From Corporate Social Responsibility to Creating Shared Value

The current school of thought on the scope of Business has focused on profits.  On September 13, 1970 Milton Friedman writes in The New York Times Magazine the influential article The Social Responsibility of Business is to Increase its Profits.  See the past blog post The Social Responsibility of Business is to Increase its Profits.

But something is changing and the idea of Business of just creating shareholder value is not considered valid or at least it is now conceived restrictive and not good for a long term approach to business. I totally support this view and a nice article, of Porter and Kramer on HBR, nicely describes the challenges and the new objectives that the business world should look at.

From the article The Big Idea: Creating Shared Value:

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.

A big part of the problem lies with companies themselves, which remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success. How else could companies overlook the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, or the economic distress of the communities in which they produce and sell? How else could companies think that simply shifting activities to locations with ever lower wages was a sustainable “solution” to competitive challenges? Government and civil society have often exacerbated the problem by attempting to address social weaknesses at the expense of business. The presumed trade-offs between economic efficiency and social progress have been institutionalized in decades of policy choices.

The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. 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. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.

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