27th January 2011:

“Creating Shared Value”…

… is the title of the leading article in Harvard Business Review for January/February 2011.  Given the article is jointly authored by Michael Porter, perhaps the world’s best known business school professor, it is likely to be very influential.

It is an exceptional article about the need for capitalism to change and for businesses to recognise the connection between economic and societal progress. It makes a powerful argument for what we describe as Corporate Social Responsibility (CSR) to be much more than it is at present and for businesses to look at the creation of shared value – which is defined 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.”  So that we need to move beyond CSR programmes that are about doing good, are discretionary and are linked to a concept of philanthropy, corporate responsibility and ‘giving back’ and seek to develop shared value that is “integral to a company’s profitability and competitive position.”

As the article states:

“Not all profit is equal.  Profits involving a social purpose represent a higher form of capitalism, one that creates a positive cycle of company and community prosperity.”

It is a compelling argument for the need for integrated reporting and why the work of the IIRC has to succeed.

The article also talks about the need for appropriate regulation – very interesting that this is regarded as an important element of a discussion on capitalism and shared value.  The section on regulation includes:

“Regulation is necessary for well-functioning markets.”

“The right kind of government regulation can encourage companies to pursue shared value; the wrong kind works against it…”

Any my favourite:

“… regulation will be needed to limit the pursuit of exploitative, unfair or deceptive practices in which companies benefit at the expense of society.  Strict antitrust policy, for example, is essential to ensure that the benefits of company success flow to customers, suppliers and workers.”

I agree – and we need this in the audit profession now.

 Standards & Regulators  2 Comments January 27th, 2011