Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility. By: Porter, Michael E., Kramer, Mark R., Harvard Business Review, 00178012, Dec2006, Vol. 84, Issue 12
Corporations are not responsible for all the world's problems, nor do they have the resources to solve them all. Each company can identify the particular set of societal problems that it is best equipped to help resolve and from which it can gain the greatest competitive benefit. Addressing social issues by creating shared value will lead to self-sustaining solutions that do not depend on private or government subsidies. When a well-run business applies its vast resources, expertise, and management talent to problems that it understands and in which it has a stake, it can have a greater impact on social good than any other institution or philanthropic organization.
Four Prevailing Justifications for CSR
Broadly speaking, proponents of CSR have used four arguments to make their case: moral obligation, sustainability, license to operate, and reputation. The moral appeal – arguing that companies have a duty to be good citizens and to "do the right thing"– is prominent in the goal of Business for Social Responsibility, the leading nonprofit CSR business association in the United States. It asks that its members "achieve commercial success in ways that honor ethical values and respect people, communities, and the natural environment." Sustainability emphasizes environmental and community stewardship. An excellent definition was developed in the 1980s by Norwegian Prime Minister Gro Harlem Brundtland and used by the World Business Council for Sustainable Development: "Meeting the needs of the present without compromising the ability of future generations to meet their own needs." The notion of license to operate derives from the fact that every company needs tacit or explicit permission from governments, communities, and numerous other stakeholders to do business. Finally, reputation is used by many companies to justify CSR initiatives on the grounds that they will improve a company's image, strengthen its brand, enliven morale, and even raise the value of its stock. These justifications have advanced thinking in the field, but none offers sufficient guidance for the difficult choices corporate leaders must make.
Responsive CSR. Responsive CSR comprises two elements: acting as a good corporate citizen, attuned to the evolving social concerns of stakeholders, and mitigating existing or anticipated adverse effects from business activities.
Good citizenship is a sine qua non of CSR, and companies need to do it well.
The second part of responsive CSR – mitigating the harm arising from a firm's value chain activities–is essentially an operational challenge. Because there are a myriad of possible value chain impacts for each business unit, many companies have adopted a checklist approach to CSR, using standardized sets of social and environmental risks. The Global Reporting Initiative, which is rapidly becoming a standard for CSR reporting, has enumerated a list of 141 CSR issues, supplemented by auxiliary lists for different industries.
Strategic CSR. For any company, strategy must go beyond best practices. It is about choosing a unique position – doing things differently from competitors in a way that lowers costs or better serves a particular set of customer needs. These principles apply to a company's relationship to society as readily as to its relationship to its customers and rivals.
Strategic CSR moves beyond good corporate citizenship and mitigating harmful value chain impacts to mount a small number of initiatives whose social and business benefits are large and distinctive. Strategic CSR involves both inside-out and outside-in dimensions working in tandem. It is here that the opportunities for shared value truly lie.
Strategic CSR unlocks shared value by investing in social aspects of context that strengthen company competitiveness.
At the heart of any strategy is a unique value proposition: a set of needs a company can meet for its chosen customers that others cannot. The most strategic CSR occurs when a company adds a social dimension to its value proposition, making social impact integral to the overall strategy.
Michael E. Porter is the Bishop William Lawrence University Professor at Harvard University; he is based at Harvard Business School in Boston. He is a frequent contributor to HBR, and his most recent article is "Seven Surprises for New CEOs" (October 2004). Mark R. Kramer (firstname.lastname@example.org) is the managing director of FSG Social Impact Advisors, an international nonprofit consulting firm, and a senior fellow in the CSR Initiative at Harvard's John F. Kennedy School of Government in Cambridge, Massachusetts. Porter and Kramer are the cofounders of both FSG Social Impact Advisors and the Center for Effective Philanthropy, a nonprofit research organization.