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Never Mind Corporate Responsibility, Companies Can Solve Actual Social Problems

Can Michael Porter's theory of "shared value" change the way multinational companies fundamentally relate to society?

Never Mind Corporate Responsibility, Companies Can Solve Actual Social Problems

[Illustrations: Goldenarts via Shutterstock]

In the world of management research, Michael Porter is a rockstar. His "Five Forces" framework is a key tool in the field of strategy and his books have canonical status within MBA programs (even if most students haven't actually read all 592 pages of Competitive Advantage). In an industry known for fast-talking gurus, Porter—who teaches at Harvard Business School—is an intellectual.

More recently, however, Porter has been less interested in how companies can get a leg-up on their rivals and more concerned with improving the planet. His theory is called "shared value," and it says that companies can and should solve social problems—and they can make money doing it. He believes that companies are entering a third phase in their relationship with society. The first was about philanthropy, where business donates money to causes. The second was about "corporate social responsibility," or minimizing their social or environmental harm. The third is about solutions: actual products and services with a social purpose.

"The ultimate impact businesses can have is through the business itself," he says in an interview. "There are huge unmet needs in the world today. The question now is how to get capitalism to operate at its best because capitalism is fundamentally the best way to meet needs. If you can meet needs at a profit, you can scale."

This is actually been what many in international development have been saying for a while—that you can have more impact selling a product than giving it away. By enabling local entrepreneurs to create businesses, you establish a sustainable chain of sales, distribution and customer service that charities or international agencies can't match. (See for example this milk can for African dairy farmers, which is being sold at a profit even though it is funded by billionaire Bill Gates.)

It also echoes the idea of the "Bottom Billion" or "Bottom of the Pyramid" ideas developed by Porter's late colleague C.K. Prahalad, who argued that, collectively, the poor have enormous purchasing power. Multinationals, he said, can make money by reaching out to the previously neglected, often with new business models and technology.

Porter, though, says "shared value" is a little different, as it's not about creating cheaper versions of products and services we enjoy in the developed world. It's about coming up with new offerings that actually solve social problems. So, less new packets of soap or cigarettes, more services that improve health and economic output.

But what about the constraints of shareholder capitalism? Are companies really in a position to develop social purpose products if they have to meet quarterly earnings targets and satisfy short-term investors? Porter says the biggest obstacle is more imagined than actual.

"Businesses have been stuck in a box. They have been thinking about 'social' as being good or responsible, rather than as opportunity," he argues. "They haven't thought about needs this way or customers this way. They have been thinking too narrowly economic."

Porter has developed a new executive MBA program at Harvard to spread the shared value message and his Shared Value Initiative works with companies on an individual basis. But he says business schools still have a lot of research to do in really understanding social problems (say, in health or the environment) and developing new business models.

There are a lot of criticisms you could throw Porter's way. For one, his initiative is sponsored by companies that aren't known for their shared value ethos (does Chevron help solve today's challenges by pumping hydrocarbons?). You might add that multinational companies have been the ones responsible for hollowing out the capacity of governments to deal with social ills, or maybe that some of these problems were actually created by multinationals who are now supposed to fix them at a profit. And don't forget, business schools have themselves developed managers with the limited mindset Porter now says is unhelpful.

Still, it's significant that a figure as prominent as Porter is calling on companies to see their role differently. And the concept surely could lead to good things.

"There are lots of things that businesses have done that are not appropriate or responsible. But there's not enough donations or government money to deal with these issues in a traditional way," he says. "We need to invent a lot more tools and concepts to fully embrace the opportunities that companies have. At the moment, we're only beginning to learn how to meet the needs of low-income consumers."

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