Wednesday, April 29, 2015

Limits of Coincidental Shared Welfare

In response to the article “Creating Shared Value” by Michael Porter and Mark Kramer

As I read “Creating Shared Value,” I found the article to provide exceptional insight on how businesses should approach the issue of corporate social good.  However, the insight provided by the article felt fearfully one-sided; misuse could both lower social welfare and corporate economic gains.

What the article refers to as “shared value” I would consider “coincidental value.” It discourages actions towards social good that don’t provide economic value. Instead, the article encourages in-depth analyses of actions; checking their economic performance, value to society, and how that value could return value to the company.  It encourages managers to plan for the long-term and to recognize the potential value of social reforms. Unfortunately, pursuit of shared value places social welfare second to the economic welfare of the company.

First, I want to clarify that creating shared value is exceptionally important to companies as it can improve their economic standing and improve society. I’ll support any plan that encourages managers to think more openly and in-depth about their actions. That said, focus on shared value can blind two important factors.

First, social reforms will not always be the cheaper option, as implied by the article.  The cost can sometimes be mitigated by process improvements and the implementation of new technologies, but oftentimes the technologies are more costly than those currently used and process improvements might not require the social action to lower cost. In addition, environmental issues may not influence the company creating them. For example, much of the pollution in the U.S. gets blown north to Canada. Companies which create this pollution might not derive workers from Canada nor sell to the country. As such, the idea of shared value does not apply because the company from this case might not gain any benefit.

Secondly, as organized groups of specific areas of expertise, companies can have unique potential when engaging in social welfare campaigns. For example, imagine a company has the choice between providing an extra $5 to 1,000 citizens and increasing its own capital another $2,000, or it could utilize the $5,000 to create a new medicine A that may help thousands but won’t provide any capital gain.  By following the social value theory, we would suggest the first option since it helps society and the company. As a result, medicine A never gets created.  There needs to be an allowance for companies to follow social welfare campaigns which may never generate economic value for them.

To provide deviation from “shared value” only goals, look at the Mectizan program founded by the Merck pharmaceutical company. Merck invested in a cure for river blindness, despite knowing that it was unlikely to gain returns on the investment.  The cure was made around 25 years ago, and Merck still funds a program to cure river blindness despite the fact that it doesn’t generate revenue. Now it might be said that the program has improved the company’s image and improved its value in that manner, but I would argue that they should continue the program even if that is not the case.  Why? Because even without the presence of shared value, the Mectizan has provided over 1 billion treatments in over 117,000 communities, and that seems worth it.

Daniel Johnson
Blog 6

http://www.merck.com/about/featured-stories/mectizan1.html

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