How Shared Value Is Changing Capitalism’s Relationship to Society

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Written by Ana C. Rold

By now you have probably heard more than once the dark conclusion of a 2014 study from the Olin School of Business at Washington University: “In the next 10 years, 40% of the Fortune 500 companies will be gone.” And by now, it is hardly news that most industries are undergoing massive disruption—many will not even make it through the decade because of exponential technologies. A company’s competitors are no longer just other companies who produce similar products or services; a company is now competing with everyone. Just look at Amazon’s latest Whole Foods acquisition for a clear sign of the times.

And then, there’s another parallel movement that is reinforcing the decline of the company as we’ve known it. The entire capitalist system itself is under major rejection—if populist movements everywhere in the world are any indication. Consumers think of companies as blood-sucking fiends in pursuit of profit. Corporate social responsibility (CSR), once the answer to keeping the community happy, is often perceived as inauthentic and ineffectual. Consumers are savvy and they want to purchase from brands that share their values.

Enter Shared Value, initially explored in a December 2006 Harvard Business Review article by Michael E. Porter and Mark R. Kramer. The publication of the article was the beginning of a movement, which some experts saw as disruption to the old model of CSR. The gist of it was: “Companies could bring business and society back together if they redefined their purpose as creating ‘shared value’—generating economic value in a way that also produces value for society by addressing its challenges. A shared value approach reconnects company success with social progress.”

But we shouldn’t be too quick to discount CSR.

While CSR has been around for centuries—first being mentioned in the early 1900’s and entering mainstream media in its current form later in the decade—the concepts behind CSR and shared value have often been viewed as two separate parts of a whole. The thought process between these two practices, however, is strikingly similar—while CSR is more activism-driven and shared value more focused on social change through market mechanisms, both are geared towards creating social good for employees, community, and humanity as a whole. What if, then, corporate social responsibility and shared value were not two separate parts of a whole, but two points on the same evolutionary line focused on creating a more meaningful connection between business and social good?

The Customer of the Future

A report by Cone Communications shows that 91% of consumers expect companies to not only operate responsibly, but to also address social and environmental issues in today’s world—and with our current market system geared toward consumer satisfaction, consumers possess enough power to see that these changes happen. In fact, according to Cone, 84% of consumer surveyed say they seek out responsible products whenever possible, and an astounding 90% say they would boycott a company if they learned of irresponsible or deceptive business practices. Websites such as Ethical Consumer, for example, demonstrate that issues such as animal and human rights, environmental degradation, political issues and irresponsible marketing are often the main causes of large consumer boycotts, demonstrating that social and environmental issues are always at the forefront of consumer buying power and behavior. Corporate social responsibility is not just an option—it is a requirement for survival in today’s consumer-driven market.

Traditionally, corporate social responsibility has often been linked to more conventional forms of social responsibility such as employee volunteerism, environmentally sustainable business practices, and charities. But what if there was a way in which both corporations and their communities could mutually benefit from corporate social responsibility? Shared value takes CSR one step further by incorporating mechanisms designed to address social change directly into the core business model and production of goods and services. Rather than simply tackling social issues separately, shared value aims to change capitalism’s relationship to society in a mutually beneficial way. It is becoming increasingly apparent that the future of corporate social responsibility is in shared value.

Rather than focusing on preventing negative social and environmental impact in the products they create, through shared value, corporations can reinvent their products and its markets in a way that not only improves society and the environment, but improves their own business as well. First Book is one such company focused on the social issue of increasing access to books, educational resources and other basic necessities for children in low-income families. Rather than focusing on a donation or charity-based model, however, First Book uses a market-driven approach to create a more sustainable and long-term solution for providing education to children in need.

Other already established corporations are increasing their shared value through the reinvention of their products to help people in low-income areas. For example, Adidas has partnered with Grameen Bank to create low-cost footwear for low-income people in Bangladesh. By creating shoes that are affordable, the people of Bangladesh can now have better protection against the environment and disease.

And yet shared value is not without its criticisms. Critics have argued that if traditional market mechanisms were able to solve the social woes of society, it would have already been done. The current mechanisms behind shared value are often seen as an organizational-level attempt to change a system-level problem. A traditionally market-driven shared value approach may not be enough to solve the many social and environmental woes of our times.

In the end, while corporate social responsibility and shared value have become staple principles in today’s economic market, this pathway towards a more interconnected relationship between business and society needs to evolve beyond its current form. Without market-driven approaches to social and environmental issues, the incentive for sustainable and mutually beneficial solutions will be few and far between; but without more activism-focused volunteerism and business practices on the side of corporations, social issues will never truly be dealt with in a meaningful way. It is this progression of CSR into shared value that shows us that it is possible for business and society to partner in meaningful ways, but it is the future beyond these two ideas that will ultimately change both business and society.

About the author:  Ana C. Rold is Founder and CEO of Diplomatic Courier.  She teaches political science courses at Northeastern University and is the Host of The World in 2050–A Forum About Our Future. To engage with her on this article follow her on Twitter @ACRold.