Harvard Business School's Professor Michael PorterMichael Porter, the Lawrence University Professor at Harvard Business School took the stage immediately after lunch on day-2 of the World Business Forum 2012.

Prof. Porter, an economist, delivered an address entitled “The New Competitive Advantage: Creating Shared Value”. Starting by challenging the old adage that “if its good for business, its good for society”, he suggested that business must improve its legitimacy with society.

The only institution in the world which can create wealth is business — wealth is created when profit is achieved. In this worldview, government consumes wealth. Prof. Porter said, “It’s magic. Some entrepreneur finds a way to produce something at a lower cost than his customer is willing to pay. This is the creation of wealth.”

“What’s really different about this period in society is we are aware of of more problems than ever before. Perhaps people living in developing countries have been aware of societal, environmental, economic problems for a while, but we in the west have a new awareness.” He went on to say that “people are now also aware that governments don’t have the money to solve the problems” and that “business does have the money, but business is seen as part of the problem.”

“The legitimacy of business, the respect for business only goes down.”

“We can’t hope this problem will go away. Society’s problems aren’t going away, and perception of our [business] role in helping solve these problems is only getting worse.”

Prof. Porter suggests that business philanthropy needs to continue, and he cited the “precursor” enterprise Target which pledged 5% of profit to local charities. He said that the Indian government now requires a 3% philanthropic donation from all Indian companies (else they be publicly shamed). He then asked the question if the current velocity of philanthropic activity is adequate to solve society’s major problems; “no, its not even a drop in the bucket” he said.

“We’ve moved to a new stage. This stage is normally called Corporate Social Responsibility. CSR includes philanthropy but only partly.” said Prof. Porter.

Mainly, he elaborated, CSR is having responsibility to a new kind of compact between business and the community: protection of the environment, workforce safety, avoiding short-termism. For business to “move the needle” with society, CSR needs “reduce harm; enhance reputation; and be seen as a good company”.

“I think we’re ready to make the next big leap, which my colleague Kramer and I call ‘creating shared value'” said Prof. Porter.

“Shared value is creating social and economic opportunities. Improving societal problems with a business model. Tackling hunger and poor nutrition [for example] not through charitable donations but by creating profitable solutions which address the problems.”

“Creating shared value is addressing social problems with capitalism. Shared value is not sharing profit with someone else. Shared value is not philanthropy.”

Thanks to the World Business Forum 2012 team which which kindly invited me to represent Allegravita and attend the conference as their guest.

Please consider all our blogged stories from the World Business Forum 2012:

Management guru Jim Collins, on “return on luck”
NYC property mogul Barbara Corcoran on her top-8 lessons learned from her career as an entrepreneur
MIT psychologist professor Sherry Turkle on the danger presented to society by being always-connected
Interbrand CEO Jez Frampton on what makes a great brand
Nissan SVP Andy Palmer on the importance of melding engineering with marketing and communications
Legendary GE CEO Jack Welch’s choicest quotes from the conference
Harvard Business School’s Prof. Michael Porter on ‘Shared Value’ for-profit CSR
Inspirational entrepreneur Sir Richard Branson’s choicest quotes from the conference

 

 

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