Shared Value and Corporate Values: Making a Difference, and then Making a Profit

Making a difference is more important than making a profit—but if you manage your business wisely, those two priorities don’t have to conflict.

One of the most acclaimed minds at Harvard Business School—Michael Porter, today’s leading theorist on strategy and competitiveness—recently offered an insightful analysis about the importance of upholding the highest standards of corporate conduct, which is the foundation of maintaining a positive corporate reputation. Porter’s remarks, at a recent World Bank forum about the future of business, provoke some reflections on the enduring values that must undergird corporate behavior—and about the value-driven expectations that both executives and employees should bring to their companies.

For professional communicators, Porter’s ideas also remind us of the ways that firms like us should counsel our clients: helping position them as creative organizations that care about their positive leadership role in society.

Leading executives “don’t want to spend their life creating ‘shareholder value.’ That’s not their purpose in life,” Porter told the World Bank audience. “They want to have a purpose. They want their company to stand for something that matters —to be ‘moving the needle’ on something important.” Porter’s remarks were reported in an essay by an alumnus of H+K’s Washington office, Chris Colford, who is now a World Bank speechwriter and the editor of its blog on Private Sector Development.

The concept of “creating shared value”—an approach that justly rewards a company’s shareholders while enriching all of its external stakeholders—now frames Porter’s thinking about companies’ proper roles in society and the economy. His “shared value” approach took shape as he weighed the crisis in corporate America’s reputation, which was badly damaged amid the 2008 global financial catastrophe.

Repairing public faith in business requires corporate leaders to constructively “reinvent capitalism,” Porter argued in an influential Harvard Business Review article in 2011 entitled “Creating Shared Value: How to Reinvent Capitalism—and unleash a wave of innovation and growth.” Reconsidering the way they do business, corporate leaders must focus on creating win-win outcomes, benefiting all of society as well as rewarding their investors.

The key to success, Porter argues, is reaching out to serve broad constituencies throughout society and being attentive to companies’ long-term social impact. Companies should first focus on delivering genuine value by creating solutions that the marketplace demands. If their management is effective, profit will naturally flow as society rewards them for their efficiency in fulfilling the market’s needs.

As our H+K colleague Lars Erik Gronntun recently pointed out, failing to live up to society’s expectations can fatally damage a company’s reputation. Every firm is allowed to do business thanks to a “license to operate,” which is granted by society at large—and if a company fails to live up to society’s confidence, it can find its “license to operate” suddenly endangered. Such a loss of legitimacy happened to tobacco companies in the 1990s and to much of the financial-services industry in the confidence-shattering crash of 2008.

The vision of “creating shared value,” Porter said, could be “the next major chapter” in corporate history. The old philosophy that “the business of business is business” is long gone, he noted—and the more recent doctrine of “corporate social responsibility” doesn’t go nearly far enough. CSR often takes a defensive or even apologetic approach about corporate conduct, but the positive “creating shared value” doctrine shows that a company with a conscience has nothing to apologize for.

Firms “can actually deliver social benefit—not in a charitable way, but through the actual core business in which they operate,” Porter told the World Bank audience. Government, civil-society groups and the public should “open up our mindset and see the potential for this new opportunity.”

Porter acknowledges that his ideas about positive corporate conduct build on such approaches as the “enlightened self-interest” method that others have explored before him. The “creating shared value” philosophy certainly bears a strong resemblance to the “Business In Society” approach that’s been developed by McKinsey & Company, as outlined in analyses by Ian Davis in The Economist (“The Biggest Contact,” May 2005) and Dominic Barton in Harvard Business Review (“Capitalism for the Long Term,” March 2011).

Achieving “shared value” for both companies and society as a whole requires leaders to focus on “establishing ever-higher standards of integrity and transparency,” said McKinsey’s Ian Davis in The Economist. “The CEOs of today’s big corporations should… restate and reinforce their own social contracts in order to help secure, for the long term, the invested billions of their shareholders.”

Porter’s questions—“How do we create more value? How do we create better outcomes?”—require a redefinition of how firms fulfill the roles that society expects. And that’s where the guidance of firms like H+K can make a major difference.

Corporate reputation is a valuable asset that can take years to build, and that can take just one thoughtless moment, or one mishandled crisis, to destroy. Helping our clients manage their reputations requires us to do more than just help companies adopt a positive image through clever public relations. It requires us to help guide leaders to earn a positive corporate identity through responsible public behavior.

A positive corporate character pays big dividends in another way, too: It helps attract the brightest, most skillful employees and helps motivate them to devote their energies to building an outstanding firm. That’s especially important for professional-services firms like us, whose clients rely on us to deliver the highest caliber of strategic counsel, tailored to their individual needs.

By helping our clients make a difference, we can help shape a business environment that delivers “shared value,” thus building an economy where strong corporate reputations are truly earned, well-deserved and fully valued.

Tom Hoog, Vice Chairman, Hill+Knowlton Strategies

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