As well they should, an argument most famously made by the Nobel laureate Milton Friedman decades ago. He called social responsibility programs “hypocritical window-dressing” in an article he wrote for The New York Times Magazine in 1970, titled “The Social Responsibility of Business Is to Increase Its Profits.”
But Michael E. Porter, a Harvard Business School professor, may have an answer to the Friedman principle. Mr. Porter is best-known for his original ideas about corporate strategy and the economic competition among nations and regions. Recently, however, he has been promoting a concept he calls “shared value.”
Earlier this year, Mr. Porter and Mark R. Kramer, a consultant and a senior fellow in the corporate social responsibility program at the Kennedy School of Government at Harvard, laid out their case in a lengthy article in the Harvard Business Review, “Creating Shared Value: How to Reinvent Capitalism — and Unleash a Wave of Innovation and Growth.” Since then, Mr. Porter and Mr. Kramer have been championing the shared-value thesis in conferences, meetings with corporate leaders, and even a conversation with White House advisers.
Shared value is an elaboration of the notion of corporate self-interest — greed, if you will. The idea that companies can do well by doing good is certainly not new. It is an appealing proposition that over the years has been called “triple bottom line” (people, planet, profit), “impact investing” and “sustainability” — all describing corporate initiatives that address social concerns including environmental pollution, natural-resource depletion, public health and the needs of the poor.
The shared-value concept builds on those ideas, but it emphasizes profit-making not just as a possibility but as a priority. Shared value, Mr. Porter says, points toward “a more sophisticated form of capitalism,” in which “the ability to address societal issues is integral to profit maximization instead of treated as outside the profit model.”
Social problems are looming market opportunities, according to Mr. Porter and Mr. Kramer. They note that while government programs and philanthropy have a place — beyond dimes, Mr. Rockefeller created a path-breaking foundation — so, increasingly, does capitalism.
The shared-value concept is not a moral stance, they add, 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,” Mr. Kramer says. “It’s about galvanizing companies to exploit the market in addressing social problems.”
The pair point to promising signs that more and more companies are pursuing market strategies that fit the shared-value model.
Several years ago, executives at General Electric began looking across its portfolio of industrial and consumer businesses, eyeing ways to apply new technology to reduce energy consumption. They were prompted by corporate customers voicing concerns about rising electrical and fuel costs, and by governments pushing for curbs on carbon emissions.
The result was G.E.’s “ecomagination” program, a business plan as well as a marketing campaign. In recent years, the company has invested heavily in technology to lower its products’ energy consumption, and the use of water and other resources in manufacturing.
To count in the program, a product must deliver a significant energy savings or environmental benefit over previous designs. G.E. hired an outside environmental consulting firm, GreenOrder, to help in measuring performance. To date, more than 100 G.E. products have qualified, from jet engines to water filtration equipment to light bulbs. In 2010, such products generated sales of $18 billion, up from $10 billion in 2005, when the program began.
“We did it from a business standpoint from Day 1,” says Jeffrey R. Immelt, G.E.’s chief executive. “It was never about corporate social responsibility.”
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