What is Shared Value? Meaning.
Shared Value is the principle that companies should create economic value by creating societal value.
Background of Shared Value: the Credit Crisis
In the first decennium of the 21st century an unfolding Network Economy and related economic Globalization cause a period of immense worldwide economic growth. Capitalism enables the world to develop quickly. There is a widespread belief that 'the sky is the limit'.
Greedy consumers, investors, shareholders, businesses, banks and even governments are trying to benefit as much as possible from the favorable conditions. They borrow money to buy products (incl. houses) and make leveraged investments in very lucrative, but also very risky ways.
In 2007-2008 a sub-prime crisis occurs, followed by a mortgage (housing) crisis, credit crisis, bank and inter-bank crisis, and several country crises. Governments and supra-national organizations are taking draconic measures trying to avoid a total collapse of the global financial and economic system.
Consequences of the Credit Crisis. Effects
According to Michael E. Porter and Mark R. Kramer in "The Big Idea: Creating Shared Value" (HBR 2011 Jan /Feb), at the end of the decennium, the reputation of capitalism as an economic system comes under siege. Businesses, in particular financial institutions, are increasingly being viewed as having strived for excessive profits at the expense of society. Even if many businesses embraced Corporate Responsibility, they are still blamed and distrusted. This lack of trust leads politicians to deploy policies that undermine Competitiveness and economic growth.
Porter and Kramer argue companies must take the lead in bringing business and society back together by adopting the principle of 'Shared Value', instead of the usual Shareholder Value.
The Prevailing Shareholder Value Principle
At the core of a narrow view of capitalism lies the notion of 'shareholder value'. In short, the Shareholder Value Perspective emphasizes profitability over responsibility and sees organizations primarily as instruments of their owners. Shareholder value proponents believe that the success of an organization can be measured by things as share price, dividends and economic profit. They regard Stakeholder Management rather as a means than as an end/purpose in itself. They believe that social responsibility is not a matter for organizations, and think that society is best served by organizations pursuing self-interest and economic efficiency.
Porter's proposal: The Shared Value Principle
The Shared Value Principle means companies should strive for economic value by creating societal value (see picture). Creating societal value advances the economic and social conditions in the society in which the company operates.
Note that Porter mentions that when corporations are striving for societal value this is not philanthropy but acting in their own self-interest.
An interesting way to understand what Porter and Kramer suggest, is to compare the Shared Value Principle with Strategic (Instrumental) Stakeholder Management and Intrinsic Stakeholder Commitment. Porter's principle appears to have characteristics of both:
Creating Shared Value
How to create shared value? In general, there are three mutually reinforcing ways in which shared value can be created:
We should not look for a trade-off between economic and societal value: societal benefits need not temper nor be a constraint on achieving economic benefits. Firms must look for intelligent, strategic, reconciled combinations (See: Dialectical Inquiry).
This ends our Shared Value summary and forum.
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