After preparing the last issue of Inside Internal Control, I came across the concept of “shared value” in the Harvard Business Review (subscription), which seems like another expression of Natural Step Canada’s rethinking of corporate social responsibility.
Harvard professors Michael Porter and Mark Kramer write:
The capitalist system is under siege. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.
But:
A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment.
Harvard researcher David Weinberger responds that shared value is great—”when it works.” But in reality, shared value will require great sacrifice from business.
Suppose doing the right Shared Value thing requires closing plants, raising prices, becoming less competitive, reducing profits? Should an automobile manufacturer abruptly exit a lucrative market for high-performance gas guzzlers, luxury gas guzzlers, and cheap gas guzzlers on the grounds that expensive fuel-efficient cars are better for us all?
Porter and Kramer add:
We are suggesting that social and environmental factors carry genuine economic implications for business strategy—both costs and benefits—and that these considerations, long resisted by businesses, must be included in corporate decision-making. … It is possible for businesses to help solve social and environmental problems in ways that increase profitability or accentuate competitive advantage. … there is much more business opportunity in solving social problems than in causing them.
It seems hopeful that a serious debate over the greater role of business in society is underway, and I’m going to look more closely at shared value in the near future. In the meantime, I’d be happy to hear your thoughts on the topic. Has short-term business thinking harmed communities, the economy and the environment? Is it time for business owners of all sizes to recognize the value and necessity of supporting the communities in which they operate? Are there really vast opportunities for businesses in previously ignored markets or to meet previously unmet needs?
Adam Gorley
First Reference Internal Controls, Human Resources and Compliance Editor
Adam Gorley
Thanks for your thoughts Ross!
It’s good to hear that corporations are taking voluntary steps to engage Aboriginal communities before beginning operations that will affect those communities. And of course, you’re right that companies don’t particularly deserve commendation for simply following the law. It’s through exceeding standards (e.g., the law) that organizations stand out and, hopefully, earn associated financial, operational, and social/community rewards.
At any rate, I’m not sure businesses deserve rewards even for exceeding community/operational/legal standards. I think success should be the greatest reward; but success should include enhancing the community. Of course, other rewards or commendations can motivate an organization to continue to act in a “responsible” manner, and to act as an example for others.
I wonder if communities would be better able to hold businesses to account if communities (in general) had real power over what organizations opened up and operated in their midst.
Yes there are many “concepts” of corporate social responsibility floating around out there – some more logical, and thus benign, than others. My research on relationships between Aboriginal communities and the private sector (I’m assuming that this comment was posted in such context as it appears in the Aboriginal Economic Development group) in Canada has left me increasingly concerned about the use of “CSR” to describe the entire gamut of impact mitigation and project benefits that result between a resource development company and a community. For the most part Canada’s private sector is engaging communities early in a transparent and accountable manner, providing financial and other support to ensure their meaningful and effective participation in regulatory processes and project development, and investing in strengthening community cohesion through sponsorship of community events, scholarships, etc. These early, pre-regulatory investments are not legally required of a proponent, but they demonstrate that it understands that a project can have either a net negative or positive impact on a community, depending on how well the ground beneath the relationship has been prepared. That is corporate social responsibility – investing in communities not because it is required to do so, but because it recognizes the mutual benefit from doing so.
Consulting communities on a project-specific basis, mitigation of project environmental effects, and benefit agreements, on the other hand, have nothing to do with corporate social responsibility. They are required of the proponent both by legislation and regulation, and de facto under the Crown’s duty to consult, and thus are neither discretionary, nor optional. To suggest that these activities, when they do occur, are a result of discretionary good will on the part of a proponent and thus worthy of a feather in the headdress of accumulated social license debases the growing recognition that the relationship between Aboriginal communities and the private sector is grounded in statute and common law, not simply goodwill. Don’t expect kudos for complying with legal or contractual obligations, or even a treaty for that matter: They are commitments that have been made and must be honoured, regardless of the reward, or lack thereof, that is received in return. Put another way, companies would be naive to believe that sponsoring powwows, or complying with legal obligations alone, will secure ongoing social license for their project. Hence the need for more creative and strategic approaches to community engagement; from the beginning of the trail, to the end.