How to create shared value

In a thought provoking article in the Jan-Feb 2011 issue of Harvard Business Review, Michael Porter and Mark Kramer claim that capitalism is under attack because business is "widely perceived to be prospering at the expense of the broader community." I don't think anyone in their right mind would challenge that statement.

Porter and Kramer argue that in neoclassical thinking a requirement for social improvement poses a constraint on the corporation and inevitably raises prices. The developing alternative is something they call "The Notion of Externalities." They explain externalities as social costs that business does not have to bear, such as pollution. Society imposes taxes, regulation and taxes to try to get companies to "internalise" these issues and change their behaviour: with similar results. (Actually a point I made in my book "A Feeling of Worth" albeit maybe not quite so succinctly.)

In what is an implicit argument against tax as an instrument of policy, Porter and Kramer talk about the concept of shared values. They claim that this recognises that "societal needs, not just conventional economic needs, define markets." They claim that rather than being a redistribution approach, "shared value is about expanding the total pool of economic and social value."

They argue that rather than making these social issues a cost this will impel companies to find solutions for them that will ultimately reduce those costs and thereby provide greater benefit for all. They say that "Companies must take the lead in bringing business and society back together." Since business is the primary consumer of economic resources, that certainly seems to be a valid statement that will help deliver "the new conception of capitalism" that is a pressing requirement right now!

They claim that a number of companies known for their hard-nosed approach to business are already leading the way in this regard. Maybe so, but it still seems to me that the start of "shared values" is the organisation itself. Thus employee ownership is not just a way of building employee engagement, but is a way of creating the shared values and hence the shared purpose that will make the organisation a community itself. That in turn will ensure it integrates better with the community at large. This ultimately will provide the motivation and the momentum to find the solutions that Porter and Kramer are talking about.

Don't you find it wonderfully ironic? The ideal way to create shared value is employee ownership that makes everyone an owner and that does not involve shares!  And do this and you may even help solve the world's problems.  

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