Sustainability should not be consigned to history by Shared Value ...
If Shared Value is to offer real, long term transformation it must address the flaws of capitalism, look beyond incrementalism and not just align commercial and societal goals, says John Elkington
• To read Mark Kramer's response to John Elkington click here
IMAGE If business aligns its commercial and societal objectives, it can better evolve scalable solutions to key global challenges. Photograph: Getty
I was delighted to participate in the recent Shared Value Leadership Summit hosted by FSG, a non-profit consultancy founded by Mark Kramer. Together Professor Michael Porter and Kramer wrote Creating Shared Value, published in the Harvard Business Review in 2011.
However, I left Cambridge, Massachusetts somewhat unsettled about some aspects of the way Porter seems to see the sustainability agenda.
At exactly the moment that world leaders are heading to Rio de Janeiro to assess progress on the agenda, one of the world's leading management gurus seems determined to elbow sustainability aside and replace it with Shared Value.
That said, Shared Value is undeniably a key step forward in corporate strategy. In the Harvard Business Review it is gaining real traction. The idea is that if business aligns its commercial and societal objectives, it can better evolve scalable solutions to key global challenges.
The central message is indisputable: 'Business and society have been pitted against each other for too long,' Porter and Kramer argue. 'That is in part because economists have legitimised the idea that to provide societal benefits, companies must temper their economic success. In neoclassical thinking, a requirement for social improvement – such as safety or hiring the disabled – imposes a constraint on the corporation.'
The net result, Porter and Kramer insist, is that the strategies of many corporations 'have largely excluded social and environmental considerations from their economic thinking'. They continue: 'Corporate responsibility programs – a reaction to external pressure – have emerged largely to improve firms' reputations and are treated as a necessary expense. Anything more is seen by many as an irresponsible use of shareholders' money.'
So far, so good. But if you seem to scoop sustainability up with corporate social responsibility and dump them in the 'bucket of history', as Marx attempted with capitalism, you risk antagonising those who - because they see the systemic nature of the crises we increasingly face - have embraced the sustainability framing of the agenda.
FSG, is signaling its intention to open the Shared Value platform out to wider inputs, which is very welcome. But, there are three things Professor Porter said at the summit that left me wondering whether more fine-tuning may be needed. First, he enthused that capitalism works like 'magic', conjuring value 'out of nothing'. Yet industrial capitalism typically converts natural capital that has evolved over millions of years into things that financial markets value. If Shared Value is to create real long-term value, it must acknowledge that capitalism is not invariably a benign process, indeed it can play a key role in destroying key resources, reducing the planet's biodiversity and destabilising the climate.
Second, he reduced corporate sustainability to resource efficiency. That may be what companies can currently measure, but recall that the original formulation of sustainability focused on the idea of intergenerational equity. At a time when the world population is heading towards nine billion, our economic model is often dangerously myopic in systematically favouring a few forms of capital (financial, physical, intellectual) over others (human, social, natural).
If you focus on the narrow commercial interests of particular companies, then it makes sense to encourage CEOs and others to cherry-pick their priority issues from a menu of options. But what if, unlike items on a restaurant menu, the challenges are all symptoms of the systemic dysfunction of modern-day capitalism? Might the Shared Value approach encourage incrementalism rather than the necessary transformative, systemic change?
Finally, Professor Porter seemed to suggest that Shared Value offers a values-free way for leaders to select their strategic priorities. What he meant, I am told, was that this isn't so much a shared-values agenda, as an infinitely better way to identify areas where commercial and societal value creation align. Still, declared or not, values are shot through all forms of capitalism, even if masked by market pricing signals.
This is something that PUMA Chairman Jochen Zeitz is trying to address with the environmental profit & loss methodology, seeking to place a market value on the environmental impacts of his company and supply chain. In 2010, PUMA calculates that the environmental costs imposed by its business activities were 'worth' €145m. Once you know the numbers, whether or not the market incentivises you to address them, it's a matter of values as to whether you decide to take a free ride, or pay your bills.
UN Secretary-General Ban Ki-moon characterises sustainability as offering 'what economists call a 'triple bottom line' – job-rich economic growth coupled with environmental protection and social inclusion.' Porter doesn't much like the triple bottom line concept, which I coined in 1994, seeing it as an attempt to balance off different forms of value creation. But the declared intent was always to achieve what Jed Emerson some years ago dubbed 'blended value'.
Perhaps the difference of opinion reflects the fact that FSG started out advising foundations on how to direct their philanthropy. Perhaps theirs is an 'inside-out' world, where you take a given quantum of resources and use it to achieve the greatest possible impact. The 'outside-in' sustainability movement comes from a different starting point, a world in which our species is moving into the Anthropocene. This is a new reality in which our species has impacts on a geological scale and where the interests of future generations need to be brought back into the present – in ways that today's capitalism systematically fails to do.
Unquestionably, Shared Value is an exciting, emerging management discipline. But among previous management disciplines with a huge impact was total quality management (TQM). Recall the criticism that certain forms of quality management could be used to design a 'concrete submarine,' as long as that was what the customer specified, even if the end result was that the submarine promptly sank with all hands. We have to be very careful how our commercial specifications are set in the Anthropocene. In the end, however, properly addressed, sustainability could be the ultimate form of Shared Value.
John Elkington is Executive Chairman of Volans and non-executive director at SustainAbility. His latest book is The Zeronauts: Breaking the Sustainability Barrier (Earthscan/Taylor & Francis). He blogs at www.johnelkington.com and Guardian Sustainable Business and tweets at @volansjohn
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