imagine, marketing has quickly bought into the concept of shared values and is broadening beyond a singular focus on the customer to a focus on “stakeholder marketing”. So, PR has a new challenge. It can continue to call for social responsibility programs that often sound like “soft diversions” from value creation, which is the first order for a CEO, or they can refocus to help the company find social problems for which the company’s resources and competencies can make a real, recognizable difference. The company “does well by doing good”. There is a win-win for all.

Elliot S. Schreiber, Ph.D.
Clinical Professor & Executive Director
Center for Corporate Reputation Management
Drexel University
LeBow College of Business