Sunday, April 26, 2015

"Valuewashing": Why I'm Skeptical of Shared Value's Sustainability

The Porter and Kramer article on Creating Shared Value discussed a topic I've been ruminating on for the last few weeks.  Recently, one of my favorite Podcasts, Planet Money, hosted an episode on the Endicott Johnson company, a shoe manufacturer in the early 20th century. Endicott Johnson provided employees with a "Square Deal" a program of paternalistic, welfare Capitalism where the company supported housing, medical services, and other benefits for workers.  Ultimately, however, the company could not remain profitable in the long-run as increasing globalization and poor business strategies led to its eventual sale. For me, the lesson of Endicott Johnson is that companies will do the "right" thing as long as it is cost effective, but in the long run, the "right" thing will succumb to the "profitable" thing.

Porter and Kramer describe a welfare capitalism that is oriented in a slightly different manner.  "Shared Value" is described as practices that enhance both corporate competitiveness and social conditions.  The premise is that unlike Corporate Social Responsibility, shared value is not charity and instead is a process for improving both the organization and the community. While this is very positive for society, I will say that Porter and Kramer seem to be patting themselves on the back slightly for a process that I think may merely be the extension of an ever more profit-seeking business community.  I may be cynical, but Creating Shared Value still feels like a ploy to direct resources that would go toward charitable giving instead to process improvements.

A cynical interpretation of the various examples described by Porter and Kramer show a series of business decisions.  The enterprises serving under-served markets in developing countries or inner-city America are simply a form of price discrimination meant to expand the customer base.  Reducing energy usage or packaging material is a process improvement that lowers costs, and reductions in raw materials serves to reduce the cost of goods sold.  Distribution by electronic delivery dramatically reduces operational costs.  Even investments in worker productivity are ultimately designed to make the firm more competitive.  And the more that all of these processes are advertised, the more the company benefits from a "greenwashing" that makes many consumers (myself included) more predisposed to purchase their products, because the perception is that the consumer is making the world better by choosing their product over another.

None of this is immoral, of course. And for the time being, when there is a competitive reason to do so, I would expect Creating Shared Value's popularity to increase. The real proof of concept will come when most of the low-hanging fruit has been achieved, and when consumers are numb to "socially responsible" marketing.  At some point, "shared value" will no longer benefit the organization, just as the welfare capitalism of Endicott-Johnson (or more locally, the "good provider", the Heinz company) became unprofitable in the middle of the 20th century.  Automation, improvements in logistics, and new technologies that reduce resource costs will continue to put pressure on organizations to remain competitive with their peers who are not as focused on shared value.  When Shared Value is no longer shared, will organization's continue their commitment to social improvements, or will the work once again fall to governments and NGOs?

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