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The Contribution of Porter and Kramer's Concept of Creating Shared Value to CSR Theory

Master's Thesis 2011 123 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of content

I. Introduction
A. How the topic was identified
B. The online debate
C. What’s wrong with CSR?
D. Research question and objectives

II. Theoretical and methodological classification
A. Research approach
a. Theoretical framework
b. Methodology
i. Flexible research design
ii. Integrative literature study
B. Consideration of rejected alternatives

III. Creating Shared Value in the context of CSR theory
A. Definition of CSV and CSR
a. Corporate Social Responsibility
i. CSR in Germany
b. Creating Shared Value
B. Justification of CSR
a. Corporate Citizenship
b. Philanthropy
c. Sustainability
C. Responsibility and power
a. Defining responsibility
b. Responsibility and political power
D. CSV
E. The value of doing good
a. Ethical theory
i. Consequentialist theory
ii. Non-consequentialist theory
iii. Separating right from wrong
F. Is CSV current CSR standard?
a. Products and markets
b. Productivity in the value chain
c. Building supportive industry clusters at the company’s location

IV. Explorative study
A. Research questions
B. Mixed methods approach
a. Sampling size and choice of field
b. Content analysis
c. Interviews
C. Rejection of alternative methods

V. Findings
A. Website content
B. Interviews
C. Unintended findings

VI. Discussion
A. CSV in the context of CSR theory
a. Politics
i. Nestlé: the business example
b. Porter and Kramer vs. Friedman
c. Reinventing capitalism?
B. CSR in Germany with the example of two industries: energy supply and outdoor supply
a. Reputation management
b. Identifying relevant issues
c. Products and markets
d. The value chain

VII. Classifying CSV
A. What is the contribution of CSV to CSR theory?
B. A management model for socially responsible business
C. Limitations of research
D. Areas for further research

VIII. Reflections on learning
A. Becoming a scholar
B. Learning
C. Application of learning
Online sources
Company list
Interview questionnaire

List of tables

Table 1: Summary of differences in quantitative and qualitative research

Table 2: Four Forms of Synthesis from Integrative Literature Reviews

Table 3: How Shared Value differs from Corporate Social Responsibility

Table 4: CSR related content on homepages

Table 5: Reasons for CSR

Figures

Figure 1: Carroll’s Pyramid of Corporate Social Responsibility

Figure 2: Typology of Sustainability

Figure 3: Corporate Involvement in Society

Figure 4: The corporation in society Wording main body

“Those who dream at night in the dusty recesses of their minds wake in the day to find that all was vanity: but the dreamers of the day are dangerous men, for they may act their dream with open eyes, to make it possible.”

Lawrence of Arabia

This dissertation is dedicated to my late father, whose night turned out to be my day.

Declaration

No portion of the work referred to in the dissertation has been submitted in support of an application for another degree or qualification of this or any other university or other institute of learning. Further, all the work in this dissertation is entirely my own, unless referenced in the text as a specific source and included in the bibliography.

Due to my interview partners’ various confidentiality requirements in the public edition all names of interview partners and companies were erased, except in such cases where I used published information, such as websites or reports.

Abstract

Following the HBR article “Creating Shared Value” by Michael Porter and Mark Kramer published in January 2011 the author witnessed an online debate on the subject suggesting that CSV was hardly any more than a strategic move to support FSG, the consultancy run by Michael Porter and Mark Kramer. It was suggested that Porter and Kramer offered nothing new, but gave CSR a new name. But there were also voices claiming that it would be great if CSV was reality. So, there seemed to be something about CSV that some people got and others denied. What was it?

In this dissertation the ideas laid down in CSV are evaluated and appraised against related concepts of corporate social responsibility. Special focus lies on the aspects Porter and Kramer used to separate CSV from CSR: justification, value, and concepts for practical application.

To evaluate theoretical contribution, the main part of the study consists of a literature review on related topics. It is laid down that basic ideas of CSV have already been introduced in CSR, e.g. with corporate citizenship, sustainability, doing business at the bottom of the pyramid, or community relations. Philosophical considerations on corporate responsibility and political correlations give reason to regard CSV a competitive tool rather than an alternative approach to CSR. The concept is critically appraised from a societal perspective showing that CSV can be applied to benefit all, but does not lead to shared value in itself.

In the second part of the dissertation an explorative study is conducted among energy suppliers and suppliers of outdoor equipment operating in the German market to find out whether Porter and Kramer’s distinction between responsive and strategic CSR can be supported and whether CSV might deliver new options for the companies. Website content of 10 companies in both industries each was analysed to identify topics addressed in CSR initiatives, and interviews were conducted wherever possible. The study shows that companies are to a far degree concerned with responsive CSR and gives reason to embrace the idea that it depends on the corporation’s product and business model whether the trend on CSR can be used strategically or has to be applied in a responsive manner.

The author introduces a management model, putting into relation the concepts of CSR and CSV. Plainly spoken, CSR is considered the justification and underlying assumption, while CSV is a management approach that can be applied to address corporate social responsibility. In so far, both concepts do have a lot in common. The debate on CSV might help scholars to classify related concepts in terms of what to do and how to do it; it can support companies to shape their CSR profile; and it might encourage a societal debate on setting agendas.

Areas for further research include corporate performance measuring; organising for CSV; customer perspective; societal impact; employee commitment; manager’s and investor’s attitude; and the relation between power and responsibility of owners / shareholders.

Acknowledgements

This dissertation is physically completing four years of evaluating personal goals and situation, planning, travelling, learning, and many discussions with a lot of great people. I cannot thank enough all the people in my private life, who have supported me during those years by funding, caring, challenging, listening, and giving me room to do what I wanted when I wanted it. You know who you are.

And I want to thank those people who helped me through this professionally: my teachers at ECBM, especially Hanna Sampson and Graham Harman-Baker for introducing me to the exciting world of strategic management and helped me shaping my thoughts; my interview partners who were generous enough to share time and insights; my fellow students for opening their experiences to me and serving as partners in assignments and discussions; Michael Porter for getting back to me; my personal assistant Martina Oncken for keeping work away from me; Helga Brandt for proof-reading; and last but surely not least, my supervisor Graham Harman Baker. You always found the right words at the right time, and your faith in my abilities was a gift I deeply appreciated.

I. Introduction

“Porter does really matter when it comes to influencing business that doesn't yet 'get' sustainability. But we shouldn't believe there is anything new in what he is saying.”

Tony Webb, Ethical Corporation

A. How the topic was identified

Shortly after the release of Michael Porter’s and Mark Kramer’s article Creating Shared Value. How to reinvent capitalism – and unleash a wave of innovation and growth (Porter and Kramer, 2011) in the January/February issue of Harvard Business Review the author read a web post claiming that Porter and Kramer were “obviously not up to date with current CSR development” (Wagner, 2011). It was further suggested they were trying to work on their own consultancy’s reputation by giving a current trend a new name (ibid.). The post provided links to the original article and to Tony Webb’s blog (Webb, 2011), a quite popular online source for those interested in business ethics. After skimming through the texts, the author felt inclined to agree with Porter and Kramer about the problems of Corporate Social Responsibility (CSR) in practice, and she also noticed that the criticism seemed to mainly follow a ‘why do they criticize our work?’-approach. The question arose whether the CSR professionals were right with their criticism of Creating Shared Value (CSV) or whether CSV really delivered a new approach to responsible management. Having always felt that CSR was mainly a tool used in a business environment that did not believe in social responsibility but wanted to answer stakeholder expectations, the author now wanted to be sure about current trends in CSR. Was there something happening in practice, that academic debate had not yet addressed? Did she just not know about those trends? Were the professionals blind for the weakness of CSR application? Or was it possible that Porter and Kramer had identified exactly the reason why CSR did not work, at least for those who thought it would not work?

This chapter is about separating the practitioner’s online debate about CSR from academic theory. It will start with an overview of the online community’s debate around CSV, because it provides the topics for the theory review in Chapter II. Then the author will state her own initial view on CSR as it guides the upcoming research. This chapter will close with the research question, the dissertation’s objectives and a brief overview on the Chapters II – VIII.

B. The online debate

After the release of Porter and Kramer’s article, Tony Webb (2011) and Riccardo Wagner (2011), two European CSR professionals, started off an online debate criticising Porter and Kramer for inventing a new term for a practice both claimed to be contemporary CSR standard. They even went as far as suggesting that the article was hardly more than marketing for FSG, the consultancy run by Michael Porter and Mark Kramer, and that Porter seemed to know nothing about CSR or responsible business. Interestingly they excluded Mark Kramer and focused on Porter’s academic reputation to make a point how dangerous it was that someone like him gave such a false impression of CSR practice in public. Their respondents mainly followed their lead, although some stated that they preferred the term “creating shared value” over “corporate social responsibility”. Kramer answered Webb by calling CSV “a different lens through which to view the intersection between business and society” (see Webb, 2011). Reading the articles the author wondered about two things:

1. Why are the CSR professionals so upset by being criticised?
2. Is there a gap between CSR theory and practice and if so, can CSV help to close it?

Contrary to the European terminology discussion, readers of the Harvard Business Review online edition went for quite an in-depth discussion of the topic. Some were quite critical, suggesting that, for example, Nestlé was accused of several misconducts within its CSV initiative, questioning the value of CSV when companies claiming to apply the content were forcing children to work. Others claimed they wanted CSV to become the standard in CSR or wondered how the ideal could ever become reality in a market still dominated by the main goal of profit maximizing. The American approach to CSR as opposed to the European way of doing business was mentioned occasionally. In this thread the opinion that Porter and Kramer only rephrased current CSR practice is hardly ever expressed. One possible explanation might be that this is due to cultural differences in CRS application, but as the European threads are quite short, this assumption is not conclusive. Rather – although in blog posts the writer’s identity often cannot be told – there is reason to assume that the differences lie in the writer’s profession or stake in the company. It might be that CSR consultants see CSR application the way it should be done – or even the way they themselves work with it – employees and customers are focusing more on the things that are difficult or not done well. What seems to be clear, though, is that the all present problems of “why is CSR done anyway, what does it mean to do good and who is responsible for what?” are definitely not nearly solved, neither in CSR theory nor in practice. Could it be possible that by grounding CSV on market needs Porter and Kramer deliver a solution to this dilemma?

Whatever the answers might be: The author is concerned with the fact that some CSR professionals seem to feel that Porter and Kramer underestimate their work and achievements. This would be sadly counter-productive if CSV really was a valuable concept because the professionals might not be able to see the benefit CSV could deliver to their work. And this – beside the purely academic curiosity where the links, oppositions and developments with CSR and CSV lie – is the main reason for this piece of work. If CSV is a valuable contribution to CSR theory and practice, then these misunderstandings should be cleared.

C. What’s wrong with CSR?

Reading some of the answers to CSV one could come to the conclusion that everything was fine in the world of corporate social responsibility. Companies create social benefit by delivering safe products to informed customers, taking care of their environment and employees, plus, by doing so gain profit for their owners. Why, then, do scholars like Michael Porter and Mark Kramer feel the urge to tell us that CSR is a misleading concept?

One point mentioned in the online debate was that CSV separates the topic of “doing management differently” from the term of “responsibility” which is loaded with ethical intentions. It has been the author’s impression that this is an important source – if not the main source – for failure of CSR initiatives ever since she started studying the subject. Porter and Kramer’s work seems to suggest that there could be a sustainable approach to doing business other than “applying CSR” in a management system that proves its weaknesses on a daily basis. Where are the links in the different approaches and opinions?

D. Research question and objectives

With Creating Shared Value Porter and Kramer deliver a concept which applies to all areas of business. It is therefore necessary to narrow the research area suitably and to focus on core questions concerning the matter of CSV vs. CSR. One question evolves directly from the online debate stated above: Is there anything new in CSV or is the concept ‘just’ the ideal application of contemporary CSR theory? The author will focus on Porter and Kramer’s criticism of CSR as “focus(ing) mostly on reputation and hav(ing) only a limited connection to business” (2011:16) and on the different views on CSR from company and academic perspective.

This dissertation strives to answer the question:

What is the contribution of Michael Porter and Mark Kramer’s concept of Creating Shared Value to CSR theory?

Furthermore, will their connecting the company’s impact on societal benefit with competitive advantage solve the dilemma of CSR theory mentioned above and help managers to develop processes that are beneficial for society and the company in the long run?

The objectives include:

a. Critically evaluating the critic’s suggestion that CSV is merely current CSR standard
b. Critically evaluating Porter and Kramer’s criticism of CSR with special regard to value and justification of corporate social responsibility
c. Analysing the ethical models behind the terms of ‘doing good’ and ‘societal benefit’
d. Debating whether ethics are a profound justification for doing responsible business
e. Evaluating if and how certain companies can benefit from applying CSV

To achieve the research objectives, three main areas of CSV will be compared to the corresponding concepts in CSR; emphasis will be put on the theoretical backing of corporation’s social responsibility in academic literature and company reports; the suggested value of both models will be critically appraised against ethical theory; company’s problems with CSR will be evaluated; and based on the findings a suggestion will be made how to classify CSV within the CSR context, considering the potential use for companies. As classification can only be the first step in any academic evaluation, suggestions for further studies will be included in the recommendations.

II. Theoretical and methodological classification

“Never trust statistics you didn’t make up yourself.”

Wolfgang Mueller, Meldorfer Gelehrtenschule

A. Research approach

The main aim of this dissertation is to locate Creating Shared Value as a concept within the world of CSR theory, and to evaluate whether it solves a methodological problem the author has always regarded as a crucial weakness of CSR. It can therefore be said that methodological considerations have led to the choice of the topic. The choice of research methods is predetermined by the following points:

a) Evaluating a concept’s theoretical framework and its place in the theoretical debate requires a theoretical setup rather than empirical data gathering.
b) The assumed weakness refers to the methodological problem of determining right and wrong, good and bad in ethical theory (see Chapter IV).

The methodological approach to this dissertation is therefore twofold: it is guided on the one hand by the researcher herself and the way she approaches theory and on the other hand by considerations how to set up a dissertation in such a manner that it helps to gain the research objectives.

a. Theoretical framework

The overall approach is based on Karl Poppers critical rationalism assuming that true knowledge can only be achieved by falsification. A hypothesis is unproven unless it is proven to be wrong. The logical underpinning is that if something is proven right, it might be the case that the counter-argument has just not been found yet, but if one counter-argument is found, the hypothesis cannot be right. The exact opposite is an empirical approach where common research design strives to prove a hypothesis right and methodology is used appropriately. Both approaches are widely discussed among scientists and philosophers (see e.g. Frisby, 1972; Adorno, 1978; Popper, 2003; Gruenbaum, 1988; Feyerabend, 1993). However, the author follows the argument that even if one follows a relativist approach it is possible and necessary to a) use empirical methodology in addition to hermeneutics whenever possible, and b) to decide when any hypothesis should be regarded as proven right, so that one can draw valid conclusions and make responsible recommendations for this point in time instead of continuing to try finding the perfect answer.

While Popper (2003) argues that true knowledge exists, Feyerabend (1993) suggests that science is only a culturally determined tradition and therefore all knowledge gained by scientific methods is relative. One can follow scientific anarchism as a philosophy, and it gives extraordinarily freedom in raising questions and developing new ideas. But it also supports a merely intellectual debate about all kinds of objects, as each researcher can approach each topic as he or she prefers and is able to argue.

b. Methodology

i. Flexible research design

The initial idea was to write an entirely theoretical dissertation, because an integrative literature review is regarded the appropriate method to classify a concept and develop a framework for further study on the subject. When the author was advised to include a practical evaluation of the topic, it soon became evident that the practical part would have to support the theoretical analysis while being based on exactly this theoretical review.

Table 1: Summary of differences in quantitative and qualitative research

illustration not visible in this excerpt

The overall topic of the dissertation requires qualitative data and interpretation, which does not support a fixed research design. Flexible design in the terms of this dissertation allows do adapt research methods during the process (see Table 1).

A main challenge for methodological decisions in this dissertation was that the theoretical research had to be quite far advanced before it was possible to identify those questions that had to be addressed in the gathering of primary data. This also supported the course for a flexible design, while at the same time extremely limiting the period during which practical research was possible which in turn increased the risk of limiting the range of possible methods so far that it became nearly impossible to do appropriate primary research at all. It was tried to solve this problem by choosing methods early during the research process, but it proved to lead to choices not suitable to meet the research objectives. Details of how the practical research was then conducted will be discussed in Chapter IV.

According to Robson (2007) flexible designs bear certain challenges, such as establishing trustworthiness, validity, reliability and generalizability. The author will go into the details of how to ensure these when discussing the chosen methods. It will be shown that the factors mentioned above added to these overall challenges of flexible designs.

ii. Integrative literature study

The structure of the literature review follows Table 3, adapted from Porter and Kramer (2011:16) in which they compare CSV to CSR (see Chapter III). CSV as quite a new concept in the mature field of CSR is concerned with nearly all areas of management, from strategy to marketing, from supply chain to human resources management. Limiting the evaluation to value and justification was considered one way to guarantee a substantial discussion of a very broad area. Another part is concerned with practical implications of CSV and compares Porter and Kramer’s suggestions to the corresponding CSR models. Where possible and appropriate, literature search was limited to publications of the past five years; older sources were used, mainly to compare or verify statements made in younger sources.

The selected literature includes author’s referred to in Porter and Kramer (2011; 2006); literature and its references used in class, considered an appropriate frame of contemporary academic theory; books and articles fitting the keywords. Keyword search in databases (e.g. google scholar, LJMU electronic library and the library of the Hamburg University) was mainly undertaken with regard to CSV, creating shared value, CSR vs. CSV, and the actual topics in each chapter. A main problem of finding sources on CSV was connected with Nestlé’s CSV program dominating online sources and literature.

Key readings were read fully, e.g. Porter and Kramer (2002; 2006; 2011), Porter (2004), Carroll (1991; 1999), Crane and Matten (2010), Friedmann (1970), or Benn and Bolton (2011); others were scanned and read in parts; and for many others only abstracts were consulted to decide whether or not the study would benefit from the article. The risk of applying bias to the choice of literature is high, and this risk is even more increased by a method depending on the ability of logical interpretation and analysis by the researcher. Discussion with colleagues, re-review of written material and a sound evaluation of methodology was used to reduce the risk of writing a biased literature review. As can be concluded from the considerations above, the author regards a certain degree of bias as inevitable, and the best one can do is to be aware of it.

Torraco (2005) suggests four ways to draw conclusions from a literature review (see Table 2). When both, the literature review and practical research are done, the discussion is intended to lead to a new conceptual framework to show the link between CSV, CSR and CSR concepts, and to the identification of questions for further research.

Table 2: Four Forms of Synthesis from Integrative Literature Reviews

illustration not visible in this excerpt

Four Forms of Synthesis from Integrative Literature Reviews

A research agenda that flows logically from the critical analysis of the literature. The research agenda should pose provocative questions (or propositions) that give direction for future research.

A taxonomy or other conceptual classification of constructs is often developed as a means to classify previous research. They, in turn, lay the foundation for newtheorizing (Doty & Glick, 1994).

Alternative models or conceptual frameworks—new ways of thinking about the topic addressed by the integrative review. Alternative models or conceptions proposed by the author should be derived directly from the critical analysis and synthesis provided.

Metatheory—The integration and synthesis of a literature review can provide the basis for developing metatheory across theoretical domains through future research.

Adapted from Torraco, 2005:363

B. Consideration of rejected alternatives

As mentioned above, the topic of the dissertation required a theoretical approach. It was considered, though, to analyse differences in application between CSV and traditional corporate social responsibility initiatives or to explore customers’ perception of CSR initiatives. That way an empirical focus would have been possible and a case study or extended primary research would have been an option. However, due to the novelty of creating shared value as a concept and the critics suggesting that the concept in fact delivered nothing new, it was regarded as crucial first to separate people’s gut feeling, however founded it might be, from actual standards in academic CSR theory before analysing the application. Plus, a lack of corporations describing their corporate responsibility programs as “Creating Shared Value” might have been a problem not solvable at this stage of theory development. It is curiously expected to see further research about CSV in the future.

The dissertation’s objectives did not require the collection and interpretation of quantitative data, although the topic allows questions that would do so. As mentioned above, it is very possible that this study delivers hypotheses or new ideas which do require another methodology to follow-up on creating shared value in practical application, but the author felt the urge to classify CSV properly first.

III. Creating Shared Value in the context of CSR theory

“We do not inherit the Earth from our ancestors: we borrow it from our children.”

Native American proverb

A. Definition of CSV and CSR

In 1994 Frederick defined corporate social responsiveness as “the capacity of a corporation to respond to social pressure” (cited in Crane and Matten, 2010:57). This definition fits very well Porter and Kramer’s approach towards CSR when they suggest CSR to be an answer to external pressure. The development of CSR definition has been evaluated in detail (see e.g. Dahlsrud, 2006; Benn and Bolton, 2011), and shall not be repeated here. Nevertheless, evaluating Porter and Kramer’s contribution to contemporary CSR theory requires a clear idea what is meant by CSR in this context. Where stated, the different approaches to CSR play a role. But a general idea about what is referred to, is given in the part below.

a. Corporate Social Responsibility

What is agreed in defining corporate social responsibility is that no agreed definition of corporate social responsibility exists. The concept has evolved as a collection of ideas and models around corporate responsibility (Carroll, 1998; Garriga and Melé, 2004) and often the definition follows the topics included in the concrete idea of CSR and is more of a description than a definition (Dahlsrud, 2006). Carroll’s four-part-model (see Figure 1) is descriptive, too, but, as Crane and Matten put it, it is well established and accepted:

“…(O)ur four part CSR definition forms a conceptualization that includes the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time” (Carroll and Buchholtz, 2009:44).

Figure 1: Carroll’s Pyramid of Corporate Social Responsibility

illustration not visible in this excerpt

Adapted from Carroll, 1991:42

Source: http://strandtheory.org/images/321_Corp_Social_Responsibility_JPG.jpg

In fact, it is not so far away from Frederick’s definition back in 1994, as it refers to “expectations placed on organizations by society” (Carroll and Buchholtz, 2009:44). What is crucial here is the awareness that social expectations change and that CSR has to change with them. The acceptance of Carroll’s CSR definition in CSR theory is interesting, because it refers to society rather than to the organisation. So it delivers – as such – no approach to organisation’s actions to address society’s expectations. It will be shown later on that this is a weakness of the whole concept of CSR when it comes to application in business and to differentiating CSR from related concepts, such as corporate citizenship or sustainability, which are often not clearly separated from each other in literature (see below). To address this fact the author chose to follow Kelly’s definition of CSR as

“…a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on all stakeholders, including the environment.” (Kelly, 2009:118)

i. CSR in Germany

In his assessment about CSR in Germany and France Rasch (2009) shows that the continental European approach to CSR differs from Anglo-American CSR due to the role of social welfare legislature. Wrongly, he draws the conclusion that companies here thereby are restricted in their opportunities to apply corporate social responsibility (ibid:10). The American way of implementing CSR policies, when taking over German companies or entering the German market, has occasionally led to frustration among German employees who regard many of the now policy-driven requirements as ‘business-as-usual’, i.e. nothing new, and to some extent as none of the employer’s business (see Walmart’s attempt to prohibit personal relationships, FAZ online).

Some of the critics of CSV mentioned in the introduction seem to refer back to these different CSR standards which exist in practice. However, the fact that the American state-of-the-art in CSR theory would not have evolved in Europe and that many of the issues addressed in CSR are regulated legally in Germany does not automatically reduce the concept of CSR to absurdity for German companies or international companies operating in Germany. On the contrary, Carroll includes obeying the law explicitly into his concept of CSR. And the term ‘society’ makes clear that CSR approaches may differ culturally.

Nevertheless, the German government is concerned with CSR and developed a national action plan for CSR (German Federal Government 2010) to address the international concern with corporate social responsibility and influence standards. It follows the European Commission’s definition of CSR:

“A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” (Commission of the European Communities, 2006:2)

b. Creating Shared Value

Michael Porter and Mark Kramer introduce Creating Shared Value into the theoretical debate in 2006 with Nestlé as a leading light in CSV application (Porter and Kramer, 2006; ibid. 2011). Comparing their definition of CSV with Carroll or Kelly shows that CSV is a more concrete concept than the broad idea of CSR. Porter and Kramer define CSV

“as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.” (Porter and Kramer, 2011:6)

The Nestlé version calls CSV a way to do business,

“…which states that in order to create long-term value for shareholders; we have to create value for society.” (Nestlé, 2010b)

This raises the question why Porter and Kramer chose to put CSV forward as a counter-concept to CSR, when the definitions of both indicate that CSV is rather a way to handle competitive advantage in a market which believes in the social responsibility of corporations. The following literature review strives to clearly show the related concepts and to place CSV within the field of CSR.

B. Justification of CSR

In their article Strategy & Society Porter and Kramer identify four main arguments for CSR applied by those arguing the case: “moral obligations, sustainability, license to operate, and reputation” (2006:81). Interestingly, in 2011 they mention citizenship, philanthropy – both of which they discussed as part of the moral obligation in the earlier article – and sustainability, and they disregard license to operate and reputation, while at the same time claiming reputation to be the main focus in CSR (2011:16). Porter and Kramer then identify the weakness of all these justifications and suggest CSV as a solution.

In this chapter the theoretical discussion whether or not a corporation can have social responsibility as such is regarded irrelevant. The pros and cons were laid down elsewhere and are widely acknowledged (see e.g. Friedman, 1970; Carroll, 1991; Moore, 1999), and CSR would not be discussed if managers and scholars had not adapted this assumption to a far extent. Nevertheless, it will be discussed later on that the incongruence in justifying CSR is regarded a weak point when it comes to CSR practice.

This chapter strives to

a) show which of the concepts corporate citizenship, sustainability, and philanthropy are in fact used as justification in CSR theory, and which are applications of CSR with their own specific justification
b) evaluate how else CSR is justified (business case)
c) analyse the justification of CSV (license to operate)
d) try to identify the gaps, borders and intersections of CSR and CSV with regard to their justification.

a. Corporate Citizenship

Crane and Matten (2008) identify three different perspectives on corporate citizenship (CC), two of which are based again on Carroll, interestingly. In Carroll’s pyramid, the philanthropic responsibilities are explained as “being a good citizen” (1991:42). He argues the case for philanthropic responsibilities in response to society’s expectations and desires, but the concept lacks a justification why corporations should have the responsibility to address those desires in the first place, other than that they can. In Western culture philanthropy is regarded a high value if someone has power. It is the trait that links material or political power to being a better person and one could argue that it is what the less powerful require to accept the status quo in the long run (Daly, 1972; Snell, 2000). It is therefore not completely isolated from other perspectives on corporate social responsibility, such as license to operate (see below).

In this limited meaning one could wonder why Porter and Kramer felt the urge to distinguish between CC and philanthropy as justifications, when the justification lies in fact in external desires / expectations, and citizenship is a framework to apply philanthropic attempts rather than a reason for CSR.

Crane and Matten put emphasis on the fact that Carroll defines CC in “exactly the same way as he initially defined CSR” (Crane and Matten, 2010:76). Even more striking is that Crane and Matten use Carroll to identify what they call the equivalent view on CSR as well as the limited view (2008; 2010) at the same time. In his 2003 article ‘The Four Faces of Corporate Citizenship’ Carroll suggests that CSR, CC and CE (corporate ethics) were used interchangeably, and to use corporate citizenship as the modern term. It is not solved to which degree Carroll distinguishes between the “good citizen” on the top of his pyramid and corporate citizenship, which he defined exactly as CSR back in 1991. Carroll is not the only one to use CC and CSR as the same thing (see e.g. Maignan, Ferrell, and Hult, 1999), which could be explained by the fact that authors have widely used Carroll’s descriptive definition of CSR. The equivalent approach is obviously not what Porter and Kramer apply, regarding citizenship to be a justification for CSR (2006:81).

Crane and Matten have suggested an extended view on corporate citizenship (Crane and Matten, 2010; Crane, Matten, and Moon, 2008; Garriga and Melé, 2004), based on the liberal political concept of a citizen as a person with certain social, civil, and political rights (Faulks, 2000:55-82; Marshall, 1965). Being artificial persons with legal rights, corporations are considered to be entitled to other individual rights and duties, too, although not to the same degree as natural persons (Crane and Matten, 2010:77). Being not strict in the application of the term ‘citizen’, considering the concrete application of citizenry for corporations in Western culture, plus maybe feeling the urge not to equalize corporations and individuals, Crane and Matten define corporate citizenship as “the corporate function for governing citizenship rights for individuals” (ibid.).

This concept also refers to the shifting power balance in modern society with large corporations working across national borders, emerging financial difficulties in welfare states and challenges such as climate change which cannot be solved locally. When considered a citizen, the corporation has a natural obligation to work with government and individuals to solve society’s problems. This idea can be applied in every political system, and leads to different rights and duties depending on those exact systems, but it does in each case support the idea of responsibility for society.

When Porter and Kramer put CSR against CSV with its claim to “joint company and community value creation” (2011:16), they eem not to have considered this extended view on corporate citizenship as a justification for social responsibility, as it can be used to support their own point of view. The assumed weakness of governments when facing today’s global and complex challenges, the interdependence of society and corporate success, and the shift in individuals’ expectations on corporate behaviour altogether support the idea that corporations could be responsible for social problem solving.

b. Philanthropy

The Centre for Philanthropy Studies Basel (Bethmann and von Schurbein, 2010) delivers a brief overview of the term and development of philanthropy and suggests that “the love of humanity” (ibid.) is referring to individuals and values, delivered an affirmative, i.e. positivist definition, and exists universally. It is defined as a “private, freiwillige Handlung für einen gemeinnützigen Zweck” (“private, voluntary activity with charitable purpose”, ibid: 4). How and why this love of humanity is applied differs culturally but the idea to do something to benefit another person can be found everywhere. As suggested above, philanthropy has often been regarded as a way how elites ensure loyalty, but also as a distinguishing feature separating elites from the rest (Daly, 1972; Snell, 2000). It shall not be discussed here how voluntary an activity can be which is used to ensure something like loyalty.

Following the definition that philanthropy is – strictly speaking - an individual activity, it requires some stretching of the imagination to use it as a justification for CSR. Bethmann and von Schurbein solve the problem by applying the term “private” to the private economic sector. This links to the idea of corporate citizenship in the extended view as seen before in so far, that it requires a person to act philanthropically and corporations are considered artificial persons. In Carroll’s pyramid philanthropy is at the top and he states that society desires such actions from corporations, but does not necessarily expect corporations to act accordingly (Carroll, 1999:44). Nevertheless, in 2002 Porter and Kramer suggested how to use corporate philanthropy to gain competitive advantage. One could argue that the objective of gaining competitive advantage, i.e. make profit, does reduce the concept of doing good to absurdity, but as suggested before, philanthropy has always had the connotation of being special and ensuring one’s position within society. Coming back to loyalty: in a society where power shifts from governments to corporations, philanthropy might become an important tool to reassure society that corporations will use their power to benefit people, although it might not be the corporation’s main duty. And if philanthropy encourages people to trust corporations with problem solving, it is the perfect reason to justify CSR and CSV – from a management perspective. Whether a society is aware of those changes and whether those changes are wanted cannot be discussed in depth in this piece of work, but should be considered in management practice and research.

c. Sustainability

In its original meaning the term “sustainability” describes a considered use of natural resources that can be compensated within the system (Tremmel, 2003) to ensure that the system will still deliver the required resource in the future – quite a rational idea which was deriving from forestry in the 18th century. Nowadays the approach has changed into an ethical inter- generational debate about the right of each generation to use the potential reserves of up-coming generations in terms of ecological, economical and social resources (WCED, 1987).

Although besides sustainability the issues human rights, labour practices, and corruption are all included in the UN Global Compact (online), a code several companies and governments refer to in the explanation of their CSR campaigns (see e.g. German Federal Government, 2010:4; Nestlé, 2010a:2; E.ON online; RWE online), it seems that sustainability, also referred to as sustainable development, is the issue which is adapted most widely among companies concerned with CSR. This is not the least due to the fact that with the United Nations’ Agenda 21 (UNCED, 1992) the political interest in sustainable development was made very clear to all players in business. In practice, companies distinguish between environmental impact and social responsibilities (see Chapter V), and with increasing legal demand they offer a wide range of information on their environmental impact.

Climate change is an issue which

a) can definitely not be solved locally or solely on political levels, and,
b) if not addressed, will inevitably fall back on business no matter where a company is located.

So, even if there are still voices denying climate change at all or calling it a natural change (Cohen and Rai, 2004), it has become obvious to everyone that politicians and customers expect companies to take on their share of responsibility.

The high impact on competitive advantage of sustainable thinking, e.g. reducing waste and reduced use of resources, has helped spread the concept (Porter and Kramer, 2006; Lubin and Esty, 2010), as has a tendency towards green marketing. A study shows that “greenwashing”, i.e. pretending sustainability of products in marketing, has become a major problem (Terrachoice Environmental Marketing, 2010), which gives reason to assume that many companies lack an idea of how to really use sustainable development strategically. Lubin and Esty (2010) suggest a typology of companies using sustainability (Figure 2):

Figure 2: Typology of Sustainability Adapted from Lubin and Esty, 2010:84

illustration not visible in this excerpt

Source: http://www.harvardbusinessmanager.de/fotostrecke/fotostrecke-58851-4.html

The weakness of the concept as suggested by Porter and Kramer is again a tension between business and society. The arguments above show that the author cannot follow this suggestion, as in no other concept the interdependency and interrelatedness of business activities and society become more obvious. So as a justification for corporate social responsibility, sustainability is regarded one of the best reasons, if not the one good reason in the current debate. However, it shall not be ignored that required actions can have negative impact on profits, which raises questions about decision-making and prioritising. Plus, as long as scholars and practitioners lead an ethical debate about inter- and intra-generational justice, it can be convenient for businesses not to act with full commitment or to wait forever with decisions, as a debate about justice will never lead to universally agreed results and even if institutions such as the United Nations would set standards, the implementation risks to fail because of individual value systems, unless legal regulations are put in place.

C. Responsibility and power

In this chapter the author would like to suggest a view on corporate social responsibility she regards essential for the further debate around the concept of creating shared value as part of CSR theory, namely the connection between responsibility and (political) power. While the debate around CSR is concerned with justification of social responsibility from political (UNCED, 1992), ethical (e.g. Stanwick and Stanwick, 2009; Crane and Matten, 2010), and even economic perspectives (Vogel, 2005; Lindgren and Swaen, 2010; Carroll and Shabana, 2010) as well as with identifying content of corporate social responsibility (e.g. Carroll, 1991; Garriga and Melé, 2004), the author regards a lack of clarification concerning the term “responsibility” to be the source of much of the suggested weakness of concepts.

a. Defining responsibility

The broadest meaning of responsibility includes a) a person, to be held accountable for b) someone or something (i.e. the outcome of one’s actions) to c) an external instance (Jonas, 1979:391).

According to Kant responsibility requires free will, and although the term “free will” is questionable, the crucial point is that responsibility as an ethical concept refers to a person and can therefore not be applied to corporations without clarifying who in the corporation is held personally responsible (Bochenski, 1991). As a legal concept, responsibility refers to accountability and as such is applied to artificial persons as well as to individuals. In practice it is often very difficult to identify the responsible person in an institutional structure. The phenomenon of diffusion of responsibility describes that within groups of more than ten, most people do not take responsibility for acting or not acting (see e.g. Milgram, 1963). One could argue that to make best use of the concept of responsibility – be it ethically or legally – corporations would have to clarify this within their structure.

The idea of responsibility also requires that the person has a choice how to act, meaning that showing responsibility does not merely mean strictly obeying the rules. Thus, acting responsibly in an ethical sense applies to situations in which a) no adequate rules exist, or b) it is necessary to violate existing regulation to meet the objective (Marr, 1999).

In sociology the idea is acknowledged that responsibility refers to situations where the outcome cannot be clearly predicted, questioning the positive connotation of acting responsibly and arguing the case for a separation of guilt and responsibility. This opens the door for in-depth ethical discourse about the rights and wrongs of decision-making.

The third entity in the definition of responsibility is an external institution or group to which the person has to give account, be it a court, society, the owner of the lost good, or a Deity. Corporate social responsibility can be regarded a pleonasm, as responsibility does include both, the active entity, and the external entity; or it can be seen as a definition as such, both only if artificial responsibility is accepted. Still, artificial persons are a legal entity, so that corporate responsibility can only be of legal nature. And this is the way a society as a whole can show what it wants: by making laws. Legal regulations set the standard in which to operate for natural and artificial persons. Everything beyond political will, i.e. legal regulations, cannot be regarded as “social” responsibility, as it only ever considers parts of the society, not the whole society. The way to show a whole society’s expectations in democratic culture is by voting and working towards change of regulations. Groups within society have the opportunity to set up institutions to raise their influence, but they hardly represent ‘the society’.

[...]

Details

Pages
123
Year
2011
ISBN (eBook)
9783656080206
ISBN (Book)
9783656080350
File size
1.1 MB
Language
English
Catalog Number
v183594
Institution / College
Liverpool John Moores University
Grade
1,0
Tags
porter mark kramer creating shared value csr csv creating shared value ethics business ethics social responsibility

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Title: The Contribution of Porter and Kramer's Concept of Creating Shared Value to CSR Theory