A more optimistic view of the potential for ethical business CREATING SHARED VALUE A more optimistic view of the potential for ethical business

SOCIAL CONTRACT and CSR When looking at stakeholder theory as a prelude to different approaches in different parts of the world we encountered the ideas of social contract and corporate citizenship A business just like individual people can be considered to have a social contract with the societies/states in which it is operating; and as a good corporate citizen it will accept that it has social responsibilities in that society.

SOCIAL CONTRACT and CSR The Chicago economist Milton Friedman thought that this social responsibility consisted solely of maximising profits for shareholders, a view which completely overlooks the existence and the interests of manifold other stakeholders. If really necessary Friedman thought that the state could intervene to protect the interests of other stakeholders…but the very same Friedman also argued repeatedly for minimal government, for a minimal role for the state in the economy.

SOCIAL CONTRACT and CSR Hence in the end he is arguing that businesses should concentrate on maximising profits and thus shareholder wealth. As the title of his influential article so succinctly put it FRIEDMAN M (1970) “The social responsibility of business is to increase profits” in New York Times Magazine, 13 September 1970 .

SOCIAL CONTRACT and CSR This view has been highly influential in the theory and practice of Strategic Management but it hollows out any real sense of corporate social responsibility. A business is to pursue its own narrow self interest and the interests of other stakeholders may be ignored except insofar as they contribute to profits. This approach with company strategy based solely on shareholder wealth maximisation is manifestly inconsistent with the ideas of social contract, corporate citizenship and consequent social responsibilities towards other stakeholders in the society or states where it operates.

SOCIAL CONTRACT and CSR Michael Porter and Mark Kramer argue that not only is Friedman inconsistent with the idea of social contract; the idea that business should focus exclusively on profits while ignoring the interests of other stakeholders has contributed (especially since the financial crisis of 2008) to an increasingly bad reputation for business as socially dysfunctional and crudely exploitative. This leads us to discuss in detail their important article PORTER M & KRAMER M (2011)  Creating Shared Value in Harvard Business Review January 2011

SOCIAL CONTRACT and CSR Porter and Kramer also suggested that in the 1990s and early 2000s as many businesses did begin to admit and pursue their social responsibilities, initially CSR was thought of largely in terms of philanthropy and sponsorship and as an afterthought to the core activities of the business.

SOCIAL CONTRACT and CSR Moreover some of the initiatives that were taken in the early days of CSR awareness were largely greenwashing

CSR→→CSV Porter and Kramer therefore argue for a different and more serious approach to CSR which will integrate social responsibility into the heart of business strategy rather than being an afterthought or bolt-on element. This approach they call the creation of shared value Profitability and CSR are no longer to be seen as diametrically opposed but rather they can often be complementary. By actively seeking out such types of activity a company can at once continue to be profitable while also contributing to social progress in the society(ies) where it is active

CSR→→CSV Most obviously this is the case when a business seeks to act ethically and responsibly, publicises this and the publicity contributes to sales among ethically conscious consumers. But that is what we may call the easy bit of CSV. There may be many other cases where by eschewing outright maximum profits while still however remaining profitable a company may be able to contribute to the well-being of diverse stakeholder groups and thus to social progress. In effect the company will be making trade-offs between the various stakeholder interests (as in the tobacco example)

CSR→→CSV Therefore taking the notion of corporate citizenship seriously a business should actively seek out ways in which it can create shared value: that is to say value not just for shareholders but for many other stakeholder groups simultaneously. By doing so to will contribute to social progress in the community. It is true that the CSV approach implies a conception of human society and of stakeholder groups therein that is not inherently antagonistic and conflictual; through cooperative effort shared value can be created and societies can progress.

CSR→→CSV Some critics suggest that this is too optimistic and that human societies are always and irretrievably conflictual and antagonistic: a kind of war of all against all or at least an inevitable war among powerful interest groups or classes. Elsewhere I have suggested that that vision while plausible as a description of the world in many cases is not pervasive or inevitable. A collaborative approach in which people by emphasising their many common interests over their differences agree to cooperate in the pursuit of common goals is both possible and highly desirable

CSR→→CSV Porter and Kramer while not articulating the idea in the philosophical manner I have just outlined clearly share this optimistic vision of human societies as capable of cooperation in pursuit of social progress.

CSR→→CSV For Porter and Kramer the switch to a new approach to strategy and to social responsibility based on the shared value approach is moreover vital if capitalism as we know it is to survive. They rightly note that in many countries the desirability or even legitimacy of private sector businesses to operate in the pursuit of profits has been seriously questioned as a result of an ongoing stream of scandals in a wide variety of sectors: financial (crisis of 2008), pharmaceutical (drug prices), energy (Enron, BP) and biochemical (Monsanto)

CSR→→CSV In the face of such a growing challenge to its legitimacy Porter and Kramer hold that if private enterprise capitalism is to survive it must begin forthwith to base its strategy on creating shared value and thus in effect to bring CSR into the very heart of strategy formation.