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Contesting the Value of ‘Creating Shared Value’

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CONCEPT

Andrew Crane
York University

Guido Palazzo
University of Lausanne

Laura J. Spence
Royal Holloway, University of London

Dirk Matten
York University

Draft paper. Do not cite without authors’ permission

Address for correspondence: Andrew Crane, Schulich School of Business, York University,
4700 Keele St, Toronto, Ontario, M3J 1P3, Canada

E: acrane@schulich.yorku.ca
T: +1 416 736 2100 ext 30190
 CONTESTING THE VALUE OF THE SHARED VALUE CONCEPT

Creating shared value (CSV), the concept popularized by Porter and Kramer in the

Harvard Business Review1, seeks explicitly to address the task of regaining trust in business in

the current age of crisis. ‘The capitalist system is under siege’, the authors contend, ‘…learning

how to create shared value is our best chance to legitimize business again’2. In a nutshell, CSV

proposes to transform social problems relevant to the corporation into business opportunities,

thereby contributing to the solving of critical societal challenges whilst simultaneously driving

greater profitability. In the words of Porter and Kramer3, CSV ‘can give rise to the next major

transformation of business thinking,’ ‘drive the next wave of innovation and productivity growth

in the global economy’ and ‘reshape capitalism and its relationship to society’.

It is a seductive promise, and one that has received enormous attention in the business

community and among management scholars and educators. In this paper, we seek to analyze

and critically evaluate the concept of shared value, both in terms of its stated aims – to re-

legitimize business4, to redefine ‘the purpose of the corporation’5, to ‘reshape capitalism’6, and to

‘supersede corporate social responsibility in guiding the investments of corporations in their

communities’7 – and in terms of its overall contribution to understanding the social role and

responsibilities of corporations. We suggest that the concept makes some significant progress

towards enhancing attention to the social dimensions of business, and may act as a spur for better

practice. However, in the way that it is understood by Porter and Kramer, CSV also suffers from

a number of serious shortcomings that will erode any real possibility for the more fundamental

change aimed at by the authors. We outline these limitations and indicate more fruitful

alternative directions that are already underway in the extant literature that CSV is seeking to

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supersede. Thus, whilst we acknowledge some useful aspects of shared value, we ultimately see

it as a reactionary rather than transformational response to the crisis of capitalism.

The emergence of shared value

The concept of shared value has emerged from a series of Harvard Business Review

(HBR) articles written by Porter and Kramer. This began more than a decade ago with work

focusing explicitly on the nonprofit sector, specifically an examination of how foundations can

create social value8. This soon extended into a piece exploring how corporate philanthropy can

create social and economic value, introducing for the first time the authors’ ideas around using

social programs to enhance the firm’s competitive context9. By 2006, this had developed into a

broader analysis of how to integrate corporate social responsibility (CSR) into core business

strategy, where the term ‘shared value’ was coined for the first time10.

Around the same time, Porter and Kramer began working with the global food

multinational Nestlé through their consultancy FSG. This led to Nestlé’s 2006 report on creating

shared value in Latin America11 and from 200812 onwards biannual, global, company-wide

‘Creating Shared Value’ (CSV) reports. Eventually, some five years after their initial

formulation, the fully realized elaboration of shared value was set out by Porter and Kramer in

the cover article of the January-February issue of HBR under the themed heading of ‘The Big

Idea’13.

Although the 2011 HBR article did not depart in any significant way from, or advance

too far beyond, Porter and Kramer’s earlier papers and their work with Nestlé, it did offer a more

substantial conceptualization. Specifically, the authors for the first time advanced a definition of

shared value, namely ‘policies and operating practices that enhance the competitiveness of a

2|Page
company while simultaneously advancing the economic and social conditions in the

communities in which it operates’. By value, they mean benefits relative to cost, not benefits

accrued alone. Moreover, three ways of creating shared value were articulated. First, re-

conceiving products and markets by seeking out social problems where serving consumers and

contributing to the common good might be achieved in parallel. Second, redefining productivity

in the value chain by simultaneously enhancing the social, environmental and economic

capabilities of supply chain members. Third, enabling local cluster development where various

developmental goals might be achieved in cooperation with suppliers and local institutions.

The strengths of the shared value concept

By most typical measures, Porter and Kramer’s concept has met with considerable

success. As an idea developed for and with senior leaders in large corporations, it is little

surprise that it has succeeded in gaining a substantial and positive practitioner audience. It has

not only reached this audience through the HBR, but in various newspaper, magazine and web

accounts, including the New York Times, The Economist, The Guardian, Forbes, and the

Huffington Post. It has been the subject of several CEO roundtables at Davos, and has reached

the next generation of business managers through business schools where it is required reading in

a variety of MBA and executive courses14. The article won the 2011 McKinsey Award for the

best article in HBR, and ‘shared value’ has since been enshrined in the official EU strategy for

CSR15. With leading companies such as Nestlé16 and Coca-Cola17 embracing the concept, CSV

has already shown its potential to push forward a broader understanding of corporate

responsibility among leading corporations. The success of CSV among (in particular

multinational) corporations might result from the ability of Porter and Kramer to frame CSR

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activities in appealing managerial language. Others have presented corporate responsibility with

regards to social and environmental problems as an ethical duty18, a political responsibility19 or a

response to business risks20. However, the CSV concept invites corporations to perceive such

problems not as a disconnected and externally imposed but as a serious target for genuine

business decisions with strategic importance.

Beyond the practitioner community, the shared value concept has also made great

headway into the academic management literature where in a short space of time it has become

established as an exceptionally highly cited article including relative to other HBR articles of

note21. By any reckoning, the Porter and Kramer article is a quite dramatic outlier in terms of the

rapid scholarly attention it has gained, although popularity of a concept does not guarantee its

profundity22. To some extent, the attention given to CSV can be at least partially attributed to a

‘Porter-effect’, in that most of Porter’s HBR articles are relatively well cited. But this would not

necessarily explain the overwhelmingly positive reception to the article in the academic

literature. Interestingly for a piece deemed quite controversial among scholars in the business

and society field whose work is criticized by Porter, of the current citations, only a handful could

be deemed a negative or critical assessment of CSV; the vast majority are positive, or in a

smaller proportion of cases, neutral23.

Beyond its undoubted impact among practitioners and academics, the shared value

concept also has some clear strengths as a concept competing for attention amongst others in the

business and society field. One of its critical strengths is its unequivocal elevation of social goals

to a strategic level. This is a positive response to counter those who have made the claim that

management scholars have not sufficiently examined the relevance of broader societal issues for

corporate decision making24 or examined such issues only through the lens of corporate interests,

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neglecting the common good perspective25. As a result, as Porter and Kramer claim, “[t]he

legitimacy of business has fallen to levels not seen in recent history”26. With the concept of CSV

they present a solution to this challenge that seems to be convincing for many practitioners and

scholars at the same time. Although, as we argue below, this is not by any means a novel goal,

Porter and Kramer’s approach is a fairly convincing execution of the strategizing of the social.

Porter and Kramer also make a significant step forward in understanding the role of

government in the social initiatives of companies. Whilst with a few exceptions, much of the

CSR literature has been written with little attention to roles and responsibilities of government.27

However, Porter and Kramer articulate a clear role for state actors in constructing ‘regulations

that enhance shared value, set goals and stimulate innovation.’28

By framing their contribution in terms of broader system-level problems – problems of

capitalism – Porter and Kramer also bring some much needed conceptual development to debates

about ‘caring’ or ‘conscious capitalism’29. There has been considerable discussion in recent years

about ways to fix capitalism from business leaders such as Bill Gates, Dominic Barton, and Ben

Cohen, but understandably without any real attempt to develop a conceptual framework.30 Porter

and Kramer go some way to redressing this with their CSV framework, albeit in ways that – as

we will discuss shortly – actually only superficially deal with systemic rather than organizational

level issues. CSV purportedly offers a holistic framework to unify largely disconnected debates

on CSR, non-market strategy31, social entrepreneurship32, social innovation33, and the bottom of

the pyramid34. Porter and Kramer contribute here by providing an umbrella construct – CSV – to

capture these diverse approaches within a common framework that seeks to re-embed capitalism

in society with a dual positive impact. Although umbrella constructs in the business and society

field have their own set of problems35, a holistic view of all those concepts on the interface of the

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market and society through CSV offers some promise for more integrated thinking about the

intersection of business and social progress.

Weaknesses and shortcomings of CSV

Despite its strengths and contributions, the shared value concept and its framing is fatally

undermined by a number of critical weaknesses and shortcomings. We begin with examining the

degree of novelty, and indeed the question whether CSV creates ‘shared value’ in the academic

and practitioner community of those with similar concerns as espoused by Porter and Kramer.

We move on then to some of the complexities of the field which CSV, perhaps ‘refreshingly’ for

many readers, appears to want us to forget. Finally we explore CSV not as a solution to

capitalism’s problems but as a symptom of an approach to management scholarship which is

itself endemic to the current failings of the capitalist system.

CSV is based on false pretenses about the existing CSR debate

CSV is presented as a novel contribution by Porter and Kramer yet its core premises bear

a striking similarity to existing concepts of CSR, stakeholder management, and social

innovation. This argument only holds up because they caricature the CSR literature to suit their

own ends and simply rehash the existing stakeholder and social innovation literatures without

due acknowledgement.

CSR as a straw man. Porter and Kramer’s aim to ‘supersede CSR with CSV’ is only achieved

to the extent that they construct a largely unrecognizable caricature of CSR that they can dismiss.

For instance, by defining CSR as ‘separate from profit maximization’, they ignore several

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decades of work exploring the business case for CSR. Whether or not it pays to engage in CSR

has always been one of the main research questions for scholars in the business and society

field36. As far back as the early 1970s, authors were suggesting that ‘social responsibility states

that businesses carry out social programs to add profits to their organization’37. The more recent

turn towards economic approaches to CSR similarly identifies ‘some level of CSR that will

maximize profits while satisfying the demand for CSR from multiple stakeholders’38. Porter and

Kramer also posit CSR as ‘discretionary or in response to external pressure’ whilst much of the

recent ‘strategic CSR’ literature suggests that ‘CSR is strategic when it yields substantial

business-related benefits to the firm, in particular by supporting core business activities’39. Even

Porter and Kramer in their earlier article in HBR claim that ‘CSR can be much more than a cost,

a constraint, or a charitable deed – it can be a source of opportunity, innovation, and competitive

advantage.’40 In short then, Porter and Kramer41 confer the impression that CSR is only ever

regarded as ‘bolt-on’ philanthropy, and want to make us believe that a debate on how to make it

‘built-in’ to core strategy42 has yet to take place. This is, at best, a very narrow reading of a broad

literature and, at worst, disingenuous.

Unacknowledged debts to extant literature. In addition to caricaturing CSR, Porter and

Kramer also fail to acknowledge that their ideas on the simultaneous creation of social and

economic value for multiple stakeholders have already been well-developed in the existing

literature. First, the framing of the shared value concept appears to ignore a well-developed

stream of work around creating value within the stakeholder management literature. Instrumental

stakeholder theory43, for instance, is largely synonymous with the characterization of CSV as

‘creating economic value in a way that also creates value for society by addressing its needs and

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challenges’44. Moreover, even the language of value creation has been a major feature of the

work of Ed Freeman, stakeholder theory’s leading advocate, over the past decade or so – the key

principle here being that ‘creating value for stakeholders creates value for shareholders’45. It is

difficult to see where CSV differs in any substantial way from this literature, yet it remains

wholly unacknowledged by Porter and Kramer in any of their work to date. In a similar vein, The

Economist noted that CSV bore resemblance to Emerson’s ‘blended value’ concept ‘in which

firms seek simultaneously to pursue profit and social and environmental targets’ as well as ‘an

overlap’ with Hart’s Capitalism at the Crossroads.46

Second, CSV is also a rehash of the debate on social innovation. The idea of re-

conceiving products and markets and the encouragement to create partnerships and hybrid

organizations (such as microfinance or social enterprises) which blur the profit/nonprofit

boundary is anything but new. Just a superficial look at standard definitions in this area raises

important questions about the novel character of CSV. If social entrepreneurship, according to a

popular definition, is ‘a process involving the innovative use and combination of resources to

pursue opportunities to catalyze social change and/or address social needs’47 it is hard to see

much difference to CSV. In a similar vein, in the Harvard Business Review some 12 years prior

to the publication of the CSV article, Moss Kanter articulated the notion of ‘social innovation’ as

a process where companies take ‘community needs as opportunities to develop ideas and

demonstrate business technologies, to find and serve new markets, and to solve long-standing

business problems’.48

This silence on CSV’s overlaps with social innovation is even more conspicuous when

Porter and Kramer fail to mention that in the US at least, CSV in its core tenets already has its

own legal form. Since 2010, 18 states have enacted ‘Benefit Corporation’ legislation with a

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deliberate ‘corporate purpose to create a material positive impact on society and the

environment’ where the fiduciary duties of the management include the successful alignment of

those goals.49

Such organizations then have long existed and have been on the rise in recent years amid

a fanfare of publicity, most notably the example of the Grameen Bank in Bangladesh. Such

organizations meet Porter and Kramer’s proposal to develop products and services that meet

societal needs, and indeed microfinance is specifically cited as a CSV success story50. A more

critical look at microfinance is a useful indicator of problems facing hybrid organizations,

undermining them as a profitable panacea to social problems. The financial viability of

microenterprises has been challenged, even in the case of the Grameen Bank51. Social impacts

have also been found to be wanting, giving rise to negative social contribution in aspects such as

inequality and limited advances in terms of poverty alleviation, despite expanding the numbers

of clients and amount of funds available.52 Critically for the shared value concept, Epstein and

Yuthas note the extreme difficulty, even impossibility, of maintaining both social and financial

goals, even where this is the expressed purpose of the initial mission. They point to diffusion and

drift in this dual mission as key causal factors since these, ‘shift focus away from clients and

toward funding sources and financial results. Diffusion often results from efforts to address a

social problem using a multi-faceted approach. In microfinance, organizations tend to be pulled

in many directions, both by the broad range of needs expressed by impoverished clients, and by

the multiple, varied interests of donor agencies, board members, and other stakeholders. Drift in

this industry typically pressures MFIs to take emphasis away from social impact in an effort to

achieve the financial self-sufficiency that enables expanded access to capital and the ability to

serve more clients.’53

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By ignoring then the state of the art in the field which substantially covers the core tenets of CSV

Porter and Kramer not only fail to genuinely open new conceptual space, but they also gloss over

many of the difficulties in operationalizing such hybrid organizations and maintaining a dual

purpose over time . This rather naive assumption about the sustainability of ongoing win-win

scenarios leads us to another broader deficit of the CSV concept.

CSV ignores the social and economic tensions in responsible business behaviour

Beyond the unacknowledged overlaps with other established streams of literature, the

CSV concept also suffers from a failure to deal adequately with trade-offs between economic and

social value creation, and with any negative impacts on stakeholders. Porter and Kramer claim to

‘move beyond’ any such trade-offs,54 largely by, it would seem, ignoring them. Whilst seeking

win-win opportunities is clearly important, this does not provide guidance for the many

situations where social and economic outcomes will not be aligned for all stakeholders.

Many corporate decisions related to social and environmental problems, however creative

the decision-maker may be, do not present themselves as potential win-wins, but rather will

rather manifest themselves in terms of dilemmas55. In an ethical dilemma, worldviews, identities,

interests, and values collide56. Rowley and Moldoveanu have argued that the mere idea of a

negotiation over an issue might be unacceptable for some stakeholders such as NGO activists.57

If such activists fight, for instance, for the eradication of slave labor in cocoa production, they

will perceive any kind of compromise as a sellout of their mission and a threat to their identity.

In other cases, as in the discussion on decent wages – challenges may remain systematically

unsolved and do not result in win-win outcomes. They can be better described as continuous

struggles between corporations and their stakeholders over limited resources and recognition.

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The simplistic claims made by Porter and Kramer about the promise of the shared value concept

are, we argue, distortions at worst and optimistic at best.

Thus Porter and Kramer tend to simplify the complexity of social and environmental

issues leading to possible misrepresentation of the relevant investments and outcomes. Operating

with a CSV mindset, corporations might tend to invest more resources in promoting the

impression that complex problems have been transformed into win-win situations for all affected

parties, while in reality problems of systemic injustice have not been solved and the poverty of

marginalized stakeholders might even have increased because of the engagement of the

corporation58. Given the complexity of social and environmental problems, their uncritical

analysis as new sources for profit might indeed drive corporations to invest more in easy

problems and decoupled communication strategies than in solving broader societal problems.

What Reich has criticized with regard to CSR in general, might be in particular true for

CSV: that is, instead of promoting the common good, CSV might promote more sophisticated

strategies of greenwashing59. This is indeed the main gist of a growing new stream of literature

on (predominantly ‘strategic’) CSR from critical management perspective60. CSR in this

perspective is ‘crucial for realigning the disengaged employees with an awful business model’61,

or more general, a ‘parasitical logic’62 which allows corporations to adhere to a self-interested,

socially harmful approach to generating economic value while engaging in isolated efforts to

create value for employees, suppliers or the environment. With regard to CSV, this development

is not just abstract: in a Forbes CSR Blog entry entitled ‘Three Great Examples of Shared Value

in Action’63 the companies in question are Adidas, BMW and Heinz – all companies with some

successful CSV projects, but whose past history, current products and wider industries raise a

host of unresolved issues concerning their social value.

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 Porter and Kramer’s attempt to whitewash the problem of trade-offs from the walls of

CSV, and to disregard the potentially negative impacts of corporations can be seen to resonate

through each of the three dimensions of the concept – reconceiving products, redefining

productivity, and enabling clusters – as we shall now discuss.

CSV suggests a myopic focus on reconceiving new products and markets. In terms of

re-conceiving products & markets, Porter and Kramer refer to the need to shift from creating

demand to designing products which are good for customers and meet their needs, and

organizations which blur the boundaries between profit/non profit, which they call hybrid

enterprises64. New product and service design is presented as a development of new market

opportunities which are both beneficial to the company and to society, including serving

emerging and developing economics, i.e. the bottom of the pyramid65.

Porter and Kramer’s analysis leaves a number of unanswered questions, however,

including the problem of companies that produce products which are of questionable social good.

Opinions may vary culturally on what these are, but contenders may be the tobacco industry,

arms manufacturers, or the petroleum industry. In each of these cases, innovations may be

developed to offer shared value, but the fundamental nature of the product has some inherent

negative impacts on society. We are prompted to ask how organizational integrity can be claimed

if a new innovation is developed for one or even a range of products (imagine fair trade tobacco,

recycleable guns, or responsibly sourced oil), but ‘business as usual’ continued elsewhere in the

organization (producing carcinogenic, addictive products, weapons designed to inflict maximum

injury in civilian settings, or the extraction of petroleum from bituminous sands in sites of natural

beauty). If the organization is redefined in terms of serving needs rather than creating demand,

how can they continue to operate on that basis in some arms of their business but not others?

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They can only do so if the commitment is superficial and in fact to gain markets that will be

abandoned if no longer seen as financially viable. This is arguably illustrated in the processed

food industry, where companies such as Coca Cola and Nestlé have been lauded as pioneers of

shared value in some aspects of their operations66 whilst simultaneously castigated for

deliberately addicting consumers to high contents of sugar, salt and fat in their main business67.

Porter and Kramer’s approach is to cherry-pick shared value success stories in new markets with

little regard for the negative impacts of companies’ core products and markets.

CSV glosses over the complexities of value chains. Porter and Kramer put considerable

emphasis on the role that redefining productivity in the value chain can play in creating shared

value. They do this particularly through looking at energy use, logistics, procurement,

distribution, and employee productivity which chimes closely with the burgeoning literature on

supply chain sustainability68.

We already know from the various successes and failures of corporations such as Nike,

Gap and Walmart that assuring social and environmental value through the global supply chain is

fraught with difficulty even where intentions are good. Paying decent prices to first tier suppliers

in a bid to ensure workers a living wage might for instance evaporate large parts of the profits in

the apparel industry – not to speak of the wages paid further up the supply chain all the way back

to the cotton fields. While a Western brand selling apparel or electronic devices wants

production to be as cheap and as quick as possible, Chinese workers for a supplier company may

want to earn more money and work at a less demanding pace69. As with the evidence on the

difficulties of operationalizing hybrid organizations noted above, there is extant research which

shows how initiatives put in place with the intention of promoting sustainability in supply chains

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for social and environmental gains, only survive in economic terms, ensuring longevity of

quality supply for the purchasing company over and above social and environmental needs of

consumers or suppliers70.

CSV does not deliver on the promise of addressing issues of societal embeddedness of

corporations. The third avenue for CSV for Porter and Kramer is enabling local cluster

development. They posit that clusters have been ‘all but absent’ in management thinking. While

cluster building has arguably not been a part of the multinational CEO’s contemporary frame of

reference, the value of collective local expertise is neither new, original nor surprising to regional

policy and regeneration specialists, business support intermediaries, or small business and the

associated scholarly literatures. In addition, Porter was a prolific writer on clusters himself in the

late 1990s and early 2000s71.

The claim made by Porter and Kramer is that cluster formation will create shared value.

Martin and Sunley deconstruct the value of the claims made about clusters in almost every

respect, including their definition, theorization, empirics, benefits, advantages and employment

as a policy device.72 Clusters, like value chains and hybrid organizations, are thus not

unproblematic purveyors of social good. Income distribution due to cluster development, may

accentuate local inequalities which may lead to migration issues, overcrowding and precarious

dependencies on a particular industry (such as the rise and decline of Detroit in the wake of the

motor industry). Most importantly from a CSV perspective, cluster development will be

determined by industrial potential rather than social need – social need is unlikely to be a driver

as Porter and Kramer suggest, though it may be a deciding factor in determining between two

otherwise suitable regions.

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 Cluster development is not such a new phenomenon as Porter and Kramer suggest,

having been common policy in the age of industrialization, where corporations had to create an

environment for their suppliers in new products such as the motor car. Still today, the economic

rewards of ‘automotive supplier parks’ has been challenged and ‘received wisdom’ on their

value questioned73.

Furthermore, while claiming to deliver a broad framework to include various discussions

on the business and society interface, the concept of CSV remains unconvincing since it avoids

any deeper thoughts about the systematic responsibility of corporations in society. As expressed

in a New York Times article, the authors position is that ‘the shared-value concept is not a moral

stance … and companies will still behave in their self-interest in ways that draw criticism, like

aggressive tax avoidance and lobbying for less regulation.’.‘This is not about companies being

good or bad,’ Mark Kramer is reported as saying74. As a result, to use Porter and Kramer’s

terminology, the most likely ‘clusters’ CSV may lead to are islands of win-win projects in an

ocean of unsolved environmental and social conflicts. While CSV might be a good way of

integrating various activities into one social strategy, it fails to deliver orientation for a

responsible corporate-wide strategy. It thus fails in Porter and Kramer’s aim to redefine the

purpose of the corporation.

CSV is naive about the challenges of business compliance

As we have seen by now, dealing with the negative impacts of corporations is given short shrift

by Porter and Kramer. In particular they appear to harbor rather optimistic assumption about

business’ appetite to adhere to external norms, most notably laws and regulation. There is one

sentence on this issue, namely: ‘creating shared value presumes compliance with the law and

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ethical standards, as well as mitigating any harm caused by the business, but goes far beyond

that.’75 It is a remarkable piece of finessing to ‘presume’ such compliance rather than integrating

it within the concept itself, especially given their espoused aims of restoring trust in capitalism

and re-legitimizing business.

The concept of CSV is simply built on the assumption that compliance with legal and

moral standards is given. However as research across the social sciences continues to

demonstrate, the absence of compliance with such standards is a key problem of multinational

corporations. Such corporations operate in a broad variety of geopolitical contexts where

governments are unable or unwilling to regulate them effectively76. The sweatshop debate in

which corporations are attacked for the working conditions at their suppliers has been in the

center of this discussion since the early 1990s when the outsourcing of production to countries

with weak regulatory regimes began77. Critical deconstructions of value chains with regards to

social and environmental side effects can be found for numerous industries and have been

described as a key driving force of NGO attacks against corporations78. Obviously compliance

with hard and soft law standards is hardly a given for many corporations in many industries.

Even if companies are seriously engaged to reduce the social problems in their supply chain

through audit and certification systems, compliance remains a serious challenge because of the

widespread cheating of suppliers79. Taking compliance with such standards as ‘presumed’, the

CSV concept ignores the most pressing social problems corporations are facing along their

globally stretched value chains and motivates corporations to focus on the low hanging fruits of

easy win-win projects instead of solving systemic social and environmental problems to which

they are connected.

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The CSV concept is strategically incoherent

Despite being co-written by one of the world’s most eminent strategy gurus, the CSV

concept lacks any real strategic coherence. It seeks to ‘transform business thinking’ yet makes no

mention of the strategy models that might need transforming (only CSR or capitalism are

presented as problems that need fixing). It looks to solve the macro systemic problem of

capitalism by changing micro firm-level behaviors. It wants to rethink the purpose of the

corporation without questioning the sanctity of corporate self-interest. It seeks to restore business

legitimacy without considering either adherence to the rules of the game (compliance) or the role

of financial markets.

By taking aim at CSR, Porter and Kramer appear to be identifying a very unconvincing

culprit for the problems of capitalism. Clearly there are more fundamental models of strategy

that need to be addressed, both to restore trust in our economic institutions, and indeed, to build a

case for shared value. Critically, Michael Porter’s own models of competitive strategy would

need to be overturned in order for shared value to flourish, a point on which he and Kramer are,

thus far, silent.

For example, looking at his classic model of the Five Forces, which he revised and

updated in HBR in 2008, stakeholders such as customers and suppliers are regarded not as

participants in a shared value enterprise but in ‘competition for profits’ with firms80. ‘The

strength of the five competitive forces’, he argues, ‘determines how the economic value created

by the industry is divided’81. This means that rather than urging firms to bolster the economic

capability of stakeholders such as suppliers through shared value initiatives, Porter warns that

‘powerful suppliers capture more of the value for themselves’82. And even when, in a revision to

the original formulation, Porter acknowledges that it is possible to expand the overall amount of

17 | P a g e
value created to open up ‘win-win opportunities for multiple industry participants’, he then goes

on to explain that ‘the most successful companies are those that expand the industry profit pool

in ways that allow them to share disproportionately in the benefits.’83. As such, the business

fundamentals that underpin Porter’s view of strategy would seem to undermine the very broad

goals that the shared value project purports to seek to achieve.

In many respects, the CSV concept is actually just as corporate-centric as Porter’s ‘old’

strategy models. It explains how the corporation can transform (some) of its social and

environmental problems into win-win solutions. In this sense it largely follows the logic of the

traditional model of competitive strategy, which demands that corporations establish barriers

against the market entry of competitors. A true societal perspective, however, would consider

many of the problems corporations try to deal with on a local and controlled level as systemic

problems of injustice which require broader solutions embedded in democratically organized

multi-stakeholder processes84. The perspective cannot only be the creation of additional profit

opportunity for the corporation but rather the common good of society85. For Porter, CSV is a

next step in his traditional concept of differentiating the corporation from its competitors while a

common good oriented approach would aim for standardized solutions that are valid for all

players and thus neutralizes differences between their respective CSR strategies. CSV will

manifest in projects corporations do on their own or in cooperation with selected partners, while

keeping the ownership over their projects. Societal responsibility in a broader sense would rather

manifest in industry-wide solutions and multi-stakeholder initiatives where corporations would

perceive themselves as a stakeholder of the problem rather than as the center of a stakeholder

network.

Finally, although it is hard to disagree with Porter and Kramer’s observation that the

18 | P a g e
current economic system and its actors are in a deep legitimacy crisis, their logic regarding the

necessary response is again confused. This goes to the heart of the question of why corporations

do what they do. Although management scholars traditionally argued that business decisions

tend to reflect the motivation of being as efficient and profitable as possible, DiMaggio and

Powell86 have offered an alternative perspective. Corporations want to be perceived as legitimate

in their societal context. This can be understood as following ‘socially acceptable goals in a

socially acceptable manner’even if this leads to less efficient and less profitable decisions87. The

concept of CSV is giving a purely efficiency oriented answer to a widely normative question.

While this might be sufficient in some contexts, it will be counterproductive in others. Within a

CSV framework, it would be possible to seriously engage in some local win-win stories while

pursuing an aggressive self-interested lobbying strategy. In their respective institutional settings,

corporations have to comply with the rules of the game or engage in creating such rules where

they are absent, whether it pays or not.

Conclusion

Ultimately, shared value does add some value to the debate on business and society, and

in garnering such admirable attention may well contribute to the emergence of socially beneficial

business practices. However, in its basic premise, and its many strategic exclusions and

diversions it also provides yet more fuel to fan the fires of capitalism’s critics who are looking

more for a retreat from corporate self-interest, rather than a simple restatement of it. Porter and

Kramer also fail to acknowledge or create any ‘shared value’ in that most collaborative of

enterprises, the development of scholarly knowledge. Thus, shared value is not such a social

‘innovation’ as its proponents contend, and it may prove counterproductive in its aims to create a

19 | P a g e
better world by reshaping capitalism.

Moreover, as the latter points of our critique have also surfaced, CSV is symptomatic of

wider misconceptions and shortcomings which have mired not just academic work in the area of

CSR but have cast shadows on the role of business schools in their teaching and research in

general. Rather than providing a critique of just one contribution – however influential it may be

– we want to close our analysis with some general implications for management research and

practice in general.

A first implication starts with Porter and Kramer’s choice of terminology. If ‘creating

shared value’ is really a novel idea worthy of publication in one of the most prestigious outlets

for academic research targeted at a practitioner audience then it must be really something new. In

other words, the tacit assumption behind CSV is – if we follow those who consider the

foundation of Harvard Business School as the birth of modern management education and

research – that for roughly a century everybody in management academia just took it for granted

that business should not create any value for society at all. ‘Shared’ value as a novel idea only

makes sense if indeed hitherto the only purpose of the firm has been to create ‘economic value’.

Porter and Kramer in this sense refer to companies that ‘view value creation narrowly,

optimizing short term financial performance in a bubble’88.

It is fair to argue then that the most fundamental problem of CSV is indeed its intellectual

birthplace: modern business schools and their view of the firm as an entity whose only legitimate

purpose is the generation of economic value for the firm and its owners. As we mentioned

before, Porter’s earlier work was very much characterized by, and indeed reinforced, this

intellectual constraint. And as we have argued above, CSV cannot deliver on the article’s subtitle

that ‘the purpose of the firm must be redefined’ because what Porter and Kramer offer is largely

20 | P a g e
confined to specific projects and products, rather than really addressing the complexities of

questioning the purpose of the entire firm. And there is ample proof that this narrow view of the

purpose of the firm is still dominant in business academia – most recently rehearsed by Porter’s

Harvard colleague Robert Simons arguing that competing for customers’ and investors’ interests

is ‘the essence of business’89.

CSV never leaves the confines of this paradigm. A fundamental conclusion of our

analysis then is that Porter and Kramer can only celebrate their innovation at the expense of

discounting all those circumstances and constraints which hinder the pursuit of ‘shared’ value at

the expense of economic value creation. But this is also the point where our analysis moves

beyond just taking two authors to task. In fact, when we refer to the existing management

scholarship on CSR (and related labels such as business ethics, sustainability, citizenship etc.)

and argue that this literature is largely caricatured by Porter and Kramer, it is also fair to add that

most of this literature similarly rarely moves beyond the economic purpose of the firm. Much of

CSR has entered the agenda of business academia in the Trojan horse of the ‘business case’90. If

CSR leads to more revenue, cuts costs - or more indirectly – reduces risks or protects the license

to operate there is really no longer the question ‘whether’ CSR is legitimate – it just becomes a

question of ‘how’ to make it serve this economic purpose of the firm91.

The point at which Porter and Kramer deserve credit then is that in the opening parts of

their paper they make an eloquent case for the fact that at least the social impacts of corporations

are now so clearly obvious as to be impossible to ignore by business any longer. And as we

argued, this is a currently ongoing broader debate, especially during a financial crisis, where just

for their wider social role banks are being considered ‘too big to fail’ 92even when they have

fallen short on their only hitherto legitimate economic purpose. The question then which CSV

21 | P a g e
really raises for the community of management scholars – particular those with an interest in the

role of business in society - is how we can overcome this reductionist view of the purpose of

business.

These questions are by no means new. Lee Preston in his rather skeptical review of the

CSR literature between 1953 and1975 identifies the main reason for an apparent lack of progress

in a view of the corporation which is insufficiently informed by developed understandings of

‘society’93. In other words, to study CSR or for that matter CSV, properly we cannot start with a

clear notion of what a business is and let its role in society just follow from this (and like CSV,

just ignore all cases where this view is just not adequate). Preston concludes with the still timely

demand for a ‘rigorous and comprehensive conception of both the corporation and society; and

these conceptions must be articulated in comparable or at least translatable terms’94. CSV is a

good example of why this dual analysis of business and society is so important. Porter and

Kramer start with a fairly frank and open analysis of current society, and this may be part of its

wide acclaim. It then however continues with a very narrow, dated notion of what the purpose of

a corporation is, and CSV as the ‘solution’ is predominantly compatible with this economic set

of firm objectives. As a result the proposed solution can only be maintained at the expense of

simply ignoring significant parts of social reality.

As for future research and practice it is fair to say that there are numerous approaches in

the current management literature which have attempted a more encompassing embrace of social

reality and which have in turn then informed a view of the firm which has significantly enlarged

the perspective on the purpose/s of the firm.

First, as noted above, stakeholder theory is probably the most longstanding approach

seeking to reconceptualise the firm as a multi-purpose entity. At its different levels stakeholder

22 | P a g e
theory embraces the social reality that corporations affect and are affected by society (descriptive

level), that sound management takes the linkages to all those groups in society into account

(instrumental level) and that the rights of those groups provide them with some legitimate ‘stake’

in how the firm is run (normative level). 95 The considerable success of stakeholder theory,

however, has also to be credited to the fact that in particular on the descriptive and instrumental

level the concept can still be made compatible with a corporate-centric, economic purpose-

oriented view of the firm: if society has obviously such a strong influence on the firm it is only

sound for managers to accommodate all those stakeholders when it comes to pursuing the

ultimate economic goals of the firm. Ultimately, CSV is just another example of this approach:

society and its needs are seen as something the firm can cater to successfully in economic terms.

Second, social innovation is also a strand of literature that we have mentioned above.

Characteristic of this work is the assumption that there are firms, or activities within firms, which

deliberately follow social, environmental or ethical objectives - either exclusively, or alongside

economic ones. It is fair to say that this literature by and large never had the ambition to develop

a new theory of the firm in general, but rather highlights a new form, new opportunities, of

marrying the efficiency of business with the attainment of wider societal objectives. CSV, as

argued above, could be very well located in this tradition – if it were not for the rather more

sweeping claims Porter and Kramer make with regard to the generalisation of their concept. It is

unsurprising that much of the social innovation literature pays attention to contexts which

hitherto have not been in the purview of large corporations, such as business activities in the so-

called developing world.

Third, integrative social contract theory (ISCT) has received considerable attention in the

management and CSR literature as it attempts to understand the moral imperatives out there in

23 | P a g e
society which businesses might face96. Unlike the two approaches so far it is less business and

more society focused, conceptualizing the different moral values of different constituencies with

which business might interact. As such then ISCT is predicated on the existence of norms in

society and treats those as the ‘input’ for the ‘contracts’ that govern the relations of firm and

societal actors. The link to economic imperatives (the ‘integrative’ element of this approach) is

then also seen by some as the weakest link in ISCT97. It implicitly assumes that business will, or

will have to, follow these moral norms in their relations to society regardless of economic

implications as these ‘contracts’ essentially are social in nature. The creation of ‘shared value’ in

this perspective would therefore be seen as a necessary condition for business activities with the

result that firms face a rather more limited set of options which could simultaneously create

economic value.

Finally, a more recent strand of CSR research has focused on the ‘political role’ of the

firm98. This literature starts from the observation that corporations have become active players in

the wider governance of societies and, most critically, at the global level, where corporations are

involved in governance often next to the traditional actors, namely governments. Using a number

of theoretical avenues this strand of research sees companies in a situation where their decisions

are not just the pursuit of economic goals, but also related to the interests and rights of those who

are governed by those decisions. Like ISCT, this approach starts with conceptualizing a shifted

social reality and analyzes its impact on the firm. The key insight of much of this work then is

that corporations are actually actively entering social spaces which hitherto were the prerogative

of (democratic) governments. Creating ‘shared value’ in this perspective might ask corporations

to apply self restraint, such that the economic interests of a responsible corporation would

ultimately be aligned with the rights and interests of those parts of society which are governed by

24 | P a g e
them.

While we are aware that these avenues of research are just some prominent examples, a

common thread for future inquiry seems to emerge. Businesses are social actors with an

economic purpose but the degree to which their goals are moderated by certain opportunities or

constraints depends on the specific social reality in which business operates. Novel perspectives

on reconceptualizing the purpose of the firm and restoring faith in capitalism therefore ultimately

have to overcome a functionalist view of the firm, in which responsible relations to societies can

be a residual of the economic imperatives of individual actors. One of the reasons institutional

theory has gained such traction in CSR research more recently has to do with the simple fact that

even the economic goals of firms in themselves are already shaped by society – let alone the fact

that what is considered responsible is shaped by societal rules and norms beyond the mere

economic rationale of businesses99.

CSV and its shortcomings then ultimately are, if anything, a stark reminder that this task

of understanding the firm as a multi-purpose venture is still an unresolved issue not just in CSR

research, but in the wider management discipline in general. CSV promises much, but ultimately

takes us not closer, but further, from the solution to a challenge that we are already struggling to

address.

25 | P a g e
Notes

1
M.E. Porter and M.R. Kramer, “Strategy and society: the link between competitive advantage and corporate social
responsibility,” Harvard Business Review, (December, 2006):78-92; M.E. Porter and M.R. Kramer, “Creating
shared value,” Harvard Business Review, 89 (January/February 2011): 62-77.
2
Porter and Kramer (2011), op. cit., p. 64.
3
Porter and Kramer (2011), op. cit., p. 64.
4
Porter and Kramer (2011), op. cit., p. 64.
5
Porter and Kramer (2011), op. cit., p. 64.
6
Porter and Kramer (2011), op. cit., p. 64.
7
Porter and Kramer (2011), op. cit., p. 76.
8
M.E. Porter and M.R. Kramer, “Philanthropy's new agenda: creating value,” Harvard Business Review, 77(1999):
121-131.
9
Porter, M. E., and Kramer, M. R., “The competitive advantage of corporate philanthropy,” Harvard Business
Review, 80 (December, 2002): 56-68.
10
M.E. Porter and M.R. Kramer, “Strategy and society: the link between competitive advantage and corporate social
responsibility,” Harvard Business Review, (December 2006): 78-92.
11
http://www.unglobalcompact.org/COPs/detail/336
12
http://www3.weforum.org/partners_documents/SP_Nestle_Am2011.pdf
13
Porter and Kramer (2011), op. cit.
14
The article is required reading on a wide range of undergraduate and MBA courses at business schools across the
world including Harvard Business School, New York University, University of Zurich, Schulich School of Business,
Tel Aviv University, and many more. A good example at the executive education level is the program in CSR at
McGill University, branded ‘Corporate Social Responsibility Strategy and Management: Creating Shared Value
through Collaborative Sustainable Development’, http://www.mcgill.ca/isid/executive (accessed May 2, 2013).
15
European Commission. (2011, 25/10/2011). A renewed EU strategy 2011-14 for Corporate Social Responsibility:
Communication from the Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions.
16
http://www.nestle.com/CSV (accessed May 2, 2013).
17
http://www.coca-colacompany.com/our-company/the-journey-to-shared-value (accessed May 2, 2013).
18
T. Donaldson and T.W. Dunfee, Ties That Bind: A Social Contracts Approach to Business Ethics (Boston, MA:
Harvard Business School Press, 1999).
19
D. Matten and A. Crane, “Corporate Citizenship: Toward an Extended Theoretical Conceptualization,” Academy
of Management Review 30/1 (2005): 166-179; A.G. Scherer and G. Palazzo, “The New Political Role of Business in
a Globalized World: A Review of a New Perspective on CSR and its Implications for the Firm, Governance, and
Democracy,” Journal of Management Studies, 48/4(2011): 899-931.

26 | P a g e
20
C. Fombrun, N. Gardberg and M. Barnett, “Opportunity Platforms and Safety Nets: Corporate Citizenship and
Reputational Risk,” Business and Society Review, 105/1 (2000): 85-106; D. Spar and L. La Mure, “The Power of
Activism: Assessing the Impact of NGO on Global Business,” California Management Review 45/3 (2003): 78–101.
21
As of June 2013, the 2011 HBR paper had received 746 citations on Google Scholar. By way of comparison, the
next four highest cited articles in the same issue of HBR had received 59, 46, 17, and 11 citations respectively. In
the issue immediately following Porter and Kramer’s article, the ‘Big Idea’ piece by the management guru Clayton
Christensen and colleagues had garnered just 12 citations. In this subsequent issue, another piece on the crisis in
capitalism, this time by McKinsey & Co Managing Director, Dominic Barton, had received 63.
22
R. Martin and P.S. Sunley, “Deconstructing Clusters: Chaotic Concept or Policy Panacea?” Journal of Economic
Geography, 3/1(2003): 5-35.
23
We conducted an analysis of a sample of 250 (approximately one third) of the citations of Porter and Kramer
(2011). In total, we assessed 89% as broadly positive, 9% as neutral, and only 2% as negative.
24
E. Vaara and R. Durand, “How to Connect Strategy Research with Broader Issues that Matter,” Strategic
Organization 10/3 (2012) 248-255.
25
S.R. Barley, “Corporations, democracy, and the public good,” Journal of Management Inquiry, 16 (2007): 201–
215.
26
Porter and Kramer (2011), op. cit., p. 64.
27
L. Albareda, J. Lozano and T. Ysa, “Public Policies on Corporate Social Responsibility: The Role of
Governments in Europe.” Journal of Business Ethics, 74/4(2007): 391-407; J.P. Gond, N. Kang and J. Moon, “The
government of self regulation: on the comparative dynamics of corporate social responsibility,” Economy and
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society,” in A. Crane, A. McWilliams, D. Matten, J. Moon and D. Siegel (Eds.), The Oxford Handbook of CSR
(Oxford: Oxford University Press, 2008): 303-323.
28
Porter and Kramer (2011), op. cit., p. 74.
29
J. O'Toole and D. Vogel, “Two and a half cheers for conscious capitalism,” California Management Review, 53/3
(2011): 60-76.
30
See for example, Bill Gates talking about ‘creative capitalism’ in 2008:
http://www.time.com/time/video/player/0,32068,1697222543_0,00.html. Also see reports of Cohen’s approach to
‘caring capitalism’: http://www.entrepreneur.com/article/197626
31
D. Baron and D. Diermeier, “Strategic Activism and Nonmarket Strategy,” Journal of Economics & Management
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32
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Journal of Business Ethics, 111/3 (2012): 353-373.
33
F. Hanleybrown, J. Kania, and M. Kramer, “Channeling Change: Making Collective Impact Work”, Stanford
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34
C.K. Prahalad, and A. Hammond, “Serving the World’s Poor, Profitably,” Harvard Business Review, 80 (2002):
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Porter and Kramer (2006), op. cit., p.78-92.
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Porter and Kramer (2011), op. cit.
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T. Donaldson and L.E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and
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Porter and Kramer (2011), op. cit., p. 64
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Porter and Kramer (2011), op. cit., p. 68.
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D. Pearl and M. Phillips, “Grameen Bank, which pioneered loans for the poor, has hit a repayment snag,” Wall
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28 | P a g e
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Porter (2008), op. cit., p. 82.
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Porter (2008), op. cit., p. 92.
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